27 October 2018 FT — Articles to Read

27 October 2018


Question: What are 10 costly mistakes real estate investors make?


Tech gloom drags down Wall Street – Pg. 1

–        Wall Street is heading for its worst month since the financial crisis after discouraging forecasts from big technology groups triggered a wider sell-off, reigniting fears that the longest bull market has come to an abrupt halt

–        …US economy was still growing at a robust 3.5% annualized rate in the third quarter.  The S&P 500 fell as much as 2.9%, wiping out this year’s gains

–        Investors are concerned that most big central banks will continue to wind down crisis-ear stimulus programmes despite signs that economies outside the US are slowing, with mounting trade tensions threatening more damage

–        The S&P 500’s lows yesterday took its drop from a September 21 peak to more than 10% – the accepted definition of a correction.


Draghi warns on central bank independence – Pg. 4

–        In the US, President Donald Trump has assailed the Federal Reserve as “loco” for raising rates, which he blames for recent falls on Wall Street

–        Tensions between Italy and the ECB has hit a high over Rome’s plans to run a big budget deficit, which have contributed to a rise in the country’s borrowing costs


German housing costs leave Merkel party vulnerable – Pg. 4

–        The scarcity and cost of housing have become an issue for German voters and politicians alike

–        …concluded that the country needs 1.5m new flats over the next four years

–        Analysts say Germany’s housing problem has its roots in the years after the turn of the millennium, when policymakers became convinced that the challenge for city planners was the management of population decline.  New housing projects fell dramatically.  At the same time, local and state governments sold social housing stock and stopped investing in affordable homes


Self-driving cars receive their first fee-paying passengers – Pg. 10

–        Waymo has begun charging passengers in Arizona for rides in its autonomous cars, making it the first self-driving car developer to launch commercial services

–        (Prof Note: I truly believe that autonomous cars are going to put real estate pricing on its head.  No longer will a two-hour commute be a chore.  The time can be used productively)


Diversification breaks down with no hiding place for investors – Pg. 13

–        …for the first time in a very long while almost every major asset class has now slumped into negative territory for the year

–        The US stock market and US junk bonds were the last two corners to still hold on to narrow gains for 2018 but this month high-flying tech stocks have been pummeled and the last of the S&P 500’s advance evaporated this week and left investors facing a sea of red

–        A fourth interest rate rise for the year has been considered a foregone conclusion but some doubt is now creeping in

–        Fed funds futures – derivatives that allow traders to bet (Prof Note: Or “hedge”) on US interest rates – now imply a 33% chance the central bank will blink and hold steady in December, up from just 19% a week ago

–        The biggest danger confronting investors is therefore that the “rolling bear market” – as MS has dubbed the expanding sequence of asset classes suffering losses this year – continues to rumble on and plays havoc with many popular portfolio construction methods.  What is so nerve-wracking about this rolling bear market is that it leaves even big diversified investors very few places to hide


Answer: (1) Planning as you go (Prof Note: One must have a plan at the beginning); (2) Thinking you’ll get rich quick (Prof Note: I cannot stand those flip shows on tele.  Real estate is a long wait game…); (3) Not having the right people around you (Prof Note: The “team” is crucial!  I feel blessed with this list-serve and all my peers/friends.  Everyone enables me to assemble a class-A team instantaneously.); (4) Paying too much (Prof Note: Sometimes you have to walk away.  Patience and cash wins the purchase.); (5) Not doing your homework (Prof Note: Real Estate is asymmetric with the seller typically knowing more.  The buyer must close the gap as much as possible.); (6) Ducking due diligence (Prof Note: Much of real estate starts in the office(s) and requires long hours.  It concludes in the field and one must be comfortable in both areas.); (7) Misjudging cash flow (Prof Note: One lives and dies by cash flow.  Property Taxes, HOA, Association Dues, Maintenance, etc.  All must be paid and there must be sufficient reserves, note: credit lines can be considered reserves); (8) Lowering the volume (Prof Note: One must have pipeline.  Always be working on deals.  You must be in the game.); (9) Not having backup plans (Prof Note: Stress test your portfolio.  I always ask younger investors, “If all hell breaks loose, will your family bail you out?”  Great if they will, no shame at all and best to have a supportive family.  If not, you better grow to a size where a default is the bank’s problem and not yours! J); (10) Miscalculating estimates (Prof Note: Get several estimates)