k_PPP
Tag: T_paradox
CPIx-inflation]rEstate, my CPI basket #w1r3
update post on CPI^prop inflation
I repeated my rental yield reservations to Susan
Susan said HDB flat is not only a form of rental property investment, but also a family residence. Renovation “investment” is more like burn rate rather than investment. Mortgage interest is definitely burn rate.
wife has concern about “hard to sell” in 20Y. Similarly, Susan said decades ago, HDB price level was considered very high and many ordinary Singaporeans were worried about buying at the peak, but I guess they had no choice.
Jolt: This “inflation” renders rental yield decline basically inevitable whenever we upgrade or even downgrade. As I said in another blogpost, rental inflation is slower than prop inflation ….
By excluding housing, CPI is massively understated – MacroBusiness
—- Let’s put on the “red hat” and examine inflation due to …. real estate
See also inflation applies to rent not property price
Granted, if you have no family and live in a shared or tiny room, then rental will be a small cost. From 1993 to 2005 I paid around s$300/month, sometimes below $300 in Yishun (Agilent/Spherion). It didn’t rise a lot. Even if it does rise to $600, it is easily affordable to me.
(In contrast, Americans renters often spend a sizeable portion of income on rental.)
As shown above, Singapore experienced mild CPI inflation across the board. However, in relative terms my net worth shrank relative to my peers who owned private properties, because our perception of richer or inferior is dominated by FOMO (peer comparison), not inflation affecting livelihood.
This paradox is probably more obvious in Beijing or Shanghai. Your rental won’t go up much, so you don’t feel that much inflation, but relative to your ex-classmates who now own multiple properties, your net worth shrinks significantly over 10Y to 30Y.
Therefore, for both owners and tenants, property appreciation is clearly felt, even if rent inflation is slower and delayed.
Q: If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities? This answer is the OER (Owner’s Equivalent Rent), included in CPI survey of homeowners. See https://www.bloomberg.com/opinion/articles/2021-05-13/april-cpi-housing-may-be-inflation-s-hidden-danger
Spending to purchase and improve[3] houses and other housing units is investment and not consumption. Home price inflation is not consumption, therefore not part of CPI. However, for most middle-class Chinese families I know, home price inflation is one of the biggest inflations they _feel_ in their wallet, on a monthly basis…. paradox ! Well, whether it’s home inflation or food inflation, at the core, a high inflation (like 11% p.a.) means that our savings are losing purchasing power by 11% a year, as measured by a (realistic) fixed basket of things-to-purchase.
We can also remove “fixed” — high inflation means our basket shrinks 11% from last year, for the same dollars spent.
By conventional wisdom, property, stocks, gold are assets with enduring value, not consumed. But imagine you need to buy silver jewelry every year, perhaps as gifts to many kids in the extended family, as a local tradition. Silver price inflation would hit your basket and contribute to everyday inflation.
[3] Consider property renovation. Suppose you own several commercial/residential properties so every year something would need upgrading. Renovation inflation would hit your basket and contribute to a clearly felt inflation. Renovation is investment… Paradox!
Therefore, in reality we don’t need to hang on to the investment^consumption theoretical dichotomy.
Now consider the middle-class Chinese families. Many [2] of them carry a heavy mortgage. Once the mortgage is halved, (family) free cash grows, and they would want to buy a better home, esp. in the Singapore context[3]. Not every year, but perhaps every decade. The home price inflation hits their basket real hard, because .. hold your breadth… because higher down-payment and higher monthly commitment dry up their free cash flow. As a result, the family has far less free cash to spend on vacations, dining, enrichment and other /discretionary/ spends. Their living standard suffers due to that expensive home. In Tier 1 Chinese cities, one expensive home could dry up the cashflow of 3 generations.
[3] The new home often offers about the same rental income and resale value as the old home. That translates to lower investment returns. I told my wife that
“If we spend additional $300k on a more comfortable home but consequently earn an inferior investment return, then we kiss goodbye to our carefree easy life, and cashflow high ground.”
Q: [2] Is this common behavior? Does it affect majority of the middle-class Chinese families? I would say yes.
Q: why do these families allocate such /disproportionate/ amount of (ultimately limited) resources to such luxury homes?
A: I can see it in my wife. The desire for better home seems insatiable.
In the U.S. we will experience the same “upgrading” process. Perhaps in most U.S. locations appreciation is not much more than CPI inflation.
— Paradox: Property price rises and falls more like stocks and gold, while rent and most CPI items experience slow and one-way movement i.e. inflation?
- property, stocks, gold can be sold by individuals, so price fluctuation is higher than “supplied” goods and services.
- Property, gold, stocks are driven by investor sentiment such as greed (hot money) and fear.
Q: When valuation drops 9% in a year, why does rent stay basically unchanged?
A: I feel most owners would rather leave the unit vacant than reducing the monthly rate. I am more “flexible” than them.
— home ownership is not a necessity, more like an investment, though the middle-class Chinese don’t feel that way.
Everyone needs housing as a basic need just as food, transport, entertainment, but not everyone needs to BUY a house, esp. in a volatile property market. Note a volatile market is usually too risky for consumers, and possibly more suitable for long-term investors.
In Beijing, the residential rental market is underutilized and only acceptable to the migrant workers. Most long-term residents prefer to buy, despite the volatile and extremely overpriced market.
Fundamentally, the middle-class Chinese sacrifices current spending in order to save/invest for the future, including future generations. Singapore government’s Past Reserve is the most institutionalized example. At the individual level, the most visible and significant save/invest item is home-purchase.
I think many consumers in western society spend more than the stereotypical middle-class Chinese, even at the same income. One of the biggest reasons is renting vs buying. Suppose the westerner (renter) and the Chinese (buyer) live in two neighboring identical homes . I bet the renter’s housing outlay is much lower than the buyer’s, on a monthly basis. If (a big if) both families have the same household outlay of $5000/M, then a bigger portion of that outlay goes towards housing for the Chinese than the renter. As a consequence, the Chinese family have less to spend on other things. Home price inflation shrinks their basket.
Is it(income+asset) inflation || improving` livingStandard
See also globalization reduc`min cost@ BasicHealthy Food
In China over 40Y salary went up 100~1000 times, rEstate appreciated as much (if not more). CPI inflation also stayed high for years, but probably less than salary. That’s why living standard improved for ordinary wage earners.
Fancy food, branded clothing, residential property, luxury car, branded college [3] … inflation largely driven by exclub. Xiaosheng.Liang (梁晓声) is the first to point out — As exclub demand increases, vendors increase prices. I think governments can’t do much about this demand, except property cooling measures.
Consider this semi-realistic scenario —
- your salary has grown by 100%+ (i.e. more than doubled) over 10Y, but may gradually plateau or decline.
- your equity asset portfolio has appreciated by almost 100% over 3Y, though you worry about crash. See Shiller: live more like millionaires
- your rEstate asset portfolio has appreciated by (weighted) average 100% over 20Y, though you are not sure about bubble
Q: is your burn rate rising along?
A: it depends on the individual lifestyle (creep), and savings habits. So in some cases, burn rate would not rise as much as salary and investments. Look at my friend AshS.
Q: Compared to the China experience, is the above scenario evidence of currency depreciation (i.e. falling purchasing power)?
A: income and asset inflation perhaps, but I think CPI basket (your own, not the official basket) of goods in Singapore may show a modest inflation like 1-2%. You can easily verify that using your own food basket price, transportation price etc
Q: is rEstate and housing inflation ignored by CPI?
A: basically yes, but rental inflation is a major component of CPI. A home is classified as an investment asset rather than a consumption. See consumption inflation: inapplicable@realEstate
Based on these answers, the scenario can be very lucky, something like carefree easy life, provided AA) you maintain low burn rate and high brbr like 2.5 , and BB) the bulk (not a tiny portion) of your savings go into those high-growth investments exemplified above.
Actually, I choose to avoid BB in favor of current income.
Q: if you are “lucky” as explained, then how relevant is your own effort?
A: tricky. See blogpost on internal locus of control. Effort is part of each element. 1) Many people (me included) dare not touch U.S. stocks, so their mutual funds or Asia stocks are possibly less spectacular. 2) rEstate portfolio requires cash flow and (if overseas) active management
[3] U.S. elite private universities raise tuition fees at around 5% per year, based on my UChicago experience. This is clearly a luxury. This is the highest inflation in my personal experience.
— A paradox
(This scenario is fairly realistic. For tcost, I won’t explain the evidence.) I would say many of my peers enjoy salary and rEstate asset growth, but still complain. They complain about work-life balance, job insecurity, technology churn, parenting cost, housing cost, …. and their mediocre salary, but their income is in the top 5% nationally. Paradox !
I guess the paradox has to do with exclub and FOMO. See my “dream job” mail to CSY.
A similar paradox is FOMO^livelihood.
feeling richer^inferior @unchanged income #FOMO^livelihood explains “People feel richer when they rise relative to perceived peers, regardless of inflation/deflation, or income rise/fall.”
Therefore, these peers (XR, Deepak, CSY,,,) are actually much richer than before and much richer than their fellow countrymen, thanks to income and asset inflation, but they choose to benchmark with high flyers, spend like them, and therefore feel poor.
SDXQ or waterfront loc ≅ Orchard mansions #w1r2
For branded college see luxury(+special)Edu: unaffordable to 中产华裔.
The SDXQ or waterfront locations (branded colleges too) always cost a lot though I won’t give a figure. These are exclusive locations, the desires/aspirations of the upper-middle-class. It might be a slight exaggeration to regard these aspirations as the lifestyle of the Orchard mansion owners, Singapore’s upper-class. Clearly I don’t qualify for this exclub !
- mainstream attitude .. I feel many of my U.S. peers are not much better off than me (despite higher post-tax income) but have the same aspirations as the upper middle class. Therefore, they don’t have my Fuller wealth and carefree ezlife
- my attitude .. I feel lower middle-class. I feel well-off and Fuller-wealthy precisely because I live within my means and don’t aim at
unaffordable luxuries. I still feel I can’t afford the Singapore private properties. Neither can I afford the U.S. waterfront or SDXQ properties.
— waterfront .. I never envied those with private properties in Orchard, Bugis, Marine Parade, Holland Village,,, Why do I envy those living in Newport or NY west side … waterfront luxury locations? Paradox!
( However, Bayonne locations near the big park is actually luxury in terms of well-maintained street.)
— SDXQ homes .. U.S. SDXQ (rated 8 – 10) homes are also comparable to Orchard mansions. However, the middle-class immigrants tend to follow the herd instinct almost blindly, and believe that SDXQ rated 7 or lower is utterly unacceptable.
I had a long-held reservation against private property in Singapore. I feel valuation is driven up by the affluent investors from SEA, China, Hongkong, India, and other countries. Similarly in the U.S. school districts, the middle class push up the valuation.
housing=elastic livelihood need #2BR #w1r4
Housing is the most elastic requirement in the list of livelihood dimensions. In peace time, most people must cope with similar housing conditions as everyone else. If you can’t tolerate the average housing condition then you can either pay a premium or learn to live like everyone else.
Luxury not needed– big size or stone build. I believe wood is inferior and cheaper, but somehow lots of expensive homes in the U.S. are wooden… due to supply-n-demand. Both stone and wood homes are adequate.
— eg: In primitive cultures (even today), humans need shelter from natural hazards and wild animals, so they used caves and built tents. They live together and light fires to fend off animals. Family privacy was not a real problem. Read [[the family]] by TimeLife.
Unlike nutrition, modern housing is not a requirement for physical survival or even protection.
— eg: Singapore HDB was initially building 1BR and 2BR (3-room flats), considered adequate for most families (which were bigger then). Then it started building more 3BR.
— eg (personal 2nd-hand): Level of Housing for Henry.L (couple with 5 kids) is one good illustration that Basic Livelihood depends on which city, which era you pick.
— eg (personal 2nd-hand): I actually know a Singaporean Indian family of four, living in one-bedroom apartment, and coping fine for years. I was the tenant taking up another bedroom. I am sure they are not in hardship.
— eg: The 40-sqm Hongkong homes are … enough by my standard.
Japan also featured small homes. The Japanese (and Hongkong) families have had comfortable, high-quality lives in homes as small as 10[1] to 40 sqm. It’s not as hard and miserable as you may think.
[1] 150 years ago, many Japanese families (with kids) lived in 10-sqm apartments if they choose a big city.
— eg (personal xp): Bushwick street cleanliness was a livelihood concern to me.
— eg (personal xp): private space at home.. During 2020 covid19 lockdown, I complained and struggled in my limited home office… no livelihood hardship.
— eg: China in the 80s have many 三代同堂 homes in one studio.
— eg: in middle-class livelihood ]CN, I described Chinese intellectual 梁晓声’s criteria of “70 sqm home”. My parents’ best home ever is actually 75 sqm 居住面积.
— eg (personal xp): 筒子楼… In Beijing East district, my family of 4, like countless other families, spent several years in a 10-sqm “studio” with a big bed + a small bed (for my elder sister). Cooking was always in the common corridor. Bathroom and water room were communal, without hot water. See https://baike.baidu.com/tashuo/browse/content?id=835bbb2f98fddc26a6039d6d
- dilapidated common facilities .. pipes, wiring, sewage, corridor lighting, blackened walls/ceilings due to corridor cooking
- blackout, breakdown
- lack of privacy .. communal living
Hardship? Not at all. I think residents (including me) didn’t complain, because these are well accepted facts of life, like hurricanes, rundown subways or street baggers in the U.S. I think Khmer villages are similar — every member of the village lives in similar housing. Equality brings harmony. Now consider the current residents of 筒子楼, mostly renters. Their living condition is way below current “average”, therefore deprivation and poverty. U.S. inner city housing is probably a similar story.
When my family moved into a 1BR with private kitchen and bathroom, I felt slightly better. My upstairs neighbor #1010 the Ma’s also had 4 people but slightly older. A few years later, during my middle school years (probably 1987) we moved to a 2BR in the outskirts. Although we doubled our living space, I felt even less of an improvement.
So in terms of livelihood needs, I think housing need evolves. The determining factor seems to be peer comparison and equal access.
— Q: is 2BR adequate for my family? No hardship. In the U.S. suburbs, I think 2BR is unavailable, unheard-of , too small even as unit in a MFH. I guess U.S. builder in the suburbs would never build such a thing. However, in a condo you will find 2BR units, 1BR and studios.
Taking a step back, Why is the “availability” factor even relevant to me? Because my minimum “need” is paradoxically, subconsciously driven by other people’s preference and actual decisions. If 100% of my so-called peers consider 2BR too cramped, too inconvenient, insufficient privacy… then it’s hard to feel comfortable about 2BR. (It’s good to try it out as a renter family. ) In Hongkong or the Beijing 20 years ago, 2BR is mainstream and clearly adequate.
If I add lower-income U.S. families into my reference group, then yes I find many renter families living in 2BR. Recall my Hamilton home, my Boston home,
My Hongkong landlord in Bayonne midtown didn’t mind a small 2nd-floor home. She had lots of storage room in basement, Floor 1 and Floor 3.
In reality, I will want (not “need”) a 3BR for the 2 teenage kids.
— SDXQ:
In contrast, Some middle-class immigrants to U.S. find the average U.S. schools unacceptable. Admittedly not a livelihood issue by my definition, but unacceptable to them.
— commute .. is a huge personal need. Based on my definition of livelihood (as explained to Shuo), 3H daily commute is not a livelihood issue. However, even without real experience, I imagine such a long commute to be detrimental to my wellbeing and family life. Not livelihood issue, but very serious, and unacceptable to me.
[21]Y livelihood pressure@USD300k/Y income #LZ.Yu
Yet another blogpost on a familiar paradox, after a discussion, without a lot of new content. I wrote this letter to my wife, but edited later.
Over a 2021 Chinese New Year dinner, I described the paradox “Many WallSt colleagues have a household income around USD 300k (USD 17k/M after tax), in the top 2% among U.S. households, but I notice some kind of livelihood pressure.” (The paradox also exists in Singapore.) I asked why.
- LZ.Yu and his wife pointed out the car cost, mortgage cost, private schools, tuitions (more expensive in U.S.), perhaps maid cost.
- LZ.Yu also pointed out taxes including pTax and the tax-like med insurance (Melvin3 items)
- I pointed out the FOMO factor — they spend as much as other families in that tax bracket, otherwise they felt impoverished. The Chinese middle class tend to complain about livelihood pressure while living in the top 2% of tax brackets. See [19]wage+homePrice: biased views@China colleagues etc.
- I pointed out their need to save up for an Ivy League education .. about USD 600k for 2 kids. Real pressure.
If you earn $17k a month, and spend $16k, with close to no zero net balance in the bank (below 10k), you have a very thin buffer (brbr). You would feel a livelihood pressure, whether you admit it or not.
LZ.Yu’s wife has a familiar view — “For a big spender, it’s her own money. If she earns it herself, and if she is happy with her lifestyle and if she can cope with it over ups and downs, then it’s suitable for her“. This view is full of IF’s. In reality, millions of people spend like there’s no tomorrow. When tomorrow comes, they would not show regret in public, but in their quiet moments, they would feel regret once a while, esp. when they look at their saver-investor peers. Same regret as binge-eating, binge-gaming or binge-drinking. We do regret later .. our life was weakened not enriched.
My first-hand observation of my high-earning sibling (before his/her mortgage) showed me that any savings built up in bank account tend to disappear within months. I think it’s a lack of self-discipline. Similarly, you also said some homeless people have trouble saving away a windfall income. I think even if this person receives a million-dollar inheritance, he would spend it all within 2 years. A common pattern among undisciplined people.
Note the absence of “pressure” in that big-spender lifestyle as described, but I believe the limited level of savings makes the lifestyle rather vulnerable. Indeed LZ.Yu’s wife went on to describe a big-spender’s reaction to a $1k denied medical claim.
branded degree: instead@USD300k, I paid UChicago 50k
Somehow, I got a good deal. Can share with LZ.Yu.
- ! I didn’t pay 4 years x 70k. I paid only for one year.
- ! my highest degree is now from UChicago. Most of the time, I don’t need to mention my first degree.
- Due to c++ exemption, I saved on many modules, about 25% of the tuition fees which was SGD 90k+
— Total cost I paid to NUS was below SGD 4k over 4 years. This amount is an outlier.
- + SGD 21k over Y1/Y2
- – SGD 1.5k x 4 bursary
- – SGD 500 x 24M from EDB stipend
- – interest earned from student loan. The loan disbursement was held in a savings account. Loan amount was 80% of school fees, adding up to about 33k. Assuming average 2Y x 2% pa, total interest generated was around $1300
MAPIC: j4$1100 #
GEX knows the developer and can help reduce Megaworld type of problem.
Below are some of the potential benefits/ROI for the $1100 fee [membership fee + training fee]
t$Cost is $1100 + tcost. There’s refund guarantee — doesn’t feel like a marketing gimmick.
[!u=Not a unique benefit of this program. Without this program, I can also achieve the same]
— [u] benefit: micro_view.. Due to my experience trading stocks, mufu etc I have never focused on selecting specific units or locations that are underpriced, undervalued, or under pressure to sell.
Apparently, personal network is the “key”.
— [u] benefit: Risk /mitigation/..” Risk comes from not knowing what you are doing.” I have learned something from my ventures. The learning is crucial. I think P.Liew takes lots of bold actions because he is experienced. GS takes many risky bets than other ibanks thanks to risk mgmt system. The risk is still present and these players can fail, but their risk profile is very different form a foolhardy (傻大胆) or inexperienced investor.
So in the beginning it’s important to get your feet wet following a veteran.
Overseas rEstate (or SG commercial) is high risk hig return. I hope MAPIC has safety features built-in, to protect the small retail investors. If a small investor is too risk averse (like my wife), then perhaps they should stay away after paying for the training. This is Scenario K below/above.
— [u] benefit: guided expedition (to Everest) .. Except in U.S. stocks, I always believe paid guidance [consultation, advice] beats free guidance. In this case, the guidance covers due diligence [legal matters, rental projection, political risk assessment], negotiations, contract modifications .. very complex to a beginner.
My sister has some experience. To an experienced business person like her, it may not be so complex.
Compared to the assistance I received on Brazil project or Cambodia projects, I hope GEX team is more involved, more committed. Hopefully Comparable to NCT’s guidance, but I doubt it.
However, NCT is one-person, with limited bandwidth. What I offend him or he shifts his focus elsewhere?
— [u] benefit (IFF I take up a bulk deal): access to a SG commercial space .. SG location offers many real advantages over U.S., SEAsia, China… Advantages like familiarity and legal framework. So in SG the commercial space is very attractive.
This program brings me closer (if not “access”) to this and other alluring markets.
In a sense, the $1100 is a club membership to access this market + UK/Au markets.
— [u] benefit (IFF I take up a bulk deal): access to UK/Au markets, unrealistic without guidance.
I always have a secret fantasy to own a non-HDB property, but I have always stayed away, based on assumptions… Unproven Assumptions about risk. This risk comes from not knowing what you are doing, as discussed above/below.
— Q2: would I take on an A$500k home and sell my BGC unit? No. BDYK [BetterTheDevilYouKnow]
As explained in forward hazard rate, My BGC unit is now a much safer asset than it was in 2015. This improvement in “hazard rate” is realized, concrete and bigger than the promised improvement due to the GEX’s risk mitigation expertise.
- Concentration risk and size of exposure is much better (smaller) at BGC.
- No mortgage needed.
- Tenants are probably easier to find in BGC than in a typical suburb, unless the suburb is special but we won’t know it until we try (see FHR)
- .. NGRY could be better or worse.
- See blogpost on DCC
So why would I dispose of a safer, more proven cash cow for something riskier?
Q2b: would I take on an SG commercial and sell my BGC unit? Plausible
- currency risk
- legal system
- easier to find local agents
- easier to manage when I’m in the U.S.
— a few minor benefits
- [u] benefit: (IFF I take up a bulk deal) reduce concentration_risk of Cambodia while maintaining my allocation to rEstate sector
- [u] benefit: (IFF I take up a bulk deal) good use of my spare cash. As I said before, I would have a growing pile of spare cash before I leave MLP.
- [!u] benefit: (IFF I take up a bulk deal) reduce dependency on WSC_harbor and support stay-home mom, as explained in [21]to sis:G3specific goals@invest` #Shiller. See Q3 below.
- [!u] benefit: learn something about sReit
- benefit: possibly a comprehensive course for an investor overweight on rEstate (for decades), but self-taught.
— Q9: how could I regret this decision?
Scenario K: I don’t find anything meaningful in the 2D course. I don’t find any suitable deal.
Scenario: I find out that elsewhere I could access the same deal at equivalent or better prices (more likely for wealthy investors). Unlikely since I don’t even look at the non-HDB market.
The investment “opportunities” could be irresistible and derail my carefree bubble.
— The #1 biggest problem .. big mortgage is a potential derailer, and was one of the biggest show-stoppers in the past, whenever I considered overseas properties. Most retail investors are too greedy and aggressive.
Case in point — refinance to buy a second property. This strategy is sure to derail your ezlife bubble. You may break part of your bubble and roll it to cashflow low ground, not due to a storm, nor a swan event but a misstep, a manmade disaster. https://www.credible.com/blog/mortgages/cash-out-refinance-to-buy-second-home/ has a numeric example. Imagine your current home value is $400,000 and your current mortgage balance is $100,000. Now, say you want to make an $80,000 down payment on a second home. You’ll take out a cash-out refinance loan (mtg2) worth $180,000 (sized for you). Out of that, $100,000 will pay off your existing mtg1, and you’ll pocket the remaining $80,000 for the down payment. Your 2nd home will be on a brand new mortgage, but your 1st home will carry the 180k mtg2.
Right now, am actively planning the max-leverage (thing/scheme) with minimum cpfOA balance, no IRAS prepayment, no mtg PRP. The longer I /hold up/ this max-leverage, the heavier my burden weighs
- high burn rate due to IRAS and big mtg
- exposure to LIR hazard
- loss of opportunity to earn interest on cpfOA
So as soon as I lose interest/patience/hope in grabbing another property, I would abandon this max-leverage
— The #2 biggest (and neglected) item is U.S. relocation. (U.S. housing plan…) … Not If but When!
- Div stocks are much easier to liquidate. Selective cash-out. Low transaction cost.
- Aus, BGC property would all tie me down .
- SG commercial rEstate is better in terms of NRY, currency, legal risks, but quantum too big.
==== Q3: div stock ^ overseas (or SgCP) rEstate.. Shall I invest 200-300k into div stocks including Reits?
Paradox: I feel it’s unlikely I would invest so much into stocks. If I have 300k free cash (including wife’s) I would leave it as is rather than buying div stocks. But if there’s a rEstate deal, I would jump in head first (risky)
jolt: With div stocks the quantum advantage is also its /handicap/, as I can’t persuade myself to commit 500k on an ETF or 10 stock (diversification). So I end up on a very slow incremental top-up. See also [21] speed up: riskCapital4U.S.eq
jolt: I think the idea of buy-n-forget is 3x more effective with rEstate than div stocks. With rEstate there’s not much monitoring to do.
Jolt: shifting allocation between asset classes is costly and slow with rEstate.
sReits can be a proxy for SgCP, and can be better than usReits due to local knowledge, but this plan requires lots of due diligence.
Paradox: I have a strict discipline to never borrow money to buy stocks, but I do borrow money to invest in rEstate !
Paradox: consistent payout trec .. the dividend superstars are more proven than most rEstate markets.
See also
750k+20k^765k: which easier2sell@@
Suppose Ann bought a well-maintained house for $765k. Suppose Ben bought a fixer-upper for $750k and then spent 30k on kitchen, bathrooms,,, until it looks like Ann’s, slightly newer in the renovated parts, but slightly older in the untouched parts.
Now they are both selling, at the same location. Q: which position do you prefer?
%%A: Ben. As Ben I can easily separate the renovation cost from the investment, so (Assumption 1:) my investment amount was 750k. I can more easily accept a 755k offer. I can even accept a $750k offer.
I would explain to myself that my $30k renovation is for myself, not suitable for every buyer, and probably not appreciated by the next owner, who might decide to redo everything. In other words, renovation cost is not an investment having a chance of appreciation. Instead, renovation cost is an expenditure.
To Ann, the entire 765k is investment, so she expects some appreciation or at least break-even. In a down market, she may be forced to sell at 755k, a bitter pill to swallow.
The paradox — Ann bought an equivalent asset cheaper than Ben, but has more problem selling.
- At 755k, she feels more disappointment about a small loss than Ben feels, based on Assumption 1.
- .. It’s harder for Ann to explain away the loss as Ben “I made a $5k profit, while the 30k renovation is an add-on improvement I did for myself, not for the next buyer.”
- At 770k, she feels less accomplishment about a modest appreciation than Ben feels.
- Ann may set a higher, more challenging target price than Ben, based on Assumption 1.
— a minor reason to favor “Ben” .. the 30k renovation is customized for Ben. In Ann’s case and in my own experience buying a resale home, the renovation, the decor, the layout… are all customized for the previous owner 🙁 Some buyers don’t mind that.
We all see gold’s long-term growth but take!!action
Paradox: We all see the real evidence that all currencies including the strongest currencies lose value against gold over the decades, but very small percentage of the population hold gold.
I guess SP500 beats gold in the last 100 years, but gold has a much longer trec against currencies.
— reason: trough i.e. buying at the peak
Trough can be 20Y. Investors need holding power.
— reason: negative yield. carry cost — paying rent to wait for appreciation.
Many other investments generate current income.
— reason: gold ≠ a growth asset, less spectacular than stocks and properties.