patrick.net

RANDY H says

Answer me this, honestly, and I won’t start cutting you out of my threads:

I could buy back the Peninsula home I sold in 2005 for at least $150K *less* than I sold it for. Meanwhile, my banked equity has chugged right along returning equal or greater inflation, about 90% tax exempt. And also I’ve managed to increase that pot by over 15% by contributing the money I’ve saved by renting instead of buying an overprice piece of shit in prime-Marin (instead renting for less than 1/3 the cost of PITI).

Now, tell me how I’ve done my family wrong

You know damned well that the price paid is paramount in any financial decision, regardless of how simple or complex.

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1- Randy, you see, you banked your rental savings and the return on the equity you have freed by selling. You also banked the price differential (150K).

On the other hand, you paid the transaction costs on the sale and you will the pay the fees (tax, title…) when you buy for a total of 5%-8%. Moreover, your new mortgage rate will be much higher (the investment banker in the NYT article was quoted 13%, but let even assume that you end up getting a jumbo at 8%-9%). Finally, your rental saving is partially offset by the fact that now your new mortgage term is 2 years shorter (to compare apple to apple). On top of that, you new tax basis is much higher (assuming you initially bought the house long time ago)

We both saw from the simple numerical example I posted a few month ago that NOMINAL houses prices will have to drop by about 15% for you to break even (cost of churning especially given high mortgage rate for jumbo loan if you find one)…And the higher the mortgage rate the higher the bigger the drop needed

2- You are doing your family wrong by refusing to compromise on the location where you want to live and by mistakenly thinking that you are now millionaire and acting as one by not being fully employed (as long as you don’t relocate to a cheaper state, your situation has not changed, the equity is just transferred)

3- Again, it not true that the price paid is paramount in any financial decision, if as sated in my strategy, you have a long horizon…

Here is a plot of the S&P-500… try to pinpoint the 87 crash :- (hint you can barely notice it)

http://finance.yahoo.com/q/bc?s=%5EGSPC&t=my

In real estate, a big drop like the crash of 87 or the nasdaq crash of 2001 is even less likely (sticky downward NOMINAL prices)

To illustrate the point with a simple numerical example:

Assume that we both had the same house. Assume also that housing price grow at the rate of inflation (3%). You sold in 2005 and I did not.
4- Let say that you are right and NOMINAL prices drop 20% reducing your basis cost by 10% (after transaction costs, higher mortgage rate, shorter repayment schedule, rental saving and higher return on banked equity).

== > Your new cost basis is 0.9 while mine is 1.

Your return after 20 years: (1.03^20 - 0.9) / 0.9 = 100%
My return after 20 years: (1.03^20 – 1) / 1 = 81%
Your return after 5 years: (1.03^7 - 0.9) / 0.9 = 29%
My return after 5 years: (1.03^7 – 1) / 1 = 16%
This is close to your most probable best case scenario.

4- Now let say that you are wrong and NOMINAL prices drop only 10% increasing your basis cost by 5% (after transaction costs, higher mortgage rate, shorter repayment schedule, rental saving and higher return on banked equity).

== > Your new cost basis is 1.05 while mine is 1.

Your return after 20 years: (1.03^20 – 1.05) / 1.05 = 72%
My return after 20 years: (1.03^20 – 1) / 1 = 81%
Your return after 5 years: (1.03^5 - 1.05) / 1.05 = 10%
My return after 5 years: (1.03^5 – 1) / 1 = 16%
This is close to your worst case scenario.

Bottom Line:

6- You do better under one scenario, worst under the other…More risk more reward…But you know what, for returns like these, I keep my simple strategy of staying put and don’t need your bubblelizer…

7- Now you can also dream that NOMINAL price will drop 30%-50% while mortgage rates don’t shot up to the 12%-14% (giving you in a much better best case scenario) if it makes you happy and let you sleep better at night….As far as I concern, I trust the demagogues in congress/white house, the 08 politicians, and the helicopter Ben to effectively intervene way before we see that kind of bleeding (like during the SL crisis)…

8- I see a lot of over-reaction to my posts, this must be FEAR.....

Hey Mr. theotherside, How about those who never bought a house and keep saving a lot of money?I rent a 3 BR, 2 BA average home in San Jose which priced at about $700K, for $1800 a month. Am I not better off than you?

theotherside

You presume quite a bit about me.

You are doing your family wrong by refusing to compromise on the location where you want to live and by mistakenly thinking that you are now millionaire and acting as one by not being fully employed (as long as you don’t relocate to a cheaper state, your situation has not changed, the equity is just transferred)

You don't read here often, apparently. I'm fully employed. I have been for a while now. I certainly don't act like a millionaire. I act like all people who grew up without money do -- I'm cheap. I'm not sure why you think I won't compromise on where I want to live. I'd love to hear where you get that impression. We live in Marin because of my wife's career. We moved here for that reason and that reason alone. By the way, her income alone qualifies us to buy twice the home we want, so we're back to that "acting like millionaires" thing. Luckily for me she shares my values and not your [lack of] values.

I happen to think prime Marin is full of assholes, much like the part of the city you continually push. Wasn't it you who was telling me that it's all about location and it's not worth it to buy anywhere but the most prime of the prime? If you want I'll dig up those comments and link them here.

On top of that, you new tax basis is much higher (assuming you initially bought the house long time ago)

Ex ante, post ante dear. Try real hard to accept that neither you nor I have a time machine. Life isn't a bad English movie about a woman on a subway taking different courses in life. Anyway, assuming that we had to move when we did, how exactly is my tax basis higher on a *lower* purchase price? Show me the equation where .012 * X is _less_ than .012 * (X-Y). Oh wait! That only works if Y is negative, meaning prices _rise_, not _fall_. But then that's the core of all your arguments at the end of the day, isn't it?

For how much everybody hates them, I think Jim Cramer and Robert Kiyosaki make some intelligent points. I don’t believe that they were purely lucky (although their TV shows and books are of gratingly poor quality). Both have acumen in investing and real estate, respectively. I could potentially start my own company or massively upgrade my education in the stock market. One of my good friends started a small company and is making nice money with control of his free time.

Unfortunately, it seems likely that Kiyosaki is only worth a few million at best, and the bulk of that is from the sale of his gratingly poor books, seminars and appearances...

Kiyosaki's only intelligent points seem to be made (and only made recently) by reading a few articles by actual economists and commentators, and then regurgitating them, some weeks and months later after he's finally absorbed what they were saying. Even I do that, but I don't write books and articles about it... presumably he was tired of being lambasted for being superficial and lightweight for years...

He's made virtually no money in real estate except by buying his own place in Phoenix and riding the boom like everyone else.

see www.johntreed.com/Kiyosaki.htm (again, sigh -- I see John has finally sexed up his website after much badgering...)

www.johntreed.com/Kiyosaki.html even

UNIONS RULE, and their activities are arguably orthogonal to concerns around 'market efficiencies' ref Keynes. i.e. paid workers are the consuming market... and what are 'market efficiencies' and who do they really benefit on analysis anyhow?

I note that when the overseas blow-in Sol Trujillo recently escalated his pay while his telcom is going nowhere caused a huge slump in its share price, $2 bn in fact, more than offsetting his paltry multimillion payrise...

Telstra boss sets sights on $50m | Herald Sun

"turncoats and chameleons"

Can someone PLEASE... make POS go away!

At this late stage of the game to show up and declare that the reason we're bitter is b/c the funny money dried up is simply ridiculous. When I first came on board here the entire debate centered on "when is the Fed FINALLY going to raise rates!? Anything, just shut this thing down!

Bitter? You've got to be kidding.

@theotherside

You will no longer be welcome on my threads (I cannot speak for other authors though I encourage them to consider my position). This will remain true until such time as you do any one of the following:

* Follow through on past commitments. For example, if you say a model is flawed, and you'll prove it then prove it. Simply crying the model is too complex for you is not sufficient (or sufficiently entertaining).

* Apologize for having purposefully trolled. We don't need to pull up all those "looky here! sold with 6 offers for $280K over asking!!!" postings, do we?

* Apologize for continually insulting people here and admit that you were wrong about much of what you kept insisting for so long. Really, it won't hurt that much. Everyone else here has admitted to being wrong about stuff, myself included. It's liberating, really.

* Tell us who you are so we can verify the (sometimes outrageous) claims you've made. You have zero credibility right now because we can't trust anything you say. Although we could have gone a long way towards finding out who you really were any time, we respect your privacy so long as you respect this forum. At this point you're just abusing our "we don't censor trolls anymore" policy. I'm willing to make an exception in your case if you don't try to cooperate.

new thread

TOS, while I am 180 degrees in opposition to your points of view, I feel that you are treated quite harshly here. I happen to respect people that stick to their beliefs in the face of adversity.

I happen to think in a normal, traditionally valued market your points on the long term benefits of owning a home are correct, but have always disagreed with you on the current timing. In many markets the last year has proved that holding off when the fundamentals don't justify the purchase decision is far more beneficial in the long term. Someone who would have listened you you just 6 months ago would be facing a financial disaster now. Even if someone purchased now the benefit of waiting that 6 months would be significant, and the trend is clearly going to continue for a couple of more years even by the most optimistic predictions.

Lost Cause Says:
August 11th, 2007 at 3:55 pm
"Does anybody really think this injection of liquidity will make people buy the now worthless finacial products formerly so popular? Hahahahaha…"

Actually my take on it is now the government has done just that. Basically they have pumped money into banks to keep cash reserves up because the banks' lending ability is locked into paper which is becoming worthless. This is a patch, but I think I will add to my prediction that we will see the fed forgive these additional lines which will be converted from fed loans to basically grants.

Randy, maybe a thread discussing whether this liquidity infusion is actually a masked bailout might be fun. There are all kinds of tangents that could lead off to.

@Malcolm

theotherside has been very disingenuous. If you search back through the threads you'll find that she incited every fight with insults and other trolldom.

She also pissed off a bunch of people and drove away a few regulars when she began abusing our no-filtering of trolls policy by spamming us with the same listing for month after month.

She definitely backed herself into a corner with her 'houses are an absolutely good investment, and are always a safe bet point of view' but never struck me as particularly nasty or malicious. I think she is just really misguided, and I do agree with you that there is a hidden motive of either self preservation, or industry cheerleading at work there.

My experience is that when people act like that it is from a bruised ego, and I tend to try to guide them to my side rather than rub it in especially when you have the upper hand of clearly being superior to her in your sound points of view.