A fairly long and comprehensive overview of commercial/retail property in the US. Much of the credible data and info coming out of the US just doesn’t jive with so the called ‘US RECOVERY’ hype doing the traps. The whole US economy is sliding into oblivion in my book. While PI’s see low purchase costs and high rental yields I see a trap for suckers through the US PI market.
A successful PI is going to have to be as sharp as a tac, flexible and nimble. An effective exit strategy will be a must in the coming years. I tend to think anyone going long in the US market is doomed to failure.
Extend And Pretend Coming To An End
http://www.zerohedge.com/news/guest-post-extend-and-pretend-coming-end
The Freckle
Hi Freckle
Who really knows what will happen it is crystal ball stuff, however to mitigate the risk with US properties I would buy properties well below building costs.
I am purchasing for 30% of building costs, purchasing properties no more than 10 years old, facilities in good sub-divisions, all positive cashflow to cover all outgoings. Throw in the correct structure and should be on the right track to sell when the market turns, sell the lot.
If you are fortunate buy while the Au $ is at all time high $1.07-1.10WI
WI
worldinvestor wrote:Who really knows what will happen it is crystal ball stuff,If I had a business that borrowed more than it earnt and its debt load grew faster than income then its fairly predictable that if I continue along this path I will eventually go bust. No crystal ball required.
Good luck with your strategy.
The Freckle
worldinvestor wrote:HThrow in the correct structure and should be on the right track to sell when the market turns, sell the lot.
If you are fortunate buy while the Au $ is at all time high $1.07-1.10The US market has been sliding for 5 yrs now and no end in sight. Prices have dropped further than the 30’s depression. It took 19yrs for the housing market to return to pre depression prices. The recover, when ever it starts, is predicted to take longer.
The exchange rate could go either way. A resource sector collapse could see a substantial pull back in the AU dollar. That would be almost catastrophic for AU at the moment. It would send almost all consumables through the roof especially fuel. We would probably enter a period of stagflation – high inflation and plunging asset values.
On the other hand all the major central banks; FED, BoE, BoJ PBOC ECB have the printing presses running red hot in a race to debase their currencies in order to increase their competitiveness and inflate their debt away. The current consensus is that the US dollar will eventually loose its reserve status and be virtually worthless. It’s lost 95% of its value since 1971.
The Freckle
Freckle wrote:The US market has been sliding for 5 yrs now and no end in sight. Prices have dropped further than the 30’s depression. It took 19yrs for the housing market to return to pre depression prices. The recover, when ever it starts, is predicted to take longer.The Freckle
Dear oh dear oh dear oh dear Mr Freckle. I shouldn’t but I can’t help myself. My (albeit far from extensive) US RE holdings have not slid in value in the last 5 years, they have actually climbed. Only one property I own in the US has stayed stagnant since 07 – and that is stagnant, not a fall. The rest have increased. The increase has also been sufficient to cover the $US fall vis a vis the $AUD in that time, though obviously I would prefer it to be at $0.70 than $1.07. Jay has made a few posts on this topic and I agree wholeheartedly with what he says. It depends where you buy. Each city in the US is almost a different country with its own little foibles and rules. Again, the US is vast. The most number of foreclosed homes during subprime was only something like 4%. They were in concentrated areas, certainly, but 4% is (for most people) a surprisingly low number. Personally I think it is ‘safer’ not to buy in foreclosed areas – not to say it won’t work, but I do not want to ever be part of the crowd – particularly a relatively unschooled and inexperienced crowd who will all be competing for tenants. Without very careful buying & managing I can see the word ‘ghetto’ in flickering neon appearing in previously up and coming suburbs/streets.Starting out is different, but I am able and I like to buy higher quality assets at relatively competitive prices. If the prices aren’t exactly ‘low’ then what I do get are extremely helpful vendors – allowing me to buy things that 5 years ago I would been laughed out of the room for even asking about.
I am not a screaming fan of the US, but it is far from moribund. I am getting far more rental enquiries than I have been previously in my buildings, I am also seeing solid rental increases (15-20% in the last year) and it seems to me ‘busier’ shopping malls etc. I couldn’t live in most parts of the place that I have seen, but it is (still) the worlds premier economy – by a long shot. Don’t write it off just yet…..
Feckle, I invested in US property 18 months ago including commercial/retail over that period it has been my best performing investment , with a net yeild of 8% and CG of 4% in the first 12 months . And I am not sharp or nimble.
crusty wrote:Feckle, I invested in US property 18 months ago including commercial/retail over that period it has been my best performing investment , with a net yeild of 8% and CG of 4% in the first 12 months . And I am not sharp or nimble.Don’t be too hard on yourself. A bit more experience and your results should improve. If you can get those yields up a tad more you’ll be able to keep pace with real inflation.
The Freckle
lawsjs wrote:My (albeit far from extensive) US RE holdings have not slid in value in the last 5 years, they have actually climbed. Only one property I own in the US has stayed stagnant since 07 – and that is stagnant, not a fall. The rest have increased. The increase has also been sufficient to cover the $US fall vis a vis the $AUD in that time, though obviously I would prefer it to be at $0.70 than $1.07.The US dollar has depreciated around 25% (against the AU) over the last 5 years while inflation has averaged around 9 – 10%. Numbers like these would generally mean you’re on a hiding to nothing. You’re going to have to elaborate some more to convince me you’re on a winner here.
The Freckle
worldinvestor wrote:Hi FreckleWho really knows what will happen it is crystal ball stuff, however to mitigate the risk with US properties I would buy properties well below building costs.
I am purchasing for 30% of building costs, purchasing properties no more than 10 years old, facilities in good sub-divisions, all positive cashflow to cover all outgoings. Throw in the correct structure and should be on the right track to sell when the market turns, sell the lot.
If you are fortunate buy while the Au $ is at all time high $1.07-1.10WI
WI
WI Love the mention of the The crystal ball theory thought I was the only one who had one of those.LOL I was using that comment in my seminars last few years. When some one would ask when is the right time to buy. My crystal ball is broke and just would not work.
What I do is focus on cash flow and hope for appreciation. Currently working with Charlotte Section 8 office to secure all or most of our houses section 8 for now.
Then the north side of Charlotte nicer homes looking at owner financing those .Dumping our Atlanta homes to just get out completely .
Again Atlanta a good market just learning to stay focused on one area only.
Talk soon
Alex
Freckle. One property as an example, and only chosen because the time line fits. Purchased for $720k with a 70%LV loan of $500k in Oct ’06. I just got an $800k loan on it, 70% LV again. Therefore on the banks estimation (i.e: very conservative) the price rose from $720k in late 06 to $1.1 in Jan 12. That represents around a 50% price increase in my books, which makes up for the loss in the $AUD and don’t forget it has been happily spinning off cash since I bought it. Total repairs/maintenance in that time would be around $25-30k, so the price increase is not due to renovation or sweat equity. My other buildings are either older or much newer purchases which makes the numbers rubbery, but they are in the same area and are the same ‘type’ of property so I think it is fair to say this one example would be indicative of the whole.
lawsjs wrote:Freckle. One property as an example, and only chosen because the time line fits. Purchased for $720k with a 70%LV loan of $500k in Oct ’06. I just got an $800k loan on it, 70% LV again. Therefore on the banks estimation (i.e: very conservative) the price rose from $720k in late 06 to $1.1 in Jan 12. That represents around a 50% price increase in my books, which makes up for the loss in the $AUD and don’t forget it has been happily spinning off cash since I bought it. Total repairs/maintenance in that time would be around $25-30k, so the price increase is not due to renovation or sweat equity. My other buildings are either older or much newer purchases which makes the numbers rubbery, but they are in the same area and are the same ‘type’ of property so I think it is fair to say this one example would be indicative of the whole.Ok so we have 7% compound growth with an inflation rate of 10% and depreciating dollar. To me although you’ve made dollars over the last 6 years the returns are pretty low given the amounts invested and the risk environment. You’re leveraged to the gills so any down turn poses significant risk.
To me it’s a gamblers market. Reminds me of the guy who kept doubling up.
But people like yourself probably thrive in very risky low return markets. Alls good until you get blindsided and I’ve seen a lot of those in my time.
In the investing world less than 3% make truly big money. The next 15% do fairly well to very well. Around 20% sit in a kinda grey are from break even to doing fairly well. The remaining 60% are fodder for the successful.
What I often see on forums like these are people reporting top line figures. I don’t recall anyone justifying their bottom line in a meaningful way. The bottom line always tends to be embellished by not including all the overhead. It’s convenient to leave out things like inflation and exit costs and of course substantial rounding also helps make things look good.
Laws I’m guessing you’re in the top 10% like a few others here. I hope you can retain that positioning over the coming years.
The Freckle
I couldn't live in most parts of the place that I have seen, but it is (still) the worlds premier economy – by a long shot. Don't write it off just yet…..
Thanks, We are a resilient bunch and we didn't become this way, by being here if we didn't do something right. We over leveraged is the biggest problem. When i say we, i mean the majority of people in the States that caused the recession, lived on too much credit we couldn't afford. Just like since Clinton in the 90's starting to sell us to China. WE JUST COULD"T QUIT SPENDING.
What will become of us Freckle,do you think America is going to not come back. It wouldn't be good for anybody! The World slowed down when 2nd Depression hit. It comes down to what we are based on Freedom, American Dream, and Capitalism. It has worked for so long. This Real estate market is a gold mine! Who the heck is buying the $$$1,000$$$ shovels or pickaxes shouldn't be gold mining if they can't use the right tools or don't know how to find gold. Alex offers a good product and isn't Spruikng anymore than anybody else that uses this forum. We seem to enjoy the forum and most people that frequent it know that the community posts quality discussions. I might me being hopping around on what was posted this last week, but i wanted to put my two cents in also. Was a busy week and had some good progress on rehab work and put some bids in on some good houses. Heck, i even proposed to my lady last night
CASH IS KING
Kyler
When the big guys and insiders start to worry…..
David Stockman Economy Q&A: Economic disaster in the works
See the full interview here;
http://www.usatoday.com/money/economy/story/2012-03-03/david-stockman-says-economic-disaster-lurks/53339644/1Capital preservation is what your first, second and third priority ought to be in a system that is so jerry-built, so fragile, so exposed to major breakdown that it’s not worth what you think you might be able to earn over six months or two years or three years if they can keep the bailing wire and bubble gum holding the system together, OK? It’s not worth it.”
If you could make the world rich by having all the central banks print unlimited money, then we have been making a mistake for the last several thousand years of human history.
Q: You sound as if we’re facing a financial crisis like the one that followed the collapse of Lehman Bros. in 2008.
A: Oh, far worse than Lehman. When the real margin call in the great beyond arrives, the carnage will be unimaginable.
DD (aka The Freckle)
I wouldn’t describe the US economy as ‘premier’ far from it. While it may be the worlds biggest by shear size it has substantial problems that by most plausible experts is becoming unfixable.
When 70% of GDP is government spending, when deficits climb by $1.3T/yr, when total debt and liabilities exceed $200T, when the economy continues to shift towards a low paid service sector economy then you have a basket case of an economy.
All populations are resilient – matter of having to. There’s nothing unique about americans.
It’s getting to a point where I’m no longer surprised by what poly’s and bankers will do to keep the FIAT ponzi scheme going. The longer it goes the worse the medicine will be at the other end.
Here’s the rub. There’s money to be made in corners of any market regardless of the conditions. The challenge is always the right strategy to match the timing coupled with a risk appetite to suit. The current property market throws up opportunities everywhere. The problem is that this market, along, with all others, will get side swiped by the big correction in coming years. It’ll hit different sectors of different markets at different times. How investors manage this will be interesting. I expect to see everything from; it’s too hard lets bury our heads in the sand to others with complex hedging strategies.
I have no doubt there’s a correction coming. Absolutely none at all. The logic of it is irrefutable in my mind and many others smarter than mine. That’s the least of my worries because it’s relatively easy to develop a defensive position against it. What really worries me is if the correction is bad enough will it trigger conflict?
The war mongers are already beating their drums. I just hope the common sense countering forces can prevail.
There’s 2 possible outcomes for the US (and other countries). They drop the ponzi scheme and let markets correct naturally through default and bankruptcy. Get rid of the debt and get back on a solid footing again could see a reinvigorated US.
Outcome 2 is the worst case scenario. The ponzi scheme continues and draws to its natural conclusion – total collapse accompanied by social disorder and loss of control. War could be a real possibility in this case. That could drag on for years.
Note: Historically economic collapse has always ended badly.
http://listverse.com/2010/08/10/10-great-financial-collapses-in-history/If people think there is a magic bullet, an eloquent solution to debt on debt then your deluding yourself. The Pied Piper always gets paid!
The Freckle
Kyler wrote:Heck, i even proposed to my lady last nightand???
Q: Give me your prescription to fix the economy.
A: We have to eat our broccoli for a good period of time. And that means our taxes are going to go up on everybody, not just the rich. It means that we have to stop subsidizing debt by getting a sane set of people back in charge of the Fed, getting interest rates back to some kind of level that reflects the risk of holding debt over time. I think the federal funds rate ought to be 3% or 4%. (It is zero to 0.25%.) I mean, that's normal in an economy with inflation at 2% or 3%.
Like i was saying, we need to cut back and live within our means. The land of the Fat is over people, lol! Time to fix the real problem. I have no debt on my properties and make good money and don't mind paying 35%, would rather be like MItt Romney and pay 15% and gouge the system and act like i could be President. What a joke. I'm fairly young and it is my generation that is going to deal with this mess of big federal government and the kings that slowly robbed the poor for more riches.
She said YES! Who could say no to a charismatic gentleman like myself, ha!
Kyler wrote:She said YES! Who could say no to a charismatic gentleman like myself, ha!Welcome to world of pain and …. sorry marital bliss.
Ignore the twitches.. I’ve been married for 32 together for 41.
The Freckle
When 70% of GDP is government spending, when deficits climb by $1.3T/yr, when total debt and liabilities exceed $200T, when the economy continues to shift towards a low paid service sector economy then you have a basket case of an economy.
It's the big government killing us, there is so many evil hands in the pot that the its hard for the average joe to make it when he is worried about putting food on the table. That and leaving beyond or means, man u could go on with all the messed up stuff here in our country. I hear you on the war mongering, It will be Anarchy if the rich get richer and the middle class of america become the poor. It can be seen by the occupy movement in major cities here. Don't know if it would be anything comparable to the French Revolution though, i hope not
kylermrice wrote:Who could say no to a charismatic gentleman like myself, ha!Uncle Jack???? Seriously, congratulations.
Freckle, what investment pond do you play in? Despite what you might think I actually agree with most of what you are saying, the addiction to debt has to stop. It didn’t work for the Weimar Republic and Zimbabwe has hardly been an economic powerhouse since the Zim $ was devalued… Interesting times indeed.
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