Thread: Need some advice on making a my first real investment

One Major reason I love this community is because of the number of successful individuals we have here. Many folks here are wise when it comes to investing, and I'm sure a few might even be extremely lucky. Either way, I am looking to make my first major invest ment, below you can read my dilema and possibly be able to give me some insite. Sorry for the long write up, but I figured it best to explain as much as possible to show how serious I am about thinking, and preparing for my future.


Here's some background to my story.
I recently acquired a property that is worth 35-40k. I only paid about a quarter of that since it was sort of a "gift" to me.

My dilema lies here.. I am a hardworking and motivated 21 year old who hopes by the age of 25, to acquire my first home. I was going to sell off the land I have and use it as a down payment on my first house. However, I've been thinking and listening to people who talk about the housing market lately, and everyone is saying that it is still looking like it is headed on the downslope for the next few years. That being said, if said prediction happens, my property will decrease in value as well, and I may as well lose any profit I gained just sitting around on it.

I have been looking into gold lately and have seen that it fluctuates but since 2009 (the long run), it has gone up, with the exception of the decrease in the last few weeks. They say the price of gold goes up, as the market continues to go down.

Would it be smart to invest the initial 10k in gold, or perhaps the profited 25-30k, and put the remainder in a safe CD that wont technically make me any money, but will gain slight interest.

I dont mean to sound like many of our "trolls" that we come across on the daily, and as you can tell by my join date and post count, I have been quite active here. I am simply looking for some advice from the best.

Thank you and warmest regards!

My experience lacks but I am very intrigued to see what some of the members have to say about this, SUBd!

Neekowahhh, do u intend to hold that property for a long time or are u into flipping game?

The home that i plan on purchasing? or the property that i currently own?

if you are young, you take risks. if you are old, you play conservative.

- chuck

I will give my advice, and hopefully it helps. Remember though everything I say is my opinion and of course no one knows what will really happen in the future, we are all just predicting

I believe housing will be flat for at least the next 10 years. You might get local fluctuations in pricing of +/- 3-15% within that period, but nothing drastic. It certainly isn't something I would be "investing" in. There are much better places to put your money if you are trying to make money. If you are simply looking for a place to park your money and sit on it....then land isn't really a horrible place, but you could do the same with putting it in a CD with probably less risk. If something happens again with the housing market then you will lose some value especially taking into account 3% average inflation a year. I don't believe your land value will increase 3% a year, so essentially you will be losing some money.

As far as buying a home is concerned...It's not what it's all cracked up to be anymore. Homes are no longer an asset. They are definitely a liability. Renting can be far better than owning a home at least for the next 6-10 years. The only exception to that would be if you have enough cash to either put 50% down on a 15 year mortgage with rates less than 4.5% or pay cash outright for the home....as well as live in that home for 8+ years. If you think there is any possibility of not living in that location or home for 8+ years, or you have to do a 30 year mortgage with less than 50% down, you can lose more than renting. You are essentially renting from the bank anyway on a 30 year mortgage paying almost exclusively rent and putting hardly any money towards the principle. Not only are you paying mostly interest for the first several years, you are paying the taxes for the home, also quite a bit of money in repairs if it is not new or as the home ages, HOA fee's sometimes, and other things like that. Renting really can be a great option even on high end homes. I am sure many will disagree, and it really can change on a person by person basis, but be sure to do all your calculations before buying. I will give a rough simple calculation to show you how buying a home is a liability. Everything I use is going to be general numbers...

$300k home purchase price with $50k down. VS renting at $1800 a month over a 30 year period.

Principle would be $250k, interest @4.5% $206K
Taxes @ 4500/yr = $135K total.
Maintenance @ 1.5% a year of home value over 30 yrs (national avg) = $135K

Total 30 year cost of owning that home without any major huge repairs $726,000. Then when you decide to sell the home you also have to pay 6% on average to the broker. So essentially you need the house to sell for around $775k to just break even. That means home prices need to increase at 258% over 30 years. Does anyone actually think that will happen? I don't.

Renting @ $1800 a month over 30 yrs total cost $648,000. Small savings there...but you don't own the home and get nothing out of it right?? (That's the excuse I get all the time from people). Well.....what about all that money you saved on taxes as well as maintenance and down payment. So say you rented and invested the $50k down and contributed that same $750 a month to savings (or $4500/yr maintenance, $4500/yr taxes). Actually lets not even include the taxes you wouldn't have to pay, lets only do maintenance. So $375 a month goes into the account that can average 8% a year. A good manager can do this for you. Your $50k down payment now turns into $1.03 million in 30 years. Take the 1 million minus the $648k, and you are left with a profit of $353k. But lets just say the home value increases to $1 million after 30 years. You sell for $1m, broker gets $60k, you are left with $940k minus $726k. Profit is $214k. So, you have actually made money now compared to breaking even or losing money on the home purchase. Like I said before, this is very generalized and you can't use it for every home buying decision, but don't just think buying a home is the smart thing for everyone. Do your calculations, figure out how much you can put down, can you pay for a house outright, etc etc. Do your homework like any other investment decision or purchase decision you make.

Talking about Gold.....I don't think it is a smart idea to now invest in any metals. The trade of the decade was buying gold at $200 and letting it ride for 10 years. That trade is over. Commodities and investment management is my business, so I have some credibility when it comes to this If you look at the Gold chart or silver you will see we have likely topped. Gold should head back down the the $1350 area and Silver back to the $18 area probably by Feb 2013, if not sooner. If Gold happens to make it back to $1775, then it will go to $2300 an ounce. But I wouldn't be buying gold until it goes over $1750. I am a net seller long term as it sits.

I made a post in April of 2011 that Silver has made its high for 10 plus years to come when it hit over $49 an ounce and I also shorted it there. It is now at $26, and ready to break further down. From $49 to $26 is $115,000 loss or gain per single ONE contract and a 46% loss if you had bought physical product not including the fee's you pay to get actual physical gold/silver! My point is, a lot of people can go broke quick investing in Gold or Silver, so it is extremely risky if you are not a professional. I would stay away from investment firms like Merrill Lynch, Wells Fargo Advisers, Edward Jones, etc as well. They are there to be salesmen, and salesmen only. They really have no helpful knowledge of market trends or anything like that. They are there to collect your money, make a very nice commission up front and then leave it to the firm to handle. They really don't care if you make money or not...they just collected their 7% paycheck right off the top. Your best bet is to find someone that only makes money off your investment if they are making money for you. Basically, don't try to invest your money in commodities without having full knowledge of what you are getting into, and certainly don't hand your money over to the firms like Merrill or Edward Jones. You are better off saving your money in cash at the bank or putting it in a CD than either of those options. If you can find a great financial advisor/investment manager who trades his own money as well as clients, that's your best bet to high returns (and this isn't a plug for myself it is just my honest opinion). You want someone who has their interest's aligned with yours. If they make you money it means that they are making money...and everyone wants to make money!! You are young, so you can afford to have some risk in your life, just be smart about any decision you make.

Sorry for the extremely long post! Some calculations might be wrong because I didn't go back over the post, so if someone see's a mistake you can correct it..hopefully though the general idea is known

Your assumption is that rent is fixed for 30 years? LOL! I had better sell my rentals.

Originally Posted by carendt242

if you are young, you take risks. if you are old, you play conservative.

- chuck

Best advice for any scenario.

And I don't fvck with gold.

Also, listen to M6Cabrio up there ^^^^ He definitely has some useful stuff to say.

Originally Posted by DialM

Your assumption is that rent is fixed for 30 years? LOL! I had better sell my rentals.

valid point(i knew i forgot something in there haha)...I doubt it would go up more than $100 a year being thats a 5.5% increase essentially, but even if so that would account to about the same as buying. I own 3 homes myself (and rent out 1) outright so I am not saying renting is the best for everyone, it's just that people saying real estate is the best place for your money just simply isn't true in all cases these days.

Even just a 3% annual increase in rent yields $380,000 more rent over 30 years than the 0% assumption. And anyone paying a 6% commission is an idiot.