All Forum Posts by: Victor Saumarez

I think it’s arbitrary. It can be what ever you want it to be. One way to establish it would be to do an expected rate of return used for bond valuation. You add the risk free rate, inflation and credit risk to arrive at a number. The problem at the moment with that formula is inflation is so high you’ll never find a return to meet it. 5% used to be the ‘normal’. Many investors now dispute that.

I’d be interest to know if anyone has offered seller financing when selling a home. The pro’s and con’s are pretty well documented, but it would be interesting to hear personal experiences, good and bad. For anyone trying to sell an investment property in this market, seller financing may offer a good return as it would be quite easy to compete with today’s high mortgage rates. I’d be particularly interested to hear from any real estate attorneys with specialist knowledge in this area.

I think you are going to be hard pressed to find value that cash flows or has upside potential in this market. Better to wait, in my view, until things have bottomed out (2-4 years). Where prices are crashing is where you might focus your attention. Boise? Out-of-state investing usually means using a property manager. It also might mean filing out-of-state taxes. However, the returns can outweigh the hassles. It also adds diversification to your portfolio. Geo-climate risk is becoming an important consideration in the selection process. Low prices are usually low for a reason.

Yes, I separate out real estate investment income and expenses from all other income and expenses. You have to do this for tax filing. I use a spreadsheet and enter monthly amounts that totals net cash flow to year-end. I also use a system to monitor receipts and match them (bank account credits via email alerts) to statements from property managers. A mistake many RE investors make is not keeping accurate records, which can lead to over (or under) estimations of performance. I have a good a idea of my net gains since they are pretty consistent even in tough times.

Liquid assets are items that can be quickly converted to cash. This would include cash held in a checking account, stocks, ETFs, and Treasuries. 

I do keep a sort of balance sheet, but since I have no liabilities, it’s more a net worth calculation.

There is no one entry that is more useful than the other in P&L. It is only an opinion, as they say. A CEO once asked his CPA how much profit he made. The CPA replied, “How much do you want?” This is largely due to the accrual convention.

When evaluating an RE investment, the first factors are rent-to-price ie cap rate, condition of property, rent market eg location, are rents softening?, RE cycle. My benchmark is a 5% cap rate, called the ‘normal’ rate as it held up for 30 years a couple of decades ago. With repressed rates, an investor may consider any return that outperforms fixed income markets, whether investment-grade corporate debt, or risk free securities. However, RE investors should note than RE is high risk and is rated by some sources as just below derivatives (the highest) in terms of risk. This is because RE tends to be highly leveraged. It’s best not to bend your risk criteria to meet your goals. Always er on the side of caution. The best way to secure high returns is seek value. It is the best volatility and market drawdown hedge.

I’m not sure what “book” is being referred to here. Are we allowed to reference books we have authored?