My Land Price Theory

[SD51555]

I've gotten a lot of flack from my circle about now having bought a house yet. For purposes of this, let's put the rent vs own discussion aside and focus on pricing.

I've always felt that real estate prices were driven by affordability, or rather, ability to make the payment. I'm of the belief that real estate prices will taper off, or even begin to decline if/when rates start climbing. I look to other peoples' ability to afford a purchase if they have to pay a higher cost per thousand to borrow. Further, another big factor comes into play: Stability of income.

The new jobs report came out a few days ago. When you flip the page and look at the numbers deeper, it's very ugly out there. To arrive at the 288,000 new jobs, you have to look at what kind of jobs were created. In the same report, 799,000 new part-time jobs were created. The number of people working full time jobs declined by 523,000! So you have to wonder if the real estate middle class is getting chewed up out there.

http://www.zerohedge.com/news/2014-...f-million-part-time-jobs-surge-800k-most-1993

All the while, I continue to save and invest and wait for my window of opportunity. I just wrote the check to pay off my life insurance loan for the first 40 my brother and I bought. From here, I am continuing to build out the cash value in my life insurance portfolio to have ever more dry powder ready for when the next deal comes along.

What say you? Are low rates that be-all end-all moment to buy now, or could there be opportunity down the road for the man with cash?

 

[SD51555]

Today's environment reminds me of 2005. I'll never forget the day I was watching CNBC and they ran headlines back to back:

"Personal incomes rising by 2% annually."

"Home prices growing at 10% annual pace."

That was when I began to wonder how people could be bidding up the cost of housing faster than their incomes were rising. We saw how that turned out. I also realize that we're talking apples, oranges, and bananas when it comes to homes, recreational property, and farmland. But could there be a similarity in pattern to some degree?

Homes that were owned at $140,000 with a 7% mortgage starting selling for $190,000 at 4% few years later. I don't know. If I had a crystal ball, I'd just post the answer.

 

[leexrayshady]

Your using life insurance as an investment vehicle I will just call you Duffy jr. But if you done your research and it works awesome. I can not wait due higher interest rates. My ttheory is we will soon have a ton of baby boomers leaving the land arena and those with cash and not have to deal with interest will be well situated

 

[SD51555]

Life insurance is a piece of my portfolio. It's a small piece. I was very fortunate that when my dad sold it many years ago for a fraternal catholic men's association, he bought me a number of small policies that have grown nicely and are getting up there in cash value. Most of them are paid up already because they were 20yr pay policies. After I grew up, I continued to pick up more policies as opportunities came along.

Now, I just picked up a new policy with a rider that allows you to purchase additional paid-up insurance each year for the first eight years. What it also does is allows you to accumulate near 100% cash value immediately from additional purchase. It's far better than waiting 2-3 years to see a pittance of cash value from a traditional policy. The reason I bought it, is because I want to have my life insurance bought and paid for while I'm young and healthy. My buddy who is the same age as me just got put on blood pressure and cholesterol meds at 32. Not good for that age.

Where I'm at today, my entire portfolio of life insurance is growing in cash value by about the same amount it's costing me per month. In another two years it'll be growing faster than what i'm putting in. So...

I've got myself covered if I start a family.
If I don't, my brothers get to start farming in the event of my untimely demise.
If neither of those two happen, I've got a decent income stream down the road when I hit 60.
In the meantime, I've got a growing asset I can borrow from at darn good rates without approval or having to attach a lien to the property I'm buying. If I only borrow 90% of it, I can even skate for a year or two without making a payment with no backlash other than accumulated interest.

I don't consider it a pure investment, but rather a multi-function financial product.

 

[SD51555]

Here's a snap shot of the policy I bought. It's a $100,000 permanent whole life policy for a 32 year old/non-tobacco/premier rate/paid up at age 100. I punched my policy illustration into a spreadsheet so I could do some math on it myself. The furthest underwater I can get on this policy is about $2500 if I surrender it. After about 8 years, it's gained back it's cost in cash value. From there it goes exponential.

 

[bwoods11]

I do a little of everything in my small home town (insurance/real estate/financial planning)--- try to be a one stop shop. From experience I am big advocate of permanent life insurance. Not because the commissions are higher, but because the policy is a lifetime asset (passed on tax free to heirs), and most importantly it does not run out or renew during the key time period of age 55-65.

Term insurance is often not renewed when the insured finds out what the new premium is, therefore the asset is gone. All the premiums in, nothing out. I could tell you dozens of stories of stressed out families that wish they had life insurance in force at younger ages, and/or long term care insurance. I know of one farmer who had to divorce his wife because she went into the nursing home....in order to keep the farm, this was back in the 1990's and would not be allowed now...with look back.

So I like to sell both, in combination. I sell permanent life insurance that has let's say $250,000 of life and $250,000 of long term care in the same policy. Maybe more for farmers or large business owners. The premium is not as bad as one would think. These policies earn around 4-5% right now.

My wife and I (insurance plans) in place and consider it a great diversity of a portfolio. Of course, I like my land better, but please do not take everything that Suze Orman says about insurance and finances to the bank, as everyone's situation is different.

 

[SD51555]

When her advice to a lady was to divorce her husband and bleed him dry, I lost all respect.

 

[Freeborn]

I like zero hedge, good site but on one side of the discussion. One thing I see currently is inflation in food and fuel, once the economy gets some certainty (2017), inflation will cause labor and materials to increase. The fed as well as most everyone wants 2.5 percent inflation so at some point we will have it. Home cost will rise at that time as the cost to produce will increase.

I see a house as a place to live first and an investment second. With interest rates low and prices decent, it's a good place to put money.

 

[Jordan Selsor]

Im young but in my opinion now is as good as any a time to buy real-estate as long as you play hard ball and get yourself a good deal. Renting is foolish IMO unless your future is undetermined. If their is 2 industries I don't trust its insurance and wall street. I invest only what my employer matches which is 4%. I use life insurance only for its intended purpose ensuring that my wife and kids would be taken care of till someone else steps into my shoes (term policy 250K $12/month.) Other than that I focus on staying out of debt and having my income nickel dimed constantly. Every industry tries to work its way into your monthly payments. Cable and high speed internet pisses me off the most. I think I pay 110/month to watch cartoons lol

 

[Freeborn]

Free market capital is the best path to prosperity "Larry Kudlo". Equity investing (Ownership per shares of stock), has provided great returns over the past 50years and over 20 percent in the past year. Your 401k provides a tax free return that is a huge advantage over your lifetime. If you don't want risk then invest in staple of life stocks like Johnson and Johnson.

Low debt is a good way to live your life.

 

[foggy]

I've had several careers including a few years in financial planning (I hated the occupation....but learned some things). IMO....If you need life insurance.......I'm a big fan of "buy term and invest the difference". But that does take a little discipline. :rolleyes:

In todays times, we are staring at a huge inflation run.....or a complete makeover of our financial system.....or a war. In any event.....real estate is a good value if you need the property, AND.....IF YOU HAVE THE INCOME TO PAY FOR IT. A good mix of stocks has outperformed real estate for many folks.....but you gotta be in for the long haul....thru thick and thin. I like the liquidity of stocks. :)

 

[SD51555]

All valid points. I'm a big fan of getting low and wide among many asset classes in case something gives out.

 

[foggy]

The problem with a lot of people is they create terrible debt. Trucks, Cars, Boats, 4 wheelers, Snomobiles, Credit cards they don't pay off every month, etc-etc! Put everything on payments because they want it, but don't need it!

I am never apposed to debt, short term debt is fine. I have not had a home mortgage for 15 years. But I will borrow a quarter of a million at the drop of a hat against our place if a great deal comes along and I don't have enough free cash available.

Keeping your credit score over 800 and more important your spouses credit score at 800 as well, all helps. You want to make sure she is involved in all transactions for her financial well being if you should pass away. To many woman don't have a clue what is going on and can really struggle financially after the loss of a spouse.

I have bought and sold all commodities, stocks, bonds, you name it. I gave up all but the Utility stocks. I still like dividends Utilities pay, and for now we just reinvest them till we retire. then we may take them as part of our income.

But land is what works for me, I get so much enjoyment buying places, fixing them up, then finding a sucker to take them off my hands! There is no better feeling then making a years worth of wages in one transaction. Nothing better!

MBC

Yeah....but some investments can return two (or more) years worth of income on one deal John. ;) My head is still spinning from the returns of our MLP investment. Unreal returns over 5 years. Still.....I agree that real estate has been very good for many people. It should be a big part of all of our investments. :)

 

[SD51555]

If you are talking about Master Limited Partnerships, just ask some that lost 1/2 there money in one day on Boardwalk Pipeline! If i want to gamble I would go to the Casino. There will be huge fortunes lost on those things in the future. Glad you were one of the winners!

They are a different beast that's for sure. I keep a small amount in some as well. I know full well they could evaporate in a day if they report a bad distribution coverage ratio in a quarter. If you're a risk taker, check out: STON, KMP, BBEP, & TNH.

 

[Jordan Selsor]

I think I have mentioned this before in popes truck thread but several yrs back when GM's big wig stood up in front of the world and stated 'bankruptcy is not an option" my father n law dropped 10k on gm stock because it was so low. Well we all know what happened. Greedy bastards prolly used investors $$$ for severance packages. Thank God he bought more Ford stock at 2.18/share. My uncle lost over 20k in GM stock as well. I just don't trust something so intangible. Work to dang hard for my money for some clown in a suit to play with it. With that said I know American companies need investors to be competitive in todays global market but lets just sat they will only b getting a small percentage of this guys...

 

[bwoods11]

BBEP/TNH are two of my favorites...

Solid Dividend paying stocks are the way to go (in my opinion) for age 40-45 and up.

I've had good luck with a small company called APPLE as well