The Financial Analysis Guy

VEGAS REAL ESTATE GUY

This just in…all new blogging from Kevin Bushbaker will now be located at two different blog sites.  All professional blogging from me will now be located at the wonderful www.VegasRealEstateGuy.com blog.  This new site will be dedicated to every Las Vegas Real Estate and other fun Las Vegas things.  Since I am an investor and specialize all my real estate work as a professional with the investment community, it will definitely have this slant.

Also, since I am a financial analyst by trade and education, you will see tons of this type of analysis as it relates to not only Las Vegas real estate investments, but all real estate in general.  Yes, real estate is indeed local, but investing in real estate is universal, global or whatever you want to call it.  But how your look at an investment is the same in real estate, as is the stock market, as is bonds or debt instruments, as is a business investment.  It comes down to how much return you want on your capital invested for the amount of risk you are willing to take.  It is that simple.

Since I am a real estate professional in Las Vegas and know as much about land and investing in real estate as anyone, I thought it was important to focus my blogging efforts on this niche.  It will not be as “nichy” as some of the other local real estate blogs out there, but it will definitely focus the efforts more than the Financial Analysis Guy blog towards my true profession at the moment – Las Vegas real estate investments.

This new site will also possess a bunch of fun loving tiff’s and musings on Las Vegas in general.  Look, if you have ever been here to visit, which I am sure almost everyone has, you know how crazy it can get here if you simply let your guard down for a few days.  Not only how crazy it can get, but just the shear amount to do in Vegas while traveling here or actually living here, can send most people of the “over-stimulated” edge.  Not that there is anything wrong with in Vegas – matter of fact, if that doesn’t happen to you at least once while you are here, you are not trying hard enough.

BUSHBAKER

From a more personal perspective on life, visit my namesake blog site www.bushbaker.com.  This one is really going to be fun.  My wife, Gail, will do her best to post when she can, but it will mostly be my own drivel and musings.  This site will be a personal blog that focuses in on the Bushbaker household here in Las Vegas. 

Some of the main areas of blogging focus will be:

1.      Our amazing new little boy, Jackson Daniel Bushbaker – recently adopted April 2, 2008

2.      Our thriving craigslist business and ebay business

3.      What is happening around the household

4.      Personal finance and increasing our net worth

5.      Kevin’s undying efforts to de-clutter his life

6.      What it is like to live in Las Vegas

7.      Hopefully visiting with as many of you as we can while you are in town

8.      Running, biking and hiking around the southwest

9.      Roadtrips to Southern California to visit the beach (I am water and wind – Gail is Earth and Fire and I need, not want, but NEED to visit the ocean several times a year)

10. What it was like growing up, living, loving, having all my friends and family, back in my hometown, Detroit, Michigan - I love Detroit, but what a mess right now!!!

11.   Whatever else comes to mind

The Bushbaker blog site is selfish…no doubt.  I want to learn as much as I can about myself and where I am going in life by reflecting on my observations and writings.  I want to learn to write better and get feedback on it.  If I can get readers to read and comment, I will learn and hopefully provide better content.  It is all about having an open discussion on topics.  I WANT everyone’s feedback and comments on things.  If I am all wet on a topic and you need to correct me…do it.  If you completely agree and want to comment…do that too.  If you want a chance to be a guest writer, then send me an email…I want you there.  I need to learn and be educated so I can teach the prodigy, Jackson, all about what to do in life and what not to do.

GOODBYE FAG

No…No…No…this is not a bigoted comment or fun British slur.   The Financial Analysis Guy (FAG) is going away because it did not capture a few very important things in my writing.  The first is the fact that I am indeed a real estate professional first (for now at least) and financial analyst second.  I use financial analysis in everything I do and will continue to do so for my real estate investing clients.  This is my competitive edge and will continue to exploit this to my advantage.  However, being real estate professional means talking about anything and everything real estate.  Since I am here in Vegas, and investing in other southwestern states as well, I need to focus those efforts in real estate first……analysis second. 

Also, and this is very important, I want readers and others to see the personal side of me and our journey of being parents with our new adopted son, Jackson Daniel.  I wanted to write about both, but completely not confuse readers that may have interest one, but not the other.   I love getting feedback and this is some I got from the most important person I could think of, my wife, Gail.  She is my heart and soul.  I am the analytical guy and she is the emotional rock in our lives.

So, feel free to visit our two new blogs, read away, comment, criticize me (but not others on the site) and just have fun with it.  I know I will.

Kevin

I have not made any posts to this site for a little while due to a recent addition to our family unit.  My wife and I just adopted our first child and little Jackson Daniel made his first appearence with our family on “gotchya day” on April 2nd, 2008. 

We have been in line for a Chinese adoption for over 3 years now and have all but given up hope on that one.  We were caught right in the middle of many different factors coming together at once to cause this to slow down considerably, but that is an entirely different post.  So, my wife and I decided to adopt locally while waiting for the Chinese government to get their collective heads out of their asses and let more of their lost girls get adopted.

So, we went through the full gamet of process to adopt locally - background, financials, fingerprints, home-study, classes, etc.  There is a ton of stuff you have to do, but since we were ready for China, we pretty much had it all done and ready for the local one.  We got in line at the end of December and got our call on March 29, 2008 - the day he was borne. 

What is significant about this is that we were not expecting it.  It was not like we had a mother that picked us or we knew the delivery date or anything.  Nope, there was a baby and it was presented to us.  Talk about stress.  Even more intriguing was the fact that the baby did not meet our criteria for race.  We are both white and this new baby was a mix Hispanic/African-American. 

The wildcard, though, was that the baby was PERFECTLY healthy.  The new baby boy was 6 pounds, 10 ounces and was in perfect health - no drugs, alcohol or smoking.  This was indeed rare.  Babies are rare enough - but a completely healthy one as well.  We jumped at it and it has been GREAT!!! 

Jackson is starting to smile and things are going wonderful.  We are not getting enough sleep, of course, and the wife and I are “negotiating” over shifts.  Awwwww, the fun has begun, but I wouldn’t trade it for the world!!!!

As a financial analyst, though, the best analogy I have heard for this came from my current boss, Rex.  He said the first 6 months, it is all negative cash flow.  Then the investment really starts producing for you when they start to smile and interact with you.  Then you know where your time and money went…incredible…

This is a great post from a great writer, Trent over at The Simple Dollar.   His blog is one of the best personal finance blogs out there and the most widely read as well - no coincidence I assure you. 

Trent discussed the importance of one’s reputation and used a famous, well-used quote from one my idols, Warren Buffett.  I love Buffett and all that comes along with him.  He is the true silent assassin though.  He folksy mannerisms and “aw-shucks” ways should not lead anyone to believe he is not a killer when it comes to business.  But one thing he does do that is completely above board.  He will never lie, cheat, or steal to get what he wants out of life.

He believes in hard work, doing your own homework, and NO SHORT CUTS!  This last one is the most important in my opinion. 

The quote Trent used was as follows:

“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”

There is another quote from the Oracle of Omaha that I like and that is “there can’t be two you’s.”  Why is this one so important to me?  I like it the best because he simply states that the person you are in public MUST be the same person you are in private as well - and vice-a-verse. 

Trent’s post was amazing because it really focused in on the hurdles of keeping and maintaining the most important asset you have in your life - your reputation.  The quote I like, the two you’s quote, runs along those same lines, but the reputation implications is just part of it. 

Think about the implications of making sure you act the same way in public you do in your private life.   Oftentimes in our lives, we save all the niceness and kind words and politeness for those who mean the least to us.  And when we get home from our hectic lives, it is our children and spouses that suffer the negativeness of the real world pushing us around.  If we just treated our loved ones the same way we would treat our co-workers or perfect strangers (for the fear of not being liked or making a good first impression) our lives would be enriched beyond our wildest dreams.

We can not live a phony life in public and not be that same person in private.  We also can’t be cruel and uncaring in private and not have that carry over into our public persona.  It just does not work that way.  The truth about who you really are catches up to us no matter in public or private. 

So the lesson here is to take a long hard look at who you think you really are.  If you don’t like what you see, it is time to make some changes in your life.  If you are happy with who you are in public (or private) but the other one suffers because you are trying to be something you are not - it is time for some changes as well.  In any event, you will be a better person for it.

There can’t be two you’s quote is genius.  I respect Warren Buffett the man as much as I do the personality and the business savvy.  I respect Trent’s writing over at his blog just as much and wish him all the best.

This is a great read on this guy.  Jim Cramer made millions as a hedge fund manager and is no doubt very well connected on The Street.  My dollar to anyone’s dime, he makes even more money doing what he is doing right now.  The power of influence is contagious with this guy.  Whether or not he has a positive or negative influence on investing, who knows for certain.  But entertaining?  Very much so.

His shtick may get tiring at times and I will go weeks or months not watching the guy, but when I come back to him…very entertaining stuff.   I love the comparison to a televangelist.  He does have a cult-like following where people hang on his every word for investment advice. 

I do think his show highlights a problem with our society in general, though.  We are always looking for the quick fix; the timesaver; the get ahead idea; the way to beat our competition to the punch. This mentality, coupled with the seamingless massive liquidity that exists in publicly traded stocks, forces wild swings and knee-jerk reactions to any new news.

Since almost all of us are now using online trading accounts for our investments, taking investment action is literally 30 seconds away. This is bad for trading, let alone investing. It is the “gotta have it now” convenience of acting on this stuff that really is the root of the issue.

Argument: Positive
Doing your homework on stocks as investments is music to my ears. I am all about doing the analysis and when it comes to finances, you better do it at least twice.  If this message gets to investors (or even speculators for that matter) then his message is indeed positive.  When people start to learn why things happen in the markets the way they happen, then people will eventually become smarter and better investors.  It is just that simple.

Another place where he helps tremendously is keeping it interesting.  This stuff is not all that exciting.  Matter of fact, it can be like watching My Left Foot for the 67th time.  It can be outright boring.  At times, you will not see a return on your investment for years.  This is not good for our get it now society.   Holding the interest of people when they are learning is very difficult.

Finally, his approach to understanding sector influence on individual stocks is fantastic.  Knowing when things cycle in and out of favor depending on what is happening in the general economy is vital to long term success in investing.   Much of the financial analysis that I do is related to the sector and general market conditions.  After all, watch the general stock market tomorrow.  See which way it is going and see how that corresponds to the stocks you are watching.  The correlation coefficient on staggering in some industries.

Argument: Negative
The Cramer effect is a tough one to quantify. However, it is real just like any other influential person in our society.   He is the cause, like so many like him, for the massive increase in the VIX (Volatility Index) over time.  Remember, he is part of a 24-hour news and business station.  That is a lot of hours to fill up with commentary.  People use this as the new way to educate themselves and it is VERY easy for people to overreact to these folks looking for ratings.

When I ask some of the pros who lived through the S&L crisis of the late 80’s and early 90’s if this downturn is worse than then, they all say the same thing:  MUCH WORSE!!!  They say the amount of fear and uncertainty in the market (led by the news shows and media in general that is now and in your face 24/7) is immensely more influential.  It is leading the problem to a much worse scenario just based on the amount of fear it is producing.  It is a reality we have to bare with 24 hour media and attention grabbing techniques for eyeballs.

Finally, his constant “BUY, BUY, BUY” or “SELL, SELL, SELL” leads the weary to do one thing all the time - act on our investments constantly.  The brilliant Warren Buffett abhors this type of investing.  The need to constantly be acting on our investments is our way of making sure we “stay ahead of the curve” - which is insane.  It is also a way for us to “stay relevant” - also insane!  Do the homework and be patient.  You always have to make sure your thesis makes sense, but buy and hold works.  Holding forever does not work on everything, but holding for the long-term almost always does on good investments.

Wrapping it up…
I love watching him for entertainment value - anything beyond that is simply buyer beware. He keeps it interesting and his books are not bad so long as you understand the context. This is going to sound weird, but he offers me almost no value for trading purposes.  He is usually reporting on stuff that already happened or is behind the curve.  For investment value, he offers me very little as well, but does help with some of the education. He has some good ideas and his work on sector analysis is priceless in my book.  Everyone, please, do your own homework and learn, learn, learn.  As you start doing your own financial analysis, you will see order where there is nothing but chaos.  The fog will eventually get lifted and you will benefit from your own education.

Try to calculate the Return on Investment (or Internal Rate of Return) of doing this…good luck.  Today, I spent several hours doing household chores.  My wife went back to Detroit for a business trip and left me a little honey-do list.  So today, like the good robot husband I am sometimes, I did my thing and went through that list.  I spent every agonizing, errr enlightening, moment on checking off every task and achieved the whole thing - save some last minute cleaning she wanted done right before she comes home on Tuesday.

One thing that wasn’t on her list but was on mine, was replace every dinosaur light bulb we have in the house with those new fandangled bulbs that look like a bowl of spaghetti. Since I am all about saving money and doing my own financial analysis to justify my actions, I had to look at this based on my return on my investment (or Internal Rate of Return).  It took the idea of saving money bigtime for me to actually do the right thing - what kind of person am I???

I thought this process would have taken me about 20 minutes, but after spending roughly 2 full hours on this little project, I was felling pretty good about myself.  I replaced nearly 40 light bulbs and did a variety of equivalent 60 watts, 75 watts and 100 watts.

What is cool about this is the learning process.  What I learned was the following:

• the old 60 watt version uses only 14 watts in the new version
• the old 75 watt version uses only 18 watts in the new version
• the old 100 watt version uses only 23 watts in the new version

These new light bulbs use 1/5 of the electricity as the old version.  HUGE savings when it comes to paying my those really nice folks at the utility company.  The package says I can save, under normal uses, the following:

• the 14 watt version saves $46/year
• the 18 watt version saves $56/year
• the 23 watt version saves $77/year

Since I replaced nearly 40 light bulbs today, I know the savings could very well be huge.  If the average savings per yer is $50 per bulb (on average since most of them were the small kind) and I replaced 40 of them (I need my calculator), but I think that is roughly $2,000 per year in energy savings.  I am not that optimistic and I know that it simply can’t be true, but lets say I was off by 50% and it only saves me a cool grand each year.

Time to crack out one of my best friends (Microsoft Excel) and do a little investment return.  The total investment in light bulbs was $33.  My time is free since I was working around the house and my wife gets a special discount - for barter of course…  ;)  The internal rate of return on this investment is silly to discuss.  It is off the charts, so let’s not even discuss it. 

What is truly neat to look at is how these 10 C-notes are going to multiply over time, invested VERY mildly at 8% return.   To see what this means to me in 30 years time - saving the $1000 every year; invested at 8% annual return - simply use the following formula in excel   “=FV(.08,-1000,30)”. 

(BTW, I am writing this with The Matrix on in the background…killer flick)

This silly little bulb replacement exercise just netted me an additional $113,283.21 for our retirement.  If my adjustment down to $1000 per year is wrong and I actually save the $2000 per year, my take at the end of all of this (just replace the 1000 with 2000 in Excel) is an unbelievable $226,556.  I am besides myself right now.  Somebody needs to come on over my pad and punch me in the face a bunch of times for not doing this sooner.  If not in the face, then at least a couple swift kicks in the beans.  What the heck was I thinking? 

Oh yeah, one more thing, I of course put all my dinosaur bulbs on craigslist to try to offset my $33 initial investment.  For some reason, spending the initial scratch still gets to me.  Those light bulbs seem perfectly fine, but in the in long run, those things were eating me out of house and home.  Taking food off my table sort of speak.  And the Financial Analysis Guy can never have that!

One more thing, the Financial Analysis Gal has this amazingly beautiful floor lamp in the corner of our living room.  It is artwork - I will give it that.  She loves it and we can’t craigslist it quite yet, but the time is coming.  Why?  That halogen lamp uses 300 watts (that’s 21 FREAKING times more energy than my little spaghetti style friend).   That lamp is now officially put on notice!!!

This past week on Fast Money, one of the favorite shows of the Financial Analysis Guy, Jeff Mackey conducted a three part series on the trading trend of Good Enough.  It’s a trend that assumes the consumer is beginning to finalize realize the fact that the “cheap” alternative is usually just as good as the more expensive version.  It is good enough.

If this is true, companies like Walmart and Costco are going to succeed in this new world paradigm.  Sales will grow tremendously over time and this less expensive alternative will win out in the masses.  I, of course, am extremely interested in this concept as any good financial analyst might be.  What does it mean to my investments?  How can I capitalize on this sea-change, if it really is one.

Jeff took on several aspects of consumerism in this three part series.  As I watched this, I realized it is not just doing my analysis for investment purposes that is so important.  The other part of this equation is the Financial Analysis Guy as consumer. 

In our quest to climb over each other in this wonderful rat race we are all in, we are constantly reminded that there is always something a little better that we could have had with a little more money, or a little more time, or a little more effort. 

Why are we so obsessed with having the very best?  I think one reason is the long-time American pastime of “keeping up with the Jones’”.  This simply the notion that there is a need of people to compare how they are doing in life with their neighbors; their family; their friends; colleagues; etc.

I am always trying to convince my wife and others around me of the concept of Good Enough.  Yes, I get accused of “settling” and being a slacker because I am not necessarily striving for perfection.  What does that say about you, Chuck?  Seriously, what kind of person are you to settle?  Don’t you want more?

Of course I do.  But at what cost to get more?  During my undergrad and, even my graduate work, I realized that B’s were good enough.  It was not that I would not take an A if I could get it, but the amount of work required, extra work, to get that A was overwhelming.  Therefore, I was the guy not always swinging for the fences.  I was happy swinging and making contact with the ball and getting singles, doubles, and triples.  I knew that my quality of life and my quality of education was not tied to my grade, but more the learning experience.

The other side of this argument is growing as a person.  How can you grow as a person - personally, professionally, spiritually, physically - if you are settling for good enough?  This is a good question, but a huge leap in my opinion.  Like everything else I do, I don’t think that this concept can be applied to everything in our lives - nor do I want it.  Is my love for wife good enough?  Never.  How about my health?  Nope…not that either.  But it does apply to just about every material thing I possess.  It does apply to my work and my ability to cope with other people in everyday life.  And it certainly applies to my time.

In future posts, I will address several aspects of our lives - material, spiritual, etc, in this series “Good Enough”.  I believe this is a topic worth exploring and I want others to comment.   I just might be all wet here, but I want to explore it.

On Wednesday, Home Builders Research President Dennis Smith gave his annual presentation on the “state of the Las Vegas housing market” to hundreds of Las Vegas real estate professionals.  I was not able to attend this year, but I did speak with several folks that were able to attend. 

Our leading housing prognosticator here in town made some good comments and some not so good.  Again, many look to this guy to give them guidance as to how to “feel” about the coming months.  Dennis pointed out that new-home sales in Las Vegas are down 49 percent for the first two months of the year, existing-home sales are off 37 percent and home building permits have plunged 70 percent

He said, “Obviously we’ve got tight credit and qualifying requirements.  Those are factors, too. I could go on and on. I think we’re close to the bottom, but it’s going to be an extended bottom.”

Any recovery won’t be in the shape of a “V” but a flat-bottom “U,” Smith told about 700 builders, developers, mortgage brokers and real estate agents at the Las Vegas Convention Center.

He predicted that median new-home prices will finish the year at $274,000, about $1,000 more than February’s median, though it will dip further between now and then. He thinks 2009 will show a 2.2 percent increase to $280,000 and 2010 will be about the same, with prices conservatively climbing to $286,000.

“We had many years of 1.5 percent to 2 percent increases and that’s what we’re going back to,” Smith said.  Resale prices, which are down 5.2 percent so far this year, will rise again by about 1.3 percent in 2009 to $240,000, he predicted.

This information is fine, but if you are working in this market, you simply want to hear something different.  We have all been wallowing in this purgatory for quite some time now and we want to believe something different.  I take a different viewpoint than from what Dennis and others who are way too negative at the moment. 

NO ONE and I do mean absolutely nobody predicted in 2003 that we would get to 38,000 new housing units in 2005 and 2006.  Nobody could foresee such a run-up and bubble like what we saw in those years.  Why would we simply blindly buy into this near doomsday scenario for new home-builders. 

Look, there are TONS of new jobs coming in the coming year or so.  Interest rates will end up falling SHARPLY very soon due to the Uncle Ben and Fed’s action on the Fed Target Rate.  There are still 6000 folks moving in every month. 

Please folks, try to stay positive and look at the physicals.  It is very easy to see where we are today and predict that more of the same is coming.  It is very difficult to take the position of change.  Therefore, many in the business take this position like Dennis has taken. 

The following information came from that presentation and was published in the local newspaper as well.  This is just for historical perspective, but please see where the bubble occurred and where we are today.  If you were put this on a chart, you will see where we have to go to make up for the false demand in those high-tide years. 

The local rag here in Las Vegas called The Las Vegas Review Journalis an “OK” paper.  They are definitely right leaning and do a pretty good job on reporting the news - regardless of their political viewpoints.

Every year, like most local papers, they do an online poll for “The Best Of” in that metropolitan.  The LVRJ does a descent job of this but sometimes they miss the mark completely.  If you are local like me, you have your own hotspots you like to frequent.   I strongly encourage anyone coming to visit Vegas or who has just moved here to read this Review Journal article.

They even do a Razzie-type thing of the Best of the Worst.  This is actually really cool.  In this town, the press is part of the show and when you see someones face over and over again for the same things, you know that this list was needed.  Our good friend Oscar Goodman, Las Vegas’ Mayor, made the list once again, but I don’t fault him for it.  He is so freaking good for this city it is amazing.  I love what he has done and what he brings.

Now, on the list itself, they have some celebrity type folks that give their favorite places.  This is OK, but take their information with a grain of salt.  They are just one person’s opinion and some of these folks are transient in nature due to their jobs. 

I was really bummed not to see my two favorite pubs in Vegas.  One is a chain and you have all heard of it - Gordon Biersch.  I have been to almost every GB in the nation and this one takes the cake.  This one is not like any of the others.  If you are a local, or a visitor, go see Kala and Billy “The A-Team” on Wednesday or Thursday nights.  They are the absolute BEST in town.  They have the most amazing Southwestern Egg Rolls.  Enjoy a Heff with lemon or skip it and go straight for their flagship beer, Marzen.  Can’t go wrong with any of em.

The other is a genuine British Pub that made the list some time ago - The Crown and Anchor.  This place is rough around the edges - just like a British Pub ought to be.  They have all the soccer (or football everywhere else) matches and have genuine English food.  They make some of the best Yorkshire Pudding around.  Enjoy your favorite beer (Guinness, Bass or Boddington’s for me), take in a football match, and maybe even try some of the famous Snake Bite.  Great stuff.  And yes, if you are Brit coming to town, you will feel right at home.  Almost every British native in town ends up here at some point during the week.

On all of the other stuff on their list, you can’t go wrong with it.  There is always something to do in Vegas.  From world-class clubbing on The Strip, to outdoor activities, to top-notch shows for every genre - this place never sleeps and you can get pretty much anything you want here, literally.

This past weekend there was a huge house foreclosure auction here in Las Vegas.  There were roughly 300 bank owned homes on the block and the turnout was impressive.  It was standing room only when you first got there.  Wall to wall people trying to get a read on where the market is sitting right now.

As I suspected, the Las Vegas real estate market is still in VERY strong demand.  The pricing across the board started at about $50/SQFT (with some outliers of course).  The bidding was fierce early on and people seemed like they really knew what they were doing.  In some of the past auctions, there were tons of lookers and not much experts.  It seems with foreclosures coming mainstream, a lot of people are jumping on the bandwagon.

Where most of the homes ended up is in the $100/SQFT range.  Again, some exceptions to this rule, but this was the norm.  This number is very important.  Since one of the businesses I help manage is a new homebuilder, I know what replacement costs are for building a new home.  This number is the proverbial “Mendoza” line of homes in Vegas.

Here is the breakdown for a new production home

• Vertical costs (lumber; concrete; labor; framing; etc) is roughly $50/SQFT
• Land Development costs (the lot; undergrounds; utilities, etc) is roughly $30/SQFT
• Marketing, Sales, General Expenses, carry costs, etc are roughly $20/SQFT

I know this is very simplistic and not always true, but this is generally correct.  When you get below replacement costs of that magical $100/SQFT, then there is quite a bit of rehab work to complete or you are looking at one seriously motivated seller.  In either case, this is a completely different business.

Why am I telling you all of this?  I am a huge fan of the Las Vegas real estate market, but we have been getting murdered out here over the last 18 months.  Some people simply believe pricing will continue to fall.  This is not possible in this type of market because of the physicals.  Vegas has 6,000 people moving here every month and that has not dropped during this downturn.  We have $50 billion being spent on The Strip in new hotels. There are 500,000 new jobs coming in the next 20 years.  I can go on and on. 

If we were in back in my hometown of Detroit, then I would agree that you can go way below replacement costs because of the supply demand dynamic.  (BTW, houses there are actually trading for half of replacement costs in a lot of cases.)  But here in Vegas, all the physicals point to not dropping below this fabled number.  That is good news for those of us in this market - new homes or not.  This means there is a bottom in place and we should be seeing the light at the end of the tunnel. 

I am a simpleton.  I know I am, so no sense trying to debate or hide this fact.  I was asked the other day what I would consider a good rate of return on my investment.  Well, it’s all relative as the smartest guy in the room (Warren Buffett) would say. 

My Dad would say, “so long as I don’t lose money, it’s good.”  This is probably what Mr. Buffett would say as well - if it came down to it.

A good rate of return on “safe” money would be the return on Treasuries, but who knows nowadays.  A good return on investment or IRR for a risky land deal (which I am often in as a part of my business) is 25%.  A killer Internal Rate of Return (IRR) is 40% - which ironically is doubling your investment in just 2 years. 

Everything else is “close nuff” - as the genius Lonnie Skruggs once said.  For those who don’t know who Lonnie is…he is the Godfather of mobile home investing.  I used to be in the mobile home business, but really, his lessons can be used in anything anywhere and he is a genius…no other way to put it.

1. Doubling your money in 3 years gives an internal rate of return of 25%. 
2. Doubling your money in 2 years gives an internal rate of return of 40%.
3. Both are darn good and nothing to sneeze at…
4. Use leverage (debt), and that only magnifies your return of your investment

Also, both are VERY difficult to obtain.  Regardless of what anyone tells you, it is the vast minority who obtain these returns year over year.  Some might do it one year at time - which is not that difficult, but most will not achieve this in the long-term.

The rule here is that a return on investment or internal rate of return (using time value of money) is relevant to what you require as an investor to the amount of risk taken.  For me, I want the highest return possible in the shortest period of time.  What makes the smart investor smart is they want this, but ALSO want the lowest risk possible for that return.  It’s the balancing act that differentiates folks.  Everyone wants huge returns, but what risk are you willing to take to get it.  Oftentimes, it is NEVER worth the risk of long-term capital loss to achieve a few extra percentage points.  In the recent past, many professionals forgot this rule (not guideline, but a rule)…

Do your homework and listen to your gut when making your investment.  This will always yield the highest possible return in the long run.