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General Discussion / Re: Rent vs Buy Decision
« Last post by BG2008 on Today at 09:54:09 PM »
Buy versus rent is not a numbers decision, and it will be decided by your significant other.
Until you settle down, treat the place you sleep as just shelter, build your down payment as high as possible, and spend your time looking for the right person. Your time is better spent focused on the lifetime investment, not the brick and mortar one.

As a single young person it makes little sense to buy. You are moving to where the work is, you have no idea how long you will be in city 'X', and you have no idea where your significant other is. Once she/he is found, at some point in the relationship you're going to want to try living together - and the old place is going to go. If you own a property; every time you move its 5% in commissions and another 10-15% (over time) to redecorate the place. 

For most folks, first kids will decide it. You will be cocooning in one place for 10-20 years, and the long hold period will heavily favor purchase over rent. The biggest new-build you can afford in a new development, with space to grow into, and trees that will be fully grown by the time you're ready to sell. 

Nothing prevents buying in city 'Y', and renting the place out while you live somewhere else (city 'X').
A great many young women do exactly this, and the property is often a shared purchase in a smaller city - shared between female siblings and a divorced parent. The women can get on the property ladder, without having to continually find tennants; yet retain their ability to move for work/romance.

Put aside the spreadsheets.

SD

This comment needs to be highlighted.  For all of those that thinks buy vs rent is simply a number/financial decision, it's not.  This especially applies when the decision involves your SO and your kids.   
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General Discussion / Re: Rent vs Buy Decision
« Last post by SharperDingaan on Today at 09:33:25 PM »
In the spirit of the thread I will add to this.

During the GR2 I were offered a flat in Knightsbridge (London, UK) by a city acquaintance who needed to sell. He needed out quickly, and we were offered a fabulous price - provided we could give him some leeway. It was a lot of money for us, and as the property could not be mortgaged for a time - it meant margining/liquidating the lions share of the family portfolios. Significant risk.

The typical UK practice (in Knightsbridge) is that you don't buy land plus the structure on it, you buy the unexpired portion of a 99 year lease on the land plus structure. The lessor then either lives there, or sells a series of sub-leases on the property over time in 1-5 year periods. Everyday operating costs are typically the sub-lessors responsibility.

London has worked out very well for us, and we have been able to place the bulk of the gain in the hands of the nephews (tax reasons). Successive returns of capital have repaid the mortgages taken out along the way, and the nephews are now graduating and working in London. When the nephews enter their 30's the flat will be sold.

I raise this anecdote because there are times when life-time RE oportunities will be offered, and you must be ready to grab at them. You need to keep your head - while all around you others are losing theirs, and have the courage to call the nay-sayers. In our case we have both investment and quantity surveyor expertise, so the decision was a lot easier.

The WEB punch-card is not free.

SD





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General Discussion / Re: Rent vs Buy Decision
« Last post by BG2008 on Today at 08:42:18 PM »
If you live in Rochester NY, the answer point you in another direction.

Hey! At least we aren't Gary, Indiana!

But ya, agree with what you said and always nice to read your views on real estate. I am definitely biased against nearly any RE-based investment idea. I think local RE conditions have made me jaded on the whole asset class. Rochester is a particularly unique RE market where prices seem to go up 1%-2% annually over almost any 5-year period. Never much more or less.

I mentioned Rochester specifically because I stayed with Packer and we drove around.  He mentioned that home prices barely moved during his time there.  We drove through endless plots of land and it made sense that there are almost zero barrier to entry.  Very few markets are like SF, NYC, and London where people want to go to and live there. 

I worry about concentration risk.  With the new tax policy punishing high cost coastal cities, I wonder if I'm better off with Texas, Nevada, and Florida.  What's critical today is that so many jobs can be done remotely.  Take myself for example, there is no need for me to stay in NYC.   I can run a fund in the states like Texas, Nevada, and Florida.  The fact that my whole family is here and that fact that you can get soup dumplings at midnight is what's keeping my wife and I here in NYC.
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Investment Ideas / Re: SHLD - Sears
« Last post by Picasso on Today at 08:30:18 PM »
They just pulled in $400 million for an asset nobody thought had value and not a single comment? My my how sentiment on this board has changed since page 1. Feeling more and more like we’ve reached max capitulation (especially with Berkowitz blowing out) and there’s a lot of money to be made here given some of the recent moves to equitize debt as high as the 2L’s.

He keeps the  SHLD bonfire burning longer than I would have expected, but that unlikely changes the ultimate outcome. From the looks of it, this is the at least partial sale of the SYW program.

At the risk of overly simplifying a complex and unknown outcome.. I think something like this needs to be broken down in two parts. First would be understanding different paths of a restructuring (in-court or not) and what that would mean for the equity and debt in the near-term. The market and balance sheet values diverged pretty significantly due to Berkowitz liquidations which opened up options for ESL to maybe create value for the equity to the detriment of bond holders. It was telling that Berkowitz did not exchange his notes. With so much debt trading at half of par and various transactions that included significant conversion of debt to equity you can pencil out some interesting outcomes that are probable given Lampert's background and recent actions. What happens after this restructuring is anyone's guess but there's not much point in focusing on their inevitable demise when they're in the middle of significantly reducing liabilities that the market thinks would make this a zero...  When these transactions are all said and done it will be easier to figure out whether they were for nothing and the retail operations will continue bleeding enough to kill the rest of the business. I don't know what the odds are on stabilizing the retail ops but if you can pay a $200 million stub (I guess closer to $400 million today without accounting for potential dilution) with at least a couple billion coming in while reducing net debt by taking advantage of the bond conditions there are probably much better than 50/50 odds of doing well here in the short-term. The upside on stabilizing the retail ops is so large that even small odds of success there makes this more interesting because you're likely to make money on the first leg of this trade (buying during distress with Berkowitz liquidations and the debt restructuring) with a free look at what comps start looking like later this year. If they turn positive for some reason I imagine this sucker will really fly but at least I don't have to worry about paying up for that like everyone else at $30-40+/share.

I think if someone looked at this with fresh eyes and took away any bias the reception would be a lot different.  Just look at all the interviews Lampert has done recently. He's 1) opened himself up to fradulent conveyence risk once again, and 2) specifically said he does not think a bankruptcy is in the cards anytime soon. Doesn't seem like a bad time to bet against consensus.
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General Discussion / Re: Rent vs Buy Decision
« Last post by Schwab711 on Today at 08:10:02 PM »
If you live in Rochester NY, the answer point you in another direction.

Hey! At least we aren't Gary, Indiana!

But ya, agree with what you said and always nice to read your views on real estate. I am definitely biased against nearly any RE-based investment idea. I think local RE conditions have made me jaded on the whole asset class. Rochester is a particularly unique RE market where prices seem to go up 1%-2% annually over almost any 5-year period. Never much more or less.
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Investment Ideas / Re: CHTR - Charter Communications
« Last post by LongTermView on Today at 07:52:00 PM »
It seems to me the mobile phone is the only additional element here. At home or work you would be able to use either when 5G is out...On the move you could use 5G...You wouldn't need 2 services. So maybe instead of buying all this stock back, cable should figure out how they will keep the customer on the road and at home, either via mobile partnership or buying a 5G network. It will cost alot of money so they will need to build a war chest.

Yeah, there are a lot of questions regarding 5G. This "The Power of Millimeter Wave | Verizon" video is  pretty cool and it's less than 3 minutes: https://www.youtube.com/watch?v=jnyG2bliKCs&feature=youtu.be
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Investment Ideas / Re: TSLA - Tesla Motors
« Last post by rb on Today at 07:50:27 PM »
The thing is not that he's explaining things to a public that is ignorant of such things as an educator. He's not saying that the TBM is electric. He's saying that they've made the TBM electric. Then there's all that nonsense about diesel and ventilation, power, batteries, etc. What he's trying to do is create a false narrative in order to give the impression that his company engineered huge efficiencies over current processes implying that he be able to deliver the output for a much lower cost. Which is flat out untrue. You can wrap it up and tie it with whichever color ribbon you want. But that is the definition of 100% pure grade bullshit.

People have been digging tunnels for transportation under cities for generations. They're called subways. Yes digging those tunnels costs a huge amount of money. Musk's tunnels will too. The difference is that mere mortals need to have a business case and a budget before endeavoring to do so. Musk doesn't need to because he can take a pile of money and set it on fire. Apparently it's his superpower.

Also Tesla is not some huge automotive success that upended the automotive business with a superior model. They have a tiny market share and can't even fulfill the demand for that. They're only success is getting a high market valuation - that's a very different thing. For comparison, Walmart was a huge retail success that upended the retail business with a superior model. Wherever Walmart went, they took market share. A lot of market share. They also had merchandise on their shelves and made money.

But coming back to digging tunnels. Here's a question for you. That presentation video was about 1 hour long. You've obviously watched it. After you got push back on this here, did you go and spend at least an hour doing independent research on the physics, engineering, and operations of digging tunnels?
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General Discussion / Re: Rent vs Buy Decision
« Last post by LC on Today at 07:31:51 PM »
Great anecdote. RE is truly location location location. You need to know where people are going and what is cool. The question I always ask is, "why the F*CK would I want to live in XYZ???" Gotta have a good answer to that question.
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General Discussion / Re: a plea for help from Ericopoly
« Last post by sarganaga on Today at 07:25:46 PM »
In most divorce cases, especially if there are children involved, you start off with the wife getting half. Then they figure out how much more the guy has to pay. Not a judgment, just how it is.  maybe/probably even a good thing. Spousal support, child support, maybe they can find a few more things.

If Eric could pay 60% and be done, he should probably do it, but he can't. I really think they are angling really large spousal support in addition to child support, which, BTW, is no longer deductible under under the new tax law.l

If Eric's wife was still working while he was retired, I would hope his "tiger lawyer" would do something like ask for sole custody of the children and spousal support and child support  from her. She was the main breadwinner. Their investments just happened to do well while he was retired. If this were done, the risk in the litigation game would be more evenly spread.



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General Discussion / Re: Rent vs Buy Decision
« Last post by BG2008 on Today at 07:21:39 PM »
I will share some personal experience.  15 years ago, my best friend and I were both recent college graduates.  We both noticed that our parents and family built up wealth by investing in real estate.  We do not really understand why, but people who own real estate just seems to be rich or better off.  This is 2004.  We were both working in the NYC area.  Now, let's put things in perspective, interest rate in the US went from teens in the 80s to about 6% during that time.  So any real estate buy decision is a genius move in hindsight.  In 2004, the US just lowered its interest rate after 9/11.  These are important context.  It's also important to point out that the US has 30 year fixed rate mortgages. 

With family help, my friend and I both bought property.  He bought on Long Island a suburb of NYC accessible by train.  And I bought in Queens, NY a burrough of NYC accessible by subway.  Commuting into NYC cost $2 for the subway and $6 for the train.  I bought in an ethnic neighborhood with predominant working class immigrants.   My friend bought in a middle class neighborhood where people tend to own.  His carrying cost, lawn, property tax, misc fix are rather high.  $15k total for a single family home with 5-6 rentable bedrooms.  My is less than $2k.  His renting window is to get six students at a local college to share the rental of his house.  My renting window is constant since my building is a 5 minute walk to the subway station.  At one point, we both lived in the city.  When stuff breaks, he has to go fix it which takes longer.  When stuff breaks, I tend to have some handyman who can go in my place.  I tend to have family who can help out.  I'm a bit more handy than him.  The 2008/2009 recession was really the divider between our investments.  I had to deal with some issues like theft/robberies of my tenants.  Things got stolen and crime went up a bit.  By the way, back when we bought.  My neighborhood in Queens would be considered kind of "too ethnic" for most people.   He bought in our hometown which is a 1/3 Catholic, 1/3 Jewish, 1/3 Protestant.   

Over the years, I've had 99-100% occupancy.  The longer the years go on, the higher the occupancy rates goes.  My tenants don't want to move.  If they do, I put a For Rent sign up and I get a tenant in there in a few days.  My friend has a 4 week leasing window.  If he miss out on that, he loses rent for the whole year.  His best outcome is if the existing tenants "pass down" the house to new undergraduate or graduate students.  He once rented to the dance team at the local college, as single guys in our 20s it was always fun to go repair stuff and chat up with the gals.  As married men with kids now, this isn't a perk anymore.  New York City really took off after the recession.  The suburbs recovered much later.  But the issues of not being able to rent so easily drags the value down.   He gets stressed out from having to constantly get tenants every couple of years.  Also, his tenant base is very unique.  Most people don't rent on Long Island.  If they do, you find some of the sketchiest people ever.  The one that can pay and makes a lot of sense to rent are servers.  But they look to party and will literally destroy your house.  We had to rent out our family home when we moved into the city.  Our house got trashed and I had to act like an asshole to get the 20 year old party animals to move out.

After a few years, his house barely appreciated and my building has appreciated by 80% over 10 years.  Given that we both bought at the peak of the housing bubble, I think I did much better than he did.  What is the takeaway? 

1) What is the prospect for rent growth over time?  All real estate is local.  You need to pay attention to the local dynamics.  Is the area getting gentrified?  Is there a big corporate client moving their HQ there? HQ2?  Is there an emerging art scene?  Is your place hidden?  Are they building a new train stop? 

2) 30 year fixed rate mortgages are awesome.  Exploit them if you can.  If you can't get them in your country, the decision gets trickier.

3) Long term trends really matter and probably matter more than the discount you get initially.  If you feel that a neighborhood is starting to go bad or start to gentrify, those characteristics maybe more important. 

4) Cover your mortgage payment.  If you can cover it, then the asset becomes a call options (30 year fixed mortgage, does not apply to 5 year trends).

The dynamics that I outlined is very different if you live in a non-land constraint area.  If there are endless supply of land, then you need to buy at a high cap rate.  What appreciates over time is land value, not the interior decoration.  The appliances and interior really do depreciate.  As yourself, are there more land?  Ask yourself, will it cost more money in the future to put up a structure and pay for all the labor and materials?  If you live in a city like NYC, Londong, SF, then the answers point you in a specific direction.  If you live in Rochester NY, the answer point you in another direction.  This is why I hate those rent vs buy calculators.  People need to think, how hard is it to rent?  Is the area getting better or worse? What kind of financing do I have.  If I need to move, can I rent it to someone in 30 days? 

For the right situation, buying a piece of RE is a "buy it and forget about it" type of investment that compounds in the teens for 10-15 years. 

Another anecdote, my family are barely getting by in my teens.  We took some risk and bought some properties.  We're not the Trump family today.  But we're doing okay.  We collect rent.  As we get older, as I look at my friends from college who are highly educated.  They moved to the city and never bought property.  They still pay rent today.  In away, the poor immigrant family now rent property to the college educated middle class.  I think you need to reverse engineer why that happened.  I suggest looking at your local town/city and see if it's a high quality compounder with ability to increase rent over time or if it's a suburb where everyone will own their property.  If you look at your own town/city and try to determine whether it is a high quality company or a low quality company and think in terms of barriers to entry etc.  You may find that buying is a good decision as long as you have the staying power to hold onto it for a long time.   
 
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