Last night, 60 Minutes ran a story about the "Millenials", which refers to the new generation of workers born between 1980 and 1995. In the peice, they discuss how the "new" workers are very technologically savy, but lack the traditional work loyalty and drive that previous generations have had.
While we all have dealt with the slacker-20-something in the workplace, it isn't really a new thing. If you go back to the boomer generation, you had the hippie set who weren't really that motivated or ambitious. Before that you had the beatnicks, bums and village idiots. The fact is that every generation looks like lazy little bastards to those who are older.
I don't want to defend the little jerks who walk around with ipods, text message constantly, spend thier days on MySpace, YouTube or whatever else they are doing. However, they are just young and don't have the responsibilities that a 42 year old guy with an ex-wife, current wife, combined 5 kids spread over 3 states and credit card debt up to his double chin has. If we just give the 20-somethings time, they will eventually get themselves into crappy life circumstances where loyalty to the company and the job will override their selfish desires to be happy.
The media has to come up with some way to segment people to make broad generalizations about generations since they can no longer generalize according to race, ethinicity, sex or any of the previous groupings.
Am I concerned that the fat little kids who are self involved are going to run our country into the ground? No, not at all. By the time these guys are in charge and in a position to screw up our economy, we should have the GDP of Paraguay thanks to the current crop of morons running our macro economy.
Monday, November 12, 2007
Friday, November 09, 2007
Getting into commercial real estate
I am now completing my third commercial building. The three projects have been the Industrial building, the John R. Hayes building, and the new W. Adin Hayes building. I sold the industrial building this past summer. So I have two buildings that I am keeping.
Everything I have learned about commercial real estate has been through doing and reading. I should mention that very little in my MBA prepared me for the commercial real estate world with the exception of a couple of finance classes.
Since I always enjoy sharing what I have learned, here is the first lesson.
Everywhere you look, you will see commercial properties. Some of these are owned by the company who is occupying them. However, most are rental properties. I define commercial rental properties into two groups. The first group is the multi-tenant property. These are everything from strip malls to high-rise office buildings. The second group are single tenant buildings.
While this is a very simplified way to categorize commercial real estate, it works for this lesson.
Making money in commercial real estate as a property owner is not too difficult. First, you need to find a location and secure it someway. I recommend either putting a contract with a few contingencies or purchasing an option on the land. Options are good since they give you more time to bring a deal together, however you are at risk of losing the option and what you paid for it if you take too long to make something happen.
After you have some land locked in, you need to put together a proposal on that land. Maybe it is a speculative building with five office spaces in it. You would want to put together a site plan so you can figure how big the building can be and how it will lay out. Then from that, you could hire a designer to lay out your building. I recommend finding an existing building in a nearby town (similar building codes) and buying that design or modifying it with the original designer. By the way, in some areas you don't need to hire a full architect. A designer who subs out of the structural engineering will do fine.
So now, you have some land that you don't yet own, a site plan (preliminary) that gives you an idea of how the building will lay out, and a building design (exterior only) which gives you some nice 3-D pictures. This is where you need to hustle. First, you should be contacting potential tenants. At the same time, you should be getting cost estimates and financing. All you are going to finance is the shell part of the building and the site work. Make it clear that any tenant upfit will be financed and built after you sign tenants.
Obviously, I have skipped the market research part of things. However, you should know your market very well. Understand what the vacancy rates are, the typical rents, what businesses are there and what is missing. The "missing" is your market. I could spend days talking about this part.
Okay, now you have lots of things going on:
1. An option, contract or piece of land that you have bought.
2. A site plan that is ready to be submitted or has been submitted. (You should already have the proper zoning before you buy the land. Never buy land without the zoning done first!)
3. A shell building design and lots of pretty pictures of it.
4. Bids or estimates of the construction cost from a Class-A contractor (No, you shouldn't play general contractor unless you are one.)
5. You should get some tenants signed up. I recommend a minimum of a 5-year lease.
6. A financing package for 100% of the project cost including interest.
That last part is where people have trouble. This is not your house. This is a commercial building. Therefore, you should be able to build it for a lot less than what it will be worth. That is because you should ultimately appraise the building based on the net operating income it produces. For instances, nationally, commercial properties are valued at about 6.5 to 7% capitization rates. A Cap rate is the rental income after all expenses except for interest, depreciation and taxes divided by the purchase price. So say a building generates $120,000 per year, has operating expenses of $20,000 per year, and was purchased for $1,400,000. Then the cap rate would be 7.1%.
Here is the neat part, if you are building right, you should be able (depending on your market) to get a building going for less than what it is worth based on the cap rate. That is the goal anyway.
If you can build a property that generates $100,000 per year for about $800,000 and borrow $900,000 then you would have a loan to value of $900,000/$1,400,000 or 64%.
If you achieve your financing goal, then you have been able to build your property without any money down. Now you have to figure out how to make money at it.
Using the example above, let's get you a $900,000 note with a 20 year amatorization at 7% at your local bank. They will likely put a 5-year balloon on it so they can milk points out of you every now and then. With that funding, you would have a mortgage payment of $83,732 leaving you about $12,000 in free cash. But wait, there is more. You get to write off the interest, and depreciate the building over 39 years.
If you are smart, you will get leases with inflation kickers that move the rent up a little each year. This is very important since you will want to increase your rents over time. Once your building is full, you can either sell it based on the cap rates or hold it and eventually pay down the debt to have a nice retirement nest egg.
I could go on more about this, and I will--later.
Everything I have learned about commercial real estate has been through doing and reading. I should mention that very little in my MBA prepared me for the commercial real estate world with the exception of a couple of finance classes.
Since I always enjoy sharing what I have learned, here is the first lesson.
Everywhere you look, you will see commercial properties. Some of these are owned by the company who is occupying them. However, most are rental properties. I define commercial rental properties into two groups. The first group is the multi-tenant property. These are everything from strip malls to high-rise office buildings. The second group are single tenant buildings.
While this is a very simplified way to categorize commercial real estate, it works for this lesson.
Making money in commercial real estate as a property owner is not too difficult. First, you need to find a location and secure it someway. I recommend either putting a contract with a few contingencies or purchasing an option on the land. Options are good since they give you more time to bring a deal together, however you are at risk of losing the option and what you paid for it if you take too long to make something happen.
After you have some land locked in, you need to put together a proposal on that land. Maybe it is a speculative building with five office spaces in it. You would want to put together a site plan so you can figure how big the building can be and how it will lay out. Then from that, you could hire a designer to lay out your building. I recommend finding an existing building in a nearby town (similar building codes) and buying that design or modifying it with the original designer. By the way, in some areas you don't need to hire a full architect. A designer who subs out of the structural engineering will do fine.
So now, you have some land that you don't yet own, a site plan (preliminary) that gives you an idea of how the building will lay out, and a building design (exterior only) which gives you some nice 3-D pictures. This is where you need to hustle. First, you should be contacting potential tenants. At the same time, you should be getting cost estimates and financing. All you are going to finance is the shell part of the building and the site work. Make it clear that any tenant upfit will be financed and built after you sign tenants.
Obviously, I have skipped the market research part of things. However, you should know your market very well. Understand what the vacancy rates are, the typical rents, what businesses are there and what is missing. The "missing" is your market. I could spend days talking about this part.
Okay, now you have lots of things going on:
1. An option, contract or piece of land that you have bought.
2. A site plan that is ready to be submitted or has been submitted. (You should already have the proper zoning before you buy the land. Never buy land without the zoning done first!)
3. A shell building design and lots of pretty pictures of it.
4. Bids or estimates of the construction cost from a Class-A contractor (No, you shouldn't play general contractor unless you are one.)
5. You should get some tenants signed up. I recommend a minimum of a 5-year lease.
6. A financing package for 100% of the project cost including interest.
That last part is where people have trouble. This is not your house. This is a commercial building. Therefore, you should be able to build it for a lot less than what it will be worth. That is because you should ultimately appraise the building based on the net operating income it produces. For instances, nationally, commercial properties are valued at about 6.5 to 7% capitization rates. A Cap rate is the rental income after all expenses except for interest, depreciation and taxes divided by the purchase price. So say a building generates $120,000 per year, has operating expenses of $20,000 per year, and was purchased for $1,400,000. Then the cap rate would be 7.1%.
Here is the neat part, if you are building right, you should be able (depending on your market) to get a building going for less than what it is worth based on the cap rate. That is the goal anyway.
If you can build a property that generates $100,000 per year for about $800,000 and borrow $900,000 then you would have a loan to value of $900,000/$1,400,000 or 64%.
If you achieve your financing goal, then you have been able to build your property without any money down. Now you have to figure out how to make money at it.
Using the example above, let's get you a $900,000 note with a 20 year amatorization at 7% at your local bank. They will likely put a 5-year balloon on it so they can milk points out of you every now and then. With that funding, you would have a mortgage payment of $83,732 leaving you about $12,000 in free cash. But wait, there is more. You get to write off the interest, and depreciate the building over 39 years.
If you are smart, you will get leases with inflation kickers that move the rent up a little each year. This is very important since you will want to increase your rents over time. Once your building is full, you can either sell it based on the cap rates or hold it and eventually pay down the debt to have a nice retirement nest egg.
I could go on more about this, and I will--later.
Friday, October 26, 2007
Giving 110%
Last night I was watching Survivor. (Don't even ask!) On it, the Lunch Lady stated that she always gives one hundred and ten percent. Not to sound like a jerk or anything, but how is that possible?
If someone tells me they give 110%, my response is always, "Why not 195%? Why are you holding back?"
This seems to be a habit for jocks more so than others. Although whenever an employee is in trouble, they are quick to point out that they give it 1,000%. No kidding!
For me, I like to give it 5%, but have that increase at a rate of prime + 1 then have that amount compound daily with a balloon on Fridays. Ha! Beat that!
If someone tells me they give 110%, my response is always, "Why not 195%? Why are you holding back?"
This seems to be a habit for jocks more so than others. Although whenever an employee is in trouble, they are quick to point out that they give it 1,000%. No kidding!
For me, I like to give it 5%, but have that increase at a rate of prime + 1 then have that amount compound daily with a balloon on Fridays. Ha! Beat that!
Thursday, October 25, 2007
Why I Am A Raging Libertarian
When I tell people that I am a libertarian, they often mistakenly believe that I am a liberal. So before I go any further, let me explain what a libertarian generally believes.
A libertarian believes in small government, less intrusion, private property rights, fewer laws, less regulation, more independence, more logic, and more freedom. It is actually pretty simple, really: Leave me the hell alone!
Here are a few of the major gripes I have:
1. If I own property, I should be able to do with it what I wish, so long as I am not hurting anyone else. However, the codes, zoning, restrictions and regulation put on my private property are getting onerous. Thirty years ago, there were no zoning regulations. If you wanted to put a hotel out in the middle of now where, then you could. You took the risk that it would be successful. Today, I can't so much as add a parking space to my building without going through a lengthy approval process with the county staff. I am not asking to be able to build a fire-death-trap building, but lay off already.
2. Our prisons are filled with people who are not criminals. In the United States, we have a greater percentage of our population locked up than any other developed country in the world. This isn't because we are all godless killers. It is because we have so many crimes that lack victims. If a guy is smoking weed (a natural plant that grows in the ground), then who is the victim. It is his body. He didn't kill anyone, hurt anyone or steal anything. Our government locks this guy up for 3 to 5 years, takes away his ability to make an honest living, and puts him in an environment where he will become a real criminal. America is supposed to be the land of the free. Let's actually let people be free. Lock up the guys that hurt others, but if there is no victim, then there is no crime.
3. Conservatives say they are for smaller government, but they actually want more government intrusion. Libertarians say, "If there isn't a victim, then butt out." Liberals want to take away people's right to fail. Everyone is a winner. Libertarians say, "Let me succeed or fail based on what I can or cannot do." All this is based upon the concept of freedom. Freedom of movement, freedom of expression, freedom of thought, and freedom of risk.
If a couple of men want to own property together and do the dirty in their own homes, why is that a problem? If I choose to paint my house blue or red or pink or yellow, why can't I? If I want to start up a business to make money, why should I need to check with the government first?
I could rant about this stuff all day long. The biggest frustration I have is that my voice is not heard. There are no national candidates that speak the way I think. I am an American without representation.
A libertarian believes in small government, less intrusion, private property rights, fewer laws, less regulation, more independence, more logic, and more freedom. It is actually pretty simple, really: Leave me the hell alone!
Here are a few of the major gripes I have:
1. If I own property, I should be able to do with it what I wish, so long as I am not hurting anyone else. However, the codes, zoning, restrictions and regulation put on my private property are getting onerous. Thirty years ago, there were no zoning regulations. If you wanted to put a hotel out in the middle of now where, then you could. You took the risk that it would be successful. Today, I can't so much as add a parking space to my building without going through a lengthy approval process with the county staff. I am not asking to be able to build a fire-death-trap building, but lay off already.
2. Our prisons are filled with people who are not criminals. In the United States, we have a greater percentage of our population locked up than any other developed country in the world. This isn't because we are all godless killers. It is because we have so many crimes that lack victims. If a guy is smoking weed (a natural plant that grows in the ground), then who is the victim. It is his body. He didn't kill anyone, hurt anyone or steal anything. Our government locks this guy up for 3 to 5 years, takes away his ability to make an honest living, and puts him in an environment where he will become a real criminal. America is supposed to be the land of the free. Let's actually let people be free. Lock up the guys that hurt others, but if there is no victim, then there is no crime.
3. Conservatives say they are for smaller government, but they actually want more government intrusion. Libertarians say, "If there isn't a victim, then butt out." Liberals want to take away people's right to fail. Everyone is a winner. Libertarians say, "Let me succeed or fail based on what I can or cannot do." All this is based upon the concept of freedom. Freedom of movement, freedom of expression, freedom of thought, and freedom of risk.
If a couple of men want to own property together and do the dirty in their own homes, why is that a problem? If I choose to paint my house blue or red or pink or yellow, why can't I? If I want to start up a business to make money, why should I need to check with the government first?
I could rant about this stuff all day long. The biggest frustration I have is that my voice is not heard. There are no national candidates that speak the way I think. I am an American without representation.
Thursday, September 06, 2007
The Trouble With Databases
Over the past 9 years, RentQuick.com has been in the business of providing projector and laptop rentals to the meeting and conference industry. Whenever we do business with someone, like all businesses, we add them to our database. Over the years, we have built up a very large database that in my mind has become a bit of a problem.
Way back in the 20th century, employees would stay at the same company for their entire careers. Today, it looks like people spend two to three years before moving on to another job. I know this, because every year our database loses 20-30% of the contacts.
As a result, our database must be constantly "weeded" and "pruned" (don't you just love the horticulture related jargon?). It takes a good bit of time, because you don't want to just dump data. You need to be sure that the person has really moved on. And if they did move on, you need to find out who took their place.
Finding out any information from most companies today is pretty hard. Yes, you can go online and search, but you really need to make a telephone call to confirm the data. If you send an email, it likely won't be answered. But telephone calls are a pain too because no one actually answers their phone. The let the voice mail do it for them. Then they don't return the call.
All this is very frustrating and costly to a company trying to communicate with the clients. This is the main reason why we no longer do mailed advertisings. Most of the mailings come back undelivered.
So on one hand, I hate my database. It has gotten very big and cumbersome. However, on the other hand, it contains very important information about the most important people: our clients.
Way back in the 20th century, employees would stay at the same company for their entire careers. Today, it looks like people spend two to three years before moving on to another job. I know this, because every year our database loses 20-30% of the contacts.
As a result, our database must be constantly "weeded" and "pruned" (don't you just love the horticulture related jargon?). It takes a good bit of time, because you don't want to just dump data. You need to be sure that the person has really moved on. And if they did move on, you need to find out who took their place.
Finding out any information from most companies today is pretty hard. Yes, you can go online and search, but you really need to make a telephone call to confirm the data. If you send an email, it likely won't be answered. But telephone calls are a pain too because no one actually answers their phone. The let the voice mail do it for them. Then they don't return the call.
All this is very frustrating and costly to a company trying to communicate with the clients. This is the main reason why we no longer do mailed advertisings. Most of the mailings come back undelivered.
So on one hand, I hate my database. It has gotten very big and cumbersome. However, on the other hand, it contains very important information about the most important people: our clients.
Wednesday, September 05, 2007
Sub-Prime Mortgage Victim Joe
This past week, President Bush argued that the Federal Government should help the homeowners who are at risk of defaulting on their loans which they can no longer afford.
Over the past month, we have heard the media describe the borrowers as victims. They say that the mortgages were pushed upon them. They were tricked into taking out more money than they could afford.
It is easy to blame the mortgage companies. Yes, they did try a number of ninja loans that were risky. Yes, a bunch of those loans will default. And yes, the homeowners will lose their homes. All terrible stuff, right?
Wrong. The homeowners don't actually own anything. In fact, some of them will make a good bit of money out of their little mess. First, if they have a 125% loan-to-value deal, that means they never put any money into the house. If they have been paying interest only, then they have zero equity to lose. They are glorified renters. When the bank forcloses on the house, they will end up keeping that extra 25% of the loan. Why? Because it was used to pay off their credit card debt (Victims of the subprime mess were also victims of the credit card debt mess too).
So here is a little example:
Joe buys a house for $300,000. He takes out a ninja loan for $350,000 to pay off and "consolidate" his credit card debt which he ran up in his wild 20's. His monthly interest-only payment starts off at $1458 per month. All is well in the world. Joe is a fancy guy in a fancy house.
But wait! The evil lender pulled a fast one. (Not really, it was all spelled out in their loan agreement and Joe had an attorney do his close so he should have known it was coming!) The lender tied the 3rd year of the loan to float with prime. Now Joe is paying Prime +1 which makes his interest only payment $2890. How ever will Joe be able to get that new HD-DVR he has been wishing and praying for over the past 2 weeks.
Of course, this is when the Today show comes out with the sad story and the sad music about Joe. Joe who has already lost his dog to a Michael Vick dogfight. Joe who is a good guy and likes to work 40 hours a week. Joe who is an American just like you and me. (I apologize to our international readers, but being an American today means you never fail. That is why we have a government) Joe who is about to lose his house to a foreclosure.
After all the tears and sad commentary only briefly interrupted by a Flomax commercial, we all feel a little less secure.
If Joe, who is an American just like you and me, can lose his house then so can I!
On and on it goes with no end in sight. Here is the straight talk:
1. Joe is an idiot. He should never have bought a house without a down payment.
2. If Joe had not spent his earnings of his 30's while he was in his 20's (credit card debt) he might have a down payment.
3. Joe is an idiot (again). He never took the time to learn about how floating rate mortgages work. Nor did he ever learn how to plan beyond the next week.
4. Did I mention Joe was an idiot? By the way, Joe will make money by walking away from his loan because he is effectively paying off all his credit card debt when they take the house. You might say, but his credit would be destroyed. Duh! This idiot didn't have any credit. That is why he needed a sub-prime loan in the first place.
5. Finally, the government needs to butt out. Keep liquidity where needed. But forget about the Joe's of the world. Don't bail them out or the lenders or anyone else. Allow people to fail. It is part of life. It is how we grow and learn.
And this isn't even the reason I am so pissed today!
Over the past month, we have heard the media describe the borrowers as victims. They say that the mortgages were pushed upon them. They were tricked into taking out more money than they could afford.
It is easy to blame the mortgage companies. Yes, they did try a number of ninja loans that were risky. Yes, a bunch of those loans will default. And yes, the homeowners will lose their homes. All terrible stuff, right?
Wrong. The homeowners don't actually own anything. In fact, some of them will make a good bit of money out of their little mess. First, if they have a 125% loan-to-value deal, that means they never put any money into the house. If they have been paying interest only, then they have zero equity to lose. They are glorified renters. When the bank forcloses on the house, they will end up keeping that extra 25% of the loan. Why? Because it was used to pay off their credit card debt (Victims of the subprime mess were also victims of the credit card debt mess too).
So here is a little example:
Joe buys a house for $300,000. He takes out a ninja loan for $350,000 to pay off and "consolidate" his credit card debt which he ran up in his wild 20's. His monthly interest-only payment starts off at $1458 per month. All is well in the world. Joe is a fancy guy in a fancy house.
But wait! The evil lender pulled a fast one. (Not really, it was all spelled out in their loan agreement and Joe had an attorney do his close so he should have known it was coming!) The lender tied the 3rd year of the loan to float with prime. Now Joe is paying Prime +1 which makes his interest only payment $2890. How ever will Joe be able to get that new HD-DVR he has been wishing and praying for over the past 2 weeks.
Of course, this is when the Today show comes out with the sad story and the sad music about Joe. Joe who has already lost his dog to a Michael Vick dogfight. Joe who is a good guy and likes to work 40 hours a week. Joe who is an American just like you and me. (I apologize to our international readers, but being an American today means you never fail. That is why we have a government) Joe who is about to lose his house to a foreclosure.
After all the tears and sad commentary only briefly interrupted by a Flomax commercial, we all feel a little less secure.
If Joe, who is an American just like you and me, can lose his house then so can I!
On and on it goes with no end in sight. Here is the straight talk:
1. Joe is an idiot. He should never have bought a house without a down payment.
2. If Joe had not spent his earnings of his 30's while he was in his 20's (credit card debt) he might have a down payment.
3. Joe is an idiot (again). He never took the time to learn about how floating rate mortgages work. Nor did he ever learn how to plan beyond the next week.
4. Did I mention Joe was an idiot? By the way, Joe will make money by walking away from his loan because he is effectively paying off all his credit card debt when they take the house. You might say, but his credit would be destroyed. Duh! This idiot didn't have any credit. That is why he needed a sub-prime loan in the first place.
5. Finally, the government needs to butt out. Keep liquidity where needed. But forget about the Joe's of the world. Don't bail them out or the lenders or anyone else. Allow people to fail. It is part of life. It is how we grow and learn.
And this isn't even the reason I am so pissed today!
Tuesday, September 04, 2007
Helping the Helpless
I have been in the business field for most of my adult life, less 6 years in the Marine Corps. As a result, I have developed a wide range of business experience. As a result, I tend to get a large number of people who come to me for advice on thier businesses.
Although I have never charged for this advice, I put alot of effort into helping these guys out. Recently, I did some advising to a family business that I have done work with in the past. These guys had gotten themselves into a mess and they needed to make some tough decisions to get out of it.
I evaluated the deal and came up with what I thought was a pretty good route for them to move past the problems. I even pulled in some of my resources to help them refinance their business. The recommendations I made were agreed to by all the parties and it looked like a solution was in the works. Then...kablamm! They went a completely different route.
By different route, I mean they did nothing. They faced and continue to face total extinction, but they don't seem to worry about it at all. They have not moved on any of my advice and are in the process of actually working backwards.
The moral of this little story, and the only part that matters in our conversation is this: it is not the idea that matters, it is the execution. You can think things through, but if you don't act then you are going nowhere fast.
As a result, I have defined this as helping the helpless. They don't really want any help.
Although I have never charged for this advice, I put alot of effort into helping these guys out. Recently, I did some advising to a family business that I have done work with in the past. These guys had gotten themselves into a mess and they needed to make some tough decisions to get out of it.
I evaluated the deal and came up with what I thought was a pretty good route for them to move past the problems. I even pulled in some of my resources to help them refinance their business. The recommendations I made were agreed to by all the parties and it looked like a solution was in the works. Then...kablamm! They went a completely different route.
By different route, I mean they did nothing. They faced and continue to face total extinction, but they don't seem to worry about it at all. They have not moved on any of my advice and are in the process of actually working backwards.
The moral of this little story, and the only part that matters in our conversation is this: it is not the idea that matters, it is the execution. You can think things through, but if you don't act then you are going nowhere fast.
As a result, I have defined this as helping the helpless. They don't really want any help.
Monday, August 13, 2007
The Waiting Game
Right now I have several projects which are being done by other people. These are:
1. Earthwork construction at DeWitt Crossing
2. Building Construction of new office building
3. Engineering work for a stormwater detention pond
4. RentQuick.com website re-design
Here is my problem: I hate waiting on other people to do their work. Now, I know sometimes problems arise or other work interferes with getting my jobs done, but it always seems to be that way.
I have spent the better part of my Monday morning trying to get a handle on where everything is and what is going on. To be honest, I think I am at the same stage I was a month ago. Things are not progressing fast enough.
The word of the day is frustration.
1. Earthwork construction at DeWitt Crossing
2. Building Construction of new office building
3. Engineering work for a stormwater detention pond
4. RentQuick.com website re-design
Here is my problem: I hate waiting on other people to do their work. Now, I know sometimes problems arise or other work interferes with getting my jobs done, but it always seems to be that way.
I have spent the better part of my Monday morning trying to get a handle on where everything is and what is going on. To be honest, I think I am at the same stage I was a month ago. Things are not progressing fast enough.
The word of the day is frustration.
Wednesday, August 01, 2007
Learning to Embrace The Global Marketplace
As we grow up, depending upon our upbringing, we tend to develop a fairly narrow view of the world around us. We tend to think of the world as those people whom we know and relate to. Sure, we see the rest of the world on television and read about them briefly in the press. We all feel sad for the impoverished, but don't actually feel the pain as if it were our own.
We think we know what it means to be French, Japanese, or even Chinese. Some of us, from the comfort of our own living room, learn to hate people based upon the language they speak or the country in which they live.
I know people who have never been more than two hours from where they were born. In fact, this is the majority of the world. Yes, there are many people who have never ventured from the unknown. They have never been in a position of being the "alien". It is interesting to talk with these people to learn where they get their beliefs from.
If you have never been to Spain, never met a spaniard, and cannot even find the country on a map, how can you have any beliefs about it. However, this is exactly what people tend to do.
I have never been to North Korea. I do not speak the language. I can find it on a map however (it resides just North of South Korea!). I am sure that many of the talking heads on television have not been there either. Why is it that they know so much about the country and the people there? In fact, if you weren't paying attention, you may not have known that the United States was on the verge of a shooting war with North Korea until moods changed and now they are on the verge of a shooting war with Iran.
This leads me in a round about way to a neat little book I am reading called China Road by Rob Gifford. Mr. Gifford takes us on a journey through the center of China from Shanghai to the Gobi desert. If you think you know who China is, this book shows you just how little you do.
I highly recommend this book to everyone. (no not anyone, everyone!) China is on the verge of becoming the dominant economic power in the world. They will stay that way for a very long time. As a result, understanding a little more than the sterotypical picture of this country is important.
Next, I started outsourcing web and programming work to international talent. Why? Why send work to someone who lives in India, China or Russia? The answer is simple: they want to work and they do work. Yes, they are cheaper than their American counterparts, but that is only part of the benefit. With American technologists, I find they spend an awful large amount of their time learning on my dime. And that really pisses me off. (I'm talking to you Civil Engineers who work for a private engineering firm in Waynesboro.)
Finally, a quick update on DeWitt Crossing. We are slowly finishing up the road and sidewalks. There is still a little more work to be done, but things should be all wrapped up and finalized by October.
We think we know what it means to be French, Japanese, or even Chinese. Some of us, from the comfort of our own living room, learn to hate people based upon the language they speak or the country in which they live.
I know people who have never been more than two hours from where they were born. In fact, this is the majority of the world. Yes, there are many people who have never ventured from the unknown. They have never been in a position of being the "alien". It is interesting to talk with these people to learn where they get their beliefs from.
If you have never been to Spain, never met a spaniard, and cannot even find the country on a map, how can you have any beliefs about it. However, this is exactly what people tend to do.
I have never been to North Korea. I do not speak the language. I can find it on a map however (it resides just North of South Korea!). I am sure that many of the talking heads on television have not been there either. Why is it that they know so much about the country and the people there? In fact, if you weren't paying attention, you may not have known that the United States was on the verge of a shooting war with North Korea until moods changed and now they are on the verge of a shooting war with Iran.
This leads me in a round about way to a neat little book I am reading called China Road by Rob Gifford. Mr. Gifford takes us on a journey through the center of China from Shanghai to the Gobi desert. If you think you know who China is, this book shows you just how little you do.
I highly recommend this book to everyone. (no not anyone, everyone!) China is on the verge of becoming the dominant economic power in the world. They will stay that way for a very long time. As a result, understanding a little more than the sterotypical picture of this country is important.
Next, I started outsourcing web and programming work to international talent. Why? Why send work to someone who lives in India, China or Russia? The answer is simple: they want to work and they do work. Yes, they are cheaper than their American counterparts, but that is only part of the benefit. With American technologists, I find they spend an awful large amount of their time learning on my dime. And that really pisses me off. (I'm talking to you Civil Engineers who work for a private engineering firm in Waynesboro.)
Finally, a quick update on DeWitt Crossing. We are slowly finishing up the road and sidewalks. There is still a little more work to be done, but things should be all wrapped up and finalized by October.
Wednesday, July 18, 2007
You Might Be Dumber Than Paris Hilton
Over the past few months, we have seen and experienced the day-to-day trials of that waifish moron known as Paris Hilton. The media keeps covering her while at the same time apologizing for doing so. The main attraction to all this news coverage is not that Paris Hilton has adoring fans who are concerned with her well being. Nor is it because she is particularly pleasant to look at. In fact, she is kinda scary.
No, the reason why the media gives us 24/7 coverage of Paris is the same reason why we all watch: We want to feel smarter than someone who is richer than we are.
Yes, the American dream has changed a little bit. No longer do we wish to pull ourselves up by our bootstraps (or 5" designer heal-straps). Today, we seek contentment and happiness by telling ourselves and each other what a considerable dumb-ass twit Paris Hilton is. You see, this makes up for the fact that a young lady who looks like a fence post but lacks the IQ of a fence post is god-awful rich. She is a heiress for crying out loud. Which is all the more reason to hate her.
However, I submit that Ms. Hilton is not as dumb as she might first appear. Take for instance the following career building moves:
1. A sex tape is released just before her lousy TV show is first aired. Prior to that, none of us had heard of her.
2. On the show, she acts dumber than is humanly possible. (Everyone, including Paris Hilton has heard of Wal-Mart. If you bought that line then you are right down there with her.) But this only propells her popularity forward.
3. When she is tossed in and out of jail, she gets even more coverage. Hell, OJ had to kill two people to get that type of coverage. All she had to do was drive without a license or something and Whammo! she is on every news channel.
As dumb as she is, she is still doing better than most of us. Keep in mind that she is paid $100,000 to show up at a night club and get drunk. I have been doing that for free!
Okay, now to our little test: Are you dumber than Paris Hilton. Answer these questions honestly:
1. Have you ever taken out a payday loan?
2. Do you routinely get big refunds with your tax return?
3. Do you have more than three kids to three separate partners?
4. Did you really believe George W. Bush when he said that Jesus was his political role model?
5. Do you have pictures of you drunk or high on your MySpace account?
6. Are you the person in Homeland Security who came up with the color coded threat conditions?
7. Do you eat fast food more than once per week?
8. Are you counting on Social Security as part of your retirement planning?
9. Do think Ben Franklin was a US President?
10. Do you still watch MTV waiting for someone, anyone to play a music video?
Scoring:
Add up all the "yes" answers and if you scored:
1-3 Yes'............pretty dumb
4-6 ...................really dumb
7-10..................You should get ready for a career as a rich and famous person.
No, the reason why the media gives us 24/7 coverage of Paris is the same reason why we all watch: We want to feel smarter than someone who is richer than we are.
Yes, the American dream has changed a little bit. No longer do we wish to pull ourselves up by our bootstraps (or 5" designer heal-straps). Today, we seek contentment and happiness by telling ourselves and each other what a considerable dumb-ass twit Paris Hilton is. You see, this makes up for the fact that a young lady who looks like a fence post but lacks the IQ of a fence post is god-awful rich. She is a heiress for crying out loud. Which is all the more reason to hate her.
However, I submit that Ms. Hilton is not as dumb as she might first appear. Take for instance the following career building moves:
1. A sex tape is released just before her lousy TV show is first aired. Prior to that, none of us had heard of her.
2. On the show, she acts dumber than is humanly possible. (Everyone, including Paris Hilton has heard of Wal-Mart. If you bought that line then you are right down there with her.) But this only propells her popularity forward.
3. When she is tossed in and out of jail, she gets even more coverage. Hell, OJ had to kill two people to get that type of coverage. All she had to do was drive without a license or something and Whammo! she is on every news channel.
As dumb as she is, she is still doing better than most of us. Keep in mind that she is paid $100,000 to show up at a night club and get drunk. I have been doing that for free!
Okay, now to our little test: Are you dumber than Paris Hilton. Answer these questions honestly:
1. Have you ever taken out a payday loan?
2. Do you routinely get big refunds with your tax return?
3. Do you have more than three kids to three separate partners?
4. Did you really believe George W. Bush when he said that Jesus was his political role model?
5. Do you have pictures of you drunk or high on your MySpace account?
6. Are you the person in Homeland Security who came up with the color coded threat conditions?
7. Do you eat fast food more than once per week?
8. Are you counting on Social Security as part of your retirement planning?
9. Do think Ben Franklin was a US President?
10. Do you still watch MTV waiting for someone, anyone to play a music video?
Scoring:
Add up all the "yes" answers and if you scored:
1-3 Yes'............pretty dumb
4-6 ...................really dumb
7-10..................You should get ready for a career as a rich and famous person.
Wednesday, April 11, 2007
Deflation and Other Interesting Econ
I just finished a fascinating book on Deflation (Deflation: What happens when prices fall by Chris Farrell). I have always enjoyed economics and this book is about the most compelling econ book I have ever read.
The main premise of the book is that we are moving into a deflationary period thanks to the following factors:
1. Federal Reserve Policy
2. Overproduction (Mostly from China)
3. Productivity advances in the service sector
4. Outsourcing
He looks at previous deflationary periods such as the deflation of the 1870s-90s, the Great Depression and Japan's deflation of the 90's.
Of course, if you look around you will say that he is nuts. Fuel prices, education, health care and raw materials are all higher. However, in total, he is correct. Prices for finished goods and services are dropping. This has tremendous impact on what will happen in the future.
First, the Federal Reserve has only theories on how to combat deflation. They have no real experience in counter-deflationary policy. Second, if deflation were to get out of hand, it would devastate our system of high personal debt. Debt in inflationary periods is good because the money used to pay back the debt will be worth less in the future. However, during deflationary periods, it will be the opposite.
Being in the technology industry, I am accustomed to falling revenue and prices. In fact, if RentQuick were still able to charge the same service rates that we did back in 1998, then we would be a significantly larger company. It is just something you learn to live with.
However, in the world of real estate, falling prices will be devastating. The only good part is that you won't have a supply side deflation (you cannot really make more land).
So where is the best place to be during a deflationary period? Mr. Farrell asserts that cash, i-bonds or corporate bonds will do best. Stocks apparently stink during deflationary cycles, which makes sense because revenue will drop first and payroll will be "sticky". Hence, earnings will drop.
Are we headed for a deep deflationary period? That is unlikely for the following reasons:
1. Fed policy will at least try to stabilize prices unlike during the depression where the federal government balanced the budget and the goal was adherence to the gold standard. (The gold standard is deflationary since there is a limited supply of gold available, thus money supply is restricted.)
2. The US is no longer on the gold standard. As stated above, this would allow more flexibility in Fed policy although at some risk to the dollar's exchange rate.
3. If prices are dropping, then there will be a point where the producers will move out of those products which do not offer a positive return on investment. This should reduce the supply of these products and stabilize the prices.
4. As the barrier to outsourcing drop, you will see wages in white collar outsourcing rise to meet those of the US. This makes sense that there will eventually be parity across borders once all barriers are removed. Yes, US salaries will drop, but others will rise. (Reference China's increase in executive pay in those companies that have taken over foreign firms such as Lenevo's purchase of IBM's PC division.)
So what should the individual do to prepare for deflation?
1. Reduce consumer debt. Pay off credit cards .
2. Adjust investment portfolios to favor bonds and cash over equities.
3. Continually increase knowledge, skills and certifications to increase your productivity and performance to counter lower wages.
There, I played an Economics Professor for a day. To think I got a D in Econ in the 11Th grade!
The main premise of the book is that we are moving into a deflationary period thanks to the following factors:
1. Federal Reserve Policy
2. Overproduction (Mostly from China)
3. Productivity advances in the service sector
4. Outsourcing
He looks at previous deflationary periods such as the deflation of the 1870s-90s, the Great Depression and Japan's deflation of the 90's.
Of course, if you look around you will say that he is nuts. Fuel prices, education, health care and raw materials are all higher. However, in total, he is correct. Prices for finished goods and services are dropping. This has tremendous impact on what will happen in the future.
First, the Federal Reserve has only theories on how to combat deflation. They have no real experience in counter-deflationary policy. Second, if deflation were to get out of hand, it would devastate our system of high personal debt. Debt in inflationary periods is good because the money used to pay back the debt will be worth less in the future. However, during deflationary periods, it will be the opposite.
Being in the technology industry, I am accustomed to falling revenue and prices. In fact, if RentQuick were still able to charge the same service rates that we did back in 1998, then we would be a significantly larger company. It is just something you learn to live with.
However, in the world of real estate, falling prices will be devastating. The only good part is that you won't have a supply side deflation (you cannot really make more land).
So where is the best place to be during a deflationary period? Mr. Farrell asserts that cash, i-bonds or corporate bonds will do best. Stocks apparently stink during deflationary cycles, which makes sense because revenue will drop first and payroll will be "sticky". Hence, earnings will drop.
Are we headed for a deep deflationary period? That is unlikely for the following reasons:
1. Fed policy will at least try to stabilize prices unlike during the depression where the federal government balanced the budget and the goal was adherence to the gold standard. (The gold standard is deflationary since there is a limited supply of gold available, thus money supply is restricted.)
2. The US is no longer on the gold standard. As stated above, this would allow more flexibility in Fed policy although at some risk to the dollar's exchange rate.
3. If prices are dropping, then there will be a point where the producers will move out of those products which do not offer a positive return on investment. This should reduce the supply of these products and stabilize the prices.
4. As the barrier to outsourcing drop, you will see wages in white collar outsourcing rise to meet those of the US. This makes sense that there will eventually be parity across borders once all barriers are removed. Yes, US salaries will drop, but others will rise. (Reference China's increase in executive pay in those companies that have taken over foreign firms such as Lenevo's purchase of IBM's PC division.)
So what should the individual do to prepare for deflation?
1. Reduce consumer debt. Pay off credit cards .
2. Adjust investment portfolios to favor bonds and cash over equities.
3. Continually increase knowledge, skills and certifications to increase your productivity and performance to counter lower wages.
There, I played an Economics Professor for a day. To think I got a D in Econ in the 11Th grade!
Friday, March 02, 2007
On Delegation
As a follow up to the octopus metaphor, which I was not too happy about, I thought I would talk a little more about delegation.
So much of what we are is based on what we have done and experienced. In my earlier days of entreprenuerism, was very independent. By independent, I mean that I did all the work myself. It comes from hearing my Dad say all his life "if you want something done right, do it yourself". I guess that stuck with me.
Doing it yourself is a great way to learn the ropes, however, at some point you reach diminishing returns. You cannot possibly be the best person to do everything. There are some people who are simply better at things than you are. Delegating tasks to contractors, engineers and other professionals frees me up to do what I can do best.
Of course, this is not without it's costs. Delegating to others involves paying them. When I put together my business plans, I look at the areas that I am going to be delegating and I double whatever the costs are that I expect. This is just my rule of thumb.
The big rule in delegation is that although you don't need to do the work, you are still held accountable for what gets done. So it is important to watch the job closely and follow up on every assigned task.
When I delegate or hire a pro to do the work, I make it clear that I am only paying for the result. If they screw up and have to do the work twice, I should not have to pay them for the repeated work. Likewise, if they are learning as they go, that too should not be on my dime. Of course, there is a gray area here as well. Getting an engineer to understand this requires some work. Some only want to be paid for the time they are doing the work and not for the results. But it is the results that add value, not the hours put into the effort.
So much of what we are is based on what we have done and experienced. In my earlier days of entreprenuerism, was very independent. By independent, I mean that I did all the work myself. It comes from hearing my Dad say all his life "if you want something done right, do it yourself". I guess that stuck with me.
Doing it yourself is a great way to learn the ropes, however, at some point you reach diminishing returns. You cannot possibly be the best person to do everything. There are some people who are simply better at things than you are. Delegating tasks to contractors, engineers and other professionals frees me up to do what I can do best.
Of course, this is not without it's costs. Delegating to others involves paying them. When I put together my business plans, I look at the areas that I am going to be delegating and I double whatever the costs are that I expect. This is just my rule of thumb.
The big rule in delegation is that although you don't need to do the work, you are still held accountable for what gets done. So it is important to watch the job closely and follow up on every assigned task.
When I delegate or hire a pro to do the work, I make it clear that I am only paying for the result. If they screw up and have to do the work twice, I should not have to pay them for the repeated work. Likewise, if they are learning as they go, that too should not be on my dime. Of course, there is a gray area here as well. Getting an engineer to understand this requires some work. Some only want to be paid for the time they are doing the work and not for the results. But it is the results that add value, not the hours put into the effort.
Wednesday, February 28, 2007
Me as the Octopus
Over the past two years as I have been working on my real estate project, I find myself acting as an octopus. By this I mean that I am in the center coordinating and coercing engineers, contractors, City officials and others in an effort to create the new commercial development.
I spend most of my time calling, leaving messages and giving instructions to the various parties that are needed in order to get the job done. This can be vexing at times, since people don't always cooperate.
When doing a project of this size, I cannot do it all by myself. In days gone past, I would try to do everything in house. Those days are over. Now I am dependent on other people to get the job done.
The key to working as an octopus is to understand what everyone's role is. This means understanding what they can and cannot do.
I am now more comfortable in my role. I look for how the timing of the different pieces fit together and I keep copious notes on every conversation and communication. I am up front with someone if they don't respond quickly enough and I drive the work flow toward the goal.
Lots of fun down here in the deep blue sea!
I spend most of my time calling, leaving messages and giving instructions to the various parties that are needed in order to get the job done. This can be vexing at times, since people don't always cooperate.
When doing a project of this size, I cannot do it all by myself. In days gone past, I would try to do everything in house. Those days are over. Now I am dependent on other people to get the job done.
The key to working as an octopus is to understand what everyone's role is. This means understanding what they can and cannot do.
I am now more comfortable in my role. I look for how the timing of the different pieces fit together and I keep copious notes on every conversation and communication. I am up front with someone if they don't respond quickly enough and I drive the work flow toward the goal.
Lots of fun down here in the deep blue sea!
Wednesday, January 03, 2007
Working in the mud
Today, my trusty contractors, March Construction, have begun work on the stormwater pipes in the DeWitt Crossing project.
Since it seems to rain every 7 days lately, we have mud everywhere. Of course, if this weren't such a warm winter (thanks alot Al Gore!), all this rain would be snow and we could just push it out of the way.
The mud affects a project like this in a number of ways. First, the moisure content of the fill material must be below about 20%. This means that even though the sky is blue and the grass is dry, we cannot fill on soggy mud. Mud minus water equals dirt. Dirt is good, mud is bad.
The mud also affects the nearby paved roads. If we drive from the mud to the paved roads, then everyone freaks out. Putting dirt on the pretty pavement isn't appreciated by those who drive cars they cannot afford because the cars get dirty. As a result, I spend a great deal of my time trying to get the mud off of my truck tires.
Anyway, if you care, I have included a pic of the guys putting the cap on one of the stormwater manholes.
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