Category Archives: Investing

What Do the Next Five Years Hold for Home Pricing?
The days of home prices reaching levels seen during the real estate bubble seems to be over. Though pricing in 2013 was down 20% compared to its 2006 summer highs, the S&P Index Committee did report that prices were up 23% from their March 2012 lows in both the 10 and 20 city indexes. While 2013 proved to be a banner year for the housing market, with an appreciation rate of 6.4 percent, experts do predict that prices will cool somewhat due to rising mortgage rates, less inventory and a lack of good bargains. In fact, most economist, real estate experts and real estate investment strategist predict a moderate annual rise in prices of 3.7% over the next five years. This translates to a cumulative change in home value of 19.7% by the end of 2018. This housing market pricing picture is based on a recent study...
Why Self-Storage is Good for the Community
The Wall Street Journal reports that there are currently 2.3 billion square feet of self-storage space in the U.S., which equates to approximately 7 square feet for each person in the United States. This includes the 8.9 million square feet added in 2012 and 16.5 million square feet expected to be available by the end of 2013. The downturn in the U.S. economy created a growth spurt within the self-storage industry among college students, densely populated city dwellers, shortage in demand, and households making do with the space they have instead of adding-on to their existing residences. According to documents filed with the United States Securities and Exchange Commission (SEC), Public Storage, the nation’s largest self-storage company, had 2,078 facilities in 38 states within the U.S. and 189 storage facilities in 7 western European nations. Not only is Public Storage large, but also profitable and growing....
Alternatives to the Stock Market Bubble
On Friday, November 8, all 3 of the major U.S. stock indices, the Dow Jones Industrial Average, NASDAQ, and the S&P 500, all closed at all-time record highs. As a whole, the U.S. stock market has been soaring recently, bringing untold ‘paper profits’ to millions of investors. However, there are people associated with the market that believe it to be significantly overvalued. Fund manager John Hussman points to the following measures in his weekly Hussman Funds Newsletter during the first week of November:
  • Cyclically adjusted price-earnings ratio (current P/E is 25X vs. 15X average)
  • Market cap to revenue (current ratio of 1.6 vs. 1.0 average)
  • Market cap to GDP (double the pre-1990s norm)
These are not just slightly overvalued indicators, they are grossly overvalued indicators. In his same newsletter, Hussman provides commentary that supports his claim that the stock market crash that is forthcoming will be extreme, somewhere in...
Back Again: Bubble-Like Markets
A lot of people are worried that stocks are headed for another crash. Stocks have been rising almost daily, but the missing component is the expected backtracking that comes along with health ascents. And so the questions loom, when is the crash going to occur? Why is this happening is and what can we do to prevent it? Larry D. Fink, whose company, BlackRock Inc., is the world’s largest money manager ($4.1 trillion in assets), has recently stated that the Federal Reserve Policy is contributing the “bubble-like markets”. Fink is quoted as saying, in October 2013, that “We’ve seen real bubble-like markets again. We’ve had a huge increase in the equity market. We’ve seen corporate-debt spreads narrow dramatically”. The most apparent danger for stocks is, in essence, the Federal Reserve; and, because of the contributing factors, it is now imperative that the Fed starts to reduce their heavy...
What You Need to Know About Limited Exit Strategies
Exiting the investment is one of the most crucial aspects of Trust Deed investing; it determines the net or actual profitability of the investors.  An investor should never assume or accept the primary exit strategy offered by the borrower or Broker, as in many cases it is the only real one for the investors. Remember the example on PITFALL #5? Well for the borrower the exit strategy is the development of the property for a profit, taking of the principle (for other uses) and Deed in Lue the property back to the investors to stop the Foreclosure.  The investors are left with typically an over-encumbered property (that’s why the borrower defaulted) to decide to take a principle loss now or wait to see if the future offers something better in market valuations. Solution: Invest in properties that have multiple exit strategies; improved properties that are rentable for cash...
The Pitfalls of Commercial Real Estate
This PITFALL is more of an existing myth in the market place than an action or inaction on anyone’s part.  A common theme among Real Estate Brokers, Mortgage Brokers, Salespersons and investors is the belief that commercial properties are more consistent, predictable, less volatile and generally safer than other types of Real Estate properties.  This is based on the core assumption that the players in the transaction are more sophisticated due to the size of the transactions and the financial qualifications. In recent history; the S&L crisis of the late 1980’s early 1990’s and the unfolding commercial collapse of the late 2000’s is clear proof that this irrational belief of a greater financial stability in commercial Real Estate is largely unfounded.  Indeed, commercial exposure is a major contributing factor in the collapse of hundreds of regional banks nationwide. Commercial is just as susceptible to all market conditions...
The Risk of Investing in Unimproved Land
This is sometimes dressed up for investors by calling it; ‘future value investing’ or ‘specific-demand collateral’ this is the highest risk Trust Deed investment available to investors.  The investment is technically secured (investors have a recorded Deed on land with an APN number) but for all practical purposes this is a speculation play and should be treated by all parties as such. In any non-cash flowing property Trust Deed opportunity; investors are recommended to underwrite to the payment ability and reserves of the actual individual borrower, market scarcity (speed to exit) and reasonable value – which is still a guess.  Investors will need to know substantially more about the person behind the loan as there is not any reasonable expectation typically for any cash flow on the property to support the debt (Deed of Trust).  Multiple personal guarantees are a normal part of this type of...
The Risk of Investing in Incomplete Property
These two issues are put together as they appear the most in the same transactions in private lending.  The staged or multiple funding scenarios are most prevalent in new construction and rehab loans – properties that are not ready to market or cash flow.  The Deed of Trust is created by multiple fundings at scheduled times for the borrower.  The borrower doesn’t want to pay interest on the entire loan if they can only use portions at a time to construction schedules.  So, the broker will set up a funding schedule with the borrower based on his needs and use of funds.  The Broker will then have several fundings or opportunities for the investors to get involved.  This scenario is risky as investors are putting their money into property that is not complete, therefore not marketable or sellable which significantly reduces exposure. And if one of...
The Pitfalls of High Fractionalized Investing
A fractionalized Trust Deed is a loan that has many investors who pooled their money for the total principle balance for the borrower.  Typically the interest of the investor is based on what their dollar amount is expressed as a percentage of the total loan amount. A. The more investors and the smaller any one investors stake in a given Trust Deed the less control those investors have. B. When a Trust Deed does go back to the investors those that have more capital to commit end up carrying the cost such as foreclosure filings, attorneys, maintenance, management, taxes and insurance to name a few for those that do not have the funds or will not pay.  In many real life cases; the investors with more to lose (higher principal investments) are more compelled to contribute to keep the asset in good condition. C. Voting is often controlled...
Introduction to Equity Value Investing: EVI 2.0
Equity value investing is the acquisition of fixed assets with significant equity on acquisition that can be quickly converted to cash flowing entities. This significant market equity on acquisition will allow for an additional layer of principle security against market dips or stagnation. EVI execution historically acquires assets at 31% (YR2012) of current value. In the past (2008-2012) these assets were treated as short term transactions (flips or EVI 1.0) as the underlying market fundamentals had not stabilized enough to access if a short term dislocation was part of a longer term value bottom for a buy and hold. Why EVI? Since the financial crash a new paradigm has emerged; fewer Americans are becoming homeowners for a variety of reasons. Of the reasons there are fewer homeowners today, most notable to an asset investor today is that there is not ability for traditional sub-prime lending based on...