myinvestingnotes.blogspot.my (Bullbear Buffett Stock Investing Notes)

Keep INVESTING Simple and Safe (KISS) ****Investment Philosophy, Strategy and various Valuation Methods**** The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.

Showing posts with label Real estate. Show all posts

Wednesday, 29 April 2015

How to analyze real estate developers***

Real estate stocks make up a significant number of companies in Asian stock exchanges and many of them are among the the most volatile stocks. Whether the real estate developer is listed or not, they are influenced by a host of cyclical factors ranging from government policies, interest rates, unemployment rates, affordability, etc. Hence, it is important to understand how real estate companies can be analyzed.

Profit Model

Real estate industry can be separated into the following sub-industries or types of real estate developers:

Residential real estate developers
Commercial and mixed use real estate developers
Industrial real estate developers

Profit model of residential real estate developers

Residential real estate developers are more dependent on economies of scale than ever because of increasing land prices and declining rate of increase in residential property prices. In many developing countries, developers used to be able to acquire land at cheap prices and hope for rapid increase in home prices to make huge profits. In developed countries, land prices are higher, and price increases are more muted. Hence, brands and good management are playing an increasingly important role.

Profit model of commercial real estate developers

As prime real estate for commercial developments become more scare, commercial real estate developers tend to prefer to have rental incomes rather than selling units so that they can have consistent income and manage the properties. These developers are also more likely to sell their commercial properties to real estate investment trusts to free up capital and many are REITs that also develop properties.

Profit model of industrial real estate developers

Industrial real estate developers operate more like commercial real estate developers as they seek to have stable rental incomes and also sometimes selling their properties. Some industrial estate developers might even have a fund to invest in promising industrial companies so as to achieve higher profits.

Factors that Affect Value

Land bank - the value of a real estate developer is directly influenced by its land bank. As the larger the land bank, usually means the developer can make more profits from developing the land banks later. Hence, the land bank that a real estate company has is always disclosed in detail in the listed companies' reports.
Inventories - Real estate inventories an be separated into a few categories. Usually increasing values of construction-in-progress and land held for development will translate to higher future earningswill translate to higher future earnings for the company:
- Completed developments - properties whose construction has been completed
- Construction-in-progress - means the value of properties under construction.
- Land held for development - value of land help for future developments.
- Investment properties - properties held for rent or sale
Customers deposits - for residential projects, it is often that developers will collect customers deposits or even prepayments of entire houses prior to completion of the units. As these properties are pre-sold and their profit and loss have yet to be recognized in the income statement, growing customer deposits could signal increasing revenue and most likely profits in the coming years ahead.
Housing prices - the profits from real estate developers that primarily sell their developments come from selling the units at above costs. Hence, the moving of housing prices have direct impact on the profitability of residential real estate developers. Usually the stock price of real estate developers have high correlation with the anticipated housing price direction.
Rental rates - Rental rates are especially important for commercial and industrial real estate developers as most of them do not sell all the units that they developed but they keep these units for rental returns. Rental rates have direct bearing on stock prices of such developers and REITs.
Industry consolidation - as economic difficulties mount and economies of scale becomes more important, mergers and acquisition activities will also drive prices of real estate companies as the merged entities might be more efficient given a larger land bank.
Macro economic factors - government policies play a huge role in controlling property prices as the following factors will determine the direction of property prices. We have listed

Factor	Movement	Likely Effects
Interest rates	Up	Negative
Land supply	Down	Positive on short term price but will affect future profitability if land bank dries up
Loan Quantum	Up	Positive
Reserve ratio	Up	Negative
GDP	Up	Positive
Unemployment	Up	Negative

Valuing Real Estate Developers

A common method to value real estate developers is using the Revalued Net Asset Value ("RNAV") approach which basically determines the net asset value of a real estate developer by adding up the change in value of the investment properties held by the company, the surplus value of properties held for development using Discounted Cash Flow method and the net asset value of the company with any other adjustments that are deemed necessary.

Usually a discount or premium percentage is multiplied with the RNAV base on the developers other qualities such as management capabiltiies, branding, track record, etc. A smaller developer with poor record of continuously generating consistent income is usually given a significant discount to its RNAV.

Using the RNAV approach only takes into account of what the developer can earn with the assets that it has in its books at the time of the valuation. If properly applied, it is usually more conservative than the market approach such as P/E multiples.

However, to use this method, it requires a lot of work in revaluing the properties held by the developer, making it difficult to implement by most people as information needed to determine RNAV needs some skill in obtaining.

The price earnings ratio method could also be useful to cross check the RNAV method.

Source: http://roccapitalholdings.com/content/how-analyze-real-estate-developers

http://secret-gems.blogspot.com/2013/04/how-to-analyze-real-estate-developers.html

Thursday, 29 August 2013

What factors drive the housing prices?

What factors drive the housing prices?

Among the factors are:
1. A dropping interest rate
2. Increasing liquidity in the banking system
3. A growing economy

All the above factors drive the demand for residential and other real estate. This causes the prices of these real estate properties to rise.

Property prices in Malaysia have been rising since 2005. At present, the real estate prices have not softened in the Klang Valley, though property transactions have dropped compared to the previous years.

Will property prices in the Klang Valley soften? Will interest rates rise and adversely affect the demand from the end-users or end-buyers? Is there a rise in the inventory of unsold property in the real estate sector? Are builders able to meet their loan repayment liability as well as complete their already started projects? Are builders turning prudent through cutting prices to sell their units and to generate cash?

Saturday, 24 August 2013

Real Estate and Value Investing

1. Most people purchasing real estate seem to believe it is possible to get a "good deal."

2. By this they embrace the possibility that price and value are different things, suggesting that when it comes to home ownership, people intuit the core quality of value investors.

3. By staking a modest down payment (often 10 to 20 percent), much of the population exploits the leverage afforded by putting more assets to work for them.

4. Except for speculative fever in select times and places, real property values rise reliably, making such an investment a reasonable vehicle to increase net worth.

5. Owners have been able to tap the increased equity value in primary residences in recent decades by using home equity vehicles dotting the market.

6. Low-interest-rate-environments spur refinancing transactions that, by lowering debt service obligations, free up cash flow as well.

7. Buying secondary homes for use as vacation getaways or rental properties has also become more attractive to many families, no longer the preserve of the upper echelons.

8. Particularly in periods of low interest rates and sagging stock market returns, these markets offer attractive value investments.

9. Apart from the additional concerns of family needs and psychic rewards, the basic principles of valuation apply to these vehicles.

10. Paying a price reasonably below estimated value remains important.

11. Avoiding excessive leverage is akin to avoiding margin trading on equities.

12. Patience is likewise valuable.

13. Another advantage to home ownership is that the owner is the manager - he runs the home, maintains it, determines required reinvestment to maintain and improve its value, and so on.

14. Value-minded investors are sure they can do these tasks, or else turn the reigns over to someone who can.

15. These points go doubly for vacation or rental properties that might present logistical problems.

Alternative Investments and Price-Value Relationships

Alternative investments to equities both illustrate the universality of value investing principles and reinforce the key element of relating price to value. Below summarizes some alternatives to equities and their price-value relationship.

Straight Bonds: Duration and coupon drive valuation and price.

Convertible Bonds: Equity component drives variability, some price-value divide.

Real Estate: Buyers intuit a price-value divide when seeking ":good deals".

Precious Metals: Supply-demand imbalances drive price-value divide

Other Collectibles: Personal attachments drive price-value divide

Value investors habitually relate price to value. This attitude applies not only to equities, but also to all other investments. The habit of relating price and value comes more naturally for certain assets than others.

Real estate is a good example. People seem intuitively able to understand that they might be getting a "good deal" on real estate, but many exhibit less intuition when thinking about common stock investments. They do likewise with consumption goods such as cares and loans or leases taken to finance their purchase.

Markets for some alternatives show how price-value differences are less likely to appear. Bonds are a good example. These instruments have features such as duration and interest rate that common stocks lack. This makes it easier for investors to agree on their value and produces prices more reflective of value. The absence of these features on common stocks suggests reasons to believe that price-value differences are likely to occur on common stocks.

in·tu·i·tion

Noun

The ability to understand something immediately, without the need for conscious reasoning.
A thing that one knows or considers likely from instinctive feeling rather than conscious reasoning.

Synonyms

insight - instinct

Tuesday, 10 August 2010

Introductory Lecture on Real Estate Finance

http://video.google.com/videoplay?docid=-6594160744367916447&hl=en&emb=1#

Krassimir Petrov

Tuesday, 27 July 2010

Real Estate Financial Statement

Friday, 2 January 2009

Real Estate Education

Real Estate
Buy
A Home-Buying Primer
How to Find the Perfect Home
Buy, Don't Rent, When You Can Afford the Down Payment
Online Sleuthing Resources for Home Buyers
Web Can Help With Questions Your Realtor Can't Answer
Finding Your Ideal Neighborhood
Is a Bigger Lot Better When Buying a Home?
Five Ways to Beat Buyer's Remorse
A Web-Surfing Guide to Finding Discounts on Brand-New Homes
New Homes: Beware of Shoddy Construction
Forget the Mansion: Why Buying Bigger Doesn't Guarantee a Rich Retirement
Should You Buy That Home?
Seven Questions You Must Ask Before Buying a Condo
How to Avoid a Bad Co-op or Condo
The Lure of Living South of the Border
Recreational Land: Own Your Piece of Paradise
Can't Afford the Down Payment? Share the Wealth
Tips for Purchasing a House With a Pal
Best Places to Live 2007: America's Top Ten Towns
Best Places to Live 2007: Most Affordable Towns
Best Places to Live 2007: Where We'll Live Tomorrow
Best Places to Live 2007: A Look at Past Winners
Sell
Four Steps to Selling Your Home for Top Dollar
Ten Things Your Real Estate Broker Won't Tell You
Boosting Your Home's Value in a Down Market
How to Make the Most of Your Curb Appeal
Top Tips: Moving Your Home in a Bad Market
The Incentives Game: Know Your Competition
Five Reasons to Sell Your Home Yourself
Sellers Should Run From These Home Buyers
How to Overcome the Neighborhood Eyesore
Your Home Not Selling? Swap It
The Home-Sale Tax Exclusion
Selling a House Quick and Cheap
Ten Things Your Mover Won't Tell You
Let Uncle Sam Help Pay for Your Move
Rent
Renters, Fight for Your Rights!
Rent or Buy?
New Realities of the Rent vs. Buy Conundrum
Renters Insurance Can Offer a Safety Net
Got Pets, Eviction Record? Make Landlords Love You
Best and Worst Cities for Renters
How to Live Rent-Free
The Pros and Cons of Renting in Retirement
Why Homeowners Get Rich and Renters Stay Poor
Home Improvement
Which Home Improvements Pay Off -- and Which Don't?
Small Projects That Appeal to Buyers
Age-Appropriate Makeover Tips That Can Sell Your Home
Twenty Things That Can Alter Your Home's Value
How Much Is Too Much on Home Improvements?
Fixer-Uppers Can Be Dreams or Money Pits
Don't Let Repair Costs Drain Your Savings
How to Avoid Contractor Disputes, and What to Do If They Arise
How to Cope With Zoning Boards
Your Household Energy Crisis Solved
Which Backyard Features Add Value?
Medical Needs Can Help Pay for Remodeling
Tapping Friends and Family for Home Projects

Source: http://finance.yahoo.com/real-estate/articleindex

My 18 points guide to Successfully compounding your money in Stocks

Be a good stock picker.
Think as a business owner.
Always look at value rather than the price. Do the homework.
Buy and hold is alright for selected stocks.
Compounding is your friend, get this to work its magic.
Mr. Market is there to be taken advantage of. Do not be the sucker instead. BFS;STS.
Always buy a lot when the price is low.
Never buy when the stock is overpriced.
It is alright to buy when the selected stock is at a fair price.
Phasing in or dollar cost averaging is safe for such stocks during a downtrend, unless the price is still obviously too high.
Do not time the market for such or any stocks.
By keeping to the above strategy, the returns will be delivered through the growth of the company's business.
So, when do you sell the stock? Almost never, as long as the fundamentals remain sound and the future prospects intact.
The downside risk is protected through only buying when the price is low or fairly priced.
Tactical dynamic asset allocation or rebalancing based on valuation can be employed but this sounds easier than is practical, except in extreme market situations.
Sell urgently when the company business fundamental has deteriorated irreversibly.
You may also wish to sell should the growth of the company has obviously slowed and you can reinvest into another company with greater growth potential of similar quality. However, unlike point 16, you can do so leisurely.
In conclusion, a critical key to successful investing is in your stock picking ability.

http://myinvestingnotes.blogspot.com/2012/07/my-18-points-guide-to-successfully.html

11 Lessons From Peter Lynch

Peter Lynch taught me:

1. Behind every stock is a company. Find out what it’s doing.
2. Never invest in any idea you can’t illustrate with a crayon.
3. Over the short term, there may be no correlation between the success of a company’s operations and the success of its stock. Over the long term, there’s a 100% correlation.
4. Buying stocks without studying the companies is the same as playing poker – and never looking at your cards.
5. Time is on your side when you own shares of superior companies.
6. Owning stock is like having children. Don’t get involved with more than you can handle.
7. When the insiders are buying, it’s a good sign.
8. Unless you’re a short seller, it never pays to be pessimistic.
9. A stock market decline is as predictable as a January blizzard in Colorado. If you’re prepared, it can’t hurt you.
10. Everyone has the brainpower to make money in stocks. Not everyone has the stomach.
11. Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.

Lynch’s advice had a profound effect on my stock market approach. He taught me that investment success isn’t the result of developing the right macro-economic view or deciding when to jump in or out of the market. Success is about researching companies to identify those that are likely to report positive surprises.

Capital Expenditure

A great company with a Durable Competitive Advantage will have a ratio of Capital Expenditures to Net Income of less than 25%. Less is better.

Capital Expenditures are expenses on:
- fixed assets such as equipment, property, or industrial buildings
- fixing problems with an asset
- preparing an asset to be used in business
- restoring property
- starting new businesses

A good company will have a ratio of Capital Expenditures to Net Income of less than 50%.

A great company with a Durable Competitive Advantage will have a ratio of less than 25%.

Less is better.

Benjamin Graham's 113 Wise Words

The true investor scarcely ever is forced to sell his shares, and at all times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgement."

Philip Fisher's Wise Words

"The refusal to sell at a loss, while completely natural and normal, is probably one of the most dangerous in which we can indulge ourselves in the entire investment process.

More money has probably been lost by investors holding a stock they really did not want until they could 'at least come out even' than from any other single reason. If to these actual losses are added the profits that might have been made through the proper reinvestment of these funds if such reinvestment had been made when the mistake was first realized, the cost of self-indulgence becomes truly tremendous."

(Common Stocks and Uncommon Profits)

The Ultimate Hold-versus-Sell Test

Here is the overriding primary test, followed by observations on why it is so critically important:

Knowing all that you now know and expect about the company and its stock (not what you originally believed or hoped at time of purchase), and assuming that you had available capital, and assuming that it would not cause a portfolio imbalance to do so, would you buy this stock today, at today's price?

No equivocation. Yes or no?

Answers such as maybe or probably are not acceptable since they are ways of dodging the issue. No investor probably buys a stock; they either place an order or do not.

Here is the implication of your answer to that critical test: if you did not answer with a clear affirmative, you should sell; only if you said a strong yes, are you justified to hold.

Some thoughts on Analysing Stocks (KISS)

Ideally a stock you plan to purchase should have all of the following charateristics:

• A rising trend of earnings dividends and book value per share.
• A balance sheet with less debt than other companies in its particular industry.
• A P/E ratio no higher than average.
• A dividend yield that suits your particular needs.
• A below-average dividend pay-out ratio.
• A history of earnings and dividends not pockmarked by erratic ups and downs.
• Companies whose ROE is 15 or better.
• A ratio of price to cash flow (P/CF) that is not too high when compared to other stocks in the same industry.

Margin of Safety Concept: Stocks should be bought like groceries, not like perfume

The high CAGR in the early years of the investing period, due to buying at a discount, tended to decline and approach that of the intrinsic EPS GR of the companies over a longer investment time-frame.

Chapter 20 - “Margin of Safety” as the Central Concept of Investment

A single quote by Graham on page 516 struck me:

Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions.

Basically, Graham is saying that most stock investors lose money because they invest in companies that seem good at a particular point in time, but are lacking the fundamentals of a long-lasting stable company.

This seems obvious on the surface, but it’s actually a great argument for thinking more carefully about your individual stock investments. If most of your losses come from buying companies that seem healthy but really aren’t, isn’t that a profound argument for carefully studying any company you might invest in?