Looking for places to sock money
02-12-2011, 02:30 PM
#21
Administrator
Originally Posted by rob-2,Feb 11 2011, 04:14 PM
It's an active investment. Rich either needs to get a property manager or manage the property himself.
Active? Stocks are way more hands-on that owing a managed rental property. How you define active is curious.
As rates rise, how to you suggest unemployed people are going to manage to pay more for homes? New home sales are down. Prices flat.
How do you expect to get tenants into your properties who will pay regularly?
This all sounds very nice, but in real world situations being landlord is another job. If you run the numbers, you need enough properties to employ a management firm to do it for you. FYI we looked into buying a home for cheap $280K, but it rents for $1200-1300/month and carries for $1500-1600. Assuming you always get 12/months a/year it still costing you to carry the home. It's no 'investment'. Wait 6 months to get a renter and it's really unattractive. You've also tied up a $280K commitment in one property, one location that is and will be slow to convert to cash for the next 5-10 years.
$56000 invested (20% of 280K)
$14000 capital gain from 5% avg annual appreciation
3 average years and you've doubled your capital.
That is leverage at work.
I'd run the numbers again because I think you missed some.
02-12-2011, 10:44 PM
#22
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C3, you really think real estate will go back up at 5% clip a year? I can see 2~3% what with inflation but 5% sounds too good to be true, given what we've just went through.
i'm looking now but only in the markets i've lived in and know and that's Cali and Indy.
i'm looking now but only in the markets i've lived in and know and that's Cali and Indy.
02-13-2011, 04:49 AM
#23
Administrator
Richard, you need to decide for yourself obviously but yeah, I think it will go up 30% over the next 3 years to recover much of what was lost recently and then continue to appreciate at a very normal rate. The big gains will be soon then normal after that.
You can't take a specific incident and say this is how it will be always. real estate wasn't just a good investment since 911 and sub-prime, it has been a good investment forever and will continue to be.
Look here:
Prices didn't get weird until 2003 and even then they were not far off the normal appreciation. Real estate prices rose 8.6% annually according to one report called "Empirical Risk-Return Analysis of Real Estate Investments in the U.S., 1972-1999".
Can you make an argument that that everything is different now and home prices are going to be flat for the next decade? I can't. There is simply no data to support that. The data says what is happening recently is an anomaly and I agree with the data.
c3's rule of investing: You want to be a seller of what most people are buying (gold, asia) and a buyer of what they are selling (real estate and US$). Most people lose money on their investments because they buy high and sell low. Don't be that guy.
You can't take a specific incident and say this is how it will be always. real estate wasn't just a good investment since 911 and sub-prime, it has been a good investment forever and will continue to be.
Look here:
Prices didn't get weird until 2003 and even then they were not far off the normal appreciation. Real estate prices rose 8.6% annually according to one report called "Empirical Risk-Return Analysis of Real Estate Investments in the U.S., 1972-1999".
Can you make an argument that that everything is different now and home prices are going to be flat for the next decade? I can't. There is simply no data to support that. The data says what is happening recently is an anomaly and I agree with the data.
c3's rule of investing: You want to be a seller of what most people are buying (gold, asia) and a buyer of what they are selling (real estate and US$). Most people lose money on their investments because they buy high and sell low. Don't be that guy.
02-13-2011, 09:53 AM
#24
C3 we're currently experiencing more than 5% inflation here that is unreported, so at best your projections would show a protection of his money against inflation tied up in a single item. It's a lot of work just to get 'inflation'. Your report is for new home sales, not used homes; which is also a different ball game.
How many rental properties have you got going?
How many have generated a profit state side in the last 12-18 months?
Stock is more passive investing. You buy, you hold, you sell. Properties have things that break, need fixing, people to 'sell' the property on. When you buy a stock, you make a purchase, often with a click of a mouse and the same goes when you sell.
A home is a lot more work, I trust you've bought one. Now imagine every 8-12 months finding someone new. Either he does it or pays someone.
Housing prices from 1940-1971 show average 5.5% and with the unpegged from gold the dollar you see a great example of the devaluation of the dollar with the rise in home prices that exceed the 100 year norm. This sheds more light on the matter
http://upload.wikimedia.org/wikipedia/comm...IE2_Fig_2-1.png
I think unless you've got some actual, hands on data that you've done yourself, you're trying to prove a theory.
Case In Point.
We live near to a 250 unit rental complex. Great location, great setup, public transport, highway, pool gym etc. It's a great rental setup. Of the 250 units, they have 21 they have on the market with another 10-14 they are 'hiding' off market to try to protect their pricing. As you can imagine they aren't doing very well, management has cut back and labor has been reduced. Cash flow wise their super tight and management has told me they're loosing more people than they can get to rent. People are just walking away.
How many rental properties have you got going?
How many have generated a profit state side in the last 12-18 months?
Stock is more passive investing. You buy, you hold, you sell. Properties have things that break, need fixing, people to 'sell' the property on. When you buy a stock, you make a purchase, often with a click of a mouse and the same goes when you sell.
A home is a lot more work, I trust you've bought one. Now imagine every 8-12 months finding someone new. Either he does it or pays someone.
Housing prices from 1940-1971 show average 5.5% and with the unpegged from gold the dollar you see a great example of the devaluation of the dollar with the rise in home prices that exceed the 100 year norm. This sheds more light on the matter
http://upload.wikimedia.org/wikipedia/comm...IE2_Fig_2-1.png
I think unless you've got some actual, hands on data that you've done yourself, you're trying to prove a theory.
Case In Point.
We live near to a 250 unit rental complex. Great location, great setup, public transport, highway, pool gym etc. It's a great rental setup. Of the 250 units, they have 21 they have on the market with another 10-14 they are 'hiding' off market to try to protect their pricing. As you can imagine they aren't doing very well, management has cut back and labor has been reduced. Cash flow wise their super tight and management has told me they're loosing more people than they can get to rent. People are just walking away.
02-13-2011, 10:14 AM
#25
Originally Posted by cthree,Feb 12 2011, 03:45 PM
10% unemployment means shit. That is a measure of PAST unemployment, not future unemployment. You are trying to infer the future by looking backward. Economic indicators are TRAILING meaning they tell you where you have already been. Calling them indicators at all is misleading, they are reports of past activity not indications for future trends.
If you want to intuit the future you need to look forward, way forward. Have you seen the S&P lately? it has regained half of its recent losses. When the S&P tanked, what was the unemployment rate? 5%? 6%? Either people are going to stop investing capital and the S&P is gong to go down again to a level you would expect for 10% unemployment or that capital flowing back info the markets is going drive hiring which is going to drive unemployment down to 5-6%. First you get the money, then you hire people to spend it. Hiring people with a hope that money will be available to pay them just isn't done so you aren't going to see a drop in unemployment BEFORE an inflow of capital to the capital markets.
Oil prices are going to be capped by 3 things. First, reduced demand from Asia. Second, cheap oil and gas from Canada in exchange for security, intelligence and most importantly a more open border. Third, new energy efficiencies.
Interest rates are going to go up, a lot, but inflation won't be a major issue in the US/west because on average a very small percentage of our incomes goes to pay for basic needs like food, shelter and warmth. If the price of food tripled would you starve? Unlikely. Inflation will be modest and manageable; something to bitch about but little more.
That's my take, seeing as you asked.
If you want to intuit the future you need to look forward, way forward. Have you seen the S&P lately? it has regained half of its recent losses. When the S&P tanked, what was the unemployment rate? 5%? 6%? Either people are going to stop investing capital and the S&P is gong to go down again to a level you would expect for 10% unemployment or that capital flowing back info the markets is going drive hiring which is going to drive unemployment down to 5-6%. First you get the money, then you hire people to spend it. Hiring people with a hope that money will be available to pay them just isn't done so you aren't going to see a drop in unemployment BEFORE an inflow of capital to the capital markets.
Oil prices are going to be capped by 3 things. First, reduced demand from Asia. Second, cheap oil and gas from Canada in exchange for security, intelligence and most importantly a more open border. Third, new energy efficiencies.
Interest rates are going to go up, a lot, but inflation won't be a major issue in the US/west because on average a very small percentage of our incomes goes to pay for basic needs like food, shelter and warmth. If the price of food tripled would you starve? Unlikely. Inflation will be modest and manageable; something to bitch about but little more.
That's my take, seeing as you asked.
I recall reading that we're down about 10%/year for 4 years running now on the dollar to a basket of currencies.
FYI Food has been up over 10%/year for 3 years running. Small example 99c/dozen eggs is now $2.80 at the same store over 3 years. Unreported by CPI.
Unemployment figures matter as it relates to the number of people earning and in the 'market' to spend. The US has historically had lower than average West unemployment figures which would suggest either an economic change is required or that growth will be slow. If a change happens, the economy could restructure but that takes time.
Oil from Alberta requires $40/barrel to break even. There is huge concerns developing over the 'waste' created by the messy process and the use of cheap natural gas to keep the program viable. What evidence do you have that shows the Canadian gov't is going to subsidize the program? Harper appears to be in a tough spot, it's good for Canada to export oil but the waste he cannot control and Alberta shows no signs of 'working with' your federal gov't to do anything in the best interests of Canada. Under NAFTA Canada has to send us 2/3's of your oil exports by contract, so I don't see how the gov't is going to change anything there unless you are suggesting production is going to dogmatically increase.
I also don't see Canada needing further protection. Do explain this, provide some documentation to this comment.
Further on oil, no sizable oil has been found in 30 years. OPEC WikiLeaks documents suggest reserves are both over stated and increases in production to prevent $100+/oil is not possible. Even has Iraq comes 'online' our oil to dollar ratio for our economy seems to require more and more oil. I've not seen major shifts to show otherwise. The US economy counts on trucks and changing that requires 30 years of infrastructure rebuilding.
I'm by no means suggesting the US economy will not recover but I think for investing reasons most people are over exposed to US economic troubles and under valuing foreign. If one could get 10%/year internationally this would beat the 6-7% MOST people get domestically before inflation adjustments.
02-14-2011, 06:08 AM
#26
Administrator
Let me put it another way, At its lowest point, US real estate on average lost 23%, the avg price dropping from ~$325K to $250K from a high in 2007 to a low in 2009 (see chart I post above of avg. US home prices). That's a big drop until you compare that to the S&P500 benchmark index which went from a high of 1600 to a low of 700 in the same period of time, a loss of 52%. Let me say that again just to be redundant:
stocks lost twice as much value as residential real estate between 2007 and 2009
Stocks have recovered some of that but are still down 20% from their highs, almost exactly the same net loss as real estate. Let me do the numbers for you since they are kind of complicated:
$100000 invested in S&P500 index at the peak of the market is worth ~$80,000 today assuming you didn't sell it for about $50,000 in 2009.
$100000 invested in US residential real estate at the peak of the market is worth ~$78,000 today assuming you didn't sell it for $75,000 in 2009.
Unlike stocks, real estate has yet to recover much of its loss which makes it the perfect time to be "backing up the truck" as Cramer says and loading up with as much as you can get your hands on. Most of the discount in stocks is gone. You are paying retail.
As for Canada, what you read on wikipedia is fiction and just plain wrong. I live there, I know a little about it. If you said what you said to a Canadian they would say "WTF are you talking about???" so my response is to say "WTF are you talking about???".
You want stability, you want leverage, you want deductible expenses, you want capital gains and you want someone else to pay most or all of the finance and maintenance costs while not having to sit in front of a ticker to know if you are making or losing money day-to-day.
You want to buy real estate, prime US real estate, not foreign currencies or metals you know nothing about or how they trade.
I'm amazed by people gambling on commodity futures and forex when they have no fricking idea how commodity or currency markets work or even what they do. It's like investing your wealth in lottery tickets or flying to Vegas because you read about some fool-proof system for winning at craps on the internet. Who does that?
OT: Here is your proof things are becomeing "normal" again and that there is no recession overhang
The first sign shit is going wrong is when things stop making sense and people start talking about a "new" reality. Well as it always the case, the new reality is the old reality. Interest rates and bond yields are perfectly logical and right where logic would suggest they be. When short term bonds yield higher than long term bonds it is because people (those with all the money anyway) have no confidence in the long term picture so pile into short term investments driving the price up causing the rather unnatural situation where money invested for a longer time pays lower returns than money invested for a shorter time.
All is well. Buy cheap US real estate before the sale ends!!
stocks lost twice as much value as residential real estate between 2007 and 2009
Stocks have recovered some of that but are still down 20% from their highs, almost exactly the same net loss as real estate. Let me do the numbers for you since they are kind of complicated:
$100000 invested in S&P500 index at the peak of the market is worth ~$80,000 today assuming you didn't sell it for about $50,000 in 2009.
$100000 invested in US residential real estate at the peak of the market is worth ~$78,000 today assuming you didn't sell it for $75,000 in 2009.
Unlike stocks, real estate has yet to recover much of its loss which makes it the perfect time to be "backing up the truck" as Cramer says and loading up with as much as you can get your hands on. Most of the discount in stocks is gone. You are paying retail.
As for Canada, what you read on wikipedia is fiction and just plain wrong. I live there, I know a little about it. If you said what you said to a Canadian they would say "WTF are you talking about???" so my response is to say "WTF are you talking about???".
You want stability, you want leverage, you want deductible expenses, you want capital gains and you want someone else to pay most or all of the finance and maintenance costs while not having to sit in front of a ticker to know if you are making or losing money day-to-day.
You want to buy real estate, prime US real estate, not foreign currencies or metals you know nothing about or how they trade.
I'm amazed by people gambling on commodity futures and forex when they have no fricking idea how commodity or currency markets work or even what they do. It's like investing your wealth in lottery tickets or flying to Vegas because you read about some fool-proof system for winning at craps on the internet. Who does that?
OT: Here is your proof things are becomeing "normal" again and that there is no recession overhang
The first sign shit is going wrong is when things stop making sense and people start talking about a "new" reality. Well as it always the case, the new reality is the old reality. Interest rates and bond yields are perfectly logical and right where logic would suggest they be. When short term bonds yield higher than long term bonds it is because people (those with all the money anyway) have no confidence in the long term picture so pile into short term investments driving the price up causing the rather unnatural situation where money invested for a longer time pays lower returns than money invested for a shorter time.
All is well. Buy cheap US real estate before the sale ends!!
02-14-2011, 07:18 AM
#27
Originally Posted by cthree,Feb 12 2011, 03:45 PM
Oil prices are going to be capped by 3 things. First, reduced demand from Asia. Second, cheap oil and gas from Canada in exchange for security, intelligence and most importantly a more open border. Third, new energy efficiencies.
02-14-2011, 08:03 AM
#28
Administrator
Only the DOE's website http://www.eia.doe.gov/cabs/Canada/Oil.html
Canadas oil production (including all liquids) was 3.35 million bbl/d in 2008, down 0.07 million bbl/d from 2007. Despite the drop last year, Canadas oil production has steadily risen over the past decade, as new oil sands and offshore projects have come on-stream to replace aging, mature fields. Overall, EIA expects that oil sands production will increase even further in coming years and more than offset the decline in Canadas conventional crude oil production: according to the July 2009 Short-Term Energy Outlook, EIA expects Canadian oil production to increase to 3.41 million bbl/d in 2009 and 3.48 million bbl/d in 2010. Canada consumed an estimated 2.32 million bbl/d of oil in 2008. The country sends over 99 percent of its oil exports to the U.S., and it is consistently the top source of U.S. oil imports.
Canadas oil production (including all liquids) was 3.35 million bbl/d in 2008, down 0.07 million bbl/d from 2007. Despite the drop last year, Canadas oil production has steadily risen over the past decade, as new oil sands and offshore projects have come on-stream to replace aging, mature fields. Overall, EIA expects that oil sands production will increase even further in coming years and more than offset the decline in Canadas conventional crude oil production: according to the July 2009 Short-Term Energy Outlook, EIA expects Canadian oil production to increase to 3.41 million bbl/d in 2009 and 3.48 million bbl/d in 2010. Canada consumed an estimated 2.32 million bbl/d of oil in 2008. The country sends over 99 percent of its oil exports to the U.S., and it is consistently the top source of U.S. oil imports.
02-14-2011, 09:40 AM
#29
Originally Posted by cthree,Feb 14 2011, 10:03 AM
Only the DOE's website http://www.eia.doe.gov/cabs/Canada/Oil.html
Canadas oil production (including all liquids) was 3.35 million bbl/d in 2008, down 0.07 million bbl/d from 2007. Despite the drop last year, Canadas oil production has steadily risen over the past decade, as new oil sands and offshore projects have come on-stream to replace aging, mature fields. Overall, EIA expects that oil sands production will increase even further in coming years and more than offset the decline in Canadas conventional crude oil production: according to the July 2009 Short-Term Energy Outlook, EIA expects Canadian oil production to increase to 3.41 million bbl/d in 2009 and 3.48 million bbl/d in 2010. Canada consumed an estimated 2.32 million bbl/d of oil in 2008. The country sends over 99 percent of its oil exports to the U.S., and it is consistently the top source of U.S. oil imports.
Canadas oil production (including all liquids) was 3.35 million bbl/d in 2008, down 0.07 million bbl/d from 2007. Despite the drop last year, Canadas oil production has steadily risen over the past decade, as new oil sands and offshore projects have come on-stream to replace aging, mature fields. Overall, EIA expects that oil sands production will increase even further in coming years and more than offset the decline in Canadas conventional crude oil production: according to the July 2009 Short-Term Energy Outlook, EIA expects Canadian oil production to increase to 3.41 million bbl/d in 2009 and 3.48 million bbl/d in 2010. Canada consumed an estimated 2.32 million bbl/d of oil in 2008. The country sends over 99 percent of its oil exports to the U.S., and it is consistently the top source of U.S. oil imports.
How does this translate into Canada being the resource to cap crude oil prices for US market?
I was also looking for this security related bit you mentioned.
It sounds like your theory is like such.
Canada triples oil production in 2-3 years (not likely as a 50% increase took 10 years)
Sells crude at discounted rate of $50/barrel to US
OPEC sells at $120/barrel internationally
Blended US import rate $85
Is that what you're saying is going to cap crude prices?
