Well, I've been hard at it lately, and don't have much to talk about. So, I suppose I'll talk about what I've been hard at.
never wanted to be a real estate guy, but sometimes these things just
happen. I had looked into real estate rather exhaustively for a number
of years, and could never see how people made the numbers work. I
always supposed that they must be doing some kind of tax maneuvering to
make it worth it, and I am not much disposed to that kind of thing,
because it is usually just a trap to control your behavior and limit
your future options...so that you get to keep the tax benefits which
were necessary to make the investment worthwhile in the first place.
Bad idea, and besides, I just don't like real estate. I don't have the right personality for it.
things have changed, and you'd have to be brain dead not to be in
rental houses -- even if you don't like them, at least in my area. So,
I'll soon be a landlord.
I'm moving to a larger house
to make room for another kid (plus, of course, to make the wife happy).
So I was left having to decide what to do with the one I'm in. Let
this be a lesson to the wise.
I could have sold it, and
basically gotten back out of it what I put in a few years ago. But my
realtor advised us to hold it for a bit 'until the market comes back in a
couple of years' which no doubt you already know my own views of the
prospect of that. But, just because, I looked into the numbers to see
how it would work out as a rental.
I guessed that it would generate about 5% rental outcome, just because
of the tendency for capital to uniformly return the natural rate of
interest, supposing it is a fairly competitive market -- which real
estate generally is. Turns out, deducting expenses and maintenance,
this was more or less correct (it was actually about 6%, which for most
people, after taxes would be 5%).
I do not really want
to own real estate making the 5%, as this would be very foolish. It
would be paying me some income, yes, but it would be in a slumping
market, the market value of my asset unlikely to keep up with inflation,
despite the income.
So, I looked into ways of holding
it and putting my cash elsewhere in the meantime. Which is to say,
borrowing against it and using the money to purchase a different asset,
while at the same time using the income it generates to pay off the
Now, theoretically, I should not be able to do
this and make it work. If I borrow, say, 80% of the equity, the
interest should theoretically eat up 80% of the income the property
generates -- because the loan rate should be in equilibrium with the
natural rate. So, this strategy should be a useless wash.
it turns out -- not so! Not at all! The interest rates on loans are
so low right now (and prices low, and rents high) that I can effectively
give up 80% of the equity and retain 62% of the income! Outrageous!
you do the math (which will be difficult for you, as I'm suppressing
the actual numbers, as I have to have SOME privacy), that works out to a
16% return! And the freedom to invest the balance of my equity any way
I want -- i.e. in an actual appreciating asset!
the majority of the income is in the form of equity in the house, but
who cares? The longer it goes on, the surer my position, until I'm no
longer leveraged at all -- at somebody else's expense.
know that when I went on that whole Veblen tangent, I lost a lot of
people. I hope you, gentle reader, sees this for what it is -- free
income, an economic abomination, courtesy of somebody out there who is
getting fleeced. I will be adding absolutely nothing to the economy
except the use of my capital, which should earn me about 5%. I'll be
making three times that. I will become a member of the parasitic
rent-seeking class, thanks to the crazy money system, laws and policies
of this country -- that all too many people want to dismiss people like
me for criticizing.
Keep it up. Meanwhile, I'll be
sucking you dry, without the slightest remorse. I will explore every
opportunity to exploit this situation, while you keep shoveling money in
the black hole of your 401K. And when the banks collapse, and the
government men inform you that you're broke and have to keep working,
because your accounts don't exist anymore, and neither does Social
Security, I'll be sitting pretty on physical, income generating assets.
My critics may say what they like -- I'm putting my money where my
mouth is. Oh, and I'll also be doing my part to help devalue the
currency, drive up prices, and hastening the impending financial
And you know what? You're welcome.
about this. If you're, say, 50 years old, with $500K to invest, you
could put down $100K on $500K worth of house, generate $16K per year of
income, and have the other $400K to invest however you want. If you get
into trouble, you just cash out the investment and pay off the debt.
Or sell the houses. Or let the bank have them. Piece of cake.
Like I said, no brainer. Or you could, you know, keep investing in the stock and bond markets, and pray.
case you hadn't noticed, gold is back on a tear, up about $200 per
ounce in a couple of months. In case you hadn't noticed, the Europeans
are going all-in for yet another round of inflationary mass-bailout. In
case you hadn't noticed, the FED has basically announced an open-ended
QE until...who knows?
The money-printing is not going
to end anytime soon -- but at some point, the low rates will. Prices
are going up. Debts will be devalued.
Think about it. Anyway, whatever you choose to do, I know what I'm doing.