Real Estate Investing in a Changing Market

Investing in Real Estate is a different ball game than buying a house in which to live. Real Estate investment is all about leverage, and using “other people’s money”.

As a Realtor in Central Florida, I specialize in making thousands of dollars for my clients, through shrewd Real Estate buys. My most successful Real Estate customer is a pharmacist in the Miami area who bought 10 acres of land for $65,000, and successfully “flipped” it six months later for $175,000.

In my market area, the ‘buy and flip” Real Estate model has been charging ahead like an out-of-control bullet train for the past four years. Now, the train has slowed down. In Real Estate terms, “buy and flip” means that you buy a property and put it back on the market within a short time after the deal has closed. Many Real Estate investors actually get a property under contract and look for a buyer of their own before they close on the original deal! I know one man, also from Miami, who has become a multi-millionaire using this formula, along with taking back owner financing for the people who buy Real Estate from him.

“Buy and Hold” in Real Estate means a longer term investment. You buy a piece of property and hold onto it for a number of years, as a “trust fund” for retirement, college education for your children, etc. If it’s a house, condo, or another type of dwelling, you rent it out while you own it to help pay for the mortgage, taxes, etc.

Wouldn’t it be great to get a piece of this action? What’s holding you back? Of all the great fortunes made in this country, more than 70% were based upon Real Estate.

Another area of Real Estate investment is “Pre-construction”. This model works when market values are on the rise. The blueprint for success is to:

• buy a lot in an area of appreciating housing prices

• have a house built by a reputable builder

• then sell the house, making between $30,000 to over $100,000 for an executive waterfront home.

Many of my clients have done this successfully. This is where leverage and using “other people’s money (OPM) comes in. When you find an area where, according to comparable sales, single-family homes sell for $30,000 or more than the cost of the lot plus the cost of construction, you have BUILT-IN EQUITY PRIOR TO THE START OF CONSTRUCTION! This is where knowledge of the market and of appraisal methods comes in.

“Real estate is an imperishable asset, ever increasing in value. It is the most solid security that human ingenuity has devised. It is the basis of all security and about the only indestructible security.”

-Russell Sage

Dottye is a Realtor in Central Florida, and a wife, mother and grandmother. She is the published author of a book and several short stories, songs, articles and poems.

Click Here for your New Home!

Building Wealth by Investing in Foreclosure Houses

As a Realtor, it’s amazing to me what lengths people are going to in order to buy a house! Many of these people are dealing with “predatory lenders”, who prey on people with bad credit, including past foreclosures, and write home loans for people who really can’t afford them. While I was describing one person who stood out in my memory as someone who bought a home that she couldn’t afford to an attorney friend of mine who specializes in Bankruptcy and Foreclosure help told me “In five years, she will be MY client.” My response was “Alan, not FIVE years - ONE year!”

Foreclosure is a process, highly regulated by state law, in which the lender tries to recoup the amount owed on a defaulted loan by either selling or taking ownership of the property. The foreclosure process begins when a borrower/owner doesn’t make their mortgage payments, and the lender files a public default notice. The foreclosure process can end one of four ways:

1. The borrower/owner pays off the default amount to reinstate the loan during a grace period determined by state laws. This grace period is also known as pre-foreclosure, and can be as much as six months. The mortgage loan is reinstated, as if nothing ever happened. Happy ending for the homeowner!

2. The borrower/owner sells the property to a third party, either before or during pre-foreclosure. The sale allows the borrower/owner to pay off the loan. This is not as happy an ending for the homeowner, but avoids the consequence of having a foreclosure on the homeowner’s credit history. A smart homeowner who realizes that making the payments is becoming problematic will choose this course of action before things progress to the next level.

3. If the homeowner cannot catch the payment up to make them current and either cannot or will not sell the home, the lender will usually schedule an auction. A third party may buy the property at a public auction at the end of pre-foreclosure.

4. If the auction does not bring about a sale of the property, the lender will take ownership of the property, usually with the intent to re-sell. The lender can take ownership through an agreement with the borrower/owner during pre-foreclosure or by buying back the property at the public auction. These are also known as bank-owned properties, and are sometimes listed with Realtors.

Unfortunate as the reality of foreclosure is to the person who is losing their home, this turn of events creates opportunities for the investor. The steps in the foreclosure process vary from state to state, but can generally be described as:

1. Pre-Foreclosure

Buying a property in pre-foreclosure involves approaching the borrower/owner and offering to buy the property. This starts with a “Notice of Default” and, if the homeowner cannot correct the situation, continues with the filing of a “Lis Pendens”, or a notice of pending action. This requires that the investor make contact with the distressed homeowner, negotiate with the homeowner, who is usually in some kind of crisis, and reach an agreement to purchase. Good “people skills” are of the utmost importance. When an investor buys the home during this period, the borrower/owner can walk away with something to show for any equity in the property and avoid a bad mark on his or her credit history. The buyer has time to research the title and condition of the property and can realize discounts of approximately 30 percent below market value.

2. Auction

If the loan is not reinstated by the end of the pre-foreclosure period, a “Notice of Foreclosure” is issued by the lender to the homeowner. Lenders do not want to be in the Real Estate business, and will often enlist the aid of an auctioneer to sell the property prior to taking ownership. Potential investors can bid on the property at a public auction. If you are buying, be aware that you are often required to pay in cash at the auction and you may not have much time to research the title and condition of the property beforehand. However, a public auction often offers some of the best bargains and avoids the stress and unpredictability of dealing directly with the borrower/owner, who can decide to change their minds at the last minute and break the agreement you reached with them.

3. Bank-owned

If all else fails and the lender winds up taking ownership of the property, either through an agreement with the owner, during pre-foreclosure, or at the public auction, the lender will usually want to quickly re-sell the property to recoup the amount of their unpaid loan. The lender will probably make sure the title is clear for any buyer, but the potential bargain is typically less than a pre-foreclosure or auction property.

If you are looking for foreclosure properties to buy, the place to start is in the “Legal Notices” section of your newspaper. You will find the notices of pending action, and can contact the homeowners before they get further into the quicksand of the legal process. Networking and making contacts with attorneys and lenders is also a way to find properties. Most of these people are good people who have had some tough breaks and need a fresh start. There are also web sites that feature foreclosure properties for sale. These sites can be a great resource if you are buying statewide or nationwide, rather than in one city or county.

Dottye is a Realtor in Central Florida, and a wife, mother and grandmother. She is the published author of a book and several short stories, songs, articles and poems.

Click Here to Learn More!

Investing: Warrant

A warrant is a specialized investment tool with its own language; call warrants, in-the-money warrants (a warrant with an exercise price which is below the market price of its underlying security), gearing and premiums are among the terms used. It's important to understand the main aspects of this vehicle before including it in your portfolio.

A warrant is a derivative, meaning it 'derives' its value from its underlying share. This is why the performance of a warrant will always depend on the performance of its underlying share.

A small movement in the price of the mother share can result in a surge or fall in the value of your warrant. Thus, expect this to happen and choose strategies that leverage and profit from this behavior.

Unlike a share, warrants carry an expiry date. The warrant tends to lose its value when it's close to expiring. Once it expires, it has no value and you lose the capital invested to buy the warrant. Buying and holding, as you would a share, is why 90% of warrant traders lose their capital.

If the underlying share price is above the warrant strike price (the predetermined price that the warrant holder is entitled to purchase or sell in the case of put warrant the underlying security), your call warrant is said to be in-the-money and you can exercise your right to buy the mother share at the strike (lower) price to sell at the market (higher) price.

There are costs involved when buying warrants - transaction costs and the time lag before you receive the underlying share after exercising the warrant. There're also occasions when a warrant trades at a discount. This incurs when the strike price and the cost to obtain the warrant are less than the price of the underlying share. Even tough this may look like an opportunity to make arbitrage profit, however, the risk of the underlying share price falling during the period between receiving the shares from exercising the warrant and their sale.

The whole process can take up to a month, during which the mother share can move in any direction. Warrants can also trade at a discount if the underlying share has just enjoyed spectacular run in price. Investors should avoid buying these discount warrants if they feel the high price of the mother share is unsustainable.

Warrants are the domain of short run traders. Some analysts recommend a particular trading strategy known as cash extraction. This strategy can be executed if you're holding a particular share that has appreciated in value. By selling the share and investing some of the proceeds into its warrants, you decrease your invested capital while maintaining exposure to further upside.

Many investors also trade in warrants because they sell at a fraction of the price of the underlying share and their leverage effect (a characteristic of warrants that enables the holder to enjoy larger percentage returns than the underlying security, at a lower price) allows the investors making bigger percentage gains when compared with conventional share investments.

For instance, share ABC may gain 30cent to close at $1.80, representing an increase of 20%, but a similar gain of 30cent for warrant ABC (from 50cent) to 80cent is an equivalent gain of 60%.

When the price paid for the warrant as well as its strike price is higher than the price of the underlying share, the warrant is trading at a premium. Meaning, the warrant's premium can crudely measure how much more expensive it is to acquire a share via a warrant compared with buying the share directly. Premiums are commonly used as a quick measure of the warrant's expensiveness. Because warrants are issued at a premium, investors must consider if it can appreciate to a level that allows recovery of the paid premium within the warrant's lifespan.

Another important factor to consider when selecting a warrant is volatility. A high volatility warrant, even tough more expensive, can very well generate more money than a low volatility warrant. High volatility means that the underlying share is more likely making big swings.

While warrants can offer a smart addition to a portfolio, keep in mind the following - your view of the underlying share is important; understand the unique nature of warrants and stay attentive to small movements in the market.

Michael Russell
Your Independent guide to Investing

Investing: Business Appraisal

Investing in a stock is like buying a business. Unfortunately, most investors either don't understand this principal or are merely looking for quick and easy money. In appraising businesses, there are three main approaches; market, asset and income.

Income Approach

The basic principal for this method is that it uses historical market data. The general theory is that if one can find sufficiently similar companies that have been sold in arm's length transactions, then those transactions may form a basis for an indication of value for the interest being valued.

The common methods are price-earnings-ratio (PER) and price-to-book ratio (PB). Analysts normally compare these ratios with the industry or its historical figures.

PER = Market price ÷ Earnings per share (EPS)

If Company M's PER is ten times against the industry's fifteen times, Company M is undervalued.

PB = Market price ÷ Book value per share

If Company M's PB is 1.5 times against the industry's 2.0 times, Company M is lowly valued compared to the industry. Generally, if a company's PB is lower than 1 time, it indicates that the market price is lower than the owner's cost.

Asset Approach

This approach is called adjusted book value, net asset value or asset accumulation. The book value of the assets and liabilities are adjusted to reflect its fair market value. The asset values are totaled and the total of the liabilities is subtracted to derive the total value of the company. The most common is the revised net asset value (RNAV) where analyst adjusts all its assets and liabilities to market value.

RNAV per share = (Revised assets market value - Revised liabilities value) ÷ number of shares

Company M is a holding company. Its subsidiary, Company N is also listed on the exchange. The RNAV will use the market value instead of the book value of Company N to determine the overall revised market value of Company M's assets. The figure will provide a more reflective value for Company M as compared to its historical book value.

Income Approach

The income approach is the most appropriate method for valuing an ongoing company. An investment in any asset is worth no more than the present value of its expected future cash flow which can be in the form of earnings, dividends or free cash flow to equity.

The most common method used by analyst is single period capitalization method (SPCM). SPCM converts the single period of income into value by dividing it with a capitalization rate. This method relies on two assumptions; a stable annual financial return (which can be a proxy for every year in perpetuity) and a constant growth rate (which is a proxy for the annual compound growth rate in perpetuity).

Company's value = Income ÷ Capitalization rate = [Cash flow x (1 + g)] ÷ R - g

Where: cash flow can be in the form of dividend per share (DPS) or free cash flow per share, g = the future growth rate of cash flow, R = the required rate of return for an investor, Capitalization rate = R - g

However, one of the main problems with this method is the accuracy of estimates of the company's future dividend growth rate, i.e. 'g'. Investors need to understand the company's businesses and the potential of the company's future earnings prospects before being able to provide a reasonable and accurate 'g'.

Among the three approaches, the value indicated by the income approach is more appropriate and will have the greatest influence in valuing an operating company.

Michael Russell
Your Independent guide to Investing

Investment Manager Warns about Investing in Uranium Projects

Although the junior mining sector began crumbling in May, savvy investor Mike Halvorson, president of Halcorp Capital, still ended up having a very busy summer. Welcome to the world of a substantial investor in mining stocks, who gets in early and then enjoys sizeable profits as, one by one, his companies become takeover targets. “I’ve been fortunate,” the humble Halvorson told us, “I’ve gotten associated with top explorationists, the people who do know a quality project.” And because they have credibility, quality projects come to those geologists. Halvorson claims his wealth-building strategy comes from investing in the projects of these credible geologists.

On May 3rd, Glamis Gold acquired Western Silver. “I recognized the project and the main geologist behind it, Tom Patton,” Halvorson explained. “I was a director of Western Silver. I didn’t stay associated for the whole run, but I was there for the best part of it.” August has been his busiest month. As a director of NovaGold, Barrick Gold recently announced a hostile takeover of this company, and which is now being disputed. In mid August, Yamana Gold made a bid to take over the shares of Viceroy Exploration, which has proven and probable gold reserves in excess of seven million ounces in Argentina.

So how does someone emulate Mike Halvorson’s success in picking major winners in the mining sector? “The average investor is going to have a tough time,” he commiserated during our phone conversation. “If I were an average investor, I would rely on some sort of advisory service, or two or three, to help me pick my stocks.” We both agreed some of the uranium projects weren’t going to make it. “So many of these uranium projects will never see a shovel to the ground, they will never see anything close to production,” he cautioned.

But many advisory services look out for themselves first, then their subscribers, maybe if at all. He advised us to avoid the self-serving ones. “I have a long record with a couple of guys that are honest and have good abilities,” Halvorson said. He subscribes to Bob Bishop’s Gold Mining Stock Report. “I like Bob,” Halvorson told us. “He covers people. He knows a lot of individuals in the industry. One of the gifts, a guy like Bishop has, is he doesn’t try to fit the same model over every company, like a lot of analysts do. He just tries to figure out whether the stock is going up. What makes Bob Bishop better at picking stocks than most of the guys is that he doesn’t walk around with a model. He walks around with instincts and the ability to judge the people involved. He has a great network to check facts out with.”

“I guess for the average person, if they don’t rely on an advisory service, they should go to the (resource) conferences,” Halvorson recommended. Such conferences occur throughout the year. One resource conference takes place this week in Las Vegas. Another popular resource show will be held later in September in Toronto.

Valuing Uranium Mining Stocks

“The (uranium) companies are so new,” Halvorson said. “Some of them aren’t really that acquainted with their own assets, let alone the assets of other companies. It’s not like the oil and gas business where you’ve got … in western Canada, there are a dozen or fifteen blue-chip engineering firms that provide reserve and reservoir evaluations. If you see one of those engineering reports, you can really put a market value on those assets.”

Not so in the uranium business. With uranium assets, Halvorson explained, “A lot it is historical work, some of them are National Instrument 43-101 and some aren’t.” But he warned that despite the regulatory insistence that companies file independent geological documents confirming their resources, “You have to be careful if you run out and buy some 43-101 resources.” He added, “I’m not sure that one would solely base investment decisions on them.”

For example, he described how it might be possible that a company could only solution mine (ISR uranium recovery) the resource. What happens if after doing the tests, the company discovers solution mining won’t work? “That is something that will concern me,” he told us. “I think there are an awful lot of projects out there that are being called ‘good projects’ by companies that have them. And I don’t think these people have a clue as to what is required for solution mining.”

If so, then what should investors be looking for in uranium mining stocks? “At this stage, I would try to look at undervalued companies because that’s the least risk,” Halvorson advised. “I don’t think I would look at the market leaders, per se. Companies like Cameco and Denison are awfully pricey. International Uranium is pricey in my opinion.” So where would Halvorson look today? “I would look at the undervalued ones, the ones that have projects, but for some reason maybe not as much traction in the market,” he suggested. “I think ultimately the market will recognize those values or they’ll get taken over at premiums.”

Two of Halvorson’s favorites came from his network. “I originally got involved in Strathmore Minerals because I knew they had some good properties and some very good consultants and contacts in the business,” he explained. “And, they have David Miller, who really knows the business inside out. Talking to him, I got comfortable with those U.S. assets. So, I literally backed the truck up and bought lots of stock.” Halvorson subsequently became a director of Strathmore Minerals.

Another Halvorson favors is Kilgore Minerals. “With Kilgore, it is because Norm Burmeister had such a good track record with Silver Standard and Bull Run,” Halvorson said. “Norm is the kind of guy who has a great appreciation for an economic play. I got involved with Kilgore fairly early on and was semi-responsible for the stock moving out of the 30 - 50 cent range. Norm has a huge gold property. We both laughed about Kilgore’s major downside, and he added, “There’s a company that if it was aggressively promoted, would probably be trading at maybe three times where it’s at. Their gold property is probably worth what they trade for.”

Halvorson discussed his other uranium holdings, “I was a fairly substantial shareholder of UR-Energy, but you can’t own all your stocks all the time. They had a very good market so I left.” He noted those were his three substantial holdings and that he also has minor holdings elsewhere. One of those holdings, Santoy Resources, comes from his association with Ron Netolitzky, who is also a director of Viceroy. “There’s not anybody who’s got a better track record than Ron of recognizing an economic deposit early,” Halvorson said of his long-time acquaintance. “Ron worked in the uranium field in the 1970s and 1980s, as well as the gold sector, so he knows all about uranium exploration.”

Of the sector, Halvorson believes there is more consolidation ahead with the quality uranium companies. “Some of these guys have got pretty rich valuations, such as SXR Uranium One with their pricey currency and extremely strong market support from Europe and Canada,” he told us. “Because of their market cap, they’re big enough that they can use their currency and do acquisitions.” He spoke highly of SXR Uranium One, “I’ve been to their main project in South Africa. They’re building it. It’s happening. They will be mining. And they are miners.”

And that’s the big difference, going back to his comment about some projects which will never see a shovel in the ground. “How do you compare Denison to some of these other companies?” he asked. “That’s part of the difference. Denison looks like it’s priced through the stratosphere, but they are mining. I think if Strathmore Minerals, which is sort of undervalued right now, if we could get Church Rock producing, I think there would be a huge revaluation.”

He sees a bright future ahead for the mining sector, and believes investors can do well if they study companies before investing in them and get the right advice. “For people coming new to the market, I would look for undervalued stocks,” Halvorson advised. “I would probably take a portfolio approach. I wouldn’t buy just one. I would buy several.”

Halvorson expects more consolidation in the uranium sector. “As the companies get more comfortable with everybody else’s share price, and also getting more comfortable with other people’s assets, then you will see people saying, ‘We can use our shares as currency because we’re trading at roughly our Net Asset Value (NAV), but this company is trading at a discount of 30 percent to their NAV. So, if we can do a transaction with them, it’s going to be accretive.’”

That’s not the case right now, though. “You’ll hear companies talking about this wonderful asset they’ve got,” he said. “Then, I’ll go ask somebody I know in the business about the play, and he might say, ‘Oh god, I don’t like that.’ Right now, I don’t think people have any way of judging a lot of these properties. If you remember the analogy I used in the oil and gas business, where you have companies trading properties all the time, it’s because people can rely on engineering.”

Right now, a lot depends upon the underlying commodity. Rising spot uranium prices have helped a large number of the uranium ‘development’ companies, such as Strathmore Minerals, UR-Energy, Uranerz Energy and Energy Metals, move higher. Most recently, according to TradeTech LLC, the spot uranium price reached a new high at $52/pound. Many of the U.S. uranium projects became economic above $30 and $40/pound, which offers investors more opportunity for profit. “I think I’m going to make a lot of money in the resource sector over the coming years,” Halvorson said with excitement in his voice. “But you have to be nimble. If you buy high and just hold, you might just get your money back at the end of the day. If you like the sector and trade around core positions, I think it’s going to be one of the most attractive sectors out there.”

James Finch contributes to StockInterview.com and other publications. Visit http://www.stockinterview.com to read the archived articles. You can always write to James Finch at jfinch@stockinterview.com

The Latest Investment Stocks Online Articles

Mutual Funds

A mutual fund is perhaps one of the most popular means of long term investing and is the vehicle of choice in IRAs and 401k accounts. A mutual fund is basically a way of investing in a pool of different companies in order to minimize risk.

Forex Trading

Forex traders rely on several parameters to conduct their trade. The more successful or experienced traders follow their instincts based on years of experience of trading in the forex market.

Online Stock Trading

With so many services being offered on the net, it is rather difficult to find a site that will best work for you. When choosing one, you have to make sure to look into the fees that they charge, the commissions and of course their reliability.

More articles coming soon!

Investing Stock Online Resources

Yahoo Finance

CNN Money

Family Financial Planning Courses

Internet TV