EXCERPTS FROM YOUR LETTERS
Jeff, a successful New Jersey developer writes:
“Little brother---it’s been decades since we shared a bedroom growing up in the Bronx-so I forgot how off the wall you can get…”
Frye answers:
Big brother ---1. You never shared your toys. 2. Willy Mays was a better center fielder than Mickey Mantle. 3. I have your vinyl Beatles White Album and listen to it all the time. 4. And Jeff, why don’t you developer guys build a few more condos in Aventura? Then we can have gridlock 24/7 here and you will feel right at home when you visit me.
Jon, a Los Angeles Commercial Mortgage Broker writes:
“How would your returns look if you were to consider your leverage IRR? With CAP rates having been compressed in the last couple of years, successfully investing in real estate is becoming a function of the property’s cash flow and cost of capital. Even though returns are smaller, it is still very fortunate that with commercial properties, interest rates and CAP rate shave a mutually inclusive relationship.”
Frye answers:
John, Huh? What kind of language do you guys speak in la la land? In Miami, we speaka English (ok-Spanglish too). I wonder if some readers will think “CAP rates” refer to the prices of cappuccino drinks at Starbucks? Isn’t that what everyone does in L.A.? Cappuccino at the Beverly Hills Hotel pool, lunch at The Ivy, cocktails at the Roosevelt, dinner at Spago.. You need to mellow out, dude...
(Plug for my brother-in-law, the cutting edge boutique hotel developer: When the über-chic, rooftop lounge at the new Thompson Beverly Hills, with its Swarovsky crystal lined pool, and 360º views of L.A. opens, it will surely be added to the above “must do” list for Beverly Hills…)
Lester, an Accountant from North Miami Beach writes:
“Just don’t sell real estate short. It has made a lot of people a lot o fmoney.”
Frye answers:
Lester—I would love to sell Real Estate short now, especially all those condos coming to market over the next couple of years along Biscayne Boulevard.
Danny, a Real Estate Titan with a beachfront home on Golden Beach writes:
“Did you make a blanket out of the bonds (and stocks) for your family to sleep under?
Frye answers:
Danny, I have been structuring bond “ladders” for years, but a bond blanket? That’s good! I like it!
Please ask Hedy, if it’s OK for me to bring mine to your backyard that fronts the Atlantic Ocean so I can sleep under the stars, enjoying the cool ocean breeze, protected by my warm portfolio blanket.
AND IN SUPPORT...
Steven, a Weston Accountant writes:
“Amen, Austin! It’s been very lonely preaching this to my clients for years-the carrying costs of owning property vs. stock sand bonds- and you didn’t even get to the transaction costs. What else can you invest in that needs to appreciate 10% just to break even?? Thanks for a thought-provoking column!.”
Frye answers:
I sing, Ay-men, Ay-men, Ay-men, Ay-men...everybody...
Mark, a CFO of a major bank headquartered on Natan Rok Blvd in Downtown Miami (forget Trump and his buddies, Natan Rok was a true Miami real estate visionary) writes:
“Great article. When you factor in all the costs of real estate ownership your returns often do not come near to what you could have done in a bank CD, let alone the stock market. That doesn’t mean don’t own real estate, owning is usually much better than renting (except for bubble periods).”
Frye answers:
Banker Mark, So CD’s are better than Real Estate! Can I give your email address out to all my Real Estate friends? BTW Mark, I have a question. You know all those money funds, checking accounts and CD’s that were barely paying any interest until about 12 months ago? Did bankers lend those dollars at Prime Rate to my favorite people—Condo developers?
And finally a Bradenton Doctor writes:
“I’m one of those guys that has never made a dime on Real Estate. I even have lost money on 3 of the 4 homes that I have owned. Of course, I have never made any money on stocks either.”
Frye answers:
Doctor Bob…thanks … I guess.
BTW Doc, I have a question. When I visit Doctors offices, inside the waiting room I am usually greeted with a sign-in sheet on a clipboard (very high tech) and a pair of closed sliding translucent glass windows. On the window is a sign “do not tap on the glass”… but there is usually no bell or buzzer. What am I supposed to do to get the receptionist’s attention? Cough loudly? Dance? Scream? What is the proper etiquette…just wondering?
Austin A. Frye, MBA, JD, CFP®
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