lookingstill

Well, I'm here. Doing a lot of reading. Can't contribute anything meaningful, not even sure ever will be able to. But thank you all very much!

Tommm50, I join other board members in thanking you very much for being so generous with sharing your knowledge and expertise. Would you mind my asking what is your opinion of Lancashire? I know that company has its own thread, but I'm concerned that you may never visit it.

I think this also has a lot to do with the fact that it is a "cheap" product. It is way easier to raise the price 10% on something costing a dollar than on something costing a hundred.

http://www.chouamerica.com/pdf/123112%20Chou%20America%20Funds%20Annual%20Report%20Final.pdf Annual report

+1

I understand. But we are not talking about Intel. :) RE prices were, and in some areas are still severely depressed. And in the context of low interest rate environment and a lot of money printing, RE values should come up. Don't know when and by how much, but RE market should recover.

Thank you, no_free_lunch. The property is currently in a very good condition. it is a fairly recent construction, being built in 2001. And the previous owner took good care of it, she completely repainted it before selling, the floors are mostly slate and hardwood in good condition. There is a little carpet, but it is about 6 months old and is of a good quality. The seller paid for a year of home warranty for the appliances and such. There will be at least one month rent as a security deposit and of course I'll be creating a cushion for unforeseen expenditures. Value investing is about buying assets which are currently undervalued. And the way I look at it, if I can buy an income producing asset for what it was selling ten years ago, and in today's dollars, it is not bad. Basically, an undervalued stock with 5% (and likely to be growing over the years) dividend, that should keep up with inflation and help me to preserve my principal. Of course it is much more work than just owning a stock, but being a landlord also could be a good hands-on learning experience.

Care to elaborate on the above comments? Sure, I did over the summer: http://ragnarisapirate.blogspot.com/2012/06/irrationality-in-residential-real.html People have no idea what the hell they are doing, especially when it comes to the types of repairs that these things need- or, how often they need to be made. There are a ton of problems with the majority of the housing stock out there, and people don't see it- this goes for inspectors that are supposed to verify things for the banks as well... The other shoe has yet to drop (at least here) and there are a lot of people that are not going to make the money that they thought they would. In town, one of my lenders was telling me about a veteranarian who was buying a house that he might make 10 grand on... If I was a vet, and a cash buyer, why the hell would I worry about RE? I would rather make bank as a bet and throw off my cash/time into other more lucrative ventures that I or others I know, already know about. I don't necessarily disagree with some things you said, but just to provide another angle. If anyone remembers, probably not, but a while ago I started a thread here on RE market conditions. I was on the market for an investment property in Southern California. Started looking last May, got serious about it in the summer. For a personal reason was limited to a small area, so had to agonizingly wait for the right property while prices were rising around me. Several weeks ago closed on the property that satisfies my "personal reason" criteria. The HOA there is in construction litigation, so cash buyers only, which worked for me since I was cash and allowed me to get "summer price" versus what things are going for now. Basically, I paid for it about 15% higher than the absolute bottom that was here about a year ago. But what I paid was exactly the amount the seller paid when she purchased it in November 2002. She didn't make anything on it, in over 10 years. The way I look at it. I paid what she paid at the end of 2002. But what a dollar is worth now is not what it was worth then. So, basically, it is cheaper. I'm planning to rent it out with cash on cash return of about 5.5%. With the prices where they are, I could probably sell it now wtih about 8% return, probably more after the lawsuit settles. (Not that I'm planning to.) It should be an ok inflation hedge. It diversifies me away from the stock market, in which I also have substantial part of my net worth. Even if the prices fall somewhat near to mid-term, I don't have a mortgage on it. And it should bring some income being a rental. It is a condo, so HOA takes care of the "outside" maintenance, newer construction, being built in 2001. I agree that the prices, especially here in So. Cal. went up too much, too fast. But I don't see anything particularly wrong with what I just did. Maybe I'm missing something critical? I'm planning to hold it for a long time (20-30 years), being happy with income from renting it and the idea that this money is somewhat protected from potential inflation in this cheap/abundant money environment. If I get appreciation in addition to rental income - great, if not for a good long while, that's fine with me as well. Even if at some point the prices go lower, it is easier being under water when you have no mortgage. That's the way I look at it. Maybe I'm totally off base and you, guys, could point it out. I'd appreciate it.

Eric, I don’t understand your point here. Savings = Investments, provided, of course, that you actually invest them! If people deposit money in the banks and the banks don’t lend, that money is not put to work… Isn’t that a problem? Another story is “how much” money people deposit in the banks, and therefore how much they save. I would like to see people saving 10% of their income, and banks putting those savings prudently to work. Sorry, surely I missed your point… giofranchi Your desire to boost savings would be working against Fisher's desire to stimulate aggregate demand from credit growth. Begin with income, add to it new credit, and take away savings. That gives you aggregate demand. Eric, I am not so sure I understood what you mean. Let me explain what I mean: whenever a client pays my firm for a service it has provided him/her, I immediately take 20% of the money coming in and I invest it in other productive businesses, which I believe have good future prospects. I don’t use that 20% to give parties, or to buy a fancier office space. Now, I don’t see any difference with an individual or a family. Ok, 20% maybe is too much, so let’s say I would like to see each family save 10% of its income. Then, because not everybody is able to spend much time evaluating the best way to put to work their savings, there are banks. Which collect savings and should in theory be smart enough to use them properly. And, of course, to use them properly means to facilitate credit to those businesses which really deserve it. There is a whole world of difference between lending to good businesses on their way to be highly profitable, and letting homeowners borrow because they want a new, bigger “palace” they cannot afford, or letting the government borrow and squander people’s money on its largesse or on silly projects. I think Mr. Fisher is deploring the fact that big banks, to misleadingly strengthen their balance sheets, have ceased to lend to trustworthy businesses, the only ones truly capable of creating employment and wealth. giofranchi That's assuming little or no debt. Usually when people with average/substantial debt start "saving", they don't invest. Like ERICOPOLY said they start paying down debt. When they bring the debt down to the level they are comfortable with, they'll start spending/raising debt level again. What you are talking about requires broad and substantial change in western/american mindset. And it is tough in the culture of immediate gratification and "you deserve better/the best".

About an hour of Kyle Bass in October 2012. http://www.youtube.com/watch?v=JUc8-GUC1hY

racemize, thank you very much. This was quite interesting.

Thanks for useful information, Investmentacct. And many thanks to everyone for an interesting and useful discussion.

Ok, Ragnar. But if we change the situation a bit. Let's say one buys with cash, no mortgage. And one is not looking for a flip, but a long term income producing asset, basically, a cash cow. Let's say something built in 2000s, so fairly new construction therefore less maintenance and something that is part of condo/townhome association (so exterior maintenance & repairs are covered). So, let's say this something is in the neighbourhood of $250K + let's say $10K in closing costs, inspections etc. So since it is a newer construction in a fairly decent condition, it'll need minimal work to prepare for a rental, but let's say another $10K to spruce it up. So, we have about $270K "out the door". And let's say this something could be rented easily for $2100 per month. So, further let's say monthly expenses will be $350 in homeowners association dues (which already includes insurance), plus let's say $400 in property taxes ($4,800 per year including melloroos (since it is a newer area with nice amenities), plus let's say $250 per month for things like home warranty and to fund unexpected expenses. So, we have $1,100 per month in cash. But if we want to be even more conservative, let's say $1,000. If rents rise over time, which they usually do, will be more than that. For the next 10, 20 years. I don't think it is that bad at all. A little supplement to salary or retirement income. A little bit of diversification away from the stock market, to which let's say you are already substantially exposed. Definitely much better than cash in an inflationary environment. And not to forget that these property prices which are at 2003 levels are paid in 2012 dollars, not in 2003 dollars, which is a different thing. $270K now is not the same as $270K then, which to me is a substantial plus. So, basically, a not such a bad alternative to keeping substantial amount of cash sitting in the bank waiting to be eaten up by inflation or increasing already a substantial exposure to stock/bond markets. Residential real estate today is still a distressed asset, maybe not as cheap as it was yesterday, but still cheap. And if it provides steady monthly income - great, plus if it makes the principal more or less to keep up with inflation - even better, and if the angels sing and some day it appreciates above the "keeping up with inflation" level - icing on the cake.

Well, I'm also looking to protect money from future inflation, which I'm sure will come with a vengence at some point after all this easing and money creation, as I'm sure many of these investors also trying to do. And prices are still at about 2003 levels. Have any of you, guys, observed similar picture last summer or is it different this year? I wasn't on the market last summer, so no clue there.

OC, don't really care for the inland empire area. And I'm trying to figure out whether this is just the normal summer thing or there is some kind of deeper and more permanent change is going on. The agents are saying different things, of course. Some think that the market will cool off in Fall and mention that banks are holding back inventory because of some kind of handshake deal with the government to create an appearance of improving housing market to help current president to get re-elected (I'm not sure I buy that one. I can see banks not being that agressive on short sales, so they don't have to realize losses, but holding back foreclosed homes would cost them real money.) Some agents believe that the market is normalizing, the interest rates are so low, the rental market is so strong, and the prices are so attractive compared to rents that many investors that held back before are stepping in. I even heard talks about some hedge funds buying entire portfolios of distressed residential properties from banks, setting up or using existing property management companies and are renting those out or are flipping them. Sort of makes sense for the funds and for the banks.