>As soon as you see the word "leverage" you should start getting scared.
Meh, that's mostly how I've played it so far, and I've done... poorly compared to the people I know who have leveraged. Especially in the housing market.
Especially in housing, I mean, as long as you don't have other assets, and the potential upside is large enough to make up for 7 years of poor credit, if some damnfool bank is willing to lend you a bunch of money to buy a house in a volatile market, why not leverage? If housing prices go up and you sell out before the fall, the potential for profit is huge. If prices fall, at least in California, my understanding is that most home loans are 'no recourse' - meaning that you can give the keys back to the bank and they can't come after you for the balance. Worst case, bankruptcy.
So yeah, uh, I can see how people that use leverage generally do better than I do.
What is really sad and irritating about my position is that yeah, I'm profitable, I own my servers free and clear, I have no outstanding debt, etc, etc, but I still have leases. And leases? as far as I can tell, are treated /exactly like/ debit if you want out early. Before the year is out, I'll likely be signing a five year datacenter contract worth as much as a nice silicon valley condo, and at the end of those five years, I'll own nothing. (and that one lease will save me rather a lot of money over the two smaller leases I currently have.) That's a lot of money. It's very rare that the value of my servers is higher than the remainder of the lease. (well, the amount I could actually get for the servers. the 'replacement value' is considerable. Retail is hard work.)
I mean, I own my servers, but after five years, the thing is worth a tad more than it's value in steel (yeah, there's gold in them circuit boards, but not a whole heck of a lot of it.)
For me? that's what changed my view of the rent vs. buy question. Leases, especially commercial leases are usually less flexible than buying. And every time they renew? if the landlord thinks it's hard for you to move, prices go up. It's terrible. I'd much rather have a payment I can count on for the next 15 years, and then know I'll own the place after that (modulo property taxes)
Here in Australia I'm quite bullish about commercial property. The residential market is garbage because people buy emotionally, and the market is therefore full of irrational actors. But the commercial market is boring and therefore full of investors who logically value any potential assets and don't pay too much for them (meaning you can still find decent returns).
Being a commercial land owner is great, as you've found yourself on the receiving end of.
And by the same token, your business customers no doubt pay you for a service and at the end of each month have nothing tangible to keep, which is kind of the same deal.
But I'll keep renting my residential house, let the owner subsidise my rent by taking a loss (negative gearing), and put my savings into commercial property where I receive enough to cover the interest on the loan and then some.
>Here in Australia I'm quite bullish about commercial property. The residential market is garbage because people buy emotionally, and the market is therefore full of irrational actors. But the commercial market is boring and therefore full of investors who logically value any potential assets and don't pay too much for them (meaning you can still find decent returns).
I think there are irrational folks in both camps; Here in silicon valley, in 2007? clearly residential housing was overpriced. I really haven't been paying attention to the commercial market until quite recently, but I do know that recently, residential rents have been going up pretty dramatically, and sale prices of houses have been falling dramatically; There was a point a few years back where buying was a ridiculously better deal than renting (prices are coming back up, especially towards mountain view.) But yeah; as they say, real-estate is intensely local.
I mean, I wasn't paying attention to commercial real-estate at the time, but certainly businesspeople can be irrational too. I kind of get the feeling that most people here were still in school or something during the first dot-com, but I remember it well.
Really, I think it has to do with the ratio of rent to purchase price (and the cost of capital)
>And by the same token, your business customers no doubt pay you for a service and at the end of each month have nothing tangible to keep, which is kind of the same deal.
Yeah. And that's the thing to think about. I mean, a whole lot of what I'm selling is that I sell you servers in smaller chunks, and nobody has yet figured out a reasonable 'server condo' business model, (I've thought a lot about this, and I think it's mostly because the condo model doesn't cope well with rapid depreciation, and nothing depreciates like servers.)
But the other thing customers are paying for is me maintaining the equipment, which is significant. I mean, don't get me wrong, if the customer was using a whole server to themselves (I mean, a real whole server, you know, 128G ram on up) it'd probably be cheaper in the long term for them to own even if they have to buy hardware help at $100/hr (you can usually get hardware help for rather less) But, that requires, you know, knowing someone who is good, and evaluating people outside of your skillset is difficult.
Those same problems also apply to real-estate (well, except the condo model seems to be workable in real-estate. Not perfect, but it seems to work.) If I owned the building, especially if I owned the datacenter, I'd have to learn a whole lot (which I'm cool with; considering that I pour more money into this that I pay myself, it's worth the effort... but there will be a significant cost, measured in years.)
Of course, with plain old warehouse space, the landlord seems to do almost no work at all, so next time one of the industrial condos down the road goes up for sale, I'm probably gonna go for it.
Meh, that's mostly how I've played it so far, and I've done... poorly compared to the people I know who have leveraged. Especially in the housing market.
Especially in housing, I mean, as long as you don't have other assets, and the potential upside is large enough to make up for 7 years of poor credit, if some damnfool bank is willing to lend you a bunch of money to buy a house in a volatile market, why not leverage? If housing prices go up and you sell out before the fall, the potential for profit is huge. If prices fall, at least in California, my understanding is that most home loans are 'no recourse' - meaning that you can give the keys back to the bank and they can't come after you for the balance. Worst case, bankruptcy.
So yeah, uh, I can see how people that use leverage generally do better than I do.
What is really sad and irritating about my position is that yeah, I'm profitable, I own my servers free and clear, I have no outstanding debt, etc, etc, but I still have leases. And leases? as far as I can tell, are treated /exactly like/ debit if you want out early. Before the year is out, I'll likely be signing a five year datacenter contract worth as much as a nice silicon valley condo, and at the end of those five years, I'll own nothing. (and that one lease will save me rather a lot of money over the two smaller leases I currently have.) That's a lot of money. It's very rare that the value of my servers is higher than the remainder of the lease. (well, the amount I could actually get for the servers. the 'replacement value' is considerable. Retail is hard work.)
I mean, I own my servers, but after five years, the thing is worth a tad more than it's value in steel (yeah, there's gold in them circuit boards, but not a whole heck of a lot of it.)
For me? that's what changed my view of the rent vs. buy question. Leases, especially commercial leases are usually less flexible than buying. And every time they renew? if the landlord thinks it's hard for you to move, prices go up. It's terrible. I'd much rather have a payment I can count on for the next 15 years, and then know I'll own the place after that (modulo property taxes)