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Letter Re: Should You Invest in Real Estate?
To quote Robert Prechter, "Short Answer is: no. Long
Answer: The worst thing about real estate is its lack of liquidity during a
bear market. At least in
the stock market, when your stock is down
60 percent
and you realize you've made a horrendous mistake, you can call your broker
and get out (unless you're a mutual fund, insurance company or other institution
with millions of shares, in which case, you're stuck). With real estate, you
can't pick up the phone and sell. You need to find a buyer for your house in
order to sell it. In a depression, buyers just go away. Mom and Pop move in
with the kids, or the kids move in with Mom and Pop. People start living in
their offices or moving their offices into their living quarters. Businesses
close down. In time, there is a massive glut of real estate.”
This is entirely true if one looks back in history. However is buying a steak
for Friday night’s dinner an investment? Or is it part of survival? So,
we are caught on a cleft stick.
If we wait we will surely pay less [for a retreat property] as real
estate prices go down. But then we will be faced with a time problem. Can we
prepare
adequately
in
the time
available? Plants and other food supplies take time to grow, even if we do
it successfully the first time, and few have the experience for that. Can we
find the perfect location even when the price has gone down to more affordable
levels?
Another very important factor that people all too often forget is land taxes.
US states, by law cannot go bankrupt. That in turn means that taxes will not
decrease if the general level of income goes down, perhaps to say half of the
former level. If anything, taxes will increase. States still have
to pay their loans. Particularly in many urban jurisdictions land taxes are
near more modest
income rental rates. Do you think you own that property free and clear,
even if your mortgage is fully paid? Can you afford to pay sky high “rental
rates” (land taxes) for your fully-paid land if you are getting half
your previous income? Do you think that your income will remain at its current
lofty level as more and more become unemployed and start competing for your
job in an atmosphere where employers also are being squeezed?
It is time for some outside-of-the-box thinking here. Each jurisdiction is
different, but somewhere there is a loophole if one searches diligently. In
some jurisdictions,
one can find methods of freezing or even permanently reducing land taxes. In
one jurisdiction I know of, both are possible by registering your land as a
tree farm, resulting in reduced and fixed taxes for 30 years. In other jurisdictions,
it is possible to pay your taxes in advance, prorated according to the interest
rate. Even more, in some jurisdictions one can legally occupy land, pay no taxes
and no purchase price if you simply pay usage fees in advance, (usually quite
nominal) to use the land for specific purposes that politicians have
deemed as desirable. (Often in remote locations that politicians want to develop,
ideal for bug out purposes. This often has its own problems, usually surmountable,
but for illustration purposes it is adequate.)
It is time to analyze the situation determine our current strengths and weaknesses,
and plan to take advantage of our current strengths. They may disappear. In
the current situation, with government budgets all out of whack, negotiating
is possible in nearly every jurisdiction. While we still have a job and a bit
of spare money, we should be looking to cut deals. (and don’t say you
have no money. If the toilet breaks tonight, you will find a way of fixing
it tomorrow.) Today, we are not rushed, and government--however slow--is there,
and there to serve us. (Who knows what will come after TSHTF?)
We can ask questions and expect truthful answers when silly servants do not
guess which direction
our thoughts are trending. If things get tougher, they will surely guess. Find
that loophole wherever you want to be and exploit it. Find a way under, over,
around or through the problem.
Get started today. Tomorrow may be too late. And remember, the longest, or
shortest, journey starts with but one step. Stop theorizing and get off your
hind end. - Allen
