Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST Thursday, February 7, 2008:
part of all this is the helplessness. You're sitting with cash, bereft of ideas,
frustrated with your inaction. You're aware there are huge opportunities. But...
A friend bid on 250 houses in Arizona, individually one property at a time.
Her idea is simple: Rent the houses -- there's a huge demand for rentals --
and sell them when their value comes back. Meantime, at the right purchase price,
a rental can return 8% to 9%, more with a conservative bank loan. There is a
huge demand for rentals. The erstwhile home owners got to live somewhere. Dah!
Not one bid was
accepted. Most never got a response from the owners. "The institutions
should be unloading," says my knowledgeable friend. "Their properties
are skidding in value by the day. I've visited properties I've bid on. They're
stacked with rotting household garbage, the appliances are missing, the sinks
are gone, the doors are off their hinges, the light fixtures have been removed
and airconditioners taken. The houses stand abandoned. With no maintenance,
they deteriorate, dragging down the value of all the houses in the neighborhood.
And the spiral of misery worsens."
"The institutions do not have the skills to manage the orderly sale of
their disasters (also called houses). No one is in charge. You can't find anyone
to negotiate with. These mortgages were sliced and diced, sold to every Tom,
Dick and Harry. Imagine cutting up a chicken, then trying to put it back together.
That's what we're facing now."
As to how this
will affect the economy? My friend says "A tsunami is coming." Try
this: Thousands of people were sold houses with 100% financing. No money down.
Then many borrowed a second mortgage. Bingo free money! Mannah from Heaven.
Everyone went on a spending spree. Hello, Best Buy, Sears, Wal-Mart That money
is now gone." And the credit cards need to be paid, or bankruptcies declared.
How much more
will housing prices fall? Item: In Phoenix an appraisal on a property by professional
appraiser used to be good for six months. Now it's good for only 10
days. I don't make this stuff up.
Florida has no
income taxes. That's good. But it taxes real estate heavily. That's bad. Try
this: Your annual real estate taxes are 2% of what you paid. Simple calculation.
Good if housing prices are skyrocketing. But not if they're plummeting,
as now. The 2% tax becomes a real bar to buying property. Florida is encouraging
its empty houses to stay empty and abandoned. A rotting asset. Then there's
hurricane insurance. You don't want to go there.
The good news
for the rest of us is we can have a wonderful vacation in Florida renting a
palace for one-tenth of what it would cost us to stay at the local Four
Seasons Hotel. I don't make this up. A friend just rented a three bedroom condo
which was actually part of a hotel complex and enjoyed all the hotel privileges
at one-tenth what it cost to stay in the hotel.
Money burns a hole in your pocket. No one can stand the frustration of sitting
idly, not putting one's money to work -- to use a tired Wall Street expression,
watching it sit there and "earn" 3.25%.. "Stocks are cheap"
says my friend. The key is to buy the "best companies at the cheapest price."
True. But the "best" companies are not doing well -- viz. recent reports
from Cisco, Wal-Mart and others. And the likelihood is that as fear spreads
more widely, pocketbooks will close even tighter.
My friends fear
for the banks from which they have miserable-paying CDs. They fear for the municipal
bonds they thought were their retirement. They fear for their job. They fear
that one day soon they will watch stock prices slide 20%. They fear for an administration
that is clueless, one that believes low interest rates and tax cuts are the
The fear is palpable,
but the opportunities immense. If only those institutions could get their act
money for going on an interview: I kid you not. It's a startup's
new idea. Try NotchUp.
time to go shopping: Items on sale -- like washing machines, TVs,
fridges -- can be bargained down even further with approaches like . "Can't
you do a little better?", "I hear this is your last one" and
"This one is scratched." Friends are using such techniques on retailers
desperate to move inventory.
culture -- 1
From the state where drunk driving is considered a sport, comes a true story
from the Sunshine Coast , Queensland . Recently a routine police patrol parked
outside a local neighborhood tavern. Late in the evening the Officer noticed
a man leaving the bar so intoxicated that he could barely walk.
The man stumbled
around the car park for a few minutes, with the officer quietly observing. After
what seemed an eternity and trying his keys on five vehicles, the man managed
to find his car, which he fell into. He was there for a few minutes as a number
of other patrons left the bar and drove off. Finally he started the car, switched
the wipers on and off (it was a fine dry night), flicked the indicators on,
then off, tooted the horn and then switched on the lights. He moved the vehicle
forward a few cm, reversed a little and then remained stationary for a few more
minutes as some more vehicles left.
At last he pulled
out of the car park and started to drive slowly down the road. The police officer,
having patiently waited all this time, now started up the patrol car,
put on the flashing
lights, promptly pulled the man over and carried out a breathalyzer test.
To his amazement
the breathalyzer indicated no evidence of the man's intoxication.
The police officer
said 'I'll have to ask you to accompany me to the Police station - this breathalyzer
equipment must be broken.'
'I doubt it,'
said the man, 'tonight I'm the designated decoy.'
culture -- 2
Bob walks into his bedroom with a sheep under his arm and says: "Darling,
this is the pig I have sex with when you have a headache."
His wife is lying
in bed and replies: "I think you'll find that's a sheep, you idiot."
The man replies:
"I think you'll find I wasn't talking to you."
This column is about my personal search for the perfect
investment. I don't give investment advice. For that you have to be registered
with regulatory authorities, which I am not. I am a reporter and an investor.
I make my daily column -- Monday through Friday -- freely available for three
reasons: Writing is good for sorting things out in my brain. Second, the column
is research for a book I'm writing called "In Search of the Perfect
Investment." Third, I encourage my readers to send me their ideas,
concerns and experiences. That way we can all learn together. My email address
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