Feeling brave? Wanna invest in real estate? Do those millions of households underwater on their houses and the ominously empty stores at your local mall just make you want to jump right in?
Seriously. Investing in something when it is in what might be called the crater and rubble stage is often a good move. Everybody and their brother has known that real estate is a disaster and has been running away from it as fast as possible for a good long while now. The stuff is really cheap.
So assuming you are feeling brave and clever, how do you carry out your scheme? Do you buy shares in a REIT (Real Estate Investment Trust) or do you buy that condo down the road and rent it out?
This is a good question that was raised by Kyle at Amateur Asset Allocator the other week. I promised to "borrow" it and produce my own version of the answer, so here goes.
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Yesterday, being the last Tuesday of June, was, obviously, the day they released the April Standard & Poor’s/Case Shiller Home Price Index numbers. If you are a regular reader of this blog you know I think this is just about the only useful data we get on the housing market. And house prices aren’t just
important to us consumer-homeowners, they are central to the whole Great Recession thing.
Judging by Tuesday afternoon headlines, the data wasn’t so good. "U.S. Home Price Declines Moderating, Index Says" leads the story in The New York Times. The Wall Street Journal has "Home Prices Drop at Slower Pace", Bloomberg tells us "Home-Price Slide Eases" and the Boston Globe carries a story with the headline "Home prices post 18.1 percent annual drop in April".
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Last Thursday I ran a post that discussed the grim state of the credit card business. In it I discussed a New York Times article about consumers settling their credit card debt for less than what was owed. I even passed along some simple negotiating tips.
One thing I (and the Times) failed to mention is that if you settle your $3000 credit card debt for $2000, the $1000 that was written off by the credit card company is often considered taxable income. You will get a 1099 on it and come next April 15 you will either have to pay taxes on it or file a special form to explain why you don’t have to pay taxes on it. (This is discussed in detail in a great post at Don’t Mess With Taxes inspired by the same Times article.)
That it may be taxable doesn’t quite seem fair, does it? You’re broke, you manage to convince the card company to be "reasonable" and then Uncle Sam wants a cut. Actually, it’s not completely nuts. You really are up $1000. You got $3000 of stuff (and interest payments) for $2000. And the $1000 reduces the card company’s taxable income, so it seems mildly reasonable it might increase yours.
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On Monday a guest post at I Will Teach You To Be Rich disclosed the secret formula to saving $71,000 in mortgage interest payments.
There are things I like about I Will Teach You To Be Rich. Ramit Sethi, its owner and usual author, is anti-Latte Factor and even more obsessed with 
Suze Orman than I am. And he’s often quite funny. But the blog also awfully gimmicky. And the scheme to save on your mortgage is a classic gimmick that’s been knocking around for years now and should probably just be put out to pasture already.
The very specific sounding $71,000 mentioned in the post’s title turns out to be an arbitrary estimate of what you could save in interest, assuming a particular rate and principal amount. The way you do this is through bi-weekly payments.
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I know I shouldn’t be doing this. I talked about home prices yesterday, and I’ve singled out the Wall Street Journal’s Brett Arends way too many times already. (This will be his sixth mention in this blog. See also one, two, three, four, and five.)
I don’t want to give the impression he is exceptionally bad. He’s merely typically bad, but writes often and on topics I like to talk about.
But Arends ran this column yesterday sharing his thoughts on house prices and, well, fish gotta swim and birds gotta fly.
He starts out by mentioning the previous day’s release of the Case-Shiller home price indexes for March. This update, which was, let’s face it, more or less as expected, was “startling” to Arends because of “What the latest data show about the long-term of the real estate market.”
Apparently, this last set of numbers was the missing piece needed to allow Arends to make the observation that since the late 1980s and early 1990s, house prices have only beaten inflation by one or two percentage points a year.
Well, golly.
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Seriously. Investing in something when it is in what might be called the crater and rubble stage is often a good move. Everybody and their brother has known that real estate is a disaster and has been running away from it as fast as possible for a good long while now. The stuff is really cheap.
Housing, Investing | Frank Curmudgeon | 
July 8, 2009 11:30 am | 
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