Saturday, February 27, 2010

Thoughts.....

"You think, and your thoughts materialize as experience,
and thus it is, all unknown to yourself as a rule, that you are
actually weaving the pattern of your own destiny, here and
now, by the way in which you allow yourself to think, day by
day and all day long.
Your fate is largely in your own hands. Nobody but yourself
can keep you down. Neither parents, nor wives, nor
husbands, nor employers, nor neighbors; nor poverty, nor
ignorance, nor any power whatever can keep you out of
your own when once you have learned how to think.'
-Emmet Fox

Friday, February 26, 2010

You gotta love.......










.......Jack O'Neill.

Can you imagine Newark and Licking County today
without the jobs made possible by his development of
the Newark, Ohio Industrial Park?
In May of 1966 the Ohio Basic Investment Co. acquired
399.376 acres in Union Township from William Wendell
Hartshorn for a bit less than $1,000 per acre. Ohio Basic
Investment Co. is now Southgate Corporation. The old
Hartshorn farm is now the site of the Newark, Ohio
Industrial Park. Jack O'Neill is the cause behind the
success of both.
Click the link for an incomplete list of the industries
they are responsible for bringing to town.

A decent guess on the permanent employment currently
generated by the companies in the 43 buildings at the
third largest industrial park in Central Ohio, (second
largest without an airport) is over 2,300 jobs.

Additionally, the property taxes generated by the almost
6 million square feet of buildings continues to rise as the
tax abatements used as incentives slowly but surely fall
away.


















We shouldn't forget the development of the McMillen
Woods/Tamarack Business Center in the west end of
Newark and the Etna Corporate Park in the western
part of Licking County. More industrial buildings. More
manufacturing jobs. More property tax collections.

How did he do it? With a plan that included dealing
only with the best and strongest corporate entities in
the country. With a commitment to quality development.
With consummate salesmanship. But mostly with a lot of
nerve.

It was fairly typical throughout the 1980's and 1990's for a
"spec building" to be sitting out along State Route 79 just north
of Hebron. Jack would have a 50,000 to 90,000 square foot
industrial building built on speculation, that is, without a user.
He would then go find the user. The theory was that many
companies would move, if there was a building ready for them
to move into. He provided that service at his risk. Some of
those buildings sat there empty for a considerable time before
the right user was found, but he kept at it.

Our community has reaped the long term benefits. Thanks
Jack!

Paying attention helps....

Guideline #11: Good management will make for a good
investment.

Properly screening tenants, maintaining the property,
anticipating problems, communicating sooner rather than
later, not letting issues fester. These are a few trademarks
of good property management. It is not difficult, but it
does take discipline. It is important.

Thursday, February 25, 2010

Be careful out there........

Guideline #9: When something sounds is too good to be
true, it most likely is neither true, nor good.

In 2009, the news media, both local and national,
carried stories about investment gurus offering
immediate returns on investment well above the norm.
Those news stories ultimately included jail time.

See Guideline #26. Unless you are adding value to the
process, real estate is an investment best suited for the
long run. Be wary of "get rich quick" schemes and
promises.

There is a reason....

why purchase agreements have "due diligence" clauses.

Guideline #6: Know what you are, and are not, buying.

Here is the "boiler plate" list of things to consider and inspect
that we use before committing our clients, or ourselves, to buy.

"......environmental site assessment, appraisal, wood destroying
insect inspection, well and septic inspections, gas line inspection,
zoning and building code compliance, soil and wetlands study, soil
compaction analysis, lot line location, inspection of the structural
condition of the improvements, mechanical systems review, roof
inspection, flood plain impact, utility availability and capacity,
curb cut and access availability, lease and rental review, and
economic viability analysis....."

Obviously the entire list does not apply to all investments, but
using those that do apply and then adding the title insurance
commitment (to locate easements and other potential restrictions)
and perhaps a survey and your knowledge of the property now
enables better decision making.

Use the due diligence time period to study the property. As they
say at Faber College, "Knowledge is Good".

Wednesday, February 24, 2010

My favorite law is...

the law of unintended consequences.

Faithful readers may recall the 1/28/10 post quoting economic
futurist Jeff Thredgold as saying "people respond to incentives".

So you can imagine my joy when I came upon the following in
the explanatory notes to SUPERFREAKONOMICS:

"People respond to incentives. If you wanted to get more
expansive, you might say this: People respond to incentives,
although not necessarily in ways that are predictable or
manifest. Therefore, one of the most powerful laws in the
universe is the law of unintended consequences."

I loved Freakonomics. Might sacrifice some sleep tonight
to read the sequel.

Budgets, budgets, budgets.....

Guideline #13: Budget for vacancies and credit losses. Almost
always. Few are the tenants that you can count on being there
forever. And, just because they are there doesn't necessarily
mean you will collect all the rent.

In normal times, factoring in a vacancy/credit loss factor of
between 3% and 5% was considered appropriate. In our new
normal times, the range between 5% and 10% should be
considered.

Vacancy rates for apartments increased by several percentage
points during the 2004-2006 home buying mania. They have
now settled back. Good thing.

Vacancy rates for retail space have been skewed by long term
vacancies in a number of "big boxes". Needless to say, these
percentages are at historic highs. Its hard to budget for those,
so extreme caution is merited before investing in the retail
market segment.

Tuesday, February 23, 2010

Mother Nature at bat.......

Strike One













Photo by Mathew Stewart


Strike Two














Photo by NCBrian


Strike Three













photo by Kuzeytac

That was then.......

The south corner of Second Street and East Main.
The Warden Hotel and the adjoining buildings to
the south as they appeared circa 1898....














and then.......in a card dated 11/17/1911.........















This is now.............















Not sure progress is always all that it is cracked up
to be.

Good teamwork is a joy to behold....

Guideline #18: Have a TEAM.

A serious minded investor values the talents of a quality
support team. Team members include an attorney, an
accountant, an insurance agent, a maintenance/handy man,
and, of course, a broker. Your support crew will help you
avoid most troubles. For those troubles that cannot be
avoided, you will be happy to have their support.

Having a plan is usually a good idea...

Guideline #2: Know why you are investing.

Investing for cash flow looks different from
investing for capital appreciation.

Monday, February 22, 2010

George Washington on investing in land....

"It has been a maxim with me from early life never to
undertake anything without perceiving a door to the
accomplishment in a reasonable time with my own
resources."

Pyramids stand the test of time......

...only if they have a really strong foundation.

Guideline #21: Pyramiding, or using the equity in one property
to buy another property, is not to be undertaken lightly.

As with leverage (see Guideline #20), pyramiding can be your
friend, or your enemy.

With a strong foundation (well maintained properties with strong
tenants, ample cash flow with reserves on hand, and a respectable
amount of equity), a pyramid will build solid wealth.

With a weak foundation (poorly maintained properties with
transitional tenants, with little or no reserves), pyramiding
resembles a house of cards- soon to be tumbling down.

Poetic license.....

My family's roots have some Scottish overtones, but that
hasn't made Robert Burns any easier to read. But still.....
genius is genius.

The last two verses to To a Mouse:

"But Mousie, thou art no thy lane,
In proving foresight may be vain;
The best-laid schemes o' mice an' men
Gang aft agley,
An' lea'e us nought but grief an' pain,
For promis'd joy!

Still thou art blest, compared wi' me!
The present only toucheth thee:
But och! I backward cast my e'e,
On prospects drear!
An' forward, tho' I canna see,
I guess an' fear!"


The last verse of To a Louse:

"O wad some Power the giftie gie us
To see oursels as ithers see us!
It wad frae monie a blunder free us,
An' foolish notion:
What airs in dress an' gait wad lea'e us,
An' ev'n devotion!"


The first verse of Death and Doctor Hornbrook:

"Some books are lies frae end to end,
And some great lies were never penn'd:
Ev'n ministers, they hae been kend,
In holy rapture,
A rousing whid at times to vend,
And nail't wi' Scripture."


Spell check doesn't help much when transcribing Burns.


But imagine my surprise when I read John Barleycorn:

"There was three kings into the east,
Three kings both great and high,
And they hae sworn a solemn oath,
John Barleycorn should die.......

They wasted o'er a scorching flame
The marrow of his bones;
But a miller us'd him worst of all,
For he crush'd him between two stones..."

Traffic's 1970 classic album John Barleycorn Must Die
has long been a favorite. Turns out that while Burns
penned his version in 1782, there are English folk
versions predating that by several hundred years.
Who knew?

Happy 278th Birthday Mr. President....

Lest we forget the importance of strength of character, let
us celebrate George Washington today.

"His was the singular destiny and merit of leading the armies
of this country successfully through an arduous war for the
establishment of its independence, of conducting it councils
through the birth of a government, new in its forms and
principles, until it settled down into a quiet and orderly train;
and of scrupulously obeying the laws through the whole of his
career, civil and military, of which the history of the world
furnishes no other example." -Thomas Jefferson

Sunday, February 21, 2010

We have met the enemy...

and he is us....














Thanks for being timeless Walt

Confucius say....

"Master K'ung said, 'The gentleman has nine cares. In seeing he
is careful to see clearly, in hearing he is careful to hear distinctly,
in his looks he is careful to be kindly; in his manner to be
respectful, in his words to be loyal, in his work to be diligent.
When in doubt he is careful to ask for information; when angry
he has a care for the consequences, and when he sees a chance
of gain, he thinks carefully whether the pursuit of it would be
consonant with the Right.' "

-The Analects of Confucius, Book XVI

Even more guidelines for investing.....

Guideline #20: Leverage is a "two edged sword".

It is through the miracle of leverage that real estate
becomes such a fabulous investment vehicle. Leverage
is borrowed money, a mortgage.

This is what allows the investor to own a $250,000 piece
of real estate while only having $50,000 (give or take) of
their own money invested. Imagine if, after three or four
years of tending the investment, you sell your $250,000
property and net $300,000. You have just increased your
$50,000 original cash investment by $50,000 (Before taxes!
Please see guideline #33), or doubling your money.
Leverage indeed.

Leverage, if not properly respected, may have a dark side.
If, as was fairly common in the years 2004-2006, you buy
a property for $250,000 with no down payment you now
owe the bank $250,000. All is well and the rate of return
is fabulous if you can sell it for $300,000. But if the market
falters, as all markets do from time to time, it can become a
bit problematic. See Guideline #10.