My Real Estate Wake-Up Call
By Dr. Steve Sjuggerud
Wednesday, July 15, 2009
Last week, I drove out to size up a potential property investment...
For just $6,000, I could by a piece of property in a nice neighborhood in Florida just 10 minutes from the beach. I had to check it out...
I drove through the entry gates of the community. Fancy gas-lamp streetlights led the way, with perfectly manicured sidewalks tracking along next to me. After I passed the clubhouse, the children's playground was up next...
It didn't take long to figure out what was going on... Nobody was here. No kids on the playground. Nobody jogging on the sidewalks. Why? Because there were no homes...
Out of literally hundreds of empty lots, only a couple homes were standing.
You can guess the story: A developer developed. The city put the streets in. Then, the market died. So here's where we are today...
The builder hasn't paid the property taxes on these lots for two years. So the county is auctioning them off to collect the back taxes and penalties. The bidding starts at the past taxes due – in the case of these lots, that's about $6,000.
Nobody has been buying these lots at the county auctions... even for the lowly starting bid of $6,000 (these lots probably sold for $50,000+ two years ago).
I thought I'd go drive by and check them out, figuring... what the heck, someday they should be worth something, right? It was an easy drive, 10 minutes out, 10 minutes back, to see what you get for $6,000.
Once I started driving the ghost town, er, neighborhood, the size of the problem hit me...
Literally hundreds of empty lots stretched for miles in front of me. And this particular ghost town isn't the only one. Florida has hundreds of neighborhoods like this... not to mention California, Nevada, and the other boom states.
Here's thing: Though the neighborhood is OK, there's nothing particularly desirable about it... nothing to distinguish it from the other decent-but-empty neighborhoods nearby.
So even for the lowly price of $6,000 – the back taxes due – I wasn't interested in this vacant lot, or the hundreds around it. I knew I could end up sitting on that vacant lot for a long time, paying taxes and earning no income from it.
This little neighborhood was an excellent example of why I always buy the beachfront property.
Now when I say this, I don't mean you must "buy land on the ocean." I mean this: Whatever you buy for investment, buy the best you can afford. Stick with the very top-notch stuff. Stick with investments and properties that will always have value... that will always be sellable.
But "buy beachfront property" doesn't give you a license to overpay. "That's a lot of money" and "that's expensive" are actually different ideas entirely. For example, $500,000 for a home on the beach is a lot of money... but it might not be expensive – it's likely a good value.
Legendary investor Warren Buffett puts this idea a little different: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
In short, my drive around this particular neighborhood was a reminder of two extremely important investment ideas:
Don't buy marginal stuff simply because it's cheap. Stick to "beachfront" properties. And even then... Don't overpay.
Good investing,
Steve
P.S. I actually think the worst of the real estate crash is over. We're getting darn near the time when you can start looking for bargains and distress sales. Over the next 12 to 18 months, you could end up with the deal of a lifetime. In Friday's DailyWealth, I'll show you why. Don't miss it... |
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INTEL IS STILL ENJOYING "HIGHER HIGHS AND HIGHER LOWS"
Despite huge unemployment numbers and falling home prices, one of our favorite economic indicators is still doing well.
You can sift through government reports and newspapers for the "skinny" on what's happening in the world. But don't forget the lazy man's (aka, the "smart man's") method of monitoring things: Watch the market. For instance, watch the market for semiconductors...
Almost everything around you is tied to computing power... from refrigerators to stop lights to airplanes. Heck, even some toilets are computerized. The computer and electronics industries place new orders only when their customers demand new stuff. Orders translate into profits for companies like Intel, the world's dominant semiconductor maker.
There's an entire army of money managers and analysts going over Intel's profit figures... which lets them determine the price of Intel's shares. All of these customers, producers, and analysts come together to give us an unvarnished read on where the economy is.
So what is Intel saying about the market right now? As you can see, the stock is still enjoying a series of "higher highs and higher lows." Until the uptrend fails, we have to listen to the market's take: "Things aren't so bad out there."
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China's purchase of a C$1.74 billion ($1.5 billion) stake in Teck Resources may be just the opening move from the world's top resource consumer in a strategy to use its unique wealth advantage to become a key source of mining capital for Canadian firms.
Teck said last week it sold a 17.2 percent equity stake to state-owned China Investment Corp in a deal that allows the Canadian miner to pay down its massive debt while expanding China's portfolio of commodity investments.
Teck is a major producer of copper, metallurgical coal, zinc and gold, all commodities sought by China.
"I think what they are looking for is distressed opportunities... Companies who have a strong resource base that are suffering because of the lack of liquidity in the market," said Jack Azimi, managing director of Foundation Markets, a small investment firm in Toronto.
– Newsmax
Amazon.com Inc. makes its money as an online retailer. So why would it want a company that rents DVDs?
Officially, it doesn't – or at least it isn't talking about it. But an Amazon purchase of DVD rental king Netflix Inc. has been the subject of on-again, off-again rumors on Wall Street, and that speculation Monday sent Netflix shares up 7%.
Most experts believe the days of the DVD rental business are numbered, to be replaced by the online streaming of high-quality, full-length movies and television shows.
Amazon, with about 40,000 titles it can stream to customers, would gain a company that can stream about 12,000 titles and offers some 100,000 DVD titles through the mail to its 10 million subscribers.
– L.A. Times
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Tuesday, July 14, 2009
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Monday, July 13, 2009
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Saturday, July 11, 2009
I'm Earning 18% Interest from the Government. You Can Too...
Friday, July 10, 2009
Special Accounting Firms Take Payments in Gold
Thursday, July 9, 2009 |
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