Should You Sell Your Real Estate and Buy Silver?

Real Estate over the last 50 years has been one of the best investments one can make. In fact, home prices in June hit a record high for the month. But what many owners of real estate may not realize, the amount of people trying to sell their real estate today has increased 15.9% year over year. What do they know that other’s don’t? In this article we will address whether it makes sense to buy or keep your real estate or is it time to sell and if you sell, will silver be a better investment over the next 5 years than real estate? I personally don’t think you’ll find a more thorough analysis on real estate complete with tax strategies that many of real estate owners haven’t utilized or thought of that can save homeowners potentially hundreds of thousands of dollars.

You may want to stay in the house you own forever but there could come a time where the monthly expenses for taxes (always going higher as you know), association dues (same), insurance (same) and upkeep are making a dent into your retirement income or net worth. This is true for those of you who own multiple homes as well. What you will learn below can help you make some good decisions that can benefit yourself or your heirs whether you sell your real estate or not. But if you do end up selling, you’ll have some hard decisions to make on what to do with the proceeds and I’ll address that in this article with silver today and take a deeper dive on the stock market in future articles.

For many real estate investors, this article won’t convince them to sell any real estate. They haven’t been wrong over the years. This time it’s different. One thing that most don’t consider is the government can tax you out of your home as long as prices keep going up. Cui bono?

Below you will find a chapter on real estate from my book How To Profit In Up and Down Markets 

Topics Covered

The Positives of Owning Real Estate

What Real Estate to Buy

The Problems with Owning Real Estate

Benefits of Renting

Housing Bubbles

Is Owning a Home Still the American Dream?

When to Buy Real Estate

When to Sell Real Estate

Farmland: Always a Need for Food and a Good Source of Income

The Advantage of Owning Your Real Estate with a Living Trust

Reverse Mortgage

Planned Giving and Real Estate

Chapter 11 –  Real Estate

Real estate has always been a worthwhile investment for the long term, but like any investment, it has its cycles. Shows about flipping houses led to a new way of earning a living in America the last decade or so. We also have the US government thinking everyone should own a home and they have even set up assistance for lower income individuals to buy a house to fulfill “the American Dream.” I do not view owning a house as being the “American Dream” it once was though.

Individuals have no business buying a house they cannot afford, government assistance or not. Other investors take on too much property as investments at the wrong part of the cycle and get killed. But both types of purchases of real estate can be great investments if your timing is right.

A house is an expense, a depreciating asset, and the bank takes years of interest paid by you—which ends up costing you much more than the original price of the home. The house and property must be maintained and insured, the sales commissions and fees to buy or sell in the future need to be paid and taxes take away from the profitability of owning a home. It all adds up.

To make matters worse, in the last year or so insurance premiums have skyrocketed and companies like State Farm and Allstate have been leaving certain elevated risk of calamity states like California. Nationwide and Progressive have announced changes to their presence in Florida. Insurance companies always have the flexibility to raise premiums or leave if they are not profitable. The homeowner pays the price.

Also, taxes go higher the more your home’s value goes up. This drives some out of their home all together as their income is not enough to keep up with the taxes. This is inflation at its worst. It is also an overreaching government. Why do you pay taxes on a house you own outright? This tax is to cover public schooling, fire, police, and public safety departments. But the amount that is paid for some of these services is also out of control as are the pensions cities must pay out to government retirees each year. So do not expect any relief in taxes paid on your property.

Your hope is that you get out of the home you bought at some point with the appreciation in price you have obtained. Or, if you rent it out, more income than the expenses involved in maintaining the property is all you really need to supplement your retirement or lifestyle if younger.

A lot of that appreciation potential has to do with the timing of the purchase, which this chapter will address. I am not, however, addressing flippers in this section. Flippers are like those investors you see on TV shows who buy foreclosed homes at auctions, fix them up quickly, and dump them. They are a different breed of investor, and some do well, and some do not.

The Positives of Owning Real Estate

There are many reasons to own real estate, from the appreciation potential or the income it can provide if you rent it out or have rooms you can rent, there are also tax deductions for your mortgage against personal income although those deductions have been reduced and we will discuss that later.

You can even do well with real estate in this low-interest-rate environment if your mortgage payment is less than the rental income you receive. In this case, if you do not need to sell the property, you really don’t have to worry about its value going lower. Your income versus expenses is what is important if you plan to keep the house for a while, giving appreciation a chance to catch up. But I would still prefer to buy low versus high in this case.

Here are some more positives for owning real estate:

• Can always rent out rooms to help with mortgage payment.
• Family members can move in if the economy gets worse, and they could help pay the mortgage down or provide extra income.
• Can have property with land to grow food (I do recommended investors own some land to grow food which is discussed later).
• Can make home self-sustainable with solar, reclaimed water, and other improvements to save money that you cannot do with a rental property.
• Do not have to worry about rent increases.

What Real Estate to Buy

Buying in areas with a history of maintaining growth or desirable retirement areas with moderate weather can keep prices buoyed despite an overall decline in real estate prices elsewhere. Buy apartment complexes that are not too old (higher maintenance expenses) instead of shopping centers, as shopping centers will be the first to go if/when the economy declines. Land and single-family homes are the worst investments to buy, as it is difficult to get any income from them. However the last few years companies like Blackrock have come in and bought many homes and apartment complexes, driving up real estate prices or raising rents above what their total costs to run the investment would be. Who is left holding the bag? The late to the table buyer of real estate. Don’t let that be you.

You can always raise rents if the demand is there, which it should be, as more will be forced out of their homes again with the next economic downturn. Buy rental property in the right location near colleges, senior centers and where the cultural activity is prevalent.

We also need to address some of the problems with owning real estate.

The Problems with Owning Real Estate

Below is a list of what can go against your real estate investment:

• Property taxes can always go higher. Governments will always attach an overreaching arm to where the wealth is. They are even talking about raising capital gain taxes to 44%. While you get a $250k exemption per individual when selling or downsizing, anything above that would be taxed at this higher rate. Hopefully, that never passes. Naturally, holding a living trust could exempt one from capital gain taxes upon the first passing if one wanted to sell then. Or upon the second to pass away there is another step-up pin basis.
• With the Tax Cuts and Jobs Act, one can only claim up to $10,000 in state and local tax deductions.
• Variable rate loan costs move higher with a rising interest rate environment. Those who took out adjustable-rate mortgages may not be able to afford higher payments, adding more inventories to the market and driving prices lower.
• The cost of insurance goes higher over time. Inflation is here to stay.
• Maintenance costs (heating, cooling, foundational, water damage and nature-related e.g., landscape maintenance and snow removal).
• Association dues and potential future assessments for condominium buyers. This area is getting out of control as inflation rises and the cost of everything goes higher. It can drive condominium owners or others that pay dues out of their home.
• If you need to raise capital and cannot qualify for a loan, and your home is the only place to obtain the capital, it may have to be sold at a discounted price to find a buyer who will take it on short notice.
• Even if you do not have to sell quickly, when the time comes, you still need a buyer at the price you want. The timing may or may not be in your favor, depending on the market in the future. If everyone is selling, you will not get the best price.
• Real estate commissions from buying and selling take away from overall profit but these commission are decreasing now to reasonable percentages. That is good news for the one selling and buying.
• When rates move higher, fewer will qualify to buy your home and as demand decreases, prices should fall.
• Poor job growth in the future and lower wages means fewer people will buy, and demand could fall.
• Real estate or land is never yours, as you can always lose it to the tax collector.
• Tighter mortgage rules can make it more difficult to enter the market, thus hurting demand.
• Buying condominiums in new complexes at the top of the market can leave you holding the bag for upkeep on other units should not all condominiums from the project get sold.

Benefits of Renting

No headaches of ownership listed above. If the rent is increased to where you cannot afford it, you can always move somewhere more affordable. You can even move to another country to save money—and use some of the savings to fly your loved ones in for a visit, especially if you move to a warm climate and your relatives have cold winters and want to escape. You may just find your quality of life improving a bit. This is discussed more later in the book in the retirement section.

Housing Bubbles

When the Fed lowers interest rates, their intent is to get the markets moving with a trickle-down effect. A housing market that is appreciating creates the demand for more housing-related goods, and subsequently Home Depot, Lowe’s, and other companies are benefiting, more employees are hired, and the local economy improves with more spending by consumers.

However, if you interfere with the free-market rate to manipulate the real estate market demand with artificially lowered rates, there is typically a whipsaw effect, and that is what we saw with the 2006 housing bubble. We saw the Fed keep rates low, stimulating the housing bubble in 2006 and then their increasing rates that killed the housing market but there was also the double whammy of subprime lending and derivatives repackaging of these loans, which enhanced the crisis.

We had a nice bounce in real estate since the 2006 crisis, but it was fueled by quantitative easing and artificially lowered rates by the Fed, as they wanted to keep rates low to stimulate the economy. The fact of the matter, though, is that the economy did not grow, and the Fed could not even get 2% inflation out of it. Money velocity was going nowhere even if government printing of money was.

(skyrocketing M1)

And even with this knowledge, the Fed raised rates in 2019 because they thought the economy was doing well, but the announcement killed housing and especially housing stocks. They then stopped raising rates, but the damage was done. Since then, the Fed is back at it with raising rates through July of 2024 and about at the end of killing the economy again. However, the damage is done and for the next few years the writing of a recessionary period is already appearing on the wall.

Is Owning a Home Still the American Dream?

Many may not feel like the home they bought is the American Dream as our government makes it out to be with all their programs to help people buy a home. Since the fiscal crisis, the home ownership rate has not even come close to where we once were. ^[1] We are still hovering around where we were in 2019 through 2023. Where is the demand going to come from to buy your house when consumers are at record levels of credit card debt and increasingly are losing jobs every week?

So that raises the question: When should you buy real estate?

When to Buy Real Estate

The simple answer is to buy real estate when the market is dead, and no one wants to buy.

If you see the demand for electrical hookups increasing, that is a sign real estate is turning the corner higher. It is difficult to trust the data that comes from the real estate companies, so it pays to do your own digging and ask those in the trenches. You will also never hear a realtor tell you, “This is not a good time to buy.”

When to buy:

1. Buy during the recovery phase: this is when you do not see cranes around high rises or new construction going on.
2. Buy where there is a restricted supply: California only has so much space, but many people want to live there because of the weather. Age sixty-five plus communities need housing care facilities, including hospice care. Buy close to these.
3. Buy where there is plenty of water or access to water.
4. If buying an investment property, be sure it gives you a decent 6–10% cash return above your costs.
5. Ask a realtor friend how business is (I say “friend,” because it is more likely they will be honest with you).
6. Check the foreclosure listings for a trend. If the number is rising, the market is weak.^[2]
7. One other consideration is will you ever be able to afford a home when rates move higher again. While there will be downward pressure on prices at first as the demand for homes will decrease because fewer can afford to pay the higher costs when rates rise, we will also have issues with falling wages and higher unemployment. But those who do manage to pay larger down payments or somehow pay cash for their home might be able to bottom scrape some good buys, especially at auction.

When to Sell Real Estate

When the market is booming and everyone wants to buy. When there is oversupply and a strong amount of construction going on, sell. Also sell, when you begin to see median prices of homes fall after a big run up like we had in 2007.

You can see by the comparison of the previous charts that real estate prices are a bit out of control at present with the index at 337.84, compared to the peak of 226.64 before the 2006 housing crisis. The bigger the move, the harder the fall typically, but inflation is also part of the move higher. Things just cost more. The lumber, steel, and copper wiring cost more. The fixtures in the kitchen and bathroom cost more. Inflation can drive the price up but if everyone wants out at the same time, because the economy is crashing and the stock market nest egg or 401k you have is dwindling, the equity in your home is a place an investor will look to go. Timing the selling of your house and having a plan to cut down on your living expenses is something you need to prepare for now.

Of course, you can also judge the real economy for what it is and make that decision before the decline becomes apparent. Consumer debt levels were at record highs in 2019 and in 2024 even higher. Watch mortgage application trends for drops. Watch for higher interest rates which will put a damper on lending once the next Fed meeting occurs which will push rates lower for a short period of time.^[3]

Do not listen to the experts (do your own analysis). Fed chair Alan Greenspan said this in 2005:

Although we certainly cannot rule out home price declines, especially in some local markets, these declines, were they to occur, would not have substantial macroeconomic implications. In conclusion…, despite some of the risks that I have highlighted, the U.S. economy is on a reasonably firm footing.^[4]

I want to point out one other issue that you or someone you may know might come across in a downturn in real estate. If you can pay the mortgage, taxes, and insurance, you do not need to leave your home. During the 2006 meltdown in real estate, people were contemplating selling their homes because they were so far underwater. That is all fine to do if you can walk away from the debt and not worry about your credit score getting dinged and get into property again at some point at a lower price. However, people must consider getting out of a house that is heavily underwater versus the cost of renting for yourself or your family. It may make more sense to stay in the underwater house if your costs are going to be more to rent. That is a real-life dilemma for a few and in this case, who cares what the value of the home is? It is your overall expenses that matter.

That is why today, with such low interest rate mortgages, what you pay is more important than the value of your home if for some reason we have an extended downturn in prices. What is the rental cost alternative versus your low-cost mortgage that is locked in hopefully at a fixed rate for decades to come? How great is it that you can do better than the rental market where in the future there will be more rent increases?

When I first started my career in the 1980s, I remember some very smart engineers bragging about their 5% thirty-year mortgages. Lock in that low fixed long-term rate if the bank is dumb enough to give it to you.

Farmland: Always a Need for Food and a Good Source of Income

There is only so much land available to grow food and raise livestock. Every acre of land can earn your income, whether you rent it out for money or do the farming yourself. And for those of you who believe Armageddon is coming, and I know you are out there, you can always use the land to live off. I know my mother told me long ago that she and my father would never sell the farmland we own, just in case we need to live off it someday. I do remember my mother’s garden and how much food it provided, and you have never tasted such good, sweet corn as my father would bring from the field for dinner. I still like eating raw green beans to this day, because it reminds me of the “good old days” on the farm.

But now decades have passed, and my parents are getting to the 90-year-old range. They taught me the meaning of cash rent for your farm, and while they have seen the value of their acreage increase over the years, they have also seen their income increase. Farmland is an effective way to invest, as it gives you the potential of appreciation but also an income that can keep pace with inflation and the rising price of food. Whether you would need to go live on the farm and grow your own food and raise livestock is unknown, but it is hard not to like this type of investment.

Even beyond that, some of that farmland is being used to grow hemp which was removed as an illegal substance under the Agricultural Improvement Act of 2018, which federally legalized hemp and hemp-derived products that contain no more than 0.3% THC.[5]

Hemp can be refined into a variety of commercial items, including paper, textiles, clothing, biodegradable plastics, paint, insulation, biofuel, food, and animal feed.[6]

The Advantage of Owning Your Real Estate with a Living Trust

Most of you reading this have not taken advantage of setting up a living trust, but the reasons to do so are big time investment related, even if it involves the passing of a loved one at some point. So, this is especially true for those investors who are older.

The stepped-up basis I mentioned briefly earlier that you receive upon the first partner dying, can eliminate the capital gains tax if you were to sell your real estate (and stocks mind you) if it is owned by your living trust. This is the perfect time to consider a gifting program for children as well if the estate is large but consult with your tax advisor on what that can do for you. You would be handing over to your children the stepped-up basis of the property you are gifting. If they sold right away, there would be no capital gain tax, but it helps you reduce the size of your estate should it be large enough to generate an estate tax.

If parents outright gifted highly appreciated real estate (or stocks) to children, there could be taxes on any capital gain on that gift if  sold because the child takes over the parents’ cost basis.

There is nothing but advantages there for investors with such a small cost to set the trust up, but most do not take advantage of such planning. Make sure you get that done because there really is not anyone else telling you to do it or why.

Reverse Mortgage

Reverse mortgages may make sense for some individuals but one must beware of the pitfalls and get the family involved as they may lose out on inheritance. What is most important for the one with real estate is the ability to have a nice quality of life and that matters more than any inheritance potential.

A reverse mortgage is for those homeowners who have no loans on the property or exceedingly small loans to receive an income for life if they stay in the home or until they can no longer meet the obligations of the mortgage. This type of program is primarily for those who cannot afford to pay bills because of rising costs (inflation) from their current income and may want to get a boost in income without doing anything but tapping some of the home equity they have accumulated over the years.

The amount of income will be based on the person or person’s age, current interest rate and value of the property. There is a maximum that can be paid so there may be better options if your home is worth more than $1,149,825 which I will mention in a moment. This figure increases every year. Weigh out these options.

One must read over the questions answered on the US Department of Housing and Urban Development website as well as a requirement for counseling from a HUD-approved agency before proceeding with a reverse mortgage.[7] There are also different payment plans based on whether you go with an adjustable-rate mortgage or a fixed-rate mortgage. With a low-interest-rate environment your costs will go up with an adjustable-rate mortgage and these costs will eat away at what is paid to you at exactly the wrong time, when items become more expensive. Now is not the time to choose the variable option.

A better alternative to a reverse mortgage might be where one could receive a monthly annuity and be able to receive that income for the rest of their life and still stay in the home. This will be discussed next.

Planned Giving and Real Estate

There are good alternatives to reverse mortgages through some established charities that will provide many more tax advantages and income choices for you. You can contact your favorite charity directly or learn more about what options you have through an advisor who specializes in this area through the Planned Giving Design Center which has the world’s largest community of planned giving professionals.[8]

I at one time was a Certified Specialist in Planned Giving (CSPG) and it would take an entire booklet to give you all the various options available for charitable planning, but there are trusts available for those in retirement who might need extra income and their wealth is tied up in their home.^[9] I’m sure for some of you, older family members may be in this situation.

Briefly, with these types of trusts one can receive a life income and still live in their home till they pass away or must be moved to an assisted care facility. Again, quality of life is what is most important here, not the inheritance a family member may receive. Most want to live in their home till the day they die, and this is a way to do it and tap the equity in your home to live off and improve quality of life.

The downside of course is upon passing, the charity receives the house, so there must be some charitable intent. And the charity you choose must be able to afford the lifetime payments, so you will need to do your due diligence on their financials. There are ways however to continue the stream of income for heirs.

You would be amazed at all the benefits a charitable trust provides even for you as an investor. There is a reason you see CNBC Jim Cramer’s disclosure say, “Jim Cramer’s charitable trust owns this.” Again, too much to go into here but if you are also in need of tax deductions because of the sale of other property, for example other real estate you own or highly appreciated stocks, then this is one way to wash out the taxes, especially if the government decides to implement a 44% capital gains tax rate.

[1] https://research.stlouisfed.org/fred2/series/USHOWN

[2] http://www.realtytrac.com/news/foreclosure-trends/midyear-2015-foreclosure-market-report/

[3] http://www.cnbc.com/2015/11/25/mortgage-applications.html

[4] http://www.federalreserve.gov/boarddocs/Testimony/2005/ 200506092/default.htm

[5] https://medium.com/cbd-origin/hemp-vs-marijuana-the-difference-explained-a837c51aa8f7

[6] https://en.wikipedia.org/wiki/Hemp

[7] http://portal.hud.gov/hudportal/HUD?src=/program_offices/ housing/sfh/hecm/rmtopten

[8] http://www.pgdc.com/

[9] http://www.plannedgivingedu.com/subs/certified.shtml

The Future of Silver

Silver will double, triple or more over the next 5 years. Once silver breaks 50 we will be in uncharted territory. Gold has already broke out from the January 1980 high of $850 that is also the date for the current high in silver of $50. And today silver is $39.01. While silver tried to reach a new high in 2011 but came up a hair short. Silver hit a bottom again in 2020 and hasn’t looked back since. Premiums to buy silver have been higher since then however recently they have fallen some as many weak hands are selling silver the last few months.

We have had a nice run higher to this 39 level and while we may get a small pullback, my advice the last 15 years has been the same; dollar cost average into a position. If you don’t have any, buy some. If you have some, buy more.

What it comes down to, is whether you have cash in CD’s or sell your real estate and have to find a place to park some of the proceeds that will maintain purchasing power, can silver be the shining star over the next 5 years and get to those “undreamed of heights” that Richard Russell used to talk about?

1. Silver is undervalued
2. Silver maintains its purchasing power over time (1964 90% silver quarter exchanged for dollars is worth $7.0603 today.
3. Yes, there is an upside beyond maintaining purchasing power as silver enters the “euphoria stage.”
4. Silver is money “no state shall make any thing but gold and silver coin a tender in payment of debts.” Article I, Section 10, Clause 1
5. Silver is also an industrial metal and is a crucial component in solar panels.
6. Solar panel demand in China is soaring pushing silver higher.
7. Silver’s use in EV (Electric Vehicle’s) is increasing as more people buy EV’s (not Tesla mind you).
8. Silver, like gold, is an insurance policy against the dollar and the $37.1 trillion in debt that backs it.
9. The Fed SOMA holding change from the prior 2 weeks increased $6.740 billion.  They bought back US Treasury Notes and Bonds that no one else wanted! This is quantative easing! This is why the stock market has had a further move higher (to an even more bubble area which I will discuss in my next article). QE is said to increase asset bubbles and you are seeing this in real estate as well.