All Forum Posts by: Joseph Brooks

Is the May event still on? Haven't seen any traffic yet.

Wealth can certainly be created. Wealth is pretty similar to productivity. If there are X amount of cars, Y amount of houses, Z amount of diamond rings in the economy ... and I go out and find a gold nugget in the ground and introduce it into the economy ... I've created my own wealth. As well, if I take a bunch of raw steel, plastic, and copper that fetches $5k as raw material ... and turn into a car that has utility in the economy and fetches $20k ... I've created wealth through productivity.

But how is buying a $50k house, sitting on it for 20 years without materially improving it, and selling it for $300k creating wealth for the economy on a whole? Yes, you are creating wealth for yourself. And when house prices go up/down, you personally gain/lose money. But the headlines are saying that the entire economy has lost wealth. That can't be true if prices are going down on houses but prices are going up on other assets (not many of them, but for example the 20 year old 30 year T Bond getting 12% interest).

My point in trying to understand this is to figure out what is going to happen in the near future. If people believe Trillions in wealth are actually being destroyed, then pumping Trillions of cash into the economy isn't as big of a deal. But if it's not being destroyed (just redistributed), and the people who are receiving it are just sitting on it waiting, then the Trillions being pumped into the economy is going to be worse than expected.

$10k interest on a $50k loan ... 20%?

I've seen 15% no fees 60% LTV advertised in California/Arizona. Does this not exist in Atlanta?

This is all fine and dandy for investors. But at the end of the day, someone has to do actual work in an actual job to produce something.

That's why the 90% stuck in the rat race can't escape the rat race. If everyone went out and simply invested by buying businesses or other income producing assets, who would be left to produce the income?

Real economic productivity is when a coal miner extracts some coal from the ground. A car manufacturer builds a car. A drug company develops a new drug. Real economic productivity is NOT a day trader buying and selling stocks. Although day trading may contribute liquidity to the market, they aren't directly adding to the productivity of this nation.

That's not to say people have to work for pittance wages in global corporations. The self employed and small business produce a lot. But someone still has to do the work.

People are saying that declining home, stock, 401(k), etc values is a destruction of wealth. But I don't believe it and have been arguing that wealth is not destroyed until there is material destruction (i.e. a house burns or a car is totaled). I have searched Google for an economic theory that covers this, but haven't found anything specifically. But I have found economists talking about how a rise in asset prices (without a material change in assets) is essentially redistribution of wealth from those without assets to those with assets.

Example:

Person 1: Has $100k in cash.
Person 2: Has 1 house.

House drops 50% in "value".

Person 1: Has $100k in cash.
Person 2: Has 1 house.

Where is the "destruction of wealth"? The same amount of wealth exists before and after ... 1 house and $100k in cash. If the house is valued at $75k, that doesn't mean $175k exists in the economy ... because there is only $100k of actual cash in the economy. What really exists is $100k of cash and 1 house. What has really happened is a redistribution of wealth. Watch this time:

Person 1: Has $100k in cash.
Person 2: Has 1 house.

Person 1 buys house from Person 2. Houses are currently selling for $100k each.

Person 1: Has 1 house.
Person 2: Has $100k in cash.

House drops 50% in "value".

Person 1: Has 1 house.
Person 2: Has $100k in cash.

Person 2 buys house from Person 1. Houses are currently selling for $50k each.

Person 1: Has $50k in cash.
Person 2: Has $50k in cash and 1 house.

The same amount of cash and houses exist at all steps in the process ... $100k in cash and 1 house. With the drop in housing prices, wealth has essentially been redistributed from those with houses to those without houses. The only way we can prove this is to have those with houses exchange them for cash after the drop in values and see where the cash sits.

We have 100 million owner occupied households in the USA, and the average house is valued around $250k, for a total value of $25 Trillion. Yet, $25 Trillion in cash (physical or electronic) doesn't exist. So if house values drop 50%, does that mean $12.5 Trillion has been lost? How can it be lost if it never existed in the first place?

What has really happened is a change in demand. Less houses are being demanded, so demand has shifted to other assets (hint hint, treasury bonds). So while the 30 year T bond is currently fetching 4% interest ... someone with a 30 year T bond from 1985 that is fetching 12% could easily sell their bond for 105% of its face value. Instead of a 2009 bond fetching 4% interest that could only be sold for 100% of its face value.

Wealth has been redistributed from house owners to 30 year T bond owners. Wealth is not destroyed until resources are used or there is a material loss.

Does anyone else understand this? Or am I alone here?

Hey Lee V, so what is your strategy right now - wholesaling, flipping, renting? I'd like to build up some capital before hanging on to properties. Is the spread enough to do it in Stockton?

A local HML in Arizona. Like I said, I have no relationship with them since I have done no deals with them. But that is what they're advertising.

Water systems, installation, repair, etc vary in price wildly from location to location. In a freshwater river valley a couple feet above the flood zone? You can probably drill it yourself for a couple $100. In the high desert of Arizona? You're talking $20,000 with a full drill rig and crew.

Congratulations on your relationship. But ouch! You sure are paying for it ... 5% origination and 12% interest. I would try to talk down the origination and talk up the interest so your incentive is in getting the deal done quick.

I'm seeing 15%, no fees, no prepayment, up to 70% LTV advertised from people I have no relationship with.