Feb 142011
Mish provides a take on “owning” a home that few realize:
Perpetual Liabilities: An endless note on your house you can never pay off
by noreply@blogger.com (Michael Shedlock)4 people liked thisImagine the perpetual loan, a loan that no matter what you do, you can never pay off. To help conceptualize the idea, think of it as a perpetual interest-only loan in which you are forbidden to completely pay off principal.As preposterous as that deal may sound, it is highly likely you are in one.
If you own a house, you are in exactly that deal, except it conveniently not called interest. Instead it’s called a property tax.
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Hi Monty: Mish is exactly right. This is a major reason why I don’t want to upgrade my house though we could easily afford something more upscale–the tax would just simply double or triple. We bought the house next door as a rental, and at least the property taxes can be claimed as an offset to rental income.
I wanted to point out an article by Gonzalo Lira which I think is important to investors: http://gonzalolira.blogspot.com/2011/02/inflation-hyperinflation-and-real.html
His main point is that real estate is not a good investment during high or hyper-inflation because interest rates inevitably rise forcing the price of housing down. He names several examples where this has happened. My plan is that when my oil stocks are soaring to the sky to sell some and to buy a farm. Cheers.