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Thread: Real Estate is the Best Anti-Inflation Play

  1. #31

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    Are you sure that $1,000 isn't old or for grazing land or something? Decent corn fields are selling for $7k+ an acre in most parts of the country.

    Anyway, if biofuels go away, food prices will drop dramatically. Biofuels eat up 40% of all US corn supplies each year, which exerts incredible pressure on all agricultural output. Less land being used to produce food equals rising food prices. And it goes all the way up and down the chain, since harvested crops are often turned into animal feeds which then drives up the cost of raising farm animals. So biofuel is the main driver. After that I would say increased meat demand in Asia. It takes a lot more calories of grain to make a steak or chicken breast than you get back in return.
    That makes sense, thank you. Farms go for that in some of the less populated parts of Michigan. Corn is grown in old hay fields, but the deer eat a good portion of the crop.



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  3. #32

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    Jordan,

    How many properties do you own?

  4. #33

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    Quote Originally Posted by Jordan View Post
    You're discussing the notional value of derivatives, which is totally unimportant and frankly, not really related to your thesis. Anyway, talking about the notional value of derivatives as a relevant statistic is like saying the car insurance business is doomed for failure because everyone is going to get in a wreck tomorrow and spend 30 days in the hospital. Alas, that's not going to happen.

    Anyway, what do all these derivatives have to do with real estate being overvalued? Is real estate also overvalued because everyone owns a homeowners insurance policy on their home, which represents trillions in potential liabilities?
    I am not sure how you don't see the failure of a Quadrillion dollars in investment capital specifically with mortgage backed securities not tying into US real estate? As I said we saw just a glimpse of this in 2008 but poured tens of trillions into the industry propping up the massive losses.... of just a glimpse. This is all one GIANT spreadsheet here the bankers have separated into two spreadsheets by forming the unregulated derivatives market. Even a 5 or 10 percent variance in these values is a global economic crash of epic proportions.

    Derivatives are simply an unregulated place to hide 100 times as many toxic mortgages as those few brought to light in 2008. These mortgages are tied to tens of millions of American individuals, retirement accounts, IRA/401K's, corporations, unions, schools, city governments etc etc etc. They are all tied into derivative investments. The solvency of those people are dependent on the solvency of those derivatives.

    The price of real estate is directly tied to the amount of wealth in the country. The wealth of this country is tied up in a Quadrillion dollars of derivatives. Those belong to real people both wealthy but most of all the middle class. Their pensions, 401K/IRA's, the stockmarket, employment etc are massively tied to them. Much of the corporate wealth in the US is tied to them.

    How you see this as unrelated I have no clue.
    Last edited by adams101; 12-09-2012 at 02:38 PM.

  5. #34
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    Quote Originally Posted by cbc58 View Post
    Jordan,

    How many properties do you own?
    vs how many ounces of gold vs how much liquidity does he have to continue accumulating one or the other.

  6. #35

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    Quote Originally Posted by Jordan View Post

    Yes, it doesn't mean it is undervalued, but it does mean that no one is going to make more of it until it goes back to the cost of replacement.
    Just because people are not going to make more of it, doesn't mean it will go up in price.

  7. #36

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    Quote Originally Posted by cbc58 View Post
    Jordan,

    How many properties do you own?
    Minority stake in several residential properties via a flipping/holding company. I would be happy to pour money in my own direct real estate investments if I wasn't likely to move. Additionally, I'd love to own residential properties via REITs, but there aren't any good pure-plays on residential property.

    So, for now, I stick to passive participation in the real estate market. Returns are phenomenal with no work on my part.

    Quote Originally Posted by adams101 View Post
    I am not sure how you don't see the failure of a Quadrillion dollars in investment capital specifically with mortgage backed securities not tying into US real estate? As I said we saw just a glimpse of this in 2008 but poured tens of trillions into the industry propping up the massive losses.... of just a glimpse. This is all one GIANT spreadsheet here the bankers have separated into two spreadsheets by forming the unregulated derivatives market. Even a 5 or 10 percent variance in these values is a global economic crash of epic proportions.

    Derivatives are simply an unregulated place to hide 100 times as many toxic mortgages as those few brought to light in 2008. These mortgages are tied to tens of millions of American individuals, retirement accounts, IRA/401K's, corporations, unions, schools, city governments etc etc etc. They are all tied into derivative investments. The solvency of those people are dependent on the solvency of those derivatives.

    The price of real estate is directly tied to the amount of wealth in the country. The wealth of this country is tied up in a Quadrillion dollars of derivatives. Those belong to real people both wealthy but most of all the middle class. Their pensions, 401K/IRA's, the stockmarket, employment etc are massively tied to them. Much of the corporate wealth in the US is tied to them.

    How you see this as unrelated I have no clue.
    I see them as unrelated because you have no concept of what notional value means.

    Quote Originally Posted by newbitech View Post
    vs how many ounces of gold vs how much liquidity does he have to continue accumulating one or the other.
    I own zero ounces of gold. Gold is impossible to value, and I find metals to be a very boring asset class because they don't do anything. Much easier to assign a value to the cash flows of a business or piece of real estate than to guess what someone will pay for gold 5, 10, or even 20 years from now. No problems with accumulating, as I can acquire minority positions.

    Care to share your financials? This is stupid.

    Quote Originally Posted by cubical View Post
    Just because people are not going to make more of it, doesn't mean it will go up in price.
    Right, but I'd much rather own a commodity at a price less than its cost to replace than at a price above it. Demand is coming back, and I have time.

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    Quote Originally Posted by Jordan View Post

    I own zero ounces of gold. Gold is impossible to value, and I find metals to be a very boring asset class because they don't do anything. Much easier to assign a value to the cash flows of a business or piece of real estate than to guess what someone will pay for gold 5, 10, or even 20 years from now. No problems with accumulating, as I can acquire minority positions.

    Care to share your financials? This is stupid.
    So you aren't really accumulating you are pushing paper. Ok, done with this stupid argument.

  9. #38

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    Quote Originally Posted by newbitech View Post
    So you aren't really accumulating you are pushing paper. Ok, done with this stupid argument.
    Whatever the hell that means. There's more to the investment universe than what you can find in a jewelry store.

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    Quote Originally Posted by Jordan View Post
    Whatever the hell that means. There's more to the investment universe than what you can find in a jewelry store.
    of course there is. However, you said that real estate is the best anti-inflation play and then carry on to tell us how you own paper real estate. that's not convincing.

    I don't care to know you financials, but you don't actually own any real estate, or gold. So it's kind of hard to have that conversation with someone who is still making paper valuations. Know what I mean? What you own is still tied to the value of fiat. If you want to hedge against inflation, you have to decouple from assets that track the value of the currency you are hedging against.

    At this point, you be better off buying wheel barrows and pitch forks so people can move their money once inflation reasserts. Right now, what real estate is doing is adjusting from damn near 30 years of inflation with a really big explosion in notional valuation in the last 10 years. We've hard blown off that notional value, and some are calling for a bottom. This is just crazy. Unless wages catch up to the cost of financing the medium home price over the next 5-10 years, you are going to be buying into a deflating market. That's not a bad deal if you have enough liquidity to accumulate and NOT be saddled by the paper you hold.

  11. #40

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    Jordan,

    I think you may be trying to make yourself feel better by promoting real estate as a good investment even though you don't own any but may have invested in a flipper. Some flippers make alot of money and many lose their shirts and go after unsuspecting investors for "sure-fire" deals. We have one guy here who does just that but uses another alias to off-load loosing money properties for less than he paid for them. Seen this before back in the 80's when rates were low and then BAM - rates shot up to the high teens and people lost their shirts. Of course mileage may vary from location to location...
    Last edited by cbc58; 12-09-2012 at 05:00 PM.

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    They raised my assesment on my crop land this year , I am pissed about it , will let it slide without contesting ,this once , they , for the first time, ever lowered assesment on two of our family homes in one county and raised it on one in an adjoining county.

  13. #42

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    Quote Originally Posted by newbitech View Post
    of course there is. However, you said that real estate is the best anti-inflation play and then carry on to tell us how you own paper real estate. that's not convincing.

    I don't care to know you financials, but you don't actually own any real estate, or gold. So it's kind of hard to have that conversation with someone who is still making paper valuations. Know what I mean? What you own is still tied to the value of fiat. If you want to hedge against inflation, you have to decouple from assets that track the value of the currency you are hedging against.

    At this point, you be better off buying wheel barrows and pitch forks so people can move their money once inflation reasserts. Right now, what real estate is doing is adjusting from damn near 30 years of inflation with a really big explosion in notional valuation in the last 10 years. We've hard blown off that notional value, and some are calling for a bottom. This is just crazy. Unless wages catch up to the cost of financing the medium home price over the next 5-10 years, you are going to be buying into a deflating market. That's not a bad deal if you have enough liquidity to accumulate and NOT be saddled by the paper you hold.
    How is having ownership to a business that invests directly in real estate paper ownership? You're way too comfortable throwing around the word "paper" to basically mean "an investment that I don't like because it isn't metal." I have a right to a portion of the underlying assets and the income generated from those assets. These are real houses. People have bought them. People are living in them. They aren't just pictures I drew on a piece of paper.

    All you have to do is look to pending home sales, construction data, and the price-to-rent ratio chart I posted above to see that real estate isn't overpriced. It's moving faster now than at any point in the last 5 years. How many indicators do I have to post before I stop encountering ridiculous claims without any backing whatsover, such as this:

    At this point, you be better off buying wheel barrows and pitch forks so people can move their money once inflation reasserts. Right now, what real estate is doing is adjusting from damn near 30 years of inflation with a really big explosion in notional valuation in the last 10 years. This is just crazy. Unless wages catch up to the cost of financing the medium home price over the next 5-10 years, you are going to be buying into a deflating market.
    What I find remarkable is that this board cannot find a single reason why ANYTHING OTHER THAN GOLD OR SILVER could go up in value. Already four pages in I've heard now that inflation will drive real estate prices down, and so will deflation. If Obama sneezes tomorrow, real estate, stocks, anything but gold and silver will go down. If Obama doesn't sneeze tomorrow, then real estate, stocks, and anything buy gold and silver will go down. There is no consistency in the thought process here with the exception that everything will be worth less tomorrow unless it is sold in a coin shop. It's borderline delusion at this point.


    Quote Originally Posted by cbc58 View Post
    Jordan,

    I think you may be trying to make yourself feel better by promoting real estate as a good investment even though you don't own any but may have invested in a flipper. Some flippers make alot of money and many lose their shirts and go after unsuspecting investors for "sure-fire" deals. We have one guy here who does just that but uses another alias to off-load loosing money properties for less than he paid for them. Seen this before back in the 80's when rates were low and then BAM - rates shot up to the high teens and people lost their shirts. Of course mileage may vary from location to location...
    cbc58, you act like I went to Home Depot, found the first guy I could with a pickup truck with a logo, and then handed him a pile of money. This isn't the case. I made an investment in a c-corp - a company - that buys and sells real estate. There's no shady behind the back buy and then offload under a different name. The properties are owned by the c corp, which has been confirmed from public listings, and data searches from investors I trust and respect. This guy has countless years of experience in real estate, and I feel much more comfortable with him calling the shots than me. Besides, he and his family have a huge portion of their net worth in this company. He's going to be as conservative as any investor would like.

    "Seen this before back in the 80's when rates were low and then BAM - rates shot up to the high teens and people lost their shirts" the RE on the books is held with virtually zero leverage. The people who got burned during the 80s were people who had callable bank loans come due when S&L went under the first time. I'm not dumb enough to invest in a long-term assets with money that can be called tomorrow. Only a fool would use callable money to buy a relatively illiquid asset.

    I have conviction in my investment, otherwise I wouldn't have money in it. That shouldn't be surprising. At any rate, it's not a substantial part of my net worth, and I'll wake up just as happy tomorrow if doomsday scenarios play out.

  14. #43
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    Quote Originally Posted by cbc58 View Post
    Real estate values don't go up in an inflationary environment - they go down. Cost's to maintain go up. When values get near a real bottom then renters will jump ship and rental properties won't look so attractive due to lower occupancy ratings.
    During "normal times" the historical price of real estate values have followed the rate of price inflation. That means it is a hedge against inflation. How would inflation help or hurt you if you buy a place? If prices inflate, the value of each dollar goes down. As a buyer with a fixed loan, you are paying off the loan with lower valued money- meaning in real terms, the costs are going down. If you are a renter and prices are rising, your rent will probably rise- it may or may not move up with the price inflation but your costs will be higher.

    What about the costs of buying a home? Taxes? Maintaining the property? All renters are paying that. They are paying the costs of ownership for the person they are renting from- along with a bit extra in the form of profit for him or her.

    The other cost is the "opportunity cost". What else would you be doing with the money you would be spending to buy property? Paying rent. What do you get for that rent? Besides a roof, nothing. What do you get for that money if you are buying? A growing share in a real asset which can be later sold if you want or need to. You are going to be spending the money- why not get something for it instead of tossing it away?

    If again you get a fixed rate mortgage, your payments are fixed. They will not go up. Your rent may rise in the future and likely will. Yes- your property taxes may go up as well but also again, those are included in your rent so you can't avoid that anyways. And if you keep the place long enough, the mortgage cost can go to zero (mine just did). How much a month are you saving then? Compared to the costs of renting, I am saving tens of thousands a year now. For as long as I want to. And in exchange for the money which would have been going to rent and getting me nothing, I have an asset worth over $150,000 (at current prices- about 50% more that what I paid for it less than 14 years ago- other details will vary from person to person and location to location).

    For me, there are two important parts of what I am trying to say. One- you are paying money for nothing by renting- why not get something for what you are already giving away? (and you are not avoiding any of the costs of buying if you do rent). Two- eventually the mortgage component can go to zero which is an additional bonus- the same as having a large amount saved or invested into something else. Or the same net effect as a huge raise in your income- your disposable income shoots way up. Trying to keep my expenses low is an important part of my retirement plan.
    Last edited by Zippyjuan; 12-09-2012 at 07:40 PM.
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  15. #44

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    Quote Originally Posted by Jordan View Post
    Right, but I'd much rather own a commodity at a price less than its cost to replace than at a price above it. Demand is coming back, and I have time.
    Demand is back at what levels?

    Gold is a place that the super wealthy go. Demand for housing comes from the "common folk". These people can not buy homes without credit. Credit will be scarce. Home prices will drop(relative). During hyperinflation, "common folk" suffer. I don't envision many stories of people buying their dream home during the crisis.

    If the global elite were buying up homes to store their wealth, then I might agree. Maybe beach front property in San Diego or somewhere exclusive will rise in value as people seek to preserve their wealth. But I highly doubt your regular 250k home in any town USA does so well.

    With this said, I would not be against buying a home to live in while interest rates are at these level. If you know you will be in the home many years, it is better than renting.

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    If the global elite were buying up homes to store their wealth, then I might agree. Maybe beach front property in San Diego or somewhere exclusive will rise in value as people seek to preserve their wealth. But I highly doubt your regular 250k home in any town USA does so well.
    That's me! Not on the beach but about a mile inland in San Diego.
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  17. #46

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    I guess I should have used the term "rising interest rate environment" instead of inflation because the econ police are here. Truth is that if interest rates were allowed to float on their own without the fed playing around with them - housing values would not have gone up nearly as much as they did. Mark all properties to market and let's see how everyones property value is without the massive intervention that has occurred over the last 30 years or so. I don't need to argue this with anyone here - been in real estate for 25 years and know what happens in the real world -- thank you very much.

    And... it makes sense to rent in many circumstances - there is no one size fits all. I am seeing houses that I sold 20 years ago sell for LESS than I sold them for - and they are not foreclosures or distress sales.

  18. #47

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    Quote Originally Posted by Zippyjuan View Post
    That's me! Not on the beach but about a mile inland in San Diego.
    Nice

    Well with the way I envision CA reacting to the coming crisis, I don't know if it would be THE BEST place to be.
    Last edited by cubical; 12-09-2012 at 09:43 PM.

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    There are always worse places- no matter what you are doing. It is really not a bad place. The climate also helps keep my bills low- I do have homeowners fees for my condo which include my water but my utility bill is about $35 a month year round. Living right near work and the grocery store- no car needed either. Again saving tons of money (and commute time!). Got a nice little spot going on here!
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  20. #49

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    Another thing to consider when buying property for an investment, assuming you are renting it, is the potential legal costs. I am currently renting in CT and my landlord is being sued be the previous tenant because they fell down the stairs and the stairs were not "up to code". I am sure it is costing my landlord thousands just to defend himself. If they lose, thousands more.

    Question for anyone in the know(as I would one day like to get into real estate), is the building code for residential property similar to the tax code. By that I mean is it so complex that you are always at risk of being sued for not being up to code. Also, if I was to sell a property, could the buyer come back to me after the sale is completed and sue me for some building code violation?

  21. #50

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    Quote Originally Posted by Zippyjuan View Post
    There are always worse places- no matter what you are doing. It is really not a bad place. The climate also helps keep my bills low- I do have homeowners fees for my condo which include my water but my utility bill is about $35 a month year round. Living right near work and the grocery store- no car needed either. Again saving tons of money (and commute time!). Got a nice little spot going on here!
    You looked at going solar?

  22. #51

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    Quote Originally Posted by cubical View Post
    Nice

    Well with the way I envision CA reacting to the coming crisis, I don't know if it would be THE BEST place to be.
    I wouldn't underestimate San Diego as a place to be during a crisis. I grew up there.

    San Diego has a lot of military families. It is also a good place to take it easy. Free people taking it easy are not likely to eagerly jump on every band wagon you shove in front of them. I see them as very independent that way.

    I haven't lived a lot of places but I rate them up there on the flipping you off or mooning you index if you try pulling anything on them.
    Last edited by Carson; 12-09-2012 at 09:53 PM.

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    I am restricted on what I can do on the outside of the building. My balcony faces north so aside from a few days in winter, I get no direct sun (I have a pitched roof which is higher in the middle of the unit and skylights up there do let in sun from that direction) so solar would not work for me. The complex has installed solar for hot water heat which everybody shares. At my current costs for electricity, it might not be worth it anyways. If it cost $7000 my break even would be about 16 years.
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  24. #53

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    Quote Originally Posted by Zippyjuan View Post
    I am restricted on what I can do on the outside of the building. My balcony faces north so aside from a few days in winter, I get no direct sun (I have a pitched roof which is higher in the middle of the unit and skylights up there do let in sun from that direction) so solar would not work for me. The complex has installed solar for hot water heat which everybody shares. At my current costs for electricity, it might not be worth it anyways. If it cost $7000 my break even would be about 16 years.
    Yeah, if you are only playing 35 now, that is very small. Though I do believe energy prices will only be going higher.

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    Quote Originally Posted by Carson View Post
    I wouldn't underestimate San Diego as a place to be during a crisis. I grew up there.

    San Diego has a lot of military families. It is also a good place to take it easy. Free people taking it easy are not likely to eagerly jump on every band wagon you shove in front of them. I see them as very independent that way.

    I haven't lived a lot of places but I rate them up there on the flipping you off or mooning you index if you try pulling anything on them.
    If the electric was shut down in San Diego for a few days, no pharmacy, no meds, no gas , no groceries , no cigarettes , no beer.... I imagine the place would be chaos....

  26. #55

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    Quote Originally Posted by LibForestPaul View Post
    Because when people lose their jobs and their homes, the tax levy (big pool of money the government steals) can only change if the taxing authority (county) reduces staff or benefits (government employees and public unions). When this does not occur, everyone else who is staying put gets a nice increase in their tax rate.

    It matters not what I think, it matters what the state has done. They have.

    In detroit? A renter in a detroit has the option of leaving this cesspool. An owner can not move his house out of that dump.
    Who said anything about Detroit? Either way, though, it's not likely that your income in most parts of the country will be smaller than your taxes. Sure, it matters where you live, as it does with most things. Taxes aren't a big problem where I live, so why shouldn't I invest in real estate? Why is real estate such a bad investment for people like me who don't suffer from ridiculous tax rates?
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  27. #56

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    Quote Originally Posted by newbitech View Post
    So you aren't really accumulating you are pushing paper. Ok, done with this stupid argument.
    Last time I checked, property was a pretty valuable asset to have. So no, pushing paper would be like investing in the stock market. If you buy land and houses, then you have something very valuable that can serve a great purpose to you. It will also be in demand no matter what the value of paper currency is.
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  28. #57

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    Quote Originally Posted by PaulConventionWV View Post
    Last time I checked, property was a pretty valuable asset to have. So no, pushing paper would be like investing in the stock market. If you buy land and houses, then you have something very valuable that can serve a great purpose to you. It will also be in demand no matter what the value of paper currency is.
    If you own GE through the stock market, you own it in the same way you own a piece of land. You have a legal right to part or all of the business/property. It's not like you can fold either up and put it in your pocket and it snot like the government couldn't take either if they chose to.

  29. #58

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    Quote Originally Posted by cubical View Post
    You looked at going solar?
    Be kinda hard living in a condo, seems like.
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  30. #59

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    Quote Originally Posted by cubical View Post
    If you own GE through the stock market, you own it in the same way you own a piece of land. You have a legal right to part or all of the business/property. It's not like you can fold either up and put it in your pocket and it snot like the government couldn't take either if they chose to.
    Stocks have always been more superficial to me. There's no intrinsic value in a piece of a company because that could be destroyed overnight. If the value in paper money is lost, you have nothing. If the company goes broke, you have nothing. If you have a piece of land or a house, you have something regardless of what the economic conditions are. It's still something valuable because it will always be in some kind of demand.

    If you own the whole company, then of course you have the property that goes with it, but that's only part of what you paid for.
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  31. #60

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    Jordan

    True or False: The real estate market is one of the most heavily manipulated/intervened markets on the planet right now?

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