lowrentyieldmakessense(honest!)
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Posts posted by lowrentyieldmakessense(honest!)
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Europe has the least involvement in this daft money-go-round and would therefore be least affected. So invest your pension in European equities?
Perhaps
Europe possibly would be the least affected - I think Germany is exposed to the US the most.
Some are saying gold - but not sure about that - I like my investments to earn income - but that's just me.
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My economic knowledge is not that great. We know that the world economy is fuelled by the world, mainly Asia, supplying goods to the US who pay for the products by credit offered by those countiries selling the goods. This debt currently stands at several $trillon. This forms part of the dollar based monetary system that replaced the gold standard some time ago. I read that if this system was abandoned and the dollar was to dive the US could then address its balance of payments. Surely this can't be right, they have to make things first before its economy could grow again? Furthermore its debt would increase because its currency would be devalued? Wouldn't also the Chinese economy go tits up because it won't have anyone to sell their stuff too?
The reason that the US has been able to import more than it exports (current account defecit) is because the countries that have a surplus with the US have invested in US assets (financial account surplus). When these countries realise that the value of these assets is depreciating (property, stocks, US dollars, bonds) they are likely to invest elsewhere. US Dollar would then crash. Don't think there is an easy way out of this without a severe global recession. The US has been helping the worlds economy by having a large deficit - and this won't continue indefinately.
Yes Chinese economy would be in a mess and Mexico - as would most of Asia.
Don't think devaluing the dollar would help balance US exports with imports - it's still would be cheaper to manufacture in China, Mexico etc.
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I dont agree that there will be no recovery.
Didn't the BoE drop interest rates because of Retailers constant & powerful complaints.
I think the BoE will simply continue to drop interest rates, to zero if need be, and restart the boom times again with even cheaper credit.
Obviously wage rises in the private sector are low at the moment and many high paid jobs are going abroad means that house prices can't go as high in the future as they have, but you can bet big business & government (bb & g) will always find ways to get consumers to consume.
There will be a recovery evetually but I think it make take a long time. Interest rates are only of limited use - ask the Japanese. Interest rates there went to nearly zero and they still haven't managed to come out of a recession - caused by an excess suplly of "FREE MONEY" which in turn caused a bubble in stock and house prices.
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Got this off the web page.
Be afraid, be very afraid....
You retain the right to remain in your home for as long as you choose.*You have the financial freedom to move to another property, without financial penalty.*
You are guaranteed a cash lump sum payment or a regular income.
You will never fall into negative equity should house prices drop in the future.
In addition, all member companies offering home reversion plans follow a code of practice which ensures that all their literature provides a clear explanation of what is involved and the implications of their equity release plan.
* subject to individual plans terms and conditions
there is something wrong with the laws in this country
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Anywhere there has been a lot of off plan buying. Think flats in Leeds could be one of the worst falls.
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PETER and Helen Harmsworth, aged 68 and 71, took out a reversion plan through Key Retirement Solutions early in 2003. They raised £62,720 in exchange for 80% of the value of their cottage, which at the time was valued at £200,000.
The couple, from Littlehampton in West Sussex, used the money for new windows at their 200-year-old cottage, as well as a range cooker. And, says Mrs Harmsworth (pictured with grandchildren Laura, Ashley, James and George), the money got them out of a financial hole.
'We had a shortfall on our endowment mortgage and had run up debts on credit cards. We used the money to pay off all our debts. It's enabled us to have a more comfortable retirement.'
Financial Education for most of the UK needed desperately. Lifestyle mortgages next misselling scandal - hope it wasn't the same IFA - I know they aren't all bad.
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Unfortunatly he doesn't understand it himself though. He says a £50,000 sum at 5% will be £112,500 after 25 years......um, no it'd be £169,317.75
Borrow £50,000 at 5% interest per year means you’ll be paying £2,500 interest a year. Multiply that by the number of years - usually 25 for a mortage - and the total interest payable is £62,500. And that’s just the interest you’ll be paying. You also have to repay the original sum borrowed, so that the house you bought for £50,000 actually ends up costing you £112,500!
£50,000 at 5% interest only = £2,500pa, over 25 years = £62,500.
£62,500 plus £50,000 = £112,500.
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liked this article - where's that penny jar.
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I think there is no comparison. Owen used to be a good poacher. Rooney is the real deal. He is a player that must be surrounded by the best because his vision is usually 20 seconds ahead of his team-mates. Strong, hard, will-to-win, going forwards, back to goal, little passes dinked over people, amazing volleys - he really needs to be at Real Madrid - United are too pedestrian for him.
Plus, something you don't see too often, he scares defenders. When he gets the ball their heads start swivelling in all directions trying to work out what he might do with it.
He is the best player this country has seen since George Best - hope he doesn't go the same way.
since George Best
What about
Cantonna
Dalglish
Barnes
Rosenthal
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The Australian
"No wonder people look at this and say, 'Holy cow!'," he says. "No one knows for sure what will happen, but clearly the global markets could implode very quickly. The lack of an alternative to the dollar is the only reason it hasn't taken a big fall already."
Isn't gold the alternative?
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It does appear that the markets are taking a turn for the worst. I am considering what to spend my deposit on I saved from not buying a place.
My question is what will happen to the stock markets? What has happened historically during a crash, do they go down or do people push money into them because of a loss of confidence in property.
I am sure I read the investing in firms that specialise in repossessions is a good idea.
copied from a different thread
http://www.housepricecrash.co.uk/forum/ind...showtopic=14603
What Happened to Gold Stocks in the Great Crash Era (1929 - 1935)?
In October 1929 equities had reached unprecedently high levels of valuation. Although there were several causes of the 1929 crash, much of the blame may be attributed to the abuses of the infamous investment trusts - which enjoyed wildly accelerated growth from 1924 to 1929.
It is interesting to recall that the investment trusts of the 20s were the forerunners of what we refer to today as mutual funds. It was primarily through the channeling of the public's savings via the investment trusts that drove stock valuation ratios to astronomical - indeed unrealistic - levels in late 1929. Unfortunately, there was no securities' law nor S.E.C. at that time to curtail market abuses, manipulations and/or excesses leading to the bear market debacle which followed. Nor was there a Fed Chairman cautioning that "IRRATIONAL EXUBERANCE MAY RESULT IN A FINANCIAL ASSET BUBBLE!"
Financial assets as reflected by the Dow Jones Industrial Average (DJIA) reached its peak value of 385 in October 1929, marking the beginning of our country's worst bear market. And although the DJIA finally bottomed at 41 in June 1932, the vast majority of stock investors continued to suffer the effects of the languishing bear market during the next three years. By December 1935 the stock market (DJIA) had only recovered to 140 from its 1932 bottom -- still down a whopping 64% from its October 1929 peak.
As might be expected, interest rate sensitive equities were also decimated during the Great Crash of 1929. In September 1929 the Dow Jones Utility Average (DJUA) hit its peak at 145. From late 1929 the DJUA tumbled to its abysmal l o w of only 15 in March 1932 and again in March 1935. The interest rate sensitive utilities had plunged a cardiac arresting 90% from their unrealistic and lofty 1929 highs.
Three years after hitting its nadir, the DJUA was still severely depressed. Imagine: A $10,000 investment in the relatively "safe" utilities in late 1929 was only worth a mere $2,100 on New Year's Eve 1936! This is heart-wrenching financial history...
What Did Smart Money Do In the 1929 Crash and Aftermath?
During the same bear market period smart-money moved from the plunging equity markets (i.e. financial assets) to hard asset investments, like Homestake Mining - which is used heretofore as a surrogate for all gold stocks.
The stock price of this gold mining company soared relentlessly upward during the entire bear market. Homestake Mining stock rose continuously from $80 in October 1929 to $495 per share in December 1935 - which represents a total return of 519% (excluding cash dividends) during the devastating bear market period.
Contemplate and appreciate the monumental difference in investment returns during a serious bear market. Smart-money invested $10,000 in Homestake Mining (hard assets) in late 1929 - which increased in value to almost $62,000 by December 1935. This represents a compound rate of return of 35% per year in appreciation alone!
It is meaningful to note that in late 1929 the value of Homestake Mining was about $80 per share. Moreover, during the next six years Homestake Mining paid out a total of $128 in cash dividends. In fact the 1935 dividend alone reached $56 per share. That's almost a 70% dividend yield payout (basis 1929) in only one year! Indeed, hard asset investments (gold mining shares) were islands of economic refuge during the grueling years of the Great Depression.
Unfortunately, those innocent souls who remained invested in stocks - and had a buy and hold strategy - saw their initial $10,000 investment slowly dwindle to only $3,600 by late 1935. This represented a devastating capital loss of almost two-thirds of their investment savings. T H A T'S R I G H T! The hapless naive investor with a buy and hold strategy in financial assets lost the greater part of his original stake. Pathetically, he could ill-afford to risk - let alone lose - his precious capital during the many long despairing years of the Great Depression.
What Happened During the Next Great Market Crash (1973/1974)?
From the market high in 1973 to its low in 1974 the DJIA and the S&P 500 lost almost half their value - while the previously high-flying technology stocks plummeted more than 60%. Enough to cause heart-failure to the credulous believers of THIS TIME IT'S DIFFERENT. Even the relatively "safe" utilities were decimated - as they dropped more than 50% from their 1973 high to their nadir in 1974. H-O-W-E-V-E-R, students of financial history took profitable refuge in gold metal stocks. The Gold Mining Index, composed of ASA, Campbell Red Lake and Dome Mining, appreciated more than 260% from its 1973 low (40) to its 1974 high (147). This merits being redundant. During the severe 1973/74 bear market, stocks lost half their value - while gold mining companies almost quadrupled.
This post has been edited by cgnao: Today, 01:20 AM
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The prudent see danger and take refuge.
The simple keep going and suffer for it.
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It's September 1929 and youv'e just sold your share portfolio and your house - at the top of the market.
Where is the best place for your money for the next 10 years or so.
Is it Gold, Cash, and Gold Mining Stocks.
Does anyone know what investments did best after October 1929.
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"If we believed Fred we might buy now to sell in 2009"
OK. He must be looking at demographics then.
Can anyone post the article here?
I agree with Riser - I think he is just trying to justify the title to his book.
I have read the book and basically he argues that there is an 18 year building cycle of booms and busts over the last 400 years. Book seems to make sense but it is not exactly every 18 years. I think he has called it too late this time.
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I really don't think SIPPS (A Day change next year) are gonna affect property prices.
There is only going to be a very small minority of people that will be able to fund a property by their pension. They amount of loan available is only going to be 50% of the fund value. Some BTL who havent even got a pension think that if they have got 50k in their pension they can get a loan for 50k and buy a property worth 100k. This isn't the case; to be able to get a loan of 50k they will need 100k in their pension fund. there aren't gonna be many people that can afford to get 100k into their pension fund esp when they are used to putiing only 15% deposit down - or sometimes none at all.
The best that the SIPP A DAY argument is going to do is to perhaps keep the scentiment up regarding future house price rises. I think this will all change before Christmas and although the USA has been behind the UK on this one I think scentiment from over there may change quicker than here - especially when the new laws come in forcing consumers to have a repayment vehicle in place for their debt. (What no more interest only mortgages - that will be a killer blow).
Anyway aren't pensions a bad thing (people can already get tax relief on investing in equities).
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Had my fingers burned with managed funds - money for old rope as far as I can see. They get their money no matter how badly they do. Bastards.
Invested in a shares ISA in 2001 some 6 months before the planes hit the twin towers etc. Dropped in value by half, now over the next 4 years it's crept up to 70% of what I originally invested. Supposed to be world wide too - didn't invest in China or India did you you stupid ****s.
Anyway rant over - from now on I'll manage my own shares. On that subject there's a couple of small firms I'm interested in investing in. What's the best way to do this - I'm only thinking a few hundred quid in each - is it worth it?
Hmmm
Warren Buffet, said
"Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals."
don't now if the ****s is aimed at me - can't understand why if it is
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If anyone recommends managed funds for the basis of your portfolio ask them how many perform better than the market over 10 years, think the figures are less than 15% - and thats the ones that survive 10 years - most fund managers seem to follow the herd despite what they say.
index trackers are a good base then learn about investing in other areas such as gold, property and individual shares.
Financial Advisers don't seem to like index trackers as they don't pay much commission.
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More FTB propertunities on the market!!
http://www.rightmove.co.uk/viewdetails-867...pa_n=1&tr_t=buy
http://www.rightmove.co.uk/viewdetails-881...pa_n=1&tr_t=buy
I remember seeing on tv (within the last 10 years) houses in an area of Newcastle for sale at £3,000 (and now they are asking £15,000).
Pure Mania
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I know the story was in the Yorkshire Post. Don't think the National Press would have realised a downturn was the reason - more like the firm collapsed because it was too busy collecting all the commission on ever increasing house sales.
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Estate agency failure leaves big debt
Kathryn Moore and James Reed
ANGRY creditors have been left owed thousands of pounds after a Yorkshire estate agent went into administration, it emerged yesterday.
Jump Group Ltd went into administration on Thursday afternoon but a deal yesterday that kept it open saw its assets sold to founder and former managing director Jason Butler, who was a shareholder in the collapsed company.
The deal means the 100 staff of the Leeds-based firm, which has offices across the region, will keep their jobs.
Its collapse was blamed on the downturn in the housing market which left the firm unable to pay its bills. Debts are put at £4.5m.
Joint administrators Paul Whitwam and Gary Blackburn, from BWC Business Solutions, were appointed on Thursday and completed the deal with Mr Butler's company Jazbut plc yesterday.
Mr Whitwam said the company's assets had been sold for about £1m, which would now be used to pay off its debts, although it was unlikely unsecured creditors would receive payment.
"Customers will still have someone selling their houses," he added.
Mr Whitwam said the company had reached the point where staff were not going to be paid and landlords were threatening to change locks.
One of the businesses affected by yesterday's announcement was Leeds stationary supply firm Essential Office.
Managing director Paul Rodney claimed he had been chasing a debt of £10,000 for five months.
He threatened to go into every Jump office in the region and remove everything his firm supplied if he did not receive a cheque by Monday morning.
06 August 2005
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http://212.50.188.105/cgi-win/vebra.cgi?de...5/GLENS/24084/5
As I said to my young colleague today:
James, I think this business about you not being able to afford to buy is disingenious. You can afford to buy as this link below proves. It is just over 3 1/2 times your salary so well within range, and of course - property prices only ever go up so in a few years time it will be worth loads more and you'll be able to sell, make a fat profit, and buy a slightly bigger back to back in a better part of Harehills.
Kropotkin
think the estate agent selling this property went into liquidation two weeks ago
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copied from a different board as we are talking about the USA.
ALL BOOMS BUST!
Words of Caution from Robert Kiyosaki
Lately, I have been asked if we are in a real estate bubble. My answer is, "Duh!" In my opinion, this is the biggest real estate bubble I have ever lived through. Next, I am asked, "Will the bubble burst?" Again, my answer is, "Duh!"
It was only a few years ago we were in a real estate depression, which proves how quickly people forget. In 1987, the stock market crashed and the Savings and Loans went out of business. That led to one of the biggest real estate fire sales in history.
By 1991, the real estate market was depressed and it remained depressed until around 1998. In Hawaii, the real estate market remained depressed until 2001. Today, the Hawaii real estate market is on fire and people have already forgotten how bad the market was.
So the answer to the question, "Will the real estate bubble bust?" is an emphatic, "Yes. All bubbles bust." The reason I write this alert is because this time, when the bubble bursts, I think it will be a monster. Never in my life have I seen so much money being made on such weak fundamentals. If you think the last recession caused by the bubble bust was bad, the coming recession will be at least twice as bad. It might lead to a depression.
The reason I put forth this alert is not to frighten anyone. The reason I put forth this alert is to say get prepared for the coming economic changes. Presently, although Kim and I are still buying real estate, we are also selling our "junk" real estate. Eight months ago, Kim put on the market a small apartment house valued at $1 million, for $1.4 million. People complained and no one bought it. So four weeks ago, she raised the price to $2.0 million and it sold in one day for full price. To me, this is more than a bubble... it is a mania.
As many of you know, the best time to get rich is after a crash. My suggestion is: if you are new to real estate investing, this is not the time to jump in. If you are holding "junk" properties that are costing you money, you may want to consider unloading them.
How long will the bubble last and keep expanding? I do not know. I just wanted you to know that I am currently preparing for a crash, an economic recession, and possible global depression. Why? Because this is a very big worldwide bubble... the biggest I have ever seen.
SAVERS ARE LOSERS
Also, I am getting rid of my U.S. dollars. As you may know, the U.S. dollar has lost nearly 40% of its value against other currencies in the last four years. That means if you have $10,000 in savings in the year 2000, it is worth about $6,000 in purchasing power. Rather than holding cash in the bank, Kim and I have been holding our excess cash in gold and silver bars. Why? Because you will know that the dollar is falling because the price of gold and especially silver will begin to rise. When silver goes higher than $8.50 an ounce and gold reaches $500 an ounce, you will know the end is near. When the crash comes, the currency of many countries will go down in purchasing power as the price of these two precious metals rise in value.
A GREAT BOOK
This past weekend, I held a class for about 150 people on the book entitled "The Dollar Crisis," authored by Richard Duncan. If you want to better understand why the real estate bubble bust and the crash of the dollar will probably lead to a prolonged recession, you may want to read this book sooner rather than later. In a nutshell, we really do not have a real estate bubble... the world is in a currency bubble. In other words, the governments of the world have printed too much "funny" money and cash will soon turn to trash.
Even if you are not in real estate or are saving dollars, you may want to read this book to find out what you need to invest in now, before the bubble bursts. If you are in stocks and mutual funds, you definitely want to read this book.
HISTORY IN THE MAKING
A Follow-Up to "All Booms Bust" by Robert Kiyosaki
Thank you for your response to my Financial News Alert "All Booms Bust." The number of people that responded surprised me. Since the response was substantial, I thought I would continue on with my thoughts on the subject of the probability of a bust coming. Also, I thought I would add what I am doing to profit from the bust. So thank you for your interest in the subject regardless if you agreed or disagreed with my message.
About a week after my message on the coming bust, the June 18th 2005 issue of The Economist ran two different articles supporting my concerns about the real estate market. The following are some comments I think are noteworthy. They are:
Measured by the increase in asset values over the past five years, the global housing boom is the biggest financial bubble in history.”
Prices are already sliding in Australia and Britain. America’s housing market may be a year or so behind.”
Not only are new buyers taking out bigger mortgages, but existing owners have increased their mortgages to turn capital gains into cash which they spend. As a result of such borrowing, housing booms tend to be more dangerous than stock market bubbles and are often followed by periods of prolonged economic weakness.”
A study by the IMF found that output losses after house-price busts in rich countries have, on average, been twice as large as those after stock market crashes, and usually result in a recession.”
Two-fifths of all American jobs created since 2001 have been in housing-related sectors.”
The housing boom was fun while it lasted, but the biggest increase in wealth in history was largely an illusion.”
The day of reckoning is closer at hand. It is not going to be pretty. How the current housing boom ends could decide the course of the entire world economy over the next few years.”
You may want to obtain a copy of this issue of The Economist and read the entire two articles and then decide for yourself if there is another real estate boom ahead, or a bust.
RECESSION OR DEPRESSION
On Friday, June 23rd 2005, I was on Your World with Neil Cavuto on the Fox Network. He asked me what I recommended when it came to investing in real estate. I replied, “If you’re new to real estate investing, this is not the time to get into the game.” Unfortunately, many people are in the market late and not only have paid too much for their homes, they are over-leveraged.
The Economist article went on to say, “42% of all first time buyers and 25% of all buyers made no down-payment on their home purchase last year.” That is what I call over-leveraged. They bought late in the cycle, probably paid too much, and have signed their lives away on the dotted line. I am concerned for these people.
In 1929, the stock market crash led to The Great Depression. Some of the causes of the Depression were excess credit and too many people buying stocks on margin... i.e. leverage. In 2005, once again there is too much credit and instead of stocks, individuals are purchasing real estate with leverage. So is it “Deja-vu all over again?” History shows that there is a depression approximately every 75 years. The last depression occurred 75 years ago. Is it time for a really big bust or will the boom continue on? Only time will tell.
HOW I AM INVESTING TODAY
As many of you know, I have been in gold and oil for several years now, beginning in 1996. While Kim and I have continued to invest in real estate, I have been more active in taking my Chinese gold company public on the Toronto Venture Exchange. I have also invested in several oil and gas wells.
When it comes to real estate, Kim and I have let go of non-performing properties and made several million dollars. Does this mean we are selling real estate? The answer is “No.” Although selling we are still buying property, we are being very selective. Although we have “flipped” properties, our primary objective is good properties in good locations with a positive cash flow. Currently, Kim and I are buying properties in Oregon as well as in Arizona. We bought them because we believe they will do well regardless if the real estate market booms or busts.
PROBABILITY VS PREDICTION
Although I have made predictions, I don’t like to. Instead of predicting the future, I choose to evaluate probabilities. A friend offered Kim and I the opportunity to buy a piece of land for $1 million. He said, “In two years the property will be worth $2.5 million.” If this were year 2002, I would have jumped all over the deal. But it is year 2005. The question I ask myself is, “What is the probability that the boom will go on for two to three more years?” What is the probability that the property will more than double in two to three years?” My answer is “slim to none.” Your answer may be different. Can I be wrong? The answer is, “Yes I can be wrong. The boom may go on for ten more years and that $1 million dollar piece of land could be worth $10 million maybe $15 million.” Yet at this late stage of the market, I will only invest in properties that return a cash-on-cash return on a monthly basis. That is why I like my Oregon and Arizona deals. In the short term, I may not make as much money as the land deal, but they should return a positive cash flow regardless if the market goes up or down. After the crash, I may change my strategy.
WARREN BUFFET
Even Warren Buffet is seeking safer investments. Recently he announced he was investing in utility companies... not for capital gains but for capital safety. Buffet's two most important rules for investing are:
Rule #1. Don’t lose money.
Rule #2. Don’t forget rule number one.
THE GREATER FOOL
In the world of investing, there is what is known as The Greater Fool Strategy of Investing. When someone buys a property to flip, or a share of stock to sell at a higher price, that is the Greater Fool Strategy in Action. In simpler terms, a person buys a property or a share of stock not to own but in the hopes that there is a fool greater than them. The problem is, when the bust comes, and it will come, many people who were buying for a fool greater than them, may find out that they were the last fool in line.
A FINAL WORD FROM THE ECONOMIST
Another interesting comment from The Economist went, “Another sobering warning is that after British house prices fell in the early 1990s, it took at least a decade before they returned to their previous peak.” I’ve made a lot of money in the last few years in real estate, but I believe it is time to move on and invest in other assets. And that is why I am moving more of my money to gold, silver, oil, and gas. While I love real estate as an investment, and will continue to always invest in real estate, this is not the time to let love blind me to reality, the reality that all booms eventually bust.
Thank you,
Robert Kiyosaki
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OK. Egg on face. Hat eaten. I take it all back. It's a great game anyway!
Don't know if its relevant to this thread but thought I would copy in his next article - i know this guy uses real estate to make money and a lot of people on these boards don't like that idea - but he does seem to know what he is talking about.
HISTORY IN THE MAKING
A Follow-Up to "All Booms Bust" by Robert Kiyosaki
Thank you for your response to my Financial News Alert "All Booms Bust." The number of people that responded surprised me. Since the response was substantial, I thought I would continue on with my thoughts on the subject of the probability of a bust coming. Also, I thought I would add what I am doing to profit from the bust. So thank you for your interest in the subject regardless if you agreed or disagreed with my message.
About a week after my message on the coming bust, the June 18th 2005 issue of The Economist ran two different articles supporting my concerns about the real estate market. The following are some comments I think are noteworthy. They are:
Measured by the increase in asset values over the past five years, the global housing boom is the biggest financial bubble in history.”
Prices are already sliding in Australia and Britain. America’s housing market may be a year or so behind.”
Not only are new buyers taking out bigger mortgages, but existing owners have increased their mortgages to turn capital gains into cash which they spend. As a result of such borrowing, housing booms tend to be more dangerous than stock market bubbles and are often followed by periods of prolonged economic weakness.”
A study by the IMF found that output losses after house-price busts in rich countries have, on average, been twice as large as those after stock market crashes, and usually result in a recession.”
Two-fifths of all American jobs created since 2001 have been in housing-related sectors.”
The housing boom was fun while it lasted, but the biggest increase in wealth in history was largely an illusion.”
The day of reckoning is closer at hand. It is not going to be pretty. How the current housing boom ends could decide the course of the entire world economy over the next few years.”
You may want to obtain a copy of this issue of The Economist and read the entire two articles and then decide for yourself if there is another real estate boom ahead, or a bust.
RECESSION OR DEPRESSION
On Friday, June 23rd 2005, I was on Your World with Neil Cavuto on the Fox Network. He asked me what I recommended when it came to investing in real estate. I replied, “If you’re new to real estate investing, this is not the time to get into the game.” Unfortunately, many people are in the market late and not only have paid too much for their homes, they are over-leveraged.
The Economist article went on to say, “42% of all first time buyers and 25% of all buyers made no down-payment on their home purchase last year.” That is what I call over-leveraged. They bought late in the cycle, probably paid too much, and have signed their lives away on the dotted line. I am concerned for these people.
In 1929, the stock market crash led to The Great Depression. Some of the causes of the Depression were excess credit and too many people buying stocks on margin... i.e. leverage. In 2005, once again there is too much credit and instead of stocks, individuals are purchasing real estate with leverage. So is it “Deja-vu all over again?” History shows that there is a depression approximately every 75 years. The last depression occurred 75 years ago. Is it time for a really big bust or will the boom continue on? Only time will tell.
HOW I AM INVESTING TODAY
As many of you know, I have been in gold and oil for several years now, beginning in 1996. While Kim and I have continued to invest in real estate, I have been more active in taking my Chinese gold company public on the Toronto Venture Exchange. I have also invested in several oil and gas wells.
When it comes to real estate, Kim and I have let go of non-performing properties and made several million dollars. Does this mean we are selling real estate? The answer is “No.” Although selling we are still buying property, we are being very selective. Although we have “flipped” properties, our primary objective is good properties in good locations with a positive cash flow. Currently, Kim and I are buying properties in Oregon as well as in Arizona. We bought them because we believe they will do well regardless if the real estate market booms or busts.
PROBABILITY VS PREDICTION
Although I have made predictions, I don’t like to. Instead of predicting the future, I choose to evaluate probabilities. A friend offered Kim and I the opportunity to buy a piece of land for $1 million. He said, “In two years the property will be worth $2.5 million.” If this were year 2002, I would have jumped all over the deal. But it is year 2005. The question I ask myself is, “What is the probability that the boom will go on for two to three more years?” What is the probability that the property will more than double in two to three years?” My answer is “slim to none.” Your answer may be different. Can I be wrong? The answer is, “Yes I can be wrong. The boom may go on for ten more years and that $1 million dollar piece of land could be worth $10 million maybe $15 million.” Yet at this late stage of the market, I will only invest in properties that return a cash-on-cash return on a monthly basis. That is why I like my Oregon and Arizona deals. In the short term, I may not make as much money as the land deal, but they should return a positive cash flow regardless if the market goes up or down. After the crash, I may change my strategy.
WARREN BUFFET
Even Warren Buffet is seeking safer investments. Recently he announced he was investing in utility companies... not for capital gains but for capital safety. Buffet's two most important rules for investing are:
Rule #1. Don’t lose money.
Rule #2. Don’t forget rule number one.
THE GREATER FOOL
In the world of investing, there is what is known as The Greater Fool Strategy of Investing. When someone buys a property to flip, or a share of stock to sell at a higher price, that is the Greater Fool Strategy in Action. In simpler terms, a person buys a property or a share of stock not to own but in the hopes that there is a fool greater than them. The problem is, when the bust comes, and it will come, many people who were buying for a fool greater than them, may find out that they were the last fool in line.
A FINAL WORD FROM THE ECONOMIST
Another interesting comment from The Economist went, “Another sobering warning is that after British house prices fell in the early 1990s, it took at least a decade before they returned to their previous peak.” I’ve made a lot of money in the last few years in real estate, but I believe it is time to move on and invest in other assets. And that is why I am moving more of my money to gold, silver, oil, and gas. While I love real estate as an investment, and will continue to always invest in real estate, this is not the time to let love blind me to reality, the reality that all booms eventually bust.
Thank you,
Robert Kiyosaki
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Is that the book 'Rich Dad, Poor Dad'. Very interesting and much better than most of the self help rubbish. Useful advice along the lines of what is an asset and what is not. Such as the car is not an asset or the house if you are paying a mortgate. Usefull graphs and explanations on what goes out of your income over a month and what you can count as profit. How your job can be your job but your business can be something else and you work at your job while you eventually build up your business. All in easy to understand laymans terms.
They should make children read that.
it's from the same author.
think they should make most financial advisers read it as well.
Just Sold To Rent - Today
in House prices and the economy
Posted
Just completed house sale - third time lucky as previous two buyers changed minds at last minute. Got higher price than before but offered to pay stamp duty - so overall slightly worse off. (House price graphs won't reflect stamp duty paid though).
Had already agreed to buy next house - did this same time as we had the second buyer three months ago.
From a Financial Perspective I would not be buying another house or trading up for a while but have two young children and really want to own home.
We haven't exchanged on new house yet as there are legal problems - re vendor - and we were going to rent anyway because property needs a lot of work doing to it.
Negotiated a 12.5% reduction in purchase price three months ago - this doesn't seem that great anymore given the change in scentiment - but we've made our offer and I don't intend to reduce it - although If I was making an offer now it would be less than the one I previously made.