Real Estate – Curious Cat Investing and Economics Blog http://investing.curiouscatblog.net Wed, 02 Aug 2017 14:24:17 +0000 en-US hourly 1 https://wordpress.org/?v=4.8.1 Housing Rental Affordability is Continuing to Decline For Millions in the USA http://investing.curiouscatblog.net/2015/09/30/housing-rental-affordability-is-continuing-to-decline-for-millions-in-the-usa/ http://investing.curiouscatblog.net/2015/09/30/housing-rental-affordability-is-continuing-to-decline-for-millions-in-the-usa/#respond Wed, 30 Sep 2015 15:11:17 +0000 http://investing.curiouscatblog.net/?p=2287 The number of USA households spending more than 50% of their income on rent is expected to rise at least 11% to 13.1 million by 2025, according to new research by Harvard University’s Joint Center for Housing Studies and Enterprise Community Partners.

The findings suggest that even if trends in incomes and rents turn more favorable, a variety of demographic forces—including the rapid growth of minority and senior populations—will exert continued upward pressure on the number of severely cost-burdened renters.

Under the report’s base case scenario for 2015-2025, the number of severely burdened households aged 65-74 and those aged 75 and older rise by 42% (830,000 to 1.2 million) and 39% (890,000 to 1.2 million); the number of Hispanic households with severe renter burdens increases 27% (2.6 million to 3.4 million); and the number of severely burdened single-person households jumps by 12% (5.1 million to 5.7 million).

Graph of USA housing rental burden over time

Graph from the report. The blip of an improvement from 2010 to 2013 is due to the decline in home ownership which changed the makeup of the “rental population.” Moderate (severe)
burdens are defined as housing costs of 30–50% (more than 50%) of household income. Households with zero or negative income are assumed 30 to be severely burdened, while renters not paying cash rent are assumed to be unburdened.

Enterprise Community Partners argues for more government action on affordable housing. I am worried about such efforts being done in a sensible way but I do agree with the concept of supporting affordable housing. I would use zoning to require affordable housing construction along with market rate housing.

Doing such things well requires a government that is not corrupt and fairly competent which isn’t so easy looking across the USA (unfortunately). An example of somewhere that does this fairly well is Arlington Country, Virginia (which also has a good non-profit focused on affordable housing). Good non-profits can play a vital part in affordable housing over the long term.


I would likely also support some measure where affordable housing cost was subsidized in some manner (I am not an expert in this area so I haven’t figured out the best way to do that). I would probably do something like provide benefits (tax credit or payments or …) when rental costs were 40% below median market rates and individual/family income x% below median income. And then scale the benefit down. Possibly I would consider having the benefits go to the rental unit owners (reduction in real estate tax or assessment or something for affordable units).

The macro-economic factors that are pushing rental rates up also indicate a favorable long term market for real estate investing (for housing), as does a growing population. Some of the problem of affordable housing is related to income decline and retirees not saving enough for retirement (those factors) don’t aid the investment case for real estate.

Related: Home Values and Rental RatesReal Estate Tax Compared to Rental Income in Several Cities in the USAApartment Vacancies Fall to Lowest in 3 Years in the USA (2011) (vacancy rates have continued to be low in most of the USA – a favorable situation for investors)

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USA Tax Rules When Selling a House http://investing.curiouscatblog.net/2015/07/19/usa-tax-rules-when-selling-a-house/ http://investing.curiouscatblog.net/2015/07/19/usa-tax-rules-when-selling-a-house/#respond Sun, 19 Jul 2015 21:33:31 +0000 http://investing.curiouscatblog.net/?p=2267 When you sell your primary residence in the USA you are able to exclude $250,000 in capital gains (or $500,000 if you file jointly). The primary test of whether it is your primary residence is if you lived there 2 of the last 5 years (see more details from the IRS). You can’t repeat this exemption for 2 years (I believe).

It doesn’t matter if you buy another house or not, that exclusion of up to $250,000 is all that can be excluded (you must pay tax on anything above that amount – taxed at capital gains rates for long term gains).

photo of a house

For investment property you can do 1031 exchanges which defers capital gains taxes. Otherwise capital gains will be taxed as you would expect (as capital gains).

When you inherit a house the tax basis will be “stepped up” to the current market rate. So if you then sell your basis isn’t what the owner paid for it, but what it was worth when it was given to you.

Related: Looking for Yields in Stocks and Real EstateYour Home as an InvestmentHome Values and Rental Rates

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Looking at Real Estate in This Challenging Investing Climate http://investing.curiouscatblog.net/2015/03/06/looking-at-real-estate-in-this-challenging-investing-climate/ http://investing.curiouscatblog.net/2015/03/06/looking-at-real-estate-in-this-challenging-investing-climate/#comments Fri, 06 Mar 2015 09:38:29 +0000 http://investing.curiouscatblog.net/?p=2212 I continue to believe the choices for investors are much more challenging than they normally are, as I have written about several times. Though maybe soon, this will just be the new normal (in which case investors won’t have the fairly easy choices they have had for much of the last 100 years).

In previous posts I have discussed the value of real estate investments in this investing climate. Real estate is one way to cope with the challenges of extremely low yields today.

There are many advantages to city property, in the right city. When I was looking at my first house I looked for something that would be easy to rent out. The most important factor to minimize vacancy is high demand. If there is high demand, the worst you should face is the need to lower your asking price.

An additional consideration in buying condos (your only option in large urban centers like New York City, seen in my photo of the Empire State Building) are condo fees. Fees and taxes can make positive cash flow a challenge and they continue when the property is vacant thus creating more risk for the investor. Of course, in popular markets and good times rents are very attractive for owners and price increases can make them great investments.

Empire State Building, New York City

During downturns rental property that is not in high demand can be vacant no matter the price. And those properties with some, but not overwhelming, demand will face the need for dramatic rent decreases to minimize vacancy (and large declines if you need to sell). My purchase was 3 blocks from a metro stop (close in to Washington DC). All housing near metro stops in DC have high demand and that close in to the city has even higher demand.

In over 10 years I have had maybe 2 months of vacancy – the first year I messed up; I was new to trying to rent places out and believed people were going to sign the lease because they said they would but then they backed out. I think I may have had 1 more month sometime, but maybe not, I can’t really remember.

I have considered tourist property but have decided against it so far. The rental yield are higher but you have higher vacancy rates, which is manageable, but also much more property management issues to deal with. In order to cope with that you need to hire a property manager, very carefully. You need to carefully check their experience, reliability and competence.

And even for residential real estate the hassles of dealing with the property management yourself may lead investors to use property managers. This cuts into the advantages of direct real estate investments and so if you are going to use property managers then looking at REITs has to be considered. I believe if you are sensible direct real estate investments would normally return more but the risks are significantly higher and the hassle is somewhat to significantly higher. Likely the decision on whether to use direct real estate investing is more about personal preference than just a decision on which option would be a better investment.

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All-weather Portfolio http://investing.curiouscatblog.net/2014/06/26/all-weather-portfolio/ http://investing.curiouscatblog.net/2014/06/26/all-weather-portfolio/#respond Thu, 26 Jun 2014 17:47:54 +0000 http://investing.curiouscatblog.net/?p=2084 Brett Arends writes about the investment portfolio he uses?

what is in this all-weather portfolio?

It’s 10% each in the following 10 asset classes:

  • U.S. “Minimum Volatility” stocks
  • International Developed “Minimum Volatility” stocks
  • Emerging Markets “Minimum Volatility” stocks
  • Global natural-resource stocks
  • US Real Estate Investment Trusts
  • International Real Estate Investment Trusts
  • 30-Year Zero Coupon Treasury bonds
  • 30-Year TIPS
  • Global bonds
  • 2-Year Treasury bonds (cash equivalent)

This is another interesting portfolio choice. I have discussed my thoughts on portfolio choices several times. This one is again a bit bond heavy for my tastes. I like the global nature of this one. I like real estate focus – though as mentioned in previous articles how people factor in their personal real estate (home and investments) needs to be considered.

Related: Cockroach PortfolioLazy Golfer PortfolioInvestment Risk Matters Most as Part of a Portfolio, Rather than in IsolationLooking for Dividend Stocks in the Current Extremely Low Interest Rate Environment

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Beijing Real Estate Is Worth As Much as Tokyo Real Estate Was in 1990 http://investing.curiouscatblog.net/2014/06/06/beijing-real-estate-is-worth-as-much-as-tokyo-real-estate-was-in-1990/ http://investing.curiouscatblog.net/2014/06/06/beijing-real-estate-is-worth-as-much-as-tokyo-real-estate-was-in-1990/#comments Fri, 06 Jun 2014 09:30:05 +0000 http://investing.curiouscatblog.net/?p=2081 This is a startling piece of data, from The nagging fear that QE itself may be causing deflation:

China’s top developer – says total land value in Beijing has been bid up to such extremes that is on paper worth 61.6pc of America’s GDP. The figure was 63.3pc for Tokyo at the peak of the bubble in 1990. “A dangerous level”

The situations have many differences, for example, China is a poor country growing rapidly, Japan was a rich country growing little (though in 1990 it showed more growth promise than today). Still this one of the more interesting pieces of data on how much a bubble China real estate has today. Japan suffered more than 2 decades of stagnation and one factor was the problems created by the real estate price bubble.

The global economic consequences of the extremely risky actions taken to bail out the failed too-big-too-fail banks including the massive quantitative easing are beyond anyones ability to really understand. We hope they won’t end badly that is all it amounts to. Noone can know how risky the actions to bail out the bankers is. The fact we not only bailed them out, but showered many billions of profit onto them (even after taking billions in fines for the numerous and continuing violations of law by those bailed out bankers), leaves me very worried.

It seems to me we have put enormous risk on and the main beneficiaries of the policies are the bankers that caused the mess and continue to violate laws without any consequences (other than taking a bit of the profit them make on illegal moves back sometimes).

The theme refuses to go away. India’s central bank chief, Raghuram Rajan, says QE is a beggar-thy-neighbour devaluation policy in thin disguise. The West’s QE caused a flood of hot capital into emerging markets hunting for yield, stoking destructive booms that these countries could not easily control. The result was an interest rate regime that was too lax for the world as a whole, leaving even more economies in a mess than before as they too have to cope with post-bubble hangovers.

The West ignored pleas for restraint at the time, then left these countries to fend for themselves. The lesson they have drawn is to tighten policy, hoard demand, hold down their currencies and keep building up foreign reserves as a safety buffer. The net effect is to perpetuate the “global savings glut” that has starved the world of demand, and that some say is the underlying of the cause of the long slump.

I hope things work out. But I fear the extremely risky behavior by the central banks and politicians could end more badly than we can even imagine.

Related: Continuing to Nurture the Too-Big-To-Fail Eco-systemThe Risks of Too Big to Fail Financial Institutions Have Only Gotten WorseUSA Congress Further Aids The Bankers Giving Those Politicians Piles of Cash and Risks Economic Calamity AgainInvestment Options Are Much Less Comforting Than Normal These Days

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Cockroach Portfolio http://investing.curiouscatblog.net/2014/02/11/cockroach-portfolio/ http://investing.curiouscatblog.net/2014/02/11/cockroach-portfolio/#comments Wed, 12 Feb 2014 04:47:07 +0000 http://investing.curiouscatblog.net/?p=2054 Dylan Grice suggests the Cockroach Portfolio: 25% cash; 25% government bonds; 25% equities; and 25% gold. What we can learn from the cockroach

Each of those asset buckets protects against a different type of risk. And that is a very sensible approach to investing in the year ahead. Cash will protect you against a market collapse in anything (provided it’s cash held with a solid institution).

Government bonds protect against deflation (provided your money’s invested in solid government bonds and not trash). Equities offer capital growth and income. And gold, as we know, protects against currency depreciation, inflation, and financial collapse. It’s vitally important to maintain holdings in each, in my opinion.

The beauty of a ‘static’ allocation across these four asset classes is that it removes emotion from the investment process.

I don’t really agree with this but I think it is an interesting read. And I do agree the standard stock/bond/cash portfolio model is not good enough.

I would rather own real estate than gold. I doubt I would ever have more than 5% gold and only would suggest that if someone was really rich (so had money to put everywhere). Even then I imagine I would balance it with investments in other commodities.

One of the many problems with “stock” allocations is that doesn’t tell you enough. I think global exposure is wise (to some extent S&P 500 does this as many of those companies have huge international exposure – still I would go beyond that). Also I would be willing to take some stock in commodities type companies (oil and gas, mining, real estate, forests…) as a different bucket than “stocks” even though they are stocks.

And given the super low interest rates I see dividend paying stocks as an alternative to bonds.

The Cockroach Portfolio does suggest only government bonds (and is meant for the USA where those bonds are fairly sensible I think) but in the age of the internet many of my readers are global. It may well not make sense to have a huge portion of your portfolio in many countries bonds. And outside the USA I wouldn’t have such a large portion in USA bonds. And they don’t address the average maturity (at least in this article) – I would avoid longer maturities given the super low rates now. If rates were higher I would get some long term bonds.

photo with view of Glacier National Park,

View of Glacier National Park, from Bears Hump Trail in Waterton International Peace Park in Canada, by John Hunter

These adjustments mean I don’t have as simple a suggestion as the cockroach portfolio. But I think that is sensible. There is no one portfolio that makes sense. What portfolio is wise depends on many things.


I think something along the lines of this would make sense today for someone living in the USA (but I would vary it a fair bit depending on the person’s situation and it would change in different market conditions)

  • 35% Total Stock Market Index Fund (VTSMX)
  • 15% Total International Stock Index Fund (VGTSX)
  • 10% Vanguard emerging markets fund (VWO), or something similar
  • 20% high quality “dividend aristocrat” type stocks
  • 10% REIT Index Fund (VGSIX) or direct real estate ownership
  • 5% bonds
  • 5% cash

    I would likely go a bit higher for real estate with direct ownership. As the portfolio was approaching the time withdrawals would be made (retirement) I would want real estate investments to be substantially cash flow positive (and leverage to be limited – hopefully under 50%). I would like primary residence to be without a mortgage or with a very small mortgage.

    If I was drawing substantial income from the portfolio I would likely increase cash to at least 3 years of projected need (though even this gets a bit fuzzy as adjusting for expected interest and dividends makes sense to me).

    I’m willing to include dividend stocks that don’t meet the dividend aristocrat rules but are similar: (ABBV, INTC even AAPL). I would consider including a bit in pipeline MLPs such as OKS (higher current yields but likely less growth).

    Related: Lazy Golfer Portfolio AllocationSleep Well Fund ResultsRetirement Savings Allocation for 2010How to Protect Your Financial Health

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Iskandar Malaysia Economic Development Zone http://investing.curiouscatblog.net/2013/12/19/iskandar-malaysia-economic-development-zone/ http://investing.curiouscatblog.net/2013/12/19/iskandar-malaysia-economic-development-zone/#comments Fri, 20 Dec 2013 04:48:42 +0000 http://investing.curiouscatblog.net/?p=2020 Based on my thoughts on killing the Goose laying golden eggs in Iskandar Malaysia posted on a discussion forum. The government has instituted several several policies to counteract a bubble in luxury real estate prices in the region (new taxes on short term capital gains in real estate [declining amounts through year 6]), increasing limits on purchases by foreigners, new transaction fees (2% of purchase price?) for real estate transactions, requirements for larger down-payments from purchasers…

Iskandar is 5 times the size of Singapore and is in the state of Johor in Malaysia. Johor Bahru is the city which makes up much of Iskandar but as borders are currently drawn Iskandar extends beyond the borders of Johor Bahru.

The prospects for economic growth in Iskandar Malaysia in the next 5, 10 and 15 years remain very strong. They are stronger than they were 5 years ago: investments that produce economic activity (theme parks, factories, hospitals, hotels, retail, film studio…) have come online and more on being built right now.

Cooperation with Singapore is the main advantage Iskandar has (Iskandar is next to the island of Singapore similar to those areas surrounding Manhattan). It provides Iskandar world class advantages that few other locations have (it is the same advantages offered by lower cost areas extremely close to world class cities – NYC, Hong Kong, London, San Francisco etc.). Transportation connections to Singapore are critical and have not been managed as well as they should have been (only 2 bridges exist now and massive delays are common). A 3rd link should be in place today (they haven’t even approved the location yet).

A MRT connection to Singapore (Singapore’s subway system) should be a top priority of anyone with power interested in the future economic well being of Iskandar and Johor. Johor Bahru doesn’t have a light rail system yet this would be the start of it. It has been “announced” as planned for 2018 but not officially designated or funded yet.


Transportation within Iskandar is also a big concern. This is good now. I worry they will become as bad as Kuala Lumpur which would be a horrible outcome. JB had the chance to build a good transportation system and avoid the economically extremely costly friction of bad transportation system that KL is stuck with. If JB does this well, JB will be the economic center of Malaysia in 2030. If this is messed up the economy of JB will suffer a great deal.

The health of Malaysia’s economy will also have a large role to play. Overall things are very positive on this front though government and consumer debt are getting to be serious problems.

Economics is often tricky. Externalities (like pollution – essentially externalities are positive or negative impacts that are not captured economically by the market transaction, so economic theory requires government to implement policies to take externalities into account) are easy to ignore, for a awhile). So you have situations like China where huge negative consequences (health risks, health care costs, costs to pay staff to accept unbreathable air…) are taken on and short term economic gains seem better than they are.

Economic bubbles create lots of golden eggs. They are false golden eggs though. They are only available as long as the bubble tempts people to ignore the real economic worth. And cleaning up after bubbles burst is extremely costly and damaging to economies (especially ones that have high debt and are not lucky enough to have a fiat currency that the global market accepts – the USA).

I am extremely skeptical of the boom in luxury housing in IM. I don’t see the boom in very high paying jobs that create a sustainable demand for luxury housing. The transportation links to Singapore are not great enough to allow the jobs to all be in Singapore. Even if they were that is a risky model to be completely dependent on Singaporean jobs for over 50% of the housing being built now in Iskandar. There is likely to be a dependence on Singapore jobs to sustain many of those living in IM but for it to a strong economy there have to be a reasonable number of high paying jobs in Iskandar.

Right now, it seems to me (I would really need to have much more data to be more certain as I don’t have nearly enough data now), that there is a bubble in luxury housing in IM. I think the government is wise to take bubble suppressing steps. Doing so is never easy. Getting it exactly right is very hard. I think they waited to long, which then means the bubble has inflated and makes taking the right steps even harder.

On the good side of things, real estate prices were extremely low 10 years ago. So while prices have increased a great deal they are still not exorbitant compared to other desirable areas (Singapore, KL, Penang, Bangkok…). Of course, JB hasn’t been on comparable terms with those locations. I truly believe IM has the potential to do so, and thereby justify even higher prices going forward. But that is dependent on maximizing the Singapore location benefits and while lots of good things are happening on that front, more is needed. And more is needed quickly.

The riskiest area for IM is a huge oversupply of luxury housing. It would be foolish of the government not to address this risk. Wether the steps taken are correct or not, I am not sure, but I think they are a reasonable guess and basically are wise. Things should be watched and adjusted as needed. The policy change I like the least is the 1 million MYR limit (I would do no more than 750,000 MYR if it were up to me).

What I see as the top priorities

  • reducing speculation in luxury housing in Iskandar
  • reducing government debt levels
  • reducing consumer debt levels
  • increasing the number of high paying jobs in IM – focus on health care is good (I more could be done there I would try), finance is another good target, manufacturing is decent but I seriously doubt IM will have huge numbers of high paying/high skilled manufacturing jobs (some yes, but limited). I would also target high tech, software development etc. I would work closely with organizations in Singapore and KL. I would focus a significant amount of effort on this area). Education is good (and worthily of continued effort) but provides limited high paying jobs. If engineering and entrepreneurship programs can be developed that integrate with high tech business community that is the path to huge success for JB (pretty much everywhere else on earth would like to pull this off so there is lots of competition – JB has better than average potential with Singapore next store and the Malaysian economy and efforts such as IRDA and decent English language skills for students – improving English would help).
  • increasing the tax base (sales taxes make sense), hotels and retail are great (especially when they attract tourists and you get tax dollars on others – not just your citizens)
  • transportation – MRT, busses in JB, roads, taxis… Should be worrying about JB’s own MRT system (even if that is a long term issue, planning should be done now, building should likely begin within 5 years – beyond just the initial few stations linking to Singapore, it should be over 12 stations in JB by 2025 – likely a north/south line and east/west). Should likely also plan on 2nd and 3rd link MRT connections to Singapore by 2025 would be nice, but certainly by 2030 I would think?
  • increasing number of jobs overall – this seems to be fairly well done but looking down the road 30 years the issue is going to be raising the pay level (lots of retail and tourist related jobs are good at first but they are low paying jobs in general)

Related: The Growing Market for International Travel for Medical CareThe Potential of Iskandar is Very High but Investing in Iskandar has Risks (2011)Iskandar Housing Real Estate Investment ConsiderationsGDP Growth Per Capita for Selected Countries from 1970 to 2010Channel News Asia Report on Iskandar

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Lazy Golfer Portfolio Allocation http://investing.curiouscatblog.net/2013/12/12/lazy-golfer-portfolio-allocation/ http://investing.curiouscatblog.net/2013/12/12/lazy-golfer-portfolio-allocation/#respond Fri, 13 Dec 2013 03:48:50 +0000 http://investing.curiouscatblog.net/?p=2017 There are many asset allocation strategies; which often are pretty similar. In general they oversimplify the situation (so an investor needs to study and adjust them to their situation – though most don’t do this, which is a problem). In general, I think asset allocation suggestions are too heavily weighted on bonds, and that is even more true today in the current environment – of could that is just my opinion.

I ran across this suggested allocation in Eyewitness to a Wall Street mugging which I think has several good values.

  • It focuses on low fee, market index funds. Fees are incredibly important in determining long term investment success
  • It has lower bond allocation than normal
  • It has more international exposure than many – which I think is wise (this suggested portfolio is for those in the USA, USA portion should be lowered for others)
  • It includes real estate (some suggested allocations miss this entirely)

In my opinion this allocation should be adjusted as you get closer to retirement (put a bit more into more stable, income producing investments).

My personal preference is to use high quality dividend stocks in the current interest rate environment. I would buy them myself which does require a bit more work than once a year rebalancing that the lazy golfer portfolio allows.

I would also include 10% for Vanguard emerging markets fund (VWO) (for sake of a rule of thumb reduce Inflation Protected Securities Fund to 10% if you are more than 10 years from retirement, when between 10 and 1 year from retirement put Inflation Protected Securities Fund at 15% and Total Stock Market Index Fund at 35%, when 1 year from retirement or retired lower emerging market to 5% and put 5% in money market.

Depending on your other assets this portfolio should be adjusted (large real estate holdings [large net value on personal home, investment real estate…] can mean less real estate in this portfolio, 401k holdings may mean you want to tweak this [TIAA CREF has a very good real estate fund, if you have access to it you might make real estate a high value in your 401k and then adjust your lazy portfolio], large pension means you can lower income producing assets, how close you are to retirement, etc.).

The Lazy Golfer Portfolio (Annually rebalance the fund on your birthday and ignore Wall Street for the remaining 364 days of the year) contains 5 Vanguard index funds

  • 40% Total Stock Market Index Fund (VTSMX)
  • 20% Total International Stock Index Fund (VGTSX)
  • 20% Inflation Protected Securities Fund (VIPSX)
  • 10% Total Bond Market Index Fund (VBMFX)
  • 10% REIT Index Fund (VGSIX)

Related: Retirement Planning, Looking at Asset AllocationLazy Portfolio ResultsInvestment Risk Matters Most as Part of a Portfolio, Rather than in IsolationStarting Retirement Account Allocations for Someone Under 40Taking a Look at Some Dividend Aristocrats

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Investment Options Are Much Less Comforting Than Normal These Days http://investing.curiouscatblog.net/2013/06/18/investment-options-are-much-less-comforting-than-normal-these-days/ http://investing.curiouscatblog.net/2013/06/18/investment-options-are-much-less-comforting-than-normal-these-days/#respond Tue, 18 Jun 2013 13:12:27 +0000 http://investing.curiouscatblog.net/?p=1958 I think the current investing climate worldwide continues to be very uncertain. Historically I believe in the long term success of investing in successful businesses and real estate in economically vibrant areas. I think you can do fairly well investing in various sold long term businesses or mutual funds looking at things like dividend aristocrates or even the S&P 500. And investing in real estate in most areas, over the long term, is usually fine.

When markets hit extremes it is better to get out, but it is very hard to know in advance when that is. So just staying pretty much fully invested (which to me includes a safety margin of cash and very safe investments as part of a portfolio).

I really don’t know of a time more disconcerting than the last 5 years (other than during the great depression, World War II and right after World War II). Looking back it is easy to take the long term view and say post World War II was a great time for long term investors. I doubt it was so easy then (especially outside the USA).

Even at times like the oil crisis (1973-74…, stagflation…, 1986 stock market crash) I can see being confident just investing in good businesses and good real estate would work out in the long term. I am much less certain now.

I really don’t see a decent option to investing in good companies and real estate (I never really like bonds, though I understand they can have a role in a portfolio, and certainly don’t know). Normally I am perfectly comfortable with the long term soundness of such a plan and realizing there would be plenty of volatility along the way. The last few years I am much less comfortable and much more nervous (but I don’t see many decent options that don’t make me nervous).

One of the many huge worries today is the extreme financial instruments; complex securities; complex and highly leveraged financial institution (that are also too big to fail); high leverage by companies (though many many companies are one of the more sound parts of the economy – Apple, Google, Toyota, Intel…), high debt for governments, high debt for consumers, inability for regulators to understand the risks they allow too big to fail institutions to take, the disregard for risking economic calamity by those in too big to fail institutions, climate change (huge insurance risks and many other problems), decades of health care crisis in the USA…

A recent Bloomberg article examines differing analyst opinions on the Chinese banking system. It is just one of many things I find worrying. I am not certain the current state of Chinese banking is extremely dangerous to global economic investments but I am worried it may well be.

China Credit-Bubble Call Pits Fitch’s Chu Against S&P

“There is just no way to grow out of a debt problem when credit is already twice as large as GDP and growing nearly twice as fast,” Chu, 41, said in an interview.
Chu’s view puts her in a minority among those charting the future of the world’s biggest nation. She questions how long China can maintain the model of growth driven by bank lending that has allowed its economy to sidestep the global financial crisis.

Chu has been one of the most vocal analysts to warn about regulatory loopholes and weaknesses in China’s banking system, saying they make official lending data unreliable. Fitch in 2011 started calculating its own measure of total credit in the economy.

“Given that China’s credit is mostly funded by its internally generated deposits, I don’t think a real financial crisis, which is normally manifested in a liquidity shortage, will happen anytime soon,” S&P’s Liao said by phone. Local-currency savings stood at 92 trillion yuan at the end of 2012, according to the National Bureau of Statistics.

There’s no basis for concluding that China’s debt is unsustainable, said Xu Gao, chief China economist at Beijing-based Everbright Securities, a unit of state-owned China Everbright Group. A public debt level of about 50 percent of GDP, including borrowing at the central and local levels and by policy banks, leaves room for the government to borrow more, he wrote in an April 16 note.

For the last several years it has seemed to me one of the better long term investments was USA real estate. Sure I wasn’t confident how well it would due in the short term but in the long term it seemed very good. Lots of people have seemed to reach the same conclusion. I still think it is true but it is becoming less safe (as prices rise) and will be less attractive if interest rates rise too much. There are problems with how to invest in it best (REIT can be good but have some issues – expense rates… and owning personally can be annoying).

About the only thing I am fairly confident in for investing these days is to be much more focused on quality. I think it will pay off to invest in assest that are able to cope with extreme chaos in the markets and economies. Other than that I have never had less confidence in knowing what investment moves are wise than I have had the last several years. I do still believe it is wise to invest globally and take part in what I believe will be very strong growth in at least some “emerging markets” over the next 30 years – but I also think some will get completely clobbered.

Related: Stock Market Capitalization by Country from 1990 to 2010Investing Return Guesses While Planning for Retirement

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Real Estate Tax Compared to Rental Income in Several Cities in the USA http://investing.curiouscatblog.net/2013/05/10/real-estate-tax-compared-to-rental-income-in-several-cities-in-the-usa/ http://investing.curiouscatblog.net/2013/05/10/real-estate-tax-compared-to-rental-income-in-several-cities-in-the-usa/#respond Fri, 10 May 2013 05:21:53 +0000 http://investing.curiouscatblog.net/?p=1939 I was just taking a look at a couple of properties in Zillow and found it interesting how big the real estate tax bite can be. I have 2 rental properties and the real estate tax cost is 15% and 12% of the rental income. At least for my area Zillow underestimate rent rates (the vacancy rate is very low and properties in general rent within days or weeks – at rates 10%+ higher than Zillow estimates on average -based on my very limited sample of just what I happen to notice).

I thought I would look at the real estate tax to property value estimate and rent estimate by Zillow in Various locations.

Arlington, Virginia – real estate taxes were 1% of estimated property value and 17.5% of rental estimate.
Chapel Hill, North Carolina – 1.5% of value and 41% of rental estimate.
Madison, Wisconsin – 2.4% of value and 39% of rental estimate.
Flagstaff, Arizona – .7% of value and 9.5% of rental estimate.
Grand Junction, Colorado – .4% of value and 6% of rental estimate.

This is just an anecdotal look, I didn’t try to get a basket of homes in each market I just looked at about 1-5 homes so there is plenty of room for misleading information. But this is just a quick look and was interesting to me so I thought I would share it. While the taxes are deductible (from the profit of the rental property) they are a fixed expense, whether the house is rented or not that expense must be paid.

A high tax rate to rental rate is a cash flow risk – you have to make that payment no matter what.

In my opinion one of the most important aspects of rental property is keeping the units rented. The vacancy rate for similar properties is an extremely important piece of data. Arlington, Virginia has an extremely low vacancy rate. I am not sure about the other locations.

I wanted to use Park Slope, Brooklyn, NYC but the data was confusing/limited… so I skipped it; the taxes seemed super low.

Related: USA Housing Rents Increased 5.4% in the Last Year (Sep 2012)USA Apartment Market in 2011Top Markets in the USA for Buying Rental Property (2011)
Home Values and Rental Rates

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