WHAT'S GOING ON WITH DENVER REAL ESTATE.

Are Things Looking Up? The demand from real estate investors has certainly slowed down. This means that you won't have as much competition for properties as you had last year at this time. Vacancy rates are down. This means that you will have an easier time finding tenants this year. Interest rates are down. This means that you will be able to finance your acquisitions at a lower interest rate. Of course, financing is harder to get because of the sub-prime debacle. Still, if you have good credit and a respectable down payment there are a slew of lenders eager for your business. In all, now is a much better environment for real estate investments than we've seen for some time.

A Conservative Approach is Best. My real estate investment philosophy is the same as my stock market investing philosophy. Look for cash flow. No one can predict the direction of market prices. Although we want an environment where prices can increase, we never know for sure when that will happen. If we buy when prices are lower, rents, are higher, and financing costs are lower, we have a better chance of achieving a positive cash flow. This allows us to tolerate price dips and choose a time to sell when we can obtain the best return on our investment.

So Is It Time To Buy? One factor I always look at is the inventory or properties for sale. At the beginning of 2007, we had 18109 Single family houses on the market. This year we have 18709. At the current rate of sales, the present supply would be expected to last 5.8 months vs. 5.5 last year. This means that supply/demand factors are a little worse this year than last but not by much. In contrast to other cities, the Denver market isn't getting much worse.

Let's Look at the Condo/Townhouse Market. Currently we have 5894 properties on the market or a 6.43 month supply. Last year at this time we had 6425 properties on the market or a 7 month supply. It appears that the supply/demand balance is improving slightly. These figures would indicate that, while we are not out of the woods yet, this market is improving. Potential investors in this market should look for well-located units with an established home owners association. I have always thought that the demand for single-level units was increasing faster than the supply so this is the area that I would emphasize in my search for strong investments.

We'll Keep Watching. We believe that the real estate investing environment is the best it has been for some time. We will keep watching. In 1991, the signals for a bull market in real estate were clear and aggressive investors made a bundle. We don't intend to miss it this time.

YOUR CHECK IS ON THE WAY.

The Government Rides To The Rescue. The president and congress have agreed to send you a check, that is if you don't make too much money. Somewhere between $600 and $1,200 will be headed your way. What a deal. And they don't want us to do anything productive with it. Just go out and spend it. Wait a minute. The government has no money. How can they send us a check? In fact, the government is in debt. Where will the $150 billion they need come from? They've already thought of that. They will borrow it. Just call China, Japan, etc and tell them to add it to our tab. I'm so glad they thought of that. I was beginning to worry that we might have to stop buying all this junk that complicates our lives. We might not be able to keep building larger and larger houses and taking advances on our credit cards to pay our ever increasing utility bills. We can keep doing what we're doing and leaving our grandchildren to pick up the tab.

I Have An Idea. Let's stop this stuff right now. Instead of spending the money they send. Let's use it to pay down our high interest debt. If we have any left over, let's put it in the bank. Let's cut our expenses and buy less than we can afford. Let's save our cash to take advantage of bargains in the real estate and stock market that will inevitably be available from those who have to sell to meet their living expenses. Lets invest in instruments that pay dividends so we can meet our income needs without having to sell assets.

Still In Scottsdale. We've been in Scottsdale Arizona since Sunday. My brother has his surgery at the Mayo Clinic at 5:30 in the morning. Hopefully, we will be through with this place next week at this time. I should be back in Denver by the first week in February. Hopefully, I will have time to visit with some of you before time to head back to Texas. In the meantime, stay tuned to this spot for more exciting rants about ways to cope with this weird economy.

SOMEBODY HELP US.

Who is Going to Help Us? I just listened to the Fed Chairman discuss with members of congress the possibilities for helping us avoid a recession. I must admit, I don't have much faith in congress or the FED figuring out a way to resolve this problem. Although there is some talk of co-operation between Democrats and Republicans to obtain a solution that both sides support, it doesn't look to me like it can happen. The Republicans want to stimulate business growth to provide opportunity and higher incomes to consumers and the Democrats want to send money directly to consumers. I have a sinking feeling that neither strategy can work. Its kind of like trying to cure a night of binge drinking and overeating by sending the binger to the hospital for a stomach pump and an enema. That sometimes works in drastic situations but the cure is often more traumatic than the disease. Sometimes you just have to change your habits and let the natural mechanisms take over. Let's face it. We've been on a binge fueled by cheap money and foreign capital inflows. We need to slow down and regain our health to regain the confidence of the investment community. Some people will lose their homes. A tragedy, no doubt but they shouldn't have bought big houses they couldn't afford. Some consumers will have to stop spending because their credit cards and home equity loans are at a maximum. This will mean job losses and business failures in a number of sectors, especially retail. Some large banks and investment banking firms will have to scramble to shore up declining balance sheets and several highly paid executives will lose their jobs along with clerical and service workers. Home builders will have to cut their plans to produce more housing inventory in a market with more resale and foreclosure inventory than it can handle. When the smoke clears, we will regain our health and, hopefully, learn to live within our means.

How Do We Handle The Slowdown. I have a retired friend who recently informed me that he has sold most of his stock positions and has 75% of his investment portfolio in a savings account. He says his main problem is trying to support his family on a 4% yield. I have news for him. As the FED continues to cut interest rates, that yield will drop to 2-3%. While we have raised cash in most of the portfolios we manage, we don't recommend moving to that much cash. In a market where you can find 8-12% dividends, moving totally to cash is not a strategy I can afford to follow. If we utilize a portfolio that produces adequate cash flow and we employ more prudent personal spending strategies, it is possible to ride out the market adjustment and have some cash available when the markets recover. I realize this post is short on detail. I'll get more specific on strategies later on.

TURN AROUND AND RUN LIKE HELL

A New Investment Strategy? Turn Around And Run Like Hell is the title of a book I received as a Christmas gift. It is actually, a compilation of war time battle strategies, not a book on how to cope with the recent market distress. You can go back to my post of May 15 entitled, Beware The Receding Tide, as proof that the current market situation is not a huge surprise to us. You can also look at my post of July 15 which makes the point that excess liquidity in the marketplace is causing investors to make some really stupid decisions. So if I anticipated the current correction, why didn't I sell everything and put everyone in cash to preserve capital to invest in anticipation of a turnaround when things change? The answer is that I wasn't positive that a downturn was coming, I didn't know when it would arrive, and I didn't know which sectors would suffer the worst. What we did was raise some cash by accumulating instead of re-investing dividends and selling those stocks that we felt were overvalued. We continue to follow these strategies. If we had known that the correction would begin this fall and that it would involve mostly financial stocks, we would have "turned around and ran like hell." We didn't and now it looks as if totally selling out at this point would result in giving up a lot of upside potential, which appears to us to outweigh the downside risk. For one thing, we continue to collect rich dividends, and for another we believe that a rebound in share prices has more potential than a significant decline. Selling out at market bottoms is exactly this strategy that causes the average investor to miss out on market rebounds.

So What Is Our Prediction For the Future? Short-term it appears that the mortgage and housing industries are a year or so away from a rebound. Financial stocks will remain out of favor and the good will suffer along with the bad. Our current portfolio of high-dividend stocks will languish; however, as more people realize that cash flow and intrinsic value are more important than the market perception of value, we should see a rebound in market prices. My investment strategy will be to keep an eye out for reasons that we might change what we are doing; however, it is highly unlikely that we will be tempted to "Turn Around and Run Like Hell.