patrick.net

Harm

Look on the other thread regarding MP, very encouraging.

HARM, Here’s a thumbnail of who I am:

I am in my 50s, married with three kids, (two in college). Originally a gun totin’, horse riding semi-rural westerner who lived for the outdoors as a youth, I have long since lived & worked east of the Hudson River. I used to work in the World Trade Center – it was a great place, and I had a view of the Statue of Liberty from my office.

I am your basic capitalist pig. For 30 years I have worked in the financial services industry including about 10 years at the CEO level. I run a company with several hundred million dollars of annual revenues, of which about $50 million is investment income.

I was originally trained in economics and investment finance. I have been studying the economy and following the financial markets daily for over 30 years. I have been particularly focused on market cycles, interest rates and real estate.

Occasionally I speak at business conferences – usually on the topic of market cycles. Once in a while I meet with senators and congressmen when they are seeking input from business leaders.

I have always been very interested in real estate, and have made it the cornerstone of my investment portfolio during the last 30 years. The stock market has also been an important factor. I play the market cycles and have had good success (or luck) at market timing. I usually beat the markets in the good years, and mostly avoid the bad years. I buy and hold for longer periods of time rather than daily trading or flipping.

The blog world appeals to me because I greatly enjoy discussing issues relating to economics and real estate. I also find new sources of information, hear differing views and learn new things.

I am also a night owl…

Harm
Look on the other thread regarding MP, very encouraging.

Which one?

Sorry about that

Fuckedcounty.com (I really just didn't want to type in the profanity) :)

@Zephyr,

I am your basic capitalist pig. For 30 years I have worked in the financial services industry including about 10 years at the CEO level. I run a company with several hundred million dollars of annual revenues, of which about $50 million is investment income.

Hey, do you need a new investment banker? Someone, say... in the $400K/year range with a super-sized ego? (just kidding)
Thanks for the bio!

@Zephyr,

I was originally trained in economics and investment finance. I have been studying the economy and following the financial markets daily for over 30 years. I have been particularly focused on market cycles, interest rates and real estate...

I have always been very interested in real estate, and have made it the cornerstone of my investment portfolio during the last 30 years. The stock market has also been an important factor. I play the market cycles and have had good success (or luck) at market timing. I usually beat the markets in the good years, and mostly avoid the bad years. I buy and hold for longer periods of time rather than daily trading or flipping.

I may be repeating myself from an earlier thread, but are you or your firm mainly buying, holding, or selling your RE investment holdings right now (REITs, MBSs)? Not asking you to divulge any secrets/privileged information, just curious about where you think the overall market's headed.

@SactoQt,

Wow, I hadn't read the other thread since yesterday so I didn't see MP's new comments. You're right, it is very encouraging!

*Sniff*, our little 13-year-old, $400K/yr investment banker is really growing up...

The one very comforting thing about a potential housing downturn is the fact that it will happen over a 5-10 year period.

I never said that the downturn will happen overnight. ;)

BTW, MarinaPrime, you are sounding more rational and believable now. I do not expect you to become a bubblehead, but I certainly welcome some plausible contrarian opinions.

The one thing that bothers me is Patrick’s ‘The Housing Bust Continues’ title in his blog. It’s just not true. And when i see untruth, I will fight very hard to turn it around.

We have discussed this before... it is more of a title to quickly gain attention. It got you here, didn't it? ;)

So, unfortunately for many of you i guess, though it really is no big deal and should serve curiousity, I will continue to post examples of properties that i track for fun, that will defy the ‘housing bust continues’ argument.

Knowing that your intention is to provide counter-examples rather than to ridicule the participants here... how can I object to that?

The blog world appeals to me because I greatly enjoy discussing issues relating to economics and real estate. I also find new sources of information, hear differing views and learn new things.

Zephyr, thanks for spending time with us. Your views are invaluable to us.

I will continue to post examples of properties that i track for fun, that will defy the ‘housing bust continues’ argument.

Well MP, you certainly may, but I don't think anyone here doubts that prices are rising in most areas and have been rising a lot for a long time. That's not really a point you need to prove.

The questions us bears have been asking for a long time are very different: Are these price gains sustainable (in terms of income, equivalent rents & cash-flow)? Are they justified by fundamental demand (as in people who need homes to live in and not just flippers)?

MP, I guess it is our instinct to doubt everything. I will give you the benefit of the doubt anyway. :)

We have invested (a small allocation) in some commercial properties. This area is on the upswing after many years of oversupply suppressing office rents. We also do have a modest exposure to mortgages through the MBS world.

I prefer to not make any further comments about the company because if anyone figures out the identities then I (and the company) could be in violation of SEC disclosure rules if any of the info has not already been disclosed publicly. In addition, if I am identified I will need to severely restrict the scope of my comments about financial markets in general as these comments could be interpreted as company related. In fact, I would just stop posting.

So, personal investment strategies and housing markets are fine for discussion, but not company business.

If you can’t pay 100% cash for a car, you cannot afford the car. I’m not buying expensive cars… all are in the $4,000-$14,000 range.

I totally agree. However, being able to afford a car with cash does not mean that one will have to pay cash... considering that you only pay sales tax on the depreciation... also, a lease is essential a purchase with a put option to dispose at a fixed price. Just my $0.02.

And I definitely recommend good used cars. :)

Zephyr, let's keep discussion to personal investment philosophy then.

Btw, in case anyone here thinks s/he has it bad, check out Foghorn's links, especially this one: tinyurl.com/ag5ul

Kinda gives the term "crappy job" a whole new meaning, doesn't it? I'll have to remember this the next time I bitch & moan about mine.

Peter P: Thanks. I hope that some of what I post is of value to readers, or helps people to better understand the markets. Mine is not the only valid or useful view, but I do have a lot of experience with some of the points of interest, and I am careful about posting accurate information.

I don’t know anybody in the Bay Area who is a flipper…. b/c it’s simply too expensive here. It’s a ubiquitous lie, I tell you.

There may not be too many "flippers" in the Bay Area in the traditional sense. However, I do personally know several people who hold to multiple homes in the Bay Area (2 to 3). They would not have done so without the expectation of sustained high appreciation. On the other hand, they will have to endure large losses when the market corrects. They are certainly property speculators.

MP may not like me for this, but I just don't think you got it all figured out at 28. The markets have been so favorable the last few years that a lot of 20-somethings have gotten very lucky, and unfortunately very arrogant. I don't wish you ill, I hope you continue to do well. I just hope you temper your ego a tad with some good old fashioned common sense. There are a lot of risk takers out there who make it big when the conditions are right, but just as many lose it all when they think they can't make a wrong move.

So far I am "double safe" in that the topics are not related to the company and my identity is not known.

Time for me to sleep...

MP may not like me for this, but I just don’t think you got it all figured out at 28.

I am also only 28. :(

Everybody talks about flippers. But, the fact is, do any of you personally know 2.5/10 people who are flippers? I don’t know anybody in the Bay Area who is a flipper…. b/c it’s simply too expensive here. It’s a ubiquitous lie, I tell you.

Not a bad idea for a new thread, actually. Well, not being from the BA, I can't directly comment on how things are there, but I do know more than a few people from my area (SCAL) who are doing just that. One guy I worked with configuring routers at a previous employer just recently quit to flip FT in Riverside. The receptionist at my current company quit a year ago to get her Agent's license, and another IT guy I know got into condo flipping on the side about 2 years ago. Not all that unusual really.

Peter P

Do you think you have it all figured out? I sure as heck know I don't.

Bottom line, the 1998-2001 boom (stocks & property) has created much more wealth than can easily be estimated. This real estate ‘party’ is going to go on much longer than you think.

Can this "party" relocate back into equities?

Do you think you have it all figured out?

From the silliness of my comments you can probably infer that I have figured out nothing.

My husband got roped into doing a seminar this week for a business associate who's in the mortgage industry that's all about RE for investments. Truthfully, this guys a snake oil salesman who'd sell out his mother for profit. My husband tried to tactfully get out of it, but the guy does refer business to him, so he's going. Turns out, other people who are going as various "industry experts" are turning bearish on the market, so my husband won't be the only voice of caution in the room. Anyway, this guy won't turn down any loan that comes his way, no matter how sketchy the deal is, and a main theme of his seminars has to do w/flipping. I don't know how prevalent this is, but with websites like condoflip.com, obviously there's some flipping going on out there.

Peter P
I should have winked at you on that last comment. I know you're not a 'know it all.' :)

I think this thread still has room to grow and there are still a few regulars who haven't yet posted their stories (where's TWIT, astrid & Fake P? Face Reality, where's your bio?). Nonetheless, I've started a new one:
Rats Deserting a Sinking Ship?

I already posted most of this in an earlier thread, but will recapitulate.

I am 40, getting married in a few months. My fiance and I bought a duplex in Upper Noe in March 2003 for $710k. By neighborhood comps it is probably worth $1.1 - 1.2 M right now. We have put about $50k into upgrades. I have been nervous about a real estate "bubble" since before I even bought it, but I don't think it will go the way most of the more bearish posters here believe. I think the downturn in RE will go the way the last three in California have gone and "rust not bust" with a brief period of negative nominal valuation changes and then a much longer, probably decade long at this point, period of flat nominal and negative real (including inflation) valuation changes.

In the long run, we intend to hold onto this place as rental property and live in a single family home in East Bay, probably Berkeley, Rockridge or Orinda, but we won't feel any pressure to move for at least five years or so. Right now, the tenants downstairs pay half the mortgage and half the property tax with their rent. With the tax breaks, we are paying less overall than we did before we moved in together, and we each were just renting out rooms in collective households. And our lifestyle is much better! The flip side is that we are landlords now and I spent many weekends caulking the bathroom and supervising construction crews that I would have spent sailing otherwise.

We both work in San Francisco, she as an investment advisor in low income tax credits for an insurance firm and me as an IT Manager. My job feels pretty secure, though globalization is probably pushing down wages, the company will not be leaving San Francisco. I am not so sure about hers though.

I found the site via google, after a long argument with friends about whether the real estate market in San Francisco was in a true bubble or not.

I am protecting myself against a possible downturn by moving all of my non-work stock into overseas markets, including my 401k. I am putting more and more into Japan and Germany, with the logic that since they have already had their real estate asset price deflation, they are less likely to be effected by a global downturn in real estate. Perhaps one of the economists posting can tell me what they think of that notion.

All right MP, as a fellow San Francisco landlord, tell me how you intend to raise your rent by 10% next year. Perhaps you had not realized this, but it is not as easy as that.

(where’s TWIT, astrid & Fake P? Face Reality, where’s your bio?).

Also, where is Gabby?

yes, Kurt that is me, ptiemann on epinions.com, the one and only ptiemann (Peter Tiemann)
Ah--thought so! My handle over there was "Webguy"

Peter P - The party has already spread back to equities. We’ve been an Equities BULL MARKET since the summer of 2003!! You must have noticed your 401k account growing over the years no?

My stocks have low beta and they have been doing consistently fine even before 2003. I have been trying to do some major rebalancing recently. Need to take more risks.

My point is: don’t believe the media. Renters will tell you oh, the place i’m renting could sell for XXX, but i only rent for XXX/2. It’s psychology, to make them feel better.

You are probably right about the price/rent ratio in prime locations. However, crappy places in subprime locations are getting really crappy rental yield. This is the price compression that we have been talking about for a while now.

I do believe that you are in a safer position once your house is valued at 1.5M or higher.

Believe it or not, the majority of homeowners and ‘investors’ are rational in the Bay Area. People do the math before spending hundreds of thousands of dollars.

I do not believe this. After all, most people are not spending hundreds of thousands of dollars. They are just making low but ballooning monthly payments.

Buyers in the 1.5M+ range are perhaps more savvy though. As a result, no major mania (as you have mentioned earlier regarding bidding war).

My point is: don’t believe the media. Renters will tell you oh, the place i’m renting could sell for XXX, but i only rent for XXX/2. It’s psychology, to make them feel better.
Well, hard data is useful, so here's some:
A friend is leasing a well-maintained 1 BR waterfront condo in Marin--that would currently sell for $550K. Overlooks water, a park, Mt. Tam--"prime" locale.
We live down the street, so we're pretty familiar with the market, as a lot is for sale now.
The monthly? $1400. I think the math's easy on that one.

Well, hard data is useful, so here’s some:
A friend is leasing a well-maintained 1 BR waterfront condo in Marin–that would currently sell for $550K. Overlooks water, a park, Mt. Tam–”prime” locale.
We live down the street, so we’re pretty familiar with the market, as a lot is for sale now.
The monthly? $1400. I think the math’s easy on that one.

Rental yield of 3.05%. Not good at all. It appears to me that renting is clearly cheaper at least for properties under 750K.

If I were you Peter P, I’d swing for the fences. You have your whole life to make money. Definitely take some risks before the wife and kids start cementing you down. Life’s too short to just stick in one career for example.

I do intend to swing for the fence, albeit using more liquid instruments. My wife is very supportive and is actually pushing me to take risks. My "kids" are litterbox-trained so they are not going to cement me down. :)

Life’s too short to just stick in one career for example.

I agree. This is the best advice you have given yet. Thanks.

I believe the best rental yields come from the 2bedroom, and sometimes 3bedroom condos.
Ok, here's a few more recent condo scenarios in Marin:
2 BR waterfront, approx 1200 sqft: $750K
3 BR waterfront, approx 1700 sqft: $890K
A friend rents a 2BR in same complex for $1700/mo.
Any guesses on the 3BR? I'm shooting for $2K.