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

Things will be Booming in London : 2012! Norair Yeretsian

In a meeting today in London, Ontario with 36 real estate professionals,

when asked the Question : Where do you see the real estate values of
City of London, Ontario in the year 2012 ( 24 months from now ) ?

The real estate professionals ; realtors with an average of about 25 years
experience on the front line of the industry responded by overwelmingly
voting in favor of a Boom (31 votes) compared with Bust (1 vote) and
Boom Boom (4 votes) .

The one vote for decline from today : Bust vote , was rationalized
upon the concern of rising interest rates. Which historically has
effected real estate values in a negative diection and values !

One vote for Boom , suggested that it can’t get any worst
commercially speaking. So it must be a Boom by 2012 !

The vast majority voted for Boom and 4 votes for Boom Boom!

The Boomers voiced all the positive development and growth
that London is experiencing … the growth of the
knowledge industries : University of Western Ontario.
The growth of the population.
The new airport cargo terminal,  lots of good things coming
to the City of London and the surrounding areas .

You may want to visit London soon and scope it out .

Advice : Use a local real estate professional, that’s what the smart money does!

Let’s continue the discussion on Twitter : EnvoyCapRealty

nyeretsian@yahoo.com May 13, 2010

Real Estate Values Never Go Down ! Norair Yeretsian

Real Estate Values never,
and I mean never go down in the long run , he said to me !

Are you listening to me ? Explain yourself .

Well , think about it as far back as you can go
real estate values never go down in the long run.

And its never going to get cheaper in the long run.

What about economic cycles, Booms and Busts ?

Yes there will be periodic cycles of Boom and Bust.

Well if you and survive through them, then you will be okay.

The real estate cycles are influenced by many variables from time to time ?

And from place to place …

Yes, like supply and demand, low interest rates/ high interest rates,
high unemployment , over building , new population ( immigration )
inflows and Baby booms,favorable tax allowances or heavy and
misguided taxation, etc…

So are you saying be a Buy and Hold investor  like Warren Buffett, and you win.

Well you win in the long run !

Well doesn’t that work with any investment , like stocks/ bonds ?

No, they can disappear from the planet without a trace.
With Real Estate , it’s there forever !

Very interesting my friend. Now your not just saying that because you
are a realtor and you stand to make commission with every transaction?

I was at my bank this afternoon and the banker had a chart showing
the performance of the stock markets in Toronto and NYSE and how
over the long term, your money compounded and compounded and a
little investment became a large holding.

He talked to me about one mutual fund investment that had I invested in
in 1955 with $10,000 . I would have approximately $5,250,000
by the year 2000. Forty five years later ; over $ 5,000,000.
Averaging 15 % annual yield approximately, Wow!

Yes , but you weren’t even alive in 1955 and you didn’t have $10,000 !

I have read a story , that says the Indians that sold Manhattan over 350 years ago
for $24 dollars worth of  jewels , had they invested this amount in an investment
that yielded them no more then inflation compounded annual would have a
greater value than Manhattan with all the buildings on it.
In the year New York City went bankrupt .

So those Indians did a better deal then the Dutch and Peter Minuit ?

They  were at the right place at the right time !
But did they invest or just consume it ?

This is the real decision that one needs to make; consume now or save and invest for a future date?

And if you save, invest it wisely ! Make sure your money works for you.

If you invest it in real estate , you have something solid ( its as good as gold )
and it pays dividends (rents ). Its better than gold !

Hey that’s Gold with Dividends !
Cash flow is king , remember ?

Never speculate, there’s too much risk.

Always do your home work and use a licensed professional .
All realtors are licensed in the province of Ontario, Canada and they carry insurance ( E+O ) .

Let’s continue a discussion on Twitter :  EnvoyCapRealty

nyeretsian@yahoo.com                    May 12, 2010

Capitalization ! Norair Yeretsian

The direct capitalization approach to estimating value is a simple
yet effective way of determining a quick value or worth of an
income producing property.

Those of us in the real estate profession know it as the formula:

V= I/R . Where the V = Value , I = NOI and R= cap rate .

R = I/V , Where the R= capitalization rate ( cap rate ).

I = V x R , Where the I = Net Operating Income (NOI).

Given :  $ 70,000 NOI /$ 700,000 Value = 10% cap rate

This 10% is known as the overall cap rate ,this rate represents the return
for an investor ( return on and return of  the investment).
It represents the return for one year and on an  all cash position .

If the investment was leveraged, then we would use another simple formula

CFBT / Equity = Equity Capitalization Rate

[ also known as ROI or ROE ]

Given the NOI from above is ……………………………… $ 70,000
then we would deduct the Annual Debt Service (P+I)     – 30,000
results in CFBT …………………………………………….. $ 40,000

and Given that the $ 30,000 supports a debt of say $ 425,000
therefore our prospective client has $ 275,000 of Equity .

Calculation :   40,000 (cfbt) /275,000 (equity) = 14.55 % ECR or ROE

Since we have come this far with these calculations we could go
a little further and determine based upon the above numbers
whether the client should or should not finance this purchase?
Determining the type of leverage, positive/negative/neutral
leads us toward the resolving the question.

By comparing the OCR to the ECR we can resolve it.

If the ECR is greater than the OCR then we would have :

Positive Leverage ,  and since 14.55  > 10.0 . We have positive leverage and
so yes the client should finance this purchase as opposed to using his own
cash to make the acquisition.

In the event the OCR was greater then the ECR , the result would be :
Negative Leverage , which would lead us to Not want to finance
the purchase rather use  your own cash

If both equal :  OCR =ECR , this is referred to as Neutral Leverage
and it does not matter either way.

However one should would about your Leveraged ratio and not
get over-leveraged and be at the mercy of the rise and fall of interest rates.

Leverage and its skillful use ( maybe luck ) is one of the secrets of great wealth accumulation .

OPM , other people’s money . Use it to your real estate advantage .

nyeretsian@yahoo.com May 6,2010

Bust/Boom/BoomBoom Update (May) N. Yeretsian

During today’s meeting of 30 real estate professionals mostly from the GTA west region,
they were asked the Survey question of were in their opinion the GTA real estate values
will be in twenty four months– May 2012 .

Survey headings and results of  the individual votes :

Bust     Boom     Boom Boom

…6            21                  3

In the discussion that followed, a number of points were raised as indicators of concern

or optimism.

Concerns : reasons for concern …
– rising interest rates ,
– over leveraged consumers ,
– possible over building causing over supply
– rising unemployment ,
– affordability issues of housing ,
– the globe economy and the need to pull money out of  Toronto ,
– money is tight ,
– its time things go down, they have been up for so long…

Optimism :reasons for optimism
– interest rates are still low ( even if they double)
– US is now coming out of recession
– Presidential election years are usually UP!
– Lots of good demand for the supply
– Our banks are conservative, our economy stable
– our political environment is stable

– The big one is Immigration : people with money are coming here from
all over the world for a good stable, safe place to put their money.
They are investing here and building here. Whenever and Where
ever there is a problem in the world , Toronto wins .
We get the smartest,wealthest citizens of the world coming here.

The population is projected to double here in the next 15 years. Wow !

nyeretsian@yahoo.com May 5, 2010