This message is for Ron Starr - Posted by Jeremy

import · August 14, 2003, 1:51pm

Posted by Jeremy on August 20, 2003 at 14:46:44:

Ron,

No, I do not have any money on high-tech stocks. Despite having both CPA and CFA designations, I do not consider myself as having enough expertise to either time the market or hand-pick stocks. Some of high-tech stocks, especially internet retailors, still have absurdly high valuations and look even more so as days pass by. Warren Buffet once said that you should bring a punch card to the stock market and punch a hole on it everytime you buy a stock. Once you count 20 holes on it, you should realize you are done with equity investments for the rest of life. Since I do not have a list of twenty great companies, I am currently content with 10% annual return I am earning by investing through emerging market stock mutual fund.

I still think the gold could be found in real estate market for starters like me. I remember one guy has such wise words “flipping is for now; buy-and-hold is for future”. I will continue to look around for possible good deals with hope that the trend might change one day. And I am sure in the process I will need more precious advises from people like you. Thanks again.

Jeremy

import · August 14, 2003, 1:51pm

This message is for Ron Starr - Posted by Jeremy

Posted by Jeremy on August 14, 2003 at 13:51:15:

Ron,

Have you read or heard a book called “The Coming Crash in the Housing Market” by John Talbott? I searched the archive but found no discussions on this book/author. I understand you live in the Bay Area and has tremendous experiences in this RE market. I would like to have your valuable opinions on this subject. Is it still the time to do “buy-and-hold for appreciation” as you have consistently suggested to California RE investors? Given the very low housing affordability index of this state, CA probably faces the biggest risk of price correction. I sincerely appreciate your response.

Jeremy

import · August 15, 2003, 2:25am

Could I be right? - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on August 15, 2003 at 02:25:22:

Jeremy–(CA)--------------

No, I’ve not seen it. The title is reminiscent to English and Cardiff’s book about the coming real estate crash written several years ago. They were wrong.

I ignore the “doom and gloom” writers. They play on people’s fears to sell their materials.

I could always be wrong–I don’t have a futurescope any bigger than yours, I’d guess. However, there are governmental projections that CA will have the biggest population growth over about the next twenty years of any state in the union. And, for a couple of decades, the dproduction of new housing units has lagged the demand. This points to me to greater demand, somewhat lesser supply than demand for the foreseeable future–say 4 years or more.

Thus, I do recommend inland CA as a place to get appreciation, while at the same time getting a positive cash flow, a concept unknown to Coastal CA investors.

That is my reasoning.

Good InvestingRon Starr***

import · August 20, 2003, 11:13am

Re: Could I be right? - Posted by Jeremy

Posted by Jeremy on August 20, 2003 at 11:13:12:

Ron,

Thanks for your response. Your comments are certainly insightful. But what puzzles me is that if the red-hot RE market is driven by consistent supply shortage, shouldn’t the rental market benefit from such shortage as well? If the ever-widen gap between mortgage and rent is resulted from people’s desire of home ownership due to the record-low interest rate, shouldn’t we be worried what would happen when the rate goes up significantly?

I was reading an article on “Wall Street Journal”. A realtor tried to justify the Bay Area market by saying “this market is unique, the general rules of real estate market does not apply here”. I think I heard the similar comments on the heap of internet bubble.

The other day I was trying to take an online REI class. The self-claimed Sacramento investment expert said this is the time to invest in Sacramento since Sacramento is one of three still affordable markets in California. This kind of expert scares the hell out of me: “affordable” means “undervalued” to her as if the market norm was to bid up the prices till out reach of vast majority of people.

Not want you to be specific about your investments. But I assume that your definition of “inland california” includes central-valley. However, from Stockton to Modesto to Turlock, everywhere I look, I hardly see any deals which could bring in positive cash flows.

Am I rationalizing too much? Am I allowing the “chicken little” inside me to run wild as to blind myself from seeing good investment opportunities? I am totally new to this field and still trying to draw the fine line between being prudent and being over-cautious. I have visited this forum fairly often. I am under impression that you are both experienced and willing to help. Most importantly, you seem to have clear investment guidances and have enough self-descipline to stick to them. I would like to thank you for your consistent contribution to this forum.

Jeremy

import · August 20, 2003, 1:14pm

Re: Could I be right? - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on August 20, 2003 at 13:14:38:

Jeremy?(CA)----------------

The higher that prices get, the lower the ratio of rents to property values. So it becomes harder to invest for positive cash flow.

Yes, property values will decline some?or, what is about the same, not go up as steeply?when interest rates on mortgages go up. But your rental income should not be changed much by the change in housing values in an area. The relationship between house values and rents is pretty loose, in my view.

I agree with your view of that WSJ-reported real estate licensee. Nonsense. It is just that here in Coastal CA, the demand is extremely strong. So, unless there is something to change that, the prices will continue to go up.

You say it is hard to find positive cash flow in parts of the central valley. True. But, I think you will find it even harder to find them in the Coastal area. You might have to settle for breakeven cash flow. Or you might want to look harder where you mention and get the best of the deal that are out there. Or concentrate on other areas. Just last night an investor at the BAIES meeting told me he is getting very good positive cash flow in the Fresno area. I think the places to look are: Madera, Fresno, Tulare, Kings, and Kern counties. Although you are likely to face some competition even there. Kristine(CA) reports many out of area investors looking for rentals in the Bakersfield market. I?d also recommend looking in Butte, Lassen, Shasta, and Tehama counties. Also, in the foothlls from about 2500-4000 foot elevation. Paradise down to Mariposa.

It might not be easy. After all, with all the people in the Coastal areas who want to invest and find local properties unappealing on a cash flow basis, there is inevitably pressure on the inland locations. One possibility is to go further away. I have been buying my rent houses in Oklahoma state for the past four years. Good cash flow there. Probably not much appreciation. So, if you want appreciation and cash flow buy whatever positive cash flow properties you can in CA.

These days it is not easy to be a real estate investor in the great place to live, Coastal California. Have you considered putting your investment capital into high technology stocks?

Good InvestingRon Starr*****