Category Archives: Real Estate Investment

Intriguing Class Discussion: Three Feet from Gold

 

 

The story about Three Feet from Gold is a classic first brought to my attention by Napoleon Hill’s book, “Think and Grow Rich.” It illustrates how mindset can rob us of our loftiest desires in life. I think of life, family, career, and the lifelong pursuit of reaching for that ideal vision of reality.

Today, in class, the teacher posed a question, and asked us to explain how it relates to business. That was a loaded question. Here is how I answered:

Three Feet from Gold

“I had learned, from years of experience with men, that when a man really DESIRES a thing so deeply that he is willing to stake his entire future on a single turn of the wheel in order to get it, he is sure to win” (Hill, 1937, p. 28)

Looking past the overt male references (it was the 1930s after all)….I believe these principles apply equally to women as they do to men; that when one works hard towards securing their ideal future, it is often a journey into the unknown–fraught with learning curves that can slow the pace of progress to a crawl. When the years roll by with one learning curve happening after another, a persons’ spirit can become weary and battle-worn from years of constant effort, because pursuing the promise of a better tomorrow is a quest that requires every bit of energy and resources we can muster and give—including patience, inner-strength, and self-discipline. To me, three feet from gold is going forward at full force and doing what is right and necessary even when we feel like things are absolutely hopeless, scary, or unfamiliar. The future is the Great Unknown, but we should not fear it. Instead, we should seek courage in the face of it–doing the best we can at every step. All we can do–and give–is our best at everything we do.

How we think will either propel us or sabotage us, and we CAN choose which path to take; many people do not choose and instead render themselves a product of fate and misfortune, which is sad to see because they end up living regretfully unfulfilled lives. We can’t expect perfection from ourselves all of the time, but we can choose to live each day with that burning desire so that we can, “desire a thing so deeply” that our paths will unfold in the direction to attain that which we so deeply desire; that ideal vision of life that we have worked so hard towards. It is there, we just have to believe it, desire it, and do the right thing with a patient but determined spirit until it becomes an evolving reality.

Hill, N. (1937). Think and Grow Rich. Floating Press.

 

SaveAndInvest.org – Control Debt – How Your Credit Score Impacts Your Financial Future

Getting Ready to Invest – How Your Credit Score Impacts Your Financial Future

Many people do not know about the credit scoring system—much less their credit score—until they attempt to buy a home, take out a loan to start a business or make a major purchase. A credit score is usually a three-digit number that lenders use to help them decide whether you get a mortgage, a credit card or some other line of credit, and the interest rate you are charged for this credit. The score is a picture of you as a credit risk to the lender at the time of your application. Note: each individual has his or her own credit score. If you’re married, both you and your spouse will have an individual score, and if you are co-signers on a loan, both scores will be scrutinized. The riskier you appear to the lender, the less likely you will be to get credit or, if you are approved, the more that credit will cost you. In other words, you will pay more to borrow money.

via SaveAndInvest.org – Control Debt – How Your Credit Score Impacts Your Financial Future.

|Equity Trust Company| Farmland Helps Client Grow his Financial Future

Interesting story….”Kurt Amundson has taken his real estate IRA rural to plant an investment that is already flourishing into quite a nest egg.Amundson used his knowledge about farmland to buy up land through his retirement account and rent it out to create a constant stream of passive income. The Starbuck, Minnesota, resident had bought and sold Iowa farmland outside of his IRA in the past but wanted to make a purchase with long-term benefits. “I thought buying the land with the IRA would be a good fit,” he says.Amundson funded most of the deal with his IRA money and took out a non-recourse loan to cover the balance. In July 2010, he purchased 40 acres of farmland for $1,750 per acre. The land gained him more than 6 percent in profits from the annual cash rent, but the investment’s real gain is in the property’s appreciation. It has appreciated to $2,700 per acre or more in one year. He already received an offer of $2,650 per acre.”

via kurt-amundson.

Made in the USA Again: What Onshoring Means for Commercial Real Estate

Since mid-2010, Master Lock, a manufacturer of padlocks and other security products, has brought 100 jobs back to Milwaukee that had previously been off-shored. Obama used the factory to discuss his Blueprint for an America Built to Last, which seeks to incentivize further creation of manufacturing jobs within the U.S. while removing deductions for shipping jobs overseas.

Other, larger examples dot the industrial landscape.

Japanese automaker Honda has plans to invest $98 million in its largest auto engine plant in Anna, Ohio. Heavy equipment manufacturer Caterpillar is opening an 850,000-sq.-ft. facility in Victoria, Texas, in the process of shifting production from Japan back to the U.S. In February, the firm announced it would also shutter a 62-year-old plant in London, Ontario that makes locomotives and move production to Muncie, Indiana.

via Made in the USA Again: What Onshoring Means for Commercial Real Estate.

National Mortgage News – Commercial and Multifamily Originations Increase in 2011 by 55% – News Briefing Article

A record-high was reached among Fannie Mae, Freddie Mac and the Federal Housing Administration who were responsible for originating $57.6 billion of last year’s $184.3 billion total, the most among investor groups. Life insurance companies and pension funds saw the second highest volume with $49.3 billion.Multifamily properties accounted for the greatest origination volume in terms of property types with $77.4 billion, while office properties made up $34.4 billion of originations. First liens represented 93% of the total dollar volume closed, the MBA said.

via National Mortgage News – Commercial and Multifamily Originations Increase in 2011 by 55% – News Briefing Article.

The Globe and Mail: What high net worth investors are doing right now

Real estate: the wealthy still believe

Real estate has long been a favourite asset class of the wealthy. Indeed, real estate remains one of the primary sources of wealth for many of the world’s wealthiest families. There is no reason to believe this will change in the future.

via The Globe and Mail: What high net worth investors are doing right now.

CORE VS. SUB-MARKETS: How Large Multifamily Investors are Leaving Money on the Table for the Smaller Investors

The Great Sub-Market Debate

Experienced real estate investors know that the investment value of a property is predetermined by the cash flows generated from the property. These cash flows are both incoming and outgoing. If the demographics surrounding the property are strong, this helps to reduce vacancies, thus improving the rate of uninterrupted cash flows during the holding period.

These are basic fundamental real estate principles. They are real, and they are timeless. It makes no difference if a property sits in a core market, or a sub-market. If the market is vibrant with strong employment, demographics, and the numbers make sense, then you know you have a deal worth considering. Oddly enough, many REITS shun properties located in sub-markets without even a second thought.

A Brief and Generic Case Study:

What if you found a property that could generate enough cash flows to produce a 34% return on investment within five years?

Let’s take a closer look at this scenario:

Here are the cash flow projections for this particular property:

The CASH FLOWS:

Initial Equity (Year 0)    ($3,400,000.00)
Year 1    $405,404.00
Year 2    $477,993.00
Year 3    $549,149.00
Year 4    $625,329.00
Year 5    $706,891.00

Resale Value    $23,843,379.00

PV @ 15%    $22,621,466.24
Less Mortgage Bal    ($12,552,132.00)

Net Present Value    $10,069,334.24

Return on Investment of $3,400,000.00:    34%

Big Buyer Group Think: Location over Profitability

For all accounts and purposes, this looks like a profitable scenario. However, many institutional investors–including REITs–would not even look at this deal because it is located within a sub-market. I understand the perspective that asks the question, “Why should we pay a 6% cap rate for a property in a sub-market when we can purchase property at a 6% cap rate in a core market?” However, I would like to point something very important to all the smaller real estate investors out there. Leaving money on the table without consideration is a big mistake.

When smaller real estate investors begin to recognize the money that has been left on the table by the larger institutional buyers. It is indeed a “blue ocean” of opportunity, because the big companies are too inflexible and too rigid to recognize opportunity outside of their normal view of the way things are. In May of 2011, Mortgage Banking Magazine quoted Alan George–the CIO of apartment REIT Equity Residential, “…there were so little class-A assets. There were so few nationwide in core markets that it was a completely useless endeavor,” George said. “There are distressed assets, there still are in some of these tertiary markets, but who wants to buy those?”

I beg to differ by answering the question, “who would want to buy golden opportunities in strong submarkets?” Why, smart and experienced real estate investors would, because they know to look at the numbers and surrounding economic factors of the area. A strong market is a strong market whether it is a core or a sub-market.

To the smaller real estate multifamily investor, I say, there is a blue ocean waiting to be captured. Use the “big-buyer group think” syndrome to your advantage.

FHA will keep funding flips | Inman News

For the second year in a row, the Federal Housing Administration is extending a temporary waiver of its “anti-flipping” rule, meaning homebuyers relying on FHA-insured financing will continue to be able to buy homes that have changed hands in the last 90 days.The waiver is a boon for investors seeking to rehab and flip properties, because it expands the pool of eligible borrowers to include those relying on FHA-backed loans, popular with first-time homebuyers and others who lack the cash to make large down payments.

via FHA will keep funding flips | Inman News.

HomePath.com – For Investors – Structured Sales

Fannie Mae is implementing a structured sales program involving significant sales of real estate assets in the form of either pool sales or joint venture transactions.

Any structured sales under this program are expected to be significantly larger than our existing pool sales described on our “For Investors” page. Joint venture transactions are expected to allow qualified investors to purchase a controlling equity interest in a newly formed investment vehicle created to hold multiple properties in one transaction. The qualified investor would be responsible for the management and servicing of the assets, and would be an equity partner with Fannie Mae. Pools may be national, regional, or geographically focused, subject to post-closing asset management strategies and restrictions, and consist of vacant and / or occupied (including rented) properties. Sales of controlling equity interests will be limited to qualified investors.

via HomePath.com – For Investors – Structured Sales.

New Multifamily Housing Construction at 20-Year Low

Plunge in Apartment Construction

“NAREIT’s analysis shows that construction of multifamily units plunged to a nearly 20-year low during the recession, creating a supply shortfall. According to the analysis, between 2008 and 2010, construction of multifamily units fell as much as 70 percent from its trend growth rate over the past decade.

Although multifamily construction starts have increased since the beginning of 2010, the number of units under construction remains at nearly 60 percent below its long-term average.

‘Squeezing off the construction pipeline for four years, on its own, has produced a shortfall of more than 500,000 apartment units relative to the number that would be needed just to satisfy the demand produced by normal population growth over that period,’ Schnure said.

‘However, there is nothing normal about the demand scenario for apartment units that will come into play as the economy continues to recover, accelerating the job growth we are beginning to see now,’ he said.

via New Multifamily Housing Construction at 20-Year Low.