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Question Authority

Updated: Jul 20, 2023

There was a day in April of 2020 when I decided to take my dog for a walk on the beach.

Yes, San Diego County beaches were closed at the time due to the pandemic, and they had been for more than a month. But I was already tired of that, so I took my Olde English bulldog, Lilly, down to the beach.


I walked south from Cardiff Reef toward Seaside; it’s about a mile. This particular stretch of beach normally allows for dogs if they’re on a leash. There wasn’t anyone on the whole beach, though, so I took off Lilly’s leash and let her run. We got almost all the way down to Seaside before a lifeguard truck drove out to meet us. The young lifeguard pulled up next to me and rolled down his window.


“Sorry, man, the beach is closed.”


“That’s ok, brother, go ahead and write me a ticket.”


“Dude, that is sooo not what I signed on to this job for.”


“I know,” I told him, “and I’m sorry, man, I really am. But I’m not leaving right now, so just write me a ticket. No hard feelings.”


He looked at me for a second, a little stunned, and then his phone rang. “Hold on just a sec,” he told me. So, I picked up a stick and threw it for Lilly, played a little tug-of-war with her and goofed around for a few minutes before he finished his call.


“You won’t believe this,” he said as he hung up. “Your timing is perfect after all-- they just opened up the beach!” Oh, what a difference five minutes makes.


“You are going to have to put your dog on a leash, though.”


Now, I appreciate this poor kid’s position, but there was nobody on the whole beach, so guess what I told him?


“Go ahead and write me a ticket.”

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This real estate market is outta control, proving once again that the only time retail investors have enough fuel is when they’re on fire.


There has never been a time in my life when I have received so many phone calls asking if now would be a good time to sell one’s residence. I suppose that, now that existing home prices have jumped 20% in a year and we’re down to just a two month inventory of homes for sale, it’s a more reasonable question than ever.


However, I think a more pertinent question to ask has to do with the Fed. When in the world are they going to stop buying these $40 billion a month of mortgage bonds??? If the housing market is on fire, the Fed is the arsonist.


The Fed has single-handedly led us into a stagflationary situation in which growth is slowing while costs and prices continue to propel higher. I guess that will eventually lead to more renting that will eventually show up in higher Consumer Price Index (CPI) numbers, and that may finally get somebody’s attention.


That’s because housing gets a 40% weighting in the CPI, but government economists calculate it based off of “owner-equivalent rent,” which is how we currently have this stupid metric of the shelter component of CPI up just 2% over the last twelve months. Do you know anyone whose home value is only up 2% over the last year???


Of course not. My house is up that much since I started writing this.

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For most homeowners, it really doesn’t make sense to try to trade the real estate market with their homes, but this type of crazy price action begets a number of viable lifestyle questions, especially for those at or near retirement. Even if the financials are equal, there are location, lifestyle, and other considerations to weigh, and 2020 gave us all pause to determine the financial values we place on those things. …Maybe it’s time to question the lifeguard.


Especially when valuations are this elevated, the advantages of renting have merit. You won’t owe property taxes or have to deal with mowing the lawn or cleaning the pool. Perhaps most importantly for anyone as thoroughly possessed by wanderlust as I am, you’re not tied down to the property and don’t have to worry about market booms and busts.


From a cash-flow perspective, there also can be advantages to renting, even though rental costs can increase yearly. Generally speaking, though, any increases in rent pale in comparison to routine home repair costs and property tax increases.


On the other hand, owning a home can be desirable for all the reasons that we already know. You don’t have to deal with a landlord, and you can make changes to the space (i.e. build your dream home) as you wish. It might also be helpful if leaving an asset to your heirs is a priority.

_______________________________________________________________________


The bottom line is that it’s not about what you own; it’s about what you control.


If you’re planning to be in a place for only a few years, you may not be able to make up the moving costs, broker fees, mortgage closing costs, and other expenses of a purchase. You can amortize these costs over 20 years to minimize them, but it generally makes more sense to rent if you’re not going to be somewhere for at least five years. That doesn’t mean you shouldn’t go; it just means you shouldn’t buy.


That’s especially important to consider this year, when many retirees have chosen to move out of state to live closer to their children or grandchildren. Renting can be a good way to test the waters if you’re considering a move that will entail considerable lifestyle changes, like moving from an urban place to a rural one.


Therefore, we recommend that homeowners question authority. We’ve all been taught our entire lifetime that renting means throwing away money, but I don’t think that applies when you’re moving into a new phase of life.




For disclosure information please visit: https://www.rgbarinvestmentgroup.com/terms-and-conditions.



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