Morgan

This is exactly what I would ask too. A bad tenant can do tens of thousands in damage pretty gosh darn quickly. If you can afford not to have it rented, I would keep it empty while it's up for sale. If you need the money, rent it. A bad tenant is very unlikely, but they can do serious damage.

I'm using the ideas so I have more cash to invest. I am hyper-aware of compounding and understand that a new Porsche or whatever would be lovely and my ego would shine, but investing is far more important for the future. Right now I have way more ideas than cash. I see opportunity everywhere it seems. I'm frugal to begin with but these ideas have refined my approach to saving. At this point I don't know if I'll stop working per se; I enjoy my work tremendously. In the future I may decide that I have enough and slow down or stop, but that is a long way off I think. It's just too much fun.

Have you checked out ERE (Early Retirement Extreme) as well? Next on my list (including the book). What are your thoughts on both MMM and ERE? Are you following the plan (either, both?). Do you prefer one over the other? So far it's mostly stuff I had read years ago in some of the old school versions of this philosophy (Your Money or Your Life, Tightwad Gazette, Simple Dollar, etc), but it's good to refresh the ol' memory and it does provide extra motivation (kind of like reading on value investing, even if the principles don't change). Both MMM and ERE (site and book) are interesting and worthy reads. I have basically taken up the ERE/MMM mindset and it is working nicely. I'm not as extreme, but my expenses dropped nicely. Incidentally, my boosted savings have been put to good use in real estate investments that I probably would not have been able to do had I not been saving as much. Now I just need to find a frugal wife.... much harder than taking up the ERE/MMM lifestyle :/

In general, I wouldn't recommend investing in real estate unless you're going to buy a duplex and have the tenant pay the mortgage, or are going to make it a full time gig within a reasonably short time (2-4 years). Frankly I don't think it is worth the effort to have less than maybe 10 units considering how much money you'll likely be making. You're not big enough to get much in terms of economies of scale until you have 50+ units at least. We're at ~80 units with our little company and until we had 40-50 units I was doing almost everything myself or had occasional help with renovations. Now I do much more managing and work with a crew of guys to get things done. Needless to say, my back is happier. As for making the plunge, you just have to find a property that works financially and then do it. Don't force the numbers to work. It will be obvious that you should buy it. I'm in northern West Virginia and RE investing works here. From preliminary research multi-family investing appears to work in Cleveland, Columbus and Detroit, but not Pittsburgh. I haven't looked elsewhere. Overall it's a good business to be in. I took 6 weeks off a few months ago and kept getting paid while I was away.

This can not be said enough.

I was just thinking of this guy the other day and couldn't remember his name. What perfect timing. Thanks for sharing!

It is definitely possible to earn those returns, but with bare land it seems pretty close to speculation. If you know something about the future use of the land then maybe it's a good buy. With RE developments there are so, so many things that have to come together nearly perfectly to make a project happen. If you want to invest in RE I would suggest something that is going to generate cash the day you buy it. My preference is residential RE. I sort of see buying up apartments as stepping over lots of one foot poles whereas this type of 5, 10, 20 year development projects are like jumping over many, many seven foot poles. I'm short, so one foot poles are more my style. But to each his own. Over all, it is possible, but the spectacular, once in a lifetime opportunity type return scenario is much more psychologically alluring than making 10%-15% pretty securely over a long period of time. That is another thing to take into consideration; how they're marketing it.

Thank you for your reply reddog66. Very informative.

I should have been clearer, I'm asking about residential/multifamily RE. Everyone needs a place to live. Many of the reasons outlined above apply to commercial real estate. What about multifamily? Excluding reducing RE/leasing agents, do you think demand for residential real estate will change? The obvious answer is probably not much, but what about less obvious answers? Maybe it's all too far fetched?

Recently I've been thinking about how changes in technology can affect (and destroy) various industries over time. Marc Andreessen wrote an article in 2011 called Why Software is Eating the World that basically says software is getting better and better and is able to do more and more. Combining that idea with the idea that computers can learn (inspired by this talk The wonderful and terrifying implications of computers that can learn), it makes me question the future of real estate, however unlikely that may seem now. The obvious ideas from more powerful technology generally seem to be positives for RE; "smart" structures and supremely energy efficient structures. What will happen when machines can learn and are set free if you will and come up with new ways to build excellent living structures for virtually nothing? Will the old buildings that are too expensive to operate or pay the mortgage be forgotten? Are there ways that the deep thinking machines could enhance 3D printing so dramatically that everything else is obsolete? What else could they come up with that could destroy the real estate industry?

I haven't been investing for 10 years either, but I do something similar when buying a new apartment building. I always estimate FCF and how the purchase will change the balance sheet. I've looked at the estimates from the past and compared them to the outcome and I've gotten a bit better at estimating over time. By now, 3 solid years in, I can walk through a building and pretty accurately estimate the renovation costs, FCF and what is going to happen to the BS. Thinking about my strength for looking at real estate, makes my weakness for analyzing other businesses quite apparent. More filing to read! Edit: As for looking at the cash flows 10 years out, I haven't modeled that far out. I see how much I'll make per year compared to how much cash I have to spend to buy the cash flows from the building.

Hm. Interesting. I've never read that. Do you happen to remember where you saw that? I imagine they were fairly well off, but not $100m+ family when he was growing up. Thanks!

If I remember correctly from a Charlie Rose interview, Ackman was getting tough questions on his recent activist investment that had done poorly (JcPenny I think), and Ackman said he'd invested in 24 companies and only three have done poorly. 21 for 24. That is one seriously good record. I wish I could fail as badly as Mr. Ackman. Certainly I'd never bet against him and he is definitely smart and hardworking. You don't become a self made billionaire because you're stupid that's for sure. More on topic though, I won't be buying any of this, but I wish him all the best.

As others have recommended, Creative Cash Flow Reporting by Mulford and Cominsky, Quality of Earnings by O'glove and Financial Shenanigans by Schilit are all good. Even if you're very advanced, I imagine you'd learn something useful from all of them. I learned a lot from them. Enjoy!

I have studied Mongolia a great deal and have faith in its prosperity. I dont think finding additional cash would provide a problem for them. Today almost all RE comps cannot handle big volumes such as blocks of 100m since they wont be able to deploy it succesfully. CF and value always goes hand in hand so obviously they will try to achieve both. We have found a couple of companies in mongolia that we think can provide good return over the long term period - its part of our frontier forever capital. It goes into our assymetrical positioning sacrifizing 1% every year on frontier capital, this coupled with sacrifizing 1% on macro hegdes every year (ie japan default, short JPY) So we are building on YAK buying very small volumes, and are taking a bet on Harris that he will be able to structure a company that can ride on the progress of mongolia. And if it takes 10, 20, 30 years, it doesnt matter as long as we believe he does the right things. out of experience, this things tend to take much longer than any anticipates, and then a bit longer still.. Rgds Thank you for your reply anders. If you have time, can you answer a few questions? The current market cap for the company is about $40m ($1.12/sh). I'm not sure how big your portfolio is, but at some point you, either alone or with other investors, would consider buying the entire company outright correct? What price would you buy the entire company? In the long term (15 and 30 year time frames), how much do you think the property will appreciate? Very roughly. Will it become a $500m portfolio or $5bln portfolio? Something on the higher end? I'm not sure, so I'm just throwing numbers out. Until then, how will the company continue to pay its bills? By selling buildings? Cutting expenses drastically? Raising more money from investors? Thank you for your input.

No problem :) By the way, where did you see the 95% occupancy statistic? Was it in one of their recent monthly letters? I didn't come across it, but I wasn't looking for it. Cheers! 95% occupancy means nothing when the rent doesn't cover expenses. I can get you 95% occupancy in any city if I price the rent significantly less than operating costs. They were buying property all through the commodity bubble...bubble burst! Unless commodity prices rise again in the next few years, I cannot see how their real estate value won't come down. Stock is reflecting that sentiment. Cheers! There's no question there. It'd be better if they had 20% occupancy with $2m in revenue then at least if expenses stayed in a similar range and revenues went up 4-5x they'd make money. But 95% occupancy means there's not much more room for revenue growth. Just curious Parsad, what do you think the long term play for the management is? They clearly can't run the company like this for too long. They'll run out of cash. So as Anders seemed to imply (Anders, please correct me if I'm mistaken), the end goal seems to be appreciation and not cash flow?

No problem :) By the way, where did you see the 95% occupancy statistic? Was it in one of their recent monthly letters? I didn't come across it, but I wasn't looking for it. Cheers!

2million pre-tax profit on 45 million is a 4.4% yield. Interest rates in Mongolia are apparently 12%. :o It's not $2m pre-tax profit. For 2014 they're on track to have about $2.3m in revenue with about $6.6m in expenses and they have no mortgages on the properties.

I really hope that I have made a mistake in my quick overview of the financials (Condensed Interim Consolidated Financial Statements For the three and six months ended June 30, 2014 and 2013. They have $45m worth of property, but are on track to pull in only ~2m in revenue from the properties? Based on that alone, it seems like they have way, way overpaid for the real estate. Please tell me if I'm wrong. I'd like to know what I'm missing. Also, the "Unrealized gain on fair value adjustment on investment properties" in the Statements of Operation for about $7.9m really alters their net income (but not cash flow) to make them profitable. They readjusted the value as described in Note 7: "During the six month period June 30, 2014, management applied its judgment to calculate the fair value of investment properties using the income approach and the sales comparable approach, which are generally accepted appraisal methodologies." How many times can they readjust this upwards?

I'm optimistic about the future too. Ray Kurzweil has talked a lot about the accelerating pace of intelligence and technology that had occurred in past and the next 20-30 years is when we should start hiting the exponential part of the growth curve, which will of course bring dramatic changes to just about every aspect of life. Cheap energy is just one area to be changed. See: here:http://www.singularity.com/images/charts/ExponentialGrowthofComputing.jpg If you're interested in thinking about the future I would recommend reading Kurzweils work. He's got many interesting ideas.

The first thing that comes to my mind is Peir 1 in March of 2009. It traded for $0.11/share at the low I believe. The high was ~$25/share. About a ~225x return. Not bad lol

Great share! Thank you coc.

This is exactly what we do in our residential real estate business. We buy cheap buildings that need work, renovate, raise the rents and fill the units up. We've gone from 8 units to 50 units in two years or so. Always looking to add more and take the skills learned there and apply them to building other larger projects. It's a lot of work, but good fun. From my position, real estate is something more or less anyone can get involved with and grow to be quite large if desired. PS - Oddball you've always got good posts for us. ;D

An interesting book about the subject is Innumeracy by John Allen Paulos. It's a short and easy read. He talks about this pervasive error in judgement in the book as well as other errors.

Try AOL Reader. I know it's weird to think of AOL as having anything good, but it's very simple and clean and works the best for me. You can use a google account to sign in so there's no need to create an AOL account. One less account to deal with. http://reader.aol.com