would you buy this property?

[wabmester]

I saw a sign for a waterfront property for sale the other day, so I decided to take a look. Low-bank waterfront with a city view. Off a quiet street (in fact, pedestrian and local traffic only). One of my favorite locations in the area. And it was priced lower than any similar property on the market. In fact, probably the lowest I've seen in the area for the last year or so.

The house itself was tiny (under 1000 sqft), but it's such a nice spot that I'd want to live there myself.

But I couldn't bring myself to make an offer. It was right next door to the site of a mudslide that killed a very well-liked family about 10 years ago. The area has since had a monster retaining wall built, so it is probably safe. The memory of that event would haunt me if I lived there.

Would you buy the place? Ever had a similar opportunity?

FWIW, it sold today before it was even listed on the MLS.

 

[Cut-Throat]

Would you buy the place? Ever had a similar opportunity?

I would not, just because it has a Huge amount of risk, therefore a Possibility of a Huge amount of Capital Gain.

At this stage in my life, I am only trying for a very conservative 2% real gain. I don't need the extra worry of watching a property like this. I am able to fund my lifestyle without it.

Although, from what you described it does look like a profitable investment.

 

[farmerEd]

The first house I bought, a previous owner blew his head off in the living room...and nobody found him for a week or so when his dogs got hungry and headed up the street to a neighbors house looking for food....nobody told me about this until the day I was moving out (guess they thought there was no need to tell us). I don't think it would have bothered me though..

My current house, a previous owner also killed himself, but out in the woods (they called it a hunting accident but the locals say otherwise, it is IS awfully hard to shoot oneself in the head with a rifle by "accident"..)that doesn't bother me either...

BUT, I probably wouldn't have bought the place you mentioned...not because of the deaths, but because of the potential risk of another slide...even w/insurance, I wouldn't want to worry about it. I've passed over great beachfront properties in the bahamas for fear of the eroding beachline at these particular properties. Just didn't want to worry about it (or pay the insurance premiums either!)

 

[Mr._johngalt]

I saw a sign for a waterfront property for sale the other day, so I decided to take a look.   Low-bank waterfront with a city view.  Off a quiet street (in fact, pedestrian and local traffic only).   One of my favorite locations in the area.   And it was priced lower than any similar property on the market.   In fact, probably the lowest I've seen in the area for the last year or so.

The house itself was tiny (under 1000 sqft), but it's such a nice spot that I'd want to live there myself.

But I couldn't bring myself to make an offer.   It was right next door to the site of a mudslide that killed a very well-liked family about 10 years ago.   The area has since had a monster retaining wall built, so it is probably safe.    The memory of that event would haunt me if I lived there.

Would you buy the place?    Ever had a similar opportunity?

FWIW, it sold today before it was even listed on the MLS.

I have similar opportunities all the time. I try to ignore them. Eventually (when the "opportunity" is gone)
I ask myself "What the hell was I thinking?"

JG

 

[wabmester]

As far as risk/reward, the seller of that property bought it three years ago while it was condemned.   He made 1000% on his initial investment after he put in the retaining wall.

Still, I just can't look at this one in terms of risk and reward.   A suicide I could deal with.   An entire family buried alive by mud (even the dog) packs too much of an emotional wallop for me to think in terms of investment gains.   But I'm not sure where I'd draw the line.

And you're right, I always feel better when I walk away from any deal that has enough risk associated with it that I might lose some sleep.   Peace of mind is priceless.

 

[haha]

At this stage in my life, I am only trying for a very conservative 2% real gain. I don't need the extra worry of watching a property like this. I am able to fund my lifestyle without it.

Next week the treasury auctions TIPs that mature 1/15/2025. The expected coupon is 2% plus a few basis points.

I am considering it. OTOH, there are some pretty conservative stocks out there, including many oil companies, that yield that and a little more, and they should also meet or beat inflation. For taxable money, the stocks are probably better. In a retirement plan, those TIPs might fit well.

Ha

 

[greg]

HaHa--You're aware that if we have deflation your TIPS will lose value, that if the CPI goes negative so do your bonds? I was rumaging around the Pimco site a few days ago, reading bond stuff, and Bill Gross reminded everyone about that:

http://www.pimco.com/LeftNav/Late+Breaking+Commentary/IO/2005/IO+July+2005.htm

There's no where to run! Cover your head. P.S. I own TIPS also.

--Greg

 

[wabmester]

Bill Gross supposedly knows what he's talking about, but he makes no sense to me in that commentary. The current real yield on TIPS is a bit over 2%. The 50-yr average real yield on long treasury bonds is 2.39%:

http://www.martincapital.com/chart-pgs/CH_mmnry.HTM

That fantabulous 4% real yield on TIPS when they were first introduced a few years ago was a singular anomaly, and Gross should know that. TIPS were new. TIPS were illiquid. TIPS gave a nice novelty premium in those first couple of years, but Gross is carrying on like that was normal and now is not. He's just plain wrong.

 

[Brat]

I think I know the homesite under discussion.  We are the family who demanded the city account for their spending on storm water as it is a line item on the property tax statement (it had been going into the general fund).  The city has started to address storm water issues.  I know a good civil engineer with a client on the island who I would ask to give a good, critical, assessment of the site conditon.  PM me.

 

[greg]

wab--I pulled the following off a gov't sight:

" Principal

Based on the Consumer Price Index, the leading measurement of inflation, we adjust the principal value of your TIPS. At maturity we redeem the security at its inflation-adjusted principal amount or its original par value, whichever is greater. In all likelihood, inflation will occur over the life of the security and our payment to you at redemption will be greater than the original par value of the security. For the unlikely event of deflation, we built a safeguard into the system: our final payment to you cannot be less than the original par value. "

There is the possibility that we could have a few years of deflation mixed in with some inflation with the subsequent final return of principle on a TIPS lower than what you had planned on. I don't know the formula for determining final payment on these bonds, but, simplistically, if you had five years of 2% inflation and five years of 2% deflation on a ten year bond, you could end up with only a 1+% gain per year on it--all from the none CPI component. Plus, how much do you think someone would pay for a bond paying 1+% ifyou sold it early?

All I'm saying is that these things may be riskier than you think, especially if we fall into a deflationary recession. I think Gross was saying the same thing, worrying about a risk premium that may be too low at this time.

I was wrong in assuming you could actually receive less money than you paid for the bond. But this could happen if you had to sell it before maturity.

--Greg

 

[bosco]

HaHa--You're aware that if we have deflation your TIPS will lose value, that if the CPI goes negative so do your bonds?

True for TIPS, but not for I-bonds. They never go below what you pay for them.

Going back to the original thread, I rented a house in 1996 that had been hit by a mudslide the year before. Nobody was killed, but the basement had been full of mud and had to be cleaned out. Reputedly, the slide hit right when the realtor was getting the signature on an offer. The seller balked. It was listed first at $130,000, and was slowly reduced to $99,000. When it didn't sell, the owner decided to rent.

I signed a 1-year lease, but it was a goofy lease in that seller retained the option to sell and if it sold, we had to vacate (in other words, one of the prime reasons for a lease from the tenant's point of view was gone). I insisted on a lame clause giving us the right to make an offer 2 weeks before the property was put up for sale. 9 months later, the landlord was killed in an auto accident. He willed the house to his ex-wife. She refused to take title, being worried about the slide, and the fact that there had been carpenter ants at one time.

I found out what the mortgage was, upped it $2,000 for attorney fees etc., and offered $87,000. To my suprise, the estate accepted (I had watched another downtown house with major rot and no furnace sell for $100,000 2 months before).

Ended up selling about 1 year ago for $162,000. By 2004, the mudslide had faded from memory. There had been hillside improvements, and the house was built in 1918, so I wasn't too worried.

The house was in Juneau, Alaska. The real estate market has been healthy, but nothing like the stories I hear from Cal. & Florida. A paltry $162,000. But it provided us a place to live for 8 years, plus a good chunk of change when we vacated.

Bosco

 

[wabmester]

All I'm saying is that these things may be riskier than you think, especially if we fall into a deflationary recession.   I think Gross was saying the same thing, worrying about a risk premium that may be too low at this time. 

During deflationary times, we are screwed regardless of where we invest.   But Gross seems to be arguing that there is some ominous trend of the real yield approaching zero.   In fact, the real yield has been pretty stable for the last 3 years at right around the historic mean for both long bonds and short bonds.   He's extrapolating from a 6-year history of TIPS, which just doesn't make a lot of sense to me.

Take a look at that chart I posted, and you can see some WILD swings in real returns from bonds.   We are not even close to wild territory right now.   The yield looks pretty sane to me, and I don't see any deflationary signals.   If anything, we're burning off excess capacity from the bubble which has reduced the risk of deflation to pretty much zero.   (The last time we had deflation, it was attributed to an overly tight monetary policy, and Greenspan is a lot of things, but he's definitely not overly tight.)

(BTW, I love hijacking my own thread  )

 

[haha]

Take a look at that chart I posted, and you can see some WILD swings in real returns from bonds.   We are not even close to wild territory right now.   The yield looks pretty sane to me, and I don't see any deflationary signals.   If anything, we're burning off excess capacity from the bubble which has reduced the risk of deflation to pretty much zero.   (The last time we had deflation, it was attributed to an overly tight monetary policy, and Greenspan is a lot of things, but he's definitely not overly tight.)

Nice chart. I agree that deflation is just a head fake; it isn't going to happen. Warren B. agrees too. He addressed that issue in this year's annual meeting of Berkshire Hathaway.

Ha

 

[BUM]

Wab, Greg, et.al,

For the uninformed, whats the difference between buying TIPS and Vanguard's TIPs fund? I own this fund and enjoy the dividends. The NAV has dipped a bit lately. I don't know whether to:

A. Ignore it
B. DCA
C. Buy the mudslide property
D. Drink a mudslide

 

[greg]

A little story: Whenever I start talking about "the coming deflationary recession," Martha puts a blanket over her head and sings "LALALALALALA, I can't hear you, LALALALA." And she's probably correct--but maybe not.

I'm worried, but semi-bullet proofed. I still believe (and see tons of evidence) that we are falling into a Japanese-style recession (liquidity trap). But without the savings to back it up or get us out. My 'good' scenerio sees a mild housing pop, a mild recession with everyone coming back to 'debt sensibility,' and a new and improved PAYGO gov't.

The bar I have to jump over is much lower than most other people's: R. Russell (my hero) says "He/she who loses the least in the coming recession/depression will be the big winner." My end goal is to lose less money (buying power) than everyone else! So I don't see deflation as a horrible thing--as long as I can hang on to the main eggs. I'm not as willing as some to stretch for yield. I'll take less now to semi-protect my future. "Bonds, gov't Bonds."

As I said, I see a huge debt trap facing us. As retirees or near retirees, most of us don't see these huge problems. We've always been prudent with our money. I talk to younger people and see too many of them living on the edge, way too many. I believe if you divide up the national debt by the population, each of owes about $25K. If you total our entire debt and divide by the population , it comes to about $150K/person. I don't believe this includes SS or municipal/state pension obligations or future Medicare/Medicaid obligations, a war we want our grandchildren to pay for, etc. Let's be careful out there.

--Greg

 

[bosco]

Wab, Greg, et.al,

For the uninformed, whats the difference between buying TIPS and Vanguard's TIPs fund? I own this fund and enjoy the dividends.

The same difference between holding any other kind of bond and a bond fund. When you hold the bond, you are guarranteed your principal back on the maturity date (+ inflation with TIPS). A bond fund, on the other hand, is made up of thousands of bonds with varying and staggared maturity rates, each of which the fund owner holds a tiny piece of. When a bond matures, it is reinvested in another bond.

The net result, in aggregate, is you have no such guarrantee of recovering your principle, and the bond fund, TIPS or no, stands to lose money when inflation goes up.

Bosco

 

[Nords]

Let's be careful out there.  --Greg

Geez, Greg, if you're going to read Bill "DOW 5000" Gross & Richard "Recession" Russell, then you should stay on ground floors behind sealed windows.

Gross reminds me of a four-year-old jumping up & down, screaming in incomprehensible English at the top of his lungs, trying to get anyone's attention.

Russell is right that a recession is coming. He was predicting it for most of the last millenium, too, and he's eventually going to be correct.

I'm with Cut-Throat on this one. Ignore them both, let someone else alert us to their latest alarmist scrivenings, and find something better to do with your spouse...

 

[wildcat]

Greg -

Speaking for some young people and your living on the edge comment. The price of education is pretty incredible these days. Many of us graduate from college and are immediately 10-20K+ in the hole. Everything costs money and some of us who don't have as much need a little leverage to get going in life. So indeed I am living on the edge but I am sure you will enjoy it when I help fund your SS check

 

[greg]

Wildcat--I agree with you and, in theory, think that education taxes paid by workers should be even higher. Education availibility should be based on merit, not tapping out your credit line. I have no problem with spending/borrowing money to make life really better--not just to own more consumables. Younger people need to buy these things. This includes buying homes. My complaint is about all the 'excesses' I see.

For example, I rode my scooter over to see my cousin the other day. He was in the garage cleaning up and moving things around. He mentioned that one box was filled with about six sets of dishes that his wife had purchased over the years and now didn't like or use. Hmmm!

My doctor said I should spend more time riding my bike and less time riding the scooter. Do I need a scooter? Hmmm!

I hope you don't have to fund my SS checks. I hope I'm well off enough so that I don't qualify for SS and your tax money goes to provide a decent education to someone less fortunate than me.

--Greg

 

[haha]

Greg -
Many of us graduate from college and are immediately 10-20K+ in the hole. 

With a whole lot of luck, from what I have seen. I owed $8000 in 1966. 

Ha

 

[bosco]

I hope I'm well off enough so that I don't qualify for SS and your tax money goes to provide a decent education to someone less fortunate than me.

Fat chance of that unless there are some seriouus policitical changes. Any additional income will likely either be used for a) more tax cuts for those who don't need them or b) bombing more brown people.

education is waaayyyy down the list of priorities presently

Bosco

 

[REWahoo]

Fat chance of that unless there are some seriouus policitical changes. Any additional income will likely either be used for a) more tax cuts for those who don't need them

I suspect there will be some "serious political changes" in the future. I adhere to the pendulum theory of politics. We've swung to the right and in time we will swing back to the left. And the lefties will want some payback...

...or b) bombing more brown people.

Probably correct on this one. We have a long history of this, regardless of where we are politically...

REW

 

[Mr._johngalt]

I suspect there will be some "serious political changes" in the future.  I adhere to the pendulum theory of politics.  We've swung to the right and in time we will swing back to the left.  And the lefties will want some payback...

Probably correct on this one.  We have a long history of this, regardless of where we are politically...

REW

What I personally find so interesting is that I always see the pendulum
way off to the left. George W. Bush? Rush Limbaugh? Ann Coulter?
(well, maybe not Ann Coulter) These people are left leaning
libs
compared to me. When I hear "Dubya" described as "conservative"
I just cringe. I don't see him that way at all, even though he is far better
than legions of possibilities I could conjure up.

JG

 

[Mr._johngalt]

Fat chance of that unless there are some seriouus policitical changes.  Any additional income will likely either be used for a) more tax cuts for those who don't need them or b) bombing more brown people.

education is waaayyyy down the list of priorities presently

Bosco

Did you know that "Bosco" was George Costanza's pasword for his
ATM card? This has nothing to do with the topic, nor with ER, nor anything else.
Just trying to keep my post total up in case th resurfaces.

JG

 

[bosco]

When I hear "Dubya" described as "conservative"
I just cringe. I don't see him that way at all, even though he is far better
than legions of possibilities I could conjure up.

JG

I couldn't agree more--if you substitute "liberal" where you wrote "conservative" and "Clinton" where you wrote "Dubya".

Clinton was about as Republican as they come...even balanced the budget, unlike the "modern" Repubs. I could never figure out what irked the right-wing-nuts about him. I think it was mostly jealousy--he was getting something they weren't. Not that his behavior was good, but as the bumper sticker says, "When Clinton lied, nobody died."


Bosco