Category: Realty

Sinan Al Dulaimi, 43, works for the United Nations in Baghdad, where he has lived in the eastern Zayouna area since he was 14.

In a telephone interview on June 16, he described life in a 1,300-year-old capital with about 7 million people that has fallen from being one of the Arab world’s cultural hubs to a ghettoized city marred by bomb blasts and sectarian killings.

His neighborhood was established by former President Abdel Karim Qasim, who took power in a 1958 coup and gave 600-square-meter plots to army officers to build homes

“The situation in Baghdad is very bad. The entrance to the city closes at 10 p.m.; it used to close at 1 a.m. Curfew starts at midnight and ends at 5 a.m.

‘‘You can see huge lines of people outside banks trying to withdraw cash. Otherwise, the streets are mostly empty

‘‘We’ve stockpiled food. We’re all worried about food — cooking oil, rice, those basics — and prices are rising. Ten kilos of rice usually costs $10, now it costs more than $25.

‘‘I want to avoid car bombings, another reason I don’t leave my neighborhood. I do shopping here though it costs more – – five loaves of bread is $1 versus in the local market outside where $1 buys 10 loaves. Here, it’s about $14-15 per kilo of mutton, outside it’s $10.

‘‘Tap water isn’t healthy for cooking or drinking; we have to buy that, too.

‘‘Power only comes on for about 4-6 hours a day so I supplement with private generators. I pay, like, $250 a month for that. You can’t use ACs with private generators, just TVs, fridges, lights and air coolers.

‘‘There’s no electricity and there’s garbage everywhere, but house prices have been getting higher and higher. In my neighborhood, you can’t buy a house for less than $300,000 and that would be for a 150-square-meter house. For 600 square meters, it’s not less than $900,000, up to $1.2 million.

–from Bloomberg

There are three broad categories of investment strategy that I advocate:

• bargain purchase
• increase value
• double-digit cap rate.

Bargain purchase is the purchase of real estate for at least 20% below current market value.

In the increase-value strategy, you buy a property for its current market value, but you select only properties with some unrealized potential. Then, immediately after purchase, you make whatever changes are necessary to increase the value of the property. In general, you must increase the value by at least 20% within six months in order for the strategy to be worthwhile.

Double-digit cap rate means that you buy the building on terms that it has a capitalization rate of 10% or more. The capitalization rate is the net operating income (rent minus operating expenses but before debt service) divided by the purchase price. In other words, it is the cash-on-cash rate of return you would get if you owned the property free and clear. In the absence of a bargain purchase, double-digit cap rates are very hard to find. They generally only occur temporarily in depressed markets or in small market niches.

The most common real estate investment strategy, however, is one which I condemn: buying properties which the investor believes will soon increase in value due to market-wide appreciation. This is, in fact, pure speculation. No one knows which areas will appreciate. Many billions have been made by investors pursuing this strategy, but they were simply lucky.-wrote John Reed