patrick.net

you raise a good point- a point that is made in the blog post-if you rent out your home and receive income then it is an investment. A primary residence is not

smaulgld says

A primary residence is not

Sure it is. Just declare, " 'Murica, FUCK YEAH!", HELOC that bitch to the limit and enjoy your new boat. When you don't feel like paying it back , don't, and live free for years. Sounds like an investment in LEISURE to me!

A primary residence is a cost you pay for shelter, and if you are lucky, there may be capital appreciation which offsets the losses due to maintenance and taxes. Usually, it's a wash. We are living in an extraordinary time where for a couple of decades, housing appreciation was far in excess of average inflation due to monetary policy. We've had massive inflation in housing, and deflation in much of the rest of the economy, so owning a house put you on the correct side of the average. Caveat: real estate is so local that some neighborhoods can indeed appreciate ahead of inflation forever due to demand.

robertoaribas-I agree for most people who don't rent out their homes a house is not an investment. As you describe your situation, when you rent out the house, its an investment

You may have bought your house not planning to lose money, so for you it's an investment. I'm bidding on a house this week fully expecting to lose money, but I need shelter that's more baby friendly than my rental. For me, it is not an investment, since I'm buying at probably one of the worst times to buy - with interest rates spiking upwards before they've affected prices yet.

Gold is an investment just as much (actually, more) as a Rembrandt painting or a Stradivarius violin. Any valuable and "useless" luxury item is a storage of value.

100 years ago these items were just luxury. Since the advent of socialism and its lapdog central banking, smart money realized that we have permanent inflation bias. This historical trend makes gold an investment.

My definition of "investment" is something for which I pay money, do almost no mainenance, and returns a percentage return on the paid money which is a higher percentage than inflation. The maintenance part is key, because if you spend a bunch of your time maintaining something for which you paid money, how do you account for it? Do you write down all the hours you spend? Someone sure has been that careful, but most clearly are not that careful.

Also, if you reduce the amount of time considered for which a return on an investment is sought, almost anything can be an investment. Gambling is sometimes an investment!

I will also continue to doubt the investment quality of anyting for which you pay ten times your annual income. Any expenditure which represents a multiple of your income is probalby more hurtful to your financial well-being than helpful.

robertoaribas says

yes it FUCKING WELL IS. the definition of an investment is ANYTHING you put money into , with the expectation of a gain.

Resale value of the same house tends to remain constant in real (factoring out inflation) terms provided that you pay to maintain it, which is to say houses actually loose value.

There are periodic bubbles which revert to the mean as they must because real wages are not increasing to allow consumers to pay more for houses or more for rent which allows land lords to buy houses.

There are also exceptions in cities which are becoming gentrified; although on the whole houses are depreciating assets like used cars.

Here's the Case-Shiller index (which looks at the change in resell value of individual houses, so it's not affected by things like new houses being bigger than the ones which preceded them or market composition) in real dollars from 1890 through 2011:

Tim Aurora says

cost of shelter is the dividend that you get from real estate.

I don't understand the analogy, but I don't understand dividends very well. Isn't the cost of shelter primarily what you're paying when you plunk down that big chuck of change to buy a house?

Tim Aurora says

However is case of gold and silver you do not get any output whatsoever.

Gold, and silver can be arbitraged http://www.investopedia.com/terms/a/arbitrage.asp the same as Real Estate.

The cost of shelter is a nonstarter. The cost of owning a home, if it's mortgaged, is double the sales price.

An investment gives you a return that may create wealth http://www.investopedia.com/terms/i/investment.asp

Housing units that decline in value, and are mortgaged, are not giving a return.

Stocks are looking better all the time.

If you wanted to go old school on the way things used to be, then fine carry on.

How about that bond market today? What will the five year Notes do?

Tim Aurora says

That again is a different argument. Some say it increases in value ( even if it is at the rate of inflation), point being it is giving you an output ( shelter).

You could argue that it is a lousy investment or otherwise like anything else but do not compare with Gold and Silver which have no output at all

Shelter is a nonstarter. It's not output any more than gold has an output. I can get a return by buying, and selling gold the same as I get a return for buying, and selling Real Estate.

Renting out property is a job that can pay, or not pay, as we are seeing right now.

Paper wealth is meaningless until you capture the entire return, which can take 30 years.

Your car can be shelter. A room can be shelter, a closet can be shelter.

Real Estate is done, except for an immediate return.

If real estate is an investment depends:

It is an investment:
==> If you invested any of your money (with the hope of getting back more for it sometime down the road). You might have paid a down payment, closing costs, improvements. You invested money! Therefore it is an "investment"! It is not consumable like a Banana. You buy a Banana, eat it and it's gone. You don't eat it, it will rotten and it's gone, too.

It is not an investment:
==> If you did not invest any money, i.e. you inherited the house or you did something like 108% financing that covered all expenses including closing costs.
In this case it is not an investment, it is a FREE GIFT!

That's just my view of it and I don't expect anyone here to agree with it.

You can sell gold easier than you can sell Real Estate. There is no dividend to shelter. Shelter is an empty box until you sell it.

Rent is a sale, without that sale, either literally, or rental, you just have a box.

In the past that box could just sit there empty, and it would go up in price, along with inflation, kind of like gold. Today housing can sit there, and lose money. You have to maintain a housing unit, pay taxes, maybe even a mortgage.

What you are saying is that I can't rent gold, or rent it out, but that is exactly what people do every day. You can pawn a bar of gold to get returns. You may gain, or lose, but it is still a job the same as housing units.

arbitrage, the same as Real Estate.

Here you go, dividend: http://www.investopedia.com/terms/d/dividend.asp

You have to generate the dollars first before there is a dividend.

robertoaribas says

Real estate pays you as:

1. rent you aren't paying if you live in it

If you rent, you pay the rent.
If you buy, you pay closing costs, mortgage, taxes, maintenance, insurance, depreciation, time invested, lack of returns elsewhere on your downpayment.

So no.
Real estate doesn't pay you.
You pay for real estate.

Roberto, you are very smart in real estate and correct in most of your postings. But I am surprised that you as a teacher don't know how to spell one of the most important words in this business, which is "principal". You spell it in all your postings "principle". Isn't that a completely different word?

This thread is silly. Of course real estate is an investment. The whole premise of this web site is just that. The whole buy / rent calculator can be boiled down to... if you cannot buy a house and make money renting it to yourself, then rent from someone else. So, if you bought and rent to someone else, or you bought to live in, you still bought as an investment.

YesYNot says

Of course real estate is an investment.

It used to be, now it's all speculation.

Gold just fell below $1100 per ounce, will it go below $1000?

CashWillCrash says

Roberto, you are very smart in real estate and correct in most of your postings. But I am surprised that you as a teacher don't know how to spell one of the most important words in this business, which is "principal". You spell it in all your postings "principle". Isn't that a completely different word?

Since you’re surprised that Roberto substituted “principle” for “principal” I think you should do a little reading on second language acquisition as well as google “15 Famous Thinkers Who Couldn’t Spell” for fun. There are many on this site so jealous of Roberto that they pounce on any perceived weakness and end up looking silly when they expose their own ignorance.

Albert Einstein:
Being bilingual, one could hardly blame Einstein for being a bad speller in English. Yet it wasn’t just in English that Einstein struggled. He also was a pretty bad speller in his native German, and got even worse when he began using English more regularly. Of course, Einstein didn’t make those same errors when it came to writing mathematical equations, a fact that helped to make his name synonymous with genius today.

Here is a summary from the following site:
http://englishspellingproblems.blogspot.com/2012/11/the-costs-englishspelling-literacy-is.html

The English spelling system is both more complex and more irregular than those of other languages. Most European languages have around 40 sounds and spell them with an average of 50 spellings (or graphemes), such as [a], [ei] or [sh]. - English has 44 sounds and uses 205 graphemes.

What differentiates English spelling from other systems even more is that exceptionally many English graphemes, like those for the /ai/ sound in ‘straight, eight, great’, are used unpredictably. They obey no rhyme or reason and simply have to be memorized word by word, for at least 3,700 common words. Other quite tricky-to-spell languages, such as French, Portuguese and Polish, have only around 1,000 common words with irregular spellings.

The complexities of the English Alphabetic Code:
1.One sound (phoneme) can be represented by one, two, three or four letters: e.g. /a/ a, /f/ ph, /igh/ igh, /ai/ eigh
2.One sound can be represented by multiple spelling alternatives (graphemes): e.g. /oa/: o, oa, ow, oe, o-e, eau, ough
3.One grapheme can represent multiple sounds: e.g. ‘ough’: /oa/ though, /or/ thought, /oo/ through, /ou/ plough, /u/ thorough

robertoaribas says

The point remains a house is an investment. PERIOD.

I agree with your statement in that it is common sentiment and a significant part of nearly all decisions to buy a house. That's the problem.

If people looked at buying a house more like buying a candy bar, they'd have a more accurate idea of the house's value.

robertoaribas says

My 40K condo is rented for $875 a month, and has been for two years.

Had you bought Google stock on June 24, 2011 you would have really made-out! Understood, though, that you've borrowed significantly to purchase your investments, so that's either difficult or impossible when buying stocks. Conveniently, it's common practice for houses. Houses move so slowly, so the lenders can easily stay ahead of the borrowers.

CashWillCrash says

You spell it in all your postings "principle". Isn't that a completely different word?

Give him a break. He speaks multiple languages. I only speak English and occasionally ponder which principle/principal I want.

YesYNot says

Of course real estate is an investment. The whole premise of this web site is just that.

The whole site is a challenge to the premise that real estate is an investment. Most of our concerns come from the significant cost that real estate represents.

robertoaribas says

making money every single month, when the rent comes in.

Yes, but the difference between revenue and earnings is significant. Be careful.

I have a friend who's spent his whole professional career in multi-level-marketing "companies." He has astronomical monthly income claims, but last year had to move his family due to foreclosure and is being forcefully pursued by lenders. I really worry for him. He's under signficant stress and pressure despite having many of the appearances of success. At this point, he seems so dependent on the very high monthly incomes, I wonder if he'll ever escape.

another shot at a defnition
Investment- something that provides income- not something that might one day provide income
Asset- something you own that you take care of or store and derive value during its owner ship (provide shelter, get transportation gain enjoyment)
Car is an asset /taxi an investment
Pet pigs are an asset/pigs raised for pork are an investment

Tim Aurora says

David Losh says

Gold just fell below $1100 per ounce, will it go below $1000?

My personal prediction for gld is between $700 and $800

Based on what may I ask?

Gold fell because people are just hoarding cash getting out of equities, bonds and metals. Indian and China have a huge demand for gold, the automated programs cannot control gold prices like they do for equities and bonds.

Tim Aurora says

1. Demand from India and China is for jewelry. Both these economies are slowing down. Also the jewelry business is moving in diamonds.

I started following gold about a year ago. India, and China have a very different view of gold that what you presented. Many Third World countries do.

People buy, and sell gold, by luck. That luck, or it can be an opportunity.

People buy gold in a panic of selling for a variety of reasons. It can be economic disaster when people have to sell gold to pay bills, or it can be a perception of need for cash rather than the asset.

Gold is volatile, and it is very much between a buyer, and seller to make a deal. Some buyers pay higher prices if gold is perceived as going up in price. A seller may get lucky to sell at that time, only to buy back when the prices recede.

Housing is getting to be very similar.

Tim Aurora says

You are not making any sense.

They buy gold for jewelry? They wear jewelry to transport gold, and keep it safe.

If you live in a Third World country cash is a very rare commodity. You trade in goods, and services.

Gold is just a way of hedging your bets. If your electric bill is due, and you have to pay a fee if it's late you sell your gold for what you hope is a good price to cover the bill, and save the fees.

Your economy is that cash, and cash flow, which gold helps to stabilize.

It's called luck, but it is really just a hedge.

Also, yes, I can buy gold in Peru for $750 an ounce under the right circumstances. If the seller is desperate, or the seller has owned the gold for a very long time, and bought for less than $300 per ounce, and needed to sell, or wanted to sell to me for $750, I can profit by wearing the gold on the plane as a chain.

In Thailand those chains are a currency.

What makes no sense is you can't see how housing is the same thing.

I have only bought property to sell it. It means nothing to me other than the numbers. The house we have now is for the kids, and I'm happy they enjoy it. We had a house full of our kid's friends here again tonight, they just left, and there is still pizza left!! Good for me.

However, I have already maxed the house out at $570K, but as luck would have it the house next door just sold in three days with multiple offers for $739K.

WTF? What frigging idiot would pay $739K, and the house six doors up sold in May for $439, but the flipper is getting ready to sell in the that same $700K range. WTF?

You don't see housing any more than you the marketability of gold. It comes down to luck, especially when we have the Fed in control.

robertoaribas says

making money every single month, when the rent comes in.

In your case that is true because you bought the condo with profit from another property. Most people don't have that luxury.

Most people pay a mortgage, plus taxes, fees, and dealer prep before they get any money out of rent.

the asset values of gold and silver are heading higher....

Tim Aurora says

AJ1201 says

Based on what may I ask?

I think ( and this just my opinion ) because of the following the price of gold will drop to $700-$800

1. Demand from India and China is for jewelry. Both these economies are slowing down. Also the jewelry business is moving in diamonds.

2. As economic certainty improves, which it is, the gold hoarders( hedgers) will sell it.

3. The max cost for digging gold is $1100-$1200. So anything beyond $1300 was a bubble.

4. Gold is merely a commodity with no income, hence makes no business sense to hold it in a portfolio.

I say around $800, there will be a balance between producers and consumers

Guess again, shithead.

Tim Aurora says

Facebooksux says

Guess again, shithead.

How does it feel now?

http://www.bloomberg.com/news/2013-06-24/goldman-lowers-gold-forecast-through-2014-as-selloff-accelerates.html

You are on average better off doing the exact opposite of what GS says, that's how they make money because they reverse always in front of you. I don't own gold but I think it has held up surprisingly well and I cannot see it go much lower, below 1000 is really a hard sell - no pun intended ;)

When gold goes down on the exchanges its often because of one or two massive sales which makes no sense because if someone wanted to sell they wouldn't put it all on the market in one minute. The amounts sold (if indeed they are actual sales and not just naked short selling) are sometimes the equivalent of half a years mining supply.

Then the price rebounds.

Imagine of the Case Shiller futures index controlled housing prices not the price negotiated between two buyers.

egads101 says

when you're wrong will you always make up nonsense excuses, instead of admitting you are wrong?

Wrong about what? I made an observation on the gold market. I don't have a gold prediction.

If you follow gold you will see the biggest price drops occur suddenly usually in thinly traded late evening sessions. What is that a nonsense excuse for?

egads101 says

you are bullish on gold. When gold went up for a while, it is because of your correct analysis.

when it goes down, you make up excuses, that it is because one person decided to sell or something else that implies your overall analysis was correct, despite the price doing the opposite of what your advice implies.

you can't have it both ways.

I don't pretend to know the direction of the price gold. Its something that I don't think about much as in and of itself as the blog post says it doesn't do anything and cant do anything to make itself rise in value.

I just observe. I am not "bullish" on gold. In my opinion one can only be bullish on an investment that is going to earn a return. Gold doesn't do that.

Gold is nuetral- stuff happens around it- wars, time, currency fluctuations.

My only point of view on gold is it seems to be a good store of value in an insured vault over time.

One can be bullish on currencies because government and central banks can do things to improve or debase their currencies. Again gold is just a yardstick- hard to be bullish on a yardstick

CashWillCrash says

It is an investment:

Stocks pay annual dividend as do bonds pay interest,
and that periodic return creates an income yield without any regard to liquidation.
this is why they are investments....

For many, residential homes dont pay anything unless rented out,
the same is true with GOLD, unless your a dealer who sells/buys at discount.

thomaswong.1986 says

For many, residential homes dont pay anything unless rented out,

the same is true with GOLD, unless your a dealer who sells/buys at discount.

Yep points made in the anchor post

Tim Aurora says

Facebooksux says

Guess again, shithead.

I guessed it and it is moving in the direction that I predicted.

Down?