.
Tim Leigh’s Weekend Market Report
Hoff & Leigh, Inc.
4445 Northpark Drive, Suite 200
Colorado Springs, CO 80907
December 21, 2008
Attached is our complete listing of all properties for sale in Colorado Springs, based on property type - office, industrial and condo. This is the most complete listing that we are aware of. It’s our goal to provide this information, updated weekly. We develop these lists by basic research and cross-checking data points from the PPCIE, local broker's individual web sites, The Turner Book and any other public information domain we can find.
You are receiving this information because, at some point, you asked or a friend referred your name to be included in our e-mail Insider’s List. If you no longer wish to receive this information, send an e-mail reply to me (tim@hoffleigh.com) and ask to be removed. Alternatively, if you know someone who could benefit from the receipt of this information, forward this e-mail to them, and suggest they contact us, so we can consider adding them to our exclusive list.
All Market Average Office Building Sale Price PSF = $111.13 (NO CHANGE from last week.)
We are currently tracking 106 office buildings for sale.
This is 1,163,079 square feet, which represents a total market value of $129,254,895.
All Market Average Industrial Building Sale Price PSF = $74.04 (NO CHANGE from last week.)
We are currently tracking 92 industrial buildings for sale.
This is 1,286,685 square feet, which represents a total market value of $95,268,606.
Somewhat interesting property for sale:
3645 Jeannine Drive: This is like an auction. I’m lowering the price again. You will have to call to find out what the deal is. This is the best opportunity for a value added investor in the market. At the current list price, $995,000 it’s only $20.91 psf. This property had been listed at $1,650,000; we reduced to $1,100,000 and now we’re really seriously-in-the-game for only $20.91 per square foot. This property has a firm remodel budget of $415,000 ($8.72 psf), which includes a new roof, new parking lot, new HVAC and lipstick. When it’s all done & said, this all-in investment would be $20.91 + $8.72 = $29.63 psf. As you know, you can’t frame a building for that cost. This deal produces a newly constructed, multi-tenant building with tremendous lease-up & value-added opportunity. When completed, this project, leased-up should generate between $25,000 - $30,000 per month in gross rent. This is a case study where someone buys low, adds value and thereby increases his balance sheet and income.
In case you missed the description over the past few weeks, the building is a 47,596 sf mixed use facility with warehouse on the ground floor and many small offices littered across the top floor. It is located just south of Austin Bluffs, just west of Academy. The warehouse space should lease-up for $5.50 psf modified gross and the offices should lease-up for $9.00 psf modified gross. The presumption is that the Tenants will pay rent plus utilities, snow removal, janitorial and landscaping charges.
905 Motor City Drive: This is a very clean, former tire shop that sits atop Motor City Drive. The Seller’s are very interested in getting this property off their books, now! The original listing price was $375,000. The new price, for a quick sale is $260,000 or MAKE AN OFFER. The property is 2,952 square feet on a 9,700 square foot, fenced lot. There are 2 overhead doors, with 4 service bays. For an extra $5,000, the deal could include 2 auto lifts. Here’s the value added; buy into Motor City at today’s, currently depressed pricing; lease or use the property for 3 – 5 years and sell for a profit. And, yes, Mitch, there are auto shops still-standing who would rent this building. Or use it for your toys; or share it with a friend with toys like yours; or use it as a club-house. Your wife, most-likely, really would like some time away from you.
3116 Century Street: This is a very clean, multi-tenant investment property that is being sold as part of an estate-liquidation. A friend of mine has owned this property for over 20 years. It is extremely well maintained and well tenanted with class B warehouse users. The typical bay is 1,500 square feet and the typical rent is about $12.00 psf gross. Bob Hoff priced it, so I know it’s reasonably priced. As Bob always said, “the cow is only worth as much milk as it produces.” Its 13,000 square feet. The asking price is $830,000, which is only $63.85 psf, which is $10.19 less than the market average, for an above average property.
13570 Meadowgrass: This is our office condo project. True to market dynamics, and true to the advice I dish-out, as painful as it is, (which goes to show, I share your pain!) I have dropped-my-pants to get a sale. As a percentage, we have reduced our pricing by 20%. For office condos on the north end; with I-25 visibility and unbelievable views of the Air Force Academy & the Front Range, this is the ticket.
3707 Parkmoor Village Drive: UNDER CONTRACT. This is a bank repo. They were very interested in selling; they lowered the price and the buyer showed up as predicted. The asking price was $60.00 per square foot. This is selling a 10% cap rate. The physical plant’s in good condition. This is a cash-cow. The tenants are B rated and on short term leases, but generally, with buildings of this class, once the tenant is in place, they stay in place.
5030 Boardwalk: THE SELLER IS MOTIVATED. MAKE AN OFFER. This is an exceptional deal because of the financing. The Seller will carry the mortgage on soft terms. Also, this is a USER SALE. The property is a good example where there has been a diminution of value because of a waning trade area. The building is clean and doesn’t need modification. Typically, a user/purchaser would utilize 1 of the 4 rental units and lease-out the other 3. The building is 6,383 square feet and priced at $84.60 per square foot ($540,000). The Seller would guarantee that vacant space leases.
Want to know more? Contact me Tim@HoffLeigh.com
View 100’s of listings on our web site, http://www.hoffleigh.com.
719-630-2277
Tim’s Market Notes:
I’m always amazed by the myriad things to poke fun at. Every week I think, “You can’t make this stuff up!” Watching the current political scene . . . Will the idiot Governor with the big hairdo resign? What does he know about Obama? Will someone kill him? It’s classic soap opera drama. Then, just when it can’t get any better, along comes Mardoff’s Ponzi scheme.
Ponzi schemes are named for Charles Ponzi, who in 1920 lured thousands of small investors into a deal that looked safe & lucrative using government stamps. He made millions – in 1920! If you can imagine, people actually mortgaged their homes to invest. He offered guaranteed returns! What was his trick? He paid 1st investors with money from last investors. That’s what Mardoff did. And, is case you’re wondering, there is nothing new under the sun.
And there’s our social security system. It’s the same. The money collected by our fathers in Washington is supposed to be held in trust. Oh yea, I forgot; the government figured out a way to transfer that money from the trust to the general fund thinking they could fund the social security obligation on the backs of the next generation of depositors. Can you say Ponzi? Mardoff? As long as there are more deposits than withdrawals, we’re OK. Unfortunately, there’s a science called demography. It says baby boomer are going to stop putting money in, and, Yicks!, start taking money out, and when that happens, we’re going to be Mardoff’d. I can’t wait until Monday to find out what’s going to happen next. It’s like watching Dallas reruns.
As entertaining as all this is, the week did unfold a very non-descript press release that calls for a sobering wake up call. Warren Buffett, Alan Greenspan, David Walker and other politicos call our national fiscal irresponsibility the single biggest looming disaster facing America today (aside from a nuclear attack on our homeland). The following link is something everyone should watch http://www.iousathemovie.com/. The startling news from the Peter G. Peterson Foundation (http://www.pgpf.org/) says “The sum of America’s liabilities and other financial commitments now exceed the collective net worth of its citizens.”
So you don’t fly off the handle and think I’m writing right wing, nut-job garble, you should know that David Walker, the former Comptroller of the Currency and former head of the Government Accounting Office (GAO) is the President of the Peterson Foundation. He’s tracks these non-partisan figures. They’re scary and they significantly impact the way you should look at your business, investing and our kids’ future.
Peterson’s figures were calculated using the government’s latest data including growth in unfunded commitments for Social Security & Medicare and the drop in American’s net worth, which is driven, in part by diminishing home equity (in September, national housing stock was valued 31% lower than 1 year ago) and the precipitous drop in our stock & mutual fund holdings, which according to The Economist, have lost nearly $2,400,000,000,000 (that’s trillions of dollars; you recognize a lot of money when you count 4 groups of zero’s) in value, in the last 18 months. That’s a loss of 1/5 of their value; for the math challenged, that’s called a 20% haircut. It’s not likely that Obama can throw enough money at our deficit to save us this year. By the way, these figures don’t take into account the recent market declines or newly proposed bailouts.
I decided to dig a little to see just how upside-down we are. According to government financial statements, we have approximately $56.4 trillion in national debt. That’s against the Federal Reserve’s estimate of total household net worth of $56.6 trillion. It could be worse. From the Sunday Gazette, “Pale blue bank notes that say Z$1,000,000 Zimbabwean dollar really means Z$10,000,000,000,000,000,000, or Z$10 quintillion. (I chuckle when I read that because you truly can’t make this stuff up!) In Zimbabwe, inflation is so out-of-control they can’t figure out what Z$1 million note is actually worth on any given day.”
So how about a quick lesson in simple math? The Federal Budget is pretty easy to understand. Our situation looks like this:
SOURCE OF NATIONAL INCOME:
Personal Income Tax: $1,220,000,000,000 B
Payroll Tax: $ 910,000,000,000 B
Corporate Income Tax: $ 345,000,000,000 B
Other income: $ 46,000,000,000 B
Total Expected Income: $2,521,000,000,000 T
NATIONAL EXPENSES:
Social Security: $ 610,000,000,000 B
Medicare: $ 330,000,000,000 B
Medicaid: $ 204,000,000,000 B
Military: $ 607,000,000,000 B
Everything else: $ 936,000,000,000 B
Education
Veterans Benefits
National Parks
Food Stamps
Roads & Bridges
NASA
Interest costs of our National Debt: $ 244,000,000,000 B
Total Expected Costs: $2,931,000,000,000 T
DIFFERENCE: $ 410,000,000,000 B
Damn. A smart guy in Washington once said, a billion here and a billion there and pretty soon we’re talking about real money. Its pretty easy to see that we produce less than we consume. It’s simple math. It’s about $410 Billion. Our expenses exceed our income. I can’t make it any simpler to understand than that.
We got here by following government policy. We borrowed our way to prosperity. We leveraged our future on the expectation of ever increasing value. And as we’ve now learned, nothing, (as Ponzi & Mardoff would likely confess), ever goes up forever. However, we live in a unique time so we don’t have to accept responsibility. You see, Shannon, we’re not to blame, because remember, in our culture, “Nobody’s personally culpable for their actions and everybody else is to blame.”
Individually and collectively, we spend more than we produce. That creates a negative savings rate. Again, from history; in 1960 we saved 12.4% of our national income; at our peak, in 1980 we saved 13.6% of our national income; in 1990, we saved 6.7% and started down the slippery slope. Our national saving rate is now a negative 2.9%. Basically, as a nation, we go backward every month. Do you know anybody who runs out of money before they run of out month? That’s what I’m talking about.
And, unfortunately, it now seems like the incentive to save has disappeared. Figures from Morningstar say, if Joe the Plumber saved $100 per month for the past 10 years, in an average equity fund, he would have accumulated $10,932. That’s $1,068 less than the total of his deposits. (The mattress sounds pretty good – unless you’ve got a Seat under which you can store your savings; or just sell.) And by the way, AARP says that as regards savings, “Only 37% of retired people have a pension plan that works”.
So that you don’t think I’m a Bah Humbug, listen to what my friend Barry Kold told me. He says, “Financial markets tend to revert to the mean.” He goes on, “High past investment returns normally indicate low future investment returns. But, on the other hand, low past investment returns create an opportunities for stout-hearted investors”.
Historically, Joe the Plumber bought high and sold low. Barry said, “Now is the time to take stock and start saving & investing.” Buy low and. . . Hmm, that’s an interesting concept.
Our national financial crisis (and that nobody saves), has implications for real estate, which is what I’m supposed to be writing about. Non-savers don’t have money needed for down payments; they don’t have capital available for inevitable capital calls, which trust me, will come in 2009 as loans reset. What are the implications? You don’t need a degree in Rocket Science to figure that out. Ouch. (Anecdotally, one of our buyers just went under contract on the 1st Bank Repo of the New Year. It’ll close January 30th!) Banks will call notes; foreclosures will occur and assets will be reallocated to people with cash. Uh, people with cash - those would be called savers! Their powder’s dry. They have bait. They have skin to put into the game.
I used to think people were pretty savvy with savings and budgets. Then I overheard Barry discuss a large furniture-rental company’s operation. He was explaining a concept called Golden Handcuffs. Basically, he was talking about guys who buy Mondo Sized houses and become house-poor. They actually rent their furniture! Goes hand-in-hand with the $800 per month car payments! Then I read about Mardoff’s savvy client list. Then I think (in my best North Dakotan accent), “What the heck, hey, I’m not doing too darn bad.” My chicken, little investments, unsophisticated as they are, actually return principal & nominal profit. Getting an annualized 8% - 20% on a single family house or small commercial building looks pretty darn good!
So where do we go from here? The reality check was in order. We got that this month. The economy couldn’t inflate forever. Resetting the game is a natural part of our economic cycle. Resetting allows us to ride the inflation bus again. And, in case you were wondering, the government has to inflate the economy (see above!) to cover itself. What’d they say, “Follow the money?” How about this, “Follow the zeros”.
Where do we go from here? Short term there will be a lot of hurt. Owner’s - take leases at most any rate! In the long run, if you understand the rules of engagement, you can win. If you don’t, you’ll likely be put out of the game. Long-term, real estate is a great place to be. But, you have to have staying power. That’d be the concept of saving. Barry says “Lowered interest rates and a government sponsored economic stimulus packages will jump start things”. Then, he says, “Like everything the government does well, its reaction will be overkill and inflation will rear its ugly head. The smart guys in Washington will demand high interest rates by the Fed to combat inflation and kill the small guy in the process”.
There is an ignorance tax. That may be the lesson in all of this.
Happy Holidays!
Want to know more? Contact me at Tim@HoffLeigh.com
Focus on Charity
What: The Salvation Army
When: 52,000 meals per year
Where: The New Hope Center
Why: People are cold & hungry and not able to care for themselves
How: Contact The Salvation Army and make a donation
Want to know more? Contact me at Tim@HoffLeigh.com
I hope you had a profitable week and next week is better!
Sincerely,
TJL
Tim Leigh
719-337-9551
Tim@HoffLeigh.com
To view our Office Matrix List please click below
http://hoffleigh.com/OfficeInsider.aspx
To view our Industrial Matrix List please click below
http://hoffleigh.com/IndustrialInsider.aspx
Hoff & Leigh, Inc.
4445 Northpark Drive, Suite 200
Colorado Springs, CO 80907
December 21, 2008
Attached is our complete listing of all properties for sale in Colorado Springs, based on property type - office, industrial and condo. This is the most complete listing that we are aware of. It’s our goal to provide this information, updated weekly. We develop these lists by basic research and cross-checking data points from the PPCIE, local broker's individual web sites, The Turner Book and any other public information domain we can find.
You are receiving this information because, at some point, you asked or a friend referred your name to be included in our e-mail Insider’s List. If you no longer wish to receive this information, send an e-mail reply to me (tim@hoffleigh.com) and ask to be removed. Alternatively, if you know someone who could benefit from the receipt of this information, forward this e-mail to them, and suggest they contact us, so we can consider adding them to our exclusive list.
All Market Average Office Building Sale Price PSF = $111.13 (NO CHANGE from last week.)
We are currently tracking 106 office buildings for sale.
This is 1,163,079 square feet, which represents a total market value of $129,254,895.
All Market Average Industrial Building Sale Price PSF = $74.04 (NO CHANGE from last week.)
We are currently tracking 92 industrial buildings for sale.
This is 1,286,685 square feet, which represents a total market value of $95,268,606.
Somewhat interesting property for sale:
3645 Jeannine Drive: This is like an auction. I’m lowering the price again. You will have to call to find out what the deal is. This is the best opportunity for a value added investor in the market. At the current list price, $995,000 it’s only $20.91 psf. This property had been listed at $1,650,000; we reduced to $1,100,000 and now we’re really seriously-in-the-game for only $20.91 per square foot. This property has a firm remodel budget of $415,000 ($8.72 psf), which includes a new roof, new parking lot, new HVAC and lipstick. When it’s all done & said, this all-in investment would be $20.91 + $8.72 = $29.63 psf. As you know, you can’t frame a building for that cost. This deal produces a newly constructed, multi-tenant building with tremendous lease-up & value-added opportunity. When completed, this project, leased-up should generate between $25,000 - $30,000 per month in gross rent. This is a case study where someone buys low, adds value and thereby increases his balance sheet and income.
In case you missed the description over the past few weeks, the building is a 47,596 sf mixed use facility with warehouse on the ground floor and many small offices littered across the top floor. It is located just south of Austin Bluffs, just west of Academy. The warehouse space should lease-up for $5.50 psf modified gross and the offices should lease-up for $9.00 psf modified gross. The presumption is that the Tenants will pay rent plus utilities, snow removal, janitorial and landscaping charges.
905 Motor City Drive: This is a very clean, former tire shop that sits atop Motor City Drive. The Seller’s are very interested in getting this property off their books, now! The original listing price was $375,000. The new price, for a quick sale is $260,000 or MAKE AN OFFER. The property is 2,952 square feet on a 9,700 square foot, fenced lot. There are 2 overhead doors, with 4 service bays. For an extra $5,000, the deal could include 2 auto lifts. Here’s the value added; buy into Motor City at today’s, currently depressed pricing; lease or use the property for 3 – 5 years and sell for a profit. And, yes, Mitch, there are auto shops still-standing who would rent this building. Or use it for your toys; or share it with a friend with toys like yours; or use it as a club-house. Your wife, most-likely, really would like some time away from you.
3116 Century Street: This is a very clean, multi-tenant investment property that is being sold as part of an estate-liquidation. A friend of mine has owned this property for over 20 years. It is extremely well maintained and well tenanted with class B warehouse users. The typical bay is 1,500 square feet and the typical rent is about $12.00 psf gross. Bob Hoff priced it, so I know it’s reasonably priced. As Bob always said, “the cow is only worth as much milk as it produces.” Its 13,000 square feet. The asking price is $830,000, which is only $63.85 psf, which is $10.19 less than the market average, for an above average property.
13570 Meadowgrass: This is our office condo project. True to market dynamics, and true to the advice I dish-out, as painful as it is, (which goes to show, I share your pain!) I have dropped-my-pants to get a sale. As a percentage, we have reduced our pricing by 20%. For office condos on the north end; with I-25 visibility and unbelievable views of the Air Force Academy & the Front Range, this is the ticket.
3707 Parkmoor Village Drive: UNDER CONTRACT. This is a bank repo. They were very interested in selling; they lowered the price and the buyer showed up as predicted. The asking price was $60.00 per square foot. This is selling a 10% cap rate. The physical plant’s in good condition. This is a cash-cow. The tenants are B rated and on short term leases, but generally, with buildings of this class, once the tenant is in place, they stay in place.
5030 Boardwalk: THE SELLER IS MOTIVATED. MAKE AN OFFER. This is an exceptional deal because of the financing. The Seller will carry the mortgage on soft terms. Also, this is a USER SALE. The property is a good example where there has been a diminution of value because of a waning trade area. The building is clean and doesn’t need modification. Typically, a user/purchaser would utilize 1 of the 4 rental units and lease-out the other 3. The building is 6,383 square feet and priced at $84.60 per square foot ($540,000). The Seller would guarantee that vacant space leases.
Want to know more? Contact me Tim@HoffLeigh.com
View 100’s of listings on our web site, http://www.hoffleigh.com.
719-630-2277
Tim’s Market Notes:
I’m always amazed by the myriad things to poke fun at. Every week I think, “You can’t make this stuff up!” Watching the current political scene . . . Will the idiot Governor with the big hairdo resign? What does he know about Obama? Will someone kill him? It’s classic soap opera drama. Then, just when it can’t get any better, along comes Mardoff’s Ponzi scheme.
Ponzi schemes are named for Charles Ponzi, who in 1920 lured thousands of small investors into a deal that looked safe & lucrative using government stamps. He made millions – in 1920! If you can imagine, people actually mortgaged their homes to invest. He offered guaranteed returns! What was his trick? He paid 1st investors with money from last investors. That’s what Mardoff did. And, is case you’re wondering, there is nothing new under the sun.
And there’s our social security system. It’s the same. The money collected by our fathers in Washington is supposed to be held in trust. Oh yea, I forgot; the government figured out a way to transfer that money from the trust to the general fund thinking they could fund the social security obligation on the backs of the next generation of depositors. Can you say Ponzi? Mardoff? As long as there are more deposits than withdrawals, we’re OK. Unfortunately, there’s a science called demography. It says baby boomer are going to stop putting money in, and, Yicks!, start taking money out, and when that happens, we’re going to be Mardoff’d. I can’t wait until Monday to find out what’s going to happen next. It’s like watching Dallas reruns.
As entertaining as all this is, the week did unfold a very non-descript press release that calls for a sobering wake up call. Warren Buffett, Alan Greenspan, David Walker and other politicos call our national fiscal irresponsibility the single biggest looming disaster facing America today (aside from a nuclear attack on our homeland). The following link is something everyone should watch http://www.iousathemovie.com/. The startling news from the Peter G. Peterson Foundation (http://www.pgpf.org/) says “The sum of America’s liabilities and other financial commitments now exceed the collective net worth of its citizens.”
So you don’t fly off the handle and think I’m writing right wing, nut-job garble, you should know that David Walker, the former Comptroller of the Currency and former head of the Government Accounting Office (GAO) is the President of the Peterson Foundation. He’s tracks these non-partisan figures. They’re scary and they significantly impact the way you should look at your business, investing and our kids’ future.
Peterson’s figures were calculated using the government’s latest data including growth in unfunded commitments for Social Security & Medicare and the drop in American’s net worth, which is driven, in part by diminishing home equity (in September, national housing stock was valued 31% lower than 1 year ago) and the precipitous drop in our stock & mutual fund holdings, which according to The Economist, have lost nearly $2,400,000,000,000 (that’s trillions of dollars; you recognize a lot of money when you count 4 groups of zero’s) in value, in the last 18 months. That’s a loss of 1/5 of their value; for the math challenged, that’s called a 20% haircut. It’s not likely that Obama can throw enough money at our deficit to save us this year. By the way, these figures don’t take into account the recent market declines or newly proposed bailouts.
I decided to dig a little to see just how upside-down we are. According to government financial statements, we have approximately $56.4 trillion in national debt. That’s against the Federal Reserve’s estimate of total household net worth of $56.6 trillion. It could be worse. From the Sunday Gazette, “Pale blue bank notes that say Z$1,000,000 Zimbabwean dollar really means Z$10,000,000,000,000,000,000, or Z$10 quintillion. (I chuckle when I read that because you truly can’t make this stuff up!) In Zimbabwe, inflation is so out-of-control they can’t figure out what Z$1 million note is actually worth on any given day.”
So how about a quick lesson in simple math? The Federal Budget is pretty easy to understand. Our situation looks like this:
SOURCE OF NATIONAL INCOME:
Personal Income Tax: $1,220,000,000,000 B
Payroll Tax: $ 910,000,000,000 B
Corporate Income Tax: $ 345,000,000,000 B
Other income: $ 46,000,000,000 B
Total Expected Income: $2,521,000,000,000 T
NATIONAL EXPENSES:
Social Security: $ 610,000,000,000 B
Medicare: $ 330,000,000,000 B
Medicaid: $ 204,000,000,000 B
Military: $ 607,000,000,000 B
Everything else: $ 936,000,000,000 B
Education
Veterans Benefits
National Parks
Food Stamps
Roads & Bridges
NASA
Interest costs of our National Debt: $ 244,000,000,000 B
Total Expected Costs: $2,931,000,000,000 T
DIFFERENCE: $ 410,000,000,000 B
Damn. A smart guy in Washington once said, a billion here and a billion there and pretty soon we’re talking about real money. Its pretty easy to see that we produce less than we consume. It’s simple math. It’s about $410 Billion. Our expenses exceed our income. I can’t make it any simpler to understand than that.
We got here by following government policy. We borrowed our way to prosperity. We leveraged our future on the expectation of ever increasing value. And as we’ve now learned, nothing, (as Ponzi & Mardoff would likely confess), ever goes up forever. However, we live in a unique time so we don’t have to accept responsibility. You see, Shannon, we’re not to blame, because remember, in our culture, “Nobody’s personally culpable for their actions and everybody else is to blame.”
Individually and collectively, we spend more than we produce. That creates a negative savings rate. Again, from history; in 1960 we saved 12.4% of our national income; at our peak, in 1980 we saved 13.6% of our national income; in 1990, we saved 6.7% and started down the slippery slope. Our national saving rate is now a negative 2.9%. Basically, as a nation, we go backward every month. Do you know anybody who runs out of money before they run of out month? That’s what I’m talking about.
And, unfortunately, it now seems like the incentive to save has disappeared. Figures from Morningstar say, if Joe the Plumber saved $100 per month for the past 10 years, in an average equity fund, he would have accumulated $10,932. That’s $1,068 less than the total of his deposits. (The mattress sounds pretty good – unless you’ve got a Seat under which you can store your savings; or just sell.) And by the way, AARP says that as regards savings, “Only 37% of retired people have a pension plan that works”.
So that you don’t think I’m a Bah Humbug, listen to what my friend Barry Kold told me. He says, “Financial markets tend to revert to the mean.” He goes on, “High past investment returns normally indicate low future investment returns. But, on the other hand, low past investment returns create an opportunities for stout-hearted investors”.
Historically, Joe the Plumber bought high and sold low. Barry said, “Now is the time to take stock and start saving & investing.” Buy low and. . . Hmm, that’s an interesting concept.
Our national financial crisis (and that nobody saves), has implications for real estate, which is what I’m supposed to be writing about. Non-savers don’t have money needed for down payments; they don’t have capital available for inevitable capital calls, which trust me, will come in 2009 as loans reset. What are the implications? You don’t need a degree in Rocket Science to figure that out. Ouch. (Anecdotally, one of our buyers just went under contract on the 1st Bank Repo of the New Year. It’ll close January 30th!) Banks will call notes; foreclosures will occur and assets will be reallocated to people with cash. Uh, people with cash - those would be called savers! Their powder’s dry. They have bait. They have skin to put into the game.
I used to think people were pretty savvy with savings and budgets. Then I overheard Barry discuss a large furniture-rental company’s operation. He was explaining a concept called Golden Handcuffs. Basically, he was talking about guys who buy Mondo Sized houses and become house-poor. They actually rent their furniture! Goes hand-in-hand with the $800 per month car payments! Then I read about Mardoff’s savvy client list. Then I think (in my best North Dakotan accent), “What the heck, hey, I’m not doing too darn bad.” My chicken, little investments, unsophisticated as they are, actually return principal & nominal profit. Getting an annualized 8% - 20% on a single family house or small commercial building looks pretty darn good!
So where do we go from here? The reality check was in order. We got that this month. The economy couldn’t inflate forever. Resetting the game is a natural part of our economic cycle. Resetting allows us to ride the inflation bus again. And, in case you were wondering, the government has to inflate the economy (see above!) to cover itself. What’d they say, “Follow the money?” How about this, “Follow the zeros”.
Where do we go from here? Short term there will be a lot of hurt. Owner’s - take leases at most any rate! In the long run, if you understand the rules of engagement, you can win. If you don’t, you’ll likely be put out of the game. Long-term, real estate is a great place to be. But, you have to have staying power. That’d be the concept of saving. Barry says “Lowered interest rates and a government sponsored economic stimulus packages will jump start things”. Then, he says, “Like everything the government does well, its reaction will be overkill and inflation will rear its ugly head. The smart guys in Washington will demand high interest rates by the Fed to combat inflation and kill the small guy in the process”.
There is an ignorance tax. That may be the lesson in all of this.
Happy Holidays!
Want to know more? Contact me at Tim@HoffLeigh.com
Focus on Charity
What: The Salvation Army
When: 52,000 meals per year
Where: The New Hope Center
Why: People are cold & hungry and not able to care for themselves
How: Contact The Salvation Army and make a donation
Want to know more? Contact me at Tim@HoffLeigh.com
I hope you had a profitable week and next week is better!
Sincerely,
TJL
Tim Leigh
719-337-9551
Tim@HoffLeigh.com
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