ARE WE IN A BUBBLE?? ARE WE IN A DOUBLE BUBBLE??

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Are we in a bubble?  What a question.  Its been asked for centuries and no one seems to get the right answer……until after the bubble bursts.  Economic bubbles occur naturally in many business cycles and across all industries….that’s just how it is.  But, when you are in one its easy not to see it, or even worse, think that it will get even bigger or, worse yet, think that the bubble is here to stay because of some new technology or paradigm shift.  Well that’s all foo foo.

The fabled Tulip bubble of the early 1600’s in Holland is often used metaphorically to refer to various economic bubbles when trying to describe the extreme market pricing associated with very basic goods or services that otherwise have a much lower intrinsic value.   But before the Tulip bubble there was the economic bubble that gripped Spain from 1492-1592, as the result of tons of precious metals being brought into the country from the “New World”, causing wild economic growth and run away inflation…which led to the end of the world-wide-web of the Spanish Empire.  The bursting of both these bubbles led to century long problems for these countries.   Spain has been effectively insignificant for the last 500 years and is bankrupt today.  The Dutch have not been heard from in 400 years.  SO, YES, BUBBLES EXIST and can cause serious damage even to those that have not participated in creating the bubble.

Was the technology bubble leading up to the new millennium a thing?  Did it burst?  Was the housing bubble created from 2002-2009 real?  Did it burst.  Chris Bounds, Austin, Texas says bubbles exist and they all burst.  Being aware you are in one is complicated and forces you to set emotion/ greed aside and be logical.

The entire US economy is in a bubble according to Chris Bounds, Austin, Texas and worse yet, there are geographic bubbles within the Macro-Bubble.  Some markets in the US are in a very basic, garden variety bubble while others are in hyper-bubbles within the overall bubble.  The Nashville, Tampa and Austin markets are just three examples of real-estate related bubbles in very defined geographic areas.

So, without providing investment advice, Mr. Bounds’ current opinion of real-estate related projects is that if you are involved  in one of the hyper-growth areas of the US you should:

1.  Know your exit strategy.  Write it down and date it and then re-read it monthly.

2.  Keep some powder dry.  Be ready for a pull back or a problem.

3.  Be able to move quickly given extreme news….good or bad.

4.  Make sure your partners, investors, lenders, vendors etc, have staying power and wont panic.

5.  Don’t be greedy.  Really….Don’t be greedy.

6. Be thrifty starting TODAY.   Just get real lean right now.

7.  Start pricing your inventory/ services/products down on a regular basis.  Increase required downs.  Pre Credit qualify sales when you can.

8.  Don’t believe anything that anyone says at any time unless you can document it.  The internet or some financial rag is not a source of information upon which to base logical decisions unless you have vetted it yourself.

9.  Look up and read stories about otherwise fine developments and companies that did not survive the last downturn….particularly in markets such as Miami, Phoenix and Las Vegas.

10.   Be honest with YOURSELF!  You will know you are in a bubble when you catch yourself saying ” You won’t believe what I sold that unit for today…some rich dumb ass just overpaid by 50% for that thing and now I am buying a new BMW”

 

Terry Christopher Bounds

Austin, Texas
Bubble

Timeshare Resales – Tips You Should Know

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Timeshare resales CAN give you all the diversity and variety you count on when buying vacation ownership from a developer (the timeshare brand), yet you can sometimes buy resales at a fraction of the developer’s price. Like anything else, this is because timeshare development companies must mark up the sale of each timeshare to cover their development and sales costs.  This is perfectly normal and reasonable.  Similarly, if you buy a used sofa, you would expect to pay some fraction of what the selling price was of the sofa when it was new.   Its just common sense.  But lately, there seem to be many “re-sale” weeks available at 50%+ discounts compared to the original price. Below are some helpful tips about the realities of purchasing a re-sale timeshare.

Be prepared for a loss…Timeshare is not always an investment – You may not get back what you originally paid.

OK, the sales person may have told you that your timeshare could appreciate in value. This is simply not always true. While many fractional ownership units to re-sell for more than the original selling price, many do not.  Resale timeshares often sell for only 60-70% of the original price — some for as little as 25-35% in distressed situations.  You will generally be sorry if you buy a timeshare that is in a “distressed” situation….but there are deals out there”. The resale price of a timeshare is often the most difficult truth for a seller to bear.  But please realize, you are trying to sell something that must not have fit into your situation, ie, the week no longer fits your vacation schedule, the property next door was finished so your window looks out onto a wall or your kids are grown and you don’t travel like you used to.  ALSO, you are not a professional Timeshare salesman. Whatever the reason, after an owner has used his timeshare for 5-6 years and saved thousands vs what he would have paid to rent, it seems logical that the re-sale price could be lower than the original price.  The total cost of your ownership was marked up to cover development costs,  sales presentations, incentives etc.  In the long-run, it’s timeshare purchasers who absorb these costs.   Think about this:  If you bought a deluxe, flex week at a 4 star property for $19,900 and used it for seven years, saving over $10,000 in lodging fees and then sold that week at a 30% discount ($6000), getting only $13,900 back….have you lost money?  My answer is no, absolutely not.  You had ownership in a development, received all types of concierge services, maybe rented the week one year on HomeAway for $2,500, let your kids use it for Spring Break and now you get 70% of you money back.  I’ll take that deal.

Now, You have to be careful purchasing re-sale timeshare – there are scams everywhere out there.

Given the 2008, Sub-Prime, financial meltdown, many timeshare developers went bankrupt.  Many banks foreclosed and liquidated the inventory at just pennies on the dollar.  That has now about run its course and prices have stabilized and at quality properties in quality locations, are now going up.  With so many owners desperately wanting to sell their timeshares, it created an environment in which illegitimate companies were able to swindle hundreds of thousands of dollars from owners. There are many timeshare re-sale scams — both past and present — however, the most common involve companies that claim to have a buyer waiting. Once they have hooked you, they will charge you a fee to appraise or transfer the property, but the sale never goes through. Another common scheme is to pose as a “relief company” and charge a fee to take your timeshare off your hands; similarly, the transfer of ownership never goes through and you remain responsible for the unwanted timeshare and fees.  Just be smart, YOU KNOW WHEN SOMETHING IS TO GOOD TO BE TRUE.

DO YOUR HOMEWORK !!

1.  Make sure the HOA or POA is well organized and well funded.  Get a copy of their financials and a copy of the last few board meeting notes.  This will tell you a lot.

2. Don’t sign any transfer, purchase, sale, assignment etc, paperwork until you have read the title documents including the deed!!!!

3.  If the property is close enough, go look at it.  If not, have someone go look at it.  I once hired an UBER driver in Hawaii (I was in Texas) to drive to and walk around and video a development and email me the video so I could see what was there.   The pool was green, the bar boarded up and the security fence falling down!! No wonder the week was offered at $1,100.

4.  Talk to other owners in the development.  With AirBnB, HomeAway etc out there, its really pretty easy to find other owners.

5.  Call the real estate commission in that state and find out if all the State required forms and registrations are in place.

6.  Don’t be cheap!!  You get what you pay for.  Folks that buy 3 Star + interval ownership AND use it,  are almost always very happy and very often enjoy much higher re-sale values.

 

Chris Bounds Austin Texas

Hard Money? What is that?

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Hard Money:  Just sounds bad.  It’s not the money that you make from digging ditches or plowing a field…..that is literally hard money made the hard way.   

 anvilThese days, with all the “house flippers” and get rich quick ideas involving real estate bouncing around on TV, radio and browser pop up ads, the words HARD MONEY are filtering into everyday language.  So what is it?  Well, for those trying to start a career in the real estate industry or those who want or need to add a little leverage to their projects, may often hear yet not understand the words hard money.   So,  MY definition of ‘Hard Money Loan’  is: A loan of “last resort” or a “short-term bridge loan” or “sub, sub-prime loan”  that is backed by the value of the underlying property or other asset, for which  the “hard money” will be used to purchase.  These loans are generally sought out by borrowers that may not have good or enough credit for a time sensitive opportunity requiring funds.  Hard money loans are not backed by the credit worthiness of the borrower but by the property or asset itself.  Meaning the asset itself is used as the only protection against default by the borrower.  So, because of this,  hard money loans have much lower loan-to-value (LTV) ratios than traditional loans.

Hard money loans carry interest rates even higher than traditional subprime loans. Since traditional lenders, such as banks, do not make hard money loans, hard money  lenders are sometimes private individuals that see value in this type of potentially risky venture. Hard money loans are used in turnaround situations, short-term financing for acquisitions, and by borrowers with poor credit but substantial equity in their property that for which they wish to stave off foreclosure.  Hard money is also used to take advantage of opportunities that require quick action and or quick closings and settlement.

Chris Bounds Austin Texas, reminds borrowers that hard Money Lenders (HMLs) are not banks and do not offer bank terms.  This is a big deal and borrows should read AND understand the documents they will sign for a hard money loan.  At times, an HML may also want a “piece of the deal” or an “equity”  interest in the project or property….. Meaning that not only will the borrower pay above market interest rates, but may also be asked to pay the lender more money when the property being acquired is sold or pay the lender a piece of ongoing revenue streams produced by the asset or project being funded.   Do your homework.

Chris Bounds Austin Texas

 

The Market for Notes is ….back!

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Interested in double-digit returns secured by real estate but without the common headaches?  Then it’s a good time to discover how to buy mortgage notes or notes secured by real estate!

Terry Christopher Bounds, Austin Texas 07/20/2015

Why Real Estate Notes? Well they are generally collateralized (backed)  by a lien on a piece of land, a home or building AND often times a personal guarantee by a human being.

Today’s savvy investors know they need solid returns backed by secure assets they can control. This is one of big attractions to note buying.  If something goes wrong and you have to foreclose you could end up with a piece of land or a home or a note that can be held as an investment or sold for cash.

But What About The Risk?

No question that there can be risk with any kind of investment.   Real estate notes are no different. What if you could invest in something familiar, set your own return, AND determine your level of risk? It may sound too good to be true, but that could be some of the benefits of purchasing private mortgage notes or notes collateralized by real estate.  You still have to do your homework.

It’s All In the Asset:  Chris Bounds Austin Texas

A seasoned note (one that has a history of on time payments) that is collaterized by an improved  golf course lot which has a market value of 2x or 3x the face amount of the note and carrying an interest rate above that of a CD or AAA bond can be very interesting.   You collect interest and principal payments monthly according to the amortization schedule (cash flow) but do not have to change out toilets, deal with lease contracts or late rent payments.

But there are downsides to owning real estate notes:

  • The first is “What if the value of the underlying assets doesn’t increase or worse… goes down?”  This can be problem.  If the owner of the land backing the notes becomes upside down on value, he can default on the note forcing you to foreclose and take possession of the land. (and any improvements thereto)
  • The second is the challenge of keeping the principal and interest payments working as they come back.  The cash flow from a note can be reinvested …into anything, including more notes. This is the recipe that many note buyers use.
  • The third is the foreclosure problem.  When you buy a note you may want to make sure you are the first lien holder and know your valuations.

When you own a note, you are acting like the bank. You are the one receiving the payments. If something needs fixed the owner has to do it.  And like the bank, you also have the right to take the house or lot back in the event of non-payment.

To make the situation even better, you can structure a transaction so you are not owed anywhere near the value of the property, giving you tremendous leverage. Real estate note

Resort Development Continues to Grow…But

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The Resort Development industry continues to grow despite the perception that it is stuck in 2008 and that there is a sub-prime loan crisis ongoing and that all banks are insolvent and cant fund projects and that golf courses are overbuilt and that timeshare is dead.  Quite the contrary.  The Resort lifestyle industry, including golf course communities, timeshare and interval ownership companies as well as private camping networks and vacation clubs continue to see large sales volume increases.  According to A.R.D.A. (American Resort Development Association), timeshare sales topped $7.9 Billion in 2014, up for the fifth year in row and with forecasts of 6%+ sales growth for the foreseeable future.  Chris Bounds, of Austin, notes that moderately priced to high end, golf course communities are flourishing in every major market that has a positive population grown and RVing and RV resorts continue to try and keep up with baby boomer demand.   Marriott Vacation Club continues to add luxury properties to its stable of world wide resorts and will once again finance many of its sales internally.  The industry is growing.

Admittedly the markets have shifted and changed and consumers have more choices for their leisure dollars and are much more “educated” about such things than they once were (which is great) and the internet is a THING!  OK fine, these are all good changes.  A well dressed, non-chain smoking, educated sales team under seasoned leadership is what it may now take to  sell out all the lots around a golf course before it is complete or sell Points for interval exchanges at a higher average rate and volume than on-site sales, but that is that.  Resort companies that understand and embrace this concept are setting sales records.  Public companies own more and more such assets and old, mismanaged  country clubs with musty carpet and divot laced greens or timeshare communities with faded paint and mossy swimming pools are struggling the same fate carriage manufacturers did in 1920.  For them, without change, it won’t end well.

Many land and timeshare notes are once again being financed at face value and many are once again being securitized on Wall Street.   The US consumers HAVE CHANGED and the developers that change with them will fair just fine as we plan sales projects into 2020!

golf plattsold-out

 

Austin is Boom Town again!!

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View of Downtown from new Dell - UT Hospital complex.

View of Downtown from new Dell – UT Hospital complex.

“Cranes on the horizon, U-haul trailers stacked up at gas stations, out of state plates all over the county and you can’t get a table a decent restaurant. Sounds like 1986, I mean 1999 or was it 2007.
Its 2015 and we are booming again.” says Chris Bounds, of Austin, in a recent trade publication. Locals have seen this before.  Investors know the furry and the drill.  The only difference this time is the cranes are taller, the deals are bigger and the traffic is worse. Lots of money flowing into Austin and Central Texas chasing tech/e-commerce and real estate projects and ventures.  No shortage of Californians walking around with thick wallets and a resume trying to put something together.

Hopefully this is not another artificial bubble.  Hopefully we are not over building…again.  Hopefully the banks will stay solvent and sub prime loans wont infect the system, again.  And we hope that all your assets are monitored, managed and under audit at all times.  We advise that all passive and direct investments be reviewed, totaled and audited monthly.   The exercise of preparing and the review of a monthly Net Worth statement will often reveal good and bad news trends in advance of otherwise untimely notifications.

Private, confidential review and a complete Asset Analysis are the backbone of navigating the investment minefield in Boom economies.  We might even be in a Hyper-Boom economy, which would dictate more oversight and analysis.   Someone once said, ” I don’t know of a famous, skinny chef and I have never met a rich economist”  Do your own homework and employ experts to help.  Valuations can turn quickly in both directions, so you don’t want to be the last $ in or the last getting out.   Hope really  IS not a strategy and luck IS not a discipline.

 

Chris Bounds, Austin, Texas