Replies

If you bought gold at $400 an oz a few years ago you've experienced a 4X price rise. (5X if you sold when it was almost $2000 a year and a half ago). Now, let say you go out and buy a nice 3 or 4 bedroom suburban house in a not-overheated market and get a good price. Say you pay $250,000. Does anyone really think that house is going to be worth $1,000,000 or more in the next decade? Housing prices are linked to and supported by the general economy. With high unemployment, low worker participation, you are not going to have home price inflation. IMHO the market is being propped up with incredible interest rates today. If the rates go back to more normal 6% for a 30 year that house is likely to fall some more in price, not go up. Interest rates have (literally) no where to go but up. I'm not anti-home ownership. I do think now is a good time to buy a house, given the low rates and low prices. It's a perfect time for a buyer. BUT: it's not going to compare with the Gold bull market we've just been through. It's not going to compare with the DOW and NASDAQ runups of the Clinton era, or the dot com boom.

It is certainly NOT the investment of a lifetime. It is a good solid buy and hold opportunity, that has the bonus of improving your cash flow and moving some of your money into a different asset class than paper. That's enough, too.

And I don't know enough financial history to say what the best investments were in American history but I imagine there were huge fortunes made in the Roaring 20s and the Western Expansion (railroads), etc.

So the author is exaggerating.

I've seen articles like this coming from the same group that was pushing gold ten years ago.

Fact is, there's a lot of good investment opportunities after a bubble's finally deflated. Not great ones, but good ones. Gold was **** in 1982, but it still rose from $300 to above $450 over five years. Not as good as stocks, but it still rose. And speaking of stocks...had it been 1990 and someone recommended investing in stocks, I would have been an enthusiastic scoffer. I bought into the "nasty '90s" meme hook, line and sinker.

Needless to say, someone recommending picking through the wreckage from the tech bubble in '02 would have been met with many a scoff too - but there were some buys out there. They just took some effort (and skepticism) to find.

Residential real estate is a different breed of cat, in part because it's both an investment and a long-term consumption good. As an investment, it requires active management - which may include getting in the car and fixing the plumbing yourself. The rule of thumb is that the monthly rent minus Principal repayment, Interest, Taxes and home Insurance (PITI) should be 1% of the purchase price or more. In other words:

Monthly Rent - (Mortgage Payment + Monthly Property Taxes + Monthly Home Insurance) should >= (Purchase Price) / 100.

That 1% per month is enough to provide a reserve for maintenance, depreciation, etc. plus an adequate profit. If the net rent is less, then it's not worth the bother.

As a consumption good, the calculation is simpler. I suggest this as a rule, although it's more abitrary than the above. Can a person making $40,000 per year shoulder the mortage cost him- or herself and have enough to live a cheapsake but decent life? This rule cuts out all but the Levittown wonders, but those are affordable in a way that we haven't seen in decades.

Needless to say, this criterion's not as simple as it sounds. A lot of properties in that affordability range are in "zombie towns" with dubious employment prospects. With real estate, location is crucial.

[While I'm on the subject, someone making a decent living online has a real advantage, as long as the locale is physically safe.]

Obviously, this little ditty is aimed at youngsters who want to buy their first home. The few with the knack for landlording, although it'll take decades, might make a fortune.

Oh, one more thing. It would help a lot if said youngster-landord was a combat veteran...