Sunday, December 11, 2005

So, You're a Real Estate Property Investor

So, You're a Real Estate Property Investor
You think you're on to something with your approach to real-estate investing? Could it be a full-time job and make you a ton of dough? I've seen some do very well with it and I've seen some crash and burn. So, here's some advice and some trends I see coming down the pike that you can take to heart or take with a grain of salt. For three ways to go broke in Real Estate see; http://moneycentral.msn.com/content/Investing/Realestate/P125117.asp Also see; http://beginnersinvest.about.com/od/realestate/index.htm?terms=Real+Estate+Investing

Turnover, Leases and Equity
First, as you may know, the house you live in is not an investment. But, property that can be turned-over quickly or leased-out is an investment. The turnover variety carries more risk because there is no guarantee of selling property once acquired. Whereas, the rental variety is safer if you buy in an area where it is easy to find reliable tenants.

Areas that have good tenants are usually in and around college towns and universities because students will pay top dollar for very little living space. Students are, by and large, well financed by others who can afford to foot the bills. Other areas for good for tenants are inside and surrounding larger cities where office workers commute to work. Some workers tire of the commute and look for something closer to work, they are usually gainfully employed, and dependable. You get the drift, as they say in real estate; the three most important things are location, location and location. ( I won't go into the mechanics of lease-agreements and carrying insurance).

That is not to say that you could turnover some property as well as lease it. The thing is, over time, as you acquire more and more property and build up equity in your holdings you can use that as leverage to acquire yet more property. Patience is a virtue and this can take years. Too many have tried to acquire property too quickly and find themselves in a negative cash-flow position, (your out-go is more that your in-go). But with patience and careful consideration as to what and why you are acquiring property you could eventually build up enough equity to build an attractive apartment complex or maybe an office building someday. Now, are we talking real income property?

Trends, ARMS and No-Interest Loans
These days are the days of the stretched consumer. I don't have to tell you about rising energy prices and the like. The savings rate, (as a percentage of income), hit a possible 75 year low at -1.5% in September. Yes, that's a negative 1.5%. What does this mean besides people are spending more than they make? Consumers have very little, if any, income to buy property with rising housing prices. Housing affordability is at a 14-year low according Merrill Lynch economists and mortgage applications are 20% below this last summer's high. On top of that, by January 2006, the FDIC and like governing bodies are looking to clamp-down on the creative risky mortgage loans we see as popular lately. Interest-only and ARM borrowers are in for a rude surprise when their payments increase as loans reset and they start paying principal payments and interest rate increases. Most of these types of loans are slated to have increased mortgage payments of 50% to 100% in the next five to six years.

Then what?
Well, if you're an investor it could be foreclosure heaven. Look for an over-abundance of housing on the market during this time period. Economically, over-supply means price reduction. The scale will tip and buyers will have the upper negotiating hand. For more inforamtion on foreclosures see; http://homebuying.about.com/od/realestateforeclosures/index.htm?terms=Real+Estate

The main idea is to be able to ride out the up and down trends that are inevitable in real-estate with larger holdings in income-producing property and the accompanying equity that comes with it.
Good luck out there. http://ednewcomb.blogspot.com/

Wednesday, December 07, 2005

The Four Investment Approaches

What are the four Investment Approaches?

Investing anywhere in the marketplace these days is a difficult challenge. People invest in mutual funds, equities, bonds, options or property. This article focuses exclusively on equity investing strategies. Equities impact an investors ability to profitably invest in other investment areas. For that reason, consider these four fundamental approaches.

The Four Strategies
The four personal approaches that lead to decisive investment focus are growth, quality, sentiment, and value:

Growth is investing in accelerating earnings-per-share growth (EPS), relative growth, growth momentum, rising expectations and enterprise sales growth.

Quality is investing in turnover speed, industry leadership, return on investment (ROI), and strong operating margins.

Sentiment is investing in consensus, high price-earnings multiples (PE), insider buying data, institutional ownership and lesser-known stocks.

Value is investing in contrarian opportunities, favorable values, EPS to growth (PEG), income stocks, and relative value.

Before deciding on an investment approach, know that one approach must predominate. The reasons are legion. Using all four at once may diffuse and dilute earnings. The separate strategies have different holding patterns, time horizons, and fit differing investment objectives. Finally, profitable investment requires a focus. Focus on the approach that fits with goals, style, and level of risk comfort.

It is possible to combine elements in a central strategy from the other three strategies. For instance, a value investor should consider sentiment because analyst's expectations can change equity values. Likewise, a growth investor concentrating on momentum and ignoring quality may run into trouble by not considering return-on-investment. Find, Analyze, Buy, and Sell
The strategies assume a more than a passing knowledge of the financial markets, financial ratios, and accounting. Once an approach is adopted, there is more work to do.

All equity investors need to;
- Find stocks
- Analyze Stocks
- Buy Stocks
- Sell Stocks

First, when finding stocks, it is a mistake to fall in love. Stocks and love do not mix. Find stocks that are performers. If they top-out or have stopped performing, then sell them. When choosing stock candidates, base choices on good data and good business reasons not hearsay, broker advice, or emotion. One way to do this is to use a good stock screen. The primary function of screening is to boil down stock choices to a select few based on preferences. Many screens filter the market based on pre-set parameters. Some screening tools are better than others. For instance, a value-oriented screen may filter 9,000 stocks down to only 23 stocks that fit certain criteria. Search the Internet for stock screens, there are several to select from.

The following are some places to get started with stock screening;
- Bloomberg,
http://www.bloomberg.com/analysis/monitor/,
- Morningstar,
http://screen.morningstar.com/StockSelector.html?tsection=toolsssel,
- Reuters,
http://www.investor.reuters.com/ArticleEntry.aspx?target=%2fopinion, Yahoo, http://screen.yahoo.com/stocks.html,
- MSN,
http://moneycentral.msn.com/investor/finder/predefstocks.aspx,
- Marketwatch,
http://www.marketwatch.com/tools/stockresearch/screener/default.asp?siteid=mktw&dist=10rt&.

Many on-line brokers provide relevant information, analysis, and screening. Suggested on-line brokers are;
- ScotTrade,
http://www.scottrade.com/index.asp?supbid=27452
- AmeriTrade,
http://www.tdameritrade.com/welcome1.html
- ChoiceTrade,
http://www.choicetrade.com/
- TradeKing,
https://www.tradeking.com/
- TD Waterhouse,
http://www.tdameritrade.com/welcome1.html
- ThinkOrSwim,
http://www.thinkorswim.com/tos/client/index.jsp

Secondly, properly analyze stocks. Determine values, earnings, and discover the market expectations for stocks. Compare the stocks to other stocks; resolve financial positions for safety, margin, and cash flow.

Consider earnings estimates reports, valuation tables and ratio comparison reports, earnings estimates reports, performance reports and trends in financial statements. Throughout the preliminary investigation, maintain the major investment strategy. Thirdly, purchase the stocks that meet analysis criteria. The relevant questions to ask are; - does it fit a strategy of growth, quality, sentiment, or value? Does it meet long-term and short-term goals? Are principles of diversification used? Are there any negatives to consider?

Lastly, sell the stock. Sell it when it meets the criteria for being sold. Avoid riding out winners and dumping losers. Develop a set of parameters under which a stock must be traded. Has the stock met return objectives? How much does it have to lose to cut losses? This analysis is similar to the analysis for buying stocks.

For example, an investor may sell all stocks that have appreciated by 20%, sell all stocks that have depreciated by 8%, and hold all stocks that meet criteria for future growth or quality. If such a strategy is exercised, the investor never loses more than 8%, gains are 20%, and holds are to be determined. No love lost, trade it and start over again at step one. Buy a new one, do the homework, and score a winner.