bostonbubble.com

GenXer · Joined: 20 Feb 2009 Posts: 703

Right. A leveraged fund that is 2:1 is already considered extremely risky by the SEC, and they say so on their website, meaning that retail investors should stay clear. A 5:1 or even a 10:1 real estate investment (aka your 'place to live in') is something sold to anybody with a pulse. Yes, there is a problem here. I think loans should be given only to those who have the means to pay for it, now or in the future.

And it almost begs the quesion - if it takes a lot of licensing and paperwork to be able to sell securities, why is selling of houses, which can be much riskier than bonds, for example, is done by anybody with a high school diploma?

There is actually nothing wrong with buy and hold. You do that with CDs and bonds. You can do that with stocks up to a point. But houses are another thing altogether compared to bonds - nobody is guaranteeing you a payment of your principal, so a house is more like a stock than like a bond.

I would consider a house to be a sort of a stock with a negative dividend, where YOU pay the interest, and the price fluctuates with the real estate market. So with a house your expected return is most likely negative, given that very few people nowadays actually stay for long in any one place.

Boston ITer · Joined: 11 Jan 2010 Posts: 269

In this case, a house is a futures contract more than a stock, given the amount of leverage involved.

I think part of the game here is that the house is not a *security* (from the everyman's p.o.v.), however, the financing half has been securitized (& in a bad way) and thus, the open real estate market isn't as delineated as CDs, bonds, & stocks are from futures/options/derivatives.

Perhaps this is the source of the issue. The field should have been open to professionals, not mainstream amateurs. So now, we have a society of amateurs acting like seasoned professionals.

Right now, I trade futures for a side income but throughout my time in it, I was continually warned about losing my shirt, thus, I have a non-stop money management regimen in place. All and all, if I survive, I go from amateur to professional. I don't see real estate types having to work through a gauntlet to reach their goals.

john p · Joined: 10 Mar 2006 Posts: 1820

Boston ITer · Joined: 11 Jan 2010 Posts: 269

GenXer · Joined: 20 Feb 2009 Posts: 703

When you are doing risky things, you never really become a professional, unless you mean those people in fancy suits who SELL you stuff. A professional is somebody who realizes that you can not predict the future, thus, they always manage their risks appropriately by not betting ALL of their money (as opposed to house buyers who ALWAYS bet all of their money). Those who actually play the game by going all in usually don't win in the end. This is why most traders eventually lose their shirt, or break even if they are lucky. On the other hand, there are a bunch of lucky people who win regardless of whether they are professional or not. This happens in any industry. But this does not last, except for a small number of people whose success can not be replicated, except by other lucky people (hence the myth of 'skill').

Boston ITer · Joined: 11 Jan 2010 Posts: 269

john p · Joined: 10 Mar 2006 Posts: 1820

I'm a professional and I know what is expected of me in my industry. It is somewhat of a controlled environment and once we get work we know how to do it. The wildcard is getting work in a down economy...

My point is that you get systemic failure when a civilization goes into chaos and mob rule.

What is going on to day is mob rule veiled as economic marital law where the politically connected and the powerful are literally in a looting frenzy.

When people see others looting, to many they see the opportunity to get away with themselves. We are a government of the people and we need to know how to govern ourselves, especially during a frenzy; a government of the people doesn't work otherwise. We have to publically shun people who act irresponsibly. If a person says, "hey, see that flat screen t.v., I beat the crap out of someone and took it from someone just after the hurricane or earthquake", you should say, "What the fuck, asshole I'm not going to be friends with someone who is an asshole". Do you want to know why we don't hold others accountable? It is because during the bubble people were trained to be overly positive and people who where holding up standards were shunned. Guys like Gen-Xer were framed like the wet blanket and the guy who told you what you wanted to hear was totally fun to be with. People wanted their politics and news to be entertaining; being responsible was dry and boring and people thought you were a bore. What was happening was that people were bragging about doing dirt bag things and others couldn't help themselves but to be positive.

Guess what, this is why our founding fathers gave the power to the people; because they knew the powerful would steal it from them. It is times like now where we have to hold to our values because through them we can evaluate and see more clearly the difference between a leader and a poverty pimp.

I am dwelling on this because all the financial models don't mean shit if we don't get our act and values together. If it is the wild west and economic martial law, all bets are off and any financial person should know that. I really wanted that G20 Economic Summit to find some heads of agreement as to the leverage caps and basic a.b.c.'s (playing rules in a global market). We didn't even get them for the Environmental rules in Copenhagen.

The foundation of a society and civilization is values. We are eroding because our values are weak. GenXer is trying to talk about the depth of a steel beam when the ground underneath the building is turning into a swamp of values so even if the frame is sound we're going down. Right now it is about values. When people pull eachother together and command eachter to hold to the values necessary to sustain a government of the people, they strengthen the social fabric and the soild that we bear on. The looting that is going on with this bailout mentality is killing us.

http://en.wikipedia.org/wiki/The_Theory_of_Moral_Sentiments

from above:

Xenos · Joined: 24 Jun 2009 Posts: 31 Location: Western Mass

[quote="Boston ITer"] ...Then stupidly enough, many of them jumped onto the housing bandwagon w/o realizing that their careers could also get shipped out of state (see Gillette/Fidelity for prime time Boston area examples). With that as a backdrop, I see housing for what it is, a career bear trap which prevents one from getting up and re-rooting elsewhere for better opportunities.[/quote]

This is especially important. I played the property ownership game so long as it penciled out, ditching in 2005 and making some nice, tax-free profits. More recently my wife and I calculated the opportunity costs that resulted from not ditching the Boston area and moving to greener pastures... those opportunity costs are more than 10 times larger than the profits we were so proud of ourselves for getting.

Even winning that game can mean losing big.

As for the original poster, he should talk to a tax lawyer. He can rent something big enough for his growing family and rent out that townhouse. Between the financing loss and the depreciation he may be able to take some tax losses that may lessen the sting a fair bit.