The Subprime Solution by Robert J. Shiller

” Real estate is still a market where location counts. ” says Professor Shiller .

As the boom turns to a bust :

” The rate of decline is roughly inversely proportional to the speed of the increase.”

There were also differences across metropolitan areas and within these markets

wherein : ” low-priced homes behave considerably differently through time than

high-priced homes.

The lowest price tier showed the biggest increases during the recent boom, until 2006

and the biggest drop afterward. This phenomenon may be observed in many cities.”

Therefore as an investment strategy you can not treat all real estate even

in one category (residential) in a location the same.

This wonderful book is worth your time and attention.

Twitter : EnvoyCapRealty .

email : capitalmoves@gmail.com

Nor Yeretsian        (  July 27 , 2010 )

Envoy Capitol Realty Inc., brokerage  Toronto, Canada

www.capitalmoves.blogspot.com

Join the discuss and follow the group :

www. Y Invest Think Tank . blogspot . com

Everyone wants Easy ! Norair Yeretsian

Everyone it seems wants Easy and no one wants to work for it .

Our culture does pressure us to get rich quick or win a lottery.

With the juiced up advertising on every medium selling a lifestyle few can afford with an average income.

Alternatives or a second job must be found. Get motivated !

Real estate is a great way to get rich — patiently , over time.

When you rush it, mistakes happen .

We over leverage to compensate , so that a little rise

in the markets will deliver major success !

However we take on the added risk with the asset purchased and

suffer a greater loss when the markets drift down.

Possessing the maturity of  a patient wisdom in our practices with

our investments and our relationships will reward us over the long-term.

Sometimes slow can be better than fast.

What do you think, have any stories you wish to share ?

capitalmoves@gmail.com

Envoy Capitol Realty Inc., brokerage , Toronto , Canada

nyeretsian@yahoo.com  ( July 25, 2010 )

www.capitalmoves.blogspot.com

July 25, 2010       Nor Yeretsian

Don’t Follow The Crowd ! Nor Yeretsian

It is hard not going with the flow.

There are even books entitled :The Wisdom of Crowds , more act smarter than a few.

It is safer in the crowd , or at least it use to be .

We are human beings after all. We have herd instincts, running with the crowd.

This could be and has been dangerous for investors.

One of the best quotes I ‘ve heard coming from Gov. Sarah Palin, was

when she said that up here in Alaska there is a saying :

“The only thing that goes with the flow is a dead salmon.”

It says something about the fish and something about the direction of the crowd.

At times the crowd may be smarter than a few, elections / the stock market , etc…

However when the markets get hot, and a bubble starts to form -

everyone seems to jump on board and it starts to get scary.

A good book to explore this over the top behavior is Charles MacKay’s  collection

of stories which covers a couple of hundred years and looks at ;

The Mississippi Scheme(1719 and 1720, John Law )

The South- Sea Bubble(1717 -1727)

Tulipomania(1634-1636)

these are classic examples of  Banking ( and paper money )

Real Estate and a Tulip ( an object of affection value ? ) over heated bubbles and Crowds gone wild !

Book reference 1814-1889) Charles MacKay’s  Extraordinary Popular Delusions and the Madness of Crowds .

nyeretsian@yahoo.com   July 21, 2010

Twitter :  EnvoyCapRealty

Envoy Capitol Realty Inc., brokerage    Toronto, Canada

www.capitalmoves.blogspot.com

Love or Money ? + Estate Planning , Norair Yeretsian

Why do we do it ?

Why do we go out each day , risk life , invest our time – risk opportunity of loss ?

Do we do it for Love or Money ?

Most of us do not do it for the love of money.
But necessity ; food and shelter .

Most of us , start doing it for money and we evolve into doing it for love.

That is after we have enough money ( food and shelter, a little reserve ).

However how much money do we need to inspire us to start enjoying life
and doing the things we do for love and be happy.
The answer is as different as each of us.
For some never is enough, for others happiness is here everyday ( regardless of money or material ) .

If we were to quantify life and our  average life span.
Most of us will have 30 to 40 good years to spend 8 to 12 hours a day working or worrying about work.
After which we get a few years of retirement –to perfect our hobbies.
Then it’s over, lights out and we move on to the next level of play.
Some to a higher cooler place others to a lower warmer place.

So if these are the two ends of the spectrum and the game does eventually end for each of us.
We have to play the game each day as if it is our last one. With a bigger dynamic view.

We need to plan our investments with this eventual possibility in mind.
We need to communicate with our spouses and children ( our loved one)
about the investments we make , where and how  they can find them and
have access to them ( add them as a joint account holder ? ).
Talk to a lawyer about estate planning and set up a proper will and last testament
( and keep it up to date , regularly reviewing it 3-5 years).
Discuss your investment philosophy with your loved ones.

Educate them with your wealth of experience.
Discuss taxes with your accountant and arrange your affairs
in the most tax efficient manner and ease of transfer.

Then after all your hard work, your loved ones can have the freedom
to do the things they love and time for contemplation about living and play life to the fullest.
This is what everyone wants for themselves and their children…

Be happy !

What are your thoughts? leave a comment and let’s discuss it.

Twitter @ EnvoyCapRealty

nyeretsian@yahoo.com  July 6, 2010.

Opportunities in the Busted R.E. Economy ? ……… Norair Yeretsian

Big Money is interested again in real estate and they have started buying
with huge discounts off the previous values .
Prices greatly below the previous purchase prices, below the  cost of the
infra-structure paid for sewers/roads and substantially below the
mortgage(s) on these properties.

Where you may ask can an investor/purchaser find these opportunities ?

In the beaten-down markets of Las Vegas and Phoenix.
Where some buyers are getting properties for ten  to twenty cents on the dollar.
Completing the necessary work, and reselling these building lots to builders who
again need these lots to continue their business of building .
As their current inventory of building lots ready to go diminishes.
This is a good news story for real estate in these depressed/ hardest hit areas
of the U.S. real estate market. [ WSJ ]

” Some of the savviest investors [Paulson & Co.] on Wall Street, including some who made
billions on the housing bust, now are snapping up barren plots of land in places like”
: Las Vegas ,Phoenix and California .

Investors are now making a bet that land is undervalued and that it can profit from
reselling lots to home builders.”  The Paulson & Co. is bidding on some 8,000 residential
lots in Arizona,Colorado and Nevada .

Meanwhile in Las Vegas, Angelo,Gordon & Co.” recently paid $35 million for land
parcels zoned for about 2,500 residential lots. That is roughly half the amount the
former owner sank into the property for roads, sewers and other infrastructure alone”.

At the same time says the [WSJ] land investor “SunCal Cos. is working with firms like
D.E. Shaw & Co. to close a dozen land deals in Arizona and California.

Builders including KB Home, Lennar Corp., Ryland Group Inc.,and Meritage Homes
Corp. are cautiously buying prime parcels in preparation for ramping up construction”.

Deep pocketed investors are buying large portfolios of land from banks, bankruptcy courts
and auctions run by Federal Deposit Insurance Corp with hopes of selling them to eager builders.

” The renewed interest in land has led to increases in land prices. In the first quarter,
the average price paid per acre in the U.S. rose to $ 41,651 from $36,829 in 2009 according
to real estate services firm CoStar Group. But that figure still paled in  comparison to the level
seen in 2007, when the average price per acre was $102,631 .

Some private equity firms already have reaped big profits in land deals.

For example: SunCal and D.E.Shaw bought 1700 lots in Las Vegas for
about $16,400 a lot.
Within eight months after the acquisition, the venture sold the land to
builders including KB Home, Lennar and Ryland for between
$35,000 to $ 40,000 a lot. ” [WSJ]

The above are examples from the U.S. market place , real estate is local.
The Canadian experience is much different, City by City.
Canadian real estate did not in most markets experience anything near the U.S experience.

Our systems, financing ( liquidity and credit/ lending practices ) are simply different
and so much less volatility is experienced in the Canadian real estate economy .
Not to mention tax system and stimulus packages less attractive than the U.S.

American news maybe more interesting and entertaining, but their
investment strategies do not easily overlap in Canada.

Land investments are the most speculative and most risky .
Win big and lose big, be careful.

Do your research and use a licensed/insured /knowledgeable professional .

Let’s discuss it , leave a comment….Is it the time to buy ?

Also on Twitter @ EnvoyCapRealty

nyeretsian@yahoo.com    July 2, 2010

Investment Values Norair Yeretsian

Three investors are considering an investment opportunity which has a

Net Operating Income of  $ 125,000 .

Investor One wants to achieve a return of  10% on the capital he invests.

Investor Two wants to achieve a return of  15% on his equity investment.

Investor Three demands 18.5% on his invested capital.

Using the direct capitalization approach to estimating Value
the three investors calculate the following :

Given the above :

Investor One determines :      125,000 / 10 %  = $ 1,250,000  Value .

Investor Two determines :      125,000/ 15%   =  $ 833,333 Value .

Investor Three determines :   125,000 / 18.5% = $ 675,676  Value.

Using the Rule of 72 we can quickly calculate the time it would take each

of our investors to double their money using each investors’ desired rate of return,

with the benefit of  Time Value of Money ( money being compounded ).

Investor One   72 / 10 =  7.2 years to double his money .

Investor Two  72 / 15 =   4.8 years to double his money.

Investor Three 72/ 18.5 =  3.89 years to double his money.

Be a more demanding investor, you will only get out of life

and investment what you expect and usually nothing more.

Let discuss it , leave a comment / make a suggestion …

Do you have any special techniques to make valuations ?

or Twitter @ EnvoyCapRealty .

nyeretsian@yahoo.com  June 30 , 2010

Savvy Investors Norair Yeretsian

There’s Lots of Money looking for a home but not necessarily real estate?

U.S. Private Equity firms are on the sidelines with $500 billion waiting for an
attractive opportunity to buy. [ New York Times , 6/23/2010]

One of these is the Carlyle Group which is sitting on $18 billion.
However buyouts have been scarce and prices are rising because
competition for good assets.

The Carlyle Group is also a major Manhattan landlord and
their portfolio is doing very well one of their buildings in their
portfolio of properties is 666 Fifth Ave the retail portion.

Where they just signed one of the biggest retail leases in Manhattan history
with a Japanese clothing company for 90,000 sf of space on 3 floors for
$300 million on a 15 year lease deal , which commences 2011 .
They purchased the retail portion in 2008 and on this leased space  it is
working out to be approximately a 30% return without the benefit of  TVM.

Some of the investment criteria for Private Equity firms ;

Investor’s money is generally tied up for 10 years.

Money must be invested within first 3 to 5 years of funds’ life.

Management fees run approximately 2% of assets value and 20% of annual profits.

They are generally looking for returns in high teens – 20% plus , however looking
forward  investor’s returns over the life of the fund are likely to drop into the low to mid-teens.

Returns will be even lower once fees are factored in.

One factor in the  modest forecast is rising prices for buyouts, because of competition.

The ” tough competition for deals” had driven up valuations recently.

Money is there , but it is patiently waiting to meet an opportunity.

Leave a comment or Twitter @ EnvoyCapRealty

nyeretsian@yahoo.com     June 29, 2010

Speak to your Kids about Investing II … Norair Yeretsian

Well where would you start to speak to your kids about investing
if you were challenged by the subject ?

Do some research and read some basic books which provide a
beginners perspective on the topic , such books like :

Buffettology ( American )

The Wealthy Barber  ( Canadian )
Rich Dad, Poor Dad  ( American)

Just do the research first do not buy anything as yet .

Go to your local bank and ask to speak with one of their investment
advisers (take your son or daughter with you for the education ).
Get a perspective on their products, services, invest ( cost to buy in ) , fees , etc…

Go on-line and visit each investment brokerage’s website to see what their have
explore the Educational / on-line simply Tutorials they offer ( free education ) .

Go on-line to the leading financial news websites
( go to your local bookstore to find out who they are ).

Some good ones are : The Wall Street Journal   ( American )

Globeinvestor.com ( Canadian )

Read some Blogs on investing…you may even want to watch CNBC .
The is a show called Mad Money with Jim Kramer
( entertaining and educational on investing in the market )

You could track some stocks for fun and put them on your watch list
at some of these on-line new feed websites.

If you make it a game style exercise , there’s learning , exploring and discovery happening.

As your confidence builds and you have some savings you can start to explore the market for real .

Be cautious, don’t hand your money to anybody — and don’t all your money in one place / stock.

If you have a bigger capital base, and an income source — you may want to consider Real Estate.

Think twice cut once .  ( old carpenter’s saying )

If you have some comments or other suggestions leave a comment or Twitter works
at  EnvoyCapRealty .

nyeretsian@yahoo.com  June 27, 2010

Is this the New Normal or Double Dip coming? Norair Yeretsian

Mr. Mohamed El-Erian (PIMCO, CEO: over sees more than $ 1 trillion of assets )
said we need only look to the key indicators to understand
where we are and what is happening in our economy and here is the short list ( below ).

This is the new normal economy get use to it . Things will move slower, on employment front.

Employment :  rather unemployment , well at least it is not increasing — its steady .

Consumer Spending : consumers are cautiously spending and not taking on any new debt.

They are starting to work on reducing debts.  Household’s de-leveraging – working on reducing of debt .

Government spending : Government is increasing spending and taking on more debt .

Government is increasing leveraging ,  increasing debt . This is not going to help in the long run.

Business :  Small businesses can’t borrow to spend and grow .
Big corporations have the credit ( and lines of credit ) but  not borrowing and
using their cash to buy back stock.
Not expanding , investing in new plant and equipment to grow.
This is not good for the long-term.

Housing starts : steady , stabilizing , getting better .

Demographics : the population, increasing / decreasing — aging .
The new tax base and the pension(s) – health care, more things to worry about.

The economist Nouriel Roubini described things and generally things are not good
in the economy and government does not appear to be doing anything right at this point
- this is a major concern and will affect all our lifestyles  in America.
With the future only having increasing taxes and possibly cuts to spending in many areas.

There is good liquidity in the economy, Government printing lots of money .

The U.S. economy is still the best on the planet, however  Asia will be coming up .

Roubini is concerned we may be heading for another Dip as the stimulus money
runs out and few to no other measures available for more stimulus.

El-Erian believes we are not heading towards a Dip again, however we
should not expect the economy to perform as it has/ had in the past.

It is always good to have at least two views on where we are and where we may be heading
think about your local economy and the status of its health :
where you are and where you might be heading.
The Key indicators and plus the Demographics of your location should give
you a better understanding of what is happening at the Micro level.

What is happening with the supply of re-sale housing , listings to sales
how many weeks / months supply is there at current demand ?

Most of my colleagues complaint of  lack of inventory ( good salable listings).

What’s the employment statistics in your area of the country .
Does the national average – really matter to you / your area’s economic health ?

If interest rates move, how will that effect the supply – demand dynamics in your area?

Will the interest rate movement effect affordability to the extent that
prices/valuation will be impacted in your location.

One of these factors ( variables) a lone, will give us the answer we are seeking -
- but the mix of these variables at the right time will lead us in the direction we end up.

What happens at the Macro level ( the nation) is more challenging to understand
immediately and we see the data historically ( end of quarter / half/ year ).

Mohammad El-Erian and Nouriel Roubini  [ Crisis Economics , new book ] on CNBC discussion June 15/2010

( The Realist and The New Normal )

Mirco -data ( and what it says ) and Marco ( what actually happens ).

What about innovations by individuals and companies ?
What about alternative energy sources development and implementation into our economy?
What about new discoveries  , that are game changers for the economy ?

What is happening in your area of the economy or country that is raising hope
for a new dynamic economy where new types of  jobs are be created and
new demands for housing are being driven?

Let’s discuss it below with your  comments / or on Twitter EnvoyCapRealty .

nyeretsian@yahoo.com    June 20, 2010

Investment Strategies : Tax free Cash ! Norair Yeretsian

Know your Risk Tolerance before venturing into any investment strategies.

Many options to consider and each has its associated risk(s) and reward(s).

You have the freedom to make money or lose money.

Here is an option : A-II , to consider. It works like this …

You start with a $ 150,000 income producing acquisition in year 2000.

You leverage your investment with a 75% loan- to- value mortgage and
hold the investment for approximately ten years (2009, end).

At which time (2009 / begin 2010) it’s appraised value is determined to be $ 500,000.

Year 2000 —-( ten years)———end of  Year 2009——begin Year 2010
$150,000 ———————————————-$500,000
LTV 75% : Debt equals : $112 ,500 ————LTV 75%: $ 375,000
Equity :   $ 37,500  ——————————- Equity  :  $ 125,000

Debt has been reduced over the ten years , however these principal payments are
with after tax dollars.

Assuming the balance of the mortgage at the end of year ten is $90,000,
we are increasing this with the new financing to $ 375,000.

So that we receive $ 285,000 of new funds into our account [ War chest ].

A number of big assumptions were made :

1. Property is an income producing property …generating Cash Flow !
( your home would work also, but you must have the income to support the debt)

2. For the whole thing to work — Property value must go Up!

3. There is enough Income to support the new financing and you get approved .

4. Since it is a loan to the investment : this amount is tax free ( for now –until sale) .

You have $ 285,000 new funds to enjoy , to invest – to buy another property.

On it goes, it could go on forever or if you over leverage and values drop : you’re out of the game !

The down side concerns :

(1). If property values go down ( and it all becomes upside down, Debt is greater than Values )?

(2) If your income drops off or your tenant(s) leave or stop paying :
can not pay the interest on the loans?

(3) If the  Bank decides not to renew or extend your financing this become a real concern -
may have to liquidate at an inconvenient time: values are low and you are selling under stress. ?

(4). Can you live with the uncertainty  and a little stress ?

(5). You could extend this type of financing indefinitely.

However , if you get to far ahead with a heavy debt burden it becomes
a monster that you may no longer be able to control.
And you are no longer the master ( lord), you have become  the slave to the debt.

Beware.

A professional is always in control.

IF the above numbers held and you Sold the property,
we could do some further calculations to figure out what returns the investor received.
Without the operational cash flows( CFBT – CFAT ; numbers )  to consider or worry about .

Investor Yeretz invests  :
$ 37,500 of equity (year 1 and by year 10) it has grown to and sold for $ 500,000 :
the mortgage has been reduce to $ 90,000 therefore $ 22,500 equity build up .

sale price……………………….. $500,000 sale price
cost of sale (less)…………………. 37,500
balance on mortgage (less)……..90,000

sale proceeds before taxes …. $ 372,500

Return over 10 years     :    $ 372,500
__________________________   =   X          ………..     X = 993 %increase over 10 years

Investment                      :          37,500

Average annual return ( without the benefit of TVM , so simple average ) :  99.3 % a year .

What a large number and yield , wow !

Average annual rate of return on investment (TVM menu on the calculator ): 25.81 % .

1 P-YR    End

N =10

I/YR =  25.8084 %

PV= 37,500

PMT = 0

FV = 372,500

With the beauty of  Time Value of Money , the simple average  of 99.3 % comes down to 25.81% annually .

This is still a great return , relatively speaking .

More in future blogs as we discuss similar types of investments and their returns.

Leave a comment below ….

nyeretsian@yahoo.com    June 18, 2010