patrick.net

phaster says

I just happen to have a few residential/commercial rental properties, so various brokers have been trying to pitch me rental properties, BUT looking at the valuations, it just kinda blows my mind (15 to 18 GRM). Personally I don't think an investment in real estate in my neck of the woods can be economically justified because the rents can't service the loans on a property.

People try to justify bad investments these days by saying that the return is fine because interest rates suck nowadays, but a bad investment is a bad investment. If you are accepting low returns on a rental property with the hope that appreciation will make up the difference, you've probably crossed the line into being a speculator, rather than a true investor.

Even for rental properties, a lot of the money is still made by buying low and selling high, just like everything else. If you go with Buffett, it's still hard to do that because it requires market timing, so you should still focus on quality investments.

One of my favorite written records of people discussing investment properties is this one on FatWallet. You can see the euphoria when idiot college students are saying that they want to become specuvestors at the height of the bubble and then it all comes down:

http://www.fatwallet.coms/finance/59627/

I read somewhere that QE has to end to allow rates to rise or pension funds will start detonating. I dont really understand a lot of this stuff, I'll see if i can find the article.

corntrollio says

you've probably crossed the line into being a speculator, rather than a true investor.

A bad investment is a bad investment, but 0% rates is 0% returns minus inflation.

The fed, Krugman, and all the others want you to be a speculator.
There's nothing you can do about it.
You're a speculator.

Heraclitusstudent says

A bad investment is a bad investment, but 0% rates is 0% returns minus inflation.

The fed, Krugman, and all the others want you to be a speculator.

There are a lot of good investments that stand on their own as good investments. They surely make more than 0% and they compensate you better for the risk profile than making a crappy return on real estate.

In addition, I'm certain if you were dedicated, you can find better investment properties than those the OP is describing -- you might just have to leave San Diego to get them.

People who accept shitty returns on real estate either are speculating or don't understand risk.

siklidkid says

I read somewhere that QE has to end to allow rates to rise or pension funds will start detonating.

Pension funds? As long as the stock market goes up 30% / yr, nothing wrong can happen to them.

Heraclitusstudent says

siklidkid says

I read somewhere that QE has to end to allow rates to rise or pension funds will start detonating.

Pension funds? As long as the stock market goes up 30% / yr, nothing wrong can happen to them.

Sadly because of corruption/greed/mismanagement, I'm living at (one of the contenders) of ground zero of the next economic downturn.

Check out this youtube video (starting at 3:24), where a Stanford University muni bond expert states san diego is at the being at the top of the list (for being the deepest in the hole overall for unfunded pensions and having an unfunded health care plan)

https://www.youtube.com/watch?v=BRr49iAgI9g

So best as I can figure the $12+ billion figure I quoted for san diego, does not include health care costs!

siklidkid says

I read somewhere that QE has to end to allow rates to rise or pension funds will start detonating. I dont really understand a lot of this stuff, I'll see if i can find the article.

QE was started to add "credit" to the banking system because the trades at the interbank level using "commercial paper"

http://cucfa.org/archive/Commercial_Paper_Definition.htm

basically unsecured overnight loans all but stopped (which is why I discovered the economy a few years ago crashed)

http://phaster.com/_peak/_peak_expectations.html

In other words QE is a program to jump start the "real economy!" Now that the economy is sort of working again (i.e. financial institutions are making loans to more people), the fed is adding less credit to the system. Problem is the 4+ TRILLION in credit the fed has created, is starting to work its way thur the system (basically because banks like B of A, chase, etc. are making loans to consumers)

The reason prices like food, gas, etc., that consumers buy everyday is because there is more "credit" in the system trying to buy those goods.

In terms of R.E., prices are being driven up because those individuals who are lucky enuf to find themselves with access to ever increasing amounts of credit (created by the FED), are bidding prices upward.

What I find mind blowing is, the 4+ TRILLION in credit the US fed has created since 2008 is dwarfed by the 16+ TRILLION in credit the bank of china has created since 2008. If you read news accounts of high end real estate in new york you'll see that lots of "rich" chinese are the buyers.

Here in San Diego, the "rich" well known area is la jolla, and from what I've seen is lots of foreign money buying the high end real estate.

Basically for the "rich" its all about trying to find an investment vehicle (i.e. bonds, equities or real estate) that gives the highest return...

Heraclitusstudent says

siklidkid says

I read somewhere that QE has to end to allow rates to rise or pension funds will start detonating.

Pension funds? As long as the stock market goes up 30% / yr, nothing wrong can happen to them.

Sadly because of of corruption, greed and mismanagement I think I'm living at one of the biggest contenders of a potential ground zero of the next economic downturn.

Check out this youtube video (starting at 3:24), where a Stanford University muni bond expert states San Diego is at the at the top of the list (for being the deepest in the hole overall for unfunded pensions and having an unfunded health care plan)

https://www.youtube.com/watch?v=BRr49iAgI9g

So best as I can figure the $12+ billion figure I quoted for san diego, does not include health care costs!

Phaster,

The Fed, QE, Rates And You
http://market-ticker.org/akcs-www?post=227616

From link:
"The pension funds and insurance companies that are the backbone of this market are probably doing plenty of screaming, and with good cause. If this keeps up their cash flow will collapse; they can't absorb it. Further, Bernanke and the rest of the Fed know that factually the damage they took on by buying those instruments during QE cannot be gotten rid of either; it has to roll off, because if you sell that bond you're going to take a capital loss and crystallize the entire loss right now instead of spreading it out!"

siklidkid says

Phaster,

The Fed, QE, Rates And You

http://market-ticker.org/akcs-www?post=227616

From link:

"The pension funds and insurance companies that are the backbone of this market are probably doing plenty of screaming, and with good cause. If this keeps up their cash flow will collapse; they can't absorb it. Further, Bernanke and the rest of the Fed know that factually the damage they took on by buying those instruments during QE cannot be gotten rid of either; it has to roll off, because if you sell that bond you're going to take a capital loss and crystallize the entire loss right now instead of spreading it out!"

Pension funds both public and private have many traits in common basically ever increasing "unfunded" liabilities and "insurance"

http://www.pbgc.gov/news/press/releases/pr13-14.html

that won't be able to cover "unrealistic" promises made! Therefore I conclude its not a matter of if, BUT when the TSHTF.

WRT real estate, I think its a good long term investment (i.e. a 20+ year time frame) because value will go up.

BUT sadly in an open market instant gratification society where greed is the predominant factor, it is inevitable that "bubbles" will occur in real estate, stocks and bonds.

The trick is recognize this simple fact and devise a plan to survive the inevitable economic downturns.