Earning An Honest Living

[Guest libertas]

No, dear minister of the Stable of Fables,in fine,you're not ambiguous in the least, but rather most tranparently and reprehensibly mendacious ---In recognition of your printo-maniacal zeal, May the sign of Cain be Printed on your forehead--in G*d's name; be gone already!!!!

<{POST_SNAPBACK}>

 

I thought he unambiguously said - it's over.

[beardrech]

No, dear minister of the Stable of Fables,in fine,you're not ambiguous in the least, but rather most tranparently and reprehensibly mendacious ---In recognition of your printo-maniacal zeal, May the sign of Cain be Printed on your forehead--in G*d's name; be gone already!!!!

<{POST_SNAPBACK}>

 

I thought he unambiguously said - it's over.

<{POST_SNAPBACK}>

 

As in "Mabel its over,we're in Clover,So Why dont you Roll over and let me do it to you again?"

beardrech Now all together "Eighteen more years--eighteen more years--stay our fears,Big Al, stay our fears-Eighteen more years"

[DrStool]

LoU-

 

Since I was a commercial real estate anal cyst for many years, I'm embarrassed to say I didn't quite understand your thesis. Are you saying that landlords charge less than they otherwise would because they can depreciate their properties?

 

As long as I have been in the business, dealing with both large and small landlords, it has been my impression that rents have been set by only two forces. Supply.

 

And Demand.

 

In supply constrained areas rents are prone to rise in real terms, but where supply is not constrained, rents are only high enough to maintain the balance between supply and demand. When they get too high, supply increases, the market becomes oversupplied, and rents come down, along with property values.

 

Tax considerations, while important, have always been secondary.

 

Depreciation is recaptured on sale. Then there's the fact that a large class of owners are not subject to taxes anyway, since they are pass-through vehicles. Furthermore, buildings really DO depreciate. There's both physical, functional, and economic obsolescence that increases as a property ages. Unless buildings are upgraded regularly, they lose functional and physical value over time. If you do not renovate your property every so often in keeping with current styles and tastes the property's ability to produce income declines and it will cost you when you sell, as well. If the neighborhood goes bad, it will cost you, regardless. The land component of a property can, and often does, depreciate in a real sense, but it cannot be depreciated for tax purposes.

 

All that aside, Orman is full of shit for one simple reason. If the buyer puts up 10% of the purchase price, and the property declines in value 10%, the buyer is wiped out. Period. And they may never get that back. By the time the property declines 20%, the buyer is financially ruined.

 

Furthermore, net after tax interest is no different than rent. It is a pure cost of use that can never be recovered, as are insurance, HOA dues, and property maintainance. If the property is not continually appreciating, there is no way a buyer in today's market can come out ahead of renting, even assuming the rent and out of pocket ownership costs were equal, If the real estate is losing value, it's a double whammy. That's not always the case of course, but neither is endless appreciation. Timing is everything in real estate, especially considering leverage.

 

The prudent choice today is not only to not buy, but to sell, invest the cash at a safe rate of return commensurate with your ability to manage it, and rent a home, especially if rent is cheaper than out of pocket, after tax ownership costs, because in addition to saving out of pocket expenses, you get to invest the difference. In essence you pay yourself for not owning.

[Guest libertas]

All that aside, Orman is full of shit for one simple reason. If the buyer puts up 10% of the purchase price, and the property declines in value 10%, the buyer is wiped out. Period. And they may never get that back. By the time the property declines 20%, the buyer is financially ruined. 

 

Furthermore, net after tax interest is no different than rent. It is a pure cost of use that can never be recovered, as are insurance, HOA dues, and property maintainance.  If the property is not continually appreciating, there is no way a buyer in today's market can come out ahead of renting, even assuming the rent and out of pocket ownership costs were equal, If the real estate is losing value, it's a double whammy.  That's not always the case of course, but neither is endless appreciation. Timing is everything in real estate, especially considering leverage.

 

The prudent choice today is not only to not buy, but to sell, invest the cash at a safe rate of return commensurate with your ability to manage it, and rent a home, especially if rent is cheaper than out of pocket, after tax ownership costs, because in addition to saving out of pocket expenses, you get to invest the difference. In essence you pay yourself for not owning.

<{POST_SNAPBACK}>

 

Aside from the risk, which is a judgment call after all, IMO it is inexcusable to somehow say that money spent on rent is thrown away, while arguing for paying essentially the same amount as interest.

 

I used to work for a bank. The bank said "We will not fire anyone for a legitimate error of judgment, that happens in lending. We will fire you for technical errors, there is no excuse for losses arising from not dotting the i's and crossing the t's." Which I thought was a very reasonable view. Suzie should be fired.

[Brisbane Bear]

I posted awhile back about my sons girlfriends family,they have a large house in the next street from where I used to live...they bought 2 investment units about 9 months ago when the market dipped,now they have to sell their house because they are underwater on the investment units and can't sell them.

 

He was also hit with a $1million tax bill for something as well.(it never rains but pours)

 

They had they first open house during the week.

 

Now I sold my house for $735k 3 years ago.

 

Guess the asking price for their house???

 

Wait for it.....$4.2 million....I am absolutely gobsmacked.

 

If they get that price then I have seen everything.

 

If I had a guess I thought maybe $1.2 million,but I have'nt seen inside,only from the Street...the world is insane.

 

I guess we will see if its over or not if/when they sell.

 

PS no-one else I know has been able to sell their properties.

[Jimi]

Lending market is going full blast right now, lenders are desperate to book loans.

 

<{POST_SNAPBACK}>

 

I'm currently reading the book" The Smartest Guys in the Room" - The Enron story. In their early days the emphasis was all on closing deals. The deal makers received large "monetary incentives" to close deals. It did not matter if the deals actually made the company money - it was of course assumed that they would. One of the reasons that Enron went south was their problems with the contracts losing the company large sums of money.... I wonder if this might happen again... with the desperation to close loans?

 

Bung

<{POST_SNAPBACK}>

This is also the story of sovereign debt jumbo loans to Latin America in the early 1980s.

[DrStool]

The weekly update is posted over at http://wallstreetexaminer.com/weekly

 

I have not gotten around to setting up offering this subscription on the WSE as I had intended. That means I can extend the Stoolies only special offer at $80 a year off the regular price. Here are the details again.

 

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(I will be on the road back to Florida next weekend. Market updates will not be published Thursday or Friday. The following Tuesday will depend on whether we can get set up in our new digs in Florida by then. I am assuming that I will publish Tuesday, but want to cover my ass in advance just in case it is not possible. )

[realist]

the MotherShip

[LeeWhee]

LoU-

 

Since I was a commercial real estate anal cyst for many years, I'm embarrassed to say I didn't quite understand your thesis.  Are you saying that landlords charge less than they otherwise would because they can depreciate their properties?

 

As long as I have been in the business, dealing with both large and small landlords, it has been my impression that rents have been set by only two forces. Supply.

 

And Demand.

 

In supply constrained areas rents are prone to rise in real terms, but where supply is not constrained, rents are only high enough to maintain the balance between supply and demand. When they get too high, supply increases, the market becomes oversupplied, and rents come down, along with property values.

 

Tax considerations, while important, have always been secondary.

 

Depreciation is recaptured on sale. Then there's the fact that a large class of owners are not subject to taxes anyway, since they are pass-through vehicles. Furthermore, buildings really DO depreciate. There's both physical, functional, and economic obsolescence that increases as a property ages. Unless buildings are upgraded regularly, they lose functional and physical value over time. If you do not renovate your property every so often in keeping with current styles and tastes the property's ability to produce income declines and it will cost you when you sell, as well. If the neighborhood goes bad, it will cost you, regardless.  The land component of a property can, and often does, depreciate in a real sense, but it cannot be depreciated for tax purposes.

 

All that aside, Orman is full of shit for one simple reason. If the buyer puts up 10% of the purchase price, and the property declines in value 10%, the buyer is wiped out. Period. And they may never get that back. By the time the property declines 20%, the buyer is financially ruined. 

 

Furthermore, net after tax interest is no different than rent. It is a pure cost of use that can never be recovered, as are insurance, HOA dues, and property maintainance.  If the property is not continually appreciating, there is no way a buyer in today's market can come out ahead of renting, even assuming the rent and out of pocket ownership costs were equal, If the real estate is losing value, it's a double whammy.  That's not always the case of course, but neither is endless appreciation. Timing is everything in real estate, especially considering leverage.

 

The prudent choice today is not only to not buy, but to sell, invest the cash at a safe rate of return commensurate with your ability to manage it, and rent a home, especially if rent is cheaper than out of pocket, after tax ownership costs, because in addition to saving out of pocket expenses, you get to invest the difference. In essence you pay yourself for not owning.

<{POST_SNAPBACK}>

 

Here in the Bay Area, we've had a number of ups and downs in home valuations. The general trend, of course, has been up. Rents don't seem to have been affected by whether or not homes have been increasing or decreasing in value. As Doc says, rents are affected by supply and demand. Home ownership is a credit transaction. Rent is a cash transaction. If rents get too high vis-a-vis incomes and ability to pay, then either rent control is instituted or people must move and find cheaper housing.

 

Rents in San Francisco, even though we have rent control, nearly doubled from 1996-2000. Vacant units can be brought to market pricing, while occupied units are limited to annual cost-of-living adjustments. We own some apt buildings in SF. Our 1-bedroom units went from $650 in 1996 to nearly $1,400 in 2000. By 2004, they were back to $750/mo. Yet when we went to sell a couple of buildings last year, we were able to get twice the price for the buildings than we would have gotten in 2000, even though the rents for the buildings were 60% of the level from 2000.

 

In short, there doesn't appear to be much connection b/w the fluctuating cost of rent and the swings in home ownership costs. They march to different drummers here. If home prices decline in the next few years, I don't anticipate rent costs rising significantly unless there is a corresponding bump in demand from job or population growth.

[beardrech]

All that aside, Orman is full of shit for one simple reason. If the buyer puts up 10% of the purchase price, and the property declines in value 10%, the buyer is wiped out. Period. And they may never get that back. By the time the property declines 20%, the buyer is financially ruined.?

 

Furthermore, net after tax interest is no different than rent. It is a pure cost of use that can never be recovered, as are insurance, HOA dues, and property maintainance.?? If the property is not continually appreciating, there is no way a buyer in today's market can come out ahead of renting, even assuming the rent and out of pocket ownership costs were equal, If the real estate is losing value, it's a double whammy.? That's not always the case of course, but neither is endless appreciation. Timing is everything in real estate, especially considering leverage.

 

The prudent choice today is not only to not buy, but to sell, invest the cash at a safe rate of return commensurate with your ability to manage it, and rent a home, especially if rent is cheaper than out of pocket, after tax ownership costs, because in addition to saving out of pocket expenses, you get to invest the difference. In essence you pay yourself for not owning.

<{POST_SNAPBACK}>

 

Aside from the risk, which is a judgment call after all, IMO it is inexcusable to somehow say that money spent on rent is thrown away, while arguing for paying essentially the same amount as interest.

 

I used to work for a bank. The bank said "We will not fire anyone for a legitimate error of judgment, that happens in lending. We will fire you for technical errors, there is no excuse for losses arising from not dotting the i's and crossing the t's." Which I thought was a very reasonable view. Suzie should be fired.

<{POST_SNAPBACK}>

 

Wise words desrving a tale---A tale serving as the opening parenthesis of an epoch whose closing parenthesis are the twin tales told by Wyndy and Brisbane--

So,for a moment or two,dear Stoolies lend me your ears---

 

Even more economically feckless was and is the life of a typical small landlord--take my Granparents for an example--they bought and owned a 6 story tenement in the lower east side(125 Monroe st) in the thirties -forties and fifties--

 

The naborhood was considered so bad that poeple living west and north of us on grand boulevards like Delancey and East Broadway ,Hester and Houston considred themselves as members of royalty compared to us--

 

And Jewish mothers of nice Jewish Girls constantly warned them never to have social congress with any boys living near south st--I was too young at the time to feel the pain of exclusion ,but i knew aboutit

 

Anyway getting to the point:that Grampa and Ma were able to purchase it for a song--I believe it was titled My Yiddishe Mama--

I believe the average rent was 14 to 16 dollars a month--with 22 apartments and two street level stores one of which was used by my Gp's as a combination of dry-goods store and office--

The store had a water closet that was manufactured when civilization was barely in its infancy,dark and without a light bulb so that the thought of evacuating in it literally scared the sh*t outa me (a recognizable paradox i know but true)--

 

Because it was a 6 floor walkup We used to piss between automobiles, a habit I continued until ,after moving to Chicago),I was stopped when instructed by peers that one doesnt do such things

--Continuing,The building was coal fired until "earl" became stylish--The rental income and my Gp's continual do-it-yourself renovating would have been enough for completely happy existence if ,if if it wasn't for that strange species known as the "tenant"--

 

No matter how carefully a landlord would examine every single appliicant there would always be the statistically small-tailed remnants,we'll label psychopaths-- usually two--who chose to live in the upper, relatively unrentable upper flloors--(It was a walkup you see )--the upper floors were chosen by them,I believe, so that they could continue the Scientific project Galileo started at Pisa;

 

Whatever wasn't nailed down along with watermelon and cantelope rinds were continuously hurled down by the tenant's cretinous children,raining destruction upon the innocent heads of those below--and because my younger brother and I saw how much pleasure they derived from their hobby we,traitorously ,imitated them, and developed lazer beamed accuracy using the scale of the fruit peddler's pushcart below as a target--It wasn't until I was confirmed that i stopped throwing deadly objects out of windows,at innocent truck and busdrivers--

Hobbies of the poor--you understand Im sure

 

Anyway cutting t the chase, this talented tenant minority, hating their status of renter, used every minute of their time to shorten the lives of my GP's--from opening water spigots,and knife fighting with rowdy visiting relatives to throwing blocks of Guda? cheese down along with broomsticks :a downfalling rain of garbage from the Galilean tower--to turning the roof into a Coney Island-like bordello by putting tons of roof-caving sand;and added to this paradisical eyrie, and thus complementing the imitatiion rooftop seashore,populated it with two of the ugliest daughters who, along with every other human being, tried getting a little pleasure out of their sundried existences by screwing everything in sight

 

The tenants final victory took place during a bitterly cold winter when "earl" wasn't delivered on time,compelling the tenants into uniting themselves and putting my Gp's into magistrate scourt where he was sentenced to either paying a $500 fine or serving thirty days on Rikers Island penitentiary--

 

He chose the thirty days-and this,was accepted by him with the dignity of a hero; even though he wasn't an absentee owner and llived in the same building ,sharing the same tenant "agonies' of a two day delay in getting heat--

 

I had intended going on with a fuller description but I' see I've overstayed my visit--but you see I agree with you, that more often than not, renting is preferable to the role of Owner Landlord, so lovingly excoriated in Poem and Novel,an object of hatred and derision throughout literature

 

beardrech As willie once said" neither an owner or renter be,but rather, gather yee up an 18 thousand dollar persian carpet and a couple of tent poles; sit it down in a verdant pasture and park your six-cylinder camel by its side and enjoy telling each other tales of the Lost Cities of York and Chicago"

[K Wave Rider]

The latest from Northern Trust

 

WARNING...Scary Pictures!

 

That first chart is prolly one of the more scary charts I have ever seen..Chart 12 is a close 2nd..

[K Wave Rider]

Just in case ye think Mark was exaggerating...

 

US banks' margins fall to 15-year low, FDIC says

 

Hmmm...When did that last crash in Kali housing begin? Oh yeah..1990, 15 years ago...

 

Can you say RTC II??

[Jimi]

All that aside, Orman is full of shit for one simple reason.

<{POST_SNAPBACK}>

'nuff said.

[hoofgrind]

Here's a stupid physical silver question. If regulators were forced to sell a large physical silver hoard from a certain capital constrained CT hedge fund in forced liquidation, how much physical silver in OZ's could the market digest at the market? Could an indiscriminate seller force the market down 2% a day?

[beardrech]

Just in case ye think Mark was exaggerating...

 

US banks' margins fall to 15-year low, FDIC says

 

Hmmm...When did that last crash in Kali housing begin? Oh yeah..1990, 15 years ago...

 

Can you say RTC II??

<{POST_SNAPBACK}>

K wave

Is that kasriels article where he refers to banks currently having %61 of their investments ii real estate some of it marginalised

 

beardrech Im thinking of opening a school devoted teaching two subjests: managing properties and Jiu-Jitsu--Our school cry: Yield to me --Yield you Bastard-I say Yield!