Phil Town on Real Estate Investing
Filed under: Phil Town, Phil Town Investing, Phil Town Rule#1 Author, Rule #1
Phil Town’s Real Estate Investing advice 2009.
“You’ve got money to invest”, says Phil Town. What should you do? Maybe buy a house cheap in today’s bad real estate market.
But why is it a bad market? Before the bubble it was common to pay 8 or 9% for a mortgage. If you have $1000 per month available to pay the mortgage you could handle a $130,000 mortgage for House X. But if the bank lent you the money at 4% you could handle a mortgage of $210,000. What happened in real estate is the mortgage rates went down and people discovered they could buy a more expensive house for the same monthly payment, so they started buying a more expensive house – HOUSE Y. And the market responded by raising house prices. Eventually prices rose to a point where the only house you could buy for $210,000 was House X. That’s where we are today. So what happens when mortgage rates go back up to 8 or 9%? The opposite. Prices of homes collapse downward.
So why would mortgages go up to 8 or 9%? A home loan is a long term loan. Someone is holding the mortgage for 30 years before its paid off. How would you feel about lending me money at 4% if inflation is running 6% per year? You should feel stupid. You lent me $1 Million of buying power today and over the next 30 years you’ll receive money which has the buying power of about $600,000.
Lenders have to lend at a rate above what they think inflation is going to be over a 30 year time frame or they get screwed. Instead of making money on the money you lent me, you’d be losing it. Bankers don’t get all those nice bank buildings because they are stupid. If we are going to get inflation, we are going to get high mortgage rates. And real estate is going to go nowhere. Phil Town is a Rule#1 investor.
Now go play.
Phil Town-Singapore Economics
Filed under: Phil Town Rule#1 Author, Rule #1, rule one investing
Phil Town-Singapore Economics
Rule #1 Image
Warren Buffet says there are 2 rules of investing. Rule #1 is DON’T LOSE MONEY. Rule #2 is don’t forget Rule #1.
Phil Town Traveling Singapore
Phil Town Traveling to Singapore
Phil Town- No Mutual Funds
Phil Town- No Mutual Funds
You’ve got money to invest. Where to put it? How about a mutual fund?
Well , how’s that been working for mutual fund investors? They are paying out about 1% to 2% a year and have a return for the last ten years of zero. The only way that game could go on and on without some sort of investor revolt is that thousands of fund managers making $100 billion a year in fees and commissions are brainwashing their clients into thinking they can’t do better on their own. In fact, without any education at all, you can.
You can replace mutual funds with ‘no fee’ Exchange Traded Funds (ETFs). There is a fee but its almost zero. You won’t believe what just eliminating the fee does to a long term investment. Invest $1000 a year from age 20 to age 65 in a mutual fund with a 2% fee and an 8% average return and you’ll have $200,000 to retire on. Make the exact same investment without the fee in a market indexed ETF (like SPY, for example) with an 8% return and you’ll have $400,000.
So no mutual funds. But what about ETFs as a long term investment? Good call if you get a good mix. There is more to discuss in an economic environment that could include major inflation and dollar devaluation. We’ll get to that in the future. For now, though, think ETF, not mutual fund says Phil Town investment guru.
Now go play.
Phil Town-What its Worth
Phil Town Gives Advice to Investors.
This is not a unique concept. Let’s figure out what something is worth before we buy it. You do it all the time for almost everything you buy. But for certain (but wrong) reasons, that’s what investors very clearly do NOT do when they consider buying into a business. The key to great investing is to be rational. To NOT get caught in the emotion of the moment that’s sweeping the country. If we can stay rational and figure out what a business is worth as a business before we buy it, and then buy it for less than its worth, we’re going to be very successful investors. Well, that’s not true. Investors most certainly do do that when they buy a piece of a private business like a restaurant or a laundry. But they don’t do it when they buy a piece of a PUBLIC business – when they buy shares of stock. When they do buy stock they assume that because there are so many smart people buying the stock that day at that price, the price must be what its worth. In fact, in the stock market, EMOTION is huge player for a Rule #1 investor. Its definitely not the uber-rational place its made out to be. Robert Shiller, a Yale economist, made that very point in his best seller, “Irrational Exhuberance”. In it, in 1999, he predicted the coming stock market crash. The key to great investing is to be rational. To NOT get caught in the emotion of the moment that’s sweeping the country. If we can stay rational and figure out what a business is worth as a business before we buy it, and then buy it for less than its worth, we’re going to be very successful investors. He also predicted the real estate dive. People get extremely emotionally caught up in the stock market because so much money is at stake. When the market is going up, they get greedy and buy just because they don’t want to miss out on easy money. And they freak out when the market is going down and they sell because they are afraid of losing everything.
Now go play. - Phil Town