Tuesday, December 27, 2005

Advice for the Coming Reckoning

If you can keep your head when all about you Are losing theirs and blaming it on you, If you can trust yourself when all men doubt you, But make allowance for their doubting you; If you can wait and not be tired by waiting, Or being lied about, don’t deal in lies, Or being hated, don’t give way to hating, And yet don’t look too good, nor talk too wise:... If you can talk with crowds and keep your virtue, Or walk with Kings—nor lose the common touch, If neither foes nor loving friends can hurt you, If all men count with you, but none too much; If you can fill the unforgiving minute With sixty seconds’ worth of distance run, Yours is the Earth and everything that’s in it, And—which is more—you’ll be a Man, my son!
Rudyard Kipling (1865–1936), Rewards and Fairies (1910).

15 comments:

Anonymous said...

What a nice clip to begin my visit to your site Robert! I confess to not knowing much about Kipling although the passage is familiar.
Was Kipling in a position to pronounce to his listener/son, what a Man was? Will all his female listeners be put off at being excluded?
Guidance can at times be heavy-handed, but maybe for some situations this is exactly the kind of hands you need.
All the best to you in the New Year.
calmo

Rob Dawg said...

calmo,

Always welcome. More welcome if you take the opportunity to slap me upside my head when I screw up. Good time to to restate the purpose of this blog.

One, toxic dumping ground for my dangerous thoughts. As such little effort at style is expended.

Two, spread the truth of the urban planning movement and its' societal consequences and what to do about it.

Three, a place to take discussions when other blogs move too fast to allow considered contemplation. It also really pisses me off when somebody on Ben's Blog (housing bubble) or Hit'n'Run posts unrelated ephemera and sidetracks the whole discussion.

Four, as you notice, Quotes O'Note a semi-regular feature. Associated with the shameless self promotion of my "gift" for acronym.

Five, bitchin' 'bout Kalifornia and Illegals. Actually I don't really bitch about either, I bitch about their victimization but just try and make that distinction with my enemies. Oh yes, I have enemies but no more for now.

Los Angeles Investor Girl said...

Robert Cote:
Is this your blog?
LA Investor Girl

Rob Dawg said...

Yes, ask away here or email me.

Los Angeles Investor Girl said...

Hi Robert:
Okay, here's my question. There's this 4 plex I've been following in the Pierpont Beach area, on Harrison Street. Like 1 and a half miles from the beach. We've taken a few vacations there from LA, and coming from LA, it seems like a paradise. Something like that in Santa Monica would be over 1M. I would like to own something in that area because I think it is improving, and eventually we'd like to keep a unit for vacation purposes. That said, I'm not willing to do an IO loan or to lose tons of money every month.

Anyway, first they wanted "not a penny less" than 699K, then 690, now 684 but they say off the record they'll take 660K.

There is only one large unit, the others are very cramped. But it's a big lot (almost 10,000sf) so there's room to add 2 units, or build an upstairs. As of right now, it only makes around 38,500, gross.

Can you give me any sense of where the market is headed over there? Any opinion on what a property like that is worth? Are rents going up at all? What is the economic base of the area - I didn't see many jobs.

Los Angeles Investor Girl said...

Thanks for listening.

Rob Dawg said...

The area is known as "The Avenue." One of the oldest, poorest neighborhoods in the region. It is nowhere near Pierpoint. The Avenue has been "on the upswing" for at least 20 years. Pierpoint is very upscale and "fully priced" if you get my drift. $660 for a 4plex still sounds like a doable deal. Assuming you'll drop $100k into the deal your nut is going to be $2900 mort, $600tx, $300misc. $3800/mo and with 4 units pulling $3200/mo as long as you don't get hit with AMT on your 1040a it looks like cash neutral upfront.

The market is very strong. Prices are way too high in my opinion but population pressures and growth controls hold up the floor against the lowering of prices or rents. Sales prices are definitely headed lower and The Avenue probably moreso than most places because of the desireablity factor. I own a primary in VenCo and I own rental property. My wife's father was born in VenCo in 1913. I wouldn't do this deal for three reasons. Location. The neighborhood is still compares poorly by most measures. Politics. The City of San Buenaventura is embarking on a path of Santa Monica style socialism that may sweep you up in an urban renwal zone. I've also heard the code phrase "rent stabilzation" mentioned out loud. Shudder. Third, even though I'm not mathematically uncomfortable with the price I'm sure it isn't going to get any appreciation and more likely substantial depreciation. The opportunity to add units isn't really there. The city is a stickler for small buildings having parking, setbacks, high fees, etc.

The fundamentals are sound. The economy is diversified and population pressures persist. There's an unbelievable amount of wealth and not just in housing. Unfortunately for you that doesn't factor into your decision. The last time I did this it was for a 6plex plus manager in North Oxnard but that was 6 years ago. Rents doubled and price tripled since then so claerly the decision would be different today. Think about why people are selling. $660,000 in thbank after expenses and taxes is $580k roughly. At 5.5% safe in the bank $32,000 per year.

Anonymous said...

20% dp on 640k would get you near cash neutral with a 6.2%, 30 yr. note.

I'm in Santa Barbara and know little about the neighborhood you inquire of.

Pro: There is potential to increase income from the property.

Con: Prices are at or near peak.

Cheers.

Anonymous said...

Based on Robert's knowledge of local conditions, the "pro" I mentioned may not exist, and the "con"'s appear to be numerous, including potential rent control.

Rob Dawg said...

Anon,
You may be right about the potential for increasing rents. Oxnard has already made the list of the highest rent/income ratios in the nation. Like I said, raw population pressures are keeping demand high. Also as a SB resident I'm sure you've haerd all about people living in Ven and working in SB because of the house price differential.

Los Angeles Investor Girl said...

Robert: I think you are a member of that endangered species, once known as "philosophers".

Los Angeles Investor Girl said...

Well, as for the VC property, they still have no offers on the table. Apparently his other VC property is now in contract, so the seller is more motivated now b/c he wants to sell them both at once to do a 1031, we shall see...

My other option is to buy a Burger King or KFC triple net leased property in like South Carolina or TN or AZ or some such place. At least then I'd have some positive cash flow. Jeez, I hate this market! Who ever heard of holding a big wad of cash and not being able to find anywhere to put it that will generate even a meager positive return...Next thing I know, I might have to actually get a JOB -- yikes!

Rob Dawg said...

LA_IG,
Sometimes it's like Texas Hold'em. There's no shame in waiting out a hand to see what everyone else is doing. Let's not do anything rash like starting to work for a living. A 1031 exchange in California probably won't work out for the seller long term. The higher taxable basis eats into returns and I fully expect that capital gains are as low as they'll ever get right now. The toughest investment strategy to stick with is patience. A Burger King in Tennesee sounds reasonable but I just don't know enough and hoestly don't want to clutter my brain with enough facts to know enough. A very good friend owns several McDs in the Long Beach area but we are talking about a family inheiretence and working 2 managers shifts in the early years to make it work.

There's just no way you are going to "miss" any opprtunities by waiting. They are still asking 20x rent.

I love VenCo. I literally chose it as my personal choice from everyplace else in the country. Interesting trivia; 40 years ago it was virtually impossible to tell Ventura and Orange Counties apart. Population, agriculture, people, everything. Look how they've diverged since. One really big opportunity may be in Thousand Oaks. Countrywide is going to cut waaay back IMO and a lot of homes may need to sell fast. At the same time Amgen is going strong and will continue to grow. They are forced to pay way over market for decent housing for employee retention and recruiting purposes. Just a thought.

Los Angeles Investor Girl said...

Yeah, 20 times rent is still pretty steep. I started buying back in 2000, now seems like lightyears ago. If anything was listed at over 6 times gross, I wouldn't even make an offer. It shows how far this bubble has gone, that even a low-balling cheap skate like me is considering a deal like this. There are risks to waiting, too. Like by 2002, properties were around 8-9 times gross, I stayed out of the market, thinking I wasn't willing to put up with all the crap from the tenants and city for such a small return, and I missed a lot of upside as a result.

Now I'm even looking at buying coin laundromats, crazy isn't it? Well, if anyone has any other ideas on how to invest this money to bring in some cash flow and avoid working, feel free to post. What I've learned from this is, it sure takes a lot of work to avoid working!

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