Trouble in Paradise: Ballooning Rents Chase Three Popular Restaurants Out of Santa Monica. Is Real Estate Ready To Bust? By Natalie Pace, CEO, NataliePace.com. REITs Report Card: Don’t Bet Without Looking At Your Cards! By Natalie Pace, CEO of NataliePace.com. 10 Ways to Protect Your Assets Against a Major Terrorist Strike on U.S. Soil by Natalie Pace, CEO, NataliePace.com. The Terrible Ts: Tenants, Termites, and Toilets. Investor's Guide To Buying and Owning Rental Property By Nikki Deloffre, Real Estate Consultant, ndeloffre2000@yahoo.fr, 323-467-9817. CEO Rock Stars: By Gary Kennedy, technology entrepreneur, former president of Oracle USA (a reprint from an earlier issue). Top 10 signs the Company is Using Fuzzy Math. Wisdom at a Glance: 10 Fast Quotes from the Brightest Minds on the Street . Martha Stewart: Should She Fry in Prison or Bake on the Tele? Cast your vote! World Beautification: Spotlight on Para Los Ninos, a nonprofit company on Skid Row in Los Angeles that works to improve the lives of families living on very limited means. Calendar: Conferences, galas, networking, teleclasses, seminars and other special opportunities! Check out what's happening online at the Calendar section of the web site.

Trouble in Paradise:

Ballooning Rents Chase Three Popular Restaurants Out of Santa Monica. Is Real Estate Ready To Bust?

By Natalie Pace, CEO, NataliePace.com

Though it's perceived as a cash cow, has real estate become the riskiest play these days? Los Angeles has long been a difficult climate for development and business, but has Southern California become downright prohibitive?

Like most investors, I have a stomach for these things. An uncomfortable feeling starts in your gut, and later on you find out the company you were concerned with went belly-up (think long distance rates at under six cents a minute, and the subsequent collapse of telecommunications, namely Global Crossing and WorldCom). This time it wasn't a gut instinct, really; it was more like a hunger pangÉ And the trek I traveled to satisfy my cravings left me with an extremely bad taste in my mouth.

t was a rather desperate craving that had me careening into the parking space on Montana Avenue, one I get at least once a month for Wolfgang Puck's squash soup with a swirl of red pepper sauce. I'd been to an hour spinning class, which feels like the equivalent of the L.A. Marathon, and I was starving, ready to devour the bread plate with wild abandon. I thought the gods were on my side that evening, when I found a parking spot just two doors down from the popular eatery. As I skipped up the sidewalk, however, things began to look amiss. Where was the valet? Why was the street so empty? Restaurants are sometimes closed on Sundays or Mondays, but Wednesday?

The interior was black, and on the massive door that I'd flung open many an evening, surrounded by a crowd of friends all bubbly with conversation, there was taped a simple flyer thanking me for my patronage over the years. A flyer? No explanation? Was Wolfgang arrested or something?

Forget about cravings, at that point I just needed a little fuel to get me to the next best stopÑPolly's Pies. So, I swerved into the Seattle's Best, just a few doors down, for a quick bite of scone to stave off the hunger pangs. There, where bad poetry and worse body odor once thrived, as joggers and spinners and babies with poopy diapers awaited their drinks, was yet another empty café. Lights out. No lattes. Certainly no scones.

Thankfully, Polly's Pies is just a few blocks down, on Wilshire Boulevard. Just minutes away really. Reminding myself that I was already over my ticket allotment, I forced my lead foot to ride lightly on the gas as I pulled into an empty Polly's Pies parking lot. It was the first time in decades that I didn't have to circle through the lot at least once to find a space. There again was the dreaded flyer, and the same ghost town where lemon meringues and honey-barbecue ribs once flourished.

Why are three popular restaurants abandoning the most beautiful place on the planetÑSanta MonicaÑin the same month? Is there something investors should know about this exodus? And perhaps more importantly, will the problem get solved quickly (please, please!) before the only places left to eat at in my hometown are malls and self-service, fast-food joints? (AGGHHH!!!!)

Alright, I'll figure out my own darn food problem, but if you're an investor in the very popular, high dividend-yielding REITs, the closest most of us get to owning our own skyscraper or business development, you'd be well-advised to heed some of the warning signs and statistics below, and to a reassess your portfolio (something the experts recommend doing at least once a year). High land values and high vacancy rates are not limited to Southern California.

What gives?

You know rents have topped out when popular, well-frequented restaurants, like Wolfgang Puck's Café, Seattle's Best and Polly's Pies, abandon their leases in one of the world's most desirable cities, Santa Monica. Wolfgang Puck's spokesperson, David Beckwith, played his cards close to the chest, merely saying that the lease was up and I was welcome to enjoy the food at Wolfgang Puck Express instead, exclamation point! How exciting! Who's going to miss the waiters, the banquettes, the full bar, the fresh fish and the colorful, unique interior, when we can stuff cheesy pizza in our face and carry our own trays over to the outdoor community seating area, where music school dropouts muff up their scales with the amplifier turned on ten! I smell a rat in Mr. Beckwith's phrase, the "lease was up," but I need an entrepreneur who is honest enough to spit up the numbers.. Word on the street was that rents had doubled.

According to Eddie Sheldrake, who owns Polly's Pies Bakery Cafes with his brother, Donald, it was basic math. When the rent goes up 275%, "that's too much for us to handle," Eddie said. The new owners were asking for $22,000 a month from a family-style restaurant that was priced to pay $8,000. Eddie acknowledged that the previous owners, with whom he had a "great" relationship for 28 years, had a right to sell the property and that the new owners, who, according to Eddie, paid a whopping $2.2 million for the restaurant, have a right to ask for their price. "I'm not saying that's unreasonableÉ But Santa Monica is pushing higher wages, and they're not too cooperative with their zoning laws." The bottom line is that Eddie and Donald will move onto a friendlier place where a restaurant owner can afford to keep the burners on! If high rents and bureaucracy affect the small business owner, who must in turn vacate and look to establish business elsewhere, imagine what happens to the large developer, who spends years, sometimes decades, trying to get the blueprints off the ground, and then looks on with horror to find his customers (business tenants) running for the hills of suburbia, Arizona and Nevada!

REITs, like Equity Office Properties (NYSE: EOP) with a heavy presence in Southern California commercial real estate are suffering (still) with high vacancy rates, and trying to stay alive with Senior Note offerings. Wonder how the seasoned real estate executives are responding to the climate? They are taking their chips off the table by the millions. According to Money Central, which updates its insider trading statistics daily from the SEC database, both Equity Office Properties (NYSE: EOP) and Arden Realty (NYSE: ARI) saw consensus executive cashing in to the tune of $28 million and $32 million respectively. Not one insider at either company bought stock in the company within the last twelve months. While trading on insider trading is not a reliable market strategy in a vacuum, it's certainly a warning sign, especially when coupled up with "Gone Fishing" flyers at formerly top Shangri-la eateries.

According to Paul Woods, CEO of Odyssey Advisors, California is downright hostile to business, which is a very large consideration to investors who are interested in investing in REITs, particularly REITs that are engaged in commercial real estate in Southern California. According to Paul:

Will Santa Monica become a carousel of collapsing businesses and a fast-food, tourist Mecca? Will the new landlords realize that they overpaid for their slice of heaven and cough up real-world rents?

Remember the late 1980s, when exuberant, rich Japanese businessmen bought up prime U.S. real estate at top dollar, only to sell it off in fire-sells in the 1990s when Southern California real estate collapsed under a weakened local economy and multiple catastrophes (including riots, floods, an earthquake, fires and mudslides) and the Asian economy fell through the floor? According to Realtor.org, "The sell-off proved to be a large boon for American investors as they [were] able to purchase Ôdistressed assets' at sharp discounts." So much for the theory touted by real estate brokers (salesmen working on commission) that land values in California and New York never go down.

Excessively high real estate prices and rents pose another challenge to business--recruiting top-notch talent. Even successful Los Angeles real estate developers, like Caruso Affiliated, builders of the hip new destination center, The Grove, have trouble recruiting out-of town staff, who are simply unwilling to overpay for housing and crappy public schools. Rick Caruso, CEO of Caruso Affiliated, says, "When we recruit someone out of the city, it is always a challenge to get them to deal with the housing prices and the schools. We showed someone Thousand Oaks (a Los Angeles suburb), and he said he wasn't going to drive 45 minutes to get to work."

[NataliePace.com note: The 45-minute commute from Thousand Oaks into midtown Los Angeles is a pipe dream. With traffic, it's more like two hours.]

Certainly real estate has been the golden goose during the early 2000 recession, emptying cash (through refinancing) into the Southern California consumer's wallet. But can real estate continue to carry the weight and is the recovery as sound as it seemed in the glory days of 8.2 real GDP in the third quarter of 2003? Even though John Anderson, the Chairman of the Anderson School of Business and Management at UCLA, admits that real estate has gone crazy, he is bullish on the economy and thinks that land values will remain strong. Rick Caruso agrees with Anderson, saying that all of the economic indicators have been positive and that, at a time when money is virtually free, you're actually making money just by borrowing. However, Tim Leiweke, President of the Anschutze Entertainment Group, owners of the Staples Center, has a slightly more measured evaluation about the economy. "Probably the best indicator we have of how the economy is doing, is the concert company. We did roughly $400 million through that division. It's still soft. When you see acts that price their tickets at the high end, it's tough. There isn't as much discretionary income as you saw a few years ago."

The Staples Center facility hosts the Los Angeles Lakers, the Clippers, the Sparks (WNBA), the Avengers (arena football), the Kings and multiple concerts each year. . Certainly on Laker nights, when fans could buy a car with the cash they spend on their suite, there's no hotter ticket in town (and perhaps the U.S.). But the Staples Center was only a part of the Anschutze Entertainment Group's planned urban center. AEG's has had plans in the works for a new content campus that surrounds the Staples Center, with a hotel for business travelers and a new 7000 seat theatre, so that awards shows won't ever leave Los Angeles again. "L.A. is where people want to come to, especially in February... Who wants Bristol, Connecticut when it's zero degrees and snowing?" Leiweke asks.

Michael Roth, the spokesperson for AEG, isn't giving hard facts on how long the dream has been postponed, how many revisions have been made, how many deadlines and projections has been missed or how much over budget the project is. He says, rather, that L.A. Live has been at the forefront of the minds of the executives at Anschutze Entertainment Group since 1997, when the Staples Center deal was signed. According to Roth, "AEG is continuing to work with the City of Los Angeles to define a financing package for the development of the 1200 room convention center headquarters hotel, which will also include a 7,000 seat live theatre." AEG remains "solid in their commitment" to make this much-needed hotel a reality, and are "hoping to break ground on the billion-dollar LA Live development by the end of the year," according to Roth. Seven years? The company may have the deep pockets for such a long day's journey into reality, but a seven-year delay can't be easy on the wallet, and would likely bankrupt a less resourceful, less tenacious company.

Leiweke, Anderson and Caruso are undoubtedly the top of the top, at the apex of what real estate developers can hope to achieve in the most business unfriendly state in the continental U.S. They defy the odds and flourish in the hostile business environment in Los Angeles, calling the climate a barrier to entry for the weak. Still, even among themselves, they are mildly amazed when dream projects become a reality. "I have a huge amount of respect for Rick [Caruso] getting the Grove done," Tim Leiweke says. "Nothing happens easily this city. You better be prepared to jump, shout, scream and drag. It's a difficult time getting anyone to focus on your project. We have Attention Deficit Syndrome. You have to be really brave. The days of easy development are over."

Unfortunately, so are the days of an easy, enjoyable, home-cooked meal at a local restaurant within walking distance. As I cued up at the Wolfgang Puck Express Café on the 3^rd Street Promenade in Santa Monica, and schlepped my own soup over to a crowded public area, I couldn't help hoping that the real estate bubble would burst (as it has so many times before) and bring back businesses who can still make an honest buck providing a reasonably priced meal in a comfortable setting. If not, where will the locals get their meat loaf and chicken potpie?

Note: Rick Caruso, John Anderson and Tim Leiweke spoke to business leaders at the Beverly Hills Economic Summit on February 5, 2004.

Full Disclosure: Natalie Pace does not own shares in any company mentioned in this article.

REITs Report Card:

Don't Bet Without Looking At Your Cards!

By Natalie Pace, CEO of NataliePace.com

ith high yielding dividends and a reasonably low reward to risk ratio (compared to other equities), many money managers, like Paul Woods of Odyssey Advisors, consider REITs to be a staple of the client portfolio. Real estate has been a hot ticket over the last few years, but that doesn't mean that all REITs are created equal. How do you identify the brick house from the straw hut, when all you've got is a stock chart? As Paul says, "Avoid investing in REITs that have holdings in states that are hostile to businessÉ California is the worst of the 48, according to every survey. On the East Coast, it's probably New York and Massachusetts."

Due to the recession and businesses cutting back on costs, including leases, many REITs, especially commercial landowners with presence in Northern California, Boston, Southern California, and New York, where the technology bust hit with a vengeance, are still struggling with high vacancy rates. High-profile businesses are relocating to more business-friendly states. How does that translate into the bottom line? Equity Office Properties (NYSE: EOP) just issued $1 billion in senior unsecured notes. $990.4 million cash proceeds were used to repay outstanding balances and to settle two forward-starting interest rate swaps. Both Equity Office Properties (NYSE: EOP) and Arden Realty (NYSE: ARI), two REITs with commercial office buildings in Los Angeles, saw consensus executive cashing in to the tune of $28 million and $32 million respectively. Not one insider at either company bought stock in the company within the last twelve months. Arden Realty's income was $58.5 million, just 34% above the income of National Health Investors, a REIT with only $800 million market capitalization, compared to Arden's $2.102 billion market capitalization. Investors are earning $1.57/per share at National Health Investors, compared to Arden's $.92/per share, with much less debt, and far fewer warning signs.

For the buy and hold investor with holdings in these (or other) REITs, Southern California, Boston, New York and San Francisco all sport the top universities in the nation, and experts predict, over the long term, that these talent and think tank epicenters will rebuild and prosper. Despite hostile business environments, these cities are also some of the most popular places to live and visit in the world. In the meantime, however, if the businesses haven't stabilized before inflation and rising interest rates kick in, the risk scenario gets even more troublesome and the share price is likely to reflect that.

Fortunately, of the eight REITs listed in the attached REITs report card (CLICK HERE TO REVIEW AND PRINT), most have holdings in other more business-friendly states. All eight companies are companies selected by money managers and venture capitalists as their favorites (including Arden and Equity Office). With the high-yielding dividends and REITs returns over the last few years, money managers are willing to accept a few "warts" to rake in the dividends. NataliePace.com's forensic review of the companies revealed that some warts were goiters, however, and readers are well advised to carefully consider all of the information listed in the report card. For instance, Pennsylvania R.E.I.T. gets an average 7 rating from analysts (according to Zach's), but it's riskier than you might think, based upon that rating. According to a recent company press release, "If PREIT does not obtain retroactive relief from the IRS, it will owe corporate income taxes and interest [and perhaps penalties] for the years 2001 through 2003Éand it may not have access to sufficient capital to make such payments." As most of us are all too keenly aware, the I.R.S. is not known for being forgiving, and with one of the highest debt/equity ratios on the report card, PREIT's access to new capital would not be cheap.

There is one company that stands out heads and shoulders above the rest of the REITs in this report. It is the only company that is buying back it's own stock. With regard to demand, it is the one REIT on the list that can almost guarantee full vacancy and a need to keep expanding--as it services the health care industry. The National Health Investors (NYSE: NHI) have long-term healthcare properties, acute care hospitals, medical office buildings, retirement centers and assisted living facilities, 186 facilities in 23 states. Their debt/equity ratio is the lowest on the report card, at .42. With rising interest rates looming on the horizon, this is a serious competitive edge. "Cash and marketable securities total approximately 74% of total debt outstanding," according to Andy Adams, NHI's President, and "even with this unsurpassed liquidity, our debt to capitalization ratio declined to 28.5%, the lowest level in our 12-year history." Net income has increased 42% from year-end 2002 to year-end 2003.

National Health Investors is where I would place my bet. I'll take a little lower dividend (NHI is the 2^nd lowest dividend on the report card) with the lower risk and higher return potential, but I'm going to wait it out until September to add it to my tracking list. My guess is that rising fuel costs, a volatile presidential campaign and the summer doldrums may provide a better buying opportunity at that time.

Full Disclosure: Natalie Pace, the CEO and editor in chief of NataliePace.com, is NOT a broker or financial analyst. She is an executive and a writer. She does not own shares in any company mentioned in this article.

10 Ways to Protect Your Assets Against a Major Terrorist Strike on U.S. Soil

If you missed the member's only chat on March 17th, here's your chance!

by Natalie Pace, CEO, NataliePace.com

wouldn't write an article on plants, animals or driving, but as one of the few people who cashed in substantial gains in 2001 (without shorting) during a bear market year that saw the first strike on American soil since Pearl Harbor, I feel a bit qualified to talk about protecting your assets against terrorism. It doesn't take a crystal ball, but it will require a gut of steal. You don't have to rush out and buy into certain industries (say, defense) over others, although certainly some asset classes will always outperform others in certain scenarios. (The ongoing threat of terrorism means that defense stocks are no bargain these days…) You don't need to get your MBA, or learn how to read complicated charts, or study up on your Nostradamus. In fact, to make it as easy as possible, I've outlined the strategies that kept my portfolio healthy during uncertain times into a simple top ten list. (Cut and paste in cupboard in case of emergency!)

1. Don't panic. It's not the end of the world. The U.S. economy isn't that fragile. Americans are resourceful, hard-working, imaginative, innovative, inventive, pull-together people. If you panicked and sold in September of 2001 AFTER 9.11.01, you lost on average -35% (NASDAQ) and -17% (DOW). If you waited just three months, until December 2001 to sell, on average, you would be looking at 10-16% GAINS (NASDAQ) and ZERO LOSS (DOW).

2. Consider taking your profits the FIRST TIME you are in a position of profit. (Look for this to occur within 3-6 months). My personal experience? I had only a small amount invested in 2001 (a bear market year), in one biotech (Genentech, DNA:NYSE) and in one technology company (LoudCloud, LDCL:NASDAQ). (I had the bad timing of BUYING IN during August 2001. Imagine how I felt on 9.11!) On December 27, 2001, I cashed out BOTH stocks for combined gains of over 200%. If I'd let those gains ride in 2002, most of those profits would have been wiped out. By January 2003, the NASDAQ was down again below the trading levels on 9.11.2001, at -25% and the DOW was still off by -20%

3. Consider BUYING INTO your favorite companies right AFTER the attack. If you bought into the NASDAQ after 9.11.01, you were looking at 30% gains just four months later, in January 2002. During the same period, the DOW was up, on average, 12%. It's called BUY LOW; SELL HIGH, and it works like a charm. By January 2004, the NASDAQ was up 40% and the DOW was up 20%, from the low in September 2001. Great returns!

4. Portfolio Diversification. 2003 was a great year when most investors saw delightful returns. Has your diversification model become too heavily skewed into stocks? Diversify your assets. Your best protection against terrorism and other natural disasters (including market corrections) is to not be over-concentrated in ANY ONE asset class. Note: This includes real estate. If you've never lived through an earthquake, fire, flood, riot, terrorist strike or hurricane, trust me, these disasters can put you underwater on your mortgage faster than you can say Anthrax. (Those of us on the coasts get to experience a lot of these…) Don't have all your Lincolns in stock, bonds or your home. Remember that CASH is the best performing asset in market corrections, war and terrorist attacks. Liquidity means that you are in a position to buy at the new, lower pricing point.

5. Take some chips off the table now. Are you letting all of your profits ride? Profit taking is essential to building wealth. Any gain above 12% is considered a very healthy return. If you're looking at 70% gains, and you're trying to read a crystal ball to balance the risk of market correction or terrorist attack against the risk of selling too early and missing out on another price pop, realize that there is a huge difference between all and nothing. You don't have to gamble ALL of your gains to be INVESTED enough to capitalize on future growth. Two good questions to ask your self are, "How much am I willing to bet on this investment? How much am I willing to lose?"

6. Don't rush out and buy into an Anthrax BIOTECH (without doing your homework first). The first problem is: that's what everybody is doing, which means that the stock might be overpriced. The second concern is that Human Genome Sciences (HGSI:NASDAQ) has an anthrax vaccine in Phase I trials. This is the earliest phase of human testing. Though the initial results are "promising," this is based on a small trial and is a far cry from an FDA approval and mass marketing. In fact, in the headline for their press release, Human Genome admitted that "further development will depend on government willingness to commit to purchase." VERY RISKY. HGSI is also a company with negative earnings, having lost $185 million last year on $8.2 million in sales. Despite the fine print, HGSI's trading volume during the week of the Madrid Terrorist Strike spiked from 1.46 million to 2.145 million, and the stock was trading up.

7. Don't buy defense stocks on the fly either. Last year, before the 2nd Gulf War, Boots and Coots was the darling of the bulletin boards. Investors flocked to buy AMEX:WEL on rumors that Boots and Coots was going to win a contract to put out oil fires in Iraq, like they'd done in Kuwait during the 1st Gulf War. Boots and Coots did win the contract (as a subcontractor of Halliburton), but many investors didn't know how bad their balance sheets were! Investors who bought into Boots and Coots last April at the high of $10 bucks/share have taken a beating of up to -70%, and are still -55% below their initial investment.

8. Turn off the Tele, and slather on the elbow grease. In most natural disasters, the best thing to do is to clean up and rebuild. (Exceptions to this would include Chernobyl incidents, where the best thing to do is to get out of Dodge as quickly as possible.) Re-watching disasters over and over again, from every perspective, is not going to bring victims or your investments back to life. Healing your heart and your portfolio is going to take time. Wallowing in negative images may make you feel desperate, which could result in a very bad decision, like selling your investments at an all-time low, out of fear that the worst is still to come. Though that is always a possibility, that has not been the case for a long time in the U.S., and if it really is the Apocalypse, you'll have more pressing worries than stocks and bonds.

9. Cash is King. Don't forget the rule of thumb that you should always have six months of living money in liquid assets (like Money Markets and/or CDs). Suze Orman makes a good point that you shouldn't put all of your cash in one long-term CD. Instead, she recommends that you stagger the maturity dates of multiple CDs so that you're never in a penalty position if you need to withdraw some funds. Bonds are also very liquid.

10. Lock into a Fixed Interest Rate. Now may be the best time to lock into a fixed rate mortgage. Economists are predicting inflation and rising interest rates as early as 2005. If there is a terrorist attack, you may be looking at a real estate market correction, and if the attack is in your neighborhood, real estate values will plummet overnight. You will not have a choice to refinance once the value drops beneath your loan. With interest rates at a 40-year low, there's likely a lot of money to be saved by locking in that rate for the years to come. You'll appreciate a stable mortgage payment during the rebuilding period, while you're waiting for the value of your home to return.

In the meantime, whether you believe in security, or prayer or promoting peace, the best RX for disaster is preparation. Make sure you're stocked up on food, water and first aid supplies, and that you've given your portfolio and your home a good safety check!

Full Disclosure: Natalie Pace, CEO of NataliePace.com, is not a broker or certified financial planner. She is a media executive, a writer, a successful investor and a respected stock picker. She owns stock in Opsware (OPSW:NASDAQ), which was formerly LoudCloud (LDCL:NASDAAQ). She doesn't own stock in any other companies mentioned in this article.

The Terrible Ts: Tenants, Termites, and Toilets.

Investor's Guide To Buying and Owning Rental Property

By Nikki Deloffre, Real Estate Consultant, ndeloffre2000@yahoo.fr, 323-467-9817

Nikki Deloffre is an expert in real estate and real estate property management, having invested in property and trust deeds since she came to the United States from China in the 1980's. She is a world traveler, who also owns property in Beijing, near the Olympic Village, and speaks Chinese, English, French, Spanish, to name a few of the languages she is fluent in.

or many people, rental property is a good area for a long-term investment. Although housing prices have fluctuated greatly over the last twenty years, in and out of boom and bust cycles, sometimes rental real estate property is not affected as much, primarily due to the ability to increase the income stream from rent increases (if rent control doesn't restrict it). Compared with other types of investment, rental property investment has other advantages. First of all, it is a stable and long-term investment. It is also safe to say that the property value always goes up when the rent goes up. [iSophia note: Rentals in Southern California are currently at an all-time high.]

For instance, in areas such as California, which has over 1,000 people coming into the state every day (source: Californians for Population Stability), and a shortage of rental units due to the regulatory and environmental barriers to construction, there is always the need for rental units. Thus, owning rental property can lead to steady income because you can be reasonably assured that vacancies will be short-lived, providing your pricing is in line with the market.

Plus and Minuses to Owning Rental Property

One of the drawbacks to owning rental property is the lack of immediate liquidity as there is usually a longer turn-around time, in case there is a need for immediate cash. Unlike stocks, which can be liquidated in three days, and bonds, which can be liquidated in one day, rental property can take months. Another drawback is the actual management of the property that one must do, with outside professional management by giving up a portion of the rental stream, or by self-management, which takes some effort and can be demanding and frustrating. (Don't let the tenants ever have your home phone number or address!)

Is it really difficult to invest into a rental property? By doing a little homework and getting some information, not really, especially since there is significantly more information available on the Internet today that will help you in this process. Start here:

DO YOUR HOMEWORK!

1. Find out which areas are growing in population and which ones are shrinking.
2. Call the local Chamber of Commerce for statistical information on population and business growth, as well as the level of income and real estate property appreciation.
3. Find out if there is rent control.
4. Drive through different neighborhoods and see how many for rent signs are out.
5. Are local businesses thriving or dying?
6. Is there a Wal-Mart, or other large employer coming into town, which will significantly increase the amount of employment?

What type of rental property should you get into as an investment?

There are basically two types of rental properties. Smaller rental properties, which are less costly and less complicated in terms of management, and higher multiple rental properties, which could need professional management.

When you are just starting out, 2-4 units could be ideal because when you're buying a small building, the loan company and financial institute can lend up to 95% of the loan towards the purchase. Since the down payment is smaller, it is easier to get into this type of investment. Smaller buildings also mean fewer problems to deal with (termites, toilets and tenant turnover, to name three). Thus, you can manage it yourself reasonably easily.

The drawback to this is that the initial return on the investment might be lower than expected, since the loan amount is higher. Income may not be as high as one would like to have and, very often, it just breaks even, which means a longer horizon time to earn more positive cash flow, real estate appreciation and profit for the property owner. Sometimes, the building cannot operate on its own. Extra funding might have to be put in.

When you want to branch out and invest in 5 units and over, you need to carefully investigate the vacancy or occupancy level, tenant turnover period, age and condition of the building and the tax impact. Usually one can expect income immediately after the purchase. The bigger the building is, the more efficient the building could run on its own. The loan payment is usually lower since the highest percentage loan that the bank is willing to lend out on a rental property this size is 75%. If the building is newer, fewer repairs are needed, so, the initial return should be better.

Hopefully the profits you earn on your smaller unit building will help you generate the larger amount of funds you will need to expand your real-estate empire. You'll need a certain amount of cash for the initial payment. When looking for a building of 5 units or over, you have to calculate at least 25% of the purchase price as a down payment, plus all the fees the agent charges. If you are buying an older building, or borrowing a loan for a shorter periodÑsay 15 years, instead of 30--your down payment could be as high as 35% of the purchase price, plus the fees. You should be sure to include the price of professional management in your expenses and profitability equations, especially if you want to avoid dealing with tenants and repair. That consumes a great deal of time and patience..

In summary, when looking for a rental property, look at:

1. Purchase price

2. Down payment

3. The loan amount

4. The return that the building can generate.

Sometimes, a higher priced building (newer with higher rent) generates better income immediately. There are many factors that contribute to the return that the building can generate. Below are a few key tips!

Swimming to the Profitability, Once You've Jumped Into the Deep End

Screen tenants: An important aspect of owning a multi-unit rental is screening of tenants. Ask for references. Run a credit check. Get information on where they work. Is their income high enough to cover the rent? If you are suspicious, you might want to include a background check, or call their previous landlord. Ask how many people are moving in. You should limit the number of tenants per unit to avoid having a small village move into your apartment. This will help prevent problems down the line. Evicting tenants is tough and costly. Be sure to have an attorney look over your tenant agreement, and make sure that your policies toward all tenants are in line with the agreement, to avoid problems with the Renter's Bureau.

Rent Control: Another factor one should look into before purchasing a property is whether the building is in the area where there is a rental control program. The Rent Control programs were initiated to protect tenants against the slumlords, and to keep rents for long-term tenants at a reasonable price. Rent Control mandates certain regulations regarding the safety and physical condition of the building, and it keeps a cap on the percentage of the rent one can raise each year. The cap usually ranges from 3-5%. This program works well for the low-paying tenants who lived in the apartment paying rent before the rent control program took the effect. But in general, it does a disservice to both property owners and tenants. For the property owners, there are more rules and regulations to deal with, and some rents are kept under the market value. If there are too many rents under market value, it can put the landowners underwater on their mortgage. Thus, by prohibiting the flow of income, the Rent Control system hamstrings the amount an owner can spend on upgrades, beautification, etc. on the building. Also, when an old tenant moves out, the owner will certainly raise the rent up to market value. In the area without rent control, it is the market that regulates the rent. A property owner can certainly make a good profit in rent-controlled areas, but, if one does not like to answer to the bureaucracy, it is better to avoid the area.

To manage or not to manage, that is the question!

A small building is not too difficult to manage yourself and it also saves on the management fee. If you want to manage a building yourself, you need to join the Apartment Owners Association. AOA has many services. The most valuable service is the credit check on the applicants. Their web site for Apartment Owners Association is www.aoausa.com. The phone number of The Greater Los Angeles AOA is: (213) 384-4131.

You'll also need to set up a Post Office Box to collect rent checks. If it's possible, set up a phone line for tenants only. You don't want tenants calling you at home for a drip at three in the morning. You do need, however, to monitor the messages closely, so you won't miss the call for emergency. If the building is old, it is better to set up a schedule (once a month, or once every two months, for instance) to inspect the building. Whenever there is a problem, fix it immediately. By doing so, one can avoid a disaster in the future. Keep a good and reliable handyman for small repairs. For major work on the building, use the same crew, so they know the building and its problems very well.

For a medium size rental property, you should have an on-site manager to collect the rent, and perform small repairs, such as cleaning and painting. It makes it much easier for the owner, and you don't lose too much income when you give someone a rent break for collecting rent, calling maintenance services and basically being the person the tenants complain to, instead of you. An on-site manager certainly saves a lot of trouble for the owner.

If you really don't want to manage the building or the building is too big to handle, you can always hire a management company. There are many of them. Bear in mind that it is not easy to find a company that is willing to manage a smaller building. Management companies will do everything for the owner, including going to court on behalf of the owner to evict the tenant. Management fees are usually 6-10% of the gross income of the rental property. Ask them to send a monthly statement on the property, which you should check over closely. If and when you have questions, investigate the discrepancy and get it resolved immediately.

Donald Trump isn't the only one who has made a fortune in real estate. There are a lot of women with better hair-do's who are doing quite well. As a matter of fact, rental property investment can be an interesting and enriching experience in more ways than just the bottom line! You're dealing with people, after all, and their homes. Ideally that experience should be something that provides a benefit to everyone involved.

For another perspective on building wealth through real estate, try:

Nothing Quick About Getting Rich with Real Estate by M.P. Dunleavey

http://moneycentral.msn.com/content/Investing/Realestate/P77333.asp

A year after a real estate seminar promoter in NYC promised to create 1,000 new millionaires, none are in sightÑexcept, of course, the promoter. Here's what happens to folks who fork over big cash for Ôno-fail' directions to fabulous wealth.

CEO Rock Stars:

Should executives be rewarded with multi-million dollar bonuses when the company's earnings and labor pool are still on the ropes?

By Gary Kennedy, technology entrepreneur, former president of Oracle USA (a reprint from an earlier issue)

ver the past 20 years, CEO compensation has increased dramatically. The increases are much greater than the increase that would be anticipated as a result of inflation.

An enlightening way to quantify CEO compensation is to divide a CEO's compensation by the average salary of a low-level worker in his company. In many parts of the world, CEOs earn 20-30 times as much as entry-level workers. This was the case in the United States, until the last 20 years. Many CEOs are now making several hundred times as much in compensation as their low-level workers. Is it any wonder that these workers and many investors have lost patience with CEOs? The rampant cynicism is voiced by workers: "He makes more in a day than I do in a year, and he doesn't even know how to run the company."

[Editor's Note: By the 30x theory, a Citigroup low-level worker would need to make over a million per year to keep on the map with Chairman Sanford Weill's $44.7 million compensation package in 2003, as reported by Bloomberg News. Mr. Weill's 2003 compensation package is over 1,400 times higher than a Citigroup, Inc. minimum wage employee.]

There are many reasons why CEO compensation has grown so dramatically.

1. Greed is rampant in corporate America. CEOs are competitive by nature. They cannot stand the idea that others are better compensated than they are. All it takes is one board that decides to break the bank for their CEO. The result of their actions is disclosed in the annual proxy statement, and soon their competitor's CEOs are receiving similar compensation plans.
2. Lazy boards cede their compensation to Wall Street. For many years, CEO compensation was largely unrelated to the performance of the company. Shareholders began to encourage the compensation committee of the board of directors to tie CEO compensation to company performance. This is clearly a good idea. The problem came when boards were unable to accurately measure company performance. They decided to substitute a measurable yet inaccurate metric (stock price) for a difficult to measure but accurate metric (company performance). Stock price is not a good measure of company performance. Those who believe that it is need to be able to justify the accuracy of the pre-crash share prices for the dot coms. A compensation committee that bases CEO compensation on share price or who makes stock options the majority of an executive's compensation plan is abrogating his responsibility to Wall Street.

[ed. Note: According to Bloomberg News, Sandy Weill's compensation package, increased by 5 times this year, from $9 million (including $7.4 million in stock options), to $44.7 million, including a $29-million bonus, $1 million salary and $14 million in option grants. Meanwhile, Citigroup's share price soared 40% while earnings were down from the five-year average by over 30%. The board must have been elated with the share price gains, especially considering that Citigroup survived two very high-profile scandals, including Jack Grubman and the mutual funds crisis.]

3. CEOs see themselves as rock stars or professional athletes. The primary factor to consider when compensating professionals with unique skills (rock stars and athletes) is "what will the market bear." This is a relatively easy question to answer when there is a direct relationship between the professional in question and the price of a ticket. For example, fans might have to pay $2-3 dollars more to watch Shaq, Kobe, Payton and Malone play basketball for the Lakers. In theory, each fan would have to make the decision whether or not he would pay more to watch a team win basketball games in the finals, or pay less to see a mediocre team. This analogy does not work for CEO compensation (although they like to justify their salaries by saying it is only what Barry Bonds makes). It does not apply to CEOs because the price of their goods or services cannot be increased to pay for the CEO's compensation. Who would pay $2-3 dollars more for a ticket to an Anaheim Angels game, so the board could give Michael Eisner a salary increase? The only valid standard for compensation of a CEO is "replacement value." Most CEOs could be replaced for a fraction of what they are currently making.
4. Boards of Directors are not exercising their fiduciary responsibility. In the past, CEOs have loaded boards (especially compensation committees) with their friends. Many of these friends have been supremely competent, but loath to disagree with the CEO. Recent legislative changes and the ongoing "government witch hunt" have combined to make service on the board of a public company much less attractive. In fact, it has almost become a business IQ test.

The CEO says to a prospective board member, "We need you to fly here to headquarters through crowded, dangerous airports for 4-6 meetings a year (more if we're in trouble), but we will only pay you a few thousand dollars a year. You will only be able to sell your stock in very limited windows, and even then, if you know anything bad about the company, you cannot sell at all. Furthermore, if the stock goes down you will likely become the subject of a class action lawsuit. Want to join?"

While the afore-mentioned changes will reduce the likelihood of a CEO stacking the board with his croniesÑ"friends don't let friends join boards"Ñit is also probable that new boards will not be able to attract the capable board members of the past. If a board does not exercise its fiduciary responsibility regarding the CEO compensation due to a personal relationship with her or him, or, if they fail because they are not competent, the effect is the same.

Mr. Gary Kennedy has shared many thoughts with NataliePace.com members on effective ways to link CEO compensation to company performance, and to provide ideas on inferences you can make about a company by analyzing their compensation structure.

If you have a question or a comment about this article, which was first published in September 27, 2002, please feel free to write us at: info@NataliePace.com.

Top 10 signs the Company is Using Fuzzy Math.

1. Offshore corporate headquarters. Company has operations in the US, but holds one shareholder meeting per year in Bermuda and claims the island as the basis of operations. Not only does the IRS consider this aggressive accounting, it is intentionally designed to be very unfriendly to shareholders wanting to go to the annual meeting and hear about the company firsthand!
2. Bald CEO acts like a rock star with entourage, body guards, arm candy, standing suites at the Four Seasons, box seats, penthouse Manhattan digs and designer Feng Shui furnishings, down to the $2,000 trash can. The survival of the rich, famous and beautiful code spins on one important fact. If you're not famous or beautiful, you're picking up the tab. While having celebrity spokespersons is an advertising line item expense, when the CEO shows up more in the society pages than in the executive suite, the company's bottom line is taking a mud bath at a designer spa on your dime.
3. $2,000 trash can in the executive bathroom. Hey, it's not like having Faberge eggs or Van Gogh. It's a trashcan. People smash out cigarette butts in it. What's next? Tiffany crystal at the water cooler?
4. Controller vacations in the Hamptons.
5. Company is one of the 350+ companies that had to restate earnings in the last three years. This group makes up less than 5% of the publicly traded companies. Avoid them. (Check out "Key Developments" of the company, on the Money Central.msn web site.)
6. A dozen spin-off corporations with names you've never heard of are operating complicated schemes that you don't understand.
7. Executive meeting in Sardinia coincides with CEO's wife's 40^th birthday party (and company gets to pick up most of the tab!).
8. N Sync performs at CFO's kid's bar mitzvah. Party favors include skateboards signed by Avril Leveigne.
9. Press releases tout "increasing earnings," while credible news sources (NY Times, Wall Street Journal) expose a lack of revenue growth and debt burdens so crushing that creditors are threatening to force the company into involuntary insolvency.
10. Muzak plays in the corporate elevators, in stores and on hold. (Yes, Martha had it right. Bad taste not only stinks. It's also a sign of corporate malaise and may be, in fact, killing employee brain cells.)

Wisdom at a Glance:

10 Fast Quotes from the Brightest Minds on the Street on when, where and how to invest in the markets these volatile days.

1. Dr. Julius Maldutis, global aviation analyst and managing director at CIBC World Markets. "I would avoid all of the major carriersÉ. Jet Blue is one of the low cost carriers. I would own it absolutely." (Dr. Maldutis also mentioned Southwest, Airbus and Airtrans as picks.)
2. "Money is free today. The cost of money is less than the inflation rate. You're making money, borrowing money." Rick Caruso, CEO of Caruso Affiliated, developers of the popular "The Grove" destination center in Los Angeles, California
3. "Democrats are better than Republicans for the markets over the last 100 years." Frank Cappiello, Montgomery Brokers Capiello, speaking on CNBC 3.29.2004
4. "Stocks are cheap. Bonds aren't much competition. Jobless recoveries are good for profits." Paul Woods, CEO, Odyssey Advisors
5. "Equities become arguably more attractive against a backdrop of lower interest rates and the lack of any major earnings warnings... Long-term investors should remain in the stock market but with a healthy cash position to cushion the current decline." John T. Harrington, Harrington Capital Advisors, Inc.
6. "When in doubt, stay out." Jonathan Hoenig, www.CapitalistPig.com
7. "The weakness in the technology sector is somewhat troubling, and many analysts believe the charts suggest a correction may be imminent. Underlying valuation concerns in that sector have many suggesting a move into more conservative positions." John T. Harrington, Harrington Capital Advisors, Inc.
8. "The economy is off to a strong start in 2004, and prospects for sustaining the expansion in the period ahead are good. É However, the unified deficit swelled to $375 billion in fiscal 2003 and appears to be continuing to widen." Alan Greenspan, Chairman of the Federal Reserve Board, speaking to the Committee on the Budget, U.S. House of Representatives on 2.25.2004.
9. "The business model is impossible for full service old airlines. They can't compete with young, lean companies like Jet Blue. It's almost like having cancer. The only question is how much worse can it get." Jim Awad, Awad Asset Management
10. "2004 should be a volatile year, a day-trader's paradise, as stock prices soar and plunge on headlines of a hotly-contested presidential race, a jobless economic recovery, rocketing fuel prices, continuing terrorist attacks, and the hunt (and ultimate capture?) of Osama bin Laden. Diversifying some of the 2003 equity profits into more liquid positions allows the investor to capitalize on buying opportunities, especially late into the summer doldrums, after fuel prices have burned holes in the consumer's wallet." Natalie Pace, CEO, NataliePace.com

Martha Stewart:

Should She Fry in Prison or Bake on the Tele? Cast your vote! (See below for howÉ)

he prosecution NEVER CHARGED MARTHA WITH INSIDER TRADING. She was convicted of lying to investigators for a crime that she didn't commit. The judge threw out the trumped-up securities charges. The total amount that Martha stood to lose was $46,000. She was not contacted by Sam Waksal, and didn't know that the FDA had rejected the Erbitux application. (If she had known that, and she traded on that information, she would have been charged with insider trading.) Is it possible that Martha was telling the truth all along. She might have been scared or stupid enough to try and erase a phone call in her phone log, but is that a crime? Should millions of dollars and thousands of prosecution man-hours have been diverted away from the billion dollar corporate collapses of Enron, Global Crossing, World Com and Tyco to prosecute America's favorite hostess?

1. "If I were an Enron employee, or a WorldCom or Global Crossing or Tyco shareholder, I would be ON FIRE about the millions of dollars and thousands of man-hours that were spent on trapping Martha Stewart in a "lie," instead of focusing all resources on real corporate fraud and the billions of dollars that were lost and tossed into executive golden parachutes." Natalie Pace, CEO, NataliePace.com
2. "She will end up continuing to play a creative role at the companyÉ She will not be an officer or a director, but she will be very involved in the company." (inside source at the Martha Stewart Living Omnimedia, according to Forbes.com)
3. "I think she got what she deservedÉWhat she did was wrong, famous or not famous. I hope she serves every bit of that 20 years." Annette Decaito, 45, an unemployed resident of Martha's hometown of Nutley, New Jersey (AP)
4. "I feel very sorry for her. I think she's being made a scapegoatÉ I wish I could be in New York with her to lend my support." Gina Colbus, Kmart shopper and Martha Stewart Everyday Collection buyer (Fredericksburg, VA. Knight Ridder/Tribune)
5. "My gut reaction is that Martha-haters tend to be people who are highly suspicious of the wealthy and of corporate power." Robert S. Rycroft, economics professor, Mary Washington College buyer (Fredericksburg, VA. Knight Ridder/Tribune)
6. 39% of New Yorkers want Martha Stewart in prison, while 50% say she should go free, according to Mickey Blum of Blum & Weprin Associates, a polling firm (Daily News)
7. "Judge Miriam Cedarbaum prohibited the defense team from mentioning the fact that it was perfectly legal for Martha Stewart to sell on her broker's advice, regardless what Doug Faneuil may have said or why. Either his explanation or hers may be correctÉ but the jury would surely have wondered why the motive for selling ImClone stock mattered so much if they could have been told the sale itself was no crime." Alan Reynolds, "Martha's MistrialÉ" www.cato.org
8. "We are confident that once we get our day in the court of appeals, the conviction will be reversed." Robert Morvillo, attorney for Martha Stewart
9. "Suppose she just said, "Hey, listen, I made a snap decision. We had some arrangement one day. This guy calls me up the next day. I'm flying to Mexico and I just traded." And you know what? I think that would have worked. She wouldn't have been in this position right now." Charles Gasparino, senior special writer, Wall Street Journal, speaking with Paula Zahn on CNN
10. "What kind of country is it where O.J. Simpson goes free for murdering his wife, and Martha Stewart is convicted of lying about a crime she didn't commit?" John Small, SaveMartha.com

Please feel free to weigh in your own opinion, by writing to us at info@NataliePace.com.

Martha Stewart Should She Fry in Prison or Bake on Television?

___ Lock her up.

___ Lock her up and force her to listen to Muzac while eating Hungry Man dinners. Deny her a "personal assistant."

___ Let her go, and keep her on television.

___ Let her slink back to the Hamptons. We've seen and heard enough from her.

___ Who cares?

Also, please join us for our special Wednesday Worldwide MEMBERS ONLY CHAT discussing Martha Stewart, the state of corporate corruption and how you can protect yourself best from CEO greed and misdeeds. We’ll be having some very special guests in our chat room. Don’t miss it!

Please feel free to weigh in your own opinion, by writing to us at info@NataliePace.com. Also, please join us for our special Wednesday Worldwide MEMBERS ONLY CHAT discussing Martha Stewart, the state of corporate corruption and how you can protect yourself best from CEO greed and misdeeds. We’ll be having some very special guests in our chat room. Don’t miss it!

World Beautification:

Spotlight on Para Los Ninos, a nonprofit company on Skid Row in Los Angeles that works to improve the lives of families living on very limited means.

by Wendy Satana, Director of Major Gifts, Para Los Niños

In this spotlight on one family, Para Los Niños helps strengthen the bond between an angry, aggressive toddler and his family.

n the world of a three-year-old, the arrival of a new sibling can be overwhelming and stressful. For Roberto Medina, it meant his entire life changed in an instant. After his baby sister was born, Roberto's mother returned to work to help make ends meet. Imagine losing your world (your mother), getting a new sister, and being cared for by a stranger (the new babysitter). Anxious and afraid, Roberto began acting out and throwing uncontrollable tantrums. Frustrated, Roberto's babysitter resigned within just a few short weeks.

Desperate for a solution, the Medina family turned to Para Los Niños for help.

Roberto was immediately enrolled in one of our Child Development Centers, with preschool programs designed to assist working parents with limited means. Although he was in a nurturing environment with children his age, Roberto was still very anxious. His teacher reported that he was overly aggressive, refused to share, and hit his classmates. During a parent-teacher conference, Roberto's mother confided that he was out of control at home and she often worried that Roberto might harm the new baby. Roberto's family was immediately referred to Para Los Niños' Family Resource Center for more intensive help.

The Medina family began meeting weekly with a family therapist, and a case manager was assigned to conduct home visits. The therapist and case manager helped the Medinas develop new strategies to help the family resolve the issues that prevented Roberto from being successful at home and in school. Roberto's therapist concluded that he was troubled by his mother returning to work, the birth of his sister, and marital strife between his parentsÑall of which contributed to stress in the home environment.

Roberto's mother and father began attending a parenting class at Para Los Niños to learn how to re-direct adverse behavior at home. They developed skills for working together as a team to address his needs, and Roberto felt relieved when his parents cooperated with each other.

Each person working on Roberto's behalf could see that he was an exceptionally bright child. Roberto's teacher began offering him leadership opportunities in exchange for good behavior. Conversely, as Roberto's parents learned to increase communication and reduce conflict in their interactions, they were able to develop consequences for negative behavior at home. They also learned methods for reducing marital conflict, which served to reduce tension. This, in tandem with the progress made in the classroom, has allowed Roberto to control his behavior, and become not only a successful student, but also a leader in the classroom.

"Roberto's story is about a child who exhibited anxiety, which is one of the most frequent factors that interferes with a young child's social and emotional functioning," says Director of Clinical Services, Juan Martinez PhD, L.C.S.W. "By resolving conflict and uncertainty in the home, Roberto was able to feel secure. His behavior improved dramatically."

Now when he's at home, Roberto loves nothing more than to listen to his parents read stories, tell folk tales from their childhood, and play ball. And, in the classroom, he enjoys the opportunity to act as an assistant to his teacher. Thanks to positive reinforcement he receives when he behaves at home and at school, Roberto exhibits improved confidence and consistent behavior. He is also enjoying the responsibility of being a big brother and was the first in the family to make his sister laugh.

Para Los Niños opened its doors in 1980 in response to the plight of children living in Skid Row hotels. Without appropriate intervention, these children were often kept locked in hotel rooms while parents worked, or were left alone to wander the halls and dangerous neighborhood streets. Initially, 45 children received care at the agency. Today, Para Los Niños assists more than 1,350 children, ages 6 weeks through 18 years, each weekday Ñ and more than 3,000 families every year Ñ from 15 sites in some of Los Angeles and San Bernardino Counties' most impoverished neighborhoods. Para Los Niños' services include child development and education, a Charter School, child abuse prevention and intervention, after-school enrichment, youth diversion and delinquency prevention, and comprehensive family support.

For more information about Para Los Niños, please visit www.paralosninos.org. To make a donation online visit www.paralosninos.org/2002/give.html. You may also get more information by calling 213.623.8446.

VISION: To build a global community of investors through seminars, a world-wide web-site and, ultimately, television.
GOAL: Working change: To promote successful investing and ethics in business.
MISSION: To build a global investment community by providing easy access to important financial news, by promoting a dialogue between members and industry professionals and by promoting ethical business practices, products and services.
PHILOSOPHY: The W.I.N. philosophy centers around five principles: Ongoing Education, Monthly Commitment, Diversified Portfolio, Ethical Business Practices, Pooled Resources.
For more information on W.I.N. contact us at info@NataliePace.com

NOTICE: The NataliePace.com is NOT a stock brokerage service, and does not operate or act as one.