Business & Economics: June 2006 Archives
Ok, so I'm soliciting opinions on buying real estate in locations other than Los Angeles.
As DeoDuce and I have been exploring St. Charles, MO, we've noticed something strange, there are two kinds of houses available:
1. New construction (5 years or newer), expensive, large houses, small lots, tightly packed subdivisions, far from the city (where I'll work).
2. Older homes (around 20 years), slightly smaller (and less modern floor plans), larger lots (acre-ish), less subdivisiony, much closer to the city).
The Type 1 houses appear to be what everyone here is buying, and they're going for ~$100k more than the Type 2 homes. However, my instinct tells me that in the long run it will be more valuable to own larger plots of land closer to the city. People hate commuting -- as I do -- and like open spaces. The Type 1 houses won't be brand new in a few years; then they'll just be older houses, far from the city, on tiny lots.
So, right now we're thinking that we want to buy a Type 2 house that's close to my work and has a lot of land. Even if it needs renovation (not that 20 years old is that bad for a house) we'll have $100k to play with before we get close to the price of the Type 1 houses. Also, I've read that you pay a premium to buy a new house and that they can depreciate over the first few years, just like a new car.
So, what are your thoughts? Am I foolish to think that land and location will pay off in the long run in a place like Missouri? I find it hard to believe that Type 1 houses will continue to be more valuable than Type 2 houses once they aren't new anymore... and for $100k difference in price we could fix up a Type 2 house pretty nice.
Liz Pulliam Weston provides a list of "9 money rules to live by" that use simple terms to explain the basics of how to handle your money. A very good read for someone who wants to handle their money better, and a great reminder for someone who thinks they've got their bases covered.
(HT: SMI Weblog.)
British Insurance Ltd. is offering insurance policies to protect soccer fans' mental health in the event their team suffers a devestating defeat.
``We have sold more than 1,000 policies, a total of 1 billion pounds ($1.84 billion) of exposure against England leaving Germany precipitately,'' says Burgess, who operates BritishInsurance.com. ``We can insure anything England fans are worried about losing.''Burgess says ``business is bizarre'' and the actuarial science of sorting genuine English soccer calamities from disingenuous ones is thorny, with more complications than a Florida hurricane insurance policy.
The former Lloyd's of London underwriter says each contract would have an independent panel of sports commentators and psychiatric experts whose job would be to examine a policy- holder's claim that England's World Cup exit was premature and that it had scrambled his ability to function.
Earlier this spring, for instance, Burgess agreed to indemnify England fan Paul Hucker for more than 1 million pounds in case he suffers ``mental trauma'' resulting from the team's first-round games against Paraguay, Trinidad and Tobago, and Sweden. The premium costs about $195 and is one of hundreds of similar shelter-from-the-Sven policies his Essex-based firm has established for England fans.
For about the same price, Burgess says he's insured the virginity of three women in Inverness, Scotland, who believe they will immaculately conceive the second coming of Christ.
``I have Scottish fans taking out mental-health policies that pay for treatment if England wins the World Cup,'' says Burgess, who has also sold 30,000 policies to California residents fearful of being abducted by aliens.
Burgess says the policies are legitimate and that his clients are as daft as brushes.
Fascinating, but I think the insurance premium money might be better spent gambling directly against a fan's favorite team.
(HT: Tyler Cowen.)
One of the biggest obstacles facing China as it modernizes is dealing with the country's vast number of rural poor. The governor of the Mizhi province, Wang Lihua, has come up with an idea to help her area's young women expand their horizons and better themselves by training them as housekeepers. The work may sound demeaning to Westerners, but if you read the article you'll see that the opportunities are far better for these women than they've ever been in the past. The story is also an excellent example of "trickle down" economics.
MIZHI, China--The women of Mizhi are reputed to be among China's most beautiful, but they are more than just pretty faces.Although Mizhi is poor, the reputation the women enjoy is almost priceless, one that they are spinning into pure gold. ...
While farming is the main industry, the barren soil of the inland plateau makes for a hardscrabble existence. Few crops are viable. Debt is way of life.
The area is said to be the birthplace of Diao Chan, one of China's ancient Four Beauties popularized in "Romance of the Three Kingdoms," a wildly popular 14th-century novel that follows the history of the turbulent Three Kingdoms period (220-280).
Through the Diao Chan connection alone, Mizhi is known far and wide as the "home of beauties." ...
In 2002, soon after taking office, Wang set about selling her colleagues on the idea of setting up a school to train the area's young women to become housekeepers.
With little opportunity for higher education and a frail job market, women, says Wang, were sorely in need of a boost.
"As a woman, I thought that teaching young women the skills necessary for getting a job was more important than building roads," she says. ...
Since it opened in June 2003, the school has turned out more than 500 young housekeepers. Ninety-eight percent have gone on to clinch jobs in Shanghai, Beijing and other major cities.
The school has also developed contracts with major urban staffing agencies.
The term Mizhipoyi (women from Mizhi) is becoming so popular in domestic employment circles that officials even had it registered as a brand name.
The article includes the stories of two young women who graduated from the school and found work as housekeepers, and their attitude and resolve are impressive. Their children will certainly go to college, and their grandchildren will be absolutely anything they want to be.
(HT: My brother Nick.)
Apparently emotional intelligence and social factors can be more important for professional success than intelligence. Well gee, who knew? "It's not what you know, it's who you know." I've always been brilliant and humble, but it wasn't until after graduating high school that I realized how important it was for me to be sociable. I'm still working on it! A while ago I bought a copy of Daniel Goleman's Emotional Intelligence but I haven't yet found time to read it... I suppose I should move it up the queue.
People have a fixation with real estate. I can't even count the number of times people have told me to never ever sell a piece of property because "prices only go up!". Really? Here's an article from Forbes from 2005 that compares real estate prices across the country with the S&P 500 index.
U.S. real estate sale prices increased more than 56% from the beginning of 1999 to the end of 2004, as tracked by the Office of Federal Housing Enterprise Oversight, part of the U.S. Department of Housing and Urban Development. The S&P 500 index dipped nearly 6% during that same period.But if you take a longer view--say 25 years--you'll find that the S&P 500 has actually stomped the real estate market, from Boston to Detroit to Dallas. From the start of 1980 to the end of 2004, home sale prices increased 247%. A pretty sweet deal, it would seem. Over the same period, however, the S&P 500 shot up more than 1,000%.
Of course, as the article points out, you can't live in a stock portfolio like you can in a house, but then again, your stock portfolio also won't need to be painted and re-roofed every few years. Maybe most important, rental property can go vacant for a month or more when a tenant leaves, which can seriously cut into your revenue stream. Plus, real estate is illiquid and hard to get rid of if there is a downturn, but your mortgage bills will just keep coming.
One other attribute of real estate that the article doesn't mention is that you can borrow money to buy property, which lets you put more money at risk than you actually have. This can work out well when prices go up, but when they down you can end up getting screwed. People who survived the housing bust in Los Angeles in the early 1990s should be familiar with this principle.
Finally, when real estate goes up, all real estate in the country tends to go up; when it goes down, it all tends to go down. One of the most important principles of investing is diversification, and putting all your money into real estate should be an obvious no-no. Since most investors already put a lot of money into purchasing the house they live in, does it seem wise to then put additional investment money into more real estate? Anyway, if you really want to make money from real estate, why bother with the hassle of owning the property yourself? Invest in real estate mutual funds (REMFs).
