Hurricane Katrina Recovery The Price Of Rebuilding Is Austin Stable House Renovations The Basics Of Home Remodeling Four Real Estate Investment Tips That You Can Learn From Warren Buffet And Other Stock Investors
President Bush and a number of other politicians are pushing for a huge rebuilding campaign for the devastated gulf coast region. Bottom figure estimates have the rebuilding costs pegged at 200 billion dollars while some have said that when it is all said and done the project will exceed one trillion dollars. Certainly, this will be the most massive renewal project ever undertaken in the history of the world.Can we afford this project? How will we pay for it? All Americans need to consider what this project will mean before giving their okay. Will politicians listen? It certainly remains to be seen.
We have all been captivated by the human drama that has unfolded before our very eyes since Hurricane Katrina slammed ashore this past August. People plucked off of their roof tops by the U.S. Coast Guard, children separated from their parents, bedlam at the Superdome, bodies floating in streets throughout the ninth ward, and more. These are some of the images we have all seen. Only a hard heart could fail to be affected in some way by the scenes we have witnessed on our televisions.
Within a few weeks, calls to rebuild the gulf coast region have been mentioned by President Bush and other leading politicians and echoed throughout the media. Many have stated that we cannot allow a major American city to remain destroyed, that rebuilding must occur. At any cost, at any price.
Personally, I hope that a certain amount of debate happens before funds are earmarked. So far, no actual amount has been mentioned, which is causing me to hold on to my wallet for dear life. No, I am not against helping people. What I do oppose is rebuilding in areas that are prone to future devastation and loss of life. Quite frankly, I do not know if there is an amount of money we could spend — even if we had it — that would protect area residents should a repeat performance ever occur, which is likely to happen once again.
Some questions I want to see asked include:
How many people who left New Orleans really want to go back? The latest figures I have seen is that about half do and half do not want to return. Does that mean that we should build a city on the same scale as the old New Orleans, or not?
What are the long term effects of the toxic cesspool? Will the soil permanently contain contaminants that could adversely effect the health of residents?
The current levee system is inadequate. Doesn’t it make sense to have a new system in place before massive rebuilding commences?
Who will have authority over the funds? Local and state politicians whose prior management of the area is suspect to say the least? The federal government? An independent agency? Who?
Will we be able to divert funds from pork projects now slated to be funded? I have heard of two bridges in Alaska that are essentially bridges to nowhere. Are U.S. senators and congressmen willing to sacrifice personal pork projects to pay for this project?
How about cutbacks in military expenditures to help fund the project? No, I am not talking about cutbacks to Iraq, but why do we still have such a large troop presence in Europe? The cold war ended more than fifteen years ago, isn’t Europe able to defend itself?
I realize some of these questions may appear to be insensitive, but they need to be asked. An emotional response to the devastation coupled with a blank check will likely mean that our children and grandchildren will be paying the tab, perhaps long after many of us are gone.
I really hope that we can think all of this through. My fear is that we won’t and that we will saddle future generations with an awful burden.
Austin is a pretty stable place in which to live. No, I’m not referring to the economy, but weather and geology. No I’m not a meteorologist or geologist, but I do have some observation after having lived in the area for 18 years.
The weather in Austin can be a bit toasty in the summer, but compared to many places in the U.S. it really is pretty nice. We are far enough from the Gulf so that if any tropical systems push this far inland, it is mainly a rain and wind event for us.
Austin technically is below the southern end of Tornado Alley. The majority of severe weather we get is wind, hail and flash flooding. I can remember tornados coming through the Austin area, but rarely have they been major damage producers. Hail storms can hit at any time, but I can remember only two or three that have produced a lot of damage and that has been localized.
Heat, cold and humidity…This is where things get interesting. Winters are pretty mild, but I have seen some crazy things. Snow usually isn’t an issue, but we have had some ice storms. I can remember probably 5 times in the 18 years I have been here that the temperature didn’t rise above the freezing point for 24 hours or more. I remember one February probably 10 or more years ago when it was 98 degrees F and the next weekend we had ice. Strange…
Summers are long and warm. Summer days usually start out warm and humid. It can be the norm to wake up to about 75 degrees and 90% humidity. But as the day warms up, the humidity usually drops. We can get over 100 degrees, but that doesn’t happen too often. When it does, the humidity usually drops to 20% to 30%.
Flash floods – OK, you had to ask. Travis County, which Austin is in, is one of the most high risk counties in the country for flash flooding. This is because of topography and soil conditions. Austin is the gateway to the beautiful Texas Hill Country. West of downtown, the area is composed of dramatic limestone hills. The problem is that there is almost no topsoil. So when we get dumps of 2 inches of rain more in a brief time period, the water has only one way to go – downhill.
There isn’t soil for the rain to soak into and even though the limestone is somewhat porous, only a little of the heavy rain trickles down into the rock. When we do have heavy rain events, the best thing to do is stay off the roads and tune in to the radio. If you must be on a road, observe all caution signs. Even a few inches of water can sweep a car away. The slogan worth remembering here is: “turn around, don’t drown.”
So what about geological stability and why do I even mention it? The West Coast, Alaska and Hawaii seem to be the areas in the U.S. seem to be the areas at the greatest risk for seismic and volcanic activity. Although there is a fault that runs close to Austin, the Balcones Fault, I have no idea when the last earthquake may have been, but it had to be a very long time ago.
Although I didn’t start this talking about the stability of the Austin economy, but I just have to throw in a few words about it. The unemployment rate for the Austin area in April was under 4%. Samsung is building its largest U.S. manufacturing plant here. Builders started more new homes in the first quarter of this year than ever before and even with that we have less than a 2 month supply of new homes. Learn more about
Austin MSA statistics.
In summary, Austin is a pretty stable place. We tend to have good weather that doesn’t get too extreme and the ground doesn’t shake. I guess this is one reason that people move here from all over the country.
With the mortgage business being what it is these days, it may be a safer think to fix up your house as opposed to selling it and purchasing a new one. House prices have come down so much that nowadays homeowner will have a hard time finding the right value for their land. Most people are turning to house renovations to enhance the price of their house and prepare for the future bounce back in the housing market. Here are a few simple home remodeling tips that can help you fix your house up.
If you are looking to obtain the most for your money, it is a great bet to start with the kitchen. One problem you may encounter is that a complete kitchen renovation may take a little longer than expected and the cost could be a bit higher than you have to expend. A good place to start renovating your kitchen is with something inexpensive like the walls. Slap a fresh coat of paint on your kitchen walls and it can do wonders for the appear and feel of the kitchen.
The next thing you want to focus on is the bathrooms. The kitchens and the bathrooms in your house will be the major focal spots when you go to sell your residence. This is why you want to start with these two parts and repair them up as much as possible. A good place to start in your bathroom is the flooring. If you can, don’t make use of vinyl for your flooring and if you do have vinyl floors, upgrade these floors to tile.
The next point to modernize and enhance the value of your home is the front area of your house. Whether this is a small area of grass or you have a big front yard with a garden, you want to ensure that you have excellent curb charm when you are planning to sell your house.
The economy may be on a down swing, but you know how to still do the aforementioned things in order to increase the value of your house while you stay for the economy to recover. Do these things and you will be good on your way to a great house remodeling job.
Some of the most successful stock investors ever have based their investing principals on value investing. Investors such as Benjamin Graham, Irving Kahn, and Warren Buffet, have used value investing to build vast empires of wealth.
Value investing was conceived by Benjamin Graham, and David Dodd, in their classic book, “Security Analysis”, written in 1934. Although they were talking about stocks, there is still a lot to be learnt from value investing that can be applied to other investment vehicles. This article will show four things that real-estate investors can learn from value investing…
1: ***** Investing vs Speculating *****
In value investing, it’s important to make the distinction between being an investor, and being a speculator. In “Security Analysis”, it is defined as this:
“An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative”.
So, there are 3 things needed for something to be an investment:
– You need to have done thorough analysis.
– You need to be reasonably sure that you won’t lose your money.
– You need to be reasonably sure that you will make some money.
In terms of real-estate, this means that just buying and selling real-estate, does NOT make you an investor. If you’re buying properties at random, just because there is a boom and all property is going up in value, you are not investing. You are speculating.
There is nothing wrong with speculating, you just need to be aware when you are speculating, versus when you are investing.
2: ***** Value vs Quality *****
Value Investing doesn’t really have any formulas, or rules. It is more of a theory, with some general principals. Because of this, there are many ways to do value investing, and different ways to apply it.
Benjamin Graham focused on buying stocks significantly below value, with little emphasis in the quality of the stock, in regards to their long term prospects.
This can be a useful strategy for a real estate investor, particularly when they are first starting out, and need to build up equity fast.
Warren Buffet still looks at the value of a stock, but puts a lot more emphasis on the quality of the stock. He only buys stocks that he thinks have good long term prospects, with a bright future in front of them.
This is generally a good strategy for real-estate investors to move to later on, when they have built up their portfolio. Long term, well chosen property will make significantly more capital growth than poorly chosen property, and may be worth buying even if it can only be bought at market value.
And with commercial real estate investment, it may be worth getting a lower rental yield, if this means you can have a high quality tennant, who will pay the rent reliably. This is a strategy that famous New Zealand commercial real estate investor Bob Jones has applied, with great success.
3: ***** Margin Of Safety *****
One of the most important principals in value investing is “margin of safety”.
Margin of Safety is the idea of making sure that you only invest if your calculations show that there is a significant profit to be made. There is no way your analysis can be 100% accurate, so the margin of safety gives you a buffer, to use when your calculations are slightly off, or you get worse than average luck, or any number of unexpected problems occur.
So when estimating the value of a stock, you use conservative estimates for earnings etc, to come up with the value. If your estimated value comes in at $10, then you don’t buy the stock if its currently selling for $9.75, because it’s too risky, and if your calculations are off, you wont be buying a bargain. If the price is currently $6 though, you might buy it, because you have a $4 margin of safety to use if you estimated incorrectly.
The same principal applies to real-estate.
Suppose you are looking at a deal, and you find you can buy some land for $100,000 and you can build a 4-bedroom house on it for $150,000.
If new 4-bedroom houses in the area are selling for $270,000 then should you do the deal? Theoretically, it will only cost you $250,000 to buy/build with a sale at $270,000 so you should make $20,000 profit.
But that isn’t much margin of safety. What if building costs blow out, and it cost more than $150,000 to build? What if you can’t sell it straight away so you have some holding costs? What if the other 4-bedroom houses in the area have much better kitchens than you realized, and you can actually only sell for $245,000?
There are a lot of unknowns here, and because your margin of safety is so small, unless everything goes right, you can quickly find yourself making a loss.
If on the other hand, 4-bedroom houses in the area are selling for $350,000 then you have a projected profit of $100,000.
You can afford for a lot of things to go wrong, and you can still make a profit.
In the first case, if building costs go up by $50,000, the deal will cost you $30,000.
In the second case, because you have a much larger margin of safety, if building costs go up by $50,000 then you will still make a profit of $50,000.
Margin of Safety is a very important concept to all investors, and all real estate investors should think about it if they want to be around for the long term.
4: ***** The myth of Risk vs reward *****
Convential wisdom says that to increase your reward in investing, you must increase your risk. This is often true, but the Magin of Safety principal can turn this around.
When margin of safety is used, a higher reward actully means a lower risk!
You can see this is the example above. The deal that is projected to make $20,000 is quite risky, whereas the deal with a projected profit of $100,000 is much safer, because a lot more can go wrong before a loss is made.
This doesn’t mean than high reward always means lower risk though. The convential Risk vs Reward wisdom is still correct in general. So if you borrow more to buy a property, your risk and reward have increased. If you buy in a small town to get a higher rental yield, your risk and reward have increased.
This Risk vs Reward theory is only incorrect when directly applied to the Margin Of Safety concept. So if you buy something for $100,000 that all your analysis shows is worth $200,000, then your reward has gone up, while your risk has gone down..
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