A Quick Look at the Current Real Estate Market US-Wide 

Thanks to a perfect storm of Fed-directed low interest rates, rising crime, and escalating taxes in states like New York, New Jersey, and California, property values in Florida and Texas are surging. Along the coast, from Miami to Delray Beach (where I live) and all the way to Jupiter, prices are as high or even higher than they were in the early 2000s.

From Bill Bonner’s Diary:

“Rents in Miami have been rising at the fastest pace in the nation. The South Florida Business Journal reports that landlords, in neighborhoods such as Delray Beach, are ‘making a killing.’ They’re raising rents by 30% a year… and more.”

As for sales, Norada Real Estate reports:

“It is a seller’s market with many sellers getting top dollar…. The Miami real estate market continues to break records due to pent-up demand and low mortgage rates which continue to fuel real estate transactions.

“Miami’s hot housing market, fueled by domestic and international homebuyers, ended 2021 with 39,394 existing total home sales, up 49.5% from the 26,345 transactions in 2020 and 31.1% from the previous annual record of 30,041 transactions in 2013. Miami’s dollar volume of sales will reach $30.3 billion in 2021, a 103.4% annual increase.”

If, like me, you are an income investor, rising property values is a not an automatic win. It’s nice to see your net worth grow due to increasing real estate valuations. But if rents don’t increase as well, your current ROI in terms of your current assets is a diminishing percentage.

That’s what happened before the crash of 2008. This time, for several good reasons, things are different. The most important are these: (1) Banks are not making completely frivolous loans any more. (2) Rent rolls are rising, too.

What this means is that my son Patrick (who manages the family’s real estate) and I are not worried about the rental properties we currently own. We aren’t worried about another 2008-like collapse. Even if there is a correction, these properties carry little debt. And because rents are also on the rise, we can gradually adjust our rents to compensate for rising maintenance and management costs. That will ensure a healthy bottom line.

But we aren’t able to find any more properties to buy in the area. The prices are prohibitive. So, in partnership with my brother Justin, I have been looking at properties outside of Florida, where the numbers are better.

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Rental Real Estate 101: What Does “Buying Right” Mean? 

I wrote a course on rental real estate investing 10 years ago when I was writing a blog called “Creating Wealth.” Recently, I decided to turn it into a book that recounts my personal experiences and what I’ve learned. But to make the book stronger, I asked my brother Justin to co-author it with me, since his experience is longer and stronger than mine. The following is an excerpt from an early chapter that explains a very useful trick we use to determine how much any rental property is worth. [italics]

One of the most important lessons I ever learned about investing in real estate was taught to me by my brother Justin. It is a very simple formula for estimating the value of almost any sort of rental property in a matter of seconds. It is brilliant. It is extremely useful. And it is incredibly reliable. (As most brilliant formulas are.)

I wish I had known about this formula when I made my first real estate investment. It would have saved me tens of thousands of dollars and four years of real estate hell. It gave me the confidence to invest strongly for several years, buying up dozens of single-family houses and two small apartment complexes that have given me millions of dollars in appreciated value and millions of dollars in cash flow since then.

Perhaps more importantly, it pushed me out of the market by 2006, when property values were unreasonably high, and thus kept me safe when the real estate bubble burst in the fall of 2008.

This is the formula:

If you can buy a piece of property and have it fixed up and ready to rent for less than 100 times the monthly rental income, consider buying it. If you can’t, walk away.

Example: You are looking to make your first investment. On the advice of a friend (me, perhaps), you are looking at three-bedroom, two-bath, single-family homes in working class neighborhoods in or near where you live. You find two houses that you can comfortably afford. One has a rental income of $1,500 and is priced at $145,000. Another has a rental income of $1,600 and is priced at $170,000. Which should you buy?

Using our simple formula, you multiply each rent by 100 to get your “limit.” The limit for the one renting at $1,500 is $150,000. The limit for the one renting at $1,600 is $160,000. The former meets the standard, as you can buy it for less than $150,000. The latter does not, since it’s priced above $160,000.

It’s as simple as that.

Justin calls this calculation the gross rent multiplier (GRM).

The GRM is simple. It is also a rule of thumb. In my experience, it has been reliable every time I’ve used it, without exception. But my brother warns me that there are times when you have to do more arithmetic than just the GRM. This is especially true for larger properties – apartments and complexes of 50-plus units. Hotels and motels. And the like.

But for anyone who is a novice investor, like I was when I began buying rental properties, it is a very good and trustworthy protocol to follow. It will save you loads of time and a fair bit of money considering questionable properties. It will also make you immune to seductive sales pitches because you won’t be listening to the claims and promises of owners, agents, and/or brokers. You will do the calculation mentally in a few seconds. And then you will know whether it’s worth your time to investigate the investment further.

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York, England

The family and I spent some time touring the northern environs of England several years ago. There were lots of interesting and memorable things to see. One of our favorite cities was York, a charming town of winding cobbled streets, a magnificent cathedral, classic shop fronts, and dramatic stone walls surrounding the city. (I’ve read that it is the best-preserved walled city in the country.)

Originally established as a military settlement by the Romans in the first century, York had walls erected around the fort and surrounding village in order to keep out intruders. These fortifications formed the basic footprint of the walls that still stand today, most of which were built between the 12th and 14th centuries.

What We Liked About York  

* Walking the city walls

* Visiting the Castle Museum

* Climbing Clifford’s Tower

* Being awed by York Minster cathedral

* Learning about the Viking life at Jorvik Viking Centre

* Checking out the National Railway Museum

* Window shopping along the Shambles

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Letter to June Carter from Johnny Cash, June 23, 1994: 

“We get old and get used to each other. We think alike. We read each other’s minds. We know what the other wants without asking. Sometimes we irritate each other a little bit. Maybe sometimes take each other for granted. But once in a while, like today, I meditate on it and realize how lucky I am to share my life with the greatest woman I ever met. You still fascinate and inspire me. You influence me for the better. You’re the object of my desire, the #1 Earthly reason for my existence. I love you very much.” (Source: Letters of Note)

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Amortization – from the Latin for “to kill” – is the process of gradually paying off a loan by making planned, incremental payments. With real estate, this is done with a mortgage. As each payment is made, part of it is applied as interest on the loan and the remainder goes toward reducing the principal.

Negative Amortization refers to an increase in the principal balance of a loan caused by a failure to cover the interest due on that loan. For example, if the interest payment on a loan is $500 and the borrower only pays $400, the $100 difference would be added to the loan’s principal balance.

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“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.” – Franklin D. Roosevelt.

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Re a course I published called Rental Real Estate 101 about 10 years ago. (As I said above, I’m working on turning it into a book.) 

“I have to thank you for your course in real estate investing. I’ve been using it since it first came out and I’ve already made a half million dollars on my rental properties.” – RC

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I started watching this last night, thinking I’d spend just a few minutes on it. But it held me for the entire hour. The subject: People who remember every second of their life.

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Responding to Injuries and Insults: Good at One. Bad at the Other.

 “I once met a man who had forgiven an injury. I hope someday to meet a man who has forgiven an insult.” – Samuel Johnson

I’ve been told that I’m often too forgiving. Too forgiving of employees stealing from me. Or friends lying to me. Or colleagues failing to keep promises.

When, for example, I discovered that a personal assistant had stolen $35,000 from me through fraudulent credit card purchases, I didn’t fire her. We talked about it. She apologized. I forgave her. And we continued to work together (but in a different capacity).

When I discovered that a good friend had been lying to me about circumstances in his life, circumstances that affected my life negatively, I didn’t dissolve our friendship. In this case, we didn’t talk about it, because I believed the lying was not circumstantial. It was an immutable aspect of his personality. I had to ask myself if I could enjoy his friendship going forward. The answer was yes. We are still friends.

When business colleagues (and others) make promises that I know they can’t keep, I encourage them to be realistic. If they insist they can achieve the impossible goal or meet the unrealistic deadline, I make a mental note to forgive them later when they fail. I do it because I believe that when they make the promise, they intend to keep it.

I know that when I’m criticized for being excessively forgiving, it’s meant to protect me from myself. To wake me up to a frailty that could eventually cause me harm. I get that. I appreciate it. But I don’t act on it.

I am not oblivious to the fact that there are people in the world willing to do me harm. I recognize that envy exists – and envy breeds contempt. I know that I am sometimes too direct in my critiques and criticisms – and that, too, can spark embers that flare up later. Most important, perhaps, I have learned that in helping people, we can create in those we help unconscious feelings of resentment.

All those things I accept as common elements of the human condition. But I don’t feel endangered by them. Or vulnerable. I see them for what they are: expressions of hurt. Sometimes warranted, mostly not.

I recognize that I feel immune to them because I am usually operating from a privileged and protected position. And even when I am injured, my reaction is not to strike back. First, because I know that it’s much healthier to forgive than to harbor bitterness. Also, because I recognize that I sometimes injure others.

The bottom line for me is this: I’m comfortable with this “overly” forgiving aspect of my nature.

But there is a kind of injury that I am unable to forgive. As adept as I’ve become at forgiving personal injuries, I cannot bring myself to forgive even the mildest personal insult.

Five things happen when someone insults me:

  1. I am emotionally hurt by the insult.
  2. I blame the insulter for my pain.
  3. I take it personally – i.e., the insult is between him and me.
  4. I never forget.
  5. I seek revenge.

Example: Years ago, a well-known novelist and I got into a short public disagreement at a literary conference. I could tell that he was unsettled by the fact that someone from the audience would challenge something he had said. Later, at the cocktail reception, surrounded by his acolytes, he made fun of the tie I was wearing. It was a small slight. I could have, and probably should have, dismissed it. But I didn’t. Because he said it to hurt me. And so, the five steps kicked in. He became my enemy. I wished bad things on him. And I still do.

As I said, I don’t see my response as intelligent. Or useful. I am not justifying it. In fact, in recounting it here, it embarrasses me. But at 71, I’m not likely to change. And to tell the truth, I’m not trying to improve myself in this regard.

I wonder: Am I unusual in feeling this way? Do you forgive injuries? Are you able to forgive insults? Can you, unlike me, forgive both?

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