Precious Metals

[wasCB14]

---

@Anonymouswrote:

While I follow your comments I have a hard time finding real estate a more comforting alternative.

As I mentioned precious metals is not for the faint of heart. I have done well since I watch it regularily (daily or more and I don't run ever time there is a swing). In truth, I have found real estate to not be comforting. My past has involved being part of large residential developments, shopping malls and golf courses. Turned down investing in apartments. Any way, I feel more comfortable with precious metals. In my distant recent past I worked with a civil engineer on mapping gold deposits so I am comfortable in such a world. You need to remember it is about your own expertise and comfort for risk (which I know you understand) and real estate is not my idea of comfort! Was involved with some investment in residential developments with money stuck in infrastructure and no one came so I have had my fill and I have walked the walk (one only needs to look at the crash of 2008 which I am sure you have).

---

I'm sorry to hear you had those trouble in real estate, but it sounds like you pursued some pretty high-risk, high-expected-return projects. I imagine an investment in a golf course gives either a big gain or a big loss.

By contrast, owning and renting out a single-family home or a 4-plex in a decent neighborhood isn't likely to be as binary, particularly if there's a decent down payment.

[iced]

---

@wasCB14wrote:

---

@Anonymouswrote:

While I follow your comments I have a hard time finding real estate a more comforting alternative.

As I mentioned precious metals is not for the faint of heart. I have done well since I watch it regularily (daily or more and I don't run ever time there is a swing). In truth, I have found real estate to not be comforting. My past has involved being part of large residential developments, shopping malls and golf courses. Turned down investing in apartments. Any way, I feel more comfortable with precious metals. In my distant recent past I worked with a civil engineer on mapping gold deposits so I am comfortable in such a world. You need to remember it is about your own expertise and comfort for risk (which I know you understand) and real estate is not my idea of comfort! Was involved with some investment in residential developments with money stuck in infrastructure and no one came so I have had my fill and I have walked the walk (one only needs to look at the crash of 2008 which I am sure you have).

---

I'm sorry to hear you had those trouble in real estate, but it sounds like you pursued some pretty high-risk, high-expected-return projects. I imagine an investment in a golf course gives either a big gain or a big loss.

By contrast, owning and renting out a single-family home or a 4-plex in a decent neighborhood isn't likely to be as binary, particularly if there's a decent down payment.

---

I hear about people renting out real estate for profit, but I don't see how they can do it. Looking around here, a typical 1,000 sq. ft. condo sells for about $1 million, and would rent for about $3,500 to $4,000/month. If you put 20% down and took out an $800k mortgage, your P&I alone is going to be about $4,000/month. After you factor in HOA and the like, you're likely renting out at a loss. If you made a 50% down payment, the P&I comes down to about $2,500/month, so you can make a bit that way, but you're now $500k into the place and won't realize any ROI for a long time (unless you flip the place in a few years, but that's not what landlords are doing). Even then, the return on that amount invested is less than even a solid dividend stock would pay.

Alternatively, you could buy a 5-unit building for about $4 million, but the investors I see doing that just put a million worth of reno into it and sell the units for $1.2 million each and bank the profit that way. Renting it out at $3,500/month/unit would pull in a profit of maybe $2-3k/month, which seems like a poor return for that much cash. Since it's a new reno, they might be able to push $4,500-$5,000, but that would largely just offset the reno costs.

How are people getting 10% returns (or better) on real estate?

[wasCB14]

---

@icedwrote:

I hear about people renting out real estate for profit, but I don't see how they can do it. Looking around here, a typical 1,000 sq. ft. condo sells for about $1 million, and would rent for about $3,500 to $4,000/month. If you put 20% down and took out an $800k mortgage, your P&I alone is going to be about $4,000/month. After you factor in HOA and the like, you're likely renting out at a loss. If you made a 50% down payment, the P&I comes down to about $2,500/month, so you can make a bit that way, but you're now $500k into the place and won't realize any ROI for a long time (unless you flip the place in a few years, but that's not what landlords are doing). Even then, the return on that amount invested is less than even a solid dividend stock would pay.

Alternatively, you could buy a 5-unit building for about $4 million, but the investors I see doing that just put a million worth of reno into it and sell the units for $1.2 million each and bank the profit that way. Renting it out at $3,500/month/unit would pull in a profit of maybe $2-3k/month, which seems like a poor return for that much cash. Since it's a new reno, they might be able to push $4,500-$5,000, but that would largely just offset the reno costs.

How are people getting 10% returns (or better) on real estate?

---

Given your local economics, other investments may be a better choice if you want current yield. I couldn't get 10% cash with those kinds of numbers. Margins aren't quite so bad for us, but they aren't great, and I have been encouraging a bit more in the way of sales. Prices have gotten far ahead of local incomes, but extra demand from fancier zip codes spreads around a bit.

Recall that my praise for real estate earlier in this thread was largely in the context of it being an inflation hedge. If rents rise 25% over the course of five years (while mortgage payments are fixed) the cash flow starts to look a lot different.

[Anonymous]

wasCB14 and iced... great conversation! Appreciate the insight. You are dealing in some good zip codes! Rural America is somewhat different as the market is not what it used to be as the people relocate to the major metropolitan areas for jobs and the farmers feel their incomes are minimum along with a significant decrease in land values (believe what you will - their values have gone up considerably and I remember the land value bubble burst in the 1970's). Aw such is life ... enjoy my night skies, long winters and the loss of developing tracs of land like the old days and I am not touching retail anymore.

P.S. iced ... you hit the nail on the head related to high-risk and high-expected-return projects (buried a bank in the process - they are still trying to return to the new world as there were residential dwelling units in Las Vegas and in the north woods). The golf course world has pretty well wound down as we over built in the number of courses at the same time younger generations pursued other opportunities (not like the old days). As to malls, we were over built in the area of shopping malls and outlet malls clear back to the early 1990s but kept on going (too much and it is killing the industry).

Today, well you have seen the published facts on all this. Back to mining ... believe we will get the mining permits to mine gold, silver, cadmium, copper, nickel and zinc this year (only took well over ten years and a change of a president) and I do understand the concern by the environmentalists so this has been a long haul (the environmental concerns bother me and the main investors are from foreign ownership interests).

[Anonymous]

I'd rather own more gold but right now it's high perhaps in time I'll be able to pick up more whenever it drops.

[Anonymous]

I think gold and hard assets will do well in the future in this environment- above average valuations for stocks and a bond bubble that has to unwind