Monday, February 13, 2017

Real estate investment is more about politics than location

Everyone knows about the saying that real estate investment is about location, location, location.

From my personal observation, I say that real estate investment is more about politics than location.

The first golden rule about investing, any form of investing, must be “never fight the government”.

You cannot win unless you have the power to overturn the current administration and install your puppet to head the new administration.

If you are so powerful, you must be rich enough to buy your way into anything.

For the rest of us, we have to go along with the government, and make decisions to benefit ourselves.

If the government has sounded out that the real estate bubble is forming, and it will take action to protect the interest of the ordinary folks, that is not the time to buy.

Even if the location is very good, you should wait till the correction is well underway.

The wave of protectionism sweeping across the world will have an impact on housing price, and rental yield.

Without foreigners to come to work and rent a place, the rental yield is low.  When rental yield is low, the housing price will be low.

The effect of Brexit is not fully known at the moment, since UK has not triggered Brexit.

The likely outcome is that jobs will go to Europe, and immigrants and skilled foreign workers will leave UK, and that will lead to lower pounds, higher inflation, lower rental yield, and lower real estate price.

It is just a matter of how bad it will be.  The outcome will depend on how the government will spend to boost jobs.

Sunday, February 12, 2017

Retained earnings

When you read the annual report of a company, you can learn a great lesson about personal finance too.

When a company makes a million dollars, pay 20% of it in tax, it will have eight hundred thousand dollars left.

It is not likely to pay all the money to the shareholders.

It will retain a large portion of the money as retained earnings.

You will see this amount in the annual report.

Since all good companies will do that, it follows that we have to retain a part of our earnings too.

Most of us never think about it in this way. 

Most of us know how to exercise good judgment when we are managing the business of our boss, yet we cannot use the same concept in our lives.  That is very sad.