How THIS Is Making the Housing Crisis Worse

This post How THIS Is Making the Housing Crisis Worse appeared first on Daily Reckoning.

It’s happened several times in the last couple of months – someone approaches me, clipboard in hand, and asks if I’m a California voter. Then, barely waiting for my response, they start asking me to sign a petition related to rent control.

The first time it happened, at my local organic market in Santa Barbara, I just politely said “no thanks.”

The most recent time, at a professional women’s surfing contest in San Diego last week, I couldn’t hold back and ended up saying a bit more to the solicitor.

And now, after hearing Bernie Sanders mention the idea during last Tuesday’s primary debate, I want to tell you a more expanded version of where I stand on the topic (and why)…

My Grandparent’s Experience

Let me first say that, like Bernie Sanders and other proponents of rent control, I’m very familiar with the plight of poor families that rent all of their lives …

My mom’s parents rented the same apartment in downtown Wilkes-Barre, Pennsylvania for more than 50 years.

Her father grew up in such poverty that he had to drop out of high school to go work in the coal mines.

Her mother graduated from high school but stayed home to take care of the kids.

They were Depression-era people, conservative with what little money they had, and they never made the leap to home ownership.

After leaving the mines, my grandfather made his living doing all kinds of odd jobs – car mechanic, electrical work, etc. – including helping out his landlord whenever needed. His rent still went up on a regular basis. Even when my grandmother was living in the apartment alone in her early 90s, the landlord was talking about another increase.

Would it have been nice if their rent, established in the 1950s, could have only gone up 3% or 4% a year so long as they stayed in that apartment? Absolutely.

Still, they never complained. They knew prices for things went up over time. They cited a few times in the past when they might have been able to buy a house in the neighborhood but just couldn’t mentally commit to the idea. Nor did they like borrowing large sums from banks.

My grandmother died in that small apartment, with not very much to her name.

Now, let me tell you another story…

Where Rent Control Goes Bad

As my grandmother was into her 80s, I was moving into New York City and looking for apartments.

I was working for Standard & Poor’s and making a good salary, but hardly anything exorbitant. My one-bedroom apartment just off Wall Street was $2,300 and was subject to market rate increases going forward.

My boss, perhaps 30 years older than me, lived a couple neighborhoods away. He obviously made more than me but he’d been in New York for a long time and his apartment – twice the size of mine – was under rent control. I don’t know exactly how much he paid but I would guess a third of my rent for twice as many bedrooms. He also owned a vacation home outside the city.

Meanwhile, there were plenty of rent-controlled people charging large amounts of money to let someone move into a vacant bedroom while their landlord received nothing.

I also knew someone who lived in another state almost all of the year but maintained a rent-controlled NYC apartment as a little getaway (lying about residency in the process).

This is just a little taste of what I saw, but the big-picture was pretty easy to see – rent control largely rewarded people who got there first, regardless of their financial status … it was easily abused … and it did very little to help newcomers or anyone looking to move from one place to another.

There is also no doubt that many landlords do everything in their power to screw over tenants, especially in a place like New York City. And from what I saw, rent control didn’t help that situation either … it merely discouraged building owners from improving their rent-controlled properties any more than was absolutely necessary.

Indeed, New York City just changed a bunch of rules related to rent control and we’re already hearing about landlords bailing on big capital investments.

But you don’t have to accept my personal experience or anecdotal evidence.

The academic research is pretty decisive that rent control doesn’t work, whether you’re talking about New York or Paris.

As Reason noted in a recent article:

“Brookings Institute associate professor of economics Rebecca Diamond did a recent review of the literature on rent control, finding that ‘Rent control appears to help affordability in the short run for current tenants, but in the long-run decreases affordability, fuels gentrification, and creates negative externalities on the surrounding neighborhood.’ The reason is simple and boils down to the law of supply and demand. While some of the people renting may benefit from rent control by removing some of their risk, it also gives landlords an incentive to alter their supply of rental property.

“They have several options based on the circumstances. First, they may withdraw their properties from the rental market to sell them as condos. Former George Mason University Chairman of the Department of Economics Donald Boudreaux summed it up nicely in a 2006 letter to the editor of The New York Times: ‘By decreasing the profitability of supplying units occupied by renters, these controls spawn condo conversions and prompt builders to construct fewer rental units and more units for sale to owner-occupiers. People who can’t afford to buy housing are unnecessarily disadvantaged.’ Landlords may also stop investing in maintenance, which, over time, may lead to neighborhoods with many run-down properties. The bottom line is that rent control never increases the supply of affordable rented housing.”

What about this legislation they’re trying to pass in California?

Well, after I explained that I recently purchased a million-dollar home and would never want to cap my own future rental potential, the solicitor at the competition assured me that it would only apply to landlords who own three or more properties.

At that point, I didn’t bother to explain that I also recommend investing in companies like Real Estate Investment Trusts (REITS) that are essentially corporate landlords.

It was clear we simply had different ideas about capitalism and free markets.

If Rent Control Doesn’t Work, What Will?

From my perspective, the person who took a chance on New York City back in the 1970s – when it was a far cry from its current look and feel – deserves to get market rates for that money invested and risk undertaken.

As did my grandparents’ landlord…

As do I for working hard, and saving enough to buy a house in Santa Barbara.

Can you imagine what it would be like if we suddenly capped the amount of dividends that stocks could pay to their investors?

Well, that’s exactly what rent control does with real estate.

Perhaps the biggest irony is that some of the same people here in California who cry for more affordable housing are the very same people who don’t want garages converted into auxiliary dwelling units, Airbnb listings allowed in residential neighborhoods, or high-rise buildings in land-constrained areas.

Look, housing affordability is a complicated issue. In highly desirable locations with little room for further development, it’s doubly complicated.

But I would much rather see solutions that start with increasing supply, even if it’s something small like simply allowing existing homes to be partitioned into several micro houses. At least it’s a start to fixing a long term problem and not a band-aid that will fester given enough time.

Thinking we can wave a magic wand and keep prices in check through artificial rent controls isn’t going to cut it.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

The post How THIS Is Making the Housing Crisis Worse appeared first on Daily Reckoning.

There Are 5 Levels of Investing… Here’s How You Reach the Top One

This post There Are 5 Levels of Investing… Here’s How You Reach the Top One appeared first on Daily Reckoning.

I recently read an article on “Retirement Success: focus on the paycheck, not the savings number.” I was intrigued. I didn’t know exactly what it meant, so I read it.

The article features an actuary named Vernon who is an expert in numbers, and also a retirement educator. I always like to hear what those guys have to say.

Vernon’s strategy is to not to focus so much on the retirement number, but instead setting up “retirement paychecks that are guaranteed to last the rest of your life.” I thought “Oh, maybe he’s talking about cash flowing assets.”

I read on.

I didn’t have to get much farther down the page before I realized this “retirement educator” was teaching what most finance-gurus teach: a retirement filled with basics and necessities.

“The big picture is to get a feel for what your basic necessities are each month, and your discretionary expenses,” Vernon said. “Then, you want to insure an income that exceeds your basic expenses.”

What he called “retirement success” was simply living to pay for your necessities. By his logic, a retiree who probably worked a majority of their adult life was to live the rest of their life only with the basics. That’s not the way I’d want to live. That’s not the way anyone should live.

Social Security, Pensions, Annuities and Reverse Mortgages were his strategy for success.

This is no way to live.

5 Levels of Investors

Below is my Cashflow Quadrant…

 

cash quadrant

The image informs every different kind of person out there when it comes to their understanding of money.

The E and S side are where 90% of the population live. Uneducated financially. It’s not where you want to be.

Level 1: The Zero-Financial-Intelligence Level

Over 50% of the population in America is the Level 1 investor. The results of a lack of financial education in the school system can be found in this level. Simply put, they have nothing to invest.

Zero financial intelligence = Zero money to invest

There are many people who make a lot of money who fall into this category. They earn a lot—and spend more than they earn.

Level 2: The Savers-Are-Losers Level

As the Federal Reserve and central banks throughout the world print trillions of dollars at high speed, every printed dollar means higher taxes and more inflation. In spite of this fact, millions of people continue to believe saving money is smart. It used to be smart when money was money. Now savers who park their money are the biggest losers.

Level 3: The I’m-Too-Busy Level

This is the investor who is too busy to learn about investing. Most likely a highly educated person who is too busy with a career, family, and vacations. They rely on the expertise of an “expert” to manage it for them. They hope and pray their expert is really an expert.

Level 4: The I’m-a-Professional Level

This is the do-it-yourselfer (they’re from the S quadrant investing in the I quadrant). This investor may do their own research and make their own decisions before they buy and sell a few stocks, often from a discount broker. If they invest in real estate, the do-it-yourselfer will find, fix, and manage their own properties. And if the person is into commodities, they will buy and store their own gold and silver. In most cases, the do-it-yourselfer has very little, if any, financial education.

Level 5: The Capitalist Level

This is the richest people in the world level. The Level-5 investor, a capitalist, is a business owner from the B quadrant investing in the I quadrant.

The capitalist uses other people’s money (OPM) to invest. Once a person knows how to build a business in the B quadrant, success attracts money and it becomes easy to raise money in the I quadrant.

They get their money from Level 2 and Level 3 investors who save their money in banks and pension plans.

5 Types of Investors

Investors, like investing plans, are not created equal. There are different investor types.

  1. Accredited Investors: As defined by the Securities and Exchange Commission (SEC), this investor earns at least $200,000 in annual income ($300,000 for a couple) and/or has a net worth of $1 million. An accredited investor has access to many lucrative investments that, because of their risk, may be legally off-limits to people of lesser income. Although usually financially educated, accredited investors are not necessarily fully literate. They may be content with security and comfort rather than wealth, and may rely on advisors to develop and implement their financial plans.
  2. Qualified Investors:  This investor is well versed in either fundamental or technical investing. Fundamental investing requires the ability to assess a company’s potential by reviewing financial statements, tracking the company’s industry, and calculating how changes in interest rates and the economy could affect profitability. Fundamental investors use financial ratios (which you’ll learn about later) to assess the strength of a company being considered as  an investment.
  3. Sophisticated Investors: Sophisticated investors build wealth by developing a foundation of assets that generate high cash returns with minimum payment of taxes. Sophisticated investors exercise control over the timing of taxes and the character of their income. They know, for example, to defer paying taxes on capital gains from real estate by rolling over profits to more expensive property. They look at economic downturns as opportunities to pay bargain-basement prices for quality paper assets, and they create deals instead of simply waiting for the right one to come along.
  4. Inside Investors: Building or owning a profitable business is the primary goal of this investor. Whether as an officer of a corporation or owner of a majority of its shares of stock, the inside investor exercises some degree of management control. By running business systems from the inside, he or she learns how to analyze them from the outside and thereby becomes a sophisticated investor as well.
  5. Ultimate Investors: The goal of the ultimate investor is to own a business that is so successful that shares are sold to the public. Making an initial public offering (IPO) is expensive and full of risks, yet it allows business owners to cash in on the equity they have built up in the company, while also raising money to pay down debt and fund expansions. The ultimate investor is one who has mastered every rule and enjoys playing the game for its own sake.

Average investors buy packaged paper assets such as mutual funds, treasury bills, or real estate investment trusts (REITs). Professional investors are more aggressive. They create investment opportunities or get in on the ground floor of new offerings, build businesses and marketing networks, assemble groups of financiers to fund deals too large for them to undertake alone, and pick the companies with the most promise for initial public offerings (IPOs) of stock.

Each level of investor and type of investor that you are will determine if your retirement is secure, comfortable, or rich. Which do you choose?

Regards,

Robert Kiyosaki

The post There Are 5 Levels of Investing… Here’s How You Reach the Top One appeared first on Daily Reckoning.

There Are 5 Levels of Investing… Here’s How You Reach the Top One

This post There Are 5 Levels of Investing… Here’s How You Reach the Top One appeared first on Daily Reckoning.

I recently read an article on “Retirement Success: focus on the paycheck, not the savings number.” I was intrigued. I didn’t know exactly what it meant, so I read it.

The article features an actuary named Vernon who is an expert in numbers, and also a retirement educator. I always like to hear what those guys have to say.

Vernon’s strategy is to not to focus so much on the retirement number, but instead setting up “retirement paychecks that are guaranteed to last the rest of your life.” I thought “Oh, maybe he’s talking about cash flowing assets.”

I read on.

I didn’t have to get much farther down the page before I realized this “retirement educator” was teaching what most finance-gurus teach: a retirement filled with basics and necessities.

“The big picture is to get a feel for what your basic necessities are each month, and your discretionary expenses,” Vernon said. “Then, you want to insure an income that exceeds your basic expenses.”

What he called “retirement success” was simply living to pay for your necessities. By his logic, a retiree who probably worked a majority of their adult life was to live the rest of their life only with the basics. That’s not the way I’d want to live. That’s not the way anyone should live.

Social Security, Pensions, Annuities and Reverse Mortgages were his strategy for success.

This is no way to live.

5 Levels of Investors

Below is my Cashflow Quadrant…

 

cash quadrant

The image informs every different kind of person out there when it comes to their understanding of money.

The E and S side are where 90% of the population live. Uneducated financially. It’s not where you want to be.

Level 1: The Zero-Financial-Intelligence Level

Over 50% of the population in America is the Level 1 investor. The results of a lack of financial education in the school system can be found in this level. Simply put, they have nothing to invest.

Zero financial intelligence = Zero money to invest

There are many people who make a lot of money who fall into this category. They earn a lot—and spend more than they earn.

Level 2: The Savers-Are-Losers Level

As the Federal Reserve and central banks throughout the world print trillions of dollars at high speed, every printed dollar means higher taxes and more inflation. In spite of this fact, millions of people continue to believe saving money is smart. It used to be smart when money was money. Now savers who park their money are the biggest losers.

Level 3: The I’m-Too-Busy Level

This is the investor who is too busy to learn about investing. Most likely a highly educated person who is too busy with a career, family, and vacations. They rely on the expertise of an “expert” to manage it for them. They hope and pray their expert is really an expert.

Level 4: The I’m-a-Professional Level

This is the do-it-yourselfer (they’re from the S quadrant investing in the I quadrant). This investor may do their own research and make their own decisions before they buy and sell a few stocks, often from a discount broker. If they invest in real estate, the do-it-yourselfer will find, fix, and manage their own properties. And if the person is into commodities, they will buy and store their own gold and silver. In most cases, the do-it-yourselfer has very little, if any, financial education.

Level 5: The Capitalist Level

This is the richest people in the world level. The Level-5 investor, a capitalist, is a business owner from the B quadrant investing in the I quadrant.

The capitalist uses other people’s money (OPM) to invest. Once a person knows how to build a business in the B quadrant, success attracts money and it becomes easy to raise money in the I quadrant.

They get their money from Level 2 and Level 3 investors who save their money in banks and pension plans.

5 Types of Investors

Investors, like investing plans, are not created equal. There are different investor types.

  1. Accredited Investors: As defined by the Securities and Exchange Commission (SEC), this investor earns at least $200,000 in annual income ($300,000 for a couple) and/or has a net worth of $1 million. An accredited investor has access to many lucrative investments that, because of their risk, may be legally off-limits to people of lesser income. Although usually financially educated, accredited investors are not necessarily fully literate. They may be content with security and comfort rather than wealth, and may rely on advisors to develop and implement their financial plans.
  2. Qualified Investors:  This investor is well versed in either fundamental or technical investing. Fundamental investing requires the ability to assess a company’s potential by reviewing financial statements, tracking the company’s industry, and calculating how changes in interest rates and the economy could affect profitability. Fundamental investors use financial ratios (which you’ll learn about later) to assess the strength of a company being considered as  an investment.
  3. Sophisticated Investors: Sophisticated investors build wealth by developing a foundation of assets that generate high cash returns with minimum payment of taxes. Sophisticated investors exercise control over the timing of taxes and the character of their income. They know, for example, to defer paying taxes on capital gains from real estate by rolling over profits to more expensive property. They look at economic downturns as opportunities to pay bargain-basement prices for quality paper assets, and they create deals instead of simply waiting for the right one to come along.
  4. Inside Investors: Building or owning a profitable business is the primary goal of this investor. Whether as an officer of a corporation or owner of a majority of its shares of stock, the inside investor exercises some degree of management control. By running business systems from the inside, he or she learns how to analyze them from the outside and thereby becomes a sophisticated investor as well.
  5. Ultimate Investors: The goal of the ultimate investor is to own a business that is so successful that shares are sold to the public. Making an initial public offering (IPO) is expensive and full of risks, yet it allows business owners to cash in on the equity they have built up in the company, while also raising money to pay down debt and fund expansions. The ultimate investor is one who has mastered every rule and enjoys playing the game for its own sake.

Average investors buy packaged paper assets such as mutual funds, treasury bills, or real estate investment trusts (REITs). Professional investors are more aggressive. They create investment opportunities or get in on the ground floor of new offerings, build businesses and marketing networks, assemble groups of financiers to fund deals too large for them to undertake alone, and pick the companies with the most promise for initial public offerings (IPOs) of stock.

Each level of investor and type of investor that you are will determine if your retirement is secure, comfortable, or rich. Which do you choose?

Regards,

Robert Kiyosaki

The post There Are 5 Levels of Investing… Here’s How You Reach the Top One appeared first on Daily Reckoning.