Comments on: What Is Return — Really? Ask 10 People — Get 11 Answers

By: Jeff Brown

Jeff Brown — Fri, 16 Nov 2007 02:37:10 +0000

Robert — Now, what’s this about a “safe” 4% on a FDIC insured CD?

The 4% was merely a figure used to make the point. One of the assumptions of the cash flow analysis, which surely doesn’t have to be adhered to, is keeping the received cash flows liquid.

The point was the cash flows don’t yield the return the rest of the investment does, because they’re out of the investment, and therefore not ‘internal’ any longer.

By: Robert Coté

Robert Coté — Thu, 15 Nov 2007 17:55:39 +0000

Ask 10 people and get 11 answers? Heck I can rattle off a round dozen all by myself. I too have a special place in my dark shriveled blackened landlord’s heart for principle reduction. Owning, really owning, capital assets is a form of diversification. Having no physical property equity and all your wealth in dollar denominated deposits and debts is every bit as unbalanced as owning outright a fully depreciated San Diego fourplex rental at 250x receipts. Both represent an over-concentration of exposure.

Now, what’s this about a “safe” 4% on a FDIC insured CD? Several double tax free munis are going begging at 5.4% or near 9% equivalent. Anyone following the California economy and/or budgets has got to be thinking that return is ready to jump as the ratings fall (sans insurance) and supply floods the market.

By: Jeff Brown

Jeff Brown — Thu, 15 Nov 2007 16:04:51 +0000

Hey Chris — I love principal reduction whenever I can get it. As you imply, sometimes it’s not possible.

I’ve had many agents tell me with a straight face, tax savings aren’t part of their return analysis. I told one just the other day, if she didn’t want the tax savings, “Here are my wiring instructions.”

She wasn’t amused.

Talk to you soon.

By: Chris Lengquist

Chris Lengquist — Thu, 15 Nov 2007 15:42:20 +0000

Okay…here we go. First, yes, I do love my principal reduction. Love it. In fact, I roll on the floor each time someone helps me pay down a debt with my name on it. Are there times when it’s best to go IO? Sure. But from a psychological point of view, I love my PR!!!!

Measuring returns is a hoot. Not one single client of mine has the same formula as the next. I like to measure equity return. Each and every year. I compare on that basis. Others have their own math. Who is right?

Well, depends on what they are after. And it depends on their accepted “fluctuation” margins. I don’t argue people out of their evaluation methods. I just use them and compare them to mine. Between the two people can make an intelligent decision.

(By the way, I’ll call. I’m working our conversation around a couple plans. No later than Friday. I promise.)