Rental Property: Time to Sell? June 2014

[FlyerInHi]

You’d have to look at the annual budgets since Prop 13 to see what proportion of the money collected is going where. That would be a lot of work.

However, I’d be willing to bet that money spent on services such County Medical Services (which undocumented residents don’t get) is a smaller share of the budget.

I don’t see any convincing evidence that services have kept pace with proportional increases in property tax receipts. I don’t think we have more cops or teachers as a share of the population either.

I’m with Silicon Valley techies…. I don’t trust local government. I have more faith in the Federal government (with the exception of the military). As least they don’t have to raise taxes to spend more!

[CA renter]

People have already done that research (much higher spending on healthcare and prisons vs pre-Prop 13, IIRC). I’ll look for it if nobody else is willing to do so, but would greatly appreciate it if somebody else would do this research for a change. 😉

[CA renter]

[quote=FlyerInHi]

I’m with Silicon Valley techies…. I don’t trust local government. I have more faith in the Federal government (with the exception of the military). As least they don’t have to raise taxes to spend more![/quote]

But even when the Fed “prints money” by buying bonds, they are increasing our debt load. Sure, you can say that we’ll never have to pay it back, but the more likely scenario is that taxes will have to increase at some point. Nothing is for free.

[joec]

Whatever or whoever is right/correct, I think the best solution for anyone is just to leave…Maybe this is spoken from someone who doesn’t care too much about staying in San Diego or CA or the USA, but like Detroit, if the taxes/fees get too insane, just move out…Let someone else hold the bag.

Some folks have already renounced their US citizenship and the good thing with the USA is there are 49 other states out there if you still want to stay in the US. Not working anymore? Can move to a high income tax state. Want to rent a small condo? Move to a place with high prop tax…

Ideally, take advantage of your 250/500k home tax free break and amass enough during your younger working years to give yourself more options in life…

Have regular IRAs, Roth IRAs/401ks, etc…Keep taxable wages down, have a spouse start a businesss…

[HLS]

Tax laws can change at any time. IRA/401K is not a guarantee of anything other than risk.

The stock market is a legalized casino.
I’m amazed in the faith that exists believing that
this manipulated, unproven system is the security blanket for tens of millions of people.

There is a chance that the stock market will collapse and the fallout will be far, far worse than what happened in 2008, which to me was no surprise and expected.

Most of the experts would just say that ‘nobody saw this coming’

[livinincali]

[quote=HLS]Tax laws can change at any time. IRA/401K is not a guarantee of anything other than risk.

The stock market is a legalized casino.
I’m amazed in the faith that exists believing that
this manipulated, unproven system is the security blanket for tens of millions of people.

There is a chance that the stock market will collapse and the fallout will be far, far worse than what happened in 2008, which to me was no surprise and expected.

Most of the experts would just say that ‘nobody saw this coming'[/quote]

At the macro level the demographics say everybody should see the coming issues. The stock market at a macro level will fall because the supply demand imbalance caused by boomers in 401Ks is going to switch from net inflows to net outflows. It’s just a matter of time. When that shift occurs there will be a much higher supply of assets for sale versus the demand for the next generation to purchase them.
It will probably occur in real estate as well.

Boomers are in the peak asset collection years right now. Asset prices are high because of that demand. Leverage makes the problem worse but even without it the problem would still exist.

[HLS]

Livin, agree with you but it’s the elephant in the room that very, very few want to talk about.

Leverage makes it MUCH worse, DE-leveraging is potentially a disaster because of the exponential effect. Selling leads to more selling. Margin calls force selling. This doesn’t happen on the way up.

I’m not against the stock market, I’m against the lack of understanding by most people that it’s not a one way street and there are ALWAYS ways to hedge and cover some/most of the downside risk.

[FlyerInHi]

livinincali, that’s an interesting take.

When we see worldwide population decreases, then demand will drop. Maybe after I’m dead. I wouldn’t hold my breath.

Right now there is also growing demand for assets on the part of the growing middle and upper classes in the developing world. I think they will make up for asset sales by boomers in the developed world.

Japan’s demographics is the canary in the coal mine. Then comes Europe. They will experience demographics shifts before we do.

I like real estate more then stocks because in a financial collapse, real estate that’s paid off will always generate rents to allow you to live comfortably. I was reading about some German families who survived WWI and WWII thanks to real estate. Even in the dark days of Communism, families in China who didn’t have their real estate expropriated did well.

[livinincali]

[quote=FlyerInHi]
I like real estate more then stocks because in a financial collapse, real estate that’s paid off will always generate rents to allow you to live comfortably. I was reading about some German families who survived WWI and WWII thanks to real estate. Even in the dark days of Communism, families in China who didn’t have their real estate expropriated did well.[/quote]

Paid off real estate is certainly a good thing to have in a financial collapse but so few people actually have paid off real estate. Prices in real estate are set at the margin and they are highly dependent on leverage. As a place to stay, as a place to produce some income from rent, yeah. A store a value not so much because a lot of the value is established by the next guy being able to leverage up.

Stocks are probably the first thing to get hammered. They’re highly discretionary. Dividend paying stocks probably have some kind of floor but it’s easy to envision a stock market that is at least 50% and perhaps 90% off in a financial collapse. Japan’s stock market is still trading at less than 50% of it’s bubble level 25 years later.

[FlyerInHi]

maybe gold and diamonds are better. you can hide it.

with real estate you need to count of the rule of law still prevailing in order to collect rents. And if people have no money to pay rent… they will occupy your property and pay you nothing.

how bad it gets depends of how much of a collapse there is.

If we have civil war and anarchy then all bets are off. In that case, I want a small farm on a rich, rainy tropical island someplace that the hordes of crazies with guns cannot reach. I will raise a bunch of rabbits and chickens and plan a veggie garden. I could live a long time like that.

[joec]

This is why I say have everything. Tax laws can change and they can tax 401ks or Roth IRAs as well. Have cash, foreign citizenship, foreign accounts/property, housing, rentals, disaster prep materials (medicines/guns/food/water/etc…)

You can’t know what will happen, but the more diversified you are, the more options you have to do what’s best tax wise.

[an]

Though I like to say, plan for the worse and hope for the best. I usually don’t plan for total catastrophe. If the catastrophe does happen, there’s really not much you can do, other than to hope you’re on the side that will rise in power and leech of them. Gold, RE, stock, even cash doesn’t mean anything. Just look at what happen to the South Vietnamese after the Vietnam war. The communist ransack all the wealthy family and take their gold and RE. Then they change the currency a few times, so that the cash you have under mattress is nothing more than paper.

[FlyerInHi]

[quote=AN]Though I like to say, plan for the worse and hope for the best. I usually don’t plan for total catastrophe. If the catastrophe does happen, there’s really not much you can do, other than to hope you’re on the side that will rise in power and leech of them. Gold, RE, stock, even cash doesn’t mean anything. Just look at what happen to the South Vietnamese after the Vietnam war. The communist ransack all the wealthy family and take their gold and RE. Then they change the currency a few times, so that the cash you have under mattress is nothing more than paper.[/quote]

in the past there was no offshore banking. And few international transactions. Even the richest people kept their money locally and it wasn’t that hard to find out who owned what.

That’s how Thomas Piketty was able to do research on wealth over more than 100 years.

Now, thanks to offshore banking, globalization, easy air travel, it’s easier to diversify and protect your wealth from political risks.

[CA renter]

[quote=livinincali][quote=HLS]Tax laws can change at any time. IRA/401K is not a guarantee of anything other than risk.

The stock market is a legalized casino.
I’m amazed in the faith that exists believing that
this manipulated, unproven system is the security blanket for tens of millions of people.

There is a chance that the stock market will collapse and the fallout will be far, far worse than what happened in 2008, which to me was no surprise and expected.

Most of the experts would just say that ‘nobody saw this coming'[/quote]

At the macro level the demographics say everybody should see the coming issues. The stock market at a macro level will fall because the supply demand imbalance caused by boomers in 401Ks is going to switch from net inflows to net outflows. It’s just a matter of time. When that shift occurs there will be a much higher supply of assets for sale versus the demand for the next generation to purchase them.
It will probably occur in real estate as well.

Boomers are in the peak asset collection years right now. Asset prices are high because of that demand. Leverage makes the problem worse but even without it the problem would still exist.[/quote]

Totally agree with both of you on this.

And for those who haven’t seen it, yet:

“The point is that there is beaucoup leverage today, and it is among the professionals and corporations. Clearly, the chart below sent from a fellow trader around a week ago shows that someone is on margin.”

http://www.minyanville.com/business-news/markets/articles/margin-debt-Daily-Market-Report-Daily/4/24/2014/id/54716

But is that money circulating through the economy? No, not at this time. Contrary to the trickle-down myth propagated by those at the top, when money is fed to the top of the economic pyramid, it tends to stay there.

http://research.stlouisfed.org/fred2/series/M2V

These extremes suggest to me that something is going to transition in the near future. How that happens is anyone’s guess, but I think that the major deflationary currents that the Fed has been fighting so hard are about to become more visible, once again. And this time, it has the potential to be much worse, IMHO, because all the Fed/govt’s ammo is low and we are more leveraged in many ways than we’ve ever been in the past.

[CA renter]

And a possible canary in the coal mine?

“Loan issuance is falling short of last year’s record $414 billion in the first six months after investors began pulling money from loan funds in April, snapping an unprecedented 95 straight weeks of inflows. Banks last year arranged a record $695 billion of U.S. loans sold to institutional investors such as mutual funds and collateralized loan obligations, according to data compiled by Bloomberg.

“We had a minor correction in the loan market,” Gerry Murray, head of JPMorgan’s North America leveraged finance business, said in a phone interview. “There’s still plenty of capacity and deals are getting done with very attractive terms.”’

http://www.bloomberg.com/news/2014-06-23/wall-street-s-leveraged-loan-rankings-show-fed-dismissed.html

[Author]

Posts