Thursday, February 10, 2005


Zig-Zag, Up-Down, Over-Under and other which ways. Two days ago bonds and the dollar were in rally mode. Today bonds are in the tank. Gold turned down a couple of months back but is zooming today. Energy issues are among the big up movers again today. Energy seems to be most consistent trading market. Consumer staples did well for a little while, phone companies for a little while and Tech stocks for a little while; mostly whenever a merger or merger rumor was affecting the group. Utilities are the other group that has been mostly strong.

EBAY found a bottom a few days ago and has bounced. GOOG is getting dripped on by negative news. The numbers from these companies are mind benders. EBAY doubled its free cash flow last year while Google pulled off the hat trick triple. One of the founders sold 34 million of stock and other insider positions will be free to trade next week. An insider sale of a few shares is not worrisome.

In a choppy market and no trend in sight, one might guess that the market will go sideways until the federal budget or tax questions are answered; wrong and right. Maybe stocks and bonds will mark time for awhile but one market that shows no signs of rolling over is real estate.

My main window on real estate looks at Myrtle Beach. Like most resort areas, Myrtle Beach has been heating up ever since it got over the shock of 9/11. After 9/11 more families have switch to driving to the beach than have switched to flying over-seas. Rents have increased but no where near the increase in real estate prices.

For example, at one resort, three identical oceanfront corner condos traded during the year. One traded in February for $309,000, one traded in November for $429,000 and one traded in December $455,000. A similar unit in the building (on a different corner but historically the same value) sold two weeks ago for $522,500.

A $200,000 gain on a $300,000 investment in a year is a nice gain. The buyer who invested 20%, made almost $200,000 in one year on $60,000 invested.

Many investors are buying to flip. I know of three friends from New Jersey who tell me they have purchased and sold 24 Myrtle Beach condos in three years. These guys have tried to buy condos from my but I prefer retail prices. I have contracted to list 11 Myrtle Beach properties for sale.

Depending on the market, I will keep another five or ten properties but can't turn down half a million for units that were bought for $225,000. My wife and I are retiring from the rental business. Like all businesses, the rental business has been work. We made our original investments with money we made in the bond market (you may remember that in 1984 one could buy a 30 year bond with a current yield of 13.75%). With prices running, we may regret selling condos this year. However, I promised my wife that we would sell when our youngest graduates from college. She is in the last year of graduate school.

I always advise caution to those who would enter the resort real estate rental market. Cash flow can be terrible. In those years when the market value does not move, it is especially tough to subsidize a mortgage payment. Marilyn and I would be happy to share our experiences. We bought our first place at Myrtle Beach 32 years ago (we were married 33 years ago). We know more about beach property than most real estate agents. Send us an email or give us a call before buying at the beach.