The Kangaroo Part VII – A Bit Cocky

By

Stu Silver / “Uncle Zally” Zalman Velvel

It’s a Thursday morning in mid-April in Fort Myers, Florida. I’m not back at the Kangaroo Convenience Store in Ocala, but I’m surrounded by people who are used to kangaroos, and I mean the real kind,  that ones that go hopping around.

 I’m conducting an Uncle Zally Walkabout. It’s 10 hours of walking around my real estate investments: Mobile Home Parks, warehouses, motels, storage yard, offices, stores, apartments and single family homes.  We will also visit mobile home parks and warehouses currently for sale.

 This is a life classroom, reality training. There are nine Australians with me, including Steven G McKnight, the most popular real estate “guru” in Oz (Oz is slang for Australia) and their best selling author.

 The group is rounded out by my son, David, a videographer named Don, me, and Mark, the 21 year old son of one of our dearest friends, who flew in from college to be here, and had to be forced to go back to college after it was over because he wanted to start investing now.

I promised that as we walked around, anyone in the group could ask any real estate question they wanted. I was looking forward to this. I love challenging questions from people who are taking a fresh new look at what I take for granted.

I especially was looking forward to hearing Steve McKnight say, “So Stuuuuuu … why are you doing things that way, mate, when you could do them this way?” The last time I was with Steve, in Oz, the questions he asked “knocked me right out of my box,” they were so insightful.

 While we viewed the first warehouse, which was vacant (not a pleasant fact) Steve suggested I do more renovating to make the office part show better. “There is strong  competition for warehouse tenants in your area,” he stated, “and you need to stand out and be outstanding, or continue to be vacant.”

 Steve then made some disparaging comments about how he would not be caught dead in that office, to which I gave three arguments why I believed my office area in the warehouse was fine the way it was. After all, we just painted it, put in new rugs, and replaced ceiling tiles. As we left the warehouse, I changed my mind and arranged for the office to be spruced up even more the next day. See? I’m not too old to change. J

While we were sitting in the 15 passenger van, traveling to the next property, a duplex I recently bought for $20,000 on the courthouse steps, and spent $20,000 renovating, one of the men from Oz said:

 “You know, the Australian dollar is ‘a bit cocky’ right now.”

 It sounded downright hilarious to hear someone with an Ozzie accent use that expression, so I made it the title of this article.

He went on to explain that when he was in the States in 2009, the Australian dollar was equivalent to 68 cents of an American dollar. In other words, if an Ozzie bought an American property for $100,000 American, he needed $150,000 in Australian dollars.

 In May, 2011, two years later, the “bit cocky” Australian dollar is now equivalent to $1.08 American. It is worth more than an American dollar.

 

 

If you actually saw an Australian dollar, you would be amused by it. It’s  made out clear plastic with ink bonded to it, and has a part you can see though. It doesn’t look like “real money” like an American dollar.

Steve McKnight bristled at that comment, and dared me to try to tear an Ozzie bill. I tried. I couldn’t. It’s as strong as Crocodile hide, like Mick Dundee.

 In last week’s blog, I spoke about the tough spirited people of Ocala, who are struggling to hold onto their homes and their jobs. This week, I am speaking to a group of Ozzies who have 5% unemployment rate, and have hundreds of thousands of dollars in equity in their investment real estate because the Ozzie real estate market doubled in the last 5 years. They want to move these profits “across the pond,” to America, the Land of the Free, and the home of Cheap Real Estate. Why?

 Because today, if an Ozzie bought an American property for $100,000 American, he would only need $92,000 in Australian dollars. Then if the Australian dollar goes back to its normal value, around 70% of an American dollar, and the Ozzie decides to sell his American property and convert to Ozzie dollars, he will have $150,000 in Ozzie dollars, when he started out with only $92,000 today. That is a gain of $58,000 Ozzie dollars, which is over a 50% return, even if his American property does not go up one single cent (and does not include positive cash flow from rents, which are averaging 10 to 20% here.)

Steve McKnight and I both expect Fort Myers, Florida property to go up more than one single cent – we expect it to double in the next five years. Why? Because the present cost of building affordable real estate here is more than double what you can buy it for now. You can buy duplexes for $40-50,000 that would cost more than $125,000 to build today.

 Why are real estate prices so low here? Supply and demand. Because of the flood of foreclosures, there are too many foreclosed properties needing to be sold, chasing too few buyers. When the foreclosures slow down, which they are already doing, then the cost of building will reign supreme, once again, and prices will rise, as sure as night follows day (or McKnight follows Mcpay – forgive me Steve, but I thought that funny.  )

A good question to ask is, why are the Australian dollar, the Euro, and most other world currencies so high now, relative to the American dollar?

The answer, once again, is supply and demand. The United States  government’s printing presses have been running overtime printing US dollars, to make up for the trillions lost during the last banking crisis. They’re flooding the currency market, like foreclosures are flooding our real estate market.  When the presses slow down to normal, and they will slow down when we regain our financial strength, the rest of the world will pay more for our dollar, and the American dollar will once again “be a bit cocky.”

 How can I say this, when there are doom and gloom experts, people with PhD’s degrees in economics saying the opposite?

 Think back to those thrilling days when the financial crisis first hit, right after Obama got elected, and the world was on the brink of economic collapse. Everything was worth nothing … except one thing. (No, not  gold. There isn’t enough gold anymore to create a world currency.) Where did the world go racing, and what did they want? They raced to the US Treasury, and they wanted T-bills and US Dollars. Why? Because American money represents the most stabile form of exchange in a world that every so often, goes insane.

 Make no mistake about it, the real estate market in Florida, and in many parts of our country, is so low right now it is insane.

 I had lunch with one Ozzie investor who saw an almost brand-new home in Lehigh Acres, a 3 bedroom 2 bath 2 car garage house with 1,500 square feet of living area, advertised for sale at $45,000. It looked like the house on the left here.

 He asked me, “How much lower can it go? Free?”

 Want another example of insanity? I’m buying a passel of mobile homes (a passel is more than a bunch, but less than a hundred) for $10,000 each, including land, where each mobile home will give $400/month in rents. If you put a pencil to it, that means a 30% return each year from the rents alone.

 The question is, are Ozzies, and yours truly, the only ones sane enough to know that our real estate market is insane?

 Cheers, mate!

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