Can you hedge real estate?

Quanto said:
Here's a hot tip for you:
A much cheaper insurance (actually an unbelievably $0 insurance!) would be this method:
take a loan on the property and then buy "something" in the regular stock market, plus sell its ATM Call options and buy its ATM Put options. It costs you net $0. This then locks (freezes) the initial value of the underlying. Ie. no loss possible at all, and everything is insured & secured!...
Enjoy! :)

The net cost of this method is of course not $0 but the interest to pay for the loan.
(But it theoretically really costs $0 when no loan is involved, ie. when insuring an existing stock position against any losses. But then interest for margin use could apply...)

This is similar to the above linked Armstrong method, but IMO much easier to apply in practice.
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You’ve proven the others right. You’re a moron.
 
I own a decent amount of industrial real estate in farm areas.

The value of the land is strictly dependent on there being a buyer for that land. That buyer will buy that land because it fits their operational needs (for example it allows them to expand their operations). At that point the global real estate market is irrelevant.

Banks value the property on cash flow. This is why landlords don’t lower rents to fill vacancies, not based on some indexed pricing of land.


long said:
To clarify, I don’t know this person. I just found the question interesting as I’ve thought about purchasing a similar piece of property and had the same worries of a drop in land value after purchasing. I thought people here at EliteTrader might have another way of approaching the issue.

Also, he isn’t buying the land to farm forever but as an investment. Most undeveloped land in farming communities is farmed right up until construction starts. If the land owner isn’t a farmer himself he will rent it to a farmer to produce some cash flow while he waits for the land to rise in value. This is common practice.
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long said:
The problem is that the put would be based on a specific piece of property, not a correlated instrument that has liquidity. If the market does crash he would be relying on the bank to acknowledge that the value has dropped and make good on the put. But…..if they do refuse to acknowledge the value drop they wouldn’t have a reason to recall the loan early. It could work well but 22% premium is too high to work for an investment property he plans to sell in the future at a profit. Especially since he will be financing it at todays rates.
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1) The 22% is an insurance for 5 years.
2) When in dispute, then you can let the actual value estimate by an independent source, and IMO such is done very often any day by some qualified and certified specialists&companies, their report is even usable in the court.
3) One of course in advance also can agree upon on which metric/index to follow for determining the actual value.

What do you think about the second method (the hot tip posting above)? :)
 
This idi0t:


Quanto said:
Here's a hot tip for you:
A much cheaper insurance (actually an unbelievably $0 insurance!) would be this method:
take a loan on the property and then buy "something" in the regular stock market, plus sell its ATM Call options and buy its ATM Put options. It costs you net $0. This then locks (freezes) the initial value of the underlying. Ie. no loss possible at all, and everything is insured & secured!...
Enjoy! :)

Buy shares -> short ATM call -> buy ATM put = conversion arb. Edge loss at prevailing funding at 0 delta.

Long 100 natural shares -> short 100 synthetic shares at a loss of edge. No position. Locked loss. No insurance or hedge utility.
 
Quanto said:
Here's a hot tip for you:
A much cheaper insurance (actually an unbelievably $0 insurance!) would be this method:
take a loan on the property and then buy "something" in the regular stock market, plus sell its ATM Call options and buy its ATM Put options. It costs you net $0. This then locks (freezes) the initial value of the underlying. Ie. no loss possible at all, and everything is insured & secured!...
Enjoy! :)

The net cost of this method is of course not $0 but the interest to pay for the loan.
(But it theoretically really costs $0 when no loan is involved, ie. when insuring an existing stock position against any losses. But then interest for margin use could apply...)

This is similar to the above linked Armstrong method, but IMO much easier to apply in practice.
More...

Some people don't understand the above said.
Here's the proof for locking (freezing) the current value of a stock with any volatility and for any time frame (here volatility 50, and locking for 1 year): as can be seen the PnL=0 for all and any future stock value, which proves the above said.

NoLoss.png
 
long said:
It sounds like the land he is wanting is priced at development prices so it might not be correlated to Agriculture industry stocks. The fact that it is still farm land will give it a bottom if there is a commercial real estate bubble. I’m guessing the land is currently valued at twice the price of farmland in his area.
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%%
Plenty of ways to mange RE risk; not a complete list hereLOL
1]Very experienced RE agent helps to the max.....
2]I would look @ 100 %gain as good starter, assume a massive check list was a positive??.
3]Local community bankers could give another opinion; even though one I used in business on land was way to negative LOL.[So in case of failure he could say told you so-LOL]
4] Have to consider a certified appraiser, usually use the local bank's= conservative
5] I bought mostly land + sold[thru RE agents] for 20+ years; its speculation, but worked wellwith plenty of work.........
6.66] 100% of foreclosures are caused by debt or to much debt; not likely my lawyer would agree to an accelerated lenders contract due, just because of drop in values, is that CA??
[7.77] RE seller furnishes survey, even though a good RE agent can work something out:caution:
 
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