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  • 3 Myths Of Real Estate

    After that 2007 housing collapse, real estate has been the unpopular kid on the investment playground. Untold billions of dollars of wealth have been erased in the real estate and sub-prime crash over the last 5 years.

    The prodigious Nathaniel Rothschild said the following about such times:

    "The best time to buy is when there's blood in the streets."

    That means ignoring the hype during bull markets and ignoring the paranoia and popular negative sentiment during bear markets.

    Below are the three most common myths about the real estate market today, mostly dealing with the people who believe that residential real estate is somehow a characteristically broken business model.

    1. "The entire market is good or bad."

    Housing isn't a commodity with a set spot "price" for a certain amount of house. There are abundant deals, there are hideous deals, and there are mediocre deals. Ignore the average and below average and focus exclusively on the abundant deals -- doing that is a huge step in the right direction. This means that every time you see an article or comment by some reader talking negatively about the entire market -- or heck, even positively, like the entire market is a great investment -- you can rest assured they're oversimplifying the market. This is especially true for people looking to invest in single-family houses.

    Go get any real estate booklet that has listings, and you'll probably see plenty of houses that are hideous investments -not just for speculation purposes, but for rental purposes or even living purposes as well. But at the same time, there are almost always going to be some houses that are a better deal than the rest. This is true on a national vs. local level as well. I live in a state where the local houses often don't sell for much more than the rental income you can get from the houses.

    At the same time, I'm sure there are plenty of big cities where the average house is absurdly costly. I wouldn't doubt that in the slightest. That's the entire idea - you have to hunt and peck. Ignore the bad deals, and look for the good deals.

    A friend of mine has been investing in good deals for years. He owns roughly 20 houses now and even after the great crash, he's doing fine - all together, he's literally a millionaire while investing in a method that plenty of angry "eternal renters" claim is impossible. The joke is on them.

    2. "The bills outweigh the income."

    Another myth about investing into housing is that the bills would outweigh the income and of some sort of disaster hit, the interest over the long haul would be too much and take decades to recover the expenses. Most of this is simply untrue, especially for someone who isn't trying to buy the biggest, baddest, most luxurious house on the market.

    Again, a lot of this depends on the market - and a lot of it depends on the person's goals, as we'll discuss in a minute.

    If you look at the prices of houses in your local newspapers real estate section, you'll be shocked to see there's often a 100% difference in prices for relatively similar homes in the same neighborhood. If that's not the definition of a disorganized market, then I don't know what is.

    Some may say that instead of buying a home take that money put it toward a retirement fund -- but that's just it. If you buy a home, once the house is paid off, the yearly costs of maintaining the house is far, far cheaper than renting - I'll be paying heavily up front, of course, but then I'll have literally decades of lower necessary income. In essence, I'm changing my bills so that a much smaller income isn't nearly as destructive to my lifestyle. And that's the problem with renting - it often requires that someone have an extra $1-2k per month in income just too literally not be homeless. When the house is paid off, that often makes an income half the "normal" size perfectly livable, meaning that during a recession or a tough labor market, losing one's job or being demoted isn't even close as damaging as before.

    For example, a debt-free homeowner in my neighborhood could work a full-time minimum wage job and do just fine and even save money every month. This is an absolutely critical point that plenty of people don't understand even slightly - usually causing complete havoc during economic turmoil:

    When you cut your necessary monthly bills, the impact to your financial situation is greater than just the overall money you save. Let's say that your bills are $3k per month. Finally, you decide to spend the next 7 years completely focusing on getting rid of bills. Seven long years later, your home is paid for. If you're good financially, you might even be completely debt free. Suddenly, your monthly expenses drop like a rock -now you're monthly bills are roughly $1.5k per month. You decide to put $500 of that in an emergency fund, and put the rest in your regular portfolio.

    Will this make money over time? It depends. If you're using a lazy man's portfolio and are going to live quite some time, then sure, you're probably going to make a lot of money. If you're a trader, there's no telling if you will or won't. But the problem most people make is that they simply are looking on the long-term net worth impact. The problem is that the future rarely works out as planned, and the beauty of owning one's own home, for many people, is that sudden unemployment is literally twice as easy to fix. You can take a job that pays half as much and survive on half as much income. You're far more recession proof than before.

    And yes, for all the naysayer's who believe that this only works in some housing markets or locations, you're probably absolutely right. If this doesn't work in your market, move along - but for plenty of people, it absolutely does. This is important to understand: there's no "one size fits all", and not everyone should do this. That's true for almost every major financial choice -not everyone should buy a home, not everyone should go to college, not everyone should start a business, etc. - one size fits all might be great for caps, but not for money.

    3. "It's Different This Time"

    Whenever people begin saying that we're in for a multi-generational bear market or anything close, watch out - they're the people Buffett was talking about when he said "be greedy when others are fearful." It's amazing -in 1979, everyone was saying gold was going to stay in the sky forever, in 2008, everyone said the age of stocks was over, in 2013, many are saying real estate won't be a good investment during our lifetime, including Author James Kwak. See his article here: (baselinescenario.com/2010/08/23/housing-in-ten-words/)

    Conclusion

    Housing prices might just drop again soon - but that just makes more of a buying opportunity for those of us who are looking to build up financial security, generate new income sources, and profit from the emotionalism of others. I am planning on purchasing several residential homes over the next few years. If one is interested in the real state vehicle, you must be willing to focus your time and efforts on finding the right deal. One of the best techniques for finding real estate deals under market value is finding vacant property, then finding the owner. Regardless of whether or not there is competition in your local market, if you are willing to go the extra step to find deals, focus your efforts in one area, and build relationships, you will do tremendously well. Just remember, It's not the lack of resources, but rather the lack of resourcefulness that truly prevents real estate investors from reach their investment goals.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: real-estate
    Mar 20 10:25 AM | Link | Comment!
  • Undervalued, Oversold: Why Apple Could Take Off

    In recent months, Apple (AAPL) has taken one of the largest dives in market history - going from a high of $705/share in September of 2012, to a dismal current price of $443.66/share- and has recently coined the new term known as "The Apple Effect." Although it is still the largest company in the world in terms of market capitalization and investor interest, the stock is down nearly -18% year to date and -37% from its all-time highs only a few months ago. While this stunning reversal has been spiteful for Apple investors, many investors are considering Apple to be the biggest bargain on the market today.

    Value investing began in 1928 at the renowned Columbia Business School and is an investment paradigm that derives from the ideas on investment that Ben Graham and David Dodd. Although value investing has taken many forms since its inception, it generally involves buying securities that appear underpriced by some form of fundamental analysis.

    Although there are no hard and fast definitions of value stocks, most investors agree on some general criteria. Essentially, a value stock is a security that tends to trade at a lower price relative to it's fundamentals. Important characteristics of such value stocks include a high dividend yield, low price-to-book ratio and/or low price-to-earnings ratio.

    When I am looking for value stocks, I typically find the best value stock to be a member of the S&P 500, and for the stock to at least have a buy or strong buy rating according the various forecasting models i.e., Thomson Reuters, SmartConsensus. In aggregate, by using the various fundamental indicators, you will be able to find stocks that are currently trading below what they are worth.

    With the recent market rallying and stocks reaching all-time highs, many stockholders are trying to find the best deals and value stocks in the current market, which inevitably poses the question: what's the best value stock right now?

    Apple shares have been trounced over the past few months for a variety of reasons, hitting a 52-week low of $419/share on March 4th. Nonetheless, one of the biggest investment banks on Wall Street thinks Apple is the most undervalued stock it covers. Goldman Sachs' research department has put out a list with the top 40 most undervalued companies compared to its analysts' price targets; Apple was the unanimous winner.

    The tech-giant has been the subject of much disparagement in recent months on worries that consumers aren't taking to the last iPhone, and that the company needs the "next big thing" to show that it still has innovation left in the tank, not coasting on the aftershock of Steve Jobs' successes.

    Analysis

    Apple has a buy rating, is tremendously undervalued, and a 12 month forward price-to-earnings ratio of 8.94, making the stock a value play, not a momentum trade. Today, the one-year price target is $615.13- 42% higher than the current price. Similarly, Trefis, one of the most widely recognized valuation systems, estimates Apple being worth $650/share- a price that is 46.4% above the current market price.

    Amid the recent downdraft in Apple's share price and concerns that the company is starting to be outwitted by Samsung-the announcement of the Galaxy S4 was announced Friday- Apple shares rose Friday, closing at $443.66- a 2.6% increase on the day.

    Samsung's stock trades on the South Korean stock exchange, so it's not often mentioned in the typical Apple vs. Samsung smartphone smack down story. The South Korean company's ascendency is very recent and when measured by stock price, not nearly as pronounced as one might think, but it's worth mentioning, because the big picture story here really isn't one in which Samsung beats Apple into submission.

    (click to enlarge)

    There are plenty of caveats in reference to the graph above. One, Samsung plays in many more markets that Apple does. Two, past performance does not guarantee future returns and three; you cannot even buy Samsung in the United States. Nonetheless, it's an interesting comparison given the rivalry between the two companies. Even with the recent setback, Apple has crushed Samsung over the last ten years.

    Conclusion

    With the expected release of the next iPhone in June and anticipation for the release of the iWatch in the near future, investors have a lot to keep their eye on in the coming months. Shareholders hardly have anything to worry about with the recent anecdotes that Samsung is on the verge of taking over the mobile phone sector. Despite Apple having the worst year they have endured since the company's inception in 1976, it still remains one of America's most powerful and influential companies. With numerous analyst rating signaling buys, and the fundamentals indicating that Apple is severely undervalued, I would not be surprised if we saw an upward surge after the release of the next iPhone and iWatch. Regardless of the setbacks, Apple continues to lead the forefront of modernization and will continue to for many years to come.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: AAPL
    Mar 19 12:02 PM | Link | Comment!
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