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The Myth That You’re Going To Make Money On Your Property Is Just That

A report from Fortune Magazine. “When Upper East Siders Adelle and Robert Rathe boarded a flight to Saint Martin in mid-January, they left behind a typically cold New York day. By the time they return from their resort getaway in mid-April, the trees in Central Park will have started to bloom.”

“And although they once considered buying property on the Caribbean island they’ve fallen for over the decades, they’ve found something even better to splurge on: about 90 consecutive nights at Belmond La Samanna, a luxury resort that reopened in December after a $25 million renovation.”

“‘A lot of our friends wonder what we pay, Adelle jokes. I tell them they can find out by calling the hotel. (Run math based on the hotel’s starting rate of $545 per night, though, and the pair is likely looking at a deep-five-figure bill—minimum—before adding any food, drinks, or activities.)”

“This twist on the snowbird lifestyle—which trades seasonal vacation homes for no-expenses-spared resort stays—is becoming increasingly popular among the retirement jet set, according to industry insiders.”

“‘Those who choose luxury resorts over real estate purchases such as a condo or home do so not only for the five-star pampering and attentive service, but also the flexibility of choice,’ says Tara Hyland, a travel adviser. ‘Of course, spas, yoga classes, fitness programs, water sports, golf, tennis, and restaurants make resorts even more attractive.'”

“‘Owning a house is a responsibility. The security, the constant work—you’re a slave to it,’ says Adelle, who is retired, speaking from the resort while a polar vortex pummeled her Manhattan home. ‘Here I’m 150 feet from the water, and I can get anything I want in five minutes.'”

“With nightly rates at these properties starting at $200—and often costing upward of $750—snowbirding at a resort year after year can easily cost more than a down payment on a beachside villa. Still, it’s not as financially reckless as it sounds.”

“According to real estate consultant Jonathan Miller, the real estate market is softening in many seasonal-stay destinations, largely due to the advent of services such as Airbnb. And monetizing a vacation home through these services isn’t for everyone. In cases in which properties sit dormant for months, owners can end up wildly out of pocket, particularly when you factor in down-payments, renovations, insurance in hurricane-prone markets, monthly parking or homeowners association dues, taxes, and other costs.”

“‘There’s no way it makes sense to own an apartment unless you’re spending a significant amount of time there,’ adds Miami-based financial advisor Patrick Dwyer about South Florida, largely considered the country’s snowbird mecca. ‘But even then, you’re still losing. The myth that you’re going to make money on your property is just that. Interest rates are going up, which makes the opportunity for your capital investment in real estate more challenging. Being able to go from resort A to resort B is better than locking into a fixed cost as you get older.'”

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  1. From a mania perspective, this is a significant article:

    ‘According to real estate consultant Jonathan Miller, the real estate market is softening’

    The key: MSM awakes to the fact the RE doesn’t always go up. Then an avalanche of realizations dawns on them. For example, owning more than one shack is dumb.

    1. Negative Yields Mount Along With Europe’s Problems

      https://www.wsj.com/articles/negative-yields-mount-along-with-europes-problems-11550491201

      ‘Investors around the globe are effectively paying governments to hold more than $11 trillion of their bonds, a fresh sign of ebbing economic confidence in Europe and Japan.’

      The key:

      ‘Holding bonds with negative yields can also be a more palatable option for institutional investors who face a surcharge of 0.1% on cash for simply keeping deposits in a bank.’

      So they tax idle cash:

      ‘Low returns on bond portfolios send investors a message that their retirement savings aren’t growing enough to meet their needs, causing them to save more and spend less, Mr. Taylor said. That is important because it suggests the policy isn’t working as intended and could lead to a deeper slowdown. The longer negative rates are in place, “the more it changes people’s behaviors,” he said.’

      Distorting the price changes behavior, as we discussed yesterday.

      1. ‘Low returns on bond portfolios send investors a message that their retirement savings aren’t growing enough to meet their needs, causing them to save more and spend less, Mr. Taylor said.’

        Sounds like the central bankers may have shot themselves in the foot.

        1. Meanwhile, the stawk market bubble hyperinflates. DOW +445 as I type. The Fed sh!t the bed on their last presser.

          1. I think the market is closed for President’s Day. What you see happened Friday.

            But your point holds up. The Powell Put is showering ever more riches on Wall Street casino gamblers, even as perpetually low interest rates deprive traditional low-risk savers from a positive return.

          2. Goodness you’re right. It was Monday, I thought I would check out what was going on in bubbleland.

            My gawd, how many federal holidays are there, anyway? It seems like there’s a holiday every other week or something.

          3. @chinbabwe Stock market bubble @ 15 x earnings? Not convinced we are in a stock market bubble by any stretch. Market multiple skewed as well by a few large companies with elevated PE ratios, while many companies trading at 12X earnings.

      2. Good morning! Wishing everyone a happy President’s Day U.S. holiday. It’s cold here in Colorado (10F) with overnight snow continuing for another day or so. Let’s face it, Punxsutawney Phil is a dumb-ass woodchuck with a prediction success rate about the same as flipping a coin (surprise). C’mon! It’s still winter for another month or so. Not complaining since I ski, but just saying the whole “Groundhog Day” thing is a joke. I did enjoy the movie though!

        On “negative” interest rates. OK, another demonstration of central banker’s extremely low IQ, yes even lower than Punxsutawney Phil’s! Here’s what’s going on. To stimulate/resuscitate the global economy, overnight interest rates (e,g. FFR) were dropped to essentially zero (i.e. ZIRP) soon after the GFC. Some nations (e.g. Eurozone) even went negative (NIRP). So instead of Mr. Banker paying Mr. Saver to use his/her money, as in normal times, under NIRP, the opposite is true. This is insane and almost always leads to asset bubbles. Mr. Saver is better off pulling funds from said bank and sticking it under a mattress. Now you know why banks have been scheming about a “war on cash”. This is an end-game strategy of Keynesian economics and central banking, in my view. The next step is a discrediting of said theory and perpetrator along with a general reset of the financial system.

        Debt levels are now also insane and can’t support higher rates much above the zero bound. Note that Powell just caved on both interest rate increases and QT, and so this supports my thesis. It’s the debt, stupid! Interest rates are a KEY indicator for investors; whether to invest in asset class A or B, or just park you money in a CD, for example. The whole system is now completely distorted. Interest rates are sending false signals, leading to malinvestment and speculation as yield-starved savers are forced by the central-bank cattle-prod into risky investments. This has led to “The Everything Bubble”, which is now moving to the downside.

        Savers, retirees and pension funds are also screwed because they (we) can’t get a decent, low risk return on their (our) money. Again I say that central banks are idiots and this whole mess is going to blow up again big time. Forewarned is forearmed.

        NIRP is in my view, an act of desperation (and idiocy) by central banks.

        Final comment: The U.S. Fed “balance sheet was reduced via QT only about 10% from approx. $4.5T to $4.1T. There is Fed-speak about ending QT. If they do this (strong possibility), then that’s essentially a permanent debt monetization. This is third world/banana republic kind of stuff. Recap: Central bankers are idiots.

        Got gold?

        “Gold is money, all the rest is credit” – JP Morgan testifying in Congress in 1912

        “Betting against gold is the same as betting on governments. He who bets on governments and government money bets against 6,000 years of recorded human history.” – Charles De Gaulle, Leader of the French resistance during WWII and 18th President of France

        1. I don’t know anyone under 70 yrs old who thinks gold is a good play. Over the past 30 years, the price of gold has increased by 335%. Over the same period, the Dow Jones Industrial Average (DJIA) has gained 1,255% and the Fidelity Investment Grade Bond Fund (FBNDX) has returned 672%.

          1. I would run the calculations again assuming the DJIA is at least 50% lower and compare it to risk-free T bills. Almost nobody sells at the highs.

          2. Now you know me. 🙂
            Anyone can pick a time period where either asset class outperformed the other. Key is that gold price is mostly uncorrelated with stocks, which in my view will become important later this year and into 2020.

            Moreover, gold price tends is correlated with U.S. deficits. As you know Congress is on a tear to see how much debt they can pile on to our children and grandchildren. For example, gross nat’l. debt just hit $22T for first time ever. Yikes! Note that there are estimated to be approx. 100-200B stars in our Milky Way galaxy, and so $22T is beyond astronomical!

            Also note that foreign bond purchases are declining. That’s indicating a problem with debt levels. The U.S. dollar has lost 96% of it’s purchasing power since the creation of the Fed in 1913. DXY ($) down today and gold up to just under $1330/oz.

            The only thing backing the U.S. $ is “the full faith and credit of the U.S.” These are “Federal Reserve Notes”, a fiat currency (by decree). Deficits matter.

            “Fiat money eventually always goes back to its intrinsic value – zero” – Voltaire

            Speaking of bubbles…
            https://www.reuters.com/article/us-global-cenbank-breakingviews/breakingviews-chancellor-a-300-year-lesson-in-bubble-inflation-idUSKCN1Q2165
            February 13, 2019 / 3:52 AM / Updated 16 hours ago
            Breakingviews – Chancellor: A 300-year lesson in bubble inflation
            Edward Chancellor
            LONDON (Reuters Breakingviews) – Just over 300 years ago, in early December 1718, a Parisian bank was nationalised by the French state. This marked the beginning of the Mississippi Bubble, which captivated France over the following couple of years. The aristocratic world of the “ancien regime” may seem impossibly distant to modern minds. Yet there are parallels between this saga and the modern age of quantitative easing, ultra-low interest rates and highly valued asset prices. As central bankers struggle to reverse their post-crisis monetary measures, the lessons imparted by the Mississippi Bubble are more relevant than ever.

          3. I own a decent hedge position in metals. I ran a calculation the other day for a client. She inherited Home Depot HD shares from him a few years back. He had bought 100 shares @ $25.00 in early 1980’s. That position is now worth close to $1MM after splits and reinvesting dividends. At no time in the past 100 years, could precious metals match this kind of performance (yet). I still own precious metals, but for a different reason. This is a hedge against deficit spending and nationals debts around the globe. My best defense is to be debt free, owns stocks for the long term, and hedge w/ precious metals.

          4. HD shares

            Apparently a gamble gone good. Sears on the other hand…

            x12 self projected future earnings, right? The stock market is a gamble on ever accelerating credit expansion. Works until it doesn’t. In it for the long haul…

          6. I don’t know anyone under 70 yrs old who thinks gold is a good play.

            Gold isn’t a good “play” until it’s no longer a game. And even then it’s a narrow window…shortly after that food and ammo becomes a better “play”.

          7. until it’s no longer a game

            When Germany had their hyper-inflationary game and subsequent collapse, those with a single gold coin could purchase a shop in town. Not long after, those folks were packed onto cattle cars.

            Best to have eggs not all in one basket.

        2. Bankers and globalist and their cucks are going to continue showering themselves and their wealthy buddies with riches until they start facing threats such as these:

          “Matteo Salvini, head of the anti-immigrant League party, said the central bank and Consob, the country’s stock market regulator, should be “reduced to zero, more than changing one or two people” and that “fraudsters” who inflicted losses on Italian savers should “end up in prison for a long time”. ”

          https://www.ft.com/content/949d2c08-2d1d-11e9-8744-e7016697f225

        3. Debt levels are now also insane and can’t support higher rates much above the zero bound.

          Testify, brother RPE. Meanwhile, the Keynesian fraudsters at the central banks are vying to outdo each other in trying to borrow and print their way to prosperity. Weimar 2.0, here we come. Gold is climbing inexorably as the smart money hedges against yet another counterfeiting spree by the central bankers.

          https://www.zerohedge.com/news/2019-02-18/rabobank-chinas-borrowing-was-insane-january-it-borrowed-5-gdp-one-month

    2. “For example, owning more than one shack is dumb.”

      It seemed smart back when real estate was always going up.

      1. What’$ a negative x a negative produce mathematically? … There must bee $omething po$itively good in producing x2 negative$ right?

        1. “… There must bee $omething po$itively good in producing x2 negative$ right?”

          Are these two negatives anything like two wrongs?

          If so, are you saying that two wrongs just might make a right?

      2. https://finance.yahoo.com/news/why-one-fearless-couple-banking-090000449.html

        Now it’s apparently more for the “fearless”, because the RE press has to acknowledge that there’s perhaps “fear” in this strategy now. The comments section I saw was almost all boosterism and positive comments, except for things like “but it’s a hassle to be a landlord”. The idea that you need to have rental properties as a retirement strategy is VERY strong out there it seems to me. A lot of otherwise apparently semi-rational actors I know getting close to retirement age seems to believe so!

        1. You can’t hardly pass a TV without seeing some shack flipping reality show. I’ve managed rental properties for years and it’s just a business. You can be good or bad at it. Most are riding on deferred maintenance which will bite them in the behind eventually.

          1. So deciding that rental properties as a retirement investment makes sense depends on what? Because it feels like many I know are into it. I presume they are dishing off the management to the many outfits that will do the dirty work for them? It feels like it has been a factor in the current run up more than last one, props being held by folks as retirement hedges.

          2. It comes down to motivation. If you are doing it because the returns are good, it’s a business. If you are counting on appreciation, you are speculating. That’s what’s wrong with the apartment biz. Real returns are flat to negative. But it’s a “darling for investors” because they have grown to see it as something that doubles in value every ten years. And lending has once again played a role as they refinance their “equity” out every couple of years. Government backed refinances of course.

          3. “But it’s a “darling for investors” because they have grown to see it as something that doubles in value every ten years.”

            This is one of the biggest problems two real estate bubbles within 15 years has produced: The belief among hundreds of millions of people in the US that real estate is a “darling” and if you buy at the right time you will enjoy insane levels of appreciation.

            I had foolishly thought that the meltdown we experienced from 2006-2012 served to extinguish the notion that real estate was a get rich quick scheme. Not only was I wrong, but it’s more pervasive now than it was before. I’ve lost faith in humanity.

          4. This is why I thought this Fortune report was so important. There are lots of ways one can demonstrate that housing shouldn’t be considered an investment, but vacation housing is probably the simplest. And once people get their head around that, it’s not much further to see all housing as an expense. To me this type of report is a clear example that the tide is turning.

          7. Rentals are easy if you know what you are doing. If you know what a property rents for, you know the value of that property in most instances. I see people asking ridiculous prices all the time for properties that rents are modest. It may equal a 5% cap rate, which is insane. I want to see a cap rate of 10% or more, and if you know the rents and your desired cap rate, the price plugs right in.

          8. I had foolishly thought that the meltdown we experienced from 2006-2012 served to extinguish the notion that real estate was a get rich quick scheme.

            It was about to…so we fired up the foam pumpers.

            Not only was I wrong, but it’s more pervasive now than it was before. I’ve lost faith in humanity.

            I’ve lost faith that the survival of the dollar is the top priority. Humanity is humanity.

        2. A lot of them are trying to be Dave Ramsey. Ramsey advocates getting passive income via real estate, so a lot of people are getting into it.

          Ben, you’re right about deferred maintenance. I can always tell a rental. Crumbling driveways, windows from the 60s, bricks need re-pointing, bad roofing, scubbly lawn. Any money you make from rent, you just have to spend to fix the place up to make it sellable.

          1. That’s our place. Thanks to subsidence of the soil on our lot, the back yard floods whenever it rains a substantial amount, and the driveway is cracked multiple places and needs to be replaced. When we eventually move away, the owners will have to either hope a dumb buyer comes along who misses these problems, or else fork out for repairs.

  2. “The Myth That You’re Going To Make Money On Your Property Is Just That”

    Not for me it isn’t.

    😁

    2. @Mr Banker Agreed, RE has been one of my best investments all throughout my young life. The combination of inflation protection (via rents), and appreciation, and leverage used in a wise fashion. The old RE adage comes to mind, you make money in RE when you buy it. You buy it right, everything else falls into place. Everything!

  4. Interest rates are going up, which makes the opportunity for your capital investment in real estate more challenging.

    This drives me crazy!! Rates are down, the 30 year mtg. is the lowest in 1 year (Freddie Mac) and rates are just as likely to go down as up,
    2/20/2018 10 year treasury = 2.89% (MW)
    2/18/2019 10 year treasury = 2.67% (MW)
    Year over year 10 year went negative in late January. NOONE knows where interest rates are going, and if they did, they would be on a yacht in the Bahamas trading it, not opining for the local paper!!!!

  5. I’m still a firm believer snowbirds buy in Florida is so they can tell 20 people every day that “I’ve got a place in Florida”. It’s not a financial investment, it’s an ego investment. “Look at me and how special I am! I’m better than you because I live in Del Boca Vista Phase Three”!

    Renting a place every year and bouncing around different locations sounds much more fun than waiting in line at Applebee’s in Fort Myers – and at a fraction of the price!

    2. Similar to the Chinese idea, if a man has more than one property his chance of getting married is higher. The families of the single man all pitch in to help. 60 Minutes covered this.

    3. It seems to me that it would be cheaper to just move to Florida entirely and go on vacation to the resorts up north, rather than the other way round.

      Oh, but “grandkids.” As someone without children, could someone tell me the appeal of grandkids?

    1. Uhhh, no, the fanbois are not getting “played” when the price rockets 10% in 24 hours, their detractors are getting played. When it finally tanks to zero, where it belongs, that’s when they got played, and played out.

      Sh!tcoin is still at insane highs. Let’s see, I can buy 2.94 ounces of gold, or one sh!tcoin. Gee, the decision is so hard I dunno what to do….

      1. Uhhh, no, the fanbois are not getting “played” when the price rockets 10% in 24 hours, their detractors are getting played.

        Trust me, the fanbois are getting played. Every manipulated spike causes more fools to rush in thinking they’ve timed the bottom and now that vast upside they were promised is at hand. Um, no, just more suckers getting played by Da Boyz, who use each manipulated “rally” to sucker more marks into the pump & dump – kinda like our rigged, broken, manipulated “markets.”

        But I’m sure the SEC will get right on that.

    1. You have to wonder just how much this guy stood to gain that he would commit a felony to make it appear so?

      The other day I was watching MSNBC in a lobby. They went on and on about how the President might have used the gubbernment spies to steal Bezo’s whooptie pics to use against him. Man they had all sorts of conspiracy ideas from multiple “analysts”. Next day or so it came out that the brother of the woman Bezos was cheating with had done it. No apology from the media. No consideration of their reckless disregard for what used to be journalism. Oh no, it’s on to the next conspiracy theory.

      1. They ought to play the Looney Tunes theme song at the end of all MSNBC and CNN broadcasts. That’s all folks!

      2. I rarely watch the MSM any more, except to pick up on where the Oligopoly’s media border collies are herding the sheeple. Lately it seems like the de rigour “Two Minutes of Hate” stories demonizing Trump supporters or anyone opposed to globalism, open borders, unrestricted immigration, etc. are getting more blatantly Orwellian and heavy-handed. You’d have to be a moron not to see right through the lies, distortions, and dissembling, yet most of the sheeple still believe whatever their TeeVee tells them to believe.

        https://www.youtube.com/watch?v=0KeX5OZr0A4

      3. Evidently the mistresses brother is a big Trumpie, so it’s a conspiracy for Trump to bring down Bezos. Meh, Bezos brought himself down.

      1. I’ll believe it when I see it. The Powers that Be are too vested in the “Racist hate-crazed MAGA extremists” narrative to lock up this fabricator for wasting police resources and defaming Trump supporters. The baying mob of Democratic bigwigs, Real Journalists, and celebrities who virtue-signaled their “Justice for Jussie!” memes are quietly deleting them, but will never have the integrity or decency to apologize for being so quick to join the latest anti-MAGA lynch mob.

        1. integrity or decency to apologize

          That would assume cognition, and perhaps a flicker of doubt as to the propriety of their war against populism and nationalism.

  12. Warren Buffett on gold: ( slightly better track record than Voltaire)
    1. “Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

    2. “The problem with commodities is that you are betting on what someone else would pay for them in six months. The commodity itself isn’t going to do anything for you….it is an entirely different game to buy a lump of something and hope that somebody else pays you more for that lump two years from now than it is to buy something that you expect to produce income for you over time.”

    3. “Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn’t produce anything.”

    1. Here in AA MI the bets are all on self driving. I can’t really make sense of the state of auto affairs and the spin and hype is so massive it’s hard to tell whether there will really be sustained growth of the sector or not . There seem to be SO MANY players….can they stay that way? Feels like not and some will win and some will lose and to the losers go the layoffs

        1. Seriously. IIUC, those cars depend on expensive sensors to sense road markings. What are they going to do when there’s slush on the street, or just a single track from a previous car? And what about those sensitive lenses that (presumably) still can’t survive the car wash? They surely aren’t going to survive a snowbank.

          1. expensive sensors

            A more expensive way to do something people can already do and a way to do it worse. Not to mention that people can’t afford it. We live in a crazy world.

    2. For the better part of the past decade China growth was the engine of global growth. Coincidentally, the majority of global debt expansion was in China. Debt doesn’t create wealth, but it can put the clothing of wealth on Poverty. Temporarily.

      I don’t know how good a proxy auto sales is for where China is in their Galactic size credit cycle but it should be positively linked.

      1. A recession is likely simply because of the economy’s cyclical nature.

        Economy
        Car Loan Delinquencies Reach New High
        February 17, 20198:12 AM ET
        Heard on Weekend Edition Sunday
        Danielle Kurtzleben – square 2015
        Economic pessimists seized on new data indicating an increase in car loan delinquencies as evidence of a looming recession, but a downturn is likely simply because of the economy’s cyclical nature.

        LULU GARCIA-NAVARRO, HOST:

        The economy is rocking right along. Unemployment is low at 4 percent, and we learned this week of a record number of job openings. But this week, we also got some data on car loans. The number of Americans seriously delinquent on them reached a new high. So let’s turn to NPR’s Danielle Kurtzleben for what that all means.

        Hey, Danielle.

        DANIELLE KURTZLEBEN, BYLINE: Hey, Lulu.

        GARCIA-NAVARRO: All right. Let’s do the numbers.

        KURTZLEBEN: All right. So the data that we’re talking about is from the New York Federal Reserve. And that data showed that a record 7 million people are seriously delinquent on their car loans. And by seriously delinquent I mean 90 days or more.

        GARCIA-NAVARRO: Wow.

        KURTZLEBEN: Yes. That’s the highest level in the 19 years that the New York Fed has even been tracking that.

        GARCIA-NAVARRO: Why is that?
        …

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