All Forum Posts by: Ben Zimmerman

Disney borrowed from his life insurance because literally no bank would give him a loan, so borrowing from his insurance policy was the only way to obtain the funds to start his company.  He didn't do it because it was some secret amazing strategy, he did it as a last resort.

 You don't actually "earn" dividends.  These dividends are classified as a refund of overpaid premiums by the mutual insurance company which is why the dividends are not taxed.

Think of it this way, if you buy a lemonade for $1 and hand the guy a 20, you will get $19 back.  You didn't "earn" 19 dollars and you won't be taxed on this 19, since its just simply a refund of how much you overpaid for the product.  

 First question you have to ask yourself is does this infinite banking concept even work or is it some marketing nonsense that was invented by an insurance salesman to sell more whole life insurance to people who don't understand math.  Most people are absolutely horrible at math, so if the salesman makes things even remotely complicated your average person can't follow along and doesn't understand the process and just blindly believes that the process works.... I mean it must work otherwise why would the salesman talk about it???

It's much the same concept as velocity banking which @Will Fraser vaguely referred to above with the heloc process.  The math doesn't work but people can't follow along with the basic accounting principles and are unable to see the glaring plot holes that make the method unusable.

Further, there isn't anything overly special about being able to borrow money from an asset you own while still retaining the asset itself and having the asset continue to appreciate in value (infinite banking allows you to borrow from your life insurance).  A heloc borrows against a property you own, a margin loan or securities based line of credit allows you to borrow against your stock portfolio allowing your stocks to continue to (theoretically) keep going up in value over time and still access some of the money for other investments.  

Why pay for overpriced insurance policies that you probably don't want just so you can turn around and borrow that money back?

My prediction?  Pain.

Purchase price matters for cash buyers, but most people aren't cash buyers.  Instead the number that matters is the monthly mortgage payment and how affordable/unaffordable that number is.

With interest rates rapidly rising, this has caused homes to quickly become unaffordable.  The home I currently live in I purchased a couple years ago for 215k @2.35% interest rate causing the mortgage to be around 1200.  However for a new owner to buy the same house at its current valuation of 340k @ 7.72% interest that would be payments of close to 3k/month.  That's a massive difference in payments.  

While home prices are dropping, they aren't dropping as fast as interest rates are rising.  This is likely due in part to the fact that nobody really expects these higher interest rates to stick around for very long.  And also because sellers who haven't owned the property for very long no longer have any equity in the homes with these falling prices and are deciding to simply stay put instead of selling thus reducing the supply of homes available which keeps demand at a tolerable level.

Yes I realize that long term historical mortgage rates tend to hover in the 6-7% range, but historical data is only useful data if we live under the same overall economic conditions as when that data was current.  When those historical rates were 6-7% when our national debt hovered around 40% of GDP, however today our national debt is around 140% of our GDP and we are one of the most indebted countries in the world.  

Given our total national debt of $31 trillion, for every basis point of additional interest rates, we must pay an extra $3.1 billion in interest per year.  This means a 1% interest rate hike equates to $310 billion dollar payments per year.  Obviously bonds have terms, so not all of this debt will require those higher interest rate payments immediately, but as time goes on and new notes are issued this becomes a serious problem.  This is why I believe interest rates will eventually drop back into the 3-4% range.

I imagine 1 or 2 more rate hikes, and then believe that rates will hold steady for 6-12 months before starting to retreat lower.  

As for the 2-4 unit space, I believe this sector will be particularly problematic in the short term. These types of units are helpful for individuals looking to house hack, or for small time investors looking to dip their toes into something other than SFR, however if people are struggling to afford 1 unit under these dramatically higher interest rates, it stands to reason that being able to afford 4 units for these small time players is going to be extremely challenging. Sellers will find it difficult to find a buyer willing to pay enough to turn a profit under these falling price markets, and units will probably sit on the market for sale for longer durations with the current owners simply choosing to ride it out and keep renting the units for a few years until the market recovers.

The good news is that if you believe interest rates will drop in the medium term, then you can take advantage of home prices that are dropping and buy more units, and then refinance in a year or two after rates have dropped.  Long term housing prices are largely dictated by inflation rates.  With the large amount of inflation we had the last year or two, once interest rates begin to fall, home values will begin to rise to match those inflation rates.

There were a few things about your article that I really enjoyed however.  I enjoyed the fact that of all the pictures of people in the article, two pics were of white people.  The first depicted a white real estate appraiser performing an appraisal in the section that details how appraisers are responsible for these societal inequalities, and the second picture was on the page labeled, "Establishing the level of racial inequality in appraised values".  All other pictures of families were of minority families.

The two authors of this 'study' are both sociologists by trade, and not trained real estate professionals.  Previous articles that these two have written include titles such as:

What does racial capitalism have to do with cities and communities

Preserving racial hierarchy amidst changing racial demographics

Living while black

Differentiating the mechanisms contributing to persistent racial inequality of education

The spatial structure of income segregation by race

Colorism and police killings of black men

Memory of Racial violence and the social construction of the Hispanic category

Value fluidity and value anchoring: race, intermediaries and valuation in two housing markets

Studying race and religion: a critical assessment

Wrote a book titled: Race Brokers

In short we have a real estate study conducted by two sociologists who have made a career out of finding racial inequalities at every turn.  I'm sure they went into this study with a completely open mind and didn't grossly oversimplify the data to skew the conclusions towards their preconceived biases.....

Because you know, basing the value of a house on the number of rooms it has, or how close it is to a retail business (regardless if that retail business is a liquor store or a Rolex watch distributor) is the logical way to do things....

If there is one thing I can count on, it's for you to post how racist the housing market is every few months.  

My honest opinion of the article you linked is that it's trash.  You can't overly simplify real estate neighborhoods on a nationwide basis, and then attempt to compare the two neighborhoods as being "equal"

Per the article you linked, they define three different metrics that they use to determine if a neighborhood is similar.  

First they define Neighborhood Socioeconomic Status in terms such as portion of residents that are employed, portion that are under the federal poverty line etc.  This means that a neighborhood with 5% unemployment and 70k average income will likely be considered equal to another neighborhood with 5% unemployment and 500k average income because neither neighborhood has any significant portion of residents under the poverty line.  

The article defines Neighborhood housing stock as the total number of rooms in the home, but makes no mention of square footage, or upgrades.  A 3 bedroom home in the ghetto might be 1100sq feet, but a 3 bedroom in the suburbs might be 2,000+ sq feet with granite counters and custom cabinets.

The same thing applies for their attempt to quantify Neighborhood Amenities.  They define that as the number of grocery stores, post offices, banks, art galleries, sports stadiums, retail businesses etc per capita.  The footnote says that they use the total number of establishments in their calculation.  However I think that its fairly self evident that a post office is not going to have the same economic impact as a sports stadium, or a hipster art gallery.   

 When data is purposefully oversimplified, it will naturally degrade any intended meaningfulness of that data into nonsensical gibberish.  This is the problem with all nationwide studies concerning real estate, there are simply FAR too many factors involved to be able to fit an entire neighborhood into a nice neat mold in an attempt to compare it to another neighborhood half way across the country.  These studies are a joke.

Gold has no future cash flow, neither does stock in facebook, google, netflix, and many other large cap stocks. As an added bonus, cash itself has no cash flow. This notion that cash flow is somehow the measuring stick of what an assets value is, is nonsensical. In addition the majority of SFR are bought by families needing a home, not by investors, so attempting to value these properties from an investors viewpoint doesn't make any sense.

An asset is worth what the free market says it's worth.  This is the one and only definition that makes any sense under a free capitalistic society, which is exactly what an appraisal attempts to determine by comparing historical sales.   

Appraisers don't dictate the value of a home, the free market does.  

There isn't a box on the appraisal form for "Is this house in a minority neighborhood?"  Instead it's as close of an apples to apples comparison of this homes likely sales price, versus what neighboring similar homes have traditionally sold for.

If two homes were in neighborhoods that were ACTUALLY similar, then the value of those two properties would naturally merge towards each other and their values would be in equilibrium as enough time passed since redlining practices.  But in reality there are probably many factors that the author of these articles doesn't want to take into consideration and simply calls the two neighborhoods equal, when they really aren't equal.  

People in Oregon say that math is inherently racist, but that doesn't mean it's true....

Qualified section 179 real property.

You can elect to treat certain qualified real property you placed in service during the tax year as section 179 property. If this election is made, the term “section 179 property” will include any qualified real property that is:

• Qualified improvement property as described in section 168(e)(6) of the Internal Revenue Code, and
• Any of the following improvements to nonresidential real property placed in service after the date the nonresidential real property was first placed in service.
  1. Roofs.
  2. Heating, ventilation, and air-conditioning property.
  3. Fire protection and alarm systems.
  4. Security systems.

https://www.irs.gov/publicatio...

You can claim it all at once, or your can divide it out over several years.  Replacing an HVAC unit for tax purposes is considered an improvement, not a repair and therefor bonus depreciation from the TCJA should still be in effect through the end of this year.  It means you could deduct 100% of the cost against this years revenue.  

https://learn.roofstock.com/bl...