Gold vs Real Estate

[pyriel]

Steve Sjuggerud received his Ph.D. in International Finance and has the “real world” experience that comes from having been vice president of a $50 million global mutual fund as well as an analyst, broker, offshore hedge fund manager, diligent world traveler, and editor of True Wealth. True Wealth is one of the fastest-growing investment newsletters in the country, with more than 60,000 current subscribers worldwide. Steve also serves as an advisory panelist for Investment U, which publishes a free, twice-weekly e-mail investment newsletter reaching out to more than 265,000 readers. The Investment U E-Letter helps readers become savvier investors with a font of “actionable wisdom” they use to build their portfolios, in any market.


Hmmm.... this guy is supposed to be a legendary investment analyst but i am not seeing anything about him owning any real estate to be able to back up his claims. Hmmmm...

 

[Gilligan]

The largest difference between gold and real estate is LEVERAGE. It takes $100,000 dollars to buy $100,000 worth of gold. However, a person can buy $100,000 worth of real estate for $5,000 or less. If bought right and managed properly an income property can pay for itself with money left over, AKA, positive cash flow.

 

[mlk_man]

[FONT=Verdana, Arial, Helvetica, sans-serif]Gold Vs. Real Estate: Which Should You Own?[/FONT][FONT=Verdana, Arial, Helvetica, sans-serif]
[/FONT][FONT=Verdana, Arial, Helvetica, sans-serif]by Dr. Steve Sjuggerud[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Gold pays no interest. At least properties pay you rent. Therefore you should own properties…[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]That’s the conventional wisdom.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Yes the first two statements are true. But we need to be careful about drawing the conclusion that you should own rental properties. Now is one of those rare times in history where – even after collecting rent – holding real estate will cost you more than holding gold.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Let me explain…[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Yes, gold pays no interest. It’s one of the many knocks against gold. But don’t forget, the cost of owning gold is darn near zero (by buying shares of GLD, or putting gold in your safe deposit box).[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Meanwhile, Marc Faber gave an example of a typical home speculator in his newsletter last month, concluding that, right now: “a home buyer / speculator has a negative cash flow of more than 5%.”[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]The assumptions Faber used to come up with that negative five percent cash flow figure were conservative … For example, maintenance costs were assumed to be 1% of the value of the home (sounds low to me). And annual property taxes were assumed to be 1.1% (mine are nearly twice that).[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]If you can earn a rent yield of 8% or more of a home’s value, these numbers aren’t so bad. But you can’t get that kind of rent anymore…[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]Steve Leuthold, a legendary investment analyst, looked at rental yields over the last 45 years (as long as he has data). He found that rental yields are lower now than at any time in history – by a wide margin.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Steve puts the current level of rental yield (after expenses) as a percentage of the home price, at about 2.5%. That’s abysmal. [/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]I’m not sure, but I think that figure does NOT include property taxes (which are about two percent where I live), or insurance (which eats up the rest of the yield). Also, importantly, that figure does NOT cover interest on a mortgage. Lastly, this figure does NOT take into account the high cost of buying and selling a house.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]If Leuthold is right, and landlords are willing to accept rent (after maintenance costs) of just 2.5% of the value of a home, then most rental property owners are losing money… And lots of it, if they’ve got big mortgages on these properties.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]So let’s go back to the question at the start… Which real asset would you rather own right now? You’ve got gold - which pays no interest, but has virtually no cost of ownership. Or you have real estate - which pays 2.5% interest (after home maintenance costs) but loses money when you add up the cost of ownership…[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Everyone owns real estate. Nobody owns gold.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Sure, you can earn rent in real estate. But right now, according to some great analysts, all that rent and then some is eaten up, leaving you with a negative cash flow.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]I prefer to own assets that nobody owns, like gold. And it’s more attractive than real estate, on a yield basis.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]You sure don’t get that opportunity every day.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Our advice… sell your second home if it’s costing you money. Get rid of that mortgage. And use what’s left over to buy gold, the hated asset that hardly costs a thing to hold.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Good investing[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Steve[/FONT]