giofranchi Posted October 20, 2014 Author Share Posted October 20, 2014 I would almost always go for my own thing than the "default position" available in the general ocean of stocks. If by "my own thing" you mean my own business, I might agree with you (though not always... control imo has its burdens!). But here "my own thing" means my own apartment, when I don't really need it, and I like my stocks a lot... but it undoubtedly is a very good bargain... that's why I find it so hard to make up my mind! Gio Link to comment Share on other sites More sharing options...
cobafdek Posted October 20, 2014 Share Posted October 20, 2014 If having such a prize property gets (or helps you to keep) the woman of your dreams, it is not an unproductive asset. In this regard, for most (?) women, your stocks are unproductive assets. Link to comment Share on other sites More sharing options...
giofranchi Posted October 20, 2014 Author Share Posted October 20, 2014 If having such a prize property gets (or helps you to keep) the woman of your dreams, it is not an unproductive asset. In this regard, for most (?) women, your stocks are unproductive assets. Ahahahahah!!!! Guess that’s the reason why all the supposedly women of my life have the very annoying habit of dumping me after a few months we stay together and they begin to be “intimately acquainted” with my stocks! ;) ;D ;D Gio Link to comment Share on other sites More sharing options...
yadayada Posted October 20, 2014 Share Posted October 20, 2014 Gio I would use leverage if the properties are really cheap. It is really low risk (as properties are at bottom prices anyway) and you jack up your return. And the money your not putting in the property can be invested. Link to comment Share on other sites More sharing options...
SharperDingaan Posted October 20, 2014 Share Posted October 20, 2014 Thanks for the tip. I suspect the major reason we got the mortgage was because of the times, the program, & that UK resident nephews are the prime beneficiaries. The sublease is with a major PLC, the prefs are shares of their own bank, & dividends + lease payments more than cover the interest. To help the decision we also ensured that to formally question the structure, was to question the solvency of your own bank - a career ending event. The current thinking is that we will probably exit once the sub-lease expires. By that time we should have captured most of the gain, & the ongoing risks will no longer warrant it. SD Link to comment Share on other sites More sharing options...
MCN Posted October 20, 2014 Share Posted October 20, 2014 What makes you think this is a bargain? Just because the asking price today is half what they asked a few years ago is meaningless. It could still be over valued... Two ways of looking at this, as already pointed out- for your own use or as an investment. I know quite a few people who have bought holiday homes after falling in love with an area. Nearly always they have regretted this choice after a few years. They eventually got sick of going to the same place each year and having to deal with the headaches of ownership, which are compounded when in a foreign country. From an investment perspective you simply estimate (perhaps with the help of a local expert) what reasonable rental income it can generate in the future, deduct likely operating expenses, empty periods etc and compare the net return to other opportunities available to you or your existing stocks. Being real estate you could probably lever the purchase somewhat to boost return. At least by looking at rental yield you have something of a signpost to guide you on valuation Whichever option, unless you are local or have someone trusted to keep an eye on the place, it can be a total ball ache to administer effectively, distracting you from your main focus of stock picking or whatever it is you do. Personally, I think irrational investment bargains are more likely to show up in the stock market than in real estate owned by a knowledgeable local.. Asking folks opinions on here about Italian real estate is a waste of time. Link to comment Share on other sites More sharing options...
james22 Posted October 21, 2014 Share Posted October 21, 2014 The fact, though, is I will have to sell some overvalued assets (stocks) to buy an undervalued one… Corrected? Link to comment Share on other sites More sharing options...
giofranchi Posted October 21, 2014 Author Share Posted October 21, 2014 What makes you think this is a bargain? Just because the asking price today is half what they asked a few years ago is meaningless. It could still be over valued... Two ways of looking at this, as already pointed out- for your own use or as an investment. I know quite a few people who have bought holiday homes after falling in love with an area. Nearly always they have regretted this choice after a few years. They eventually got sick of going to the same place each year and having to deal with the headaches of ownership, which are compounded when in a foreign country. From an investment perspective you simply estimate (perhaps with the help of a local expert) what reasonable rental income it can generate in the future, deduct likely operating expenses, empty periods etc and compare the net return to other opportunities available to you or your existing stocks. Being real estate you could probably lever the purchase somewhat to boost return. At least by looking at rental yield you have something of a signpost to guide you on valuation Whichever option, unless you are local or have someone trusted to keep an eye on the place, it can be a total ball ache to administer effectively, distracting you from your main focus of stock picking or whatever it is you do. Personally, I think irrational investment bargains are more likely to show up in the stock market than in real estate owned by a knowledgeable local.. Asking folks opinions on here about Italian real estate is a waste of time. MCN, 1) As I have said, I already own an apartment in that town. My family has been owning properties there since I was 3. Many friends of mine have bought, sold, then bought again flats in that same town. Some of them live there. The best hotel in town? Yes, you’ve got it, it is run by a friend of mine. Listen, I have been watching that market my whole life… If I say it is a great bargain, believe me… It is!! 2) My family has been renting properties in that town for more than 30 years now. If I say the rent will cover expenses but nothing more, it is out of experience and because I don’t have any reason to believe things in the future might differ much from the past. 3) Most of all, if you don’t like this thread, why did you waste your time writing such a long post? Why don’t you just leave it alone? ;) Gio Link to comment Share on other sites More sharing options...
ASTA Posted October 21, 2014 Share Posted October 21, 2014 Gio as I am sure you know is that Italy has had one of the worst shrinkage of city's the last 20 years and going forward. Don't remember where but was looking at Hungarian properties but saw Budapest had no population growth for 30 years actually negative same with Rome and other city's in Italy. Worst was Russia then east Europe then Italy. My two cents on this topic :) Link to comment Share on other sites More sharing options...
ukvalueinvestment Posted October 21, 2014 Share Posted October 21, 2014 Italy's population shrinkage may be shrinking but what's that got to do with a holiday town in Liguria, where prosperous people from around the world may be happy to buy propertly? Link to comment Share on other sites More sharing options...
giofranchi Posted October 21, 2014 Author Share Posted October 21, 2014 Italy's population shrinkage may be shrinking but what's that got to do with a holiday town in Liguria, where prosperous people from around the world may be happy to buy propertly? My own thoughts exactly! ;) Gio Link to comment Share on other sites More sharing options...
dolce far niente Posted October 21, 2014 Share Posted October 21, 2014 This could be one of the false optimization question. Meaning there is no answer to it. But an interesting thought exercise for me. This is what I would do: 1) Stop thinking about the property for 30 days. If you still like it in a month time, you can consider it. 2) Within that 30 days, go for a really nice holiday and stay in very nice hotel. One of those exclusive one such as Aman hotel. Compare the experience to owning that property. Would I want to buy that property when I can just stay in different Aman with different lady once a month. 3) Check for other options in the same neighbourhood. Can I get something better at the same price and hopefully at lower quantum. 4) If I still can't decide, I will but 51% of the property with the right to purchase the remaining at the same price within the next 10 years. 5) All above fail, you buy it. Link to comment Share on other sites More sharing options...
MCN Posted October 21, 2014 Share Posted October 21, 2014 3) Most of all, if you don’t like this thread, why did you waste your time writing such a long post? Why don’t you just leave it alone? ;) Gio Gio, I wasn't aware that you only expected supportive responses. And I certainly didn't set out to irritate you, just gave you my 2 cents. Link to comment Share on other sites More sharing options...
giofranchi Posted October 21, 2014 Author Share Posted October 21, 2014 I wasn't aware that you only expected supportive responses. What do you mean by “supportive responses”? Some responses were “Yes, I would do it!”, that is a “supportive response” to me. Other responses were “No way… You must be crazy!”, and that is a non-supportive response to me. They both are fine, and I accept them both and both make me think. You, instead, with an arrogant tone said that it is a waste of time to even ask the question I formulated in this thread… Well, I might respect your point of view, though of course I don’t share it, but still I don’t understand why you took the trouble of first reading this thread, then posting your thoughts… on a subject you have openly said to consider only a waste of time! Finally, I think I have put a decent amount of work into this board… If I have to make a decision, an investment decision, about which I still have some doubts, and I want to hear what other people on this board, whose judgment I respect a lot, have to say about it… Well, I think I have earned the right to share with them my doubts and listen to whichever good advice they might give! Not only: I would also add that it is precisely one of the most intelligent use of this board! ;) Gio Link to comment Share on other sites More sharing options...
oddballstocks Posted October 21, 2014 Share Posted October 21, 2014 I wasn't aware that you only expected supportive responses. What do you mean by “supportive responses”? Some responses were “Yes, I would do it!”, that is a “supportive response” to me. Other responses were “No way… You must be crazy!”, and that is a non-supportive response to me. They both are fine, and I accept them both and both make me think. You, instead, with an arrogant tone said that it is a waste of time to even ask the question I formulated in this thread… Well, I might respect your point of view, though of course I don’t share it, but still I don’t understand why you took the trouble of first reading this thread, then posting your thoughts… on a subject you have openly said to consider only a waste of time! Finally, I think I have put a decent amount of work into this board… If I have to make a decision, an investment decision, about which I still have some doubts, and I want to hear what other people on this board, whose judgment I respect a lot, have to say about it… Well, I think I have earned the right to share with them my doubts and listen to whichever good advice they might give! Not only: I would also add that it is precisely one of the most intelligent use of this board! ;) Gio Very well said. I think you should buy the place. You are familiar with the area, the seller is someone you know and trust, and you can at least rent it to cover expenses. To me there's some optionality here. At worst you have a nice place in a town you already like, you have a place you can stay. But you can also rent it to cover the carry costs, or potentially sell it for a gain at some point. Buying a nice property in a luxury tourist town at a discounted price isn't something most investors have the opportunity to do. With a town like that there is often strong demand from foreigners who are always coming in looking for a place to purchase. If the property is nice and you like it and you're comfortable with it I'd say pull the trigger. It sounds to me like the uncertainty is around what will happen in the future. We don't know what'll happen, although I'd argue you have a bit more insight into the town than anyone does in the markets. Link to comment Share on other sites More sharing options...
Rainforesthiker Posted October 21, 2014 Share Posted October 21, 2014 What is the gross rent/sq meter? Don't know exactly… These days it might be quite depressed… In my experience with the rent you can cover all the costs associated with owning such a luxury apartment with ease… but then not much money is left to put in your pockets! ;) Gio So it sounds like 0. In that case I suggest you price it the way you would a good cigar or a good bottle of scotch! ;D Gio, when you say the rent can cover all the costs associated with owning such a luxury apartment, do you mean the rent covers only things like maintenance, taxes and insurance, but not mortgage payments? Or would the rent cover mortgage payments too (presuming you got a mortgage)? You also said that rents are likely temporarily depressed, so is there a decent chance in some years time you would be able to raise rents to cover all expenses, including mortgage if any, and have some positive cash flow? Like a stock purchase, you probably should consider what your cash flow would be in a more normalized environment, whatever that is. FWIW the few times where I had the chance to buy a beautiful property that I wanted and chose not to, I have regretted it. About 10 years ago I bought a vacation property in Northwest Washington, and it is a huge enjoyment for me. I almost did not buy it, and I realize now I really would have really regretted it, or at least not known what I was missing, had I not bought it. Based on what you have said, if you buy the property now expecting to get future enjoyment, and for some reason you do not enjoy the ownership as much as you thought, it seems you could likely sell it in 3-5 years for a decent to large gain, and put the money back to work in stocks. If you do really enjoy the property, then you are glad you bought it. Link to comment Share on other sites More sharing options...
giofranchi Posted October 21, 2014 Author Share Posted October 21, 2014 Thank you very much, Nate! Not because you agree with the purchasing of the apartment, but because of your clear reasoning! :) Cheers, Gio Link to comment Share on other sites More sharing options...
Rainforesthiker Posted October 21, 2014 Share Posted October 21, 2014 Thank you very much, Nate! Not because you agree with the purchasing of the apartment, but because of your clear reasoning! :) Cheers, Gio Are you equating "Nate" with Rainforesthiker? If so, Rainforesthiker is Jeff, not Nate. At any rate, good luck with your decision! Link to comment Share on other sites More sharing options...
giofranchi Posted October 21, 2014 Author Share Posted October 21, 2014 Based on what you have said, if you buy the property now expecting to get future enjoyment, and for some reason you do not enjoy the ownership as much as you thought, it seems you could likely sell it in 3-5 years for a decent to large gain, and put the money back to work in stocks. If you do really enjoy the property, then you are glad you bought it. No, I don’t ever expect to have net cash flow from such a property. Therefore, the payment of any mortgage I might decide to get could not be covered by the rent. I understand I can always sell it later and redeploy the proceedings into the stocks I like… But Nate has said something interesting: no one knows the future about the markets… And that’s why I always like to keep great liquidity, meaning that I both like to always have lots of cash and easy to sell investments… To stay flexible and be ready to take advantage of any opportunity that might come our way… On the contrary, if I purchase that apartment now, I will consume a large part of my cash reserve, putting it into something hard to sell… The consequence is I will end up much more constrained than I am now. Gio Link to comment Share on other sites More sharing options...
giofranchi Posted October 21, 2014 Author Share Posted October 21, 2014 Are you equating "Nate" with Rainforesthiker? If so, Rainforesthiker is Jeff, not Nate. At any rate, good luck with your decision! Hi Jeff! No, Nate is oddballstocks! ;) Thank you very much! :) Gio Link to comment Share on other sites More sharing options...
yadayada Posted October 21, 2014 Share Posted October 21, 2014 Gio, can't you fix it up a bit, make some really nice pictures and put it on Airbnb? They seem to get pretty good rates. And if you make sure to make some really nice pictures, im sure you could rent it out a few months a year as a vacation rental for a nice rate? If you do it like that, then you could use some leverage, and then flip it after a few years for a nice return? Link to comment Share on other sites More sharing options...
giofranchi Posted October 21, 2014 Author Share Posted October 21, 2014 im sure you could rent it out a few months a year as a vacation rental for a nice rate? Of course I already do that with my other apartment! ;) I don't know Airbnb, but I know a friend of mine who runs a rental agency nearby. He has followed my family's properties in Liguria for many years now. Gio Link to comment Share on other sites More sharing options...
MCN Posted October 22, 2014 Share Posted October 22, 2014 You, instead, with an arrogant tone said that it is a waste of time to even ask the question I formulated in this thread… A poor choice of words on my part but I wrote this meaning that most on here seem to be US based value investors. And seeing as you are basically guessing on price direction rather than building a valuation off cash flow, this seems more like a speculative venture. Nothing wrong with that but most talk on here is about cash flows and returns. I didn't intend to cause offence. but still I don’t understand why you took the trouble of first reading this thread, then posting your thoughts… on a subject you have openly said to consider only a waste of time! I took the time to respond because I have experience developing real estate and managing a property portfolio. I've made some poor choices and bad mistakes, usually when I ignored the facts and numbers. It's easy to be overoptimistic on rental income and underestimate expenses, plus dealing with tenants can be troublesome if you don't have a manager, especially if not local. If you are buying for your own enjoyment then investment rules go out the window but as I mentioned, I've also heard some disappointing stories from friends who have done this. If this is for investment purposes then, all things considered, swapping a liquid (and good ROE) investment for an illiquid, no yield speculation is risky, imo. Link to comment Share on other sites More sharing options...
writser Posted October 22, 2014 Share Posted October 22, 2014 Exactly. Investment-wise you would probably make a mistake. 7k / m2 does absolutely not sound like a bargain and it is an illiquid asset that will cost you time and effort. So the only relevant question is whether the appartment is so awesome that it justifies throwing some money at it. How can we help you with that if you don't even post pictures? :) Link to comment Share on other sites More sharing options...
giofranchi Posted October 22, 2014 Author Share Posted October 22, 2014 How can we help you with that if you don't even post pictures? :) It is wonderful! With a gorgeous terrace right in front of the sea, from which I have seen many beautiful sunrises! Very romantic… I think I could keep a girl more than just a few months over there… even talking about stocks all the time! ;D ;D Gio Link to comment Share on other sites More sharing options...
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