REAL ESTATE OPPORTUNITIES.

The most successful investors I know buy when the most investors are selling and sell when the majority are looking to buy. This is called "contrarian investing" and it works more often than any other strategy I know. It doesn't matter whether you are talking about the stock market, the real estate market, or precious metals. It is virtually always preferable to go against the prevailing trend. This sounds simple but it is not nearly as simple as it sounds. The problem is you could rush out and buy when a downtrend has a long way yet to run. During the real estate crash of the late 80's some buyers bought too early and were unable to hang on until the market turned around. Many of those became foreclosure statistics along with those who bought at the top of the market. So how do you know when the downtrend is over? The short answer is you don't. The long answer is to watch the market carefully for certain signs. In the real estate market, one of the most important statistics is the demand for rental space. Sometimes real estate investors forget that it is tenants who drive the market. Buying when tenant demand is low means that you may not receive adequate income to fund property operating expenses and mortgage costs. The result is you may have to sell into a weak market to stop the negative cash flow that you will have unless tenant demand increases. How do we measure tenant demand? One of the easiest ways is to look at the vacancy rate in the market you are considering. A falling vacancy rate is a sign of a market that will improve. Another sign is the amount and cost of new construction. If there is little in the way of new inventory being produced and the cost of construction is higher than the cost you are paying for the property you are considering, this is positive since there is no way a developer can build a new property without having to charge more rents than the market will pay. These are but two overly simple strategies. There are many others. Stay tuned.

FALL IS IN THE AIR.

It's been a chilly rainy weekend. I can even see a few leaves starting to turn yellow here and there. From a strictly seasonal standpoint, this is not a time to get too aggressive in the stock market. Historically, October has been one of the poorest months to own stocks. That said, October could be a good month to buy if you can catch a good stock that is dropping just because the rest of the market is going down. Of course, stocks don't always drop in October but statistically, that's what usually happens. As I said in my last post, energy stocks are a good hedge against future increases in energy prices. Many companies are selling at low multiples to earnings and still appear to be a good buy. While many investors are thinking oil and natural gas prices are ready for a fall, it should be remembered that a lot of these companies have earnings that still can increase if raw material prices drop. That's because some have long-term contracts that were based on price levels before the recent run up. Even if we do get a drop in oil prices, these companies can benefit from expiration of old contracts and replacement with prices below current levels.

IF YOU CAN'T BEAT 'EM, JOIN "EM

No need to sit around and complain about gasoline and utility prices. Accuse these companies of gouging all you want but the market place sets these prices and attempts to jawbone the price down are doomed to failure. What can you do about high energy prices? You can conserve by driving less, buying more fuel efficiency, keeping thermostats lower, or a number of other measures. We probably should all do more of that anyway but in the final analysis, we can't conserve our way out of this one. One way I've been dealing with this is to invest in companies that produce energy. Here are but a few suggestions of companies you might want to research if you decide to take this route. Be aware that these are not specific recommendations. Devon Energy (DVN) is a company that produces natural gas from their own reserves. The price has been pretty well stagnant for the past year, mainly because natural gas inventories have been building and prices stagnating. I think it is a bargain at less than 9 times earnings. If you are looking for an income stream (and who isn't) you could buy a royalty trust that distributes income earned from royalties. One natural gas play is San Juan Basin Trust (SJT), a trust that pays royalty distributions monthly. The yield varies with gas prices and inventory levels but is virtually assured to go up if gas prices continue to increase. You could also invest in refinery companies. For example, Frontier Oil (FTO) is a refining company with the capabilities of refining less expensive, high sulfur, crude oil. Their refineries are located away from the gulf coast and less subject to hurricane damage. By way of disclosure, I either own, or have recently owned all these stocks. I seldom mention specific companies in my posts and these are just a few of the many companies that you could invest in that will profit from increasing energy prices. The purpose of this post is to let you know that it is possible to derive some benefits from high energy prices. These benefits can go a long way towards helping you deal with higher transportation and utility prices.

MONDAY MORNING, BRIGHT AND SUNNY

It's a beautiful day. Time for another 4-mile walk before it gets too hot. Speaking of too hot, our real estate market got too hot. This is why its cooling off now. Our strategy was to stay inside while it was too hot. The question is, when will it be time to venture out into the market again? My guess is that it may be approaching that level soon. One indicator is that the rental market is getting better. Another is that construction costs are getting out of hand. This means that you can buy a property now for much less than it would cost to reproduce at today's labor and material costs. Furthermore, in contrast to two years ago, it is easier to find tenants. It never ceases to amaze me when investors are eager to buy properties when tenants are scarce. In the long run, unless you are a "quick turn artist", the ultimate success of your real estate investment will be governed by your ability to locate tenants to cover your costs of capital and operating expense. Stay tuned for new information as it becomes available. Call me at 720-449-0200 if you want to talk about some of the topics you see here.

SATURDAY MORNING

It's a cloudy Saturday morning in Colorado. I guess it really doesn't matter what day it is. I do what I want most days anyway. Gonna try to get a four mile walk in if it doesn't rain. One of the most proactive things us old folks can do is take care of our health. Not only does it keep our health care costs lower, which ultimately improves our cash flow, it keeps us in a position to supplement our retirement income via part time work. Whatever your retirement plans, it is in your best interest to maintain your health.

A SLOW START

You may notice that the first publication on this blog was almost two years ago. The whole concept has been incubating in my aging mind for all that time. I finally got going again a few days ago. One of the main things on my mind lately is the real estate markets. Major building companies like Toll Brothers and Lennar have seen their stock prices drop drastically over the past few years and it certainly appears that the bloom is off the rose. Still many keep building and many markets are oversupplied with new and resale inventory. This creates problem for those of us who want to sell our existing properties and move on. The problem is further complicated by the fact that many have mortgages that will re-price in the next two or three years. When I say re-price I mean that your rate will increase. The worst thing you can do in these circumstances is stick your head in the sand and wait to find out what your rate will be. The most logical approach is to get busy and project what is likely to occur over the next few adjustment periods and make a plan to deal with the worst case scenario. I'll post more on the methodology of this later. If you can't wait you can always call our office at 720-449-0200. Ask for Phil and I'll get back to you if I'm not there.

TIME TO GET STARTED.