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I gotta stay local? March 6, 2008

Posted by shaferfinancial in Uncategorized.
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I have  been talking to folks about an opportunity located in New England.  It is an land development investment.  It is something I have invested some funds in and find the potential worthy.  Several of the folks I talked to, flatly said they weren’t interested in any real estate deal they could not drive easily too.  This stunned me for several reasons. 

First, real estate investment in Florida, especially this area of Florida, is very questionable at this time.  We have a record supply of both new homes for sale and existing homes for sale.  Prices are high, compared to rents.  Developers are selling as much of their inventory as they can for as little as 50 cents on a dollar to major concerns who are content to sit and hold for a few years at that price.  In short, I think it will be several years before the environment makes sense to buy investment property.  Commerical property has been doing better, but over the course of the last year, vacancies has increased making it less desireable at this time. 

But other areas have different fundamentals.  Many which are much better than Florida right now.  So why not look around other areas?  I mean, if you invested in stocks, would you say I have to be able to drive to the company headquarters?  Well, no.  But, you would look at the business model, the accounting, etc. to figure out if you wanted to invest, right?  So why not the same with real estate?

Which gets me to the point of this post.  In order to build wealth you need to expand your horizons to a point where you can find deals that make sense.  And in this day and age, that is pretty simple with the communications, travel capacity, etc. that exists. 

I think that is where many amateur real estate investors have made bad decisions.  Wanting to invest in your own town is great, but not comparing your own area to other possibilities is a mistake.  Investing in your own area despite poor fundamentals, is a fatal mistake.

In our town, many people made that fatal mistake.

What do the wealthy invest in? February 18, 2008

Posted by shaferfinancial in Uncategorized.
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The title to this post is a little off in that most times people invest in things in order to get wealthy.  Either way you look at it, there is much research on this subject.  Funny thing, it is not primarily mutual funds or even individual stocks that make up the portfolios of the wealthy.

First, lets define wealthy.  There are three generally agreed upon categories.  The mass affluent which has a net worth outside of their primary home of $100,000- $999,999.  The wealthy which has a net worth outside of their primary home of $1,000,000- $9,999,999.  And the super wealthy which has a net worth outside of their primary home above $10,000,000.

Interestingly, the investment strategy is basically the same between the wealthy and the super wealthy. And the higher you go in net worth for the mass affluent the more they look like the other two classes.

So how do they invest?  What financial instruments do they use?  Well, the truth is they use all sorts of financial instruments, but there are two main strategies which set them apart from those that have less than them.

First, is real estate.  The largest categories of investments for the wealthy are real estate and it only gets larger as you go up the wealth ladder.  Of course they all own a primary home.  But a second home is the next largest category of real estate investment.  And as you go up the scale they own 3,4 or more homes.  Next category is income producing real estate.  The wealthy own apartment buildings, commercial buildings, duplexes, etc. that will produce income for multiple generations.  REIT’s (real estate investment trusts) are favored by the wealthy. Raw land is bought and sat on until the investment blooms.

The next largest category is businesses. Usually they control or own large blocks of a business that can be best called creative or niche businesses.  The wealthy have been able to identify unique ways to satisfy needs.  Many times the discovery has come out of a industry that they worked in for years, first as a employee.

They also own some of the traditional investment classes like stocks, bonds, mutual funds.  However, it is at much smaller percentages than the non-wealthy.  For example, the super wealthy own individual stock and mutual funds, but the median ownership is around $1,000,000 for individual stocks and $500,000 for mutual funds.  Now remember, the super wealthy category starts at $10,000,000.  So their stock ownership percentage is very small compared to their overall assets.  They own cash value life insurance at about the same percentages as their stock ownership.

Their overall strategies suggest an understanding of the tax laws, so that they legally avoid high outlays to government.  It also tells us they understand history.  The greatest investments, those that last for generations until someone forgets why they were purcashed in the first place, are income producing real estate.  Imagine if your great grandfather purchased apartment buildings in Manhattan or Miami Beach or Chicago.  What would they be worth now?  How much income might they be producing for you?  The truth is, businesses come and go and our needs change, but we always need a place to live or a place to shop.

Maybe you are not the landlord type, like me.  The thought of having  renters calling me all hours of the day and night to have the plumbing fixed is my nightmare.  But there are many ways to own real estate that don’t have that nightmare.

Think about starting a business that fills a niche.  Think about investing in real estate.  If you can find success in these two areas, then you are likely to join the wealthy or even the super wealthy!

Glass full vs. Glass Empty? re: Real Estate January 24, 2008

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Glass full vs. Glass Empty? re: Real Estate

I recently has some convesations about investing with some friends and colleagues.  Some of these folks work in the real estate industry and some don’t.  I told them that since 2000 I have moved much of my investing into various parts of the real estate market instead of equities (stocks).  They were all expressing feelings of sorrow for me.  That astounded me, as some of these folks worked in real estate.  But then I remembered that the media has been pounding on the poor real estate market for two years now and has forgotten the lessons from 2001-2003 stock market plunge.

Here is a look at some major metropolitan areas real estate values appreciation since 2000 and from last October:

City            Appreciation        Appreciation

                    since 2000        since Oct. 2007

Atlanta         133.79                    – 0.7%
Boston          169.34                   – 3.6%
Charlotte       133.98                  + 4.3%
Chicago         163.12                  – 3.2%
Cleveland       115.93                 – 4.5%
Dallas          124.44                    – 0.1%
Denver          136.08                  – 1.8%
Detroit         108.15                  – 11.2%
Las Vegas       208.68              – 10.7%
Los Angeles     249.50                – 8.8%
Miami           244.35                  – 12.4%
Minneapolis     161.24                – 5.5%
New York        205.48               – 4.1%
Phoenix         200.72                – 10.6%
Portland        185.10                 + 1.9%
San Diego       217.02               – 11.1%
San Francisco   202.03               – 6.2%
Seattle         189.86                  + 3.3%
Tampa           206.38                – 11.8%
Washington      226.71              – 7.0%  

The area I live in, Tampa, since 2000 has appreciated 206%.  Since last October it has depreciated 11.8%.  Now what were these people reacting to?  The loss of 11.8% since October.  What is the reality?  RE value has more than doubled since I bought my house.  Compare this to stocks.  The S & P 500 index is lower than what it started out in the year 2000. The Dow Jones opened the year 2000 at 11,501.  As I write this it is 11,697, a minuscule return.  Even beleaguered Detroit has had a better return with real estate than the stock market!

Glass half full or glass half empty?  You be the judge!