I was curious on what the rate of return would be on real estate from nothing more than principal paydown alone. Turns out it's not that shabby. Using my trusty CCIM Institute financial calculator, if you get a 80% LTV loan with a 20 year amortization, then break even for 20 years while the property gains nothing in value (which never happens over 20 years), the rate of return is still 7.18%. Yes, it's not a "cash return," it's just "equity and no, it's not incredible by any means, but nothing to sneeze at. The historical average for the stock market is about 10%. And this is just principal paydown. It doesn't include the appreciation (like the insanity we're seeing now), tax advantages cash flow or the other advantages of buy and hold: It would also be a lower return if you paid it off early as the early payments are mostly interest, but it still shows the power of buy and hold real estate. Overall, another reason to love real estate.
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For my second Syrios Book Review, I dive into Jim Collins' and Morten Hansen's Great by Choice, a follow up to their classic Good to Great. And in fact, I actually think this is a slightly better book.
Great by Choice looks for what it takes to thrive in a volatile market (kind of like the one we have now). Collins and Hansen look for companies that meet the following characteristics:
Overall, they come up with seven companies (Amgen, Biomet, Intel, Microsoft, Progressive Insurance and Southwest Airlines). They then look at seven comparison companies that were in the same industry and in similar situations but didn't make the leap.
Collins and Hansen then look at any differences they can find between the 10X companies and comparison companies and connecting threads between each 10X company to see what allowed these companies to do so well. Of the many things they found, such as maintaining high cash reserves (something I have stressed for real estate investors), my favorite is the concept of 20-mile marching, which they got from Roald Amundsen, the first man to ever lead a team to the South Pole in 1911.
They then relate this to business.
Our natural inclination is to jump ahead too fast in the good times and hunker down to "wait out the storm" in the bad. The evidence shows this is the wrong approach. Consistent and steady is the right approach.
Collins and Hansen also show that luck is overrated (although not useless, of course). They look at good luck events and bad luck events for the 10X and comparison companies. For example, a bad luck event is as follows: 1989: The New England Journal of Medicine published an article that challenged the effectiveness of t-PA relative to more conservative strategies and alternative treatments. (pg. 158)
That was for Genetech, a comparison company to Amgen.
Overall, this is what Collins and Hansen found,
So it turns out the 10X companies actually had slightly less good luck and slightly more bad luck than the comparisons who fared poorly in a volatile economy. Overall, I think Great by Choice is a fantastic book for business leaders and entrepreneurs, particularly in a volatile market. I give it four and a half stars. Our dystopian future is becoming more and more apparent by the day. Future biotechnology could be used to trick a prisoner's mind into thinking they have served a 1,000 year sentence, a group of scientists have claimed.Philosopher Rebecca Roache is in charge of a team of scholars focused upon the ways futuristic technologies might transform punishment. Dr Roache claims the prison sentence of serious criminals could be made worse by extending their lives. Hopefully we'll have wise and prudent leaders to make sure such technology is not abused.
LOL!
I always though it was best when Chris Cornell played this song acoustically, so here's my go at it. I hope you enjoy.
RIP Chris.
My Music YouTube Channel
Previous Songs: - Let it Be by John Lennon - Hide Your Love Away by The Beatles - What a Wonderful World by Louis Armstrong - With or Without You by U2 - Is There Anybody Out There by Pink Floyd - Amazing Grace - 316 by Van Halen - Tune Up by Miles Davis Lumber prices are finally starting to come down (a little). But what caused them to skyrocket and still remain absurdly high? Well I'm glad I asked that question for you as that's what I answer in my latest BiggerPockets piece. "With historically low interest rates, people want to buy houses. But we have a housing shortage, and the market is squeezed with historically low rates of inventory. For example, in Jackson County, Missouri, where I am, there are only 0.6 months of inventory—literally one-tenth of what a 'balanced market' would be. Delayed construction, low cost of funds, and historically low inventory have sent demand through the roof.
Phillip and I review the evidence for lockdowns and find them to have been massively destructive but almost completely usesless (as I have pointed out on this blog before).
Please check out the video or our YouTube channel as we break it down point by point. (The ridiculous Graham Stephan-esque thumbnail was Phillip's idea.)
Previous Episodes
-How to Positively Resolve Tenant Disputes (Property Management) -How to Manage Collections and Delinquency- A Guide to Due Diligence for Buying Houses - How to Find Banks for Your Investment Properties - A Crash Course on Building a Buy and Hold Real Estate Business - Is the Economy on the Edge of a Cliff??? How Should Real Estate Investors Respond? - An Introduction Into Buying Portfolios -Why Buy and Hold is So Powerful - In-House or Outhouse Management - Moving to California? - Doing Maintenance Right - Should You Accept Pets in Your Rentals? - Grading Real Estate Calculations - Why Real Estate Depreciation Can Make You Money - All the Ways You Can Finance Buy and Hold - Inflation is Already Her - Why is Lumber so Expensive? - How to Invest Out-Of-State (if you must) - Cryptocurrencies Are Godawful (...at being currencies) - The Dollar is Not Going to Hyperinflate. But this will happen... This quote from Saint Augustine of Hippo is one of my all time favorites, “Thus, a good man, though a slave, is free; but a wicked man, though a king, is a slave. For he serves, not one man alone, but what is worse, as many masters as he has vices.” In the modern world, we seem to equate freedom as nothing more than the freedom to do anything. In a political sense, perhaps this is valid. In your life though, the freedom to become addicted to some substance is no freedom.
A vice, no matter what it is (drinking, smoking, over-eating, etc.) is something you serve. Conquering that vice is liberating.
Now that my real estate/business channel is up and going, I've decided to start recording songs on YouTube again. Here is my cover of Let it Be by John Lennon. I hope you enjoy:
Previous Songs:
- Hide Your Love Away by The Beatles - What a Wonderful World by Louis Armstrong - With or Without You by U2 - Is There Anybody Out There by Pink Floyd - Amazing Grace - 316 by Van Halen - Tune Up by Miles Davis
The TL;DR review of this book is that it would have made for a fantastic essay, but as a book, it's rather repetitive.
Mindset: The New Psychology of Success is a 2006 book by Stanford University psychology professor Carol Dweck. The book delineates the "growth mindset" from the fixed mindset" and looks at the rather massive ramifications that difference has. Simply put, a person with a growth mindset sees themselves at the beginning of a road. Whether you are good at this particular task or not, you know that with hard work, you can get better. A fixed mindset, on the other hand, sees themselves stuck wherever they are. They are either good or bad and often this mindset can lead to either hopelessness or an unearned arrogance. Indeed, I suspect the now-rightfully-maligned self-esteem movement as having created a bunch of narcissistic kids with a fixed mindset. Indeed, people are bad at self evaluations, as many know. But it's really just the fixed mindset folks. As professor Dweck notes, Studies show that people are terrible at estimating their abilities… we found that people greatly misestimated their performance and their ability. But it was those with the fixed mindset who accounted for almost all the inaccuracy. The people with the growth mindset were amazingly accurate. (Pg. 11)
She also notes that people have the ability to change their mindset or change others. I think she goes a bit to far into the environmental deductionist camp and at least implied that genes have nothing to do with. Unfortunately, that would be false. Even still, there is still a lot we can do to improve our mindset as an experiment her team did shows,
We praised some of the students for their ability. They were told: “Wow, you got [say] eight right. That’s a really good score. You must be smart at this…”
"So why the mediocre review?" you might ask. Well, if you've noticed, both quotes above are from the first some 70 pages. It's pretty much the same after that. Professor Dweck discusses people in business, sports, music, etc. with and without the growth mindset. But it's all pretty much the same thing.
Indeed, the book has four and a half stars on Amazon, but the first five reviews (as of this writing) give away the problem. "Repetitive"
I think that's a bit harsh. The main concept (i.e. the 50-page essay this book should have been) is brilliant. As the next Amazon reviewer notes, "Concept is brilliant, execution not so much."
I would agree with that. Perhaps even professor Dweck would too. It's just that publishers need you to hit their page count requirements perhaps. Also, please check out my video review for Mindset on our YouTube channel: As someone in real estate, this isn't that bad for me as the values of our assets go up (although there's almost nothing to buy. But it's not good for the average person trying to buy their own home and get their foot on the first ring of building up a nest egg. (And of course, it's all being subsidized by ridiculously low Federal Reserve rates these major investment banks can borrow from at next to no interest.) As The Wall Street Journal notes, "The bubble has room to grow before it bursts, according to John Burns Real Estate Consulting. But it is inflating fast. The firm expects home prices to climb 12% this year—on top of last year’s 11% rise—and increase at least 6% in 2022, a period of appreciation reminiscent of 2004 and 2005... The article doesn't discuss how technology has made it much easier to manage such portfolios, which I think is a large part of the reason big investment funds are buying houses now. Indeed, I don't know how you could handle a large portfolio without things like property management software, ShowMojo boxes, lead management systems, GPS, etc. etc.
You would also think this will also put downward pressure on rents, but we haven't seen that yet. I guess we have seen a growing spread as home prices rise faster than rents, so perhaps the rest is just general inflation, which is going up quite a bit as well. I suspect this will increase political instability and anti-landlord sentiment even more (although it should increase anti-Federal Reserve and anti-Wall Street sentiment). We shall see... |
Andrew Syrios"Every day is a new life to the wise man." Archives
November 2022
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