muses of the moment

April 28, 2014

Brace yourself

Filed under: Housing Market, Martin Armstrong, Precious metals, Real Estate Investments, The Banking Crisis — totallygroovygirlfriday @ 1:39 am

As totallygroovygirlfriday has mentioned before, she is not going to hold all her gold/silver forever. The next investment class that groovygirl will pursue is real estate, specifically residential home rentals and leases and then later, if luck is on her side, commercial real estate. This is just what gg is doing; there are lots of other investments out there. You are responsible for your own financial decisions.

Just to be clear, totallygroovygirl is NOT selling precious metals right now. GG is just dipping her toe into a new investment class to see what happens and learn.

Although the main investment move will be later, when gold/silver are closer to their highs in the long-term cycle (sometime between 2015-2020). But in preparation to that move, groovygirl has been researching and studying different types of real estate investing since 2003. Reading and researching are fine, but actual experience in an investment is a quick and excellent teacher.

GG always does a lot of research before she moves to action. She studied gold, silver and dollar cycles for four years, before she bought her first gold investment. And even after that, she moved slowly into the position she is in now.

Groovygirl has a long-term, life-time investing plan and is very patient. You may not be this way. That’s Ok. This transition from precious metals to real estate over the next 10 years is part of that life time plan.

Financial education and preparation equals financial freedom, which in turn, create nights full of restful sleep, and not worried-induced insomnia.

Now, as we know from Martin Armstrong’s Real Estate Cycle, the US housing market is in a long-term cycle and we are now on the downside of that 2007 peak, with the ongoing banking crisis/mortgage derivative crisis being the main driver of this long-term decline through 2032. There are ways of making money in any market condition, the important thing is to know which way the market is going.

Groovygirl has decided to make her first real estate investment now and not later for several different reasons. But she is only making one real estate investment right now.

Groovygirl’s real estate investment forecast chart is based on cash flow, not capital gains. In fact gg is expecting a tax loss, and will (hopefully) time that loss to offset other income. This is part of the exit strategy. Always know when you are getting out of an investment BEFORE you get in. If Martin is completely wrong and housing goes up, gg will have a gain, which will be nice. And if it moves sideways, gg will break even, and get the depreciation write off in the mean time. And if the government should change real estate tax laws in the meantime, she has some flexibility there too.

Groovygirl is making this move now for several reasons:

  •  To find out if her cashflow projections really work. Any investment can look great on paper.
  • Find out if she really likes this type of investing. She thinks she is passionate about it, as much as she likes precious metals, but is that really the case? You really have to be passionate about the investments you are in. Making money only goes so far, when you are knee deep in details and drama. (That is the main reason gg doesn’t have a large position in stocks. She just isn’t that excited about them. That can always change.)
  • There are a lot of foreclosures and REOs out there right now, and therefore, cheap houses are on the market. The current pricing fits in with gg’s cash flow projections and creates a good ROI. After 2015, gg is sure it will be much better, that is why she is only purchasing one investment right now.
  • Real estate investing has great tax advantages, which would benefit gg’s circumstances now and later.
  • If it fails miserably, she will probably be able to get out before 2015 (the next downturn according to Martin Armstrong) with no or very little capital loss.

Groovygirl will expand on this move in future posts, but the main focus of the muses of the moment blog will still be precious metals and the financial crisis. She will share her experiences in this investment class and her overall plan after gold/silver. This is what groovygirl is doing with her money. You are responsible with what you do with your money.

Very important points:

She is not selling any gold or silver.

The real estate investment has NO debt attached to it. If it did, she would lose the options to get out of the investment with the capital input intact.

side musing: if we are facing the long-term collapse in real estate as Martin says, cash is king. Having 80-90% debt on a real estate investment will quickly turn into a capital loss on paper and will require more cash input to get out of.  Example: let’s say you have an 80% mortgage loan on a rental creating  monthly cash flow of $200. That is not a lot of breathing room. What if your house loses 30% in value, property taxes skyrocket, there is a new tax or fee for landlords in your area, or heaven forbid, the government takes away all the tax savings you get with real estate. These are scenarios where your cash flow would be impacted and your ability to sell the asset without putting in more cash to cover the mortgage obligation. You could very easily be stuck with an asset that creates negative cash flow and that’s not an asset. groovygirl would suggest no more than a 50% mortgage on a real estate investment in this environment, ideally no debt.

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3 Comments »

  1. Hey GG, sounds like a plan. Did you consider getting a fixed rate/variable 30yr mortgage and keeping the cash in an inverse yield leveraged asset? Armstrong believes the dollar will rally hard before it crashes. Great that you have this new asset in your portfolio…good luck!

    Comment by 007gold — April 30, 2014 @ 6:55 am

  2. 007gold,

    I looked at different options and decided on this structure right now with my personal situation. In these uncertain times, I prefer a more conservative investment plan with a sure and larger monthly cashflow. However, if I had extra funds or wanted to do another real estate investment, I would consider something along the lines of your suggestion.

    groovygirl

    Comment by totallygroovygirlfriday — April 30, 2014 @ 10:33 am

  3. Very good post! I am glad you are back!!

    Comment by JGB — May 1, 2014 @ 8:02 am


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