Investment Update

So where are the Kaisers investing these days?

Since the first of the year we have sold houses in Indio, CA and Brooksville, FL. We are currently trying to sell one in Cape Coral, FL. We have purchased a pre-construction lot in North Carolina and are in a contract for a new construction duplex in Mississippi.

We have our own reasons for each one of these moves, and it does not mean that it is the right thing to do for all people. Obviously, there must be a willing buyer and a willing seller for a transaction to occur - if people didn't have their own agendas then you would have to say that either the seller or the buyer is making a stupid move. The reality is that the seller might be making a smart move based on his situation, and the buyer might also be making a smart move based on his own goals.

We sold Indio not because we think California real estate is no good, but because we are building a second home in Idyllwild, CA and we needed the money. You see, our original goal all along was to have a fantastic mountain home that was totally paid for by profit from real estate investments. So Indio fit the bill - it went up in value and we sold it to take the gains and spend them on the Idyllwild project.

In Florida, our investments have gone backwards. We always go into an investment with a break-even cash flow in order to weather any storm that may arise. But in Florida, we have the "perfect storm". Taxes have shot way up, insurance premiums are outrageous (if you can even get insurance) and to top it off, rents are plummeting. So our numbers really didn't work out as planned. Last year we sold some FL properties with a substantial gain - this year we are just getting our investment back in Brooksville (no profit) and will probably take a small loss in Cape Coral.

The question is, to you face the pain all at once or endure death by a thousand cuts? The negative in Cape Coral is awful and it will be years before the situation turns itself around. In other words, we feel that if we were to sell a few years from now, the price we would have to get to overcome 3 years of negative cash flow would be unlikely. So the risk is probably greater than the reward.

Nevertheless, we have the cheapest house on the market and still no bites. So if I have to lower the price even further, than I will have to recalculate this and may decide to rent the place out instead.

The purchase in NC is a calculated 2 year investment. It cost $15K to buy in, and we hope to turn that into $50K in 2 years. The builder was pre-selling some lots in a new upscale development in order to raise quick cash to build the common facilities. Once the project is launched and the clubhouse and roads are in place, the builder will then sell our lots at the going rate at that time. Based on the success of similar developments in the area, we feel that there is a good chance for a profit.

As for MS, that is in the Katrina GO Zone, which I've talked about in other posts. I would get a 50% bonus depreciation on this property, which breaks even at 10% down. The strategy here is the shelter some of the gain from the sale of Indio. Remember I said we sold it, a taxabe event. We could not 1031 exchange it, because we needed the money to build the second home. You can't 1031 exchange into a second home, especially one that isn't even built yet.

So how to get the money for our use, and not pay taxes on it? We can wash away the gain with paper losses by buying property in the GO Zone! So we found an investment that would make sense even without the bonus depreciation, but we limited our search to the GO Zone, because our goal was to wash away the Indio gains.

See how all this works together to move me towards my ultimate objectives? See how tough it is when someone send me an email and says "where should I invest now?" How I can I possible answer that for another person unless I have a really good understanding of that persons finances, goals, investment experience, risk tolerance, etc? I'm happy to talk with anyone about real estate investing, because that is my passion, but true investors always talk in possibilities, never certainties. If someone says "buy this pre-construction condo for $500K because it will be worth $700K when it's done" you know you are dealing with someone trying to sell you something and not an investor.