Archive for October, 2011



In part 2…

Exploring Real Estate Investments: What Is Real Estate? Part 2 , I presented the investment selection matrix, which outlines your alternatives when choosing the kind of real estate investment to make. You can choose to invest in the following types: public equity, private equity, public debt and private debt. In this chapter, we will expand on these structures with a particular focus on equity real estate investments.

Public Equity
Public equity is made up of real estate securities such as standard equity REITs or publicly traded real estate operating companies. Because investments are traded on a stock exchange, they tend to exhibit return patterns that are similar to equities, even though the underlying assets are real estate.

At any point in time, these public securities will be trading at a discount or a premium to their net asset values (NAVs), meaning that the value of the company is different than the sum of the underlying real estate values. This occurs as a result of the stock market valuation of these securities, which incorporates things like investor sentiment and psychology. It is important to be aware of this characteristic when making an investment in a real estate security because such investments can perform very differently than the underlying real estate that these public companies own.

One of the benefits of buying a security is the relative ease of acquisition. You buy it in the same manner as you would buy a stock – phone your broker, make the order and pay the relevant commission. You also achieve good liquidity with these investments, because they can be sold on short notice into the market with none of the usual delays that take place in the private market.

Private Equity
Private equity real estate investing is the traditional ownership method. If you own a home, you’ve participated in this market.

There are a number of things to keep in mind when looking for deals, here are a few tips to follow:

  • The key to locating investment opportunities is to be in touch with the various deal sources. You should get to know various real estate brokers and dealers. It also helps to have a network of other real estate owners, so you can keep up with an ever-changing market. You can find deals in unexpected places, such as your banker, lawyer, mortgage broker or through foreclosure records.
  • Over time, your reputation becomes very important in maintaining a reliable flow of investment opportunities. If you are a person that people want to deal with, opportunities will come to you easier.
  • Take your time to find the investment that meets your desired characteristics. You’ll be better off waiting for the right investment than rushing into a questionable one.
  • Look for positive fundamentals in all of your investments. Always ask yourself what drives tenants to want to be in the building you’re considering, and what could happen in the future to affect the desirability of the property. Consider things such as quality of tenants, building configuration, location, condition and ability to finance.

When you find the right deal, always complete a financial analysis to make sure the returns meet your investment criteria. If you need financing, speak to a lender or a mortgage broker to determine what type of mortgage is available, and then include the financing in your financial model.

It is also worthwhile to complete a thorough due diligence on your prospective investment. This process can include having reports completed on the physical and environmental condition of the property, and having an appraisal performed. Your lawyer will be able to obtain a variety of search results and will assist in examining the title. Depending on the complexity of the purchase, there are many other tasks that may be required.

There are many costs related to due diligence and the purchasing process, so be sure these costs become part of your financial analysis. Some typical costs include lawyer’s fees, financing fees, appraisal costs and other administrative fees.

Don’t think that your job is done after your purchase; here are some things you need to consider after purchasing your piece of real estate:

  • You should determine how you are going to manage the investment. Will you do it yourself or hire a manager? Remember that cost accounting will be required.
  • Tenant relationships are critical, so always respect their requirements and maintain a working business relationship with them.
  • Remember that if you hire a property manager, they are not managing the long-term strategy of the property, unless it is specifically agreed upon that they will handle that role. It is up to you to ensure the long-term viability of the investment and to instruct the property manager with respect to strategy, such as redeveloping or selling the property.
  • The decision to sell is as important as the decision to buy, but remember that there will be trading costs associated with completing a sale.

Public and Private Debt
A common example of public debt is a commercial mortgage-backed security (CMBS). A CMBS is a pool of mortgage loans that are assembled by a lender, and then sold in tranches to the public market. As borrowers make their regular mortgage payments, the proceeds are pooled together and then are paid to the owners of the debt securities in a priority dictated by the rating of the security.

The security’s rating is determined by a third party rating service such as Moody’s, Fitch, Standard & Poor’s and Dominion Bond Rating Service. The rating process involves the agency reviewing the pool of mortgage loans, including an examination of the underlying collateral assets, to determine the quality of cash flow that is likely to be derived from those loans.

If the loans are of a very high credit quality, a larger proportion of the mortgage pool will be assigned an AAA rating. The rating categories are consistent with bond rating categories, so for instance the A tranche is subordinate to the AAA tranche, and the buyer of the B-piece will be subordinate to all of the more senior tranches. Usually, all the holders of the more senior securities must receive their principal and interest payments before the subordinate pieces receive theirs. As such, tranches with lower credit quality are riskier, but have higher return potential.

Because each tranche of the loan pool has a different set of risks, maturity, sensitivity to changes in interest rates and return, your investment decision should be based on the type of exposure you require for your portfolio. It should also incorporate your assessment of the interest rate environment and any likely changes. CMBS securities can be purchased from a broker of such securities. It is recommended that you consult with an advisor prior to purchasing such securities because they can behave differently depending on the interest rate environment.

Private debt is not so much purchased as it is issued. That is, if you would like to invest in private debt, you should provide mortgage financing to an owner of real estate. In return for your mortgage loan, you will receive a fixed or floating interest rate, and a priority claim on the real estate assets in the event of default on the loan. A common example of investing in private debt is a vendor take-back mortgage (VTB). If you own a commercial property and sell it to a purchaser, you could choose to accept all or part of the payment over time. Just like a conventional mortgage received from a financial institution, the purchaser would pay interest on the borrowed funds over the length of the term, and you would register your claim to receive the payments on the title to the property.

Another alternative is to make a contribution into a private mortgage pool, which is a pool of capital that is invested in a variety of mortgages. Such an investment would require diligence to determine its risk, because there is no third party rating agency to depend upon. A benefit of a mortgage pool versus a VTB is that a default of one mortgage will have less of an impact on your investment if it is combined with other mortgages to balance the risk. To purchase units in a private mortgage pool, you should contact an investment manager who assembles such pools, or a broker involved in the private mortgage market.

Source: Investopedia and Ian Wovchuk, CFA 

Link: http://www.investopedia.com/#axzz1bjCvNCt1

Blue’s Comments:

**Key points I want to high light here are:

1. You should determine how you are going to manage the investment. Will you do it yourself or hire a manager?

2. Remember that if you hire a property manager, they are not managing the long-term strategy of the property, unless it is specifically agreed upon that they will handle that role.

3. The decision to sell is as important as the decision to buy, but remember that there will be trading costs associated with completing a sale.

4. Tenant relationships are critical, so always respect their requirements and maintain a working business relationship with them

5. And instead of  private mortgage pool, I would consider Limited Partnership Pools on Depressed Commercial Property’s that can be easily bought from Banks and Fanny Mae and such..the long term short term capital gains rules apply here and might be more of advantage in today’s markets..

6. There are many costs related to due diligence and the purchasing process, so be sure these costs become part of your financial analysis. Some typical costs include lawyer’s fees, financing fees, appraisal costs and other administrative fees….Blue

Foot Note: Check with your Legal Advisory Team when making such moves and do your due diligence on all deals and details..Blue


In my Tycoon Report article from this past June 16th,Better Than 10% Yield… In This Environment?, I outlined a very powerful options strategy and shared a detailed actionable example.

The strategy entailed the sale of ONE Put option contract as a replacement for every 100 shares of stock that you were considering to purchase.

The idea is to sell an out-of-the-money Put option (lower than the stock’s spot price) at a strike price that you would be prepared to own in the event that the stock happened to indeed trade lower.

Of course, for selling the Put option contract and obligating yourself to possibly take delivery of the stock until expiration, you collect a premium that is yours to keep.

For many investors, selling unhedged naked Puts can be perceived as a reckless or dangerous strategy.  However, if constructed properly and applied to the appropriate securities, it can be extremely advantageous — especially in a volatile, oversold market.

Revisiting this prior article can be a great learning experience, and reinforce how to properly apply this option strategy.

If you recall, we applied this strategy on Verizon Communications (symbol: VZ) back on June 16, 2011.

With VZ trading at $35.12, we considered selling the VZ October 33 Puts for a 1.16 credit.  Each Put contract sold would obligate us to purchase 100 shares of VZ at $33 if we were to be assigned.  And each contract netted $116 in cash from the sale.

The thesis behind this type of strategy is to write (sell) Put options on very safe, fundamentally solid companies that we would be comfortable owning either at the current price or, more importantly, at the strike price we sold, which could trigger the obligation.

We outlined the two scenarios that can occur by expiration.  Either the stock price stays above the strike price and we get to book the entire premium collected, or the stock trades below the strike price, which will obligates us to take delivery.

If the latter were to occur, we would get to buy an attractive stock that we like at a discount.

So let’s take a look at the updated daily chart on VZ…

The red arrow shows the day we sold the VZ October 33 Puts for a 1.16 credit, with VZ trading at $35.12.  The green solid line shows the level at which we may be obligated to buy the stock (strike price), and the green dotted line would be our break even in the event we were put the stock.  The break even is the strike price less the credit we took in, so our adjusted cost basis would have been $31.84.

About 120 days have passed since the trade was initiated, which was BEFORE the U.S. debt downgrade and flare up of the European sovereign debt crisis.  Both events — and the severity of the situation — were clearly an unknown at the time.

Notice the price action in VZ — it did indeed sell-off during the massive market volatility of the past nine weeks, but once it hit that solid area of resistance around the strike price we strategically sold, it held firm.

As you can see, owning Verizon at those reduced levels would have been an attractive result.  But it rebounded smartly off of those oversold levels.

Now wind it back to yesterday’s close and you can see that VZ settled at $36.67.  The October Puts that were sold actually expire next Friday, October 21.  That will terminate the contract and release you from any further obligations.

The result:  You get to keep the entire amount from the premium sale, AND you’ve made a 10% annualized return.

One very important suggestion…

There are still 6 trading days until expiration, and I always recommend to my subscribers that when you get the opportunity to take risk off the table, free up capital, and lock in substantial gains at a very cheap price, you should look to do so.

For example, the October 33 Puts can be purchased back for as little as $0.02 per contract — a small but prudent price to pay to terminate the trade a little early.

The three takeaways from analyzing this play:

1. Use this strategy in stocks you are comfortable owning, particularly at the strike price you decide to sell.

2. Use leverage properly.  Sell the appropriate amount of contracts that coincides with how many shares you would be comfortable owning.  (ONE option contract equals 100 shares of stock.)

3. Don’t be afraid of this strategy — especially in washed out, high volatility markets.  Use its strength by targeting downside strikes showing compelling support levels that you would welcome into your portfolio.

Source: Contributing Editor Costas Bocelli with the  The Tycoon Report

Blue”s Comments:

The three takeaways from analyzing this play:

1. Use this strategy in stocks you are comfortable owning, particularly at the strike price you decide to sell.

2. Use leverage properly.  Sell the appropriate amount of contracts that coincides with how many shares you would be comfortable owning.  (ONE option contract equals 100 shares of stock.)

3. Don’t be afraid of this strategy — especially in washed out, high volatility markets.  Use its strength by targeting downside strikes showing compelling support levels that you would welcome into your portfolio.”

I couldn’t have said that any better!!  Even though there is an unbelievable amount of money made with naked trading as it was described above..I do not recommend this type of trading for the avg Joe..be careful and do your due-diligence here for sure..Blue


Yesterday, a few hours after the Nobel Prize for Literature had been awarded to Tomas Transtromer, I received from former Nobel staffer Simon Frantz an audio clip that seized my heart. It is a 1954 recording of Ernest Hemingway reading his acceptance speech for the prize that year. (Hemingway did not attend the banquet, but had the U.S. Ambassador to Sweden read his short speech; soon after he recorded this audio in Cuba.)

I have read the speech a few times before. Yet when I listened to it today for the first time, at a time when I am re-reading his stories now and have him much on my mind, the words struck me with a new power. He was in a terrible place just then. He had written several great books and, more recently, some not so great and one, The Old Man and the Sea, a sort of small triumph that yet fell short of his best. In the seven years that remained before he would take his life because he could no longer write, he managed to assemble his powers for only one more great book — A Moveable Feast, his memoir of Paris and youth. He still reaches, but he cannot grasp. It will get worse, but he reaches still.

For a true writer each book should be a new beginning where he tries again for something that is beyond attainment. He should always try for something that has never been done or that others have tried and failed. Then sometimes, with great luck, he will succeed.

This, from “A Cat in the Rain,” 30 years earlier:

It was raining. The rain dripped from the palm trees. Water stood in pools on the gravel paths. The sea broke in a long line in the rain and slipped back down the beach to come up and break again in a long line in the rain.

That last sentence is the surf; less representation than replication of a natural cycle.

I don’t know how hard he had to work to write it — sometimes it came easy to him, sometimes not — but he did it. By the time he won the prize he couldn’t do it anymore. He could not generate the luck and could only rarely succeed, and he knows it. His pain imbues every second of this recording. So does his courage in trying to continue.

… out past where he can go, where no one can help him.

 

Thoughts of another writer waiting in the wings….Blue

Hemingway’s reputation has suffered immensely over the last two or three decades. Read around enough and you’ll see this. And I can feel it when I occasionally confess to people — for you don’t tell this, you confess it — that I love him and his writing. I always sense a bit of a surprise, as if that’s a rather strong feeling for a man who could be so odious and a writer who at times nudged close or fell in to self-parody. I’ve long thought of trying to explain what makes him so great and how he so utterly captivated me when I discovered him in my early teens. Now I don’t need to explain it…

Blue’s Thoughts

I have taken  many a trip to  the Keys and walked on his ole Boat that is preserved in A Sports Fishing Store in the Middle Keys. I find myself imagining catching that big Marlin off the Coast of the Dry Tortuga’s just due South of Key West on my home made offshore angler’s Favorite Squid Lure..My most watched movie and novel as a kid was “The Old Man in the Sea” with starring a weather beaten Spencer Tracy…What an Awesome Movie…And a best seller for Hemingway i’m sure…. I would read the novel under my blankets at night with my Green Hornet Flashlight and thought i was heaven..Thanks Ernest Hemingway for those great memories and  Mom for all those double D batteries !!….Blue/jp

The Nobel Acceptance Speech text is below. But best to listen.

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Banquet Speech by Ernest Hemingway (excerpt)(2 minutes)

As Ernest Hemingway was unable to be present at the Nobel Banquet at the City Hall in Stockholm, 10 December 1954, the speech was read and recorded on a later date. In this audio recording, you can hear paragraph 2-7.

Listen:

http://www.nobelprize.org/mediaplayer/index.php?id=1399

 Ernest Hemingway’s Nobel Acceptance Speech

No writer who knows the great writers who did not receive the Prize can accept it other than with humility. There is no need to list these writers. Everyone here may make his own list according to his knowledge and his conscience. It would be impossible for me to ask the Ambassador of my country to read a speech in which a writer said all of the things which are in his heart. Things may not be immediately discernible in what a man writes, and in this sometimes he is fortunate; but eventually they are quite clear and by these and the degree of alchemy that he possesses he will endure or be forgotten.Writing, at its best, is a lonely life. Organizations for writers palliate the writer’s loneliness but I doubt if they improve his writing. He grows in public stature as he sheds his loneliness and often his work deteriorates. For he does his work alone and if he is a good enough writer he must face eternity, or the lack of it, each day.For a true writer each book should be a new beginning where he tries again for something that is beyond attainment. He should always try for something that has never been done or that others have tried and failed. Then sometimes, with good luck, he will succeed.How simple the writing of literature would be if it were only necessary to write in another way what has been well written. It is because we have had such great writers in the past that a writer is driven far out past where he can go, out to where no one can help him.I have spoken too long for a writer. A writer should write what he has to say and not speak it. Again I thank you.


Posted: Oct 11, 2011

The global economic recession of 2008 is often linked to the United States housing bubble and subprime mortgages. In the aftermath of the recession, there was much negative sentiment over the real estate sector and few were inclined to consider investments into the sector, in a positive sense.

However, real estate investment is simply the purchase of a future income stream from property and quite undeserving of the tarnish to its reputation. Here are some of the key reasons to invest in real estate.

Competitive Risk-Adjusted Returns
Based on data from the National Council of Real Estate Investment Fiduciaries (NCREIF), private market commercial real estate returned an average of 8.4% over the 10-year period from 2000 to 2010. This credible performance was achieved, together with low volatility relative to equities and bonds, for highly competitive risk-adjusted returns.

Critics would argue that the low volatility characteristic of real estate is the result of infrequent real estate transactions. This means that property values are often determined by third-party appraisals, which tend to lag the market. The infrequent transactions and appraisals result in a smoothing of returns, as reported property values underestimate market values in an upturn and overestimate market values in a downturn.

While it’s true that historic estimates of real estate volatility should be adjusted upward, real time markets are vulnerable to sudden unexpected shocks. A good example of this would be the “Flash Crash” of May 2010, when $1 trillion in stock market value was erased in just 15 minutes. In an environment where marketvolatility is an issue and the dynamics of algorithmic trading are murky, the more stable pricing of real estate is attractive.

NCREIF U.S. National Property Index Returns
Source: NCREIF, http://www.ncreif.org/property-index-returns.aspx, 14 July 2011

 

High Tangible Asset Value
Unlike stocks and, to some extent, bonds, an investment in real estate is backed by a high level of brick and mortar. This helps reduce the principal-agent conflict, or the extent to which the interest of the investor is dependent on the integrity and competence of managers and debtors. Even real estate investment trusts (REITs), which are listed real estate securities, often have regulations that mandate a minimum percentage of profits be paid out as dividends.

Attractive and Stable Income Return
A key feature of real estate investment is the significant proportion of total return, accruing from rental income over the long term. Over a 30 year period from 1977 to 2007, close to 80% of total U.S. real estate return was derived from income flows. This helps reduce volatility as investments that rely more on income return, tend to be less volatile than those that rely more on capital value return.

Real estate is also attractive when compared with more traditional sources of income return. The asset class typically trades at a yield premium to U.S. Treasuries and is especially attractive in an environment where Treasury rates are low.

Portfolio Diversification
Another benefit of investing in real estate is its diversification potential. Real estate has a low, and in some cases, negative, correlation with other major asset classes. This means the addition of real estate to a portfolio of diversified assets can lower portfolio volatility and provide a higher return per unit of risk.

Inflation Hedging
The inflation hedging capability of real estate, stems from the positive relationship between GDP growth and demand for real estate. As economies expand, the demand for real estate drives rents higher and this, in turn, translates into higher capital values. Therefore, real estate tends to maintain the purchasing power of capital, by passing some of the inflationary pressure on to tenants and by incorporating some of the inflationary pressure, in the form of capital appreciation.

The Drawback: Illiquidity
The main drawback of investing in real estate is illiquidity, or the relative difficulty in converting an asset into cash and cash into an asset. Unlike a stock or bond transaction, which can be completed in seconds, a real estate transaction can take months to close. Even with the help of a broker, simply finding the right counterparty can be a few weeks of work.

That said, advances in financial innovation have presented a solution to the issue of illiquidity, in the form of listed REITs and real estate companies. These provide indirect ownership of real estate assets and are structured as listed corporations. They offer better liquidity and market pricing, but come at the price of higher volatility and lower diversification benefits.

The Bottom Line
Real estate is a distinct asset class that is simple to understand and can enhance the risk and return profile of an investor’s portfolio. On its own, real estate offers competitive risk-adjusted returns, with less principal-agent conflict and attractive income streams. It can also enhance a portfolio, by lowering volatility through diversification. Though illiquidity can be a concern for some investors, there are ways to gain exposure to real estate, such that illiquidity is reduced, if not brought on-par with that of traditional asset classes.

Source: Investopedia

Link: http://www.investopedia.com/#axzz1aaRcm87d

Blue’s Comments:

Pro = Inflation Hedging
The inflation hedging capability of real estate, stems from the positive relationship between GDP growth and demand for real estate. As economies expand, the demand for real estate drives rents higher and this, in turn, translates into higher capital values. Therefore, real estate tends to maintain the purchasing power of capital, by passing some of the inflationary pressure on to tenants and by incorporating some of the inflationary pressure, in the form of capital appreciation.

Con =  The Drawback: Illiquidity

The main drawback of investing in real estate is illiquidity, or the relative difficulty in converting an asset into cash and cash into an asset. Unlike a stock or bond transaction, which can be completed in seconds, a real estate transaction can take months to close. Even with the help of a broker, simply finding the right counterparty can be a few weeks of work.

That said, advances in financial innovation have presented a solution to the issue of illiquidity, in the form of listed REITs and real estate companies. These provide indirect ownership of real estate assets and are structured as listed corporations. They offer better liquidity and market pricing, but come at the price of higher volatility and lower diversification benefits.

Look for Deals with Bank Depressed or over exposed Property’s they are holding..they will look forward to talking with you.. be careful of short sales and hidden 2nd Mortgages that they don’t share with you..Shorts sales can be good but do your do-dilagence here or you could be very sorry !..Court house step sales are a great way to seek good deals too..I will discuss these in future Blogs reports on Real Estate Investments…Blue


As we discussed in Part 1, real estate is usually held as part of a larger portfolio, and is generally considered an alternative investment class. Real estate fits well as part of a portfolio because it has several qualities that can enhance the return of a larger portfolio, or reduce portfolio risk at the same level of return. Here I discuss the Pro’s ( Benefits) and Con’s (other considerations)
Benefits 
Some of the benefits of having real estate in your portfolio are as follows:

  1. Diversification Value – The positive aspects of diversifying your portfolio in terms of asset allocation are well documented. Real estate returns have relatively low correlations with other asset classes (traditional investment vehicles such as stocks and bonds), which adds to the diversification of your portfolio. 
  2. Yield Enhancement - As part of a portfolio, real estate allows you to achieve higher returns for a given level of portfolio risk. Similarly, by adding real estate to a portfolio you could maintain your portfolio returns while decreasing risk.
  3. Inflation Hedge – Real estate returns are directly linked to the rents that are received from tenants. Some leases contain provisions for rent increases to be indexed to inflation. In other cases, rental rates are increased whenever a lease term expires and the tenant is renewed. Either way, real estate incometends to increase faster in inflationary environments, allowing an investor to maintain its real returns. 
  4. Ability to Influence Performance - In previous chapters we’ve noted that real estate is a tangible asset. As a result, an investor can do things to a property to increase its value or improve its performance. Examples of such activities include: replacing a leaky roof, improving the exterior and re-tenanting the building with higher quality tenants. An investor has a greater degree of control over the performance of a real estate investment than other types of investments.

Other Considerations
Real estate also has some characteristics that require special consideration when making an investment decision:

  • Costly to Buy, Sell and Operate - For transactions in the private real estate market, transaction costs are significant when compared to other investment classes. It is usually more efficient to purchase larger real estate assets because you can spread the transaction costs over a larger asset base. Real estate is also costly to operate because it is tangible and requires ongoing maintenance.
  • Requires Management - With some exceptions, real estate requires ongoing management at two levels. First, you require property management to deal with the day-to-day operation of the property. Second, you need strategic management of the property to consider the longer term market position of the investment. Sometimes the management functions are combined and handled by one group. Management comes at a cost; even if it is handled by the owner, it will require time and resources.
  • Difficult to Acquire – It can be a challenge to build a meaningful, diversified real estate portfolio. Purchases need to be made in a variety of geographical locations and across asset classes, which can be out of reach for many investors. You can, however, purchase units in a private pool or a public security, and these units are typically backed by a diverse portfolio.
  • Cyclical (Leasing Market) – Not unlike other asset classes, real estate is cyclical. Real estate has two cycles: the leasing market cycle and the investment market cycle. The leasing market consists of the market for space in real estate properties. As with most markets, conditions of the leasing market are dictated by the supply side, which is the amount of space available (or, vacancies), and the demand side, which is the amount of space required by tenants. If demand for space increases, then vacancies will decrease, and the resulting scarcity of space will cause an increase in market rents. Once rents reach economic levels, it becomes profitable for developers to construct additional space so that supply can meet demand.
  • Cyclical (Investment Market) – The real estate investment market moves in a different cycle than the leasing market. On the demand side of the investment market are investors who have capital to invest in real estate. The supply side consists of properties that are brought to market by their owners. If the supply of capital seeking real estate investments is plentiful, then property prices increase. As prices increase, additional properties are brought to market to meet demand.Although the leasing and investment market have independent cycles, one does tend to influence the other. For instance, if the leasing market is in decline, then growth in rents should decrease. Faced with decreasing rental growth, real estate investors might view real estate prices as being too high and might therefore stop making additional purchases. If capital seeking real estate decreases, then prices decrease to force equilibrium.Although timing the market is not advisable, you should be aware of the stage of the market when you are making your purchase and consider how the property will perform as it moves through the cycles.
  • Performance Measurement - In the private market there is no high quality benchmark to which you can compare your portfolio results. Similarly, it is difficult to measure risk relative to the market. Risk and return are easy to determine in the stock market but measuring real estate performance is much more challenging.

Source: .Investopedia

Link: http://www.investopedia.com/#axzz1aaRcm87d

Blue’s Comments:

Real estate returns have relatively low correlations with other asset classes (traditional investment vehicles such as stocks and bonds), which adds to the diversification of your portfolio…  By adding real estate to a portfolio you could maintain your portfolio returns while decreasing risk…Real Estate income tends to increase faster in inflationary environments, allowing an investor to maintain its real returns…. Because real estate is a tangible asset. As a result, an investor can do things to a property to increase its value or improve its performance…..Although timing the market is not advisable, you should be aware of the stage of the market when you are making your purchase and consider how the property will perform as it moves through the cycles…Buy Low Sell high applies here or Buy low and hold for Rental Income producing Capital to enhance your Portfolio..Blue

Stay tuned for Part 6 on Exploring Real Estate Investments: Buying And Owning Real Estate


 

One of the beneficial features of real estate is that it produces relatively consistent total returns that are a hybrid of income and capital growth. In that sense, real estate has a coupon-paying bond-like component in that it pays a regular, steady income stream, and it has a stock-like component in that its value has a propensity to fluctuate. And, like all securities that you have a long position in, you would prefer the value to go up more often than it goes down!

The income return from real estate is directly linked to the rent payments received from tenants, minus the costs of operating the property and outgoing mortgage/financing payments. So, you can understand how important it is to keep your property as full as possible. If you lose too many tenants, you won’t have sufficient rents being paid by the other tenants to cover the building operating costs. Your ability to keep the building full depends on the strength of the leasing market – that is, the supply and demand for space similar to the space you are trying to lease. In weaker markets with oversupply of vacancies or poor demand, you would have to charge less rent to keep your building full than in a strong leasing market. And unfortunately, if your rents are lower, your income returns are lower.

Capital appreciation of a property is determined by having the property appraised.,   an appraiser uses actual sale transactions that have occurred and other pieces of market data to estimate what your property would be worth if it were to be sold. If the appraiser thinks your property would sell for more than you bought it for, then you’ve achieved a positive capital return. Because the appraiser uses past transactions in judging values, capital returns are directly linked to the performance of the investment sales market. The investment sales market is affected largely by the supply and demand of investment product.

The majority of the volatility in real estate returns comes from the capital appreciation component of returns. Income returns tend to be fairly stable, and capital returns fluctuate more. The volatility of total returns falls somewhere in between.

Other Characteristics
Some of the other characteristics that make real estate unique as compared to other investment alternatives are as follows:

  1. No fixed maturity
    Unlike a bond which has a fixed maturity date, an equity real estate investment does not normally mature. In Europe, it is not uncommon for investors to hold property for over 100 years. This attribute of real estate allows an owner to buy a property, execute a business plan, then dispose of the property whenever appropriate. An exception to this characteristic is an investment in fixed-term debt; by definition a mortgage would have a fixed maturity.
  2. Tangible
    Real estate is, well, real! You can visit your investment, speak with your tenants, and show it off to your family and friends. You can see it and touch it. A result of this attribute is that you have a certain degree of physical control over the investment – if something is wrong with it, you can try fixing it. You can’t do that with a stock or bond.
  3. Requires Management
    Because real estate is tangible, it needs to be managed in a hands-on manner. Tenant complaints must be addressed. Landscaping must be handled. And, when the building starts to age, it needs to be renovated.
  4. Inefficient Markets
    An inefficient market is not necessarily a bad thing. It just means that information asymmetry exists among participants in the market, allowing greater profits to be made by those with special information, expertise or resources. In contrast, public stock markets are much more efficient – information is efficiently disseminated among market participants, and those with material non-public information are not permitted to trade upon the information. In the real estate markets, information is king, and can allow an investor to see profit opportunities that might otherwise not have presented themselves.
  5. High Transaction Costs
    Private market real estate has high purchase costs and sale costs. On purchases, there are real-estate-agent-related commissions, lawyers’ fees, engineers’ fees and many other costs that can raise the effective purchase price well beyond the price the seller will actually receive. On sales, a substantial brokeragefee is usually required for the property to be properly exposed to the market. Because of the high costs of “trading” real estate, longer holding periods are common and speculative trading is rarer than for stocks.
  6. Lower Liquidity
    With the exception of real estate securities, no public exchange exists for the trading of real estate. This makes real estate more difficult to sell because deals must be privately brokered. There can be a substantial lag between the time you decide to sell a property and when it actually is sold – usually a couple months at least.
  7. Underlying Tenant Quality
    When assessing an income-producing property, an important consideration is the quality of the underlying tenancy. This is important because when you purchase the property, you’re buying two things: the physical real estate, and the income stream from the tenants. If the tenants are likely to default on their monthly obligation, the risk of the investment is greater.
  8. Variability among Regions
    While it sounds cliché, location is one of the important aspects of real estate investments; a piece of real estate can perform very differently among countries, regions, cities and even within the same city. These regional differences need to be considered when making an investment, because your selection of which market to invest in has as large an impact on your eventual returns as your choice of property within the market…..

Source:

Link:

Blue’s Comments:

Here We covered the 8 main Characteristics that may be common sense but never discounted as so.. A few major points here are…..1. when you purchase the property, you’re buying two things: the physical real estate, and the income stream from the tenants. 2. An inefficient market is not necessarily a bad thing. It just means that information asymmetry exists among participants in the market, allowing greater profits to be made by those with special informationexpertise or resources….Take your time when searching for Income producing Propertys and find the right fit for you and your Real Estate Portfolio…Blue
Footnote: My next series on Exploring Real Estate Investments will be on ” Advantages And Disadvantages ” Part 5 …Blue


OCTOBER 3, 2011
BY JACK BARNES, Global Macro Trends Specialist, Money Morning

Here’s a company to get genuinely excited about: Southern Copper Corp. (NYSE: SCCO).

Why?

Because Southern Copper has world-class assets and high profit potential, but its share price has taken a dive amid all of the recent market turmoil.

I love to find a sound business whose stock price has been pummeled in the uncertain markets. It screams bargain and is a major buying opportunity.

And in this case, the fact that Southern Copper’s stock price has dropped means its already-juicy dividend has increased. Currently the company’s $2.48 dividend equates to a 9.5% yield.

Plus, it’s consistent: Over the last five years, Southern Copper has averaged a payout of 83% of its after-tax profits.

Given all that, it’s time to buy this high-yielding, high-quality mining company (**).

Southern Copper Corp. Outshines the Competition

Southern Copper Corp., founded in 1952, engages in mining, smelting, and refining mineral properties in Peru, Mexico, and Chile. It has the largest copper reserves of any publicly traded company, and last year mined more than 1 billion tons of copper. That means it is perfectly positioned to profit from increasing global demand for copper.

The company operates the Toquepala and Cuajone mines in the Andes Mountains located southeast of Lima, Peru, as well as a smelter and refinery in the coastal city of Ilo, Peru. It also operates underground mines that produce zinc, gold, and lead, as well as a coal mine that produces coal and coke.

Southern Copper’s mines are estimated to have a productive life of about 80 years. That means 80 years of revenue from copper, gold and silver deposits.

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Southern Copper has built a fully integrated operations model that allows it to mine the raw material, refine it, and export the final product. As a result, the company controls each of the value-added steps in copper production. It’s also made Southern Copper the sixth-largest copper producer in the world, the seventh-largest copper smelter and the ninth-largest copper refiner.

The company’s cash operating cost is $1.61 per pound to produce copper, but that cost is lowered to 31 cents per pound by subtracting profits from the mines’ byproducts of gold, silver, lead, zinc and coal.

That’s a lot of secondary profits hitting the bottom line.

Southern Copper Corp. is a subsidiary of Americas Mining Corp. Its stock is 80% controlled by the parent company Grupo Mexico S.A. de C.V. (PINK: GMBXF), with the public markets owning the other 20%. This relationship is beneficial because Southern Copper is protected by one of the largest companies in the world.

However, this structure has a potential downside: Investors in Southern Copper Corp. could be bought out at some point. The parent division has made an offer to relist the merged divisions, which would include replacing the current shares with newly-listed shares and a slightly different share count.

Normally, I shy away from companies with open corporate actions in front of the board of directors. In this case, however, I am willing to look past the possible changes because of the quality assets and profit potential Southern Copper has to offer.

The company reported second-quarter net income of $658 million, 110% higher than 2010’s second quarter. Sales were up 54% to $1.8 million.

The company has a market capitalization of $26 billion with an enterprise value of $28 billion once net debt and cash is accounted for. Its price/earnings (P/E) ratio is 10.73.

Southern Copper Corp. is trading right around its 52-week low of $25.06 and closed Friday at $24.98.

Action to Take: Buy Southern Copper Corp. (NYSE: SCCO) (**).

Southern Copper Corp. gives us a chance to own the longest-life copper mines and largest total copper reserves in the world. Plus, the company has a long history of paying out a large, regular dividend to its investors.

Let’s use the current weakness in price, with the stock trading near its 52-week low, to start building our position in this company.

If you are considering exposing a full 3% of your portfolio to this position, let’s consider buying one-third of the position (or 1% of your total portfolio) now at market. This gets us into the stock at low levels.

Since the stock has already broken down in a very weak market, let’s exercise some patience and put in some GTC (good-“til-canceled) limit orders at 5% and 15% below where we pick up our first leg in.

This will give us real exposure to the company with our entry, while allowing us a chance to build our position at a lower cost per share.

(**) Special Note of Disclosure: Jack Barnes has no interest in Southern Copper Corp. (NYSE: SCCO). 

Source: Money Morning: All the News You Can Profit From
Blue’s Comments:
The Biggest No-Brainer Of The Year !!! at 52 week lows here I would jump all over this as to add to your Precious Metals Portfolio..We will see Copper back up to 52 weeks highs in no time..

DINAR FOR DUMMIES…..the history of the Dinar ….great for those with little knowledge of how and why.
The modern current Iraqi DINAR is the currency of Iraq that was adopted and began printing in 2003 after the fall of the Saddam Hussein dictatorship. The US gov under G.Bush 41 planned and directed the dinar project with the help of the US military invasion. Military oversight began with the invasion of Iraq and the subsequent overthrow of Saddam.The Central Bank of Iraq was established to formulate new economic policy and service the monetary system of Iraq’s new regime. With the US intervention came the influx of the USDollar into Iraqi economy. Iraq has been a dual currency society since the US invasion…with the dollar being their primary currency in the market place. The plan was to create dependency as we created and set the value of the new dinar, and at such a low exchange rate that it would not be tradable and difficult to be of any practical use in the market place.All world currencies have an established value which is stated in relation to the USDollar (the world standard). All currency values are based upon a given country’s GNP/GDP (resources and production which is marketable to other countries) and the currency value which is mathematically regulated by the IMF (International Monetary Fund).Iraq natural resources are evaluated (according to studies) to be the richest land/ country on the planet. The US invaded Iraq in order to gain a foothold in their valuable OIL resources. The value of the dinar in the 1970s was 1 dinar = $3.22 usd. When we (G.Bush Sr.) invaded Iraq, and Saddam was overthrown, we devalued the old Saddam dinar currency to a ridiculous level in order to discourage its usage and create dependency. At that time the value of the dinar was taken down to an all time low of 3000 dinar = $1 USD. It was then that the US directed the creation of a new currency (a new dinar) with a world wide master plan that would eventually see trillion$ into the pockets of the US Gov and elite individuals. …Slowly the value has risen today to the current exchange rate of 1170 dinar/QD =$1 USD. Today 1 million dinar (IQD) is worth approximately $860 USD. One will pay more through dealers who charge a fee for their handling and services.

Because of Iraqi atrocities done to Kuwait under Saddam, the UN (United Nations) placed embargos and sanctions against Iraq during the rebuilding efforts which were lead by and under the direction of US gov. Iraq was no longer a sovereign nation. Our efforts in Iraq and the UN intension was to one day see Iraq free, independent, and a sovereign nation that would be able to function in the free world as a major international contributor of natural resources (oil, natural gas, minerals). Iraq is a valuable resource provider that we need…and Iraq needs us.For US aid and efforts to establish a new democracy in Iraq, the US was granted 4 trillion dinar (IQD) of the 30T newly printed currency. The US currently holds nearly 4T dinar for what we know will one day be our pay off when Iraq establishes their government, and once again gains their independence and sovereignty. The culmination of Iraq’s new status in the world will be evidenced by their ability to re-enter the international economic world, and this will necessitate a revaluation (RV) of their new currency (the dinar/IQD). At this time Iraq will be fully able to function as a sovereign nation with one currency (no more USDs) that has established value that reflects their indisputable worth.UN sanctions have deprived Iraq of oil profits which have been held in a fund (DFI) by the US and the UN until such time that Iraq once again establishes themselves by:…..1. fully functioning integrated banking system, ….2. fully seated government, …..and 3. reparations paid under UN sanctions.
At this time the UN, IMF, USA will release Iraq to update/ revalue/ raise the value of their dinar and begin their ascendency into the world banking, trade, and economic systems.This plan to rebuild and revalue (RV) has taken longer than many expected. Many thought this was designed and intended to take place during the G.Bush Jr. administration…it did not. Iraq was simply ….not ready! The revaluation/RV will bring trillions of dollars into the USTreasury coffers…possibly enough to pay the US DEBT? (although we will not do this) ….Because of problems and the delays in recent years….the information of the RV (Iraq revaluing) leaked to the public and individuals found avenues to begin to purchase dinars in hope of the one day …RV. Word has since spread to thousands who have invested dollars to buy dinar with the idea that we will soon exchange the revalued dinar for dollars ….which will be at an established exchange rate near the previous value before the US invaded Iraq and devalued the dinar. Great News!

According to the consensus of intelligent analysis of news and events….on 30 June 2011, Iraq received the release of the $250m DFI fund. They immediately began to pay debts and reparations to other countries in an effort to satisfy and remove UN sanctions in order be declared a fully functioning sovereign nation.

NOW is the time…. We are the generation that will see the greatest wealth transfer in the history of the world.

Source: A friend emailed this to me as seen on a Dinar Forum..
Author in question is   Hoosierbuster
Link: no available Link
Blue’s Comments:
Must say this is very much to the point and fairly well written..i Agree with most of his accounting of what has taken place in Iraq too..Hats of to the Author of this Article…Blue

 

 

 

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Blue’s Comments: 

These Guys Rock !! I really Dig Davids Thoughts and his way of thinking is a stand alone must attend or play back Conference Call..he has such an easy going persona and an awesome delivery of those thoughts..i highly recommend the Revalue team when you have the chance…Blue

 


 

A Tale of Two Cities, Baghdad & Washington

Iraq Dinar: Headlines & Headaches

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Angie’s Place: News, Archive’s & Iraqi Dinar.

A Tale of Two Cities, Baghdad & Washington.

A sister site of Club IQD with news from Iraq and around the World.

Charity Links: http://www.ustroopcarepackage.com/

Click on the LINK BELOW to see ALL of the POSTING’S.

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Blue’s Comments:

This is an awesome site for updated News on Iraq and the IQD for those of you that are Invested in the IQD Currency as I am…They put a lot of Energy in bringing in great articles….Blue

 

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