Archive for category Real Estate Investment Strategies

How to Invest in a New Real Estate Market

by Leon Yang on BiggerPockets

CityStreetA friend of mine recently asked me about how he should start going about when finding a market to invest in. As I answered him on how to approach the market, I noticed his eyes started wandering when I continued to spew information out like a loose fire hydrant for the next fifteen minutes. My diplomatic friend suggested that I should write all my thoughts down instead. So here I am.

How Healthy is the City?

As I stressed in my podcast before, I’d look at where I invest based on how healthy the city is. I do not feel comfortable investing in a city with a declining population such as Detroit. A real estate investment can sometimes take as little as a year or as long as decades before you realize your profit. You never want to be investing in a city where you have no idea where it is going to go in the short to medium term.

Thus, when you pinpoint a market to invest in, make sure you drive around the entire city. Every city has its good neighborhoods and its bad ones. Even within the city there are areas where people are leaving and where people are clamoring for. One of the ways to look for a growing area is to see how the infrastructure is. Is there a Wholefoods? Are there parks? What about the library? Where is Target setting up shop? The more developed an area is, the more likely that the neighborhood will be staying for a long time. Obviously, do check out the houses as well. Good curb appeal typically means that the neighborhood has good homeownership pride. I tend to peek at what cars people are driving as well.

Know the Home Prices in Every Neighborhood

I would then go to Redfin or Trulia and start looking at the price ranges of the homes. For the most part, prices will be higher in premium neighborhoods. But having done the drive, you might start noticing certain neighborhoods which are good neighborhoods but prices haven’t caught up yet. Sometimes you can find bargains there. In any case, after all this you’d have a pretty good idea of whether the city would be worth investing and where you would want to invest in at.

Side note, certain investors enjoy chasing higher rental yields by investing in lower quality neighborhoods. This is a personal choice. I cannot say which one is better. Personally, I prefer to get a lower yield by investing in better neighborhoods. I do not have the time nor the patience to deal with lower quality tenants who tend to reside in those neighborhoods.  Time is valuable to me and I believe in investing in good neighborhoods to avoid headaches.

Find the Right People

Then I would visit several property managers and explain to them that I am planning to invest in the city and is potentially looking for someone to work with. Again, depending on where you are and what you do, you may not need a property manager. Nevertheless, they are a good source of information as to which neighborhoods tend to have better tenants. This process is just sort of reaffirming what you have discovered so far.

Lastly, I will now find a real estate agent. I’d want a real estate agent who is willing to hustle and has an investor mindset. An easy question to ask is whether he or she invests in real estate. A real estate agent who does not invest in real estate is not one that you would want to have. Obviously, this depends on the market. But if the market is good, why isn’t the real estate agent investing? Since you will be working with the agent most of the time, you have to test the agent to see if he or she knows as much as you. On the flip side, you have to show the agent that you are a serious investor. If the agent senses that you are just here to play around, the agent is not going to spend a lot of time on you. You, too, have to impress the agent with your knowledge of the market. But do not be afraid to try sending out a bad offer and see if the agent is there to look out for your interest. If you try to “overpay” for a property and your agent is not there to stop you, it is time to look for a new agent.

With that being said, good luck in investigating your next market!

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The Simplicity of Sound Money

By Patrick Barron via Mises.org

piggy bankUnderstanding today’s convoluted domestic and international fiat monetary system frankly requires a great deal of time and study. One must understand fractional reserve banking, and the way this system affects the money supply. One must understand the multi-step process by which banks create money out of thin air.

One must understand central bank open market operations. Internationally, one must try to understand floating exchange rates, how they are manipulated by central banks, and the resulting impact on national economies. For example, is it best for a country to drive down its exchange rate in relation to other currencies or do the opposite?

These issues are never understood by policymakers, who appear to be among the most illiterate in economic matters, so monetary policy swings to-and-fro according to which economic group has temporary control over the levers of the government, and particularly of central banks.

So Simple Even a Child Can Understand It

In a sound money environment, on the other hand, there is little confusion or controversy. Under sound money—in which money is a commodity (for discussion purposes let us assume it to be gold)—everyone, to some extent, understands monetary theory. Whether it be an individual, a family, a corporation, or a nation, either one has money or one does not. It really is as simple as that. Even children learn the nature of money. A child quickly learns that the things he wants cost money and either he has it or he does not. If he does not, he quickly grasps that there are ways to get it. He can ask his parents for an increase in his allowance. Or, he can earn the money he needs by doing chores around the house or for friends and neighbors. He might be able to borrow the money for large purchases, promising to pay back his parents either from his future allowance or from anticipated future earnings from doing extra chores. His parents can evaluate this loan request simply by considering the likelihood that his allowance and chore income are sufficient.

How is this any different when applied to adults, companies, or governments? In a sound money environment, they are the same. Individuals earn what they spend on the family and may borrow from the bank to buy a home or a new car. The lender will examine whether the person’s income is sufficient to pay back the loan. If the family hits hard times, they may ask for assistance from relatives or a charity. Companies have more means with which to fund their operations. Stockholders provide the company with its initial capital. Thereafter, when normal earnings are insufficient to fund desired expansion, the company can borrow against accounts receivables and inventories, both of which provide varying degrees of security for the lender.

So Simple Even a Politician Can Understand It

A national government’s finances, under a sound money system, are little different from either a household’s or a company’s. It needs to collect in taxes what it spends. If it suffers a budget deficit, it can cut back spending, attempt to raise taxes, or borrow in the open market. In a sound money environment, there is a limit to the amount of debt that even a government can incur, due to the need to pay back the loan from future tax revenue. If the market believes that this may not be forthcoming, the nation’s credit rating may suffer and its borrowing costs will rise, perhaps to the point that the nation is completely shut out of the credit market. But this is a good thing! The market instills practical discipline that even a politician can understand! Under sound money, one does not need a special education to understand the monetary system.

Taking the process one step further, anyone can understand international monetary theory in a sound money environment. The national currency is simply shorthand for a quantity of gold. A US dollar may be defined as one thirty-fifth of an ounce of gold, and a British pound defined as roughly one seventh of an ounce of gold. Exchange rates become mathematical ratios that do not vary. So an American purchasing English goods would exchange his dollars for pounds at a ratio of five dollars per British pound; i.e., one seventh of an ounce of gold (a pound) divided by one thirty-fifth of an ounce of gold (a dollar) equals five dollars to a pound. Through the banking system, the English exporter would demand gold from the issuer of dollars, whether it be from a central bank or private bank, at thirty-five dollars per ounce. When a currency is simply a substitute for gold, either the issuer has gold with which to redeem its currency or it does not.

Money Issuers Subject to Normal Commercial and Criminal Law

When a nation overspends internationally, its gold reserves start to dwindle. Money, which is backed one hundred percent by gold, becomes scarce domestically. Domestic prices fall, triggering a rise in foreign demand for the nation’s goods. The process of gold depletion is halted and then reversed. This is the classical “Currency School” of international monetary theory. Commercial banks present checks drawn on one another every day and the same process would exist for gold-backed currencies. If a bank issues more scrip than it can redeem for gold at the promised price, it is guilty of fraud. Its officers and directors can be sued in court for any loss incurred by those who accepted the bank’s scrip. Furthermore, the officers and director could be prosecuted for the crime of fraud. In other words, banking would be subject to normal commercial laws and bank officers and directors would be subject to normal criminal laws.

Good Money Drives Out Bad

The free market monetary system would drive bad money issuers out of the market. Plus, bad money issuers would suffer the loss of both their personal finances and, in the case of outright fraud, loss of their personal freedom. This would be a sobering incentive to deter criminals and attract only legitimate money issuers. Money would be a bailment; i.e., property held for the benefit of another, which must be surrendered upon demand for redemption. All around us exist analogous bailment examples of entrusting valuable goods to complete strangers. We leave our cars with valets at parking garages, our clothing at neighborhood cleaners, our overcoats at coat checks, our luggage to the airlines, valuable merchandise with shippers. In these cases, we fully expect that our property will be returned to us. And it almost always is! If it is not, public trust in the fraudulent outfits evaporates, and they quickly go out of business. Likewise, money issuers would thrive only when the public trusts their integrity, which would be enhanced by regular outside audits by respected firms of the existence of one-hundred-percent reserves to back the money issuer’s scrip. How different this would be from our present system in which the Fed will not allow an audit of its gold reserves even when held for the benefit of other central banks! It is clear that in a free market monetary system such a policy would drive Federal Reserve Notes out of the market through lack of demand. Even were the Fed to back its notes with its gold reserves, in a totally free market in which private banks could issue their own gold-backed scrip, the Fed would suffer from its past history of blatant money debasement and secrecy in its operations. The market would prefer the money issued by a well-respected private bank whose operations are transparent and subject to outside audit by respected accounting firms.

Conclusion

In a sound money environment everyone understands monetary theory. Money is like any other desired commodity, except it is not consumed. It is a medium of indirect exchange, which traders accept in order to exchange for something else at a later time. This is easily understood, whether the trader is a child, a parent, a company, or a nation. One either has money or one does not. The money can be a money substitute, a bailment, with which one can demand the redemption of the real money—gold. Money issuers must keep one-hundred-percent reserves against their money substitutes in order to abide by normal commercial and criminal law. No special agencies or monetary authorities are necessary to make the system work. The system emerges naturally and is regulated via the normal commercial and criminal legal system.

This is the system that government does not want us to have, because it provides no special favors for enhancing state power. Sound money shackles the government to the will of the people and not vice versa. As Ludwig von Mises stated in The Theory of Money and Credit:

“It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights.”

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The Age of Redistribution

By Ron Paul

127201043357pmThis neglect ushered in an age of redistribution of wealth by government kowtowing to any and all special interests, except for those who just wanted to be left alone.  That is why today money in politics far surpasses money currently going into research and development and productive entrepreneurial efforts.

The material benefits became more important than the understanding and promoting the principles of liberty and a free market.  It is good that material abundance is a result of liberty but if materialism is all that we care about, problems are guaranteed.

The crisis arrived because the illusion that wealth and prosperity would last forever has ended.  Since it was based on debt and a pretense that debt can be papered over by an out-of-control fiat monetary system, it was doomed to fail.  We have ended up with a system that doesn’t produce enough even to finance the debt and no fundamental understanding of why a free society is crucial to reversing these trends.

If this is not recognized, the recovery will linger for a long time.  Bigger government, more spending, more debt, more poverty for the middle class, and a more intense scramble by the elite special interests will continue.

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Authoritarianism vs. Liberty

By Ron Paul
Farewell to Congress

If authoritarianism leads to poverty and war and less freedom for all individuals and is controlled by rich special interests, the people should be begging for liberty.  There certainly was a strong enough sentiment for more freedom at the time of our founding that motivated those who were willing to fight in the revolution against the powerful British government.

During my time in Congress the appetite for liberty has been quite weak; the understanding of its significance negligible.  Yet the good news is that compared to 1976 when I first came to Congress, the desire for more freedom and less government in 2012 is much greater and growing, especially in grassroots America. Tens of thousands of teenagers and college age students are, with great enthusiasm, welcoming the message of liberty.

I have a few thoughts as to why the people of a country like ours, once the freest and most prosperous, allowed the conditions to deteriorate to the degree that they have.

Freedom, private property, and enforceable voluntary contracts, generate wealth.  In our early history we were very much aware of this.  But in the early part of the 20th century our politicians promoted the notion that the tax and monetary systems had to change if we were to involve ourselves in excessive domestic and military spending. That is why Congress gave us the Federal Reserve and the income tax.  The majority of Americans and many government officials agreed that sacrificing some liberty was necessary to carry out what some claimed to be “progressive” ideas. Pure democracy became acceptable.

They failed to recognized that what they were doing was exactly opposite of what the colonists were seeking when they broke away from the British.

Some complain that my arguments makes no sense, since great wealth and the standard of living improved  for many Americans over the last 100 years, even with these new policies.

But the damage to the market economy, and the currency, has been insidious and steady.  It took a long time to consume our wealth, destroy the currency and undermine productivity and get our financial obligations to a point of no return. Confidence sometimes lasts longer than deserved. Most of our wealth today depends on debt.

The wealth that we enjoyed and seemed to be endless, allowed concern for the principle of a free society to be neglected.  As long as most people believed the material abundance would last forever, worrying about protecting a competitive productive economy and individual liberty seemed unnecessary.

 

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Why You Must Get Out of Your Adjustable Mortgage Today

I don’t have a crystal ball but I follow the fundamentals and the market is screaming to get out of your adjustable mortgage if you have one as soon as possible. Here is why.

The federal funds rate is the interest rate at which banks lend their excess reserves to other banks which don’t meet the minimum reserve requirement established by the Fed.  Currently the banks park their excess reserves with the Fed for which they are paid 25 basis points.  Even though it’s known that the Fed controls this rate (by selling and buying securities to banks via the Open Market Operations) today we’re living in a climate of banks controlling such rate.  Their excess reserves which exceed $1.6 Trillion create a liquidity trap that keeps rates below what the market would otherwise dictate.  Take a look at the St. Louis Fed chart and ask yourself how much higher can these excess reserves go.

From 2009 until now the banks’ excess reserves grew exponentially. Such event occurred because the banks were selling securities (in many cases the toxic assets of the foreclosed real estate they held) to the Fed in exchange for dollars. In addition, they get paid a .25% to keep their reserves at the Fed.  This is the reason for which you see on this chart why their excess reserves spiked in a little more than two years.

For the federal funds rate to go up one of at least two events must happen.  The Fed sells securities back to banks thus reducing the banks’ excess reserves and contracting the money supply.  This scenario is not much likely to happen because Mr. Bernanke is a deflationist and he fears deflation.  Politically speaking he couldn’t do that even if he wanted to.  Why?  Because money deflation leads to Wall Street deflation and the artificially inflated stock market bubble would burst.  Such event cannot happen especially during an election year.

The next and a more plausible event to occur would be when banks will start lending again.  Banks are in the business of lending money therefore the question is how long will it be until banks start lending again?  Obviously it can’t go on indefinitely.

Of course, other events could happen which could trigger the rise in the rate. The collapse of the dollar, China decoupling its economy from ours, the dollar’s status of the world reserve currency replaced with another stronger currency, or a devastating inflation.

Without confusing the matter too much, when the federal funds rate is low generally your adjustable mortgage will be low.  When that goes up you can most certainly expect your ARM to go up, as well.  And it really doesn’t matter much to which index your mortgage is tide to.

I’ve been told over and over by hesitant property owners that if the rates go up they’ll sell the property.  If they can’t sell they will refinance.  Here is the problem.  For the past four years the real estate activity was sustained by sales of – what many would call – below market value properties.  Of course, that’s debatable because the real value is based on what the market dictates (based on supply and demand) and not on what the current owner thinks his property value is nor on what the outstanding balance on the underlying mortgage is.

For he who believes he can sell his property when rates go up I wonder what makes him think that in a higher rate environment his property would sell for the price he’d want to sell it for?  If his property doesn’t sell today when rates are low why would it sell later when rates go up?

The second option is to refinance when rates go up.  If you study the chart above you’ll notice that during the late 1970′s the rate went up abruptly.  It wasn’t a slow and gradual increase, it was fast and furious. That increase was the result of the Fed’s contraction of money supply.

When today’s refinance loans take a minimum of two to three months, if not longer, it’ll take even longer time to close on a loan when rates start spiking.  Why?  Because everyone else who’s in that position will be standing in line to refinance (before the rate goes higher).  Not to forget that tomorrow’s fixed rates will be way higher than today’s.  And folks, you must understand that the rates cannot go any lower.  The chart above says it all.  The federal funds rate is close to zero now.

Getting a low fixed rate for as long of a term as possible is the solution to a not so distant problem.  It applies not only to those who have ARMs but also to those who have loans due to mature in the next few years.  If your loan has a prepayment penalty it should not deter you from being proactive.  The cost of waiting could be steep.  In the long run saving today by avoiding the penalty may end up costing way more in form of a high interest rate on your mortgage.

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The Greatest Transfer Of Wealth Ever

A vast number of people think that what we’ve been through during the last four years is just another episode in the economic crises history of the United States.  They believe a president has the power to continue the trend or reverse it.  So they put their faith in the next presidential elections.  They think their favorite candidate, whether Romney or Obama, will bring about the change they wish for.  So they go and vote.  Then, if their candidate wins they expect miracles from their leader until yet another economic event hits them and the dream fades away.  And so it goes every four years while the giant Titanic is sinking.

The reality of it all is that it matters little whether Obama or Romney becomes the president. Why?  Because – contrary to what we’ve been told – since 1913 the president or congress has had no control of our monetary policy.  The central bank has such powers.

During the last four years Mr. Obama has followed the policy of the Federal Reserve.  His major campaign contributors during 2008 elections are listed here.  If he wins, he will continue the same policy.  If Mr. Romney wins he will take over the torch because the money that funded his presidential campaign accepts no opposition.

I bring this up not to be political but to demonstrate to my readers that our next president won’t have the ability to fix the economic crises.  Therefore we should not rely on the government to make our lives and/or our children’s lives better. It is up to us to learn, assess, and prepare for the future by making educated decisions, while we still have the ability to do so.  Let me explain.

Sound monetary policy is vital to the economic recovery.  That is because it is the bad monetary policy that caused the problem, not once, not twice, but throughout history according to the Austrian School of Economics.  Asset bubbles form due to artificial expansion/inflation of money supply.  This is the key, this is the underlying cause.  When newly created (by the Fed) money – out of thin air – finds its way in the economy it flows into assets such as real estate, commodities, or securities.  The result is artificially inflated assets.  This is not sustainable.  If it was we would be trading houses today in the millions of dollars. It is not sustainable because in such a scenario the market forces would lead to a currency collapse.  If the bad monetary policy continues we will eventually end up with a dollar not worth a continental.

Since the real estate bubble burst there was no good monetary policy.  Money supply is still being expanded via bailouts and QE’s.  There was no good policy before either.  Such policy helped to induce the bubble.  A good monetary policy means stopping the creation of new money.  It means stopping the Fed’s printing pres, which in turn would cause the interest rates to go up.  Corporations would go bankrupt.  People and the government would be forced to live within their means.  Produce a lot, spend a little, and save more.  It would be painful.  Even though it would be temporary it would be necessary for a healthy recovery.  But again, it would be painful.  It means experiencing the withdrawal symptoms after years of addiction.  No politician wants to have that happen on his term.  Thus, the politicians will continue to kick the can down the road.

The question is what could potentially happen as a result of the failed monetary policy?  At least two problems.  Currency collapse and/or astronomical rise in the interest rates.  Both are conducive to loss of purchasing power for the average man.  Both require a pro-active approach in lieu of the common reactionary one.  I would not expect such approach from the government.  So, it is up to the average Joe to take the matter of his finances in his own hands.

I titled my article “The Greatest Transfer of Wealth” because such event is ongoing now.  Bad monetary policies destroy the working middle class.  It happened to the Romans leading to the collapse of the empire.  It happened to Weimer Republic in the early 1920’s leading to the rise of Hitler.  It happened to France, China, Russia, Argentina, Mexico, and most recently to the wealthiest country in Africa, Zimbabwe.  For a history on money and governments out of control read Daily Reckoning’s “Fiat Currency: Using the Past to See into the Future“.

Still not convinced?  Consider your net worth during the real estate boom and before the 2009 collapse of the stock market.  If your net worth is higher today you deserve to be congratulated.  You are in the 5% bracket.  If your net worth is lower today then you’re in the 95% bracket.

Within a few short years there’s a reasonable likelihood that the middle class will only keep its name.  In real life it will be partially or fully dependent on the government.  Being dependent on the government comes with strings attached.  Working a 9 – 5 job will not make the average Joe independent.  To get in the 5% minority bracket one must be truly visionary.  He must live his life unlike the 95% majority.  He must think like a contrarian and he must invest like a contrarian.

Because I spend my time helping people finance commercial property I get to be exposed to unconventional ways to increase wealth.  Whether they are in real estate equities or debt, in commodities or the stock market, the driving criteria is to buy when the majority is selling and to sell when everyone else is buying. There is an incredible opportunity today to buy quality real estate at extremely low prices.  Yet, the real estate market activity is supported mainly by investors.  Part is domestic and part being the citizens of other countries.

But the 95% doesn’t get it. They continue to keep their retirement with their stock broker.  They would rather have their hard earned money invested in the artificially inflated stock market.  They are now comfortable that the Dow Jones – and their retirement account – is getting close to the levels pre-2009.  Never mind the cost of living jumped up.  Never mind that there are investments in hard assets today which are considered by a few (the 5% bracket) less risky than the stock market.  Never mind that such assets produce a monthly stream of income better than most of the dividends paid by corporations. They won’t take the risk, or at least this is what they think.  In reality the risk is in following the conventional wisdom and maintaining the status quo.  American writer, Lillian Smith once said “When you stop learning, stop listening, stop looking and asking questions, always new questions, then it is time to die.”  So will be the faith of the average retirement account.

My goal is to share economic news with my readers.  Then, present them with possible solutions. Please note that any type of investment represents a risk.  It is your responsibility to research, learn, and evaluate whether any investment presented on my site is right for you.  At your request I put you in touch with the representatives of the companies I promote.   You should evaluate the company, the projects, and ask questions.  You should visit the property.  You should also seek advise from your accountant and/or a professional you trust before investing in any of the investment opportunities offered on my site.

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My Warning to Women: Get Your Questions Answered Before the Crisis Hits

By Gary North

In the United States, women outlive men by at least four years. In most cases, wives are several years younger than their husbands are. Combining these two statistical facts, we reach an inevitable conclusion: today’s wives are likely to spend more than half a decade as widows.

The reality of widowhood is that a woman will become dependent on somebody other than her husband unless she is fully in control of her faculties and her finances.

A woman who wants to remain independent in widowhood should understand from the day she gets married that she must learn the basics of family finances. The better she gets at handling money, and the better she gets at making money, the more likely she will retain her independence during the inevitable years of widowhood.

The problem is, people discount the future. They assume that the future will take care of itself, and that the future will be mostly positive. The trouble is, the older we get, the less likely that our future will be positive. The clock is ticking.

It is common in the United States for women to control the household budget. Couples should work together to establish spending and savings, although I don’t think this is as common as we like to believe. These days, programs like Quicken make it relatively easy to budget and to track a family’s spending patterns. It is easier than it was 20 years ago, and surely easier than it was 30 years ago. It is common for wives to handle the Quicken accounts. The question is this: Do wives have equal input on how the money comes in, and do they have equal input on what should be done for the long-term support of both of them in their retirement years?

We think that people act in their own self-interest, but we find that people prefer to defer. They prefer to kick the can down the road. They prefer to imitate Congress. The trouble is, the decision of Congress to kick the Medicare can down the road guarantees that the vast majority of women who are alive today will spend their final years as complete dependents on their children, and that they will probably be destitute.

There really is no escape from this statistically. We know the Medicare system is going to bankrupt the government, and therefore we know that the Medicare system will be modified so as to break the promises the politicians have made regarding the last years of our lives. There is no escape from this. It is going to hit every Western industrial nation. No one who looks at the numbers expects anything else.

Nevertheless, the vast majority of wives in the United States and the West do not begin to assert co-authority over the spending patterns of their households, despite the fact that they will be alone in their final years. They refuse to make decisions today that might give them a degree of protection in their old age.

One of the reasons why I favor the purchase of investment real estate is this: in people’s old age, the houses are owned free and clear, and the rental money is gravy. A person who owns half a dozen homes free and clear is going to make enough money to have a comfortable middle-class lifestyle in retirement. I realize that not everybody can own half a dozen homes, but everybody who subscribes to this website can.

One way or the other, wives are going to have to make decisions over where the money goes. They can begin to make these decisions in joint consultation with their husbands today, or they can wait until their husbands are dead.

Twenty-five years ago, Mark Skousen’s wife JoAnn published a newsletter for women. It focused on investing. The newsletter did not gain enough subscribers to stay in business, and so she ceased writing it. It was a very good newsletter. It was quite relevant. It didn’t matter, because she couldn’t get enough women to subscribe.

About that time, I interviewed Charlotte Foehner. She was the author of a very good book called The Widow’s Handbook. Her targeted audience was women like herself. Her husband had died unexpectedly, and she knew virtually nothing about investing. She had enormous responsibilities, and these responsibilities hit in a time when she was most psychologically vulnerable. Her husband was dead, and she had to put his affairs in order. He should have done this before he died. She should have insisted that he do it before he died. He didn’t, and she didn’t.

Answers can be painful. Answers increase the level of personal responsibility. Nobody can claim ignorance if someone has answered a major question. People think that they are better off by remaining in the dark, because they assume the problems are not going to hit them, and they might as well not think about it.

This is the attitude of the vast majority of Americans today. If they had any idea of what will happen to them, statistically speaking, more of them would start asking questions. But they don’t know, and even if they did, they would not like the answers. The answers would force them to restructure their lives. Answers would force them to restructure their dreams.

The fact that women become dependent on their husbands early in their marriages, because women have to take care of the family, gets them into a mentality of dependence. It is easy to become dependent upon the husband’s decisions. This has been the traditional approach throughout most of history. But with the vast increase in the division of labor over the last century, and with the increased life expectancy of women, this tradition is now a liability for women.

A woman has got to face statistical reality. She is going to be a widow in the final decade of her life. She is going to have to make her own decisions, and if she is incapable of doing this, either mentally or financially, somebody else is going to make her decisions for her. Traditionally, this has meant her oldest son and her daughter-in-law. She may trust her oldest son, but she has to face the reality of potential vetoes by her daughter-in-law.

A woman who is determined not to be dependent upon the judgment of her daughter-in-law should face reality early. She has got to have an independent stream of income, and she has got to have somebody other than her daughter-in-law making the decisions about how this stream of income is going to be allocated, and by whom.

Anyone who does not have an independent stream of income is inevitably going to be dependent. Any woman who does not want to be dependent upon another woman, especially a younger woman who resents the added expense of a mother-in-law, had better take great care in building a separate estate for herself in her old age.

Look at the median net worth of American families. Adjusted for inflation, it has not risen in 20 years. Most of this wealth was in the family’s home. That’s why it peaked in 2007.

This includes all age groups. Older people have more money. Whites at age 65 probably have about $225,000 in net worth. It was higher in 2007. Then the housing bubble popped.

http://www.agingstats.gov/agingstatsdotnet/Main_Site/Data/2010_Documents/Docs/OA_2010_Updates_123010.pdfThis is the measuring rod. Each family should assess its net worth.

How long will you last in retirement? In calculating this, add to expected expenses the replacement of Medicare, which on average pays $900 a month per household member. That was in 2009. It’s higher today; medical costs keep rising. Figure $1,000 per person per month. Two members means $2,000 a month. That is what it will cost to stay alive and healthy after age 65 when Medicare goes bust, which it will.

Who will be able to afford this? For how long?

If a person sells his home to pay for medical costs, where will he live? Add another $1,000 a month for rent. But medical costs will not decline.

Preparing for retirement is not easy. It involves asking questions. Any woman who does not ask questions is basically saying that she is content to live under the jurisdiction of her daughter-in-law in her old age. She had better have a financially secure daughter-in-law, and that daughter-in-law had better have her mother-in-law’s best interests at heart.

It is better to ask questions now than to be told what to do later.

Note:  Gary North is one of the most brilliant men I know.  He is a virtuoso in the field of economics and investing.  Check out his website at http://www.garynorth.com/.   Also, if you’re thinking of investing in real estate click HERE to read the criteria for my Turnkey Real Estate program.

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