Dow at 14000

Off Topic Politics & World Issues
61

[quote]nephorm wrote:
Marmadogg wrote:
If you bought the house before 2002 then you should be golden.

Rental property and real estate investment is a zero sum game when compared to investments that eliminate unsystematic risk over the long haul.

Prices will continue to drop through 2008 as inventory will take at least the next 18 months to stabilize.

You would do better to put your money in a treasury backed money market fund and wait until the first quarter to jump back into the S&P.

I understand your point about systematic risk.

On the other hand - and please understand that I am not arguing for the sake of arguing… you seem to understand something that I do not - if I invest $20K in a mutual fund (or whatever else) that averages 10 percent a year, at the end of thirty years I will have $349K. If I invest $20K in a house worth $100K, and hold onto it for 30 years, assuming that the house has appreciated in value at an average of 5 percent a year, I will have $432K. If it averages 7 percent over that 30 years, I will have $761K.

It seems difficult to me to do much better than 10 percent, on average over a long term, in stocks. Someone who does it for a living or has more time to research can, I’m sure, do better than that consistently. It seems much easier to me to get a 5 percent or better average yearly return on real estate. Buying houses that are in need of work (and sell below market price) also means that you start out with a higher principle than you have paid for.

So what is your advice for the investor who cannot make his investments his job? The same?[/quote]

You are paying quite a bit of mortgage interest over those 30 years. Of course, you have to LIVE somewhere so I assume your talking about investments where you don’t live.

I like the leverage in real estate — controlling a $100000 property with $20000. If the property goes up 7% in year one, you’ve made 35% on your investment of 20K.

Each one has a lot of plusses and minusses, such as stocks being easily disposable.

And I just realized your post was meant for MD. Sorry!

62

[quote]Headhunter wrote:
You are paying quite a bit of mortgage interest over those 30 years. Of course, you have to LIVE somewhere so I assume your talking about investments where you don’t live.
[/quote]

Correct, the context was rental properties, although I should have been more specific in my post.

The better house you buy, especially as a personal property, the bigger risk you are taking. It is harder to dispose of higher priced homes, though there are areas where the market exists. There are also areas where having an expensive home is just about only a luxury - many parts of Texas, for example - because you would have to sell it for less than a person could buy the same house new.

Yes, stocks are much more liquid, and you can realize your gains much faster if you know what you are doing. I don’t.

All opinions appreciated!

63

I have owned investment real estate before and its a pain in the ass — like the whore I rented to who had a little kid. Couldn’t kick her out for non-payment of rent because of the kid and she was using the apartment I rented to her as a whore house. Then, after FINALLY getting her out, the mess was unbelievable. My cousin helped me and he vomitted after pulling up some ruined carpet (from the stench). Shit stains on the bathroom walls…

I could go on and on.

Buy a nice REIT fund or Fidelity’s Defense and Aerospace, and call it a day! :smiley:

64

[quote]nephorm wrote:
Marmadogg wrote:
If you bought the house before 2002 then you should be golden.

Rental property and real estate investment is a zero sum game when compared to investments that eliminate unsystematic risk over the long haul.

Prices will continue to drop through 2008 as inventory will take at least the next 18 months to stabilize.

You would do better to put your money in a treasury backed money market fund and wait until the first quarter to jump back into the S&P.

I understand your point about systematic risk.

On the other hand - and please understand that I am not arguing for the sake of arguing… you seem to understand something that I do not - if I invest $20K in a mutual fund (or whatever else) that averages 10 percent a year, at the end of thirty years I will have $349K. If I invest $20K in a house worth $100K, and hold onto it for 30 years, assuming that the house has appreciated in value at an average of 5 percent a year, I will have $432K. If it averages 7 percent over that 30 years, I will have $761K.

It seems difficult to me to do much better than 10 percent, on average over a long term, in stocks. Someone who does it for a living or has more time to research can, I’m sure, do better than that consistently. It seems much easier to me to get a 5 percent or better average yearly return on real estate. Buying houses that are in need of work (and sell below market price) also means that you start out with a higher principle than you have paid for.

So what is your advice for the investor who cannot make his investments his job? The same?[/quote]

Neph

If you look at the stock market long term. I mean over the past 100 years, you will see it averages 10%/yr. over time.

The best thing an individual can do is buy and hold a representative basket of stocks. Buy after bad news and only sell when you need the money or a signifigant event happens with one of the companies you own.

Most professionals, over time, will not beat the 10-11% return. They will for representative periods but not over the long term.

I own both equities and real estate. Been in the market since the mid-80’s. Over time I have done great. Certain periods, not soo much. Same with real estate. I never lost money on real estate but never had to sell. Shortest time I’ve owned a property is 5 years. I’m holding both stocks, real estate and some cash right now. About 20% cash. I don’t need the money for pressing need now so I am holding. Might even buy a lot near my business if real estate continues to decline. Again look back 20-30 or even 50 years at real estate values and you will see the market always bailing you out if you can wait.

My two cents anyway.

65

[quote]nephorm wrote:
Marmadogg wrote:
If you bought the house before 2002 then you should be golden.

Rental property and real estate investment is a zero sum game when compared to investments that eliminate unsystematic risk over the long haul.

Prices will continue to drop through 2008 as inventory will take at least the next 18 months to stabilize.

You would do better to put your money in a treasury backed money market fund and wait until the first quarter to jump back into the S&P.

I understand your point about systematic risk.

On the other hand - and please understand that I am not arguing for the sake of arguing… you seem to understand something that I do not - if I invest $20K in a mutual fund (or whatever else) that averages 10 percent a year, at the end of thirty years I will have $349K. If I invest $20K in a house worth $100K, and hold onto it for 30 years, assuming that the house has appreciated in value at an average of 5 percent a year, I will have $432K. If it averages 7 percent over that 30 years, I will have $761K.

It seems difficult to me to do much better than 10 percent, on average over a long term, in stocks. Someone who does it for a living or has more time to research can, I’m sure, do better than that consistently. It seems much easier to me to get a 5 percent or better average yearly return on real estate. Buying houses that are in need of work (and sell below market price) also means that you start out with a higher principle than you have paid for.

So what is your advice for the investor who cannot make his investments his job? The same?[/quote]

A mutual fund cost you 50 bps a year while a house will cost you at least 200 bps (more like 300 bps) per year. You have maintenance, taxes, mortgage insurance, etc.

Did you factor in that you have to pay a Realtor 600 bps when you exit?

What is more liquid? The fund or the house? You can sell out of a fun in less than 24 hours. It takes a minimum of 30 days to get rid of a house in a booming market.

Real estate only works when the arbitrage can be capitalized on.

Don’t buy into the NAR BS.

A house is a great place to live and an Audi is a nice car to drive…neither is a good investment.

66

The Vanguard 500 fund costs 19 bps per year and you will not beat those returns on your own by selecting your own basket of stocks.

The vast majority of funds do not beat the S&P when the cost (load) is factored in.

Good investments are:

  • Liquid (24 hours vs. months)
  • Have low expense ratio (0.19% vs. 2.00%+)
  • Have a positive cash flow

Please read this again:

67

[quote]Headhunter wrote:
nephorm wrote:
Marmadogg wrote:
If you bought the house before 2002 then you should be golden.

Rental property and real estate investment is a zero sum game when compared to investments that eliminate unsystematic risk over the long haul.

Prices will continue to drop through 2008 as inventory will take at least the next 18 months to stabilize.

You would do better to put your money in a treasury backed money market fund and wait until the first quarter to jump back into the S&P.

I understand your point about systematic risk.

On the other hand - and please understand that I am not arguing for the sake of arguing… you seem to understand something that I do not - if I invest $20K in a mutual fund (or whatever else) that averages 10 percent a year, at the end of thirty years I will have $349K. If I invest $20K in a house worth $100K, and hold onto it for 30 years, assuming that the house has appreciated in value at an average of 5 percent a year, I will have $432K. If it averages 7 percent over that 30 years, I will have $761K.

It seems difficult to me to do much better than 10 percent, on average over a long term, in stocks. Someone who does it for a living or has more time to research can, I’m sure, do better than that consistently. It seems much easier to me to get a 5 percent or better average yearly return on real estate. Buying houses that are in need of work (and sell below market price) also means that you start out with a higher principle than you have paid for.

So what is your advice for the investor who cannot make his investments his job? The same?

You are paying quite a bit of mortgage interest over those 30 years. Of course, you have to LIVE somewhere so I assume your talking about investments where you don’t live.

I like the leverage in real estate — controlling a $100000 property with $20000. If the property goes up 7% in year one, you’ve made 35% on your investment of 20K.

Each one has a lot of plusses and minusses, such as stocks being easily disposable.

And I just realized your post was meant for MD. Sorry!

[/quote]

Leverage can put you in a hole just as quick. Don’t forget that a Realtor takes 6%.

68

Real estate might be okay if you live there and rent out a portion, like a duplex. Being an absentee landlord is not so good, for the reasons I mentioned above.

Te main advantage to RE is the leverage. Get in on a boom, with as little down payment as possible or buy a repo. If you buy a $400,000 house with 20k down, and prices go up 10%, you’ve made 200%, minus all the fees and crap.

If I were a plumber or electrician and really (REALLY) knew my shit, I’d play real estate big time. Otherwise, in general, its just not worth it.

69

[quote]Marmadogg wrote:

Leverage can put you in a hole just as quick. Don’t forget that a Realtor takes 6%. [/quote]

The Amsterdam Real Estate study was fascinating! Thanks, MD, for posting the Fool link!

It is a little disturbing that RE has shot up so much lately. If that market crashes, it’ll seriously be Armaggedon for us economically.

70

[quote]Headhunter wrote:
Marmadogg wrote:

Leverage can put you in a hole just as quick. Don’t forget that a Realtor takes 6%.

The Amsterdam Real Estate study was fascinating! Thanks, MD, for posting the Fool link!

It is a little disturbing that RE has shot up so much lately. If that market crashes, it’ll seriously be Armageddon for us economically.

[/quote]

It already is Armageddon.

The European Central Bank had to bail out a huge German bank and French bank last week to the tune of several hundred billion dollars.

This is why:

Liquidity has propped up our economy thanks to the Greenspan put. Greenspan just prolonged the inevitable.

71

Read linked article for and example of what is happening as a result of the credit bubble pop:

http://www.nytimes.com/aponline/business/AP-First-Magnus-Bankruptcy.html?_r=1&oref=slogin

6000 people out of work over night…

72

[quote]Marmadogg wrote:
Headhunter wrote:
Marmadogg wrote:

Leverage can put you in a hole just as quick. Don’t forget that a Realtor takes 6%.

The Amsterdam Real Estate study was fascinating! Thanks, MD, for posting the Fool link!

It is a little disturbing that RE has shot up so much lately. If that market crashes, it’ll seriously be Armageddon for us economically.

It already is Armageddon.

The European Central Bank had to bail out a huge German bank and French bank last week to the tune of several hundred billion dollars.

This is why:

Liquidity has propped up our economy thanks to the Greenspan put. Greenspan just prolonged the inevitable.[/quote]

Damn!! Its like watching a tidal wave rising, while most everyone plays on the beach.

73

Quote of the Week:

Hedge funds and private-equity firms today are like the dot-coms in 2000: Ask for money and you’ll get it. They bid up the prices of everything. The amount of money flowing is almost out of control, and it’s making everything overvalued. A client of mine said it’s like there are 11,000 planes in the sky and only 100 good pilots – an accident is bound to happen.

�??Ray Dalio of Bridgewater Associates, quoted in Barron’s, May 26th 2007 edition

We will get through this too.

74

[quote]Marmadogg wrote:
Quote of the Week:

Hedge funds and private-equity firms today are like the dot-coms in 2000: Ask for money and you’ll get it. They bid up the prices of everything. The amount of money flowing is almost out of control, and it’s making everything overvalued. A client of mine said it’s like there are 11,000 planes in the sky and only 100 good pilots – an accident is bound to happen.

�??Ray Dalio of Bridgewater Associates, quoted in Barron’s, May 26th 2007 edition

We will get through this too.
[/quote]

A world built on fiat money is a tinderbox. I realize that fiat money was used to initiate and pay for wars, but without a solid means of exchange (the basic principle of money) the system itself will start to erode.

Is this crisis the ‘match in the tinderbox’? Maybe. But our addiction to fiat money must be paid for — reality can’t be cheated forever.

75

Gentlemen,

I am in way over my head attempting to understnad this thread. However at 22 and a recent college graduate beginning a career, I desire to inform myself to some extent about these issues.

Would subscribing to the WSJournal or US News and World Report be wise? Any books I should read, or websites I should pour over?

I appreciate any help.

Boom

76

[quote]JimmyBoom wrote:
Gentlemen,

I am in way over my head attempting to understnad this thread. However at 22 and a recent college graduate beginning a career, I desire to inform myself to some extent about these issues.

Would subscribing to the WSJournal or US News and World Report be wise? Any books I should read, or websites I should pour over?

I appreciate any help.

Boom[/quote]

I highly recommend a book named ‘The Creature From Jekyll Island’ by a dude named Greffen or similar. We’ve got a monetary system based upon continual debasing of the currency. How long that can last is anyone’s guess. The Romans got away with it for quite a while. Of course, we then had the Dark Ages…

77

[quote]JimmyBoom wrote:
Gentlemen,

I am in way over my head attempting to understnad this thread. However at 22 and a recent college graduate beginning a career, I desire to inform myself to some extent about these issues.

Would subscribing to the WSJournal or US News and World Report be wise? Any books I should read, or websites I should pour over?

I appreciate any help.

Boom[/quote]

http://video.google.com/videoplay?docid=-466210540567002553&q=mises