U.S. bankrupt by 2019-guaranteed!!

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U.S. bankrupt by 2019-guaranteed!!

Rich Weese
Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes

Now that I have your attention, I'm open for suggestions as to how we avoid the inevitable.

I've been reading and studying up on the financial problems that keep growing here in the U.S. Here is an article that has some scary #'s and conclusions. I keep telling people, we're going to run out of money if we keep spending like drunken soldiers. The social programs are unsustainable. Here is an article with projections you should get familiar with.

http://www.americanthinker.com/2010/05/americas_growing_vulnerability_1.html

I don't care who wrote it, I'm looking at the #'s. At end of 2008. the U.S. debt to GDP was at 40.2%.

" In the four years of the Obama administration, the debt will increase $5.7 trillion (equal to the entire debt incurred by the United States since its inception up to and including 2008). This will result in the country having a debt to GDP ratio of 72% by 2012, a mere two years from now."

We all heard about Greece going under. It was deadmeat if the EU didn't come in and bail their arses out. If U.S. gets to that point , who will bail us out? How close are we to that situation at the current rate of growing our debt? Well, here is the comparison of where we are, where we are headed and possible results or fixes, all in black and white.

"Without significant repeal of the Obama tax and regulatory policies and changes in the entitlement programs and overall reduction in government expenditures, the current spending proposals and impact of the trillions needed for ObamaCare, Social Security, and Medicare and interest payments will result in the debt-to-GDP ratio exceeding 100% by 2019.
Recently the bond ratings of Greece, Portugal, and Spain have been downgraded (Greece to junk bond status). Not only is the entire European Union threatened with collapse because of the excessive debt and budget deficit policies of these countries, but so is the entire world economy. In the case of Greece, the debt-to-GDP ratio is 125%, and the annual budget deficit is 13.6% of the GDP. Greece can no longer borrow money (except at excessively high interest rates) and must turn to the European Union for a bailout in order to pay debts due within the month.
By comparison, the United States, if it remains committed to the Obama agenda, will experience a debt-to-GDP ratio of 104% and an annual budget deficit of 9.7% of GDP by 2019. This nation will become the next Greece."

The above is all pulled from an article listed above. I continue to wonder where all the money is going to come from to handle all the new programs. Econ 101 talked about supply and demand,,,PERIOD. We have removed 1/3 of all wealth with RE and stocks devaluation , causing a reduction of available capital. Yet, the administration continues to spend at unprecedented speed . Does it also seem we are having more catastrophies needing more funds than ever before? Try to keep track of all the Tornados, earthquakes, floods, hurricanes etc. Almost impossible. I'm telling you, we're running out of money. Go to your bank and try to get 100K in cash. They'll most likely have to ORDER it and make you wait a few days for delivery.
Simple econ 101- U.S. is going backwards, and it ain't going to be pretty. Button down the hatches and keep your eyes open. In for a bumpier ride than ever before, imo. I hope I'm wrong, but will plan for the worst. You should also. Rich

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Eddie Ziv
Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
16y

Rich, Although I disagree with you politically, I respect your "bottom line" opinion. Obama is not the cause but a symptom. If you look at all the combined entitlement programs (Social security, medicare, welfare, housing, etc) they are the biggest culprit - 56% of the budget (interestingly, defence is only 23%)
http://en.wikipedia.org/wiki/United_States_federal_budget
...And that before the insurance reform that was just passed.
Now, find me one politician (I don't care right, left up or down) that is willing openly to cut any of those programs...

Now, lets talk about the bottom line. For us, REI who are in the buy-and-hold business, I'd say the following.
If you own a property with adjustable or interest only loan, GET OUT OF IT FAST! If you can refinance it for 8%, 9% or even 10% fix rate, go for it. Inflation is coming and that 10% interest would look like a steal.
If you cannot refinance (DIT,bad credit, etc) Sell it because if you don't, chances are you're going to lose it.
I'd say, you have good 3-4 years to do it.
If you have a property that have a fix rate mortgage - keep it. That mortgage payment will eventually will look like your monthly basic cable payment.
Get out of section 8. You still have time but eventually, when the government runs out of money, guess where they are going to cut first.
In general, I would suggest that everyone here pay attention and follow the news. There will be many signs in the years to come to show whether or not we are heading in that direction. Those signs may not be a headline grabbers, but rather bits and pieces of "bottom of the page" news that will tell the tale.

This just my humble opinion... I could be wrong...

Your thoughts...

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  • Eddie Ziv
    Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
    16y

    Rich, Although I disagree with you politically, I respect your "bottom line" opinion. Obama is not the cause but a symptom. If you look at all the combined entitlement programs (Social security, medicare, welfare, housing, etc) they are the biggest culprit - 56% of the budget (interestingly, defence is only 23%)
    http://en.wikipedia.org/wiki/United_States_federal_budget
    ...And that before the insurance reform that was just passed.
    Now, find me one politician (I don't care right, left up or down) that is willing openly to cut any of those programs...

    Now, lets talk about the bottom line. For us, REI who are in the buy-and-hold business, I'd say the following.
    If you own a property with adjustable or interest only loan, GET OUT OF IT FAST! If you can refinance it for 8%, 9% or even 10% fix rate, go for it. Inflation is coming and that 10% interest would look like a steal.
    If you cannot refinance (DIT,bad credit, etc) Sell it because if you don't, chances are you're going to lose it.
    I'd say, you have good 3-4 years to do it.
    If you have a property that have a fix rate mortgage - keep it. That mortgage payment will eventually will look like your monthly basic cable payment.
    Get out of section 8. You still have time but eventually, when the government runs out of money, guess where they are going to cut first.
    In general, I would suggest that everyone here pay attention and follow the news. There will be many signs in the years to come to show whether or not we are heading in that direction. Those signs may not be a headline grabbers, but rather bits and pieces of "bottom of the page" news that will tell the tale.

    This just my humble opinion... I could be wrong...

    Your thoughts...

    4Reply
  • Rich Weese
    OP
    Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
    16y

    Eddie- I've missed you! Nice you are responding to my thread. Normally it is just J Scott! Don't pigeon hole me on political view. I'm not a Bush fan. He started this running the printing press overtime with his big bailout.
    i just want someone fiscally awake instaead of brain dead. I'd take Romney in a heartbeat. I'd also take a guy I saw on TV. Ex CEO of Dominos, I think. Fiscally bright, african-american and I don't know his Party, but he knows how to run a company.I didn't say obama was the cause. He has just put the printing press on steroids! That is speeding up the catastrophy,imo.There just isn't enough money left floating around, and there'll be less very soon. Hence, your inflation concern.Rich

    0Reply
  • Eddie Ziv
    Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
    16y

    Hi Rich, I'm happy to be back. I was working on a TV show with the JONAS brothers for Disney. (If you don't know who they are, don't feel bad about it, I'm sure your grandchildren know... :wink: )

    ...And to the issue at hand, I'm cuious to learn how do you personally prepare to new reality. Less liquidity? More liuidity? Portfolio shifting? It seems that you proved over the years, that you know where to put you money in...

    0Reply
  • Mike McKinzie
    Investor · Westminster, CO · Member since 2009 · 1k+ posts · 1k+ votes
    16y

    I like 'free and clear' properties. No leverage but no debt concerns either. People have to live somewhere, might as well be one of my houses. And if the rents go up or down, it doesn't affect me that much.

    Plus, diversify across several markets.

    1Reply
  • Shanti S.
    Real Estate Investor · Longmont, CO · Member since 2009 · 208 posts · 109 votes
    16y

    Free and clear sounds nice but Mike do you think inflation is coming, and that it will probably hit hard?

    If so, aren't you concerned that the value of all that equity in your free and clear properties will be cruelly devalued? Yes, you'll still own the properties free and clear, and the "values" will probably go up, as will rents, but the pre-inflation crisis dollars you invested in having those properties free and clear will be savaged.

    How about leaving a conservative amount of equity in each, pulling out tax free refi dollars, and investing those dollars in something better suited to weather the storm? More investment properties financed at today's fixed rates, or at the very least some kind of insurance like precious metals?

    Rich, I read a really interesting article on Greece the other day - how basically most of them pay a tiny percentage of the taxes they are supposed to pay, and how the govt only investigates those who pay, not those who don't. No wonder they are in the tank!

    "In the wealthy, northern suburbs of [Athens], where summer temperatures often hit the high 90s, just 324 residents checked the box on their tax returns admitting that they owned pools.

    So tax investigators studied satellite photos of the area — a sprawling collection of expensive villas tucked behind tall gates — and came back with a decidedly different number: 16,974 pools.

    Various studies, including one by the Federation of Greek Industries last year, have estimated that the government may be losing as much as $30 billion a year to tax evasion — a figure that would have gone a long way to solving its debt problems.

    When tax authorities recently surveyed the returns of 150 doctors with offices in the trendy Athens neighborhood of Kolonaki, where Prada and Chanel stores can be found, more than half had claimed an income of less than $40,000. Thirty-four of them claimed less than $13,300, a figure that exempted them from paying any taxes at all. "

    http://www.nytimes.com/2010/05/02/world/europe/02evasion.html

    1Reply
  • Eddie Ziv
    Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
    16y
    Originally posted by workerdrone:
    Free and clear sounds nice but Mike do you think inflation is coming, and that it will come probably hit hard?

    If so, aren't you concerned that the value of all that equity in your free and clear properties will be cruelly devalued? Yes, you'll still own the properties free and clear, and the "values" will probably go up, as will rents, but the pre-inflation crisis dollars you invested in having those properties free and clear will be savaged.

    How about leaving a conservative amount of equity in each, pulling out tax free refi dollars, and investing those dollars in something better suited to weather the storm? More investment properties financed at today's fixed rates, or at the very least some kind of insurance like precious metals?

    First of all, when there is inflation, historically real estate prices go up. Yes, there is a nominal devaluation, but remember, the price of your property never change until... you sell it. If you cash flow, you cash flow. The value of the property is irrelevant at this point.
    I would agree as I stated before that if you have a fixed-rate mortgage, that debt will deteriorate due to the devaluation of the currency.

    0Reply
  • Shanti S.
    Real Estate Investor · Longmont, CO · Member since 2009 · 208 posts · 109 votes
    16y

    Prices will probably go up in inflation, yes - but if you have 100% equity in a $200,000 house and it inflates to $300,000 - you now have 66% equity and it's in deflated dollars that will buy much less. If you took a 75% loan at single digit fixed 30yr rates, I think the picture is much better depending on where you put that $150k in tax free refi income you pulled out initially....

    Couldn't agree more with your get into fixed rates warning to folks Eddie...

    0Reply
  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    16y
    Originally posted by Rich Weese:
    I'm open for suggestions as to how we avoid the inevitable.


    First, by definition, you can't avoid the inevitable...if you could it wouldn't be inevitable...

    This country has been spending at a deficit since Reagan, and it's unlikely to stop anytime soon, as nobody on either side of the aisle is willing to stand up and say, "No more deficit spending!"

    Clinton implemented "pay as you go," which was the first time since Reagan that any President seriously tried to balance the budget. Bush II scrapped pay-as-you-go, and the deficit has been running wild ever since.

    Bush and Obama deserve more of the blame than any two Presidents in history, but this isn't just the fault of the government. This is also the fault of the people who are increasingly lazy and ignorant -- this is evidenced by the reduction in normalized GDP over the past many years.

    While everyone talks about cuts to social programs (which is a good start), we spend almost as much on defense, which is ridiculous. Most of the defense programs that are being funded are hold-overs from the Cold War and before, and are just a way to provide pensions for long-time defense employees and military personnel.

    You could probably cut half the defense budget without reducing our overall security in this country, but that would result in a lot of pissed off senior military officials, which no President is willing to deal with.

    We spend over a trillion dollars per year on social programs and another trillion on defense, so let's start cutting there.

    If you disagree with government-subsidized health care, then get rid of medicare as well (though not a single Democrat or Republican would vote for that). Get rid of social security. Get rid of welfare for adults without kids, and add social penalties for having kids without the ability to support them.

    Then start cutting defense programs left and right. Get rid of pension benefits for veterans who leave the military before they are 30 (they have plenty of time to get a job and take care of themselves). Get rid of cold war programs, and fire half the government employees.

    As for what we can do to protect ourselves, be smart, be entrepreneurial, start a business, make a lot of money, and move a reasonable amount of it into foreign currency in case of a major devaluation of the dollar. If you're going to work a 9-5 job and expect that someone else will take care of you, don't be surprised when you end up with nothing.

    Buy real estate. Historically, it tracks inflation. Pay down debt with inflationary dollars, not deflationary dollars.

    Buy property in another country where you would consider living. Consider it an investment and a back-up plan.
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  • Eddie Ziv
    Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
    16y

    To be honest folks, I don't think we on this forum can fix the problem. Yes, we can argue who did what and how America would be better off if they in Washington, just listen to us. Well, we can do it at the polls every two to four years.

    I would be more interested to read what people here suggest regarding coping with that gloom and doom scenario on a personal level as RE investors.

    0Reply
  • Jim Wineinger
    Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
    16y

    What I see comming (and has already started) is "multi-generaltional" living.

    As we get back to each family taking care of itself, and being responsible for themselves (all generations), then the answer will be in buying and holding those multi-family units and renting them to those responsible "multi-generaltional" families who have proven themselves to you in your current rentals.

    Those that show responsibility for themselves and thier families (or communities) are the most likely ones to survive in any upcomming upheavals as they all will band together as was the case in the "wild west" days.

    0Reply
  • Mike McKinzie
    Investor · Westminster, CO · Member since 2009 · 1k+ posts · 1k+ votes
    16y

    Workerdrone, I am not sure I follow you. If I own a property free and clear, I have 100% equity no matter what the value of the property is.

    I stated that I have no leverage, and that is a drawback. But in these uncertain times, lower debt has good advantages. I have had more vacancies in the past 2 years, than I have had in the previous 10 years. Empty rentals with a mortgage are the bain of real estate investing.

    One advantage of owning free and clear is the ability to sell and carry back the first trust deed note. Another advantage is the ability to refi when a good opportunity presents itself. I already refied and bought another rental recently. I plan on buying five more this year, maybe more. Having free and clear properties gives me a pool to pull from when a buyers market exists like it does now.

    The number one problem we face today is over mortgaged properties. Debt must be used wisely.

    0Reply
  • Rich Weese
    OP
    Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
    16y

    Eddie- these are really unprecedented times, imo. Like I've said before, this seems to be a Perfect Storm brewing out there.
    I have some threads or blogs somewhere on here with my suggestions, but here they are again in short form. I believe a combination of what Mike and Drone have said is the only solution. Kind of a hedge your bet play.

    1. Own a portion of real estate free and clear(no condos, they're NEVER f&c). If possible, the net income needs to be more than what you need to live on. This is owned in an entity that is bulletproof from liability, and yes, that is possible to do.

    2. Own another portion of RE that is mortgaged to the hilt. Owner financed properties is the way to go ,imo ,since it avoids the limitations in # of properties you may have. These are owned in a DIFFERENT entity so there is no cross over with the first grouping for possible problems. Own as many as you are comfortable with. These will afford you offsets tax wise with the cash flow received from F&C batch and be your hedge against runaway inflation if and when that occurs. If things go the other way in a catastrophy, just walk away.

    3.I liked the diversification Mike M mentioned. As most know, I have properties in UT,AZ, CA, many areas of TX, FL and Cancun, Mexico. The last one has some special benefits!!

    4. To satisfy Eddies' concern on liquidity, and in agreeing with Drone, I like precious metals. Not paper certs and not held by someone else. I've been doing this a long time and when I see gold 3 times my purchase price and silver 4 times the priceI paid, I have a hard time holding it. I have to remind myself that it is just an insurance policy and not really an investment I'll ever benefit from money wise. I like metals in small useable pieces. Junk silver bags(its' still real money) and small gold pieces like 1/10 to 1/4 oz ingots.

    5. I'm a firm believer on having a large supply of edible food, water availability and trade items in case the world really does go to hell: lighters, matches, spices, soaps etc. These are just if we are returned to the stone age!

    We will see more generational living as pointed out. This will cause more vacancies , imo. Need to be smart on your choices.

    I appreciate the thoughtful replies. That is why i posted the thread.
    I agree with Eddie. We're not going to fix the countrys' problems on here. There are too many and they are multiplying too quickly. We need to worry about our own situation.That is what most populations of the world are having to do now. I see it worldwide where I travel. Many less social programs, no help from most other countries in catastrophies, no foreign aid by most countries, no giant defense budgets etc. I've seen lots of small families with their garden, cow, chickens etc in Mexico, Soviet states, China, Cambodia, and most recently Egypt. I hope we never have to do that in the U.S., but that was what the country looked like in the start up stages.
    This didn't end up short as I promised. Sorry about that. Rich

    2Reply
  • Rich Schroeder
    Real Estate Investor · Elkhorn, WI · Member since 2008 · 453 posts · 104 votes
    16y

    My Congressman, Paul Ryan, has written a "roadmap" plan for America. He's had it online for quite some time (I believe more than 2 years). It tackles Social Security, Medicare, Medicaid, Health care, tax reform...etc. Unlike some "plans", this one is in writing and open for review on the internet. The plan really tackles real issues in a way that both sides should be happy with, IMO. Have a look...

    http://www.roadmap.republicans.budget.house.gov/

    1Reply
  • Scott Williams
    Battle Creek, MI · Member since 2008 · 87 posts · 11 votes
    16y
    Originally posted by Mike M:
    Workerdrone, I am not sure I follow you. If I own a property free and clear, I have 100% equity no matter what the value of the property is.

    I stated that I have no leverage, and that is a drawback. But in these uncertain times, lower debt has good advantages. I have had more vacancies in the past 2 years, than I have had in the previous 10 years. Empty rentals with a mortgage are the bain of real estate investing.

    One advantage of owning free and clear is the ability to sell and carry back the first trust deed note. Another advantage is the ability to refi when a good opportunity presents itself. I already refied and bought another rental recently. I plan on buying five more this year, maybe more. Having free and clear properties gives me a pool to pull from when a buyers market exists like it does now.

    The number one problem we face today is over mortgaged properties. Debt must be used wisely.

    That seems like a great strategy, I would think free and clear real estate would be hugely better than cash in the bank or even an invested retirement account. The rental income should be a better return and the property should hold value better.

    Do you worry about being a target so to speak?

    Seems like there are new laws coming out, like the new epa rrp lead paint law, that could be bad for landlords. Plus the general idea that as cash gets tighter will the rules change to try getting more money from the "haves" to balance what the "have nots" need.

    We have such a large system I am sure there are people out there intelligent and clever enough to turn things around, but will we ever elect them?

    0Reply
  • Ali Samana
    Real Estate Investor · Frisco, TX, TX · Member since 2010 · 388 posts · 138 votes
    16y
    Originally posted by Mike M:
    Workerdrone, I am not sure I follow you. If I own a property free and clear, I have 100% equity no matter what the value of the property is.

    I stated that I have no leverage, and that is a drawback. But in these uncertain times, lower debt has good advantages. I have had more vacancies in the past 2 years, than I have had in the previous 10 years. Empty rentals with a mortgage are the bain of real estate investing.

    One advantage of owning free and clear is the ability to sell and carry back the first trust deed note. Another advantage is the ability to refi when a good opportunity presents itself. I already refied and bought another rental recently. I plan on buying five more this year, maybe more. Having free and clear properties gives me a pool to pull from when a buyers market exists like it does now.

    The number one problem we face today is over mortgaged properties. Debt must be used wisely.


    Hi Mike,

    I understand the advantages of owning properties free and clear. However, I have a question.

    If we are expecting an inflation, wouldn't make sense to have a mortgage though? The reason I ask is because if you have a house that you invested 20k cash in (80k) mortgage and it is making you 3000/year (15%). That would be a good investment. IF however, when inflation hits and the rents rise, the same property could rent for a couple of hundered a month more, thus increasing your cash flow and possibly doubling your cash on cash return. If you have a fixed low interest rate, and inflation hits, wouldn't you be in better position to capitalize?

    Just asking so I learn more.

    0Reply
  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    16y
    Originally posted by Ali Samana:
    If we are expecting an inflation, wouldn't make sense to have a mortgage though?

    Yup, this is definitely the case (and I think Mike realizes that based on other things he's written)...

    It's always financially sound to finance assets using deflationary dollars and to repay them using inflationary dollars...

    This is true because of what you said (increased rents), but also because salaries tend to rise during inflationary periods, meaning you'll have more money to pay off that "fixed" loan amount.

    I don't want to put words in his mouth, but I think Mike was mostly pointing out that debt is a double-edged sword, and while it has advantages, it also adds risk...

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  • Account Closed
    Landlord · Seattle, WA · Member since 2010 · 3k+ posts · 1k+ votes
    16y

    Debt is definitely a double edged sword. Rental rates may grow, but vacancies may grow as well because those that didn't plan well may need to find cheap alternatives. Anyone highly leveraged may find themselves in trouble especially if expenses of owning real estate grow faster than rents can. Inflation hits segments of the market differently.

    Having real estate that is free and clear is less risky and can produce some nice cash flow. My only concern would be what might happen if people become desperate. Taxes are going to grow and if to much pressure is put on the economy it may stagnate or grow worse, this could lead to conditions that we have never seen in this country.

    I would rather look at some middle ground where I am using leverage but not overly leveraged. This can offer some protection if vacancies become a bigger issue or if expenses outpace what can be charged for rent.

    0Reply
  • Shanti S.
    Real Estate Investor · Longmont, CO · Member since 2009 · 208 posts · 109 votes
    16y

    For those of us in this thread, like myself, that don't have the option of owning enough free and clear properties to survive off the rental income if needed; I'm interested in their best strategies as well.

    My plan -
    - sell my luxurious, too large primary residence this year and move into a unit of an investment multifamily that I'm purchasing. This should reduce my housing expenses by about 80% - and motivate me daily to step up the investing so I can get back to a private home :-)
    -Purchase more investment properties at the highest leverage fixed rate financing I can manage to find.
    -Keep working my job in the meantime
    -Keep gardening and cooking more at home rather than eating out
    -Have my emergency funds (untouchable, lost my job or in a crisis type of funds) in physical precious metals - liquid, but not too liquid, and protected from inflation
    -Have investment property reserves in the bank where it will make my creditors happy to see it
    -Continue to stock up on tools, food, household supplies, ammo, etc - commodities that store well and for which prices will continue to soar.
    -Continue to drive my humble old paid-for car, secure in the knowledge that I can buy another if it lets me down, without breaking a sweat

    Critique please! :-)

    Edit - also reduced my 401k contribution a while back to the minimum that will allow me to get the full matching contribution from my employer - I'm basically expecting it to be seized at some point in my future

    1Reply
  • Eddie Ziv
    Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
    16y

    Rich, Great advise. although I'm not so big on precious metals. I don't see it purpose and in real financial collapse it seems that it would be hard to trade (Authentication and all). Having said that, I do agree that in transitional times (From bad to worst...) precious metals can be liquidated fast.

    Ali, If I understood Mike M's point about mortgage, a fixed rate mortgage is great in inflationary scenario IF... you have a steady renter. However, in a scenario where more people live in a multi-generational form, the rental market is shrinking and thus having mortgage with no renters can be "deadly".
    I'm not sure that MFR is the answer. It may be multi-story SFR that could be the solution.

    0Reply
  • Rich Weese
    OP
    Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
    16y

    Drone- fantastic plans! I even voted your post up.Only 2 small tweaks.
    1. I'd buy a cheap house to move into and have it free and clear, rather than a unit in a multi, unless that is also F&C.
    2. I hate banks. I'd put the same amount in the bank , but buy a short term CD with it for the same amount. It'll show on your credit report as an asset. Then, go BORROW against it using it as security. I'tll still show up as an asset and the loan against it will just blend in with your other stuff on your financial statement. The small net interest you'll pay is tax deductible and worth it, because you'll have the cash back in your hands to use or have as reserve if all hell breaks out.

    Charles- I do believe we'll see things we've never seen before in this country. I continue to suggest, plan for the worst and hope for the best.

    "would rather look at some middle ground where I am using leverage but not overly leveraged. This can offer some protection if vacancies become a bigger issue or if expenses outpace what can be charged for rent."

    Charles- I don't agree with this last paragraph. Middle ground, imo, is bad. If you are free and clear, lender can't take it back. If you are mortgaged to the hilt, lender WON'T want to take it back. If you have equity in the home, those are the ones lender will take, starting with those with the most equity.

    Ali- good point. If able to do both highly leveraged and free and clear, best of both worlds , imo. Remember to keep entities separate.

    I really think everyone can do something as a hedge against bad news. I probably go overboard, since I'm OCD. Just do what you can, or throw caution to the wind and hope the rainy day never comes. Rich

    7Reply
  • Account Closed
    Landlord · Seattle, WA · Member since 2010 · 3k+ posts · 1k+ votes
    16y

    Rich, I think it depends on how bad it gets. If it gets bad enough it won't matter how you own your property it could be taken from you. The middle ground in my opinion gives protection in case of inflation while freeing some cash which otherwise might be tied up.

    It is not just the government and the banking industry I would be concerned about. If it becomes to hard for the average person to earn a living and pay their bills, what is going to happen? I don't think people would remain passive for a long time. A long period of stagnation with high unemployment and a generation of kids that have had almost anything they wanted seems like a recipe for disaster.

    Hopefully things can be turned around and we bring in leadership that will make necessary changes. A big hope. People will need to insist on my accountability in our leadership as well.

    0Reply
  • Kevin Yeats
    Lender · Fort Pierce, FL · Member since 2009 · 825 posts · 486 votes
    16y

    In anticipation of periods of inflation, your best financial position is to make long-term commitments for fixed payments but receive payments that reset frequently.

    Homeowners loved the high inflation days of the late 70s and early 80s. Most had long term fixed rate mortgages but could renegotiate salaries and wages with current employers or find higher (nominal) income elsewhere.

    If you expect double-digit inflation in 2012, you could try to take out long-term (30 year) fixed rate mortgages today to buy rental properties. If the inflation occurs, you would be able to increase the monthly rents while still paying a fixed rate of return to the lenders. Unfortunately, lenders have learned their lessons too. Typically, they will not "go long" and fixed on investment properties. They protect themselves by limiting the term of the note and/or require periodic (nominal) interest rate adjustments.

    * * *
    I am surious about those who feel that precious metals make sense. In a crisis situation, you have to sell the physical metals (gold, silver etc) to someone else for currency or at least trade those pieces of metal for something else. Depending on the depth of the crisis, other items may have higher value and more readily accepted in trade - food, water, water purification systems, tools. My point is that someone has to be on the other side of the transaction and be willing to accept what you offer.

    3Reply
  • Eddie Ziv
    Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
    16y
    Originally posted by Kevin Yeats:
    If you expect double-digit inflation in 2012, you could try to take out long-term (30 year) fixed rate mortgages today to buy rental properties. If the inflation occurs, you would be able to increase the monthly rents while still paying a fixed rate of return to the lenders. Unfortunately, lenders have learned their lessons too. Typically, they will not "go long" and fixed on investment properties. They protect themselves by limiting the term of the note and/or require periodic (nominal) interest rate adjustments.

    That's all true if... you can find a renter. The common opinion here is that we are not only heading toward inflation but rather the worst kind of stagflation... If you have a mortgage but no tenants, you are in big trouble.
    Also, if you have no income but you own free and clear property, you can kick the tenant out and move in. (In many states you are allow to do it with a proper notice)

    0Reply
  • Eddie Ziv
    Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
    16y

    OK, so here is more news. As I mentioned earlier. The big new will come in bits and pieces at the bottom of the page. This one is from "The Marker" a financial internet publication affiliated with the Israeli newspaper "Haaretz":

    "Index of Wall Street's volatility (VIX) - also known as the "fear index" because it provides some indication of investors' fear level on Wall Street - now jumps 21% in the highest level since February After fears of debt crisis in Greece and spread of other economies such as Spain and Portugal led to sharp declines in European stock exchanges Wall Street.

    Index VIX, options are traded in Chicago, starting now at -22.7% to 24.79 points, after European bourses erased the gains recorded in 2010 debt crisis in Europe following the decline also dragged Wall Street. Athens Stock Exchange fell today by 6.7%, the Madrid stock exchange fell 5.4%. Wall Street, the Dow Jones down 2%, Nasdaq index down 3% S & P 500 down 2.3%.

    European VStoxx Index, which tracks the price of the options that protect investors against declines in the index euros Stokes 50, jumped 15% today on the crisis. Last week the VIX index starting one - its biggest daily since October 2008 following the debt crisis in Greece.

    "Investors are concerned that Spain and Portugal will need extracting. People are afraid," said Chris Rich, chief options strategist at Jones Trading in Chicago, Bloomberg.

    Spanish Prime Minister Jose Luis Rodriguez Asfatro, today denied rumors circulating earlier in the markets That the fourth-largest economy in Europe and seek assistance of $ 280 billion EUR Euro bloc friends said that this is "absolute madness".

    Falls in the markets following the debt crisis: European stock markets wiped out the gains from -2010; Athens fell by 6.7% Print version Send to a Friend Share on Twitter
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    Debt crisis fears spread in Greece and other countries today dragged the sharp declines in European stock exchanges, as well as the rate and leading indices on Wall Street. Athens Stock Exchange fell by 6.7%; Madrid fell 5.4%; Lisbon lost 3.8%; London down 2.6%; Frankfurt fell by 2.6% in Paris fell 3.3%. European stock markets wiped out following the rise and fall recorded in 2010.

    Wall Street's leading indices were also recorded sharp declines, the Dow Jones loses 2.1%, Nasdaq down 3% and S & P 500 down 2.3%. Gold falls 0.6% to -1,175.90 dollars an ounce after having -1191.5 dollar rose to an ounce - a record five months.

    SundayGreek government reached an agreement with the euro and International Monetary Fund (IMF) aid package Total 110 billion euros (146.5 billion dollars) to Greece for three years, in return for cuts of 30 billion euro budget of Greece, including public sector wage freeze, cuts in pensions and increasing taxes. Despite expectations, the agreement failed to calm the fears of the spread of the crisis to other countries in Europe, especially Spain and Portugal.

    Cost of insurance protection against the insolvency of Greece bond (CDS) increases to -6.91%, although German politicians and businessmen told the newspaper Hendlasbelat "that they intend to buy Greek bonds.

    Greek government bonds fell today for the first time in four days, following fears for the fate of the euro. Return on Greek government bonds in ten years is -0.42% to -8.92%. Spread between government bond yields on ten-year Greek and German than their counterparts to -5.92%, compared to 5.44% yesterday.

    Frankfurt Stock Exchange

    Madrid Stock Exchange declines after overcoming fears that Greece will join As suffering from a crisis of liquidity. Number of economists have expressed relief package estimates that Greece will not be able to prevent a general crisis in the euro area. However, today tried to credit rating agencies Moody's, Fitch to calm the fears by saying that do not intend to lower the credit rating of Spain, after it dropped last week Standard & Poor's from AAA to AA.

    Paris Stock Exchange

    Euro weakened against 13 of the 16 currencies of Europe's trading partners, falling to below U.S. $ -1.31 for the first time since April 2009. Nobel laureate economist, Joseph Stiglitz, said that the Greek crisis puts rate risk, and that euro zone officials did not do enough to prevent the spread of the crisis. The crisis in Greece "may indicate the end of the Euro," Stiglitz said in an interview with BBC radio

    Banks led the declines in Madrid and Athens. Banco Santander in Spain fell 7.1%. BBVA shed 7.5%. Bank of Greece fell Nsonl at 13.7%. Declines were recorded across the European banking sector. UBS fell 5.1%. BNP Paribah fell 6.1%.

    1Reply
  • Kevin Yeats
    Lender · Fort Pierce, FL · Member since 2009 · 825 posts · 486 votes
    16y

    Eddie, you are correct.

    It really depends on how accurate your vision of the future is. If you own rental properties (even without mortgage debt) but most of your tenants are on fixed (nominal) income (seniors on SS), during an inflationary period, your tenants may not be able to keep up with the rent payments increases.

    I didn't want my post to go too long.

    Again, you reinforce my point. The best position is to have something that many people want and can afford to buy (or trade for). Housing services or bullets and water purifiers - it depends on your view of the future.

    0Reply
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