FIRE, which is some acronym that stands for Finance (loans), Insurance & Real Estate -- the heart of the "service economy" I guess....Apparently, the only place where regular Amercans were making any money anymore....at least until things cracked up.
Well, remember when I said that there was a good chance that fubarrio would cease to exist and fubarrio.com would descend into an oozing cesspool of commercialism?
Well, even from blatant commercialism there is something to be learned.
What's that you say?
Well, apparently, some member of the finance (loans) and insurance industries have figured out that paying for links on subject matter blogs like this one can enhance their search engine placements in what would otherwise be insanely expensive spaces to compete.
I got an email from a gal out of the UK that apparently shakes an stirs the blog universe a couple of times looking for blogs that actually have enough sway where they can actually (slowly) effect the rankings for the sites on google (among other search engines).
The other thing they've figured out is that balding dogs with bad breath and crooked teeth can be had for pennies on the pound sterling.
She pays a couple of "quid' a month for a link and probably charges the company she's placing it for considerably more -- (hooray intermediaries)
Well, as it turns out -- another free internet marketing tip from your uncle fubarrio -- if you place a link with anchor text in a DEEP link (meaning deep within some content that seems to fit what it is the link is going to) it tends to perform much better.
While they didn't really ask for my to create a blog post about loans or insurance, I decided to anyways as a freebie sendoff for my commercial friends....wow...people actually make money with this internet thing? I'll have to look into that.
Anyhow, you know my personal opinion on debt by now. It's a giant ponzi scheme that is bound to be the end of us all.
Insurance i haven't talked a lot about.
I remember when I was a younger pup at the UW I was studying finance. I had delusional dreams of becoming an investment banker after spending some time as an analyst for Fidelity. Little did I know that the titans of wall street were more likely to hire a shoe shine boy outside the floor of one of the exchanges than to hire out of an unheard of pac-10 university.
I remember i went in to talk to the college career counselor (this university has something like 35k students). She said in the entire time she'd been there (10 years) she only knew of one person who had graduated from UW and went to work on wall street (!)
In the late nineties I knew of at least one other, but it was as struggle for him....he was making 35,000/year in Manhatten! He was working crazy hours as an anlyst for some "fourth tier" investment bank :) He gradually worked his way up to one of the more respected banks before bailing to get his MBA and a more relaxing lifestyle in Intel's Treasury Department.
Ok, well, if this deep link doesn't give someone's website a boost....I don't know what will....
Be informed about your life insurance Hey, I mean, that sounds like good advice right? I always likened the life insurance folks to casino types though...it's like...hey, if this is such a great deal, how did you pay for such a huge building?
Loans to get your finances in shape. This link I have to say is almost oxymoronic....
If you want to get your finances in shape...stop taking out loans! Maybe they are gonna tell you that they can consolidate your credit cards, etc etc etc. I dunno. Call me a ludite, or a neo fundamentalist or something, but giving loans to americans is kinda like giving whisky to the indians....or keyboards to the English.
ciao,
fuBarrio
Showing posts with label loans. Show all posts
Showing posts with label loans. Show all posts
Saturday, March 15, 2008
Monday, January 15, 2007
fuBarrio's "back of envelope" Uruguayan Real Estate Analysis
Ok....
Probably the number one request from all my loyal readers (other than, "take down that "fugly" profile picture of yourself and put up some more of Golden Lotus") has been my take on the real estate market in Uruguay.
Since I know very little about Uruguay outside of Montevideo, I will confine my comments to the Montevidean RE market and single family residences.
In addition, since I'm *very* lazy and only have an hour or so before the daily "10:30 beatdown" in precious metals, I will just try to get my main point across without a lot of historical data to back up my point.
In the states, RE prices can be "back of the envelope" analyzed to be "overvalued" or "undervalued" based on a couple of metrics that tend to hold steady over time.
One of the most straightforward is a Rent vs. Own calculation. While local taxes, maintenance costs, Fed tax writeoffs for interest payments (which vary in value depending on your bracket) will make the calculation a little more difficult, it is usually pretty easy to see when the ratio is COMPLETELY out of whack. In Southern California (and a number of other locations I imagine) one can rent a house for about 1/2 of what it costs to "buy" (pay the bank for the "right" to pay taxes and maintain their home) a similar home. That is an example of "out of whack".
Another is the median income vs. median home price. This is primarily an artifact of someone's ability to repay on a standard 30 year loan (a loan whose popularity is still on the wane in the US) It is still enlightening (for reasons I'll explain later) -- even in a place like Uruguay where loans for residential RE are *very* rare. Typically, 3x median or so is a "safe" number. This dovetails with the "30% of gross salary" that banks used to use as a guideline to determine whether a borrower had the ability to repay a loan. If most people don't make enough repay on a note for a median home, most people can't afford the homes in the area they live. Upside can be limited ano further appreciation is driven by invetors, speculators, and 2nd home purchasers from "out of town".
Another interesting metric is the "cap rate". While different people calculate this somewhat differently, the basis of the calculation is "how much return will I get for invested capital?" For a rented unit (apt or house) an investor would look at the amount of return they could expect (absent appreciation) in the form of gross rent receipts. If the return drops dramatically below what the investor could potentially get elsewhere, it will limit investors, and the only new money entering a market will be speculators -- or people betting on a rise in the underlying asset's value to make up for limited return from rents.
OK....I could drone on and on (as anyone who reads this blog can attest), but I'm flying "slightly" blind in that stats on the Uruguayan RE market are hard to come by....While casas.com.uy can give you an idea on "asking prices", divided by neighborhood, I haven't found a good place that shows me cleared transactions for the city.
But, fuBarrio's "kentucky windage", back of the envelope number (both imperical and anecdotal) puts the median home in Montevideo proper somewhere above US$60k for a SFR (not apartments).
If you were to look around you'd have a DIFFICULT time finding anything fitting the description of "liveable" for under 40k actually, but locals tend to be more forgiving, live in neighborhoods that most foreigners wouldn't and subsequently own cheaper houses. Besides, I'm purposely trying to "lowball" the number to make a point here....
The median income for Montevideo I'm going to put at *around* $5-6k/year. This is at the highend (believe it or not) from everything I've read/heard.
So, of course, *where* you want to live in the city effects the cost of your home pretty dramatically.
For higher end city dwelling Pocitos or Punta Carretas are a couple of neighborhoods that foreigners and better paid young professional Uruguayos select.
"Tres Cruces" I'm going to use as my "middle class" Uruguayan neighborhood. It is close to services, but doesn't have any beach or outstanding features to lure many foreigners.
I'll use "centro" -- downtown -- as a lower end neighborhood. It'll be higher than the cheapest of the burbs likely, but it is not much more expensive than the cheapest of cheap neighborhoods and the cheapest a foreigner is going to feel comfortable in.
The median for a 2bdrm apt in Pocitos is $80k.
A house is little more than twice that (around $180k).
Tres cruces 2bdrm apt is $37k
Tres Cruces for a house is $70k
Centro a 1brdm apt is $32k
Centro a 2bdrm apt is $41k (this is used in place of "house" since there are so few houses in centro.
A quick "back of the envelope" will tell you that in a "middle class" neighborhood the median houses are selling for in excess of 10x median. If you look at a small 2bdrm apt, you are closer to 7-8X median.
If you also consider the fact that financing is rare for RE purchases, one is driven to the conclusion that the recent rise in RE prices is being driven by speculation and in large part by "second home" buyers with sources of income outside of Uruguay.
So what is the outlook for Montevideo Real Estate?
While MVD RE will still look cheap to an outsider, I think given the factors discussed above, the future price outlook depends *mightily* on economic conditions in western Europe, North America, and Argentina. And, further, I think the pricing depends *more* strongly on Real Estate conditions in North America and western Europe.
I *suspect* that a lot of second home buyers (especially those that don't rent the homes part time and just use them as partial year residences) are using equity withdrawal from existing RE in other parts of the world to fund cash purchases of Uruguayan Real Estate.
If the spigot gets turned off on the "equity locusts" you will see a necessary slowing of $200k+ cash purchases in the more "desirable" neighborhoods.
On the other hand, since Uruguayans, for the most part, purchase in cash the low to middle end apartments and homes continue to rent out for about 1/100th of their purchase price per month -- which is about right. They will continue to hold up, however, to accelerate upwards there would need to be a big lift in median incomes to support higher prices.
ciao for now,
fuBarrio
Probably the number one request from all my loyal readers (other than, "take down that "fugly" profile picture of yourself and put up some more of Golden Lotus") has been my take on the real estate market in Uruguay.
Since I know very little about Uruguay outside of Montevideo, I will confine my comments to the Montevidean RE market and single family residences.
In addition, since I'm *very* lazy and only have an hour or so before the daily "10:30 beatdown" in precious metals, I will just try to get my main point across without a lot of historical data to back up my point.
In the states, RE prices can be "back of the envelope" analyzed to be "overvalued" or "undervalued" based on a couple of metrics that tend to hold steady over time.
One of the most straightforward is a Rent vs. Own calculation. While local taxes, maintenance costs, Fed tax writeoffs for interest payments (which vary in value depending on your bracket) will make the calculation a little more difficult, it is usually pretty easy to see when the ratio is COMPLETELY out of whack. In Southern California (and a number of other locations I imagine) one can rent a house for about 1/2 of what it costs to "buy" (pay the bank for the "right" to pay taxes and maintain their home) a similar home. That is an example of "out of whack".
Another is the median income vs. median home price. This is primarily an artifact of someone's ability to repay on a standard 30 year loan (a loan whose popularity is still on the wane in the US) It is still enlightening (for reasons I'll explain later) -- even in a place like Uruguay where loans for residential RE are *very* rare. Typically, 3x median or so is a "safe" number. This dovetails with the "30% of gross salary" that banks used to use as a guideline to determine whether a borrower had the ability to repay a loan. If most people don't make enough repay on a note for a median home, most people can't afford the homes in the area they live. Upside can be limited ano further appreciation is driven by invetors, speculators, and 2nd home purchasers from "out of town".
Another interesting metric is the "cap rate". While different people calculate this somewhat differently, the basis of the calculation is "how much return will I get for invested capital?" For a rented unit (apt or house) an investor would look at the amount of return they could expect (absent appreciation) in the form of gross rent receipts. If the return drops dramatically below what the investor could potentially get elsewhere, it will limit investors, and the only new money entering a market will be speculators -- or people betting on a rise in the underlying asset's value to make up for limited return from rents.
OK....I could drone on and on (as anyone who reads this blog can attest), but I'm flying "slightly" blind in that stats on the Uruguayan RE market are hard to come by....While casas.com.uy can give you an idea on "asking prices", divided by neighborhood, I haven't found a good place that shows me cleared transactions for the city.
But, fuBarrio's "kentucky windage", back of the envelope number (both imperical and anecdotal) puts the median home in Montevideo proper somewhere above US$60k for a SFR (not apartments).
If you were to look around you'd have a DIFFICULT time finding anything fitting the description of "liveable" for under 40k actually, but locals tend to be more forgiving, live in neighborhoods that most foreigners wouldn't and subsequently own cheaper houses. Besides, I'm purposely trying to "lowball" the number to make a point here....
The median income for Montevideo I'm going to put at *around* $5-6k/year. This is at the highend (believe it or not) from everything I've read/heard.
So, of course, *where* you want to live in the city effects the cost of your home pretty dramatically.
For higher end city dwelling Pocitos or Punta Carretas are a couple of neighborhoods that foreigners and better paid young professional Uruguayos select.
"Tres Cruces" I'm going to use as my "middle class" Uruguayan neighborhood. It is close to services, but doesn't have any beach or outstanding features to lure many foreigners.
I'll use "centro" -- downtown -- as a lower end neighborhood. It'll be higher than the cheapest of the burbs likely, but it is not much more expensive than the cheapest of cheap neighborhoods and the cheapest a foreigner is going to feel comfortable in.
The median for a 2bdrm apt in Pocitos is $80k.
A house is little more than twice that (around $180k).
Tres cruces 2bdrm apt is $37k
Tres Cruces for a house is $70k
Centro a 1brdm apt is $32k
Centro a 2bdrm apt is $41k (this is used in place of "house" since there are so few houses in centro.
A quick "back of the envelope" will tell you that in a "middle class" neighborhood the median houses are selling for in excess of 10x median. If you look at a small 2bdrm apt, you are closer to 7-8X median.
If you also consider the fact that financing is rare for RE purchases, one is driven to the conclusion that the recent rise in RE prices is being driven by speculation and in large part by "second home" buyers with sources of income outside of Uruguay.
So what is the outlook for Montevideo Real Estate?
While MVD RE will still look cheap to an outsider, I think given the factors discussed above, the future price outlook depends *mightily* on economic conditions in western Europe, North America, and Argentina. And, further, I think the pricing depends *more* strongly on Real Estate conditions in North America and western Europe.
I *suspect* that a lot of second home buyers (especially those that don't rent the homes part time and just use them as partial year residences) are using equity withdrawal from existing RE in other parts of the world to fund cash purchases of Uruguayan Real Estate.
If the spigot gets turned off on the "equity locusts" you will see a necessary slowing of $200k+ cash purchases in the more "desirable" neighborhoods.
On the other hand, since Uruguayans, for the most part, purchase in cash the low to middle end apartments and homes continue to rent out for about 1/100th of their purchase price per month -- which is about right. They will continue to hold up, however, to accelerate upwards there would need to be a big lift in median incomes to support higher prices.
ciao for now,
fuBarrio
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