5 Year Plan - Posted by Eric

Posted by Jack (different Jack) on May 21, 2005 at 24:39:39:

Let’s get back to the question at hand here. Vegas has seen 40-50% appreciation recently. Phoenix is also fast and furious. If you’re looking for a 5 year investment, I would suggest Salt Lake City, Colorado or Texas. These are places that are just starting to see some appreciation, or are 1-2 years away from seeing some action.

Jack

http://www.raysonproperties.com

5 Year Plan - Posted by Eric

Posted by Eric on May 20, 2005 at 10:33:48:

I was wondering if anyone can shed some light on what would be a better city to invest in: Vegas or Phoenix??
My goal is to buy 5-7 homes in the next 6 months in either city and turn them in 5-7 years.
Any Thoughts??
edb

neither… - Posted by Jim (MD)

Posted by Jim (MD) on May 21, 2005 at 21:32:16:

I would look into investing in Houston, rather than Phoenix or Las Vegas. Houston has not had the recent run up in median prices that Phoenix or Vegas has had. It is apparently still behind the times, and from what I hear, things are beginning to happen there. It is also a mecca for immigrants, and immigration does not seem to be slowing down anytime soon.

Re: 5 Year Plan - Posted by Mark-Chicago

Posted by Mark-Chicago on May 20, 2005 at 13:13:19:

I don’t think anyone has an accurate enough crystal ball to determine which locale will be better over 5-7 years. Beyond potential appreciation and cash flow (does one area have better rent-to-value ratios over the other?), which location will you prefer visiting when servicing your investments? :slight_smile:

Re: 5 Year Plan - Posted by Killer Joe

Posted by Killer Joe on May 20, 2005 at 11:39:12:

Hi Eric,

If you read DKs’ post about the 5 top cities you will see that both those cities are on the list. A 5-7 year time frame could put both those cities near the bottom of the cycle, and worth a fraction of what you paid for them today.

If they are still giving positive cash flow at that time you may want to keep holding them to avoid a paper loss that turns into a cash loss. Don’t be fooled into thinking that we will have another 5 years of hysterical growth. All the signs are pointing in the direction of a peak at this time, and we all know what follows.

KJ

Re: 5 Year Plan - Posted by Killer Joe

Posted by Killer Joe on May 20, 2005 at 14:35:21:

Hi Mark,

If you haved lived in the west as I have since 1977 you will have seen how these two cities have gone boom to bust to boom to bust to boom. The LV area, and Phoenix to some degree, have pushed the limits regarding such neccesities as water, and electricity.

We hardly get any info here on the areas surrounding the Great Lakes, but I bet you do.

I have friends in both cities and the ones who have been there for a while will tell you the same stories we read in the news and watch on TV here in the Southland.

It’s all well and good to think the growth will continue forever but think about this…These are both dessert areas, man made oasises as L.A. is and are dependent on far away sources for both electricity and water. The main resourvoirs such as Lake Mead, Lake Powell and all the rest are in danger of running dry. Don’t take my word for it. A little research on the net will tell you the current concerns along these lines. Some wags put the water levels at such a low capacity that the hydroelectric dams will cease functioning at any current outputs in the next two to three years. What would your guess be about the growth rate when rationing comes in to play?

I’m not trying to paint a bleak picture here, the picture has been laid out by mother nature. These are desserts that for millions of years supported only a sparse diversity of life. It wasn’t until William Mulholland devised a way to transport water over long distances across a dessert that we could even begin to live in these places. That anomily is less than a century old, and we have figured out a way to strech it beyond belief.

But guess what, we have no guarantees from mother nature about the long term success of this adventure. Only the unyielding truth that the laws of physics will apply unabated.

Now is this any reason not to invest in those areas? Of course not, they have hurricanes in other parts of this great land, and people still invest there. No amount of earthquakes will deter people from investing in SoCal, that’s for sure.

A wise investor will remain ahead of the curve and not pretend that prosparity will somehow last forever, and that forces beyond ones control do not exsist. We refer this as common sense.

I always look forward to your views on the subjects posted here, thanks for putting up with mine.

KJ

Re: 5 Year Plan - Posted by Mark-Chicago

Posted by Mark-Chicago on May 23, 2005 at 08:43:16:

KJ,
I don’t know enough about the Southland, so I’ll take your word for your assessment of the market there. However, your discussion goes far beyond that. It’s a lesson that all of us here should learn; that is to know what you’re jumping into. There’s always more than meets the eye, whether it’s about location (ie Phoenix, Vegas…), methodology (L/O, rehabs, landlording…), REI in general or really anything. We tend to want to jump on any bandwagon that sounds great on the surface. It’s our job to educate ourselves about the lesser-known details and what it really takes to be successful in that realm. Many, including myself, have jumped head first into something, only to meet head on with the pitfalls which I didn’t take the time, nor probably wanted to believe existed, and paid a dear educational price for it.

Thanks for listening to my rant and keep up the great postings and advice.

Mark

Re: 5 Year Plan - Posted by Jack

Posted by Jack on May 20, 2005 at 16:48:54:

Yes, at sometime in the future, growth in major cities in desert areas will be greatly curtailed due to water restrictions. The interesting question to me is, when that happens, will property values rise or fall? One could make the argument that property values will rise, since demand will continue to increase, but supply will stagnate. On the other hand, one could argue that water rationing would drive down property values. I don’t know of any previously existing examples of such a senario. The only slightly comparable examples I can think of are when popular towns greatly restrict building permits, there prices rise. Any Opinions?

Great post, Joe! NT - Posted by Ralf

Posted by Ralf on May 20, 2005 at 16:37:35:

Re: 5 Year Plan - Posted by Killer Joe

Posted by Killer Joe on May 20, 2005 at 17:49:36:

Jack,

This one’s easy. The value of properties will castistrophically plummet. Let’s look at the reasons people move to these areas. The number one reason is a belief the the quality of life will be as good or better than where they left. Since the majority of people making this move are from south of the boarder, there can be little argument on this one.

The comp you mentioned will drive prices higher because it maintains the quality of life by restricting further growth and preventing the dilution of resources available. This is a far cry from enacting legislation that restricts your ability to flush your toilet.

I have a good friend in Vegas who lives near The Lakes and she was required to remove her lawn by the city. When these kinds of precursures start appearing on the horizon it’s time to wake up.

The balance that the elected officials have to deal with regarding future growth vs maintaining the status quo are enormous. One false move on thier part and the tax base tumbles to the point of uselessness. At that point maintaining the infrastructures becomes impracticle to impossible. The quality of life at that point follows the same historic curves as the inner city gettoes that once were prominant neighborhoods.

The modern day amenities that we all take for granted are but a blip on the radar screen of time. They show up now because the ‘sweep’ is over the spot, if you will. Looking back at a time where there was no electricity, or running water in ones’ house is just a look over the shoulder. Human nature has been around since the beginning. The reasons why the West had so many Ghost Towns are the same today as they were yesterday. The only thing that has changed is the scale on which they will fail.

If you do not see any historical paralelles here, perhaps you could spend some time studying the Roman Empire. They left a legacy full of the clues that lead to mass social distinction. In a true sense nothing has changed since than including the belief that “it will never happen to us”.

As societies mature and become evermore reliant on the ‘next’ technology to take that society to the next level, they become more fragile by nature. If you don’t see the analogy as applying to you do this. Find a copy of a computer program you ran on your WIN 3X machine and load it into your new Gates Way computer running Windows XP. Let me know how that goes for you. When Lincoln wrote the Gettysberg Address he did it ‘the old fashion way’ and anybody looking at the original can still read it. At least the English speaking ones. If you are unfamiliar with the WIN 3X, or the Gettysberg Address, or who Lincoln was, you’ve proved my point in spades.

KJ

Re: 5 Year Plan - Posted by Jack

Posted by Jack on May 20, 2005 at 19:33:27:

Your ‘quality of life’ thesis may prove to be true. But water supply and demand are pretty elastic, unlike the old gold/silver mines you refer to. And, not all those western mining towns became ghost towns, many still exist in one form or another. Some are still mining Gold and Silver. Some have adapted to mine other minerals (molybdenum, copper), others have transformed their economies.

Historians don’t even agree as to when the Roman Empire ended let alone how it ended. If you are making some reference to the Lead plumbing/poisoning theroy, the theroy is a misnomer. The dwell time of water in the Roman plumbing system was not sufficent to create a Lead poisoning problem. If there was any Lead posioning in Roman society it was the result of boiling wine into a thick syrup in Lead lined pots. This boiling was only done by the elite of Roman Society.

All societies are ‘reliant’ on the next technology to take them to the next level. I don’t see that as an indication of being fragile.

I enjoyed your post, I am not trying to argue with you. I just thought your post deserved a rebuttal.

Re: 5 Year Plan - Posted by ski

Posted by ski on May 20, 2005 at 19:08:21:

I was a guest of catholic schooling until 7th grade and went from there to the government schools. I know of what you speak 'cause of my earlier years. At any rate… We here in sunny SWFLA will be facing the same problem, WATER and another, SEWAGE. Most of our properties, 110,000 vacant lots, are well and septic. The growth here is getting out of hand. The property values have jumped from $1500 for a 1/4 acre to $50,000 today. The amount of building permits has increased about 1000%. Thye infrastructure can not handle the growth. We will reach a time, very shortly, when new construction will be at a hold pattern.(My opinion). O.K. for me. I will still have some business, hope.

Re: 5 Year Plan (long winded) - Posted by Killer Joe

Posted by Killer Joe on May 20, 2005 at 21:39:19:

Jack,

It goes without saying that well thought out intellegent posts such as your post are the backbone of boards likes these. For the record I enjoyed your rebuttal.

Having said that, I think you read a little to much of your own thoughts into my post. I said nothing about gold or silver mines, or any mining towns that I recall. Lead pipe poisoning? I wasn’t refering to that either. For the sake of clarification, what I was referring to the Universal Law of Changing Circumstances.

Regarding many of the Ghost towns some of those town failures were the result of such diverse things as the Railroad lines that serviced those towns changed thier plans for one reason or another, and no longer found it profitable to service the town. We see this same thing happen today when the Highway Dept builds a Business Bypass for the sake of ‘express’. In both scenarios the ULoCC spells a deathnell for the towns growth in some cases.

As far as the supply and demand of water being elastic I agree to a point. But a town whose water supply infrastructure was based on a population of 3000 as an example, with projected growth to 10,000 over a given period of time, will find its infrastructure vastly lacking if the projections prove to be far short both in numbers of residence and the pace of growth. These things take time to get up to speed, and many times rely on the regional sources of water that are shared by many surrounding towns. At least in the case of western towns. The elasticity nows resides in the ‘streched’ mode.

Regarding the fragility of relying on ever new systems to meet our daily life needs, the more complicated the systems, and the more we rely on such system, the more impact they inevitably have on our routines. If that routine is Air Traffic Control, for instance, and the regional center is knocked off line by any type of calamity, the ingrained need to function using this mode of transportation is clearly brought to the forefront. By that I mean the short period of time the system is down has an ovewhelming impact on the users. If they are in the air at the time, thier sudden ‘fragility’ can put them in harms way. If they are on the ground waiting for that flight that is now indefinitly, although temporarily delayed, watch how discomforted they quickly become.

From a scientific standpoint, there are two opposing forces that contribute to this conversation. One is Energy, and the other is Entropy. Most of us are familiar with energy, but entropy may be a new concept. To put it in a nutshell, Entropy can be described as the noise that energy leaves behind. Picture it as the negative of energy in the sense that it has an accumulative affect, where energy cannot be created or destoyed, only change from one form to another, but the sum remains the same. Not so with Entropy. Its accumulated effects can build to a point that the underlying system or structure can fail. This example is a little remiedial, and not the best example, but for the sake of those looking for an easy grasp on the concept imagine a building that is rocked by an earthquake.

Now after the initial shock, the building is still standing with only minor superficial damage. Fast forward to the point where several like sized earthquakes have rocked the building to the point of it becoming unsafe. One more quake and the building will collapse. Now how does this relate to our conversation?

The continued relience on one more system being added to the existing systems in place causes us as humans to get farther and farther away from self relience. A typical individual in the early 1800s, as an example, had very little systems that could fail and interupt thier lives. In many cases they grew thier own food, raised thier own livestock, and drew water from a well. Where they any less happy than you or I today? Probably not.

The point is not that we should crawl back in the womb of civilization, only that the more and more systems we place between self reliance and a reliance on technology, the more fragile our way of life becomes. We just haven’t seen it manifested on a large scale here yet, with the exception of the Great Depression, and the following Dust Bowl. Although if you were in the World Trade Centers on 9/11 you quickly found out that elevator that carried you to and from your office each day succombed to that thing we call entropy. It’s ironic to think that something as simple as an old fashion ‘fire pole’ between the floors would have saves many many lives.

KJ