Weekend Millionare's Secrets to Investing in Real Estate - Mike Summey Roger Dawson
Ch 1  - Get Rich Slowly

• Real Estate is lucrative because:
• 9:1 Leverage, 10% down 90% loan
• Tax benefits:
• rent not subject to social security or self employment taxes like money you earn from working
• passive loss deduction (expenses, interest, depreciation)
• tax deferral - defer income on sale of property by reinvesting by a certain period
• tax free sale - avoid taxes if you lived there 2 out 5 years before selling
• long term capital gains

Ch 2. - Wealth as an income stream

• Goal is to get cash flows not property apprecation
• 15 houses at $1k rent / month  = $15k / month = $180k / year which is equivalent to $3.6M at 5% in a CD

Ch 3 - Income to Value Ratio

• Annual Gross Multiplier  - if you see an 8.2x in an ad for the following 16 units, 8 2s, 6 1s, 2 furn. studios...8.2x, $787,200.  The rent / year = $787200/8.2
• bad because there is not account for: how/who pays for utilities, property taxes, vacancies, management costs,insurance (fire, liability, flood), maintenance, cost or purchase

Ch 4 - Small rent increase snowball your net worth

• Raise rent every year by a small amount
• apartment buildings compound the effect

Ch 5 - What makes property a good buy

• Buy at wholesale price ( distressed sales ), but expect that only 5 - 10% offers will be accepted
• Only buy properties with a positive cash flow
• Best buys often come w/ the most problems

 Ch 6/7 - Finding a property manager

• Familiarize yourself w/ neighborhoods before you buy.  Want to find places where people will always be renting
•  Call property management firms and ask them :
• Are you or do you have a division, exclusively engaged in property management or do you primarily list and sell properties?
•  Do you deal primarily w/ residential or commercial properties?
• In what geographic areas or the market are most of the properties you manage located?
• When you meet determine how they advertise vacancies, show properties, screen tenants, procedures for collecting past due rent, supervise evictions, control maintenance costs, deal w/ after hours emergencies, accounting they provide owners, fee structure, if they are licensed.  => should be between 6% - 12% of rents collected
• when you sign agreement, insert a clause that gives you the right to cancel immediately within 30 or 60 days for any reason or immediately, w/o notice if any representations of the agreement are breached => won't be a problem w/ a reputable firm
•  Find out if they will be willing to look at new properties w/ you because it allows you to get professional advice from ppl who know the market

 Chapter 8 - bread / butter properties

• 2 / 4 bedroom, w/ 1 - 2 baths, about 800 to 1400 sq feet
• Beware of good deals on expensive properties, they may sit vacant for many months
• don't go for cheap properties that you're not comfortable being in yourself

Ch 9 - Learn your market

• map your area ( 10 miles around your house ), every week new properties come up
• talk w/ the neighbors at different properties, find out problems in their neighborhood, give them your business card

Ch 10 -  Asking prices

• Usually house is 2%- 20% lower than asking price
• When you offer, use your ROI to determine your upper limit

Ch 11 -  Seller Types

• Sellers have moved - someone else in the house and the property looks like crap.  Make sure house will be in good condition after painting / cleaning / carpeting
• Sellers divorced - try to find out as much info about each party as possible such as previous offers, how long it has been on the market, 
• you can draw up separate agreement w/ each party if necessary
• Ask for lots of extras you don't care about so you have room to negotiate what you actually want
• Home equity to retirement => offer 0% or very low interest for steady stream of payments to retired person.  When you do this financing, these are some things to consider:  
• don't use a standard bank-type note that contains a due-on-sale clause
• if you ever did sell / trade the property, having an assumable no-interest mortgage would be a big advantage
• include a clause giving you the right to substitute collateral, because even if you sell the property, you may want to keep the loan and secure it with another property
• buy house from person, but let them rent from you

Ch 17  - Profit is made when you buy

• scarcity - home prices rise when the number of people wanting to live in an area is increasing and regulations or terrain in that area restricts new building
• inflation - during times of inflation you want to own as much real estate as possible.  when inflation is low you want the cash flows of the property to be sustainable

Ch 18 - Negotiating pressure points

• time pressure - when ppl are under time pressure its much easier to get terrific buys
• things to look for:
• behind on mortgage payments and don't see how they can catch up
• in foreclosure and in danger of losing the property unless they can find a buer
• need money to pay off mounting debts
• contracted to buy another home and can't close on it until they sell this one
• need money for college, have to pay for wedding, large medical bills
• need capital to acquire / expand business
• lost lawsuit and don't have money to settle it
• retiring and want to move to Arizona
• make your own checklist from your observations
• acceptance time - people need time to digest the fact they aren't getting what they expected for their property.  never close the door by saying 'this is my final offer'
• instead say 'I'm not saying I'll be in a position to buy later, but we can always talk some more'
• Spend lots of time w/ the seller
• longer you keep sellers involved in negotiations, the better chance you have of getting what you want
• take lots of time inspecting the property, ask as many questions as you can think.  Discuss things you have in common (sports, ect.), measure some of the rooms and write it down, pace off the backyard...
• you are doing this to build trust and mentally this makes people think they have invested something in you and don't want to walk away w/ nothing for their time.  this will help w/ flexibility on price, terms, ect
• note that this also works against you because you will not want to walk away w/ nothing either.
• work out all the details, so you're not surprised by anything (ie: appliances cost)
• Questions to ask sellers/find out in other ways: - don't be timid, be upfront about the questions.   don't ask yes/no questions ask who, what, where, when, why, how questions
• how long have they owned
• how long has the property been for sale
• how many offers have been made
• what does the seller plan to do w/  the money from the sale
• how much does the seller owe on the property
• is the seller under any pressure to sell
• what are the reasons for wanting to sell.  are these the real reasons?
• will the seller carry back any financing
• if listed w/ real estate agent, when does the listing expire
• hidden problems w/ the property
• any nearby problems that affect value of the property
• Project that you're prepared to walk away
• You can do this easily, if you have multiple properties that you're interested at that time

Chapter 20 - Negotiating Gambits

• Ask for more than you expect to get (lower price, lower interest rate for financing, seller pays attorney fees, termite inspection, home inspection, survey deed preparation, title insurance, later closing date if seller wants to close quickly, personal property like furniture, rugs, appliances)
• Go even more conservative w/ strangers because they may be willing to go for even less, it's easy to build rapport if you make concessions
• Minimum plausible position - make offers that are very low, yet will be taken seriously.  you will be surprised at how low this is
• imply flexibility w/ this offer
• Letting the sellers negotiate up from your MPP will make them feel like they won
• Bracket the seller's asking price ( what they asked for, vs lowest they will go before saying no)
• No is just the beginning of negotiation
• Never say yes to the first proposal because it makes the seller think they could have done better
• Flinch when they first tell you the price like you're slightly shocked
• Play reluctant buyer => 'i hate you had to spend so much time for nothing, but to be fair, what is the lowest price you would take for this property'
• Vise technique - 'i'm sorry you'll have to do better' then don't say anything until they speak again

Chapter 27 -  No down deals that work

• Pay one house off completely, take a mortgage out against your house and then pay all cash deals for another house
• ie: Your house is 100k, and it is completely paid off
• You go to the bank, and get a loan (typically 90% - 95%) for the worth of your house
• You find another 100k house, but only offer 60k - 80k for it
• Since this house will also be fully paid of, you rent it and then a loan out against the new property (typically 90% - 95%)
• Do this about 6 times (6 new houses + 1 original house), until the mortgage money from each house minus the amount you paid cash for it = final value to buy a new house
• All the rental streams pay for the houses and you keep the rest

TPC

• Bernanke says there are significant risks to the economic outlook, including strains in the global financial markets
• TPC says operation twist won't do anything because this doesn't target rates so it won't  put downward pressure on longer-term interest rates and shouldn't help make broader financial conditions more accomodative
• MBS purchases won't help growth, but they will help fend off credit fears

Bespoke

• Building permits showing good strength
  

Ray Dalio interview
1. reality works in a certain way, can we describe how it works(ie: inflation is a certain amount, if it goes down x%, the price of the bond should go up by that amount.  there is a structure to all asset classes)
2.  what is the principle for dealing with reality (principle = getting outcome we want)

• if you have 15+ good, uncorrelated revenue streams, you will risk to return will be 5x greater (80% less risk).  Goal in constructing a portfolio is getting these 15 uncorrelated streams
• 60% correlated, 1000 revenue streams, risk only reduced by 20%!
• in constructing your portfolio, 
• you must figure out what is the risk neutral portfolio (mix of dollars / gold?)
• stocks / bonds example
• they can either be positively or negatively correlated, depending on whether you know what determines the pricing of that asset class
• economic uncertainty and volatility => negatively correlated, inflation uncertainty and volatility => positively correlated.
• Each behaves logically within its own structure

http://www.hedgefundletters.com/wp-content/uploads/2011/03/a-template-for-understanding.pdf

Michael Covel - Trend Following

Chapter 1

• Let's put change and Trend following in perspective.  Markets behave the same as they did 300 years ago.  In other words, markets are the same today because they always change.  This is a philosophical underpinning of Trend Following.
• Follow the trend - don't try to guess how far a trend will go.  You can't.   "Price makes news, not the other way around.  A market is going to go where a market is going to go" =>(this guy is stating that you should follow the market, while i believe i must anticipate it...)
• Let's say you saw a stock go from 5 to 100.  When it was at 5, you didn't know it was going to go to 100.  And trend followers didn't know it was going to go to 100 either.  But they were buying all along, knowing that it could go to 100 even though it might not.  You can't time the trade.  No one can pick a top or bottom
• A wise trend follower once told me a story with a new trader who wanted to learn the secrets.  The experienced trader took the newbie out to the beach.  They stood there watching the waves break against the shoreline.  The neophyte asked, 'what's your point?'  The trader said, 'go down to the shoreline where the waves break.  Now begin to time them.  Run out with the waves as they recede and run in as the waves come in.  Can you see how you could get into rhythm with the waves?  You follow the waves out and you follow them in.  You just follow their lead.'

Chapter 2 - Great Trend Followers

• Bill Dunn - Only 2 systems.  The first he made in 1974, 2nd in 1989.  The major strategic elements - how and when to trade, how much to buy and sell - have never changed in almost 30 years.  We expect change.  None of the things that have happened in the development of new markets over the past 30 years strike us as making the marketplace different in any essential way.
• His economic / political opinions do not form the basis of his buys and sells
• John Henry - No one consistently can predict the future.  Prices, not investors, predict the future.  We rely on the fact that other investors are convinced that they can predict the future, and i believe that's where our profits come from
• He studied 18th and 18th century price data to prove to himself that there was only one successful way to approach trading
• Long term trend identitifcation
• Methodology is designed to keep discretionary decision making to a minimum
• Risk management - strict formulaic risk management system that includes market exposure weightings, stop loss provision, and capital commitment guidelines that attempt to preserve capital during trendless or volatile periods.
• Global diversification - participates in 70 markets in many countries
• long term - 'There is an overwhelming desire to act in the face of adverse market moves.  Usually it is termed 'avoiding volatility' with the assumption that volatility is bad.  However, I found avoiding volatility really inhibits the ability to stay with the long-term trend.  The desire  to have close stops to preserve open trade equity has tremendous costs over decades.
• stocks - the current thinking is that stocks have outperformed everything else for 200 years.  But there is no one in the year 2000 that you can convince to jettison the belief that 200 years of performance will not cause stocks to grow to the sky.   What will be new to them is an inevitable bear market.
• On his system:
• time frame is long term, with the majority of profitable tardes lasting longer than 6 weeks, some lasting several months
• the system is neutral in markets until a signal to take a position is generated
• it is not uncommon for markets to stay neutral for months at a time, waiting for prices to reach a level that warrants a long or short position
• predefined levels of initial trade risk.  if a new trade turns unprofitable, risk parameters will force a liquidation when a preset level is reached.  A trade can last for as little as one day in this situation.
• The changing world is not going to hurt if you have principles designed to adapt.  So the markets Have changed.  But that's to be expected and it's good.

Chapter 10 - Trading Systems

• Risk management is to direct and control the possibility of loss
• Clarify trading / risk rules until they can be translated into computer code
• Include diversification and instrument selection into back testing
• Optimize parameters for back testing / stress testing
• Trading systems - how does the system determine:
• what market to buy / sell at any time? 
• currency, interest rates, stocks, metals, energy, crops, livestock
• how much of a market to buy or sell? 
• Position sizing < 5% assets / trade (initially 1-2%)
• Adjust positions based on current equity
• when to buy / sell?
• after a trend has begun.  the goal is to ride the trend
• technical indicators are a part of the system not the system.  And only about 10% (MACD, %R ect...)
• you will probably have more losses then gains because you don't know which trend will be the big winner.  You accumulate many small losses trying to find it.
• when you get out of a losing position?
•  before you get in the position, set your stops at 1 - 2% of equity
• when you get out of a winning position?
•  you can't spot reversals until they happen
• you get out after the trend peaks and is on the way down
• Trading system you design for one asset must be able to work in different asset classes.
• If you design it for T-bonds, when you apply to Euro, corn, gold or anything else it should also work reasonably well.
• Design parameters should also work well.  If CCI at 20 works very well, but 19 and 21 don't, it is not a robust model.
• You should be able to describe the strategy in relatively simple terms.  (ie: CCI anticipates lows and highs in the market based on the frequency of previous lows and highs)

Appendix - Trend following research

• Tested stocks 1983 to 2004, includes delisted issues, adjusted for dividends, volume / $15 min price filter, $250K minimum traded / day in 1983(inflation adjusted for future periods)
• Entry at all time high
• Exit at previous high  - 10*ATR(14 of previous high) [for volatile stocks could be 55%, non-volatile, could be 20%]
• 15% return, had some years where loss was much greater than stop loss because of a gap down or something else.  1987 was almost 5% of trades.  However, there were regular periods were avg $ gain / stop loss in $ was 60% of trades.
• Russell 3000 statistics
• 50% of all stocks significantly underperformed the index
• 25% of all stocks that have ever been in the index are responsible for ALL the gains
• Most of the big winners spent a disproportionate amount of time making multi-year highs (from $20 -> $200 happens in increments)