I don’t disagree with buying anything when it’s on sale. And real estate is certainly on sale right now. Where I thought the book went wrong was in using the interest only mortgages. With those you can only hope for capital appreciation.

On the NAR numbers, you’re right, the average is a poor number to use and the US real estate market is very large and diverse, but the book was written to the whole US population. “Average” isn’t the best of statistical methods (though it is the simplest), but I think people understand it better than regression analysis or other statistical methods. For that matter, I’ve found that a lot of people don’t even understand “median.”

Like I said in the post, if this book had been published 3 years ago, it would have gotten better reviews. Most of the reviews I’ve found on the web haven’t been too flattering, but when housing prices have declined by up to 20% in the last year, what would you expect from a book that advocated using the methods and techniques that have contributed to our current housing and credit crisis?

Great comments. Keep ‘em coming!

Look. I am these guys’ age (26) and I also have a high 6-figure net worth. But I RENT. Why? Because it costs twice as much here in CA to own a property as it does to rent one! For investment purposes, you shouldn’t own property that’s valued at more than 100-120x rent. Yet I didn’t see any of these metrics mentioned in your review of the book — and I doubt they’re there — making this book ridiculous cheerleading instead of actual sound advice.

Getting an interest-only loan and hoping that properties will appreciate 10% per year is a sure sign of a bad investment. I wouldn’t even take out a loan to invest in the stock market — even though it has appreciated 9.2% per year over the last 30 years. These guys are really going to have egg on their face in a few years when we’re in the downturn of this 16-year real estate cycle. In the meantime, I’ll use actual metrics like 100x rent to go in and buy investment properties that cash flow properly. In the meantime, I have my money in solid investments and mutual funds — and I’m starting another business.

Sigh.

Maybe so, but I’ve been on the receiving end of having a $2.6 million dollar loan called because a loan officer and his boss were nervous about the economy.

I never want to go through that again. Leverage cuts both ways and when the 900 lb gorilla on the other end has his boss sit with him on that end of the see-saw, you will lose. At that point, you become desperate and cannot flip your debt to another lender. They will wonder what’s wrong and make a few phone calls. You’re just plain out of luck at that point.

I’ll have to write a post about it sometime.

When times are good, the opposite is true. Speculators are on a borrowing binge, that is called leverage, they have the money but preferred to use loans to achieve higher rates of return.

A couple of comments on the real estate numbers. The NAR number for appreciation is potentially misleading in at least two respects. Average house sezes have also increased and the fittings component of the typical house has also increased/improved over the last 40+ years. It makes price comparisons somewhat difficult. It also goes without saying that a national average in a country as large and diverse as the US is close to being meaningless.

Lastly, for the comparison of returns between real estate and equities, I think you may be comparing capital appreciation only (i.e. not including rent earned if an investment property or rent saved if an oweber occupied property). The number quoted for stocks includes both captial gains and dividends. That said, the return for stocks should still come out a bit higher.

As a general statement, any book that advocates life insurance as a form of investment is likely to be largely rubbish. Life insurance investment policies are inevitably very expensive, illiquid and offer low rates of return. Tax advantages (if any) will not come close to compensating for the costs.

Cheers
traineeinvestor