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floridabuilder2 (99.67)

Break Time - NVR - If your going to be a bear, try not to look like a jacka$$

Recs

79

October 22, 2009 – Comments (40) | RELATED TICKERS: GLD , XHB

Distinctions

Baby: Dah gbodis

Teenager: Hey man.... a tree

Landscaping employee: Roble

uhhhhh... ok

American Landscaping employee: Oak Tree

Botanist: Quercus

Botanist that isn't a jacka$$: Chestnut Oak

If you do not understand this section, then you are hopeless. 

How to become Rich

What cheeses me off to know end are people that can't make distinctions

Everything sucks, there are no jobs, all real estate is worthless, blah blah blah..............

You know why?  Because they are masters of the obvious.  Look at my distinction tree, no pun intended.  The more distinctions you can make on any subject in the world the more wealth you will make within the boundaries of that subject.  Who makes more money?  A professional cook that is highly trained in French cuisine, with an unmatched pedigree who lives and breathes his subject matter?  Or the CPA MBA who gets bored with numbers, because it is all the same day after day crunching numbers............  Who is paid more money?  Who is more sought after?

It doesn't matter what your field of expertise is, except for this, the more of a subject matter expert you are the more money you make and the more you will be taken seriously.  Seriously.

You become rich by understanding distinctions that other people can't see.  You become rich by investing your time (your job and investments) in those areas.  Life really is that easy.

"Bear I Am" - Yoda when facing superior forces in Episode 5

I am a bear.  However, I understand the long term fundamentals of demographics (my life span not a fricking Koi fish)...  So don't give me the "country will eventually be broke BS" line.... because I will have made my money and can move to Australia or I will be dead by the time this country is broke.  I can pass legacy assets to my kids and they can figure it out what to do when I am gone.

Long term fundamentals (my investment and work years time frame) play out that US residential real estate is going to come back and if bought at distressed levels the returns will be huge.

So the point of being superior in distinctions is what?  Darrrr Darrrr.  Point darr darr.  Hungry darrr darrr.

The point of being able to distinguish things WITHIN AN ASSET CLASS OR YOUR JOB is that when everyone else is $hitting the bed like grandpa on Ex-Lax you are diving in and making the most of the opportunities presented to you at that time period. 

How many times have I said you invest when the $hit is hitting the fan, you invest into a depression, you invest in the most distressed areas, and you stay employed so that you have a continued income stream to invest?  Actually I think I have only said it a couple times.

NVR - A homebuilder like no other

I am blogging today because NVR reported earnings yesterday and NVR is my poster child for why bears who can't make distinctions are costing you money, just like a bull buying into the peak because we are in a new economy.

You know how many times in the last two years I have had to listen to bears tell me that all homebuilders were going bankrupt, that I don't know what I am talking about, that I am an idiot, that I am ruining people's lives by not spreading the word that everything sucks, everything is worthless.........  A zillion times...... and that is why you have to listen to my rant so you get my point and you will be better for it.

This entire implosion of our economy was caused by residential housing.  It is the worst homebuilding crisis since they were burning huts during the black plague!!!  oh my it is so bad, I am so scared, 110% of homeowners are under water, no one can make money selling homes...........

No................. wait................... who is that over the horizon.............. a masked man?  a short masked man?  a short masked man with a fur coat? 

No a chimp who can make distinctions.  A chimp that knows a fricking Chiquita banana WITHOUT the sticker.  A chimp who called builder bankruptcies before they happened... And yes my friend....

A chimp who said hold NVR when the homebuilding market was imploding like a first date with a girl whose feet are bigger than yours!!!!!!!!!!!!!!!

The brave chimp call made on 8/31/2007

The market peaked on 10/07 yet two months prior to it peaking this brave chimp who makes distinctions, who cares about providing you real time cutting edge information about the scams... but also provides you information about the values that can be had.  A brave chimp who weathered countless hours in NASAs flight program, who worked summers at the local circus, and who.... yes.... who even worked for a national homebuilder, the first chimp ever!!!!!!!!!!!!!!!!!!!!!!!

The truth when you can't handle the truth - NVR performance

Yes click on that link like you mean it, with force, with confidence, with bravado

What do you see since I made my call on this blog on 8/31/2007

The GLD gold index is up just under 60% since that time.... Gold bugs you did your homework!  However, at about 23% return (yes the stock is up) from pre-market implosion is NVR.... behind NVR at about 19% is a gold miner ABX.... miners suck! and who is in last place???????  The S&P 500 SPY at about -23%....................

But how? 

The doom and gloomers told me to hide in a cave and recycle my waste to make sure I got every nutritional element out of my feces before I dare touch the last can of tuna!!!!!!!!!!!!!!  because the world was coming to an end.

NVR cash on 8/07 was $574 million.... two years later cash and marketable securities are now $1.37 billion.... Egads

NVR has $225 a share in cash, NVR gross margins are normalized at 19.7% which is what you have when the industry is stable.  NVR has only 133 million in debt.  NVR's YOY orders are up 13%, yes the business has stabilized and they have a growth plan in place today........ 

My friends NVR is growing

Final Chimp Dance

Distinctions.  I make distinctions and I still do today.  The porridge is never to hot and never to cold

If you are getting your news from permabulls or permabears you will be that much poorer for it.  Remember the "oil is never going under $75 argument" that cost people on CAPS loads of money last year?  Remember the more recently "the stock market is overvalued and can't go higher from 666" that cost people on CAPS loads of money?  Then of course the never buy real estate or homebuilders argument even when it is selling for pennies on a dollar

You will lose your a$$ investing when you listen to people that say the same crap over and over, never admit they are wrong, and never provide you distinctions of what works and what doesn't work especially in the same asset class................  they never lend credence to the other side of the argument because they are so blind.... they never once take the time to understand distinctions and distressed levels of value.  Every trade has two sides, what is the other side thinking?

I know for a fact what is about to happen because I have a rolodex.  There are no accidents and there is a reason why I started blogging again.

The commercial real estate market is about to implode big time.  The stock market doesn't give a $hit about unemployment.  You will hear everyone talking about commercial real estate.  The stock market is going to tank big time as the real Wall Street decision makers scare the living crabs out of you and talk non stop about commercial real estate. 

The short siders will make money, but the reality is the people who can make distinctions will make money on the long side.  Much more money.  A short position has a cap to zero a long side has no cap.

There is a massive transfer of wealth that is taking place and the people obtaining the wealth know it, because they are laughing and I am talking to them.  This is the goverment's plan and what my next chapter is about.

Get ready to be scared cause Halloween is going to last beyond Oct 31st, especially in San Francisco.  When the perma bears tell you the obvious "oh things are bad, getting worse" remember my next Chapter of what is taking place.  Once the wealth transfer happens watch the market rally as the insiders have all the money and all asset classes are on sale.

There will be many masters of the obvious stating how they called the top, but look at there posts the last year.  They will take credit for the stock market turning down due to whatever they feel is the problem and say "see listen to everything I am saying".  Watch the news cycle and watch for news on commercial defaults.  Who knows how much the market drops or how long the process takes, just remember............. the world didn't come to an end in March and it won't in your investment time horizon

Chapter 4 coming soon

40 Comments – Post Your Own

#1) On October 22, 2009 at 2:26 PM, JakilaTheHun (99.93) wrote:

A masterpiece of a post.  I only wish I had been around in 2007 to read your blog on NVR.

Homebuilders is a segment I still don't understand all that well.  I've liked Toll Brothers (TOL) since March, but the stock has gone up and done and is now just slightly up from the point I green thumbed it on here. 

The REITs, on the other hand, I've had a great deal of success with by buying into what scared the living h@#$ out of most people since March.  I'm still buying some of the REITs - not VNO or ALX or SPG, but the little neglected ones that no one loves. 

In a way, I hope fear over commercial RE comes back again and drives down the prices some more.  It might seem counter-intuitive to wish for REITs to go down when you know your own portfolio will suffer, but I just view the "suffering" as temporary and in the meantime, I get to pump my paycheck into more REITs with even more attractive returns.  

In any case, great blog and great advice, as usual.

 

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#2) On October 22, 2009 at 2:27 PM, Momentum21 (66.73) wrote:

what's the deal about san francisco or must we wait for chapter 4?

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#3) On October 22, 2009 at 2:28 PM, actuary99 (63.20) wrote:

I think I agree with your post, but stopped reading because it's not coherent. It's almost like song lyrics (that's not a compliment).

 "Get ready to be scared cause Halloween is going to last beyond Oct 31st, especially in San Francisco."

 That could be interpreted in hundreds of different ways. I'm upset that I wasted 5 minutes on this.

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#4) On October 22, 2009 at 2:34 PM, Judochop172 (28.26) wrote:

Excellent +1 rec

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#5) On October 22, 2009 at 2:40 PM, floridabuilder2 (99.67) wrote:

#1 Jakila,

Reits and homebuilders are very dangerous buys now, however, with excellent timing in 2010 and proper due dilligence the REITs and builders buying their assets (properties or land) at distressed prices will reward

#2 momentum,

It is a joke off of the gay communities favorite holiday.  I like jokes.

#3 actuary,

The fact that you find me not coherent actually is a compliment.  You show me a chimp that understands homebuilding more than me

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#6) On October 22, 2009 at 2:45 PM, hendrixtrader (51.55) wrote:

"I make distinctions and I still do today.  The porridge is never to hot and never to cold"

 

I too make distinctions. Like the difference between too and to.

 

Just giving you a hard time, excellent post as usual.

+1 

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#7) On October 22, 2009 at 2:48 PM, floridabuilder2 (99.67) wrote:

#6 hendrix,

I never proof, i just type and type and type... if there is no spell or grammer check then all must suffer. LOL

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#8) On October 22, 2009 at 3:11 PM, floridabuilder2 (99.67) wrote:

Oh and for those of you bullish on Gold.  I am convinced now and I am not late to the party.  However, provide some distinctions for me.  Tell me what not to buy (e.g. miners, specific miners, actual bullion, etc...) tell me what price not to buy at (over $1,000, etc...)

I can figure out what to buy, I want to buy, but I don't want to hear all the reasons why... tell me why not and when not

 

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#9) On October 22, 2009 at 3:18 PM, givmeabreak (96.53) wrote:

So the million $ question everyone wants to know is, WHEN.

When will the tanking begin in your opinion. Not an exact date. Perhaps which quarter?

And +1 on the Botany reference. Right up my career alley. Funny you mention Chesnut Oak in you illustration of distinctions. i dont think you knew it, but you really picked a good one.

You wanna test a Botanist's worth? Try to see if they can tell a Chesnut oak and a Swamp Chestnut oak apart. Practically indistinguishable.

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#10) On October 22, 2009 at 3:27 PM, floridabuilder2 (99.67) wrote:

#9 givemeabreak,

The stock market can rarely be predicted.  Who knows if we go higher or lower from today and by how much.  I don't blog about such things. 

What I do know is this.  They "those people that matter" already know how they want to play things out.  The news cycle never focuses on the real issue until everyone knows it.  People have been waiting on the sidelines for the commercial market to crack big, but it can't crack until the gov't says go.  All indications are that the gov't is ramping up/accelerating the process.  When you talk to everybody eventually a commmon theme takes place.  That is why insiders always have the edge in life and it is trickle down from there.

I think the market corrects 20%, but that is nothing but an opinion and everyone has one.  it doesn't matter what I think.  The biggest insiders are really really talking up commercial problems and exit strategies.

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#11) On October 22, 2009 at 3:30 PM, CharlieBombay (29.59) wrote:

Tax credit extension today?  Why are builder stocks up massively?  No news yet.

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#12) On October 22, 2009 at 3:40 PM, leohaas (99.28) wrote:

Good to see an expert praise NVR, even if the expert is a chimp. I am considering to buy a house. NV is at the top of my list. Your blog confirms my conviction. Any suggestions? Like: jump now both feet, or wait a few months/quarters/years/decades? Will have ~40% down and excellent credit...

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#13) On October 22, 2009 at 3:53 PM, floridabuilder2 (99.67) wrote:

#12 leohaas,

where are you buying?  there is always a chance that in '10 they will offer a tax credit for any homebuyer.  No one can predict the market, but I would buy if there was a tax credit and the market is tanking because of commercial real estate. 

lets see how quickly the news cycle starts picking up on commercial and banks...  although the news cycle will focus on commercial, construction A&D loans are much worse on a percentage basis and almost as significant in dollar amount.

 

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#14) On October 22, 2009 at 4:31 PM, givmeabreak (96.53) wrote:

"All indications are that the gov't is ramping up/accelerating the process"

By what means are they doing this?

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#15) On October 22, 2009 at 4:34 PM, ocsurf (62.81) wrote:

Florida, what's your take on Richmond American homes? They just bought 30-40 lots in my neighborhood with the intent to build and finish the neighborhood. Their developments down the street are building homes like crazy.

BTW-Brilliant read. Not bad for a feces throwing chimp!

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#16) On October 22, 2009 at 5:31 PM, leohaas (99.28) wrote:

florida: coastal DE. Intend to retire there. Tax reasons, wheather not too bad/extreme, most family nearby (so they can still visit without staying over...), proximity of DC, Philly, NYC, nice beaches.

Still have quite awhile to go, although the misses wants to quit soon. Keeping our jobs right now has priority (and the prospects look good, so we are resuming our search).

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#17) On October 22, 2009 at 8:37 PM, GeneralDemon (90.17) wrote:

Gold - when not to buy (or when to sell):

Business week or Forbes has a cover on the "sure bet, no brainer gold investment"

A chimp you don't know tells you how much money he's made in gold (on the elevator, at a party. etc.) - sell sell sell!

Main stream investment banks recommend all investors have at least __% of their portfolio in gold.

I won't tell you what specific investments to make (unless you start throwing poop)- but I have owned physical (maple leafs) and miners for thirty years. I don't own gold to make money - just preserve some of my wealth. It turns out I do make money on my gold, but I consider this just a bonus.

Since I owe you one (made a home run with my WCI naked puts) I will re-evaluate my selection of miners and give you a recommendation that you can run by some of the better Fools here like Sinch.

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#18) On October 22, 2009 at 8:59 PM, floridabuilder2 (99.67) wrote:

#14 gime,

chapter 4

#15 ocsurf,

MDC is going to go on a significant buying binge of land the next 12 months.  Just watch their quarterly reports and you will be able to say I called it.  SIGNIFICANT.  Starting Q4 watch their lot count compared to the previous quarters.

#16 leo,

remember a house is just a place to live.  As long as you can easily make the payments it really doesn't matter how the value swings.  i can't predict the future, but we need to see how tax credits roll out and how quickly the gov't starts closing banks down

#17 general,

wow WCI... you must have been listening to me for a long time cause that was a long time ago...  I like physical coins... another blogger posted some time ago about how miners never produce the returns you would expect long term and the fact is buying physical was the best investment the last two years of the 4 above

 

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#19) On October 22, 2009 at 9:15 PM, cthomas1017 (30.77) wrote:

FB!
If I read the riddle correctly, chapter four breaks ground on spooks' day?

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#20) On October 22, 2009 at 10:30 PM, GeneralDemon (90.17) wrote:

The miners are ripe for consolidation (think opportunity) - the last time that happened was 1994. Half of my portfolio disappeared into itself - with huge premiums paid. Also, back in the 70's the juniors were paying up to 20% divi - on top of doubling or tripling each year (aah, memories of Free State Consolidated)- physical hasn't had that kind of run since the wild 1800's.

Did you catch shadowstats inflation adjusted high for gold at $7150.00?

Link to Sinch's post

So my advice, dabble in some well-located juniors with proven reserves - just waiting to be gobbled up.

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#21) On October 22, 2009 at 10:59 PM, afreakout (98.62) wrote:

-1 Rec. 

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#22) On October 23, 2009 at 2:31 AM, mgiv (99.74) wrote:

 

"not value, not nothing is there?"

-Yoda

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#23) On October 23, 2009 at 3:35 AM, mgiv (99.74) wrote:

Confessions of a beer

I flipped to being a beer as you can see from my score history. after having been bullish near bottom.  i would love for the next bottom but I'm waiting for the next round of bankruptcies.  maybe it's creeping up like a silent fart.  Is sideline cash gonna get in at the top, or when they feel value has reigned in a bit?  We are attracted to price just as we are attracted to a set of fake boobies (or status).  We all can't be wrong and we all can't be right.  Hook line and sinker, we dip, value investers start fishing, it goes lower....... when? Are we not in the climate where people are gonna jump in when they feel they're missing out?

I would never short in practice.  here it's just a red thumb, if you short in real life remember yoda... "irrational the market can be solvent not".

also, I have mixed feeling about leverage.  But I do know this, you can go broke with leverage, cash you cannot.

The Reverse Square Root Recovery.

When I first heard Soro's talk about this, I didn't quite know what he meant and the way his eyes lit up when he said it.  So I drew this picture:

looks pretty darn close.

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#24) On October 23, 2009 at 4:17 AM, JibJabs (46.74) wrote:

FloridaBuilder- do you have any special insight into the Buffalo are/ NE coast in general commercial real estate markets?

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#25) On October 23, 2009 at 5:43 AM, ozzfan1317 (< 20) wrote:

Great post thanks for the insight and a new stock idea as well..;) Might go take a look at some Reits being greedy when others were fearful worked pretty good for me in March.

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#26) On October 23, 2009 at 9:03 AM, floridabuilder2 (99.67) wrote:

#19 cthom,

chp 4 comes before the 31st then I won't be blogging for a while.  just wait until the distress happens.  I don't feel the point of repeating myself until events occur at this stage in the game

#20 general demon,

thanks

#21 afreakout,

dad is that you?

#23 mgiv,

interesting theory... it is sort of why i don't get wrapped up on caps with big macro calls otherwise risk having every comment in my blogs telling me how I couldn't predict the future.  that is why I say it is a W, L or U and now I guess the reverse square root.  This guy is a little off on housing however, he is correct about inventories.  If you go to my chapter on land doubling it is about finished A&B lots doubling (inventory being whittled down).  However, depletion won't occur for another 18-24 months and then you won't have many selling efforts left in A&B submarkets.  The whole inventory depletion thing is overblown because if there is less demand then you need less inventory if you follow JIT principles

http://finance.yahoo.com/tech-ticker/article/344026/Now-Weve-Heard-Everything:-The-%22Reverse-Square-Root-Shaped-Recovery%22

#24 jibjabs,

unfortunately i am not an expert on commercial anywhere although I do know the basics of valuations and rooftop counts.  I am tracking commercial only because that will force residential raw to be unlocked by the banks. 

#25 ozzfan,

for me to recommend a builder they would need to drop 30% from here for an initial buy in.  However, if I were you I would focus on new REITs being formed that are acquiring assets in late 2009 going forward.  Or look at REITs that have little debt coming due between 2009-2011.  I will explain more in chapter 4

 

 

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#27) On October 23, 2009 at 11:43 AM, binve (28.36) wrote:

"If your going to be a bear, try not to look like a jacka$$"

.... great, NOW you tell me. I already had "professional jacka$$" printed on my business cards .... :)

Seriously, excellent post, as always! Your blogs have always been full of excellent and detailed insight. You have never deserved any of the criticism that you received in the past, and I am so glad you are back here blogging with a vengeance. 

Thanks!!

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#28) On October 23, 2009 at 2:04 PM, floridabuilder2 (99.67) wrote:

#27 binve,

Usually my bear attack posts aren't very well received.  The bears have learned their lesson the last 6 months.  It is not about being right eventually.  Because eventually you may be right but if you lost 1/2 your money shorting into a run like we just had does it matter?

I have been criticized by more bears the last two years than bulls in 2006-2007.  Bulls didn't like me because I had bearish news, bears didn't like me because I wasn't bearish enough?  WTF!

I made my point after the layoff.  My last point in my next blog is what is really going to derail the market.  I don't make predictions, but when I do enough valuations I know when you get beyond a point of no return.

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#29) On October 23, 2009 at 2:11 PM, Chromantix (98.59) wrote:

I rec a lot of posts on CAPS because I want to encourage discussion about investing topics.

I've learned more from this post than 10 others read today, therefore I'd give you +10 recs if I could.  Thanks!

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#30) On October 24, 2009 at 1:14 AM, binve (28.36) wrote:

Hey FB,

I was thinking about writing a post that charts some of the companies you talk about in this post (NVR especially, HBs in general) that ties in with some of your fundamental analysis.

I definitely don't want to encroach on your area here, so let me know if you are interested / cool with me doing this.

Thanks man!

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#31) On October 25, 2009 at 7:57 PM, tonylogan1 (29.11) wrote:

FB - Good post, aside from making me waste 20 minutes looking at youtube posts of people stacking cups...

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#32) On October 26, 2009 at 12:33 AM, APJ4RealHoldings (83.87) wrote:

Its not that hard, Chiquitas taste different.

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#33) On October 26, 2009 at 1:28 PM, sentinelbrit (98.23) wrote:

I look forward to your next  blog on the commercial real estate sector. Many people have warned us that this is the next shoe to drop - for at least 9 months.

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#34) On October 26, 2009 at 3:56 PM, floridabuilder2 (99.67) wrote:

#29 chrome,

thanks

#30 binev,

good post I just read it... buried right now and plus I am actually going to put some thought into chapter 4 rather than my usual type like an ape for 30 minute posts.

#31 tonylogan,

let me know if I can coinvest with you in a cup stacking business.

#32 apj4,

mmmmmmmmmmmm

#33 sentinel,

as i stated above, I actually am going to put some time into how I write this next chapter since I consider it very important.  The previous blogs this month are a set up to chapter 4.  My pursuit of knowledge on commercial was to understand how it will effect residential distressed.

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#35) On October 28, 2009 at 9:26 AM, FSaucy (99.70) wrote:

What indicators are telling you commercial will tank?  There's a sense of urgency in your post that implies 3-12 month time frame.  As in all bubbles, valuations alone don't tell you a market tank is imminent, it tells you it is eventual.  Longer it draws out and the more suckers buy in, the bigger the bubble.  When the demand coming from new money dries up, that's when the bubble bursts and valuations return to earth.

You are of course right that the news media is behind the curve, but they've been talking about the fears of commercial real estate since mid 08.  Nothing blown up so far.  They've been talking about consumer credit card debt too.  Nothing blown up there either.  These problems could be on the burner for a long time before they boil, like residential.  It took years to bubble.  Now commercial follows in quick succession?  I don't see it, I'm not an industry SME.

ECRI isn't seeing it coming either and they've got a solid track record for macro predictions, at least in terms of business cycles (not market calls).  Are you thinking there will be some fear mongering but no actual underlying business cycle downturns?

+1

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#36) On October 28, 2009 at 11:36 AM, tdoodler (96.32) wrote:

You da Man! - Not only for your ability to call it like it is - but your timing is remarkable.  Much appreciated.

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#37) On October 29, 2009 at 4:28 PM, GS751 (28.93) wrote:

another great post. Interesting about NVR's cash position. I need to go back over your older posts where you talk about lots and land valuations. Good article today in the WSJ about the tax credit.

 

Here it is if the link dosent work.

 http://blogs.wsj.com/deals/2009/10/29/mean-street-a-sham-gdp-for-a-sham-economy/

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#38) On November 02, 2009 at 3:54 PM, mawnck (< 20) wrote:

Chapter 4? Not meaning to rush you or anything, but where the hell is it?

Seriously ... I'm quite anxious to hear what wisdom you have to impart.

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#39) On November 02, 2009 at 5:17 PM, wolfman225 (25.68) wrote:

Hey, FB.  Nice job (although, I must confess I had to re-read the post a couple time to make sure I got the gist of it).

I have a friend who lives/works in Port St. Lucie.  He was telling me about all of the bargains in his neighborhood from forclosures. (A couple examples: house built in '06 priced at $350K now going for $110K, another built in '07 located just behind his place has dropped from an initial price of $135K to $40K!)  I realize that forclosure purchasing is inherently risky.  What is your professional evaluation of buying up some of these "distressed" properties and holding for the rebound?

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#40) On November 06, 2009 at 11:38 PM, floridabuilder2 (99.67) wrote:

#35 Fsaucy,

Commercial valuations have already tanked...  my next post addresses the acceleration of bank closures

#36 tdoodler,

A rolodex helps

#37 gs751,

Horton, MDC, Meritage and NVR are all very aggressive in buying land right now at numbers that make a profit

#38 maw,

I had to think a lot about this post, since my specialty is really homebuilding

#39 wolfman,

for those with cash buyin a foreclosure below the actual cost to build is a no-brainer.  Especially in an area that is still seeing inflow of demographics and a high UE number.  If you can buy a home below cost you are probably making money if you rent it out.  The multifamily market is dying because so many people are renting homes.  I will address distressed properties soon

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