Limiting the Downside risk

After a year or so of active investing and deal-making, what I have decided is important is limiting the downside risk. When trading stocks, one limits downside risk by selling when things go below a certain price. For example, head and shoulder or cup formations are looked at on technical charts.

In real estate and private busiesses, there are few specific technical charts to study. Real estate is an extremely regional phenomenon and data are often not available, other than walking the streets intelligence. Must be why most investors stick to their backyards!

My strategy now is to not only hope for the upside, but really work on limiting the downside. For example, take vacancy loss. A non-performing property can cost thousands of dollars a month and wipe out cash flow for months or years.

One possible solution to this problem is to partner on most deals. Then even if vacancies are present, less is being absorbed by each investor than would be individually. However, all investors can still partake in the upside when it happens.

The transaction costs for real estate and private businesses are quite high. Thus, I now believe partnerships (with reliable, honest) partners is the way to go.

Your thoughts?

Location Location Land

Velur Land Banking Seminar: Land Banking in Antelope Valley

Seems that land is still a great investment in the Lancaster/Palmdale area, if you pick the right location. Where have we heard that before? Location, Location, Location.

For now the right location seems to be around the developments that have already been approved and are waiting to break ground. Whether this is a commercial development, light industrial, or Residential master planned community.

The last time I was in Lancaster/Palmdale was over 5 years ago when I observed an case with an electrophysiology lab (yeah, my day job). A former colleague of mine bought land in Agua Dolce, in the high desert on the way to the Antelope valley, about 10 years ago for $250K. Her husband built a very beautiful and rustic log house (about 3000 sq ft), with high ceilings and sun-filled windows. They have 2 or 3 acres of rolling hills for a backyard. The property is now well over a $1M.

Velur, LLC has a staff of brokers and agents, and stays involved after the sale. Typically people are getting offers 4 to 5 years after they buy. Velur negotiates a sales price for you. Apparently land valuation is not for newbies. To really get top dollar, you need the backing of someone who really knows this trade.

Overall I liked the people and proposals made by Velur. I hope to do business with them.

My one doubt is around whether the incline in prices seen over the past several years will continue in the near term. To this Velur replied that the land market is still doing well, despite weakness in existing home inventory. Now is a good time to buy since RE is not "in."

Hanley Wood Market Intelligence

http://www.meyersgroup.com

Welcome to Hanley Wood Market Intelligence
Covering 75 of the top U.S. markets, Hanley Wood Market Intelligence is America's largest and most trusted source for residential real estate research and consulting services.

As a provider of market information and business advice to the residential development industry, we help our clients analyze and interpret key trends impacting the housing market.

Partnership Strategy using Equity Shares

A lot of times people selling deals, whether ICG or another outfit, don't talk about the impact of vacancy losses. These can be significant in markets that are over saturated with investors. Many property managers don't work hand in hand with the investors, and we have all seen examples of scams/crooks in property management. It's very hard to trust anyone.

For this reason, I'm starting to think that the best way to do long distance investments is by partnering with someone local in the area. So for example - work with a real estate agent who would be willing to go in 50/50 with you on a deal. He or she would be local, and your investment would be secured and watched over. This would also possibly eliminate the need for a property manager.

I have had success with a long distance property even while not having a property manager. The tentant was willing to do a direct deposit into my bank, so a physical presence was not necessary.

One way to accomplish this goal is to use the equity share concept. Become an investor with someone who will live in and take care of the property for you, as they are half owners. The website for this I'm using is . I have been matched with a number of partners, but so far no solid connections. I feel that it will work eventually though.

RE Boom in India

According to local intelligence the RE boom in India is alive and well. Here is some information for those of Indian origin wishing to own investment property in India. This an appreciation play. More details to come on a specific master planned community development. Will offer incredible returns, and a person local and familiar with the project will keep an eye on things for us. Pre-construction prices.

http://siadipp.nic.in/publicat/invpub/readyrec.htm

Another 5 star International fund (BJBIX)

JULIUS BAER INTERNATIONAL EQUITY A (BJBIX)

This fund has done great! It has consistently outperformed both the index and its own category for the past 10 years. Lucky for me I got in a few years ago.

Average Annual Returns as of 6/30/2007

BJBIX:
1 Year: 34.85%
3 Year: 28.19%
5 Year: 22.06%
10 Year: 16.71%

Category:
24.98%
21.28%
15.78%
7.05%

Index:
27.00%
22.24%
17.73%
7.66%

List of RE and Investment websites

I was sent a very extensive list of RE top websites by Anthony G., please email me if you'd like a copy. reenuhome@gmail.com

Here are a few:

Money
wall street journal on-line
financial times, world news
spots trends, events and opportunity
Forbes: eye on business

Statistics
state facts & info
statistics of the U.S.
get your data here
data quick news and stats

France: New Tax "Breaks" --> New Incentives --> NEW PROPERTY BOOM!!!

This is just in from Danny Silver in France. If you are interested in a partnership investment, please get in touch! (http://own2invest.com)

**Conclusion : No-one can say with 100% certainty that the above laws will cause a property boom; but we can speak from "history". When we look at UK; Germany; Sweden; Canada & Italy – when they brought in similar "mortgage interest" and "capital" tax incentives, their markets went thru an average of 5 very good "boom" years before settling down. In fact UK and Italy had to stop the "breaks"! The new President of France has introduced revolutionary "tax breaks", (as promised!), with the aim of "moving" the French property market from being a nation of "tenants" to a nation of "home owners". The Presidents aim is to move residential home ownership in France from 25% to 50% in his first 5 year term of office. This compares with UK, Germany and other countries with home ownership of over 80%. Link to publication of laws in "La Figaro" http://www.lefigaro.fr/impots/20070717.WCP000000216_paquet_fiscal_ce_qui_change.html

We have studied the new laws carefully with the help of our fiscalists, tax lawyers and notaires and have made comments & conclusions)

TAX RELIEF ON MORTGAGE INTEREST :
Tax relief on mortgages for singles to 3750€ and married 7500€ plus 500€ for each child for first five years – up to 20% of net income. To be deducted from nett income. * *Comment : this is ideal for the first time home owner – the market/property we specialise in for investors!

SUPPRESSION OF INHERITANCE TAX :
Their will be no inheritance tax between spouses, if one spouse/partner invested in only his/her name. Children allowance is increased from 50.000€ to 150.000€, (per child, per parent!), before any tax may be due. Therefore one child allowance is 300.000€ and 3 children is 900.000€! Gift tax : you now give children 30.000€, (instead of 3000€), per year in cash and deduct from tax; but now you can give a 300.000€ property as gift – every 6 years! There is no change in succession laws for children. * *Comment : enormous benefit/incentive for middle and upper income families to own property – either in their name; or the child-children!! Naturally it is excellent to give tax breaks and incentives, but people must be allowed to have more money to benefit – therefore the following laws are introduced :-

WORK HOURS :
If you work longer than 35 hours per week; all hours over 35 are exempt from both tax and social charges for both employee and employer!!

TAX (ALL) :
On your total worldwide income – income; investments; stocks; property; etc etc etc etc etc : You cannot pay more than 50%! Also "plus fortune" tax now allows you to deduct 30% of any property; but the 50% rule applies, effectively negating this tax.*Comment : effectively reduces top income tax by 20% and invalidates the "plus fortune" tax. Today a married couple with "gross" joint income of 40.000€, (approx. £30.000/$60.000), pay approx. 20% tax before deducting all their expenses. This normally reduces tax to approx. 14%. And even less with children. Then you deduct the mortgage interest on net!

30K forgiveable loan Program in Mississippi

Check out this article from my respected colleague and friend Scott Allen. Scott is a National Sales Director at a large bank...

The HUD small rental assistance program is once again, an incentive for an investor to build rental property with a subsidized rent. HUD is offering a 5 year forgivable loan in the amount of $30,000 for a single family home with a 90 day completion bonus of an additional $10,000 typically only good if you are building modular, which is what I am doing. What this means is that for a single family home(s) purchased, your rent is subsidized at 80% of the market rent on 51% of your investment properties in the area. An incentive on top of the incentive is that for 49% of your homes, your rent is going to be paid at 120% of the market rent. The market rent for a 3 bedroom house is $1057 per month. You can see the obvious incentive by building numerous.

Let's say you own 3 homes. Two of those homes are going to be subsidized at 80% of $1057. You will get a rent check from the tenant each month of $846 per month. For the 3rd home, you will receive 120% of the market rent of $1057. You will be paid monthly from the tenant in the amount of the 80% rent of $846, however on top of that, the state is going to send you an additional 40%, increasing your total monthly rent to $1250 per month on that house.

See Full Detailed Article (and others from Scott)

Scott Allan is the National Sales Director of NHBA (National Home Builder Advisors) a licensed brokerage. Scott specializes in product development and has the leverage of having his firm being the subsidiary company to one of the nations largest construction lenders.

Summary of Adiel Gorel lecture

Same lecture, different day.

This was for newbies more or less. Adiel makes some great points, but does he need 2.5 hours to make them in? :)

He talked about a possible Go-Zone extension.

The markets he suggested this time are Oklahoma, Raleigh, Huntsville, Dallas, Biloxi, Lafayette, Houston. Said they seem cheap compared to other markets, such as Phoenix, CA, and LV. Whatever sounds boring now (but is in the sunbelt) is where to invest.

He again made the point about renting his 5.5K rental house instead of buying the type of property he lives in (multi-million dollar).

It was a good crowd, about 100 people. He is promoting an advanced day Sept 8th, for $30 per person (call me if you're intersted in signing up together).

He recommends buying single family homes over duplex or apartments, as the neighborhoods they're located in have higher appreciations. Says apartments are only worth it for 150 to 300 units since you can get economies of scale.

He talked again about what qualifies to be a RE professional, how to get full benefits out of the GO zone. He gave his usual example of buying a house to pay for a child's college, and also about how mortgages in this country are a huge gift (as they don't let the bank even keep up with the cost of inflation). He says he's tried it all, but come back to SFRs in the end.

The question of absorbing vacancies, bad property mangaers, dealing with tenants, etc. remains. Many people buying through ICG do well, as long term holds. The markets he recommends are not the sexy or hot ones.

He suggests a 10 year hold time, as always. Part of my problem seems to be visualizing anything about my life 10 years out. I can barely picture 2 years from now! Who knows what 10 years from now looks like.

MLS-2.com: Find motivated sellers, price drops, short sales

This website lets you look for deals by motivated sellers, price drops, and short sales. Pretty neat... (sometimes their listings are out of date, so please follow up directly). http://www.mls-2.com/index.jsp

Redfin.com Discount Buy/Sell

http://www.redfin.com/

Do your own work and save big $$. This company gives 2/3 commission back for buyers and offers a $3K upfront fee for sales listings.

Foreclosure Investing Secrets

For me, this class brought me out of being a casual homeowner interested in investing to an investor interested in homes for profit. This is one of those cornerstone classes...foreclosure the backbone of promissory notes, private money lending, other types of investing. The security for many of these investments is the property and the ability to recover value on the open market, should anything go wrong. Dick Goodell is an excellent teacher, and very knowledgeable. I would highly recommend this course (either this time or next time). Check Wealth Classes Website

Foreclosure Investing Secrets
111 Deerwood Rd.
San Ramon, CA 94583 Tuesday, Jul. 17, 2007
6:15 PM - 9:45 PM
Cost: $99

Taught by Dick Goodell, who has conducted foreclosure sales every day in the San Francisco Bay Area as a full-time business for nine years.

Equity Sharing Seminar

The Collins Law Group

"Come listen to one of the national authorities on equity sharing explain why it is the hottest method for people to invest in rental real estate or purchase a primary residence when they otherwise may not be able to afford it. Mr. Collins will explain how to set up the transaction and how to maximize the tax benefits of doing so. The Collins law group conducts free seminars from 5:45 pm – 6:45 pm the First Monday of each month."

Find partners for equity sharing

* “I want to buy a house to live in, but could use help with the down payment”

* “I want to invest in real estate without becoming a landlord or making ongoing payments”

* “I’m a licensed real estate agent who wants to increase my volume”