I know it has been a while but I truly want to get back into the swing of things and keep this blog going.  Once recognized as one of the top ten commercial real estate investing blogs in the country….now….just another blog…maybe worse.  I hope to fix that in the next coming months.  So….I would like to kick things off …..again….

I would like to introduce you to my buddy and colleague, Brandon Saylor….he’s a writer and a good one at that…..check out his latest below.  Brandon is sometimes controversial but….I agree with most of what he says…if not all.  With Brandon’s permission….I will be posting Brandon’s writings on this blog.

Brandon Saylor

Anatomy of an Economic Bubble

This recession has taught me a lifetime worth of knowledge. Observing the catastrophic meltdown that occurred in 2008 seared lessons within me. One of these fundamental lessons is the understanding of economic cycles and the red flags of danger. In short, the economic meltdown of 2008 began with the bubble bursting of credit markets affecting everything from real estate to the stock market. It is paramount to understand the anatomy of a bubble and the natural economic cycles that ebb and flow through time. Below are the main stages of a bubble.

There are no time limits between each stage. The “stealth phase” is the 1st phase in which the asset is adhering to its core fundamentals. Subsequently, the “awareness phase” is when the value of the asset begins to rise above its fundamental value. In the third phase, the asset value explodes as the media begins to remark about its escalating value. A swelling number of investors eulogize the merits of the asset as they merge with the cause.

In the final phase, the value of the asset begins to dissipate. Many naive investors still believe it will continue to increase in value. The daunting reality sets in that the asset is overpriced and everyone tries to get out. Unfortunately, many are left behind as the value of the asset plummets to its long term fundamental value.

Conceivably, the most legendary and oldest, well-documented instance of a speculative bubble is the “tulipmania” that hit 17th century Holland like a bomb. The tulip became an instant hit upon its introduction to Western Europe in the mid 16th century. Dutch collectors developed a hierarchy of tulip varieties based upon their species and coloring. Because it was impossible to determine which variation would bloom from a particular bulb, the tulip grew into an asset of speculation. Before the 1630s, the bulbs were popular among the extreme wealthy and were flaunted to exhibit class. By the mid 1630s, the obsession caught on with the middle class and lower socioeconomic classes. The increased demand caused the price of the bulbs toescalate dramatically.

The market reached its pinnacle in late 1636 and early 1637, after the bulbs had been seeded to blossom the following spring. People mortgaged their homes and traded in their savings in order to buy rare and exotic bulbs to resale at higher prices.

In February 1637, as winter turned to spring the bulbs were close to flowering, consumer confidence evaporated and the market suddenly crashed. As the price collapsed, nobody would buy the bulbs, even though they offered them at one quarter of the sums they had paid for them. The tulip bubble burst is alluded to in the recent sequel of Wall Street 2.

Economic bubbles are a reality of any capitalistic monetary system. The point of this email is to recognize the red flags before it is too late. The first red flag is to recognize the larger macroeconomic forces that dictate the market. It is now understood the catalyst for any bubble begins with easy money. The Austrian School of Economics believes “asset bubbles occur when there is an extended period of low interest rates coupled with an expansion of credit. The availability of cheap money encourages speculation in one or more asset classes causing the price to escalate rapidly exceeding their underlying fundamental value.” The availability of cheap money promotes an over abundance of growth. Consequently, a bubble ensues. Bubbles can be an excellent way to make money if you get in at some stage in the “awareness phase” and get out before you reach the inevitable landslide. The key to success is to not be trapped when the eruption begins.

What is the next bubble? In the past decade, we have had the escalation and crash of the dotcoms, the oil bubble and the monstrous credit bubble following the oil crash. Is the stock market the next big bubble? The Dow Jones industrial average is now trading at 86% of its all time high of 14,164.53. Is it gold? Gold is constantly breaking record prices for the value of a troy ounce of gold. Could it be the bond market? Another energy bubble? At this point, it is hard to determine which market/asset is going to be the next bubble. However, armed with the knowledge of warning signs it will be easier to decipher the craze when an asset is going gangbusters.

Ultimately, there are two things about economic bubbles I want to leave with you today. Greed intensifies the problem and it is the definitive drive to astronomical prices. As they say, “Avarice has ruined more souls than extravagance.” And ask yourself does this type of speculative behavior make sense?  Does gold trading at $1,455/oz make sense? Is the stock market value reflective of the health of the economy? Does $107/ barrel of oil make sense? If common sense does not fit the reality of the time then maybe it is a good time to get out before it is too late.

Have a great weekend my friends!

-Brandon Saylor

Good stuff huh?

If you want to catch Brandon’s future writings as well as past writings….subscribe at the top right corner….

Until next time….rob

Me and Jesus....well...not really...at Compassion International in Colorado Springs

Greetings from Santa Barbra, CA….. rainy and gloomy….but the hope for sun tomorrow.

Anyway….

Here in CA to rub shoulders with the folks of Yardi Software and to checkout the sites.  The rain has not stopped me….

Before I arrived in CA….I was in Colorado visiting my mentor Wes Roberts.  So….I have been on a mini-travel marathon of sorts….next?  ….D.C.

Today’s topic is property management.  Specifically, hiring a property management company…..

Over the years, I have learned the hard way about property management.  In reality, good property management is difficult to find.  More specifically, “okay” property management is a gem if you find it.  I know… I know…I may be going a little overboard….but I digress.

So….I was thinking….what makes a good property management company (PM)…for both commercial and residential assets…..and here is my list….very short….but enough to give you some thought….

1) A PM needs to have a solid understanding of the asset being managed.  In other words, does the PM know how to manage a retail shopping center, or a large apartment complex, etc.  You see, just because a PM has managed an apartment before…does not mean he or she knows how to managed a 100 unit apartment or a 500 unit apartment.  Take a look at the portfolio the PM is managing currently and see where the PM’s experience is.  If you want a PM to manage your storage units and the PM’s experience is only in residential homes….you have a big red flag

2) A Good software system.  If your PM is using Microsoft Excel to manage a portfolio….you should run.  MRI, Yardi, etc….are great software programs that offer clients a lot of bells and whistles.  Make sure your PM is using solid systems because…PM reporting, accounting, etc…. is depending on it.

3) Turn-around times a.k.a., “make-ready” time is crucial. PM that are slow at turn-around times when a property goes vacant and the time it takes to get ready for the next tenant is crucial.  Whether you have a waiting list or no list at all….having units available quickly will help your bottom line.  Find out how fast your potential PM is turning things around by asking other clients what the turn-around time is.  If you hear ten business days…then that is too long.  One week is the most I can deal with.  I like to hear three days.  Obviously there are other factors that go into turn-around time…but the shorter the better.

Santa Barbra, CA

4) Communication. Another difficult thing I have learned is if you are having a hard time connecting with the PM….you are probably getting screwed.  No return phone calls…..reports have not shown up……etc.  Especially for long-distance properties.  Talk to the PM’s other clients…ask what the communication is like.  Knowing the communication process and how others perceive it will save you a lot of headaches.

5) Network.  Talk to other owners about which PMs they use.  Ask a ton of questions…how long?  What types of assets do they manage? etc.  I always like to get a perspective from other investors and see who they recommend.  Does it always work?  No…but….it is better to get a short list from people you know vs. starting cold.

Anyway…I could go on and on….and I am sure I will on another post….

Until next time……rob

100% occupancy.....think again

Greetings from the metropolis of Cedar Crest, NM !

Back from my trip to Texas and trying to close on some deals.  Dealing with lenders has always been difficult…..but I think lenders are looking for ways to make it even more difficult…but I digress.

Anyway….

Today’s post comes from the help of my friend and commercial mortgage broker Terry Painter from The Apartment Loan Store.

In my analysis of an apartment deal in Texas, I asked Terry about estimating tenant turnover from a lender’s perspective.  I got a great reply from Terry and I wanted to share it.  Terry’s response is below…..

Rob, there are 5 main factors that our HUD appraisers use to estimate tenant turn over:

1. Quality of tenants (mesured by how long each tenant has occupied) (will
need monthly rent rolls for the past 3 – 6 months to determine this)
2. Historical occupancy (based on monthly rent rolls for the past year)or
market data for the submarket
3. Type of tenants (Students occupy an average of 9 – 10 months, Military
about a year, Seniors 4 years and longer,General public about 8 months)
4. Demand for the property in relationship with other properties in
the market
5. Time to make-ready the unoccupied units (critical on properties that stay
full)

So it is different for every property.  Even newer in-demand properties with
a waiting list average 2 – 3% turn over rate and result in 97% annual
occupancy.

Hope this is helpful…

Terry Painter, President
Business Loan Store
104 Monterey Drive
Medford, OR  97504
Mortgage Banker

Office  541-326-0570
Fax     888-404-7089
Cell     541-840-3078

Thanks Terry!

Until next time……rob

Buddy's loves people with bad credit!

With today’s worldwide failing economy, there has probably never been a more important period to get a copy of your borrowing report. Most us haven’t a clue about the criteria banks use to rate their chances of requesting credit – and it unsurprisingly isn’t as simple as you might think.

Criteria such as missed installments on personal loans and credit cards clearly influence banks decisions, but are you aware that you may be declined a mortgage because you haven’t ever had credit? It sounds crazy, but in fact lenders need not only to know that you are not already overloaded, but too that you have a good history of meeting your repayments.

For this reason, banks you have in the past been lent money from supply record keeping companies such as Experian and Equifax with information on how you stand with your credit facilities.

Another thing people frequently don’t know about is debt histories aren’t limited to credit cards, secured loans and mortgages. If you have a pay monthly phone that is going to be detailed on your debt report too. How about your satellite television account? Yes, that’s qualifying as credit as well.

Anything that enables you to generate an invoice could be considered borrowing. By looking at your borrowing file, you might find that you’ve been providing prospective banks more information than you realise, or worse still, wrong info! Only by getting your borrowing file will you see what the lenders can see – in fact, everything they are able to see. There are no debt barred lists, it’s all done by a formula comprising the debt risk profile made up by the information on your application and your debt report.

The great side of this is that you can take simple steps to improve your debt appearance – one example making sure you are fully registered on the resendential list. For more good advice, head over for the free trial of your credit history below – there’s no pressure to continue and buy so it really is risk free. A lot of people do buy after their trial however, as the cheap option could save them a lot of hassle in the long run.

So, why not make an effort to improve yourself right now and get a free trial? The Free Stuff website have joined up with Experian to offer a trial at no cost which means you can see everything on your borrowing report. It’s all on the web, so you will be looking at the same information the bank manager can see in just 5 minutes.

Birds, trees, streams, and freaking Bears!

Greetings from somewhere in New Mexico….

I spent the early morning out in the forest and enjoyed the wild abandonment of the animals, the incredible sound of the flowing creeks….and the nasty smell of bears.  I did not see any bears….but….I could smell them….needless to say….my walk turned into a jog to leave the area.

Anyway…..

Today’s topic is a post of definitions of those professionals that work in real estate.  A basic overview especially for those of you who are new to real estate investing.  Be sure to check out all the other posts on real estate definitions by skimming the archive post list on the right.

Also…….

For those of you on Facebook, you can connect with me @ www.facebook.com/robpowell  as well as those of you on Twitter, I invite you to follow me at www.twitter.com/RobAPowell

So….

The real estate investment arena is filled with its own language and often features terms from property law, banking concepts and feudal times. As a continued segment to help you navigate the real estate investment lingo, we will be periodically posting commonly used real estate investment terms and definitions provided by many sources including www.investorwords.com and www.creonline.com.

This posting will focus on real estate professionals and their duties.

Agent

An agent is a firm or individual that has been expressly authorized to act on behalf of a principal in certain transactions. This can include completing a financial transaction, acquiring property or selling and servicing insurance policies. Agents do not assume personal liability for actions on behalf of the principal unless that agent is acting beyond the scope of agency.

Certified Mortgage Consultant

A certified mortgage consultant is a certified mortgage broker who has been awarded the highest designation by the National Association of Mortgage Brokers. To achieve certification, brokers must have five years experience, complete a program and pass an exam.

Certified Residential Mortgage Specialist

A certified residential mortgage specialist is a mid-level certified mortgage broker as designated by the National Association of Mortgage Brokers. To achieve certification, the broker must have two years experience, complete a program and pass an exam.

Closing Agent

A closing agent represents the buyer in a real property transaction by handling the closing and legal transfer of title and ownership from seller to buyer.

Evaluator

An evaluator, or appraiser, is a person qualified by training, experience or education to provide property appraisals.

Listing Broker

A listing broker is a licensed real estate agent that contractually secures the right to sell a property on behalf of the owner. Listing brokers differ from selling brokers but may be entitled to share in the same commission.

Mortgage Banker

A mortgage banker originates, sells and services mortgages in the secondary mortgage market.

Mortgage Broker

A mortgage broker matches borrowers and lenders to originate loans. A broker does not originate loans or service mortgages. Brokers may negotiate with lenders for the best possible rates or products for the buyer.

Mortgage Originator

A mortgage originator helps borrowers complete all necessary steps to complete a mortgage transaction. Originators can be brokers or bankers that represent the original lender.

Principal

A principal is the party whom assumes financial and personal responsibility for the acts his or her agent performs on her behalf and under his or her direction.

Title Company

A title company is involved in examining and insuring title claims for its customers.

TheRealWealthBlog.com does not assume responsibility for the content or accuracy of the terms or definitions included. The information is meant for general reference only. As with any transaction, it is important to make sure you do the proper research.

Until next time……rob