All Forum Posts by: Bill R.

3 homes in 11 years?  I had to do a background check for a job once and the HR person said I had more previous addresses than anyone they had ever seen before.  And I don't even house hack.  Just have to move a lot for work :-)

Great job, though!  

I think there should be some caution used when comparing 2018 with the market crash in 2007/8.  It's like saying that the last time my engine blew up because I didn't put oil in it was at 30,000 miles.  Since I only have 25,000 miles on this new engine, it's clear sailing.  

Mind you, I'm not saying a crash is coming or we should all bury our cash or anything like that.  I'm just saying that comparing everything to pre-crash and then using that as a primary justification for your investment thesis is a strategy burdened with logical flaws.  

Just like when people say, "Yes, but credit scores are much higher, so we won't see a repeat of the mortgage meltdown." 

While that fact is true, markets (stock, RE, etc) seldom decline for the same reason that they did the last time.  The cause of the next recession will likely be for reasons that have absolutely nothing to do with subprime loans.  

But that doesn't mean that a recession won't happen.  There are a plethora of reasons a recession could come about but if you're only staring at a chart of credit worthiness of borrowers, you're sure to miss it.  

Point being, past indicators should be one of many, many data points in your decision. 

I'm sure people fail for a lot of reasons but the thing that makes me cringe are the people who with very minimal training (a single seminar) that suddenly start trying to raise money from investors to fund their first deal.  People that 72 hours ago didn't know the first thing about NPNs suddenly soliciting investment capital.  

Not to say that it can't be done. I'm sure there are success stories from people that went to a seminar and JV'd their first investment. But as someone who has worked in the financial services industry and understands what fiduciary responsibility actually means, it makes the hair on the back of my neck stand up.

In the bond world, I've seen a lot of people get stuck in a similar scenario.  They buy a 20 or 30 year bond at X% interest and think that they're getting that income for the next 20 or 30 years.  But most bonds have a call provision which allows the issuer to call the bond early (they pay off what they owe).  Of course, when do bond issuers pay off their bonds early?  When they can refinance at a significantly lower rate.  So, maybe you had a bond paying 12% interest when inflation was high but now rates for a similarly rated bond are 6% so they exercise the call option and pay off the bond holders who now have to go out and reinvest that money at prevailing rates (e.g. 6%).  

It's not a reason to not invest in notes, just an area that doesn't receive as much attention as it should in terms of planning cash flow.  

I was just looking at the numbers the other day and for all of Hawaii, tourism makes up 21% of the state’s GDP and is the single largest contributor to the state’s GDP.  

Also, in my conversations with locals (non-real estate investors), STRs and unoccupied homes seem to be on the forefront of many people’s minds.  Many view these as the removal of rentable properties from the market which drives up prices (whether that is true or not is entirely a separate conversation). 

Given a very pro-hotel bias in the government and popular anti-STR sentiment from the local community, as Lane said, it could become difficult for STR owners at some point in the future.

Just something to keep in mind.  Not something that’s easy to model in a spreadsheet but worth factoring in.  

Agreed that there are some similarities and those similarities might shed some light on how PR will develop but also many differences.  NO, Houston, Baton Rouge, and Mobile all are mainland USA and have people in Congress to get them disaster funds.  PR doesn't have that advantage and I think it may be more appropriate for the purposes of this kind of analysis to think of them as a different country.  

Yes, they are US citizens but they have no voting rights in Congress and no electoral votes for President.  They have very little political capital and, as we've seen, are often treated as a non-US territory.  I really want to emphasize that I'm not making a value statement here.  I'm talking about political realities.  They cannot trade votes for investment like other states.  Currently, nobody is afraid of losing an election for not helping PR like they would be in other states.  

This is on top of the fact that PR had some substantial economic problems even before the hurricane.  The hurricane only exacerbated those problems putting further strain on an already stressed economy.  

Just saying that this makes it somewhat unique in that sense. 

I've been around the tech industry since the mid-1990's so when Bitcoin first started to gain a little traction I had a lot of tech friends who would try to evangelize to me about it.  Some of them have gone on to write books and are regular conference speakers on Bitcoin.  

In the early days all anyone ever talked about was that Bitcoin was going to replace fiat currency.  Central banks were evil.  JP Morgan was evil incarnate (Jamie Dimon was the devil himself).  Inflation!  Wheel barrows full of money to buy a loaf of bread.  Illuminati!  

The original Bitcoin zealots I knew were banking (no pun intended) on a total collapse of society and banking systems as one of their selling points.  They sounded like the same people who for the last XXX years have been saying that you need to stockpile gold and firearms for the coming apocalypse.  In fact, many framed their "pitch" that they would be in gold but gold is too heavy to transport and too difficult to store so Bitcoin was really the only answer.  

But the thing that really made me skeptical was the fact that they couldn't (and still can't) address simple questions without becoming highly agitated.  

For instance, given the proof of work concept used to verify transactions, there was an inherent limit built into Bitcoin that would preclude it from ever becoming a high transaction currency.  How could it ever replace fiat currency if in an entire day it can't even handle the number of transactions Visa processes in an hour?  

And this is now becoming problematic as it takes a half hour or more for a transaction to clear.  How can you walk into a Starbucks and pay for a coffee when merchants have to wait for the money to clear?  Especially when the price of that coffee could fluctuate several dollars during that waiting period?  

Someone told me the other day that that is not a real worry because cryptos have a tendency to lose volatility the longer they have been around and the greater the acceptance.  Really?  Because Bitcoin is the grandaddy of cryptos (and most widely owned) and Bitcoin is anything but stable in price. 

And who would want paid in Bitcoin if they got their pay on Friday and it was worth 20% less on Monday because some Bitcoin miner in China had a security breach driving down the value of Bitcoin?  If my labor is worth $100 on Friday, I want it to buy the same amount of goods and services on Monday morning.  There simply won't be any widespread adoption of Bitcoin as a replacement for fiat currency until the volatility declines to that approaching fiat currencies.  

Nobody cares about libertarian political philosophies like decentralization and peer-to-peer payments when they can't afford to buy groceries this week because the value of Bitcoin is moved 20% in 2 days.  

But now when you bring up these points, the very same people who invested in Bitcoin back in the early days and are sitting on (in some cases) millions in profits claim that the chances of Bitcoin replacing fiat are pretty low.  Now they say Bitcoin is more of a store of value, not a currency.  They now freely admit the transaction throughput flaws I pointed out when Bitcoin was in its infancy.  Hmmmm . . . 

So if Bitcoin is not a currency and is now a store of value, what is backing the value of Bitcoin?  

"The blockchain!!!!!!!!!" they scream.

But the blockchain is open source and anyone can start a blockchain-based crypto currency.  What happens to Bitcoin if Visa adopts a blockchain based on Visa Bucks?  Since it would not be decentralized and would not necessarily need proof of work they could process high transaction volumes.  How does that make Bitcoin any more or less valuable (well, less valuable is easy to picture but it doesn't make it more valuable).  

Then they say, "Well, that's why I'm investing in other crypto currencies like ETH".  Ahhh, so you see the flaw in Bitcoin and you're jumping onto the newest fad?  

Don't get me wrong, I think there's a genius behind the blockchain.  I do think that it will find its way into our day to day lives at some point.  But Bitcoin is not the blockchain.  You're not investing in blockchain technologies buying Bitcoin.  

The thing that scares me the most about Bitcoin and other crypto currencies is that it's like debating a college student that's just finished reading Karl Marx.  Facts, real world results, and human nature can't sway them because their understanding doesn't go any deeper than buzzwords and a conviction that if the whole world just thought like them then all the world's problems would be easily solved.  

They jump around definitions back and forth like Bitcoin being a currency and a store of value based on which side of their statement has just been questioned.  All problems like transaction volume, or what incentives miners will have to keep validating transactions after all 21 million bitcoin are mined, will magically be solved in the future but the details on how are intentionally fuzzy because nobody actually knows and even a hypothetical answer relies on hypothetical future advancements in technology.    

In the end, their final rebuttal will always be, "You just don't get it."  

Also, some things to think about.  

According to AQR Capital Management, 1,000 people own 40% of all Bitcoins.  Seems you would only need to coordinate a relatively small number of people to drive up or down the price of Bitcoin.  So much for decentralization.  

I've seen similar analysis that indicates that Chinese own 10 million Bitcoins which represents about 2/3 of all Bitcoins currently in existence.  If China were to ban Bitcoin and-or Bitcoin mining, think about the impact.  

Currently, Bitcoin mining is estimated to consume more power than is used in the entire country of Ireland per year.  This is one of the reasons so much Bitcoin mining is concentrated in China.  The cost of energy is heavily subsidized.  It's also one of the reasons why China might have a problem with continuing to allow Bitcoin miners to operate from China. That's not even considering the environmental impact if Bitcoin ever became widespread.  

It's estimated that 4.4 billion people (50 million in the US alone) don't have access to the internet.  Sort of hard for Bitcoin to replace fiat currency when over half the earth's population doesn't even have access to the internet.  

Count me in the curious class as well.  It's an interesting set of circumstances.  I can't recall off the top of my head where you've had this massive event AND the residents can immigrate without much friction to somewhere like the US.  

@Don Konipol In the early 1990's I was a stock broker (mostly doing bonds) and I would constantly run across investors who had invested back in the 1970's and had muni-bonds paying 12% - 14% (state and federal tax free).  Obviously the issuers were refinancing as soon as the call provisions allowed because going rates at that time had fallen to 7% for AAA-rated paper.  

So you would have these retirees who were banking on 12% - 14% tax free returns who suddenly had hundreds of thousands of dollars from called bonds to invest but they wouldn't budge.  They would sit on the cash and rates dropped from 7% to 6.75% to 6.5% to 6.25% to 6% and either they would capitulate and reinvest for far less than what they could have gotten a few months or a year before or, as one of my clients did, decide to go from ONLY investing in AAA-grade paper to putting all of his uninvested cash (about $500K) into junk-rated Argentinian bonds at 12%.  

This guy will always stick out in my mind because he was so insistent that he ONLY buys AAA paper.  Even when I was showing him AA or A muni bonds to get a little extra yield, he would dismiss them immediately (How do I know the LA Department of Water and Power - LA DWAP - isn't going to go bankrupt?).  But somehow he went from AAA to junk foreign debt because he was chasing yields.  

The one thing being a broker taught me is that the average investor is their own worst enemy.  

We have these all over in Las Vegas.  Real Estate investor looking for assistant/trainee/intern, etc.  Paying up to $10K a month.

Nobody is going to pay someone $10K a month with zero experience.   And given that most RE agents don't make anywhere near $10K a month (according to Google, median salary in HI for a real estate agent is $62K and $42K in Las Vegas), why would they have to make up signs and post them all over town when a real RE investor would know tons and tons of realtors who already know the business and they could train?  

Believe me, the world is not short of people wanting to make $10K a month.  Why would you even need to advertise such an opportunity?  

They either want to sell you a guru program where they promise you can earn gazillions of dollars or they want you to do the grunt work of driving for dollars and cold calling and you'll get a commission on any deals the real estate investor buys.  Essentially, you'll become a poorly compensated wholesaler and never make anywhere near $10K a month.  

Not even original.  You can find the same ads for boiler room stock brokerages, insurance sales, MLM opportunities, etc, etc.  Then they bring in a bunch of people, promise them they can make tons of money, work them like dogs, and then kick them to the curb if they don't produce.  

It's a scam that preys on desperate people (which is why they always promise astronomical sums).  

Much better off going to a REIA meeting and meeting some actual real estate investors. If you keep showing up (assuming you're a semi-likeable person) and letting people know you're looking for any opportunity, someone will throw you a bone.