The point I am going to make in this post is you can use the different markets outside of Real Estate to help with timing your Real Estate transactions. Great timing can do wonders for your bottom line. I have to setup my point so read all the way through. I will put it all together at the end.

To continue my argument, (see past posts), that I believe that at the very least if you are a Real Estate investor you should have an eye on different markets outside of the Real Estate world I am going to highlight Mortgage Back Securities and what it means for the common Real Estate investor.

First lets define what a Mortgage Back Security is, or MBS. More or less a MBS is a bond sold on wall street from the big government backed firms Fannie Mae and Freddie Mac. These loans are originated by banks we all know and love. Then the banks sell these loans off to Fannie Mae, and Freddie Mac in big pools (collections of mortgages). For example (and to keep things simple), lets say Bank of America lent out 100 thousand dollars to 10 people (total of 1 million dollars). Bank of America collected a bunch of fees for putting the loan together (from the borrower), also mostly likely will get to continue to service the loan (charge more fees for the service of collecting loan payments).

Now, BofA will sell this pool of loans to Fannie Mae or Freddie Mac. So the amount of loans BofA is willing to make each week/month/year is almost a factor of how willing Freddie and Fannie are willing to buy the loans.

Once the pool of loans are sold and out of the bank’s hands, Fannie and Freddie then bundle the loans up into bigger pools and sells them off on Wall Street as bonds. So when you make your home mortgage payment you send the money to your bank, then the bank send your payment to Fannie and Freddie, and then Fannie an Freddie sends your payment to the owner of the bond. You can learn way more about this process at Wikipedia.

Why should you understand all this?

It is one big chain of influencers; The seller, the buyer (borrower), the bank, Fannie/Freddie, and the bond holder. Each phase of this chain relays on entity below it. So lets look at each phase.

• Bond holder
  • The bond holder, often a big time money manager, has the job of gaining the biggest profit he can based on the investing principals of the fund. So there are times when MBS’ really are an attractive investment relative to other options. If some other area with the same risk profile is starting to heat up and return more profit than MBS then the money manager is going to purchase this other asset. Lets say the dividends of stable blue chip companies are starting to increase then a money manager might buy stock in those companies instead of a MBS.
• Fannie Mae / Freddie Mac
  • These guys are in the business of selling MBS to the money managers on wall street. If the money managers are in big demand for MBS they are selling tons of these things. If the money managers are interested in other asset classes these guys are not selling as many MBS.
• Banks
  • Since banks sell many of their loans to Fannie and Freddie they can only lend out as many loans as Fannie and Freddie are willing to buy.
• Home Seller (you)
  • You have two things you are worrying about, finding a buyer and finding that buyer at your price.
• Home Buyer
  • All you care about is purchasing the home you want and being able to get the loan for that home.

Putting all this into context

Through the chain explained above the Real Estate demand is a factor of how willing a money manager is to buy a MBS. The more demand for MBS the more loans banks are willing to give. Further more the more standards the banks are going to have to be flexible on to keep selling loans to meet the money manager’s demand. So the price I can sell my house for is in an odd sort of way determined by money managers on wall street.

Why is it important for me to follow all this? Lets use an example to explain. I purchased a house and am renting it out. Some day I want to kick the tenants out and remodel it and then sell it for a profit. The remodel is going to take 6 months. If I look at the wall street markets as a whole and see some hot sector starting to get everyone’s attention (ie, the tech boom in the 90’s) I might guess the demand for MBS’ will go down because these money managers will be investing in what is hot. So from look at other markets I notice this and I realize that maybe home prices might not grow as fast in the near future (or even worst go down) because MBS’ might not be in demand in 6 months. Meaning there will be less buyers able to get loans when I am done with the remodel and ready to sell.

Lets give another example. Lets say I notice blue chip stock prices are starting to raise, (make dividend decrease in yield). That is a sign, (I am only giving example not sure or not), that maybe new money entering the market might be more interested in MBS’s because relative to blue chip stocks MBS’ are more attractive. I might decide it is time to do the remodel and get my house on the market because there is going to be more buyers with more money to spend making real estate go up.

I believe you have to pay attention to this stuff to help with your timing of Real Estate transactions. Timing does have a big affect on bottom lines when it comes to Real Estate.

Elevation attempts to do away with paper and pencil for personal trainers and move their client management to the Cloud, where all software should be. If you are interested please signup for the private beta and let me know what you think.

For those friends that have asked me over the last few years what I have been working on, this is it. Now that we are in private beta I am looking forward to engaging our users and learning more about how I/We can make this an even better product.

Also, a special thanks to everyone that has supported me/us along the way on this project.

Through my past client work, and now through my work with startups I am constantly running into people that want to reinvent the wheel. They want to start from the ground up as if there are no great ideas out there to steal. In the web world I am very very confident that if you are trying to build something there is an idea you can steal and make better. I think every project should start with finding an example to build from. I don’t believe in just trying to build something without a stolen idea as the foundation.

Also, this video reminds me of something else from my client work days. I had many clients approach me with a level of urgency, “If we do not get this product live in 30 days we have lost our window and someone will beat us to the market”. Apple, has beaten no one to market. In fact they are always the last ones to come to market. They sit back and wait and learn from everyone else then come to market with something better than everyone else.

Wise investors can spot a downturn coming, such as the one in late 2007. No one really knows how bad a downturn is really going to be, but a wise investor should know when to shift from capital appreciation mode to capital protection mode. Below are the things you can do to protect your stock and real estate assets in a downturn.

Protecting Your Stock Portfolio

• Sell your stock: If you think we are going to have a down turn, sell your stock holdings and return to cash until there is more clarity about what is happening in the economy.
• Hedge you portfolio: Add some short positions to protect against declines.
• Buy options: Unlike Real Estate it is very easy to purchase an insurance policy against a decline in your stock value. This is called a put option. For a small fee you can purchase a put option that will protect against a decline in your stock holdings.

Protecting Your Real Estate

• Sell: First thing you can do is put your property on the market. You have to make sure you have enough equity to pay the selling costs and you have to make sure you can find a buyer. If you are scared enough to sell your property there most likely are not many buyers out there.
• Lock In Your Tenants: Get rid of the risky tenants, and replace them with good tenants, (the ones with good stable jobs), on longer term leases.
• Start Building A Reserve Fund: When owning Real Estate you need to be doing this anyway but you should start adding more to the reserves to help cover longer periods of loss rent.

When a downturn is coming, within seconds I can protect my stock assets, and within weeks (and maybe not at all) I can protect my Real Estate assets. One thing I am not mentioning here is a down turn in the stock market can be hard and fast, while a down turn in a real estate market will be slower giving you more time. What I am saying here, is use the different strengths to protect your net worth to the fullest.

I will close this posting off with a personal example. In late January 2007, I realized (through indicators in the stock market, not the Real Estate market), that the world was about ready to slow right down. I quickly moved my stock holdings to cash, and began some hedging. I also put much of my Real Estate on the market. Within seconds I protected my stock asset class, and began the process of protecting my Real Estate assets. The bad news was I was unable to sell my Real Estate. After sometime, my properties dropped in value below my loan amounts which meant I could not sell the property, without doing a short sale (where the bank agrees to take less to settle your loan). You might say you had tenants so who cares, and the tenants were paying the mortgage. While this was true in some cases but what really happened was it became increasingly harder to find tenants. My vacancy rates were raising and rents began to drop. Within 8 months of the economy going upside down, I was left with Real Estate I could not sell because the value dropped below my loan value, and they were not cash flow positive because rents had gone down and vacancy rates increased.

In this real example lets look at the positions my assets were in at the end of 2008. I had a Real Estate portfolio that had more debt than value, and it was cash flow negative (which means I was keeping the Real Estate bills paid with other income). Now, lets look at the stock portfolio. Since I sold all my stocks I was sitting on a pile of cash. While this cash did not increase in value throughout this time period it did not go down in value nor did it cost me anything to hold on to it. In my case I used some of the cash to keep my Real Estate afloat. Had I been 100% in Real Estate there would be a good chance I would have had to file bankruptcy because I did not have the cash from the stock sales to subsidize my Real Estate.

By paying attention to the stock market I was able to see early indicators of the economy going upside down, and I was able to protect my overall portfolio of assets far better than if I had been in all Real Estate. While the direct control of Real Estate has it clear advantages, do not discount the power of being able to liquidate your assets on a moments notice. Just having the simple ability to liquidate can outweigh the hands on nature of Real Estate.

First of all lets clear somethings up. When I say Real Estate investment I am not talking about your home, or a vacation home. Those have personal emotional aspects; you need a home to live in and you love staying at your ski condo on the weekends. I label these assets as personal property, there is a luxury element you may or may not be paying up for. I am talking about the rental property you purchase, to collect rent, or even flip.

Second thing I want to clear up, I am giving general statements and rough numbers in this blog series. With any investment there is always another side, another stat, another point of view. I get that. This is what makes markets if we all thought the same way no one would buy or sell anything. This is just one man’s view. I hope you can share you view points in the comments below.

Lastly, I am not talk to the people that do this for a living. If you are a Real Estate Developer, or a hedge fund manager you have built a business around a particular asset class. While I think every point I am going to make applies 100% to you as well you can make a business case against some of my statements and I might agree with you.

Now, that we have that stuff out of the way lets look at what it takes to buy property.

• You have to identify an area that you would like to invest in.
• You have have to set some bounds, (I can afford X, and it must produce Y in rent….).
• You have to start reviewing all the properties in the area. Might even hire a broker to show you around and give you his or her thoughts.
• Then you find a property you like and you start diving deep into it. Doing way more homework on this particular property than any other one you reviewed.
• If it passes all the tests, you buy it (often with a little help from your bank).
• Now, you start working on your thesis. Fix it up, get tenants, collect rent, whatever else.
• You keep it up until it is time to sell and take your profits. Investment over.

Now, lets take a look at what goes into a stock investment.

• You identify the sector you would like to purchase (tech, banks, retail….).
• You set your bounds (how much you want to spend, dividend, PE, and so on….).
• You start reviewing all the companies in that sector. Might even hire a broker or pay an analyst to help you.
• You pick the stock you think you might want to buy. You then go in and do tons more homework just to make sure.
• If your stock passes the test you buy it, (you can even buy on margin like you would with a real estate loan).
• Now, you watch your stock. Daily, weekly, monthly; You continue to review it to make sure your reason for buying it still holds true, and you are still collecting the dividend you purchased it for.
• When the time comes you sell it and take your profits. Investment over.

Is it just me or are those two processes nearly the same? They both have about the same set of interactions. You really need the same skill sets to purchase either a stock or an investment property. You need to understand the markets, you need to understand financials, you need to understand risk, you need to have continued management over your investment. I am going to make the case in a later blog posting that I believe you are a fool if you purchase an investment property or a stock without fully understanding the other market. I am also going to make a case that you are a fool if you do not have exposure to both asset classes in your portfolio. I don’t mean to be calling people fools but I have studied these differences to death and am an active investor in both asset classes and now I am preaching my thoughts . More to come soon!

I had to evict a tenant this week for being over 30 days past due with rent. These days people are not past due with rent because they are just unwilling to pay rent, they are past due because they truly have no money. This particular tenant truly has no where to go nor the means to go anywhere. The particular labor market this tenant works in is just dry right now. There is no work. So I am left with a very big decision to make; Do I move forward with the eviction, or continue to hold out. Part of me says it is my American duty to help out others in this slow economy, and part of me (the business man) tells me I have to do what is best for my business.

Furthermore, I also have the problem of this tenant might not have anywhere to go. I can post 72 hour notice but the tenant will not leave because they have no where to go. Leaving me with the addition hassle of having to file papers with the local court and have the tenant removed. Normally, this is the best way to go because then you would get a judgement for the amount owed as well, but if the person is not working you will not have any means to collect anyway. So whats the point?

So, I think I found a middle ground. I have done this before in better markets as well. This option really stinks because it hits my pocket book twice, but it was the best thing to do both personally and business wise. What I did was offered the tenant a settlement to pack up and leave. Hand over the keys by a certain date and time and I will relieve the tenant of all debt and give the tenant a sum of money (cash) for handing over the keys. So not only does the tenant get out of 45 days worth of rent, and fees, this tenant received a cash bonus to get lost. This will allow the tenant to start fresh with no debt (from me), and have a little money to start fresh with. I then can get in the property and quickly get it back on the market. Even in easier markets this is a good way to get a tenant out instead of going through the court system. Don’t feel trapped by the court system, it can be overwhelming, there are other ways.

On, a fresher note, we have been making great progress on RentalBooks. We are really excited about finally getting this product to market. We are are shooting for a release in May.

I’m not so sure anymore.  There’s no doubt that the iPhone is one of the most innovative devices of the last decade, but the same cannot be said for the antiquated App Store.

The approval process to get your newly designed app is ridiculous.  Apps are not only filtered for content, but in many cases, it takes weeks to get approval for your app to be download by eager customers.  And why?

In today’s market of fast-paced and ever-growing e-commerce, being forced to tailor your business model on the requirements of a single channel makes no sense.

Working within The Cloud, the only limitations are the network’s capacity to deliver enough bandwidth to users, something they’ve been able to do as the market for 3G and 4G accounts have explode in the last few years.

If anything, Apple is limiting what you, the consumer and business person, can make and purchase by controlling and focusing so much attention to the App Store.  Perhaps it’s just another case of absolute power corrupting absolutely.

There are far more advantages to operating inside The Cloud, but there is less revenue in it for Apple.  Like Microsoft in the early 1990s, the company seems to be controlling what people can develop so that they can capitalize on being the only game in town.  And although there were open-source operating systems like Linux available, if not enough people know about the alternatives, those alternatives do not reach their full potential.

If Apple promoted its hardware and OS as being the most user friendly in The Cloud, they would draw attention away from a revenue stream reportedly worth about $45 million.  While that number is substantial, it doesn’t seem like it’s most cost effective strategy for anyone, including Apple.

Apple claims to have reviewed over 200,000 applications in a year, 20% of which are not approved on their first pass, and only 10% that keep user retention.  That hardly seems worth the effort for company whose net worth hovers around $150 billion.

Hopefully Apple will come to its senses soon and focus on the core principles that made it the juggernaught it is today: secure, easy to use, basic programs that allow users to work in a productive environment with the best tools.

If not, as they continue to try and keep total control over every aspect of personal and business computing, they’ll find themselves far behind the competition.

Just Get Off Your Butt And Start Building

Don’t Discount Anything, Learn/Do It All

Consumer Technology

Software Development Technology

Codeigniter (www.codeigniter.com)- This PHP framework has changed my life. I have been programing php for over 10 years now. I have played around with many frameworks and have even written my own. Codeigniter has done such a good job of making PHP development fast, simple, secure, lightweight, and more. At the start of 2009 I was spending a great deal of time with Ruby On Rails I was trying to figure out if I should move to RoR or continue building on my own framework. I called it SpicePhp . After spending a long weekend polishing up my framework and not getting as far as I had hoped I came across Codeigniter in a random google search. I never touched my framework again. Beyond being the coolest of the frameworks I really like Codeigniter because they are based in the north west (whatever that means for an Internet company/project). I am from Portland and I spend as much time in Bend (where their office is) as I can. I keep thinking I need to stop by and buy the Codeigniter people pizza. The problem is many of their developers are not in Bend. Regardless, it is a well thought-out framework that I know will continue to grow in popularity in 2010.

And The Winner Is…..

Clearly, Google is the over all winner for 2009 in my tech list. I have a feeling they might be a multi year winner in 2010. The company is on fire when it comes to moving the web world in the correct direction. I look forward to the grow of all the products I mentioned here. I know I will be using each one of these products everyday.

Spicer Is Moving To The Cloud

As many of you know I am the founder and president of Cloudmanic Labs, LLC. At Cloudmanic Labs it is our goal to build web applications that traditionally were handled via compiled native software and stuff them in the Cloud. For a while now I have been not eating my own dog food (for a lack of a better term). I stilled was using a native mail client, still listening to my stored mp3s in iTunes, using word to type documents, still using some sort of compiled solution for a twitter client and so on. Then the recent preview release of Google’s Chrome OS came out and it gave me a wake up call.

A New Man, Thanks To Google

So I watch the presentation that Google put on last week highlighting how the future of computing is just a web browser. Our documents, music, videos and more will live in the cloud through cloud services. For the record I am so excited to see Chrome OS mature. This type of overhaul of operating systems was a long time coming. So I spent a better part of this past weekend truly moving to the cloud. I officially use only a web browser for my everyday computing. There are a few things, which I will get to in a bit that still lack. I read and write all my email in gmail, I type of my documents in google docs, I tweet and listen to music all from my web browser. I even went as far as storing my files in the cloud. I am only storing files with Dropbox from now on. It is so nice to be able to pick up any computer and pick up where I left off. In fact I booted my Mac Book to Windows Xp a few days ago to test out a website and I have not found a need to boot back, a browser is a browser after all. I have even linked up as many services as possible to sync with my iPhone. My iPhone is in the cloud with me!

A Few Things Holding Me Back From Being A Real Man

Music and Video. Where are we on this front? There are tons of services out there that have content I can stream or buy to enjoy on the Internet but I want a place that I can upload movies and music I already own and play it on the go on any computer. I know Google is heading in that direction but I want it now! I sure hope Apple is working their tails off to make a web based version of iTunes. I want a private web based version of iTunes that I can upload all my music and video to and Apple will “sync” it to my Apple Tv, iPhone, and more. This is something we need now not later. If Apple is not already far down this path they will lose to Google. We need to bridge the gap between already owned content and external media devices and we will have an Internet 100% ready to support cloud computing.