Is my home an investment? March 18, 2009
Posted by Jeff Nabers in : Self Directed IRA Solo 401k, real estate , add a comment
Recently I received a question from somebody looking into self-directed IRA/401(k) investment for themselves. They said, “I ran this by my financial planner in New York who said to roll over my IRA to put some of its money into my home is illegal.” This statement is technically correct. Putting IRA money into his primary residence would be a prohibited transaction. The disturbing thing about the situation is that these three people (a person, their realtor, and their financial planner) could all be on the same page about something so fundamentally ridiculous.
The misconception
In the past 10 years, many people think “real estate investing” equals “putting money into my home”. Their home can’t be an investment in the first place because they are paying for it rather than having it paid for by a renter.
When somebody wants to help people rationalize buying the stuff they sell, they often call it an “investment”. Bill Clinton started changing the way people thought about government spending (when he was increasing it) by calling it an investment.
An investment or a consumer product?
Selling a primary residence to a home buyer is selling a consumer product. It’s for their use. They can buy what they really need. Or they could get extravagant and buy the Lexus/Mercedes version of a home and spend more. Either way, it’s a consumer product if they are paying for it and using it themselves.
But realtors followed Clinton’s spin move and started calling home buying an investment. This really caught on once Fannie Mae, Freddie Mac, and the Fed all took actions to artificially inflate home prices in order to defer the recession of 2002. Once you could buy this consumer product (the home) and then have it rapidly increase in value (supposedly) and realize this value by selling it or doing a refinance cash out, then the talk about the home being an investment seemed to make sense.
Today, the bubble is over, and the illusion that your home is an investment should be easy to correct. If it was an investment, then somebody else would be paying the mortgage. If somebody else was paying the mortgage, they’d probably live in it instead of you.
It’s not to say that buying a home is a stupid thing to do. That can only be decided on a case-by-case scenario that depends on the buyer and the home in question. Buying a home can be a financially beneficial thing to do in some cases, but it hardly could be truthfully classified as “real estate investing”.
Back to basics: real estate investing means buying properties that produce income. And, yes, real estate investing can be done inside an IRA or 401(k). 
Home prices have returned to 1997 levels October 29, 2008
Posted by Jeff Nabers in : Money, Precious Metals, Self Directed IRA Solo 401k, real estate , add a comment
One of the reasons that everyone seems to act so surprised at the “economic meltdown” is because we measure everything in U.S. Dollars while paying little attention to the value of the dollar itself. The dollar is a floating currency. The amount of dollars in circulation can dramatically increase or decrease in any given period of time as seen fit by the central bank, the Fed. An increase in the money supply will push prices up, while a decrease in the money supply pushes prices downward. Therefore, an asset’s true value can remain constant while it’s dollar denominated value can fluctuate – and vice versa.
Looking at statistics or charts denominated in U.S. Dollars can be very deceiving, and if that’s what you’ve been doing, then you were blindsided by the recent collapse of various markets and institutions. If during the past decade you were looking at real prices (as measured in grams of gold) it would have been quite apparent that housing prices were experiencing erratic growth that was likely unsustainable. Gold has been the real currency used by humans since the dawn of time, and even after Nixon took us off the gold standard in 1971, all markets continue to follow logical boundaries of movement as priced in gold.
The good news is that (more…)
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