7 Reasons Real Estate Is A Better Investment Than Gold: Rebuttal
Jason Hartman, Founder and CEO of Platinum Properties Investor Network and a “self made multi-millionaire,” recently did a “Creative Wealth Show” podcast on the 7 Reasons Real Estate Is A Better Investment Than Gold. The conversation relating to gold starts at the 4 minute mark and goes through minute 14. For those without access to sound, you can read the 7 reasons article here (a snapshot of the article appears below).
From Hartman’s website;
Platinum Properties Investor Network, Inc. is a comprehensive solution providing real estate investors with education, research, resources and technology to deal with all areas of their income property investment needs.
While Hartman’s company does primarily sell Real Estate, it seems with the decline in real estate prices, they are putting more emphasis on their online profit center, focusing on selling theirs and others expertise on various strategies to make money. These programs include 6 months of coaching for $4,997 to his “Creative Wealth Encyclopedia” selling for $697.
Creating wealth seems to be what Hartman’s company is about. That’s fine and dandy, however, Hartman decided to step into an area he might not have the expertise or knowledge to criticize. Hartman says precious metals are “mediocre” and further states that “gold is not an investment.”
Where Hartman and I Agree
Hartman considers gold as money, “a store of wealth, savings.” He correctly points out that gold is a better place to put your money rather than U.S. Dollars or YEN, because the latter are “fiat money,” backed by a promise (understand that he, nor I would recommend turning all your U.S. Dollars to precious metals).
Hartman says “money is not an investment, it is simply a store of wealth.” This is true. As we all know, the U.S. Dollar, or “Federal Reserve Note” (FRN) is used as money by over 70% of the world. This is because of their perceived store of wealth. FRN’s however have not been a store of wealth since their inception in 1913. In fact, they used to be exchanged for gold or silver coin, but now can’t be exchanged for anything.
I don’t think Hartman and I are too far off in our understanding of what gold is so far, except for him calling it “mediocre” and a “bad investment.”
What Money Is
Money is a medium of exchange. It has the characteristics of being durable, portable and accepted. Gold has all these characteristics and has for 6,000 years. The U.S. Dollar has 39 short years of existence without gold backing.
Hartman Says Gold Is Not an Investment But Then Says Gold Is A Bad Investment – Is Gold an Investment or Not?
So why then does Hartman call gold a “bad investment.” I thought he just said gold wasn’t an investment at all. I believe the following critique can clear up any confusion.
Critiquing Hartman’s 7 Reasons Is a Better Investment Than Gold and Gold Is a “Bad Investment” One Reason at a Time
1. In contrast to property investment, there is no financing, thus no leveraging to allow you to build wealth.
If one wanted to leverage their gold, they simply can go to one of the commodity firms and buy 4 to 6 times as much of the yellow metal as they could with just their cash on hand. I don’t recommend this, but there are companies like Monex that specialize in this (This is not an endorsement of Monex).
From the Monex site: “Or, you may elect financing of your precious metals, using as little as a 20% down payment and taking advantage of investment leverage of as much as 5-to-1, through our exclusive Atlas Account program.”
The way people get burned by this, just as with real estate, is if the initial purchase is made and prices decline. The investor finds themselves, as many are today who bought real estate in 2005 or later, upside down with their leveraged investment.
This has not occurred with gold in the past 10 years on a calendar year basis, but at times when there is a dip in the price of gold, like we saw in 2008, the buyer at the higher price can get burned. That’s why Monex has a “F” rating by the BBB. Many people do not understand what they’re getting in to and complain. I imagine many people who bought real estate just before it’s top thought real estate could go up forever. Naturally they are not too happy about the result of their timing.
2. In contrast to tax deferment opportunities, there is no tax advantage.
Unlike CD’s and Money Market’s, where the interest is taxed every year whether you use it or not, taxes on the growth of one’s precious metal holdings are deferred until the time they are sold.
3. In contrast to real estate rental, there is no income potential.
It is true there is no interest income received by the holder of precious metals. But a hoard of gold and silver right now would make for nice collateral in purchasing real estate, more so than holding a debt burdened piece of property in a declining real estate environment. Also, the precious metals can be easily liquidated. Lastly, precious metals have no maintenance issues and never need a new roof or a fresh coat of paint, let alone a leaky faucet fixed.
4. Your investment is subject to confiscation; arguments that collectible coins are immune from seizure are flawed since there is no guarantee this protection won’t ever change.
Everything the government wants to confiscate, they can. The Treasury has said so. Even if one owned their home outright, they could lose it for not paying their property taxes, through eminent domain that continues today or even an unpaid dental bill. Unfortunately there is no such thing as allodial title any longer where true ownership could be had.
Hartman is right though about the collectible coins issue which I discuss in detail in my book. Caution is advised.
5. Precious metals are prone to manipulation by those motivated to suppress their value in order to boost paper money.
There is a degree of accuracy here. Gold is the enemy of the Federal Reserve as it represents truth. It represents the the truth whereby the Federal Reserve creates money out of thin air, hands it to congress allowing them to spend it on wars, the welfare state, and anything else they deem necessary. The last thing Congress wants is a depreciating dollar. But real estate prices are also affected by Federal Reserve manipulation in the interest rate markets causing the bust in Real Estate we are currently experiencing. Thomas Woods; PhD Columbia, explains it quite well in his book Meltdown.
Despite said manipulations in gold, it has gone up in price, year over year for 10 years straight. Real Estate unfortunately has not. This doesn’t mean that real estate at some point in the future won’t be attractive again. Personally I see this in the distant future.
6. The myth of superior gold liquidity. This argument fails on a couple counts. Proponents tout the facility of buying and selling gold, but there are hidden costs in offers of guaranteed buy-back of gold purchases. When you are ready to liquidate your investment, you’ll be penalized with a 1.5% premium for melt-down value, on top of shipping & handling plus insurance expenses. Real estate actually benefits from its lack of liquidity because combined with higher transaction costs, this equates to lower volatility. In contrast, the low transaction costs and high liquidity claimed for precious metals are a perfect formula for greater volatility.
I’m not sure where Hartman pulled this one from. Let’s start with this statement; “When you are ready to liquidate your investment, you’ll be penalized with a 1.5% premium for melt-down value, on top of shipping & handling plus insurance expenses.”
One does not “melt-down” American Eagle bullion coins, the preferred and most well known way of buying gold. These coins are actual U.S. currency and it is illegal to do so. Most gold bars may need to be assayed. Maybe this is what Hartman is referring to. Personally, I don’t recommend taking possession of gold bars for this reason.
Shipping and handling can be eliminated by taking the coins to your local gold dealer to sell (I give recommendations on how to buy and sell gold and silver in my book “Buy Gold and Silver Safely” that eliminates this concern; the information I give here in this article is generic in nature).
The “10% selling cost” he mentioned in his podcast isn’t correct either, but he doesn’t tell his listeners what type of gold he was selling back to the gold dealer he referenced in his story, so I can’t comment on it. It can be more than 10% if you’re not careful, but this is not true with bullion (depending on the gold dealer).
Insurance issues have nothing to do with buying or selling if one can pick up their own coins, but there are ways around this as well. There are even problems insuring gold that people need to be aware of. Hartman doesn’t address this issue.
Hartman says “Real estate actually benefits from its lack of liquidity because combined with higher transaction costs, this equates to lower volatility.” Tell that to the owner of a house who is seeing their value go down and wants to sell. Even if they haven’t yet decided to sell, higher transactions costs, 6% for most people, just takes away from profitability. Volatility will occur moving forward when interest rates begin to rise, making the liquidity of real estate an even bigger issue as buyers dry up.
7. If gold does go up in value, the gain is nominal rather than an actual increase in buying power. This is because when gold appreciates it typically coincides with a devaluation for paper money. Moreover, those gold profits are taxable, in contrast with the “most tax-favored” status enjoyed by real estate investment. By exploiting the 1031 tax-deferred exchange it is possible to trade up tax-free with property for a lifetime. Even if the dollar depreciates, your asset appreciates with inflation and you will have locked in a long-term loan that you repay “for free”.
What we have been seeing since 2006 is more deflation in real estate and an increase in the purchasing power of gold, year over year. You can buy more real estate today with that shiny metal than you could in 2006.
On the podcast, Hartman correctly talks about gold going to $1,500 or more in price but that it’s “not gold going up, but the dollar, yen or whatever, going down in value.”
Today we have gold moving higher with a U.S. Dollar moving higher. Why? Buying pressure because there is much uncertainty in the Eurozone with the Greece debacle. The EURO has been beaten down, losing 30% to gold in the last 6 months alone. I recommended people buy gold in EUROs last December, and they have done better than those who owned gold in U.S. Dollars. But those who own it in Dollars have done quite well too. I’m presently recommending people dollar cost average into a position of buying gold in YEN. In reality, every country’s citizens should be buying gold.
If you own something that can be sold in the future for more than what you bought it for, that’s not a bad thing….. whether you call it “money” or an “investment.” There are more people clamoring for gold and silver world wide than there is for real estate in the U.S.
If one owns real estate they have to realize it is a real asset just like gold and will go down in value with the dollar just like stocks, bonds, etc. I made this case in DOW 10,000 In 2009 Is NOT the Same as DOW 10,000 In 1999 – It Buys You 23.8% Less Today
What would the DOW have to be at today to be the equivalent of DOW 10,000 on 3/12/99? Simple math tells us it needs to be 23.8% higher, or 12,380 to make up for the decline of the U.S. dollar’s purchasing power.
Lastly, in selling gold, there are ways to sell gold tax free and avoid the 28% tax on capital gains.
Conclusion:
Is gold an Investment?
Gold is insurance against the portion of your portfolio that is U.S. Dollar based (stocks, corporate and government bonds, cash, etc.). Gold mining stock are an investment. Gold is also money, a medium of exchange.
Is Real Estate a better investment than gold?
I leave it to the reader to decide what is a better place to put one’s money right now based on the above rebuttal. Whether or not gold is an investment or insurance against a falling dollar, EURO or Yen, or whether it can be considered an investment at all, is irrelevant. The last 10 years has shown Gold to be a better place to have your money than any other investment out there. That’s where the smart money is right now.
Moving forward, there can be signs of speed bumps for gold as I point out in my article “Buy Gold Now or Wait? What Will Gold Do Next?”
One thing Hartman says makes sense for real estate buyers. If one can lock in a low fixed rate in the years to come, and inflation takes hold again, your 5% loan is going to be looking mighty good. However, just as with Japan and their two decades of deflation, we here in the U.S. could be in for a few more years of declining real estate prices as noted in the above article, even if the price of gold were to remain steady. This would mean your gold held today would buy you more real estate in the future.
When interest rates rise in the future, it will be a negative for real estate as fewer people will qualify to buy. Secondly, unemployment is a real issue and will be for years to come. The U.S. Labor force cannot compete with the rest of the world when our wages are so high comparatively speaking. Unions are breaking the backs of many companies (let alone state and local governments) in trying to keep things propped up.
The U.S. is primarily a consumption and service driven economy at present. Until we start producing something the world wants again, our economy won’t improve. The only thing keeping GDP going right now is the result of government spending producing some green shoots.
Until the real unemployment numbers improve, the demand for real estate won’t be returning.
Nothing goes straight up, as Real Estate investors know. When the Real Estate market bottoms, which is still a ways away, one can take their gold and buy some. That’s what I’ll be doing depending on economic conditions, at a much higher gold price than today.
Of course I would never recommend one put all their money into gold and silver, just as one shouldn’t put all their money into real estate. There’s room for diversification.
I’m not writing this article to say real estate is a “bad” investment. I know many people who have made their wealth from investing in real estate. They simply had good timing. Many of those people haven’t sold their homes yet, so they haven’t locked in that wealth. Their future wealth is left to the whims of the market. To discover what’s really going on in the real estate market, and whether it’s a good market or not where you live, head over to Patrick.net for a dose of reality.
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4 Ways Gold Dealers Rip You Off!
It could be argued that gold initially had no real intrinsic value until someone realised that it was not that abundant and could not be manufactured. Houses or property (from caves to skyscrapers) have always had their uses and demand, and will continue to do so as long as there are people living on the planet. Unless the population wanes significantly, one would suggest property is the investment, and gold is indeed the hedge.
Hi IPINLive,
It's a timing issue and also one of value. Right now, in the U.S., real estate is still overvalued (see my detailed analysis “Do You Buy Real Estate Now or Wait?” http://buygoldandsilversafely.com/blog/real-est… )
This does not mean that internationally there may not be bargains for investors.
But the demand here in the U.S. is reduced by the fact that 20% are unemployed, 20% are worried about becoming unemployed, 20% are just trying to make ends meet and 20% are trying to save for retirement and don't expect REIT's or anything related to real estate is a good place to put money right now. This leaves 20% that “may” buy real estate.
People who own larger homes are downsizing or trying to. Foreclosures are on the rise. The shadow inventory held by banks has yet to come to market.
Meanwhile gold is holding steady while other commodities fall. Gold is maintaining its purchasing power. Real Estate is not.
For a dose of reality about U.S. real estate, and sometimes other countries, I suggest reading http://patrick.net
Hi Doug,
With respect to which is the worthier investment, I would be inclined to agree with most of your comments there. Whilst gold is holding steady at the moment, I am sure you would agree that this is unlikely to continue long term, as the property markets recover. We have seen gold slump in the past, just as we have with almost all investment vehicles over the years.
The pricier investments like real estate will always suffer earlier than “cheaper” ones, primarily due to the entrance value in getting in on the investment.
Parts of the US real estate market are still over valued, the advantage real estate has though (provided one has the liquidity) is that you can shop around for a good deal, buying physical commodities doesn't give you that option. The returning favour from commodities though is liquidity and purchasing power as you rightly state, real estate will rarely have that.
As with any investment, a lot of decisions will boil down to how much cash you can lay your hands on for a given investment.
http://www.ipinglobal.com/ipin-live/blog/259703…
Hi IPINLive,
Thanks for the discourse. I read your article. There's a couple issues to consider.
The first is the comment above; “I am sure you would agree that this is unlikely to continue long term, as the property markets recover.”
Being that we are in a deflationary cycle, it is important to note what happened in Japan to their real estate prices. This is what's occurring in the U.S. at present.
Japan tried the stimulus spending to no effect. The U.S. is trying to do the same thing with little effect, and now that the stimulus has dried up, the downward trend has resumed.
As far as the long term price for gold, it will depend on what value people put on it as assets flow down the liquidity pyramid to perceived real wealth. I go into detail on this in my book which I'm sending to the editors this week.
There are literally trillions of dollars of assets that are chasing a small amount of gold, so I understand your analysis of the size of the gold market. For me this just means the demand will spike up the price tremendously. Where we are in the “bubble” aspect in gold compared to past bubbles shows gold isn't close to being in a bubble.
There is a chart on this, but I can't post right now. It will be in the book though.
The other issue you bring up is Central Bank selling. The Agreements to sell gold have ended and they are now net buyers with China, India and other nations increasing their holdings. Remember, Central Banks holding of gold give the illusion that paper money is backed by it.
While real estate is a hard asset, Central Banks don't own it. I will say it only makes sense to me in owning right now if one bought a 27% discounted foreclosed property…and even then I'd expect they'd have to hold onto it for quite awhile if they expect to sell for a profit. If one was going to live in it forever and could afford the payments, then by all means, buy…at the 27% discounted rate. I made a bet with a friend that real estate prices will fall 20% here in Orange County, one of the best places for real estate, before rising 20%. I'm confident of my winning. He of course is confident of his, but can't back it up with any data, especially of late.
All of the data I analyze shows a difficult road ahead for real estate. Jobs will be the key and the report today was negative again. One has to be careful of the snowball effect of this as companies continue to cut back for lack of buyers and cash (can't borrow to expand).
There will be a time for real estate. I just don't believe it to be at present for those here in the U.S.
I wrote earlier on what Soros was up to (since you mentioned him in your article). He bought gold last year via his fund, and then trashed it this year by saying it was the “ultimate bubble.” I believe he was just doing that to try and bring the price down so he could buy more.
Thanks for sharing your thoughts. It's not all black and white and at some point real estate will be a bargain again. When it is, gold will be much higher than it is today because of the trillions chasing real money.
The psychology of the madness of crowds will be interesting to watch moving forward. http://www.thestreet.com/story/10794792/1/consu…
Let me know what you see internationally. I'm curious.
Hi Doug,
The Japanese real estate market is an unusual one in my opinion, primarily due to it never really having had foreign investors entering into it. (I do appreciate the Japanese market as not been attractive financially for more than a decade!) Also, the Japanese financial culture is substantially different with it being the only major economy requiring having to “balance its books” each year in its own currency (great for the forex traders) and the fact that most Japanese keep their money in the bank and tend to invest locally, resulting in an economy that could be said to be somewhat isolated from that respect.
The government introduction of inhertiable mortgages has been an attempt to fix the situation, but much like quantative easing, all it has done is exasperate the situation further.
The advantage that the US has over Japan though with its real estate market can be seen from a couple of angles. Obviously they can see that Japan has not really got it right over the past decade, so there are lessons to be learned there. Also, the US is arguably a more investor friendly market for foreigners as far as real estate is concerned. The US has seen vast amounts of foreign investment into property, and is starting to see a new wave with the rising foreclosure rate and subsequent discounted property available.
One of the major hurdles that the US does not have though is the investment process in real estate itself, and the lack of cultural difference. If you don't speak or understand Japanese, buying real estate in Japan would be a very daunting task indeed, the US, whilst it has its own regulations of course, has a major advantage over Japan with respect to attracting foreign investment cash as a whole.
I agree entirely with your comment there about Soros, it wouldn't be the first time that kind of thing had gone on!
As a non US investor, the US real estate market for me as an industry professional holds a great deal of value right now as a foreigner looking in.
The US domestic property investment market is sitting on the sidelines, either because because it wants to, or in most cases I would suggest because it has to due to lack of liquidity.
As a result, coupled with the excess of bank owned property as you said, (which has still to be offloaded onto the market) means that prices will still continue to come down a little further, to a point.
For the larger investors this opens up opportunities to buy up low price properties as the market continues being shaky (averaging out the purchase values) and you also have the things like the Section 8 program which gives investors the ability to have their assets working for them.
http://www.ipinglobal.com/ipin-live/article/256…
“The madness of crowds” is very apt, the UK buy to let market has seen this in full effect, a situation which is now being paid for with some large changes in taxation and cuts in the UK, the reality is though that both the UK and the US are in a position to do something about it by encouraging foreign investment to stimulate their markets.
http://www.ipinglobal.com/ipin-live/blog/256910…
Hi Doug,
The Japanese real estate market is an unusual one in my opinion, primarily due to it never really having had foreign investors entering into it. (I do appreciate the Japanese market as not been attractive financially for more than a decade!) Also, the Japanese financial culture is substantially different with it being the only major economy requiring having to “balance its books” each year in its own currency (great for the forex traders) and the fact that most Japanese keep their money in the bank and tend to invest locally, resulting in an economy that could be said to be somewhat isolated from that respect.
The government introduction of inhertiable mortgages has been an attempt to fix the situation, but much like quantative easing, all it has done is exasperate the situation further.
The advantage that the US has over Japan though with its real estate market can be seen from a couple of angles. Obviously they can see that Japan has not really got it right over the past decade, so there are lessons to be learned there. Also, the US is arguably a more investor friendly market for foreigners as far as real estate is concerned. The US has seen vast amounts of foreign investment into property, and is starting to see a new wave with the rising foreclosure rate and subsequent discounted property available.
One of the major hurdles that the US does not have though is the investment process in real estate itself, and the lack of cultural difference. If you don't speak or understand Japanese, buying real estate in Japan would be a very daunting task indeed, the US, whilst it has its own regulations of course, has a major advantage over Japan with respect to attracting foreign investment cash as a whole.
I agree entirely with your comment there about Soros, it wouldn't be the first time that kind of thing had gone on!
As a non US investor, the US real estate market for me as an industry professional holds a great deal of value right now as a foreigner looking in.
The US domestic property investment market is sitting on the sidelines, either because because it wants to, or in most cases I would suggest because it has to due to lack of liquidity.
As a result, coupled with the excess of bank owned property as you said, (which has still to be offloaded onto the market) means that prices will still continue to come down a little further, to a point.
For the larger investors this opens up opportunities to buy up low price properties as the market continues being shaky (averaging out the purchase values) and you also have the things like the Section 8 program which gives investors the ability to have their assets working for them.
http://www.ipinglobal.com/ipin-live/article/256…
“The madness of crowds” is very apt, the UK buy to let market has seen this in full effect, a situation which is now being paid for with some large changes in taxation and cuts in the UK, the reality is though that both the UK and the US are in a position to do something about it by encouraging foreign investment to stimulate their markets.
http://www.ipinglobal.com/ipin-live/blog/256910…
Hi IPINLive,
I actually agree with your understanding of the markets, and what's occurring here in the U.S. We may disagree on the timing, but after reading your articles I understand where you are coming from as far as intent.
From my understanding, the foreclosure market here will generate a 27%-30% discount at present. I've been advising my sister to start looking into that market, but in general I have told her to wait a bit as I still think there is room to fall further.
I can see the benefit of investing in distressed properties, which seems to be what your company specializes in, but am still concerned about the U.S. banking situation and the properties they still have on the books that they are not letting go of.
My theory is they are not letting go of them because they can't mark to market the true (lower) value of these assets on their books. To do so would throw out of whack their reserve ratio and cause the FDIC to come knocking at their door.
From what I've seen, we are still about 10% above the mean in real estate prices here. When that number dips below 10% of the mean, I would think the timing would be better (give or take a few percentage points). And I'm only talking about foreclosed properties, not the full price one pays through their real estate agent.
For you to understand what's going on with the banks here tells me you obviously understand what the banks are dealing with. I'm not sure either of us could say for sure they are reluctant to foreclose, but the fact I know and have heard of is that many people are currently squatting in their homes (not paying anything, but not being kicked out by the bank). This tells me the worst is yet to come.
In my book I did a complete analysis of the banking situation here in the U.S. I'll send you a copy (free) once I am finished with it. I can't really say much more than I have till it goes public.
I'm not knocking your concept. I think taking advantage of leverage can make a person a lot of money if they know what they're doing, which I assume you do based on what I've read. I just think the timing is one where I would hold off a bit here till things get a little more desperate with the banks. But by then, there might be even more problems prevalent to consider.
Will be happy to continue the discussion once my book is finished. For now, I have to get busy and send it to the editor in the next couple days!
Feel free to respond as I'll let you have the last word and hopefully we can pick this up in a few weeks.
I meant to say, good analysis of Japan in the last email. The fact their Debt to GDP ratio is at 200% shows that government can't do anything to change the tide…
What I try to do is weigh what I read about investments with the facts presented. I try to resolve how the real estate industry looks at property versus how an economist looks at property. But even then, I have to decipher what kind of economist they are, lol.
Case in point would be Australia:
This article, written 6/22/10, says “Property investments Down Under will continue to generate higher returns say economists”
http://www.fly-2let.co.uk/news428.html
The kind of economist I trust says Australia is a housing bubble ready to pop;
http://www.debtdeflation.com/blogs/2010/01/12/h…
Note how Japan is at the bottom of that chart when you click on all the countries.
Deflation isn't necessarily a bad thing. Government's make it worse by propping up the industry. Will be interesting to see how much more propping up goes on here in the U.S. before they give up.
Hi Doug,
The Japanese real estate market is an unusual one in my opinion, primarily due to it never really having had foreign investors entering into it. (I do appreciate the Japanese market as not been attractive financially for more than a decade!) Also, the Japanese financial culture is substantially different with it being the only major economy requiring having to “balance its books” each year in its own currency (great for the forex traders) and the fact that most Japanese keep their money in the bank and tend to invest locally, resulting in an economy that could be said to be somewhat isolated from that respect.
The government introduction of inhertiable mortgages has been an attempt to fix the situation, but much like quantative easing, all it has done is exasperate the situation further.
The advantage that the US has over Japan though with its real estate market can be seen from a couple of angles. Obviously they can see that Japan has not really got it right over the past decade, so there are lessons to be learned there. Also, the US is arguably a more investor friendly market for foreigners as far as real estate is concerned. The US has seen vast amounts of foreign investment into property, and is starting to see a new wave with the rising foreclosure rate and subsequent discounted property available.
One of the major hurdles that the US does not have though is the investment process in real estate itself, and the lack of cultural difference. If you don't speak or understand Japanese, buying real estate in Japan would be a very daunting task indeed, the US, whilst it has its own regulations of course, has a major advantage over Japan with respect to attracting foreign investment cash as a whole.
I agree entirely with your comment there about Soros, it wouldn't be the first time that kind of thing had gone on!
As a non US investor, the US real estate market for me as an industry professional holds a great deal of value right now as a foreigner looking in.
The US domestic property investment market is sitting on the sidelines, either because because it wants to, or in most cases I would suggest because it has to due to lack of liquidity.
As a result, coupled with the excess of bank owned property as you said, (which has still to be offloaded onto the market) means that prices will still continue to come down a little further, to a point.
For the larger investors this opens up opportunities to buy up low price properties as the market continues being shaky (averaging out the purchase values) and you also have the things like the Section 8 program which gives investors the ability to have their assets working for them.
http://www.ipinglobal.com/ipin-live/article/256…
“The madness of crowds” is very apt, the UK buy to let market has seen this in full effect, a situation which is now being paid for with some large changes in taxation and cuts in the UK, the reality is though that both the UK and the US are in a position to do something about it by encouraging foreign investment to stimulate their markets.
http://www.ipinglobal.com/ipin-live/blog/256910…
Hi IPINLive,
I actually agree with your understanding of the markets, and what's occurring here in the U.S. We may disagree on the timing, but after reading your articles I understand where you are coming from as far as intent.
From my understanding, the foreclosure market here will generate a 27%-30% discount at present. I've been advising my sister to start looking into that market, but in general I have told her to wait a bit as I still think there is room to fall further.
I can see the benefit of investing in distressed properties, which seems to be what your company specializes in, but am still concerned about the U.S. banking situation and the properties they still have on the books that they are not letting go of.
My theory is they are not letting go of them because they can't mark to market the true (lower) value of these assets on their books. To do so would throw out of whack their reserve ratio and cause the FDIC to come knocking at their door.
From what I've seen, we are still about 10% above the mean in real estate prices here. When that number dips below 10% of the mean, I would think the timing would be better (give or take a few percentage points). And I'm only talking about foreclosed properties, not the full price one pays through their real estate agent.
For you to understand what's going on with the banks here tells me you obviously understand what the banks are dealing with. I'm not sure either of us could say for sure they are reluctant to foreclose, but the fact I know and have heard of is that many people are currently squatting in their homes (not paying anything, but not being kicked out by the bank). This tells me the worst is yet to come.
In my book I did a complete analysis of the banking situation here in the U.S. I'll send you a copy (free) once I am finished with it. I can't really say much more than I have till it goes public.
I'm not knocking your concept. I think taking advantage of leverage can make a person a lot of money if they know what they're doing, which I assume you do based on what I've read. I just think the timing is one where I would hold off a bit here till things get a little more desperate with the banks. But by then, there might be even more problems prevalent to consider.
Will be happy to continue the discussion once my book is finished. For now, I have to get busy and send it to the editor in the next couple days!
Feel free to respond as I'll let you have the last word and hopefully we can pick this up in a few weeks.
I meant to say, good analysis of Japan in the last email. The fact their Debt to GDP ratio is at 200% shows that government can't do anything to change the tide…
What I try to do is weigh what I read about investments with the facts presented. I try to resolve how the real estate industry looks at property versus how an economist looks at property. But even then, I have to decipher what kind of economist they are, lol.
Case in point would be Australia:
This article, written 6/22/10, says “Property investments Down Under will continue to generate higher returns say economists”
http://www.fly-2let.co.uk/news428.html
The kind of economist I trust says Australia is a housing bubble ready to pop;
http://www.debtdeflation.com/blogs/2010/01/12/h…
Note how Japan is at the bottom of that chart when you click on all the countries.
Deflation isn't necessarily a bad thing. Government's make it worse by propping up the industry. Will be interesting to see how much more propping up goes on here in the U.S. before they give up.
There are literally billions of dollars in assets that carry a small amount of gold, if I understand your analysis of the size of the gold market. To me, this means that demand will increase significantly higher prices.
Real Estate Omaha
Impressive articles you are 100% right the real estate investment better than the gold.The benefits we get from the real estate like tax benefit,Financial Leverage,Amortizing and many more.
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