Business to invest in puzzle - poll

[shalab]

Business:

      It is commercial property that has an initial yield of 8%. Increase in rent is about 5% per year. Leasehold improvements to be made by the tenant and the tenant pays all the utilities. Property tax is paid by the owner.

 

Risks

    Tenant vacates for lack of business

    If tenant vacates, difficult to find another one in a suitable time. So the return will go down.

    Some hands on work needed to find another person to occupy the place.

 

Demographics - favorable, increasing population and income

Can the place be re-modeled: Yes, other than furniture, signs, paint and some equipment; it is pretty straight forward.

 

Question:

Good idea to invest in this?

No - there are other good ideas in the market which will provide greater returns

 

[Guest deepValue]

Who do you think is the patsy: the real estate whiz who is selling the property, or you, the person posting a poll on a message board to figure out whether you should invest?

[Guest rimm_never_sleeps]

if you were concentrated in this asset bad idea. if you were not concentrated in this investment might be a good idea. would take a lot of due dilligence as well as local understanding of the market as well as plenty of experience with r/e in general. me? I will stick with picking off cigar butts.

[Guest deepValue]

if you were concentrated in this asset bad idea. if you were not concentrated in this investment might be a good idea. would take a lot of due dilligence as well as local understanding of the market as well as plenty of experience with r/e in general. me? I will stick with picking off cigar butts.

 

"Diversification is protection against ignorance" -- seems to be what you're prescribing here.

[Kraven]

if you were concentrated in this asset bad idea. if you were not concentrated in this investment might be a good idea. would take a lot of due dilligence as well as local understanding of the market as well as plenty of experience with r/e in general. me? I will stick with picking off cigar butts.

 

"Diversification is protection against ignorance" -- seems to be what you're prescribing here.

 

Good lord.  See my recent comments in the Charlie Munger thread.  http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/the-best-of-charlie-munger-1994-2011/msg87960/?topicseen#msg87960  I couldn't disagree more that diversification is intended to be protection against ignorance.  Doing anything for the sake of doing it is moronic.  Having a different philosophy is not. 

[thepupil]

We have two threads for one topic now, but to add to the diversification vs concentration discussion. I think having 1/2 or 1/3 of one's money in a single stock is a much different proposition than having that large of a percentage in one single property.

 

At the risk of stating the obvious, a stock is an interest in a company which will presumably have diversification of operations within its industry across geographies or even diversification of industries.

 

A small piece of land with a building on it is much more susceptible to total loss in an adverse event. A single fire/tornado/flood/hurricane/environmental event/lawsuit/municipal law change  can not destroy a decent sized company, but a can certainly wipe out a real estate investment.

 

Also a directly owned real estate investment is like owning a small business and can unexpectedly call on your liquidity and capital for a variety of reasons.

 

In order to compensate me for all those issues, I would need require return greater than 8% and have a net worth sizable enough to spread my risk over several properties. The question posed doesn't provide enough information to gauge as to whether or not the return would be higher.

 

[Guest deepValue]

I think having 1/2 or 1/3 of one's money in a single stock is a much different proposition than having that large of a percentage in one single property.

At the risk of stating the obvious, a stock is an interest in a company which will presumably have diversification of operations within its industry across geographies or even diversification of industries.

 

That's a fair point.

 

I don't spend a lot of time here, so I was unaware of the other discussions on diversification. I think it's mainly a style thing and the types of companies one typically buys.

[Guest rimm_never_sleeps]

if you were concentrated in this asset bad idea. if you were not concentrated in this investment might be a good idea. would take a lot of due dilligence as well as local understanding of the market as well as plenty of experience with r/e in general. me? I will stick with picking off cigar butts.

 

"Diversification is protection against ignorance" -- seems to be what you're prescribing here.

 

cute. but no. that's not what I said at all.