Tag Archives: Real Estate

Am I Being Too Subtle: Straight Talk From a Business Rebel by Sam Zell

  1. Sam Zell discusses what has made him successful in building his commercial real estate companies as well as launching the trillion dollar real estate investment trust and other companies in energy
Key Takeaways
  1. Willing to be gruff in order to be direct. Has a sense of urgency and doesn’t understand why others don’t
  2. Willing to sacrifice conformity for effectiveness. Listens to everyone but is willing to do what makes sense to him. No assumptions and willing to act
  3. Sam lives and breathes risk. Always be deeply respectful of risk
  4. In any business, it is all about long term relationships, trust, transparency, always leaving something on the table, sharing the risks,
  5. Reputation is your most important asset
  6. Always keep learning, thinking for yourself and making your own decisions
  7. Sam and his parents escaped Poland just before the Nazi’s took over to settle down in Chicago
  8. Where there’s scarcity, price is no issue
  9. You learn so much from seeing people in their own environments – spend the time and money to travel to meet people on their turf
  10. Being comfortable with rejection is fundamental for entrepreneurs or anyone pushing the limits. However, can only push the limits and go against convention if you know the rules
  11. Started off developing housing in Ann Arbor and after some initial success he expanded to other second tier cities where he had pricing power and limited competition
  12. Jay Pritzker became a mentor and good friend who taught him how to evaluate and think through deals and how to understand risk
  13. Use simplicity as a strategy. Organize your thinking, break each step and decision down to its core and determine what the key is
  14. Bet on people over project
  15. In deal making, speed and certainty are superpowers. Often more even than price paid.
  16. Never underestimate the power of optionality
  17. The essence of an entrepreneur is someone who recognizes a problem and provides a solution
  18. Saw there was a huge oversupply if real estate in the 1970s so began accumulating capital in order to buy properties once the timing was right. In an inflationary environment he got a fixed rate return through his non recourse debt
  19. You can be a genius but if you’re in too competitive a market it won’t matter that much. Spend your time in areas with weak competition
  20. Don’t rely on people unless you understand their motivation and your interests align with theirs
  21. Leaders have to find ways to delegate and find ways to keep level headed. Especially during difficult times
  22. Liquidity = Value
  23. Sam describes himself as a professional opportunist and doesn’t care about external opinions. This was clear when he took over manufactured home corporation which made trailer homes and RVs. People called him names and wouldn’t invest because of the stigma of the industry but he goes to where the opportunities are. MHC, later renamed ELS, has been one of the most consistently profitable companies in the space
  24. Sam has been known as “the grave dancer” after an article he penned with the same title. This refereed more to him giving valuable but rundown assets new life rather than dancing on the graves of dying companies or industries
  25. Didn’t found but helped establish and build up the REIT industry – making it a central holding of most large portfolios and making brick and mortar buildings liquid assets
  26. In real estate, replacement costs are the most important metric because this determines the price of future competition
  27. Mitigating risk comes from understanding all angles and knowing which factors will make or break you
  28. 2-3 years before a country becomes investment grade is when they’re the most disciplined and is the best time to invest in them
  29. Hire people based on whether they’d fit the culture and not on a job description or resume. Once they have the basic skills, you can teach them the rest
  30. Keep your eyes and mind open. Read voraciously, meet with a broad range of people, experience different things, travel and try new things
  31. Do the right thing. When you’re in it for the long haul, there is no other way to act. Deals with a winner and loser rarely are truly successful and likely won’t lead to another deal between the parties in the future
  32. Prize loyalty above all else in self and others
  33. Be able to laugh at yourself and maintain perspective and humility
  34. Search for and make people owners as this makes them go all in and always search for better ways to do something, new opportunities
What I got out of it
  1. Working hard, following your gut, not worrying about what others think about you and having the courage to act on your convictions is key in any pursuit. Always be deeply respectful of risk

Zillow Talk: The New Rules of Real Estate by Spencer Rascoff and Stan Humphries

  1. Spencer Rascoff, CEO of Zillow, and Stan Humphries, Chief Economist, detail their findings based on the immense amount of data they have been able to aggregate and analyze through Zillow’s platform. Zillow is aiming to improve and promote transparency to help consumers make choices based on information, not superstitions or hunches
Key Takeaways
  1. Unlike what most people think, when a home is for sale is not black and white. Many people are willing to sell their home even if it is not on the market if the price is right
  2. Spencer Rascoff started off wanting to disintermediate the travel industry and built his first company, Hotwire to do so. After Hotwire was acquired by IAC InterActiveCorp, his next dream was to bring transparency to the real estate market. Today, Zillow is the largest real estate site on the Web and on mobile, with 90m unique users visiting every month, has 110m homes, including Zestimates and hundreds of thousands of real estate agent reviews. Besides massive amounts of data and users, Zillow adds value by analyzing this data and making it available to all people at all times to be able to make more informed decisions. Zillow can estimate a home’s value instantaneously, using tools more familiar in genomics image compression and biochemistry – moving from a 13.6% margin of error to a less than 7% margin, while increasing Zestimate coverage from 43m homes to more than 100m. Uses simple models, hyper-local information, continuous iteration and refinement to keep improving the Zestimates
  3. The American real estate market is one of the largest in the world at over $25.7T and for the most part of our history, they argue that real estate has been a great long-term investment with less volatility than stocks
  4. The concept of the Breakeven Horizon is important to know – how long you must live in your current home to make buying worth it
  5. Real estate mantra of location, location, location should be changed to future location, future location, future location
    1. Easiest way to find a hot spot is to look at a neighborhood that has already taken off and trying to spot patterns and similarities
    2. Adjacent areas to city center grow quickly in value due to what they term a halo effect
    3. Better real estate strategy is to buy home outside of the premier neighborhoods
    4. Gentrification (new wealth kicking out current, less wealthy residents) is more powerful than the halo effect. Neighborhoods that are likely to gentrify if they have older homes, low home ownership rates and some access to more popular neighborhoods
    5. Starbucks is a great leading indicator of rising home appreciation
  6. The greatest indicator for a neighborhood that would one day strongly appreciate in value was the age of its housing stock. The older the average home is, the more likely a given neighborhood will see strong appreciation
  7. The conventional wisdom of “buying the worst house in the best neighborhood” is actually bad advice. Instead, buy the worst house in the hottest neighborhood
    1. Buy a house not in the bottom 10% of the nicest neighborhood you can afford
  8. Great school districts boost property values and high property values boosts school quality – creating a virtuous circle
  9. Do your homework to see if Fixed Rate Mortgage or Adjustable Risk Mortgage is best for you – steady or falling interest rates makes ARM more likely the better choice
  10. Foreclosure discount is tricky because it doesn’t take worse condition of these homes into account and they are often smaller too. True discount, when comparing apples to apples, is really only about 7.7%
  11. Inspectors – reviews are a major differentiator, try before you buy (ask to see old homes they’ve bought or sold), first impressions matter and attend the inspection in person
  12. Renovating bathroom, mid-range windows adds the most value to homes where kitchen and basement renovations tend to lose money
  13. Adjectives in listing is very important – potential, quaint and unique detract a lot of value but words like granite, landscaped, remodel, stainless add value
    1. Be honest, flaunt the house’s attributes and add enough color and descriptions to the listing
  14. Homes listed during the last 2 weeks of March tend to sell faster and for more money. However, always list after the first major influx of new listings of the year (bringing your listing to the top when people start searching more in early summer)
  15. Listing at too high a premium actually lowers the eventual sale price, on average
    1. If overprice, better to quickly revert price down to market value
  16. Pricing using the “magical number 9” can lead to a higher sale price. $149,000 or $149,900 for example tend to sell for more than homes listed at $150,000
  17. Infrequent, emotional expensive decisions tend to make people nervous and therefore rely on experts. This is especially true for home decisions which is why real estate agents are likely to thrive even though service providers in different sectors are disappearing
  18. Right agent – experienced (10+ years), women tend to be slightly better, rely on their Zillow rating
  19. Street maxims – a street with a name sells for more on average than numbered streets, Lake St. is better than Main St. (less common), suffixes matter (Dr. vs. Pl. vs. Ct.)
  20. The “sand states” (California, Arizona, Utah and Florida) tend to be more volatile because of the highly flexible work force found in those states
  21. More walkable areas offer higher returns on average and are more resilient to economic downturns – see Walk Score ratings
  22. Richer neighborhoods have 60% higher returns on average than poorer ones
  23. Mortgage Interest Deduction is essentially a $100b subsidy which mainly benefits the wealthy
  24. Government housing subsidies tend to hurt low-income tenants in the long-run more than help them
  25. Coastal areas always command a premium and appreciate faster although they can be devastated by hurricanes and the like. The risk tends not to be accounted for in the price because the government has shown that it will bail people out after disasters
  26. More than half of America’s homes (50m) have been updated on Zillow but what makes Zillow’s database unique however is more the frequency with which it’s accessed and updated than its sheer size. The differentiating factor is that Zillow has a database not just of all homes, but of all home values – going back for decades. By adding the dimension of time, Zillow can analyze the data for developments that have powerful implications about how the housing market is performing today and how it is likely to perform in the future.
What I got out of it
  1. The age of organizing data to bring transparency of pricing, trends and decision making has come to real estate and it’ll be fascinating to see how their platform and forecasts perform moving forward