Thursday, March 23, 2006

Put Yo' Money Where Yo' Mouth is.

I may be buying another house soon. For those of you keeping track, that's the ninja fortress, plus one I co-own with fat ninja and my dad, plus another one that fat ninja and dad want to buy. Despite my opinions about what may or may not happen to the real estate market in south florida, the house seems like a good deal and I trust my brother's judgment. It's on a double lot and he thinks we can subdivide the lot, sell the house and one lot for what we paid for it, then sell the other lot for an extra meeelyun dollars. Sounds like a plan. The only thing I don't like is that this one will be in my name. His credit is tapped out (owns two houses in his name plus our joint house) and my dad's ex ho-bag screwed up his credit in the divorce (plus he owns two houses in his name, and our joint house too), so it's gotta go in my name. I told my brother if he screws up my credit, I'll kick his ass, but he knows this is an idle threat. After 500 attempts, the best I ever did was fight him to a draw. So, here goes nothing...

In other housing news:

Even though you don't know who I am, before I say the following, just in case, let me say that the following is my opinion and it doesn't necessarily reflect the opinions of any of my co-workers or bosses. Got that, internet peeps?

Now then. Exciting news for finance geeks, like me! The Chicago Mercantile Exchange is launching a futures contract on housing prices in 10 cities. You can read about it here. If you have an opinion about the direction of real estate prices, you can now bet...errr, take advantage of your opinion without buying or selling actual houses.

If you think real estate in your city will go up, like the real estate brokers keep telling you, but you don't want to invest your life savings in a house, you can buy a futures contract (go long) on the housing market in your city and get the price appreciation without the headaches of home ownership (like leaky pipes and sudanese neighbors). If you think the price of housing might fall, but don't want to sell your house, move, then try to buy it back in 3 years, then you can stay where you are and sell a futures contract (short the market) and, economically, it will be as if you sold your house, except that you don't have to deal with shady movers breaking your antiques and "accidentally" rifling through your wife's underwear drawer.

Think of it like owning shares in an oil company, instead of digging for oil yo' self. Some people do very well in oil, despite being miserable human beings. I guess you could also alter your position as the value of your house starts to move out-of-sync with the index (dynamic hedging) , or buy options on the index and delta hedge your position, if that's how you roll, but that's beyond the scope of this blog, my imaginary friends.

I made a bet with Johnny Vegas last year about a recession in the British economy happening in the next few months, but luckily I'll only be out $60 if I'm wrong. I'm kind of an asshole for betting that something bad will happen to other people, but if you want to make money by betting against assholes like me, or by being an asshole yourself, then check out these new products and see how you do. Good luck!

4 comments:

Jeff said...

Thanks for the explanation. I read about it yesterday, but the article I read didn't explain it as well as you have. Good luck with the new house, I take it your brother lives down there and knows the area. While I have bought a few investment properties in my area, I haven't gone outside my comfort zone yet......

John said...

Since you all seem to have a compulsion for collecting houses, have you considered incorporating as an LLC (or something of the like) to get some of the houses out of your names? As an attorney, I figure you've got a better grasp of the pros and cons than me. I'd be interested to know what you thought about it.

By the way, I'd love to hear what your Sudanese neighbor has been up whether you have pictures or not.

HomeImprovementNinja said...

jeff: thanks

John: I was having trouble posting a comment yesterday, but I did think about using an LLC (we used a corp to buy the place we rehabbed a couple of years ago). THere's plusses and minuses.

Minuses:
1) For a new LLC or LLP the bank will make you sign and be personally liable anyway;
2) the interest rate on a home loan to an LLC was at least 1/2% higher than it was to an individual;
3) time/money, it takes a while to set up the paperwork, keep the corporate records required and pay to incorporate it.

Plusses:
1) limited liability against "involuntary creditors" i.e. people who slip on your sidewalk and want to sue you;
2) good for when you want to do a tax-free exchange (1031).

If we were holding onto it for a while and renting it out, I would consider an LLC or LLP (some states give better treatment to one than the other), but hopefully this won't take long.

ushakanth said...

Home Improvement hub is imrove ur more house problems and i think ur built and get good house.

ushakanth