Look in your change purse, do you see any gold coins? Chances are, the answer is no. Now look in your change purse and see if there are any silver coins. Chances are, you have lots of them. And that may be the difference between why gold looks more valuable than silver. Of course there are deeper issues why gold is more valuable than silver, but just on the surface, how frequently do we run across gold coins as opposed to how frequently we run across silver coins, silver looks almost inconsequential. But are we giving silver enough credit for being a valuable element? In our everyday life do we think about the innumerable uses for silver? When we look at the electronics in our homes, do we ever stop to think that silver is used in our laptops, our pc’s our cellphones, our stereo equipment, our medical devices, our mirrors, our silverware, our cameras and photographic equipment, for solar energy, water purification… chances are we don’t give this a thought. For utilitarian purposes, silver should be far more valuable than gold. The reality, however, is just the opposite. Historically, silver has been one twelfth the value of gold. In China, during the Ming Dynasty, silver rose to a quarter of the value of gold, and during Egyptian times, gold and silver were of equal value. In January 1979, gold was at $210.00 an ounce, while silver was at $5.90 an ounce. This meant that gold was 35 times the value of silver i.e. it took 35 silver coins to buy one gold coin.
In January 1980 both gold and silver peaked. Gold went to $850.00 an ounce while silver rose to over $50.00 an ounce. So by the beginning of 1980, it only took 17 ounces of silver to buy one ounce of gold.
Today, however, in February 2010, gold is at $1089 an ounce while silver is just over $15.00 an ounce – so it takes over 70 silver coins to buy just one ounce of gold.
Most silver supplies do not come from silver mining operations. Silver is generally a by-product of mining for gold, lead, zinc and copper. Silver producers actually only produce about 25% of the total silver production, so if you could freeze the demand for silver where it is today, and the silver producers were able to double their production capacity, it would take at least fifteen or twenty years to get the silver stocks back to the levels they were at in 1990.
When you look in your change purse and you see a lot of silver coins, you say to yourself, there’s a tremendous amount of silver in the world. And that’s why silver is so cheap. However, the reverse is true. It’s almost like an optical illusion where we think silver is so plentiful, but the reality is that silver is very scarce. In the United States until 1964, quarters and dimes were made of 90% silver. Starting with 1964, those same silver coins are now being made of copper, zinc and tin.
As of this writing, silver is being very seriously undervalued and the small investor can get in very very cheaply between and $15 and $19 an ounce before commission. But don’t expect silver to stay at these low prices. Due to the scarcity of this metal, it will probably soar in value in the not too distant future. And the investor can use it either as a hedge against the failing economy or to get a remarkable return on his investment.
So in what quantities should you buy your silver? The small investor would do better buying the one ounce silver coins rather than the 10 ounce or 100 ounce silver bars. If paper money becomes worthless and banks fail, the small investor has more of a chance of purchasing household necessities with one ounce silver coins than with 10 ounce or 100 ounce bars of silver.
The thing to watch out for with many of the dealers is their shipping times. If someone has a very long shipping time, be very careful. Coin dealers have been known to go bankrupt as they take risks. If they are sending you the coins by mail, make sure you tell the coin dealer to insure them and have you sign for the package. If possible, take out cash from your bank, go to your coin dealer, pick up the coins and have them in your hot little hand. If not, try to find someone who is reputable, ask around. There are websites that you can buy silver from – but you can never be sure, because the only way to have it is in your possession.
However, if you are buying silver over the internet, don’t buy everything from one dealer if you can help it. In smaller countries there are only a few dealers so your choice may be limited, but somewhere like the US, there are many dealers so you will have a choice. There are no restrictions as to how much you can buy and as of this writing, there is no taxation in these coins and they never lose their intrinsic value. There are no restrictions as to how much you can buy and as of this writing, there is no taxation in these coins and they never lose their intrinsic value. From generation to generation, to century to century, from civilisation to civilisation, to all parts of the world, to every culture, to all of humankind, gold and silver have been and always will be a negotiable commodity and a store of value.
The issue with silver is storage because it is bulky and heavy. Security may be an issue so think in terms of where you could hide that amount of coins. On a humorous note, there was an ad for a wooden box marked coins. In hard times, just visualise someone coming into your house, seeing the box marked coins and just walking off with it. If you’re going to store gold and silver coins, try to be a whole lot less obvious.
Financial advisor, Michael Maloney, says in his book “Guide to Investing in Gold and Silver”
“For 5000 years, gold and silver have been the only assets that have never failed. Because they are tangible assets of inherent value their purchasing power will never fall to zero. They are financial assets that can be completely private and not part of the financial system. Although you have to declare any capital gains on your tax return in many countries, it is still a private investment. Real estate, on the other hand requires the financial system to transfer title. Gold and silver do not.”
Financial advisors seldom advise their clients to buy gold and silver because they don’t make any commission as they do with stocks, mutual funds, unit trusts and pensions. For the small investor, this is a blessing. He gets to eliminate the middleman. At this writing, there isn’t a long way that silver can fall and the logical assumption is that it can only go up. If ever there was a need to protect yourself against a failing economy, the time is now. And if ever there was an optimum time to buy silver, that time is now.
Friday, February 12, 2010
Saturday, February 6, 2010
Gold Bullion and Numismatic Coins - How Should You Own Gold?
Today's blog will examine numismatic coins otherwise known as collectibles and the issue of how collectible is a collectible coin. The word numismatic is derived from the Greek numisma, meaning “current coin.” We are also going to be looking at the premiums that are connected with these coins. We’ll explore the issue of under what conditions gold coins could be confiscated, whether it’s too late to buy gold now and what are the warning signs to tell us when it’s time to sell our gold?
Under ordinary circumstances, I probably wouldn’t be devoting much time to the subject of numismatic coins, because it’s a very small part of gold collecting. But the main reason that I want to broach this subject is because thousands of people in various parts of the world have bought or inherited collectible coins.
This was brought home to bear when I was talking to one of my friends about the advantages of buying gold and she told me she had a very large collection of gold coins that go way back into the early 1800’s. They have been handed down from generation to generation in her family – and I said to her, are you going to be selling it? And she said – oh no – I’m going to be leaving it for my grandchildren. This was a very interesting concept to me because in the United States, gold bullion was confiscated from 1933 to 1971. These laws had no relevance in her life because she had no intention of selling her gold. If we wanted to do simple maths, based on what was paid for the gold in the early 1800’s to what it’s worth today, should she have decided to sell the gold now, she would be a millionaire many times over.
The downside of this is if my friend tried to sell these coins when there is a danger of imminent economic collapse, and many of these collections come on the market at the same time, she may be unable to sell them. But since she has no intention of selling them, this doesn’t apply to her. On the other hand, there are thousands of collectors throughout the world, who have in their collections coins that are not attached to sentimentality, and those collectors need to be aware that in a serious economic downturn, when people have to raise money very quickly, you may have hundreds of these collections on the market at the same time – and at this point, you might find they are not a very good investment, as you cannot sell them or you might have to sell them at a huge loss. There is a limited market for rare coins. …there is a saying that goes something like this: “The only thing rarer than a rare coin. ….is a buyer for a rare coin.”
With numismatic coins, you are paying many times the silver or gold content. You are paying for the rarity and for how much someone else covets that particular coin. So if you want to sell, you need to find the exact buyer for that coin, whereas with the bullion market which is worldwide and tradeable, you will always have buyers for your physical gold.
Let’s look at some of the reasons why numismatic coins may not be your best investment. While with gold bullion, you are just paying for the content of the metal and the dealer’s premium. With numismatic coins you are paying not only for the metal and the dealer’s profit, but on top of that you are also paying a numismatic premium, which is for the supposed rarity of the coin. Then you better keep your fingers crossed that that coin is really rare and will keep its value through the years.
If you have invested in gold bullion and the price rises by 5-10%, you are already close to being in profit. On the other hand, if you have invested in numismatic coins, the dealer has already charged you 15-100% on your purchase and the price needs to have gone up by at least 15-100% for you just to break even, which may be why, I read a quote that went something like this:
In numismatics, lots of money is made selling rare coins to noncollectors, and whenever a noncollector buys a collector’s items, the future loss of his capital is almost certainly guaranteed.”
There are many theories on investments. I’m going to take poetic license with one of Warren Buffett’s theories. He once said in reference to the stock market: “Put all your eggs in one basket and then watch that basket very carefully.” I took poetic license and decided that his theory works beautifully with the investment of gold. I would recommend putting all my gold in one basket, primarily because I wouldn’t have to watch it on a daily basis as carefully as you would the stock market. You can see more or less the gold trends before you actually have to make a decision, whereas with the stock market you really have to be paying attention each day. I’d recommend setting up an action plan that you can live with and then stick to it. If your action plan is to put most of your money into gold, stay with that plan. If your action plan is to diversify, then research carefully the areas in which you want to diversify and then stick to that plan. But whatever you decide to do, have a clear objective in mind and stick with it.
To summarise:
Numismatic coins
- limited market
- can be difficult to sell and make a profit
- attract high premiums from dealers from 15-100% or more
- you need to know what you are doing
Gold bullion
- worldwide market
- easy to buy and sell
- price only needs to rise by 5-10% and you are nearly in profit
Under ordinary circumstances, I probably wouldn’t be devoting much time to the subject of numismatic coins, because it’s a very small part of gold collecting. But the main reason that I want to broach this subject is because thousands of people in various parts of the world have bought or inherited collectible coins.
This was brought home to bear when I was talking to one of my friends about the advantages of buying gold and she told me she had a very large collection of gold coins that go way back into the early 1800’s. They have been handed down from generation to generation in her family – and I said to her, are you going to be selling it? And she said – oh no – I’m going to be leaving it for my grandchildren. This was a very interesting concept to me because in the United States, gold bullion was confiscated from 1933 to 1971. These laws had no relevance in her life because she had no intention of selling her gold. If we wanted to do simple maths, based on what was paid for the gold in the early 1800’s to what it’s worth today, should she have decided to sell the gold now, she would be a millionaire many times over.
The downside of this is if my friend tried to sell these coins when there is a danger of imminent economic collapse, and many of these collections come on the market at the same time, she may be unable to sell them. But since she has no intention of selling them, this doesn’t apply to her. On the other hand, there are thousands of collectors throughout the world, who have in their collections coins that are not attached to sentimentality, and those collectors need to be aware that in a serious economic downturn, when people have to raise money very quickly, you may have hundreds of these collections on the market at the same time – and at this point, you might find they are not a very good investment, as you cannot sell them or you might have to sell them at a huge loss. There is a limited market for rare coins. …there is a saying that goes something like this: “The only thing rarer than a rare coin. ….is a buyer for a rare coin.”
With numismatic coins, you are paying many times the silver or gold content. You are paying for the rarity and for how much someone else covets that particular coin. So if you want to sell, you need to find the exact buyer for that coin, whereas with the bullion market which is worldwide and tradeable, you will always have buyers for your physical gold.
Let’s look at some of the reasons why numismatic coins may not be your best investment. While with gold bullion, you are just paying for the content of the metal and the dealer’s premium. With numismatic coins you are paying not only for the metal and the dealer’s profit, but on top of that you are also paying a numismatic premium, which is for the supposed rarity of the coin. Then you better keep your fingers crossed that that coin is really rare and will keep its value through the years.
If you have invested in gold bullion and the price rises by 5-10%, you are already close to being in profit. On the other hand, if you have invested in numismatic coins, the dealer has already charged you 15-100% on your purchase and the price needs to have gone up by at least 15-100% for you just to break even, which may be why, I read a quote that went something like this:
In numismatics, lots of money is made selling rare coins to noncollectors, and whenever a noncollector buys a collector’s items, the future loss of his capital is almost certainly guaranteed.”
There are many theories on investments. I’m going to take poetic license with one of Warren Buffett’s theories. He once said in reference to the stock market: “Put all your eggs in one basket and then watch that basket very carefully.” I took poetic license and decided that his theory works beautifully with the investment of gold. I would recommend putting all my gold in one basket, primarily because I wouldn’t have to watch it on a daily basis as carefully as you would the stock market. You can see more or less the gold trends before you actually have to make a decision, whereas with the stock market you really have to be paying attention each day. I’d recommend setting up an action plan that you can live with and then stick to it. If your action plan is to put most of your money into gold, stay with that plan. If your action plan is to diversify, then research carefully the areas in which you want to diversify and then stick to that plan. But whatever you decide to do, have a clear objective in mind and stick with it.
To summarise:
Numismatic coins
- limited market
- can be difficult to sell and make a profit
- attract high premiums from dealers from 15-100% or more
- you need to know what you are doing
Gold bullion
- worldwide market
- easy to buy and sell
- price only needs to rise by 5-10% and you are nearly in profit
Wednesday, February 3, 2010
Gold - is it too late to buy?
Today we’re going to be talking about the ABC’s of gold – how to buy it, how to sell it, the advantages, the disadvantages and why it is important to consider it as part of your portfolio.
From the earliest days of recorded history, what is that makes gold the most valuable commodity in the world?
According to Dr. Claude Mariottini, Professor of Old Testament in Illinois, in the US,
“It is a fact that in times of economic uncertainties, many people invest in gold as a way of dealing with the unforeseen problems caused by inflation or recession.
It is also a fact that in the ancient past kings and conquerors were fascinated with gold, not only as currency or as a means of commerce and trade, but for the beauty and splendor it conveyed to its owners.” One of the theories that he mentions is that in King Nebuchadnezzar’s time an ounce of gold was worth 350 loaves of bread and depending on the unit of measurement that was used at that time, and the unit of measurement that we use today, that same ounce of gold might still be worth 350 loaves of bread. If we use the current price of gold against the current price of a loaf of bread – so for example an ounce of gold at the time of this writing is $1100 an ounce and the price of bread is just over $3.00 a loaf, thus showing that the purchasing power of gold has not diminished since biblical times.
It’s astounding that in more than 2000 years, gold is still being used for the same things today as it was then – as a hedge against inflation, for commerce, beauty currency and insurance against the possibility of total economic collapse.
In the East, people are used to owning gold. In the West, governments and corporations own gold. In China for example, gold is sold nationally by the banks, in the West, however, you cannot just go into any bank and buy gold. It is sold and bought by bullion dealers and mints.
We know that major changes are taking place if a department store like Harrods in the UK is now selling gold coins and bars to the public.
So, should you own gold, how do you buy gold, what are the advantages what are the disadvantages?
The advantages
Coins and small bars are generally a liquid market, and you can find sellers and buyers when you need them. Easy to cash in.
They are relatively accessible to smaller investors
Insurance against collapse of economy
In volatile times it has always proved to be a safe haven
You are in control of your money and are not subject to a bank going bust or having to freeze your assets, the government being unable to guarantee your funds and thus lose all your money.
You have got cash if a good opportunity arises – you can move quickly
It is tradeable around the world
They are mostly recognisable, which makes them exchangeable for goods in some circumstances.
Just recently, I saw an advert on the internet for a landlord who wanted to rent out his house. He didn’t state the dollar amount, what he asked instead was for a certain number of gold coins as payment. If you will comb through the adverts on the internet, you might be surprised to see many of these adverts are now offering goods in exchange for gold coins. So as the expression goes, “these times are a-changing.”
Disadvantages of having gold
Hard to store safely
It may stay at the same price for years and years
Governments manipulate the price
If gold becomes really valuable gold coin usage is made illegal by governments, or is so heavily taxed and constrained that it is no longer a viable option. For example, the government may tax the sale of gold bullion at 50%. Bullion on a black market would be just as hard to sell without getting cheated. What you are unable to sell, you don’t really own.
(in April 1933, FDR forced US citizens to turn in their gold – it was under a threat of a 10 year prison sentence and/or a $10000 fine. Then in January 1934 just 9 months later he raised the price from $20.67 per ounce to $35.00 per ounce – an increase of 69%).
There can be a considerable premium to purchase the gold – anywhere from 4-10% or even more in times of scarcity – so you have to build this into your costs.
There are fakes and these are usually only spotted by dealers
Currency fluctuations can affect the price in your country
To summarise:
Advantages of owning gold
- easy to sell and buy
- accessible to small investors
- insurance against collapse of economy
- you have control over your money
- tradeable around the world not only for cash, but also for goods and services
Disadvantages of owning gold
- hard to store safely
- may be confiscated or taxed by governments
- premium of at least 4% to pay to the bullion dealer when you buy
- there are fakes out there so buy from a reputable dealer
When it comes to buying gold, the average person doesn’t really know how to get started. There are a number of gold bullion coins in circulation in the world. The attraction of these is that they retain near full bullion value regardless of either change of government or being transported outside their country of issue.
So the starting point would be to know which gold coins are sold in your country.
Major bullion coins:
Issuing country Coin
Australia Nugget
Canada Maple
New Zealand Kiwi
South Africa Krugerrand
United Kingdom Britannia or Sovereign
United States Eagle
For simplicity’s sake, let’s look at the country in which you are living. For the moment, forget about buying coins from other countries. Let’s just concentrate on what will be the easiest way for you to start your collection. If you know someone who routinely buys gold and silver and has a reputable dealer, that would be your starting place. If not, I would strongly suggest that you start researching the dealers in your area and do some comparison shopping. Find out how long they have been in business, find out if they have ever gone bankrupt, if they have ever had any lawsuits against them, if they follow through on what they say. Find out how much of a premium they charge you for purchasing your gold. Most dealers charge you a premium up front when you buy the gold, but do not charge you at the other end when you sell it back to them. But since things have a way of changing rapidly, you should still question whether or not you are being charged at the other end too.
Other ways of buying gold: gold mining shares – too risky as the quantity of a mine’s reserves is never accurately known. There can be unforeseen engineering problems in extracting ore. These can increase production costs and thus eat into the mine’s profitability.
The mine can be all played out and there is no more gold there
They are traded on the stock market and can just as easily disappear off the boards and you can lose all your money.
Egold
Now, let’s take a look at buying gold over the internet – or otherwise known as E-gold. There are various companies who offer online purchasing and selling of gold bullion.
What are the advantages and disadvantages of this method of investing in gold?
Advantages
You can buy very small quantities of gold at relatively economic price– you do not have to buy in ounces, but you can purchase grams of gold which at the time of writing is $35.00 per gram.
You can buy and sell your gold 24/7 and are not limited to store opening hours of the bullion dealers.
The premiums charged for purchasing the gold are much lower than bullion dealers or mints. Typically you will pay between 2-3% of the purchase price.
You can either allow them to keep your gold in their depository or, depending on where you live in the world, you can take delivery of your gold. These companies are currently based in the northern hemisphere and they will not deliver gold to the southern hemisphere at present.
You do not have to spend your gold grams. You can sit on them or you can sell them in return for straight cash.
Disadvantages of e-gold account:
There is a degree of intermediation in the holding. Your gold is the legal property of trustees who have a fiduciary duty to you. This means that it is not quite the same as outright ownership of the gold in your hot little hand.
There could be security issues in that a hacker may get into your account and make an unauthorised payment. Similar to the risks of doing internet banking.
Other ways: gold futures, gold backed shares – e.g. ETF’s – too risky for the average investor
Jewellery
It is a profitable business for those who buy at wholesale and sell at retail. But it’s a poor way of investing in gold.
Advantages:
Enjoyment of wearing it
Very easy to buy
Disadvantages
Acquisition costs are high. Retail jewellery is often marked up by 300% or more in the shops
The real value of jewellery is in the gemstones, the design and craftsmanship. These greatly outrank the value of the gold
All pieces are different and their values are subjective. If you don’t have experience you probably won’t know a fair value.
It is easily stolen.
Ways of buying gold:
Bullion dealers and mints
Gold mining shares
Gold shares – ETF’s (Exchange Traded Funds)
Egold
Jewellery
In conclusion, make sure that whoever you buy your gold from is a dealer or a business that has been in operation for a long time, that they have a good reputation and that they are not fly-by-nights.
From the earliest days of recorded history, what is that makes gold the most valuable commodity in the world?
According to Dr. Claude Mariottini, Professor of Old Testament in Illinois, in the US,
“It is a fact that in times of economic uncertainties, many people invest in gold as a way of dealing with the unforeseen problems caused by inflation or recession.
It is also a fact that in the ancient past kings and conquerors were fascinated with gold, not only as currency or as a means of commerce and trade, but for the beauty and splendor it conveyed to its owners.” One of the theories that he mentions is that in King Nebuchadnezzar’s time an ounce of gold was worth 350 loaves of bread and depending on the unit of measurement that was used at that time, and the unit of measurement that we use today, that same ounce of gold might still be worth 350 loaves of bread. If we use the current price of gold against the current price of a loaf of bread – so for example an ounce of gold at the time of this writing is $1100 an ounce and the price of bread is just over $3.00 a loaf, thus showing that the purchasing power of gold has not diminished since biblical times.
It’s astounding that in more than 2000 years, gold is still being used for the same things today as it was then – as a hedge against inflation, for commerce, beauty currency and insurance against the possibility of total economic collapse.
In the East, people are used to owning gold. In the West, governments and corporations own gold. In China for example, gold is sold nationally by the banks, in the West, however, you cannot just go into any bank and buy gold. It is sold and bought by bullion dealers and mints.
We know that major changes are taking place if a department store like Harrods in the UK is now selling gold coins and bars to the public.
So, should you own gold, how do you buy gold, what are the advantages what are the disadvantages?
The advantages
Coins and small bars are generally a liquid market, and you can find sellers and buyers when you need them. Easy to cash in.
They are relatively accessible to smaller investors
Insurance against collapse of economy
In volatile times it has always proved to be a safe haven
You are in control of your money and are not subject to a bank going bust or having to freeze your assets, the government being unable to guarantee your funds and thus lose all your money.
You have got cash if a good opportunity arises – you can move quickly
It is tradeable around the world
They are mostly recognisable, which makes them exchangeable for goods in some circumstances.
Just recently, I saw an advert on the internet for a landlord who wanted to rent out his house. He didn’t state the dollar amount, what he asked instead was for a certain number of gold coins as payment. If you will comb through the adverts on the internet, you might be surprised to see many of these adverts are now offering goods in exchange for gold coins. So as the expression goes, “these times are a-changing.”
Disadvantages of having gold
Hard to store safely
It may stay at the same price for years and years
Governments manipulate the price
If gold becomes really valuable gold coin usage is made illegal by governments, or is so heavily taxed and constrained that it is no longer a viable option. For example, the government may tax the sale of gold bullion at 50%. Bullion on a black market would be just as hard to sell without getting cheated. What you are unable to sell, you don’t really own.
(in April 1933, FDR forced US citizens to turn in their gold – it was under a threat of a 10 year prison sentence and/or a $10000 fine. Then in January 1934 just 9 months later he raised the price from $20.67 per ounce to $35.00 per ounce – an increase of 69%).
There can be a considerable premium to purchase the gold – anywhere from 4-10% or even more in times of scarcity – so you have to build this into your costs.
There are fakes and these are usually only spotted by dealers
Currency fluctuations can affect the price in your country
To summarise:
Advantages of owning gold
- easy to sell and buy
- accessible to small investors
- insurance against collapse of economy
- you have control over your money
- tradeable around the world not only for cash, but also for goods and services
Disadvantages of owning gold
- hard to store safely
- may be confiscated or taxed by governments
- premium of at least 4% to pay to the bullion dealer when you buy
- there are fakes out there so buy from a reputable dealer
When it comes to buying gold, the average person doesn’t really know how to get started. There are a number of gold bullion coins in circulation in the world. The attraction of these is that they retain near full bullion value regardless of either change of government or being transported outside their country of issue.
So the starting point would be to know which gold coins are sold in your country.
Major bullion coins:
Issuing country Coin
Australia Nugget
Canada Maple
New Zealand Kiwi
South Africa Krugerrand
United Kingdom Britannia or Sovereign
United States Eagle
For simplicity’s sake, let’s look at the country in which you are living. For the moment, forget about buying coins from other countries. Let’s just concentrate on what will be the easiest way for you to start your collection. If you know someone who routinely buys gold and silver and has a reputable dealer, that would be your starting place. If not, I would strongly suggest that you start researching the dealers in your area and do some comparison shopping. Find out how long they have been in business, find out if they have ever gone bankrupt, if they have ever had any lawsuits against them, if they follow through on what they say. Find out how much of a premium they charge you for purchasing your gold. Most dealers charge you a premium up front when you buy the gold, but do not charge you at the other end when you sell it back to them. But since things have a way of changing rapidly, you should still question whether or not you are being charged at the other end too.
Other ways of buying gold: gold mining shares – too risky as the quantity of a mine’s reserves is never accurately known. There can be unforeseen engineering problems in extracting ore. These can increase production costs and thus eat into the mine’s profitability.
The mine can be all played out and there is no more gold there
They are traded on the stock market and can just as easily disappear off the boards and you can lose all your money.
Egold
Now, let’s take a look at buying gold over the internet – or otherwise known as E-gold. There are various companies who offer online purchasing and selling of gold bullion.
What are the advantages and disadvantages of this method of investing in gold?
Advantages
You can buy very small quantities of gold at relatively economic price– you do not have to buy in ounces, but you can purchase grams of gold which at the time of writing is $35.00 per gram.
You can buy and sell your gold 24/7 and are not limited to store opening hours of the bullion dealers.
The premiums charged for purchasing the gold are much lower than bullion dealers or mints. Typically you will pay between 2-3% of the purchase price.
You can either allow them to keep your gold in their depository or, depending on where you live in the world, you can take delivery of your gold. These companies are currently based in the northern hemisphere and they will not deliver gold to the southern hemisphere at present.
You do not have to spend your gold grams. You can sit on them or you can sell them in return for straight cash.
Disadvantages of e-gold account:
There is a degree of intermediation in the holding. Your gold is the legal property of trustees who have a fiduciary duty to you. This means that it is not quite the same as outright ownership of the gold in your hot little hand.
There could be security issues in that a hacker may get into your account and make an unauthorised payment. Similar to the risks of doing internet banking.
Other ways: gold futures, gold backed shares – e.g. ETF’s – too risky for the average investor
Jewellery
It is a profitable business for those who buy at wholesale and sell at retail. But it’s a poor way of investing in gold.
Advantages:
Enjoyment of wearing it
Very easy to buy
Disadvantages
Acquisition costs are high. Retail jewellery is often marked up by 300% or more in the shops
The real value of jewellery is in the gemstones, the design and craftsmanship. These greatly outrank the value of the gold
All pieces are different and their values are subjective. If you don’t have experience you probably won’t know a fair value.
It is easily stolen.
Ways of buying gold:
Bullion dealers and mints
Gold mining shares
Gold shares – ETF’s (Exchange Traded Funds)
Egold
Jewellery
In conclusion, make sure that whoever you buy your gold from is a dealer or a business that has been in operation for a long time, that they have a good reputation and that they are not fly-by-nights.
Saturday, January 16, 2010
Savings And Investments - How Can You Protect Yourself?
We are going to see vast fluctuations in the stock markets, in the housing markets, in the automobile industry, in technology, in the banking and financial sectors, in governments, and in international trade and currencies. And 2010 is just the beginning of these major changes. More and more people are starting to question whether their investments are solid and how they can best protect their assets.
For those of you who feel you don’t have assets to protect, you might be very surprised. Most people think of assets that need to be protected as millions or billions of dollars of pounds or euros or yen. The truth of the matter is that however much money you have, be it $100 or $100 trillion, they are your assets. And because they are your assets you need to be looking for ways to hold onto them and hopefully to make them grow.
With so many people being affected by the downturn economy and many having either lost substantial sums of money in financial institutions, banks, stocks and shares, or had their funds frozen, or had to take 60c or less on the dollar, it’s very difficult to know where to put your money and how to keep it safe.
After all, if the banks didn’t know how to look after our money, and they are supposed to be the experts, who can? In the old days, you used to be able to put your money into the bank and you knew it would be safe as houses.
Nowadays, with banks having behaved so irresponsibly – by lending to people who were not creditworthy – some were even on unemployment benefits, by lending them up to 100% or even more of the value of a property, and yet paying themselves millions if not billions of dollars in bonuses. This is one of the main reasons why we are in such a serious global financial crisis.
So what are the various options available to you?
Let’s start with the banks.
What are the advantages and disadvantages of leaving your money in a bank?
The advantages:
You do not have to hold cash on your person or in your home where it might be stolen or destroyed, (e.g. I knew an old man who used to sew his cash into the hem of the curtains in his house. He thought this was safer than having all his money in the bank. Unfortunately, he had a fire and the curtains with all his money inside them went up in smoke. So if you are storing cash, try to put it somewhere it will not be easily discovered or damaged.
You earn at least a little interest on your money. However, with most countries on very low interest rates at the moment, you might be lucky if you earn 2% or more.
By using the bank’s credit card and debit card facilities, you have the flexibility to buy goods online and by telephone from anywhere in the world. You would not have that freedom if you didn’t have a bank account.
There are several disadvantages in this current economic climate:
Governments around the world have stepped in to guarantee bank deposits – this means that should a bank get into trouble and be unable to continue trading, the government will bail it out so that it doesn’t collapse and you don’t lose all your money. This has already happened to so many financial institutions: in the UK, Northern Rock had to be rescued, in the US, Citigroup, Bank of America, Morgan Stanley, Wells Fargo, Indymac, AIG, to name but a few…
However, given the volatility of the world economy, there is no ultimate guarantee that the governments will be able to fulfil their promise to rescue all the banks that might need help. So I would advise you to spread your money around different financial institutions. At least that way, you don’t have all your eggs in one basket. Remember to trust your intuition if you feel that a particular bank is unstable and take your money out immediately.
Quite a few banks are persuading customers to tie up their money for 1 yr, 3yrs or 5 yrs or more in a term account or a cd. This generally pays a little more interest than if the money was immediately available. However, before doing this, calculate exactly how much extra money you will be making and whether it is worth the extra risk. When is your interest paid on the deposit – do you have to wait until the end of the term? Or is it paid on a monthly basis? What happens if interest rates go up and your money is tied in for several years? Will the bank increase the rate or could you be stuck on your original lower rate? Let’s say you go in at 3% and you’ve taken a 5 year term deposit or cd with the bank. It might be worth your while to withdraw your money and take the penalty and then reinvest at the higher interest rate.
To summarise:
Advantages of using a bank:
- you don’t have to risk holding cash
- you earn some interest on your money
- you get debit and/or credit cards which give you flexibility
Disadvantages of using a bank:
- in this downturn economy not all banks are safe
- government guarantees may not be honoured
Tips:
- try not to tie yourself into any deals even if it means you lose a little interest
- trust your intuition – if you don’t feel safe with a particular bank, take your money out sooner rather than later
For those of you who feel you don’t have assets to protect, you might be very surprised. Most people think of assets that need to be protected as millions or billions of dollars of pounds or euros or yen. The truth of the matter is that however much money you have, be it $100 or $100 trillion, they are your assets. And because they are your assets you need to be looking for ways to hold onto them and hopefully to make them grow.
With so many people being affected by the downturn economy and many having either lost substantial sums of money in financial institutions, banks, stocks and shares, or had their funds frozen, or had to take 60c or less on the dollar, it’s very difficult to know where to put your money and how to keep it safe.
After all, if the banks didn’t know how to look after our money, and they are supposed to be the experts, who can? In the old days, you used to be able to put your money into the bank and you knew it would be safe as houses.
Nowadays, with banks having behaved so irresponsibly – by lending to people who were not creditworthy – some were even on unemployment benefits, by lending them up to 100% or even more of the value of a property, and yet paying themselves millions if not billions of dollars in bonuses. This is one of the main reasons why we are in such a serious global financial crisis.
So what are the various options available to you?
Let’s start with the banks.
What are the advantages and disadvantages of leaving your money in a bank?
The advantages:
You do not have to hold cash on your person or in your home where it might be stolen or destroyed, (e.g. I knew an old man who used to sew his cash into the hem of the curtains in his house. He thought this was safer than having all his money in the bank. Unfortunately, he had a fire and the curtains with all his money inside them went up in smoke. So if you are storing cash, try to put it somewhere it will not be easily discovered or damaged.
You earn at least a little interest on your money. However, with most countries on very low interest rates at the moment, you might be lucky if you earn 2% or more.
By using the bank’s credit card and debit card facilities, you have the flexibility to buy goods online and by telephone from anywhere in the world. You would not have that freedom if you didn’t have a bank account.
There are several disadvantages in this current economic climate:
Governments around the world have stepped in to guarantee bank deposits – this means that should a bank get into trouble and be unable to continue trading, the government will bail it out so that it doesn’t collapse and you don’t lose all your money. This has already happened to so many financial institutions: in the UK, Northern Rock had to be rescued, in the US, Citigroup, Bank of America, Morgan Stanley, Wells Fargo, Indymac, AIG, to name but a few…
However, given the volatility of the world economy, there is no ultimate guarantee that the governments will be able to fulfil their promise to rescue all the banks that might need help. So I would advise you to spread your money around different financial institutions. At least that way, you don’t have all your eggs in one basket. Remember to trust your intuition if you feel that a particular bank is unstable and take your money out immediately.
Quite a few banks are persuading customers to tie up their money for 1 yr, 3yrs or 5 yrs or more in a term account or a cd. This generally pays a little more interest than if the money was immediately available. However, before doing this, calculate exactly how much extra money you will be making and whether it is worth the extra risk. When is your interest paid on the deposit – do you have to wait until the end of the term? Or is it paid on a monthly basis? What happens if interest rates go up and your money is tied in for several years? Will the bank increase the rate or could you be stuck on your original lower rate? Let’s say you go in at 3% and you’ve taken a 5 year term deposit or cd with the bank. It might be worth your while to withdraw your money and take the penalty and then reinvest at the higher interest rate.
To summarise:
Advantages of using a bank:
- you don’t have to risk holding cash
- you earn some interest on your money
- you get debit and/or credit cards which give you flexibility
Disadvantages of using a bank:
- in this downturn economy not all banks are safe
- government guarantees may not be honoured
Tips:
- try not to tie yourself into any deals even if it means you lose a little interest
- trust your intuition – if you don’t feel safe with a particular bank, take your money out sooner rather than later
Friday, January 1, 2010
Financial Predictions for 2010
Trends for 2010 and Beyond – Financial Predictions
- the Dow Jones Index will go down to 9000 or lower
- gold will go to USD$1500 or more per ounce
- silver will go to USD$22 or more per ounce
- the US dollar will fall to an all-time low
- unemployment in the US will rise to at least 15%
- more bailouts, more debt, more printing of money by governments around the world
- people power e.g. X Factor winner did not get the Xmas number one in the UK - Rage Against the Machine won because of people power on the internet. We will see much more of this.
- radical changes in the law
- taxes and more taxes and people’s revolts
- business and banking leaders will be disgraced publicly
- a major surprise e.g. terrorist attack, bird flu or some epidemic, a war, a revolution - but it will be unexpected
- a major medical breakthrough that will be beneficial for the masses
- more space exploration of galaxies, aliens and discoveries that are exciting and lead us onto a new level of consciousness and awareness
- most people ignoring the concerns about the economy and not being prepared for the changes
- we will have one world currency within the next decade
- we will have another major political party in the US within the next 4-5 years
Over the next decade we will see major changes. The huge schism between the haves and have-nots will increase and there will be much civil unrest. Some of my predictions will happen in 2010, while others such as the world currency will take longer to come about. However, the above information gives you some idea of the changes ahead.
Wishing you all the very best for the New Year!
- the Dow Jones Index will go down to 9000 or lower
- gold will go to USD$1500 or more per ounce
- silver will go to USD$22 or more per ounce
- the US dollar will fall to an all-time low
- unemployment in the US will rise to at least 15%
- more bailouts, more debt, more printing of money by governments around the world
- people power e.g. X Factor winner did not get the Xmas number one in the UK - Rage Against the Machine won because of people power on the internet. We will see much more of this.
- radical changes in the law
- taxes and more taxes and people’s revolts
- business and banking leaders will be disgraced publicly
- a major surprise e.g. terrorist attack, bird flu or some epidemic, a war, a revolution - but it will be unexpected
- a major medical breakthrough that will be beneficial for the masses
- more space exploration of galaxies, aliens and discoveries that are exciting and lead us onto a new level of consciousness and awareness
- most people ignoring the concerns about the economy and not being prepared for the changes
- we will have one world currency within the next decade
- we will have another major political party in the US within the next 4-5 years
Over the next decade we will see major changes. The huge schism between the haves and have-nots will increase and there will be much civil unrest. Some of my predictions will happen in 2010, while others such as the world currency will take longer to come about. However, the above information gives you some idea of the changes ahead.
Wishing you all the very best for the New Year!
Thursday, December 10, 2009
Dealing with Builders and Tradesmen
Builders, renovations for your own home and for investment properties
With the house you are living in, if maintenance has not been kept up, you may run into expensive repairs. Your renovations are more personal and you are there while the renovations are going on. So although you are inconvenienced by the noise and the mess, at least you are there to see how the work is progressing.
With an investment property, it’s a bit trickier because you have to meet the contractors at the property and you are not there to supervise the work. No matter how well you know your contractors, it is always advisable to show up on a regular basis and check out their progress.
Let me give you an example to illustrate this. I was having a builder put up a partition wall to make the through lounge into two rooms in one of my investment properties. The room was large enough to divide without sacrificing living space and I was going to make one of the rooms into another bedroom because I knew it would bring in more rental income. A job that should have taken a few days had already taken three months and, if it weren’t for a neighbour telling me that the builder and his men were sitting around on boxes every day drinking tea and smoking for hours on end, they might still be there three years later. After the neighbour reported this to me, I came to the house every day until the job was finished, pretending to work on different things. Amazingly, they finished the job a few days after I got there.
There are different ways of looking at property renovations:
For the most part, investors look at it as “let’s get it fixed up and rented out as quickly as possible. For the last several years, it was very common for people to buy a fixer-upper house – maybe they went in with two or three others and did their own repairs for a quick turnaround. Or they got others to do the renovations for them – either way, many people were making money hand over fist. When property prices are rising quickly, it’s easy to make money even if you are a novice. However, in this economic climate, you cannot turn around properties so easily any more. If you are investing right now, you will probably have to rent out the property for a few years before you are able to turn in around for a profit. Therefore, you need to consider the issue of renovations, upgrades and repairs very seriously.
With an investment property, you may want to use low-grade to medium-grade items and materials just so you can get tenants in.
For your own home, you may want to upgrade. It’s a different kind of call when you are doing your own house as opposed to an investment property.
Ask yourself, how much am I going to invest in my property? Am I going to stay there for a long time in which case I might like to get an upgraded bathroom, an upgraded kitchen and nicer appliances. Also, because it’s your own home and you are living in it, you have more time to save up and do the renovations in your own time.
With an investment property, you don’t have that kind of time. You need that property to start bringing in you an income as soon as possible and you want to do it as cheaply as possible, unless you have a luxury investment property where you can get a very good return on your investment. Then you may want to hire an interior designer to help you make the property as attractive as possible to tenants who will pay a very high rental.
However, if you are going to hire an interior designer, make sure that your builder is willing to work with them. I hired an interior designer to design the kind of kitchen that would be attractive to a prospective tenant who was going to be paying a high rent. She came in, made recommendations on cabinetry, counter tops, hardware and flooring. I was very pleased with the samples she showed me and she gave my builder a list of the things she needed.
Whether the builder was having a bad hair day or he had a hearing loss, or he just didn’t like the interior designer, the end result was that everything that she put down on her list was ignored. She asked for white counter tops of high grade quality and he had substituted a dingy greenish-brown colour of the cheapest grade. Instead of buying new doors for the cabinets, he gave me second hand doors and wanted to charge me for new doors. And the knobs – unbelievable as it may seem, he put on knobs that were different colours and sizes that he must have had lying around from other jobs. They weren’t just different colours and sizes but the wrong colours and the wrong sizes and wherever the doors and cabinets didn’t fit properly, he cut them down to make them almost fit, but not quite fit. The lesson I learned from this was that I needed to buy the materials myself – at least then I could be sure that the interior designer’s instructions had been adhered to.
To summarise:
- know the difference between renovations on your own home and those on an investment property
- with an investment property, try to make a point of supervising builders on a regular basis. If you are not living close by, get someone to check for you and report back to you
- in the current downturn economy, it’s very difficult to buy, fix up and sell a property in a short space of time. This is only for the professionals, not amateurs
With an investment property, what you want to avoid are hassles with your tenants. There are enough things that can go wrong when you are letting a property, so if you can get these things fixed before they move in, chances are you will save yourself a great deal of money and aggravation down the line.
Firstly, the heating. Make sure it works, and if necessary, pay a little extra for a guarantee which gives the tenants an emergency call-out number so that you are not disturbed at a very inconvenient moment.
The damp. The last thing you want is tenants calling you out saying that there are mushrooms growing up on the inside of the walls….In fact, this happened to me with one of my properties. It developed dry rot, a very expensive disaster to remedy, all because the builder did not give me the option of spending an extra $3.00 for three air bricks. Had he done so, my tenants would not have had to contend with huge mushrooms that kept sprouting up all over the bathroom and kitchen walls due to a lack of subfloor ventilation.
It’s amazing that so many damp companies go out of business within a few years of opening their doors. You would think that since most old houses have a bit of damp and people tend to have it treated to prevent major problems from developing, there would be enough work to keep these companies afloat for years to come. The reality is that many companies will give you ten and twenty year guarantees, but a couple of years later, they are out of business. On the odd chance that a company is still in business, their policies are downright ludicrous. Four years ago, I had a whole house treated for damp and they gave me a ten year guarantee. When I called them to come out and look at it, they tried to hit me up for another $110 before they would come out. Their new policy is that if they determine that the damp has come back and it is their fault, then they will fix it – otherwise they want nothing to do with it. So make sure the damp company you are dealing with is reputable.
The roof. Tenants having to use buckets to catch water pouring in, have a tendency to lose patience very quickly and to withhold their rent. A ceiling could fall down and injure your tenants.
I’ve had more problems with roofs than just about anything else in my property investment career.
Flat roofs are often the biggest nightmare. They usually last ten years, sometimes more, sometimes less, but they are always a problem at some stage. My offices had three flat roofs and finding someone who is exceptionally good at doing flat roofs is a real ordeal. I had five different roofers come out to bid for the job and I had five different recommendations.
The first roofer said they were fine and would last me another five years. The second roofer told me to put a coating of tar over them and that would seal them for a good few years. The third one told me to build up the roof with plasterboard and then it would be even and drain away properly. The fourth roofer told me that he could recover the existing roof with more felt and that would do the trick. Finally, the fifth roofer told me that the whole roof had to be stripped away and back to the very bones and then built up from the start. I went along with the fourth roofer who wanted to recover the existing one with the better quality felt. I was assured by my master roofer that this roofer was good but whenever I looked at the roof, there was always a huge pool of water sitting in it and it looked as though it would leak at any time. I keep thinking that a roof should have water draining away from it, not sitting in it. I have since sold that property, but sometimes I wonder how long that flat roof lasted and whether it still has water sitting in it to this day.
The plumbing – have the plumbers check all appliances, drains and gutters before the tenants move in.
At one of my properties, the tenants would regularly phone me saying that there was water leaking down into the lounge ceiling from the upstairs bathroom. The dangerous element here is that it would frequently be coming in through the electric light as well. Several plumbers came out to look at the problem.
One plumber said that problem was the silicone around the bathtub so he whipped it around and for about a week it was fine. Then it started leaking again and I had another plumber come and look at it. This one said it was a leak in the pipes under the bath and he replaced the pipes and said it would be fine. Not so. Another plumber came out and said that the bath was not even and needed to be put on a piece of plasterboard and made even. So they ripped out the bathtub and then put it on a piece of plasterboard. This held for about six months and then it started leaking again. When yet another plumber came out and told me I had to replace the whole bathroom and ceiling, I ushered him out the door. The last plumber I called had a simpler solution. He replaced all the tiling around the bath, regrouted it, and then put in new silicone. That lasted a year until I sold it and I only hope that the new owners have not had further leaks.
The saying, “adversity is the mother of invention” was very true in the case of another of my properties. The toilet had an enormous big copper pipe coming out of the seat at the back. It looked dreadful but each plumber who looked at it said that it was best left alone. They said “if it ain’t broke, don’t fix it.” It was working so I opted for not fixing it. Instead, I painted the pipe a cream colour to match the walls and sold the property as is.
the electrics must be checked by a certified electrician who gives you a document stating that they are safe to use
Basically, anything that involves the structure or safety of your property must be seen to as a matter of priority. The risk you run, otherwise, is that your insurance cover may be invalid.
The areas you can afford to economise on with a rental property are:
- the carpets,
- the appliances
- the paint job
- the curtains/drapes
- the quality of the fittings in the kitchen and bathroom
The areas you must take care of are:
- the plumbing
- the electrics
- the roof
- any damp
- the heating / cooling system
- the washing machine and dryer – make sure they are in working order
With the house you are living in, if maintenance has not been kept up, you may run into expensive repairs. Your renovations are more personal and you are there while the renovations are going on. So although you are inconvenienced by the noise and the mess, at least you are there to see how the work is progressing.
With an investment property, it’s a bit trickier because you have to meet the contractors at the property and you are not there to supervise the work. No matter how well you know your contractors, it is always advisable to show up on a regular basis and check out their progress.
Let me give you an example to illustrate this. I was having a builder put up a partition wall to make the through lounge into two rooms in one of my investment properties. The room was large enough to divide without sacrificing living space and I was going to make one of the rooms into another bedroom because I knew it would bring in more rental income. A job that should have taken a few days had already taken three months and, if it weren’t for a neighbour telling me that the builder and his men were sitting around on boxes every day drinking tea and smoking for hours on end, they might still be there three years later. After the neighbour reported this to me, I came to the house every day until the job was finished, pretending to work on different things. Amazingly, they finished the job a few days after I got there.
There are different ways of looking at property renovations:
For the most part, investors look at it as “let’s get it fixed up and rented out as quickly as possible. For the last several years, it was very common for people to buy a fixer-upper house – maybe they went in with two or three others and did their own repairs for a quick turnaround. Or they got others to do the renovations for them – either way, many people were making money hand over fist. When property prices are rising quickly, it’s easy to make money even if you are a novice. However, in this economic climate, you cannot turn around properties so easily any more. If you are investing right now, you will probably have to rent out the property for a few years before you are able to turn in around for a profit. Therefore, you need to consider the issue of renovations, upgrades and repairs very seriously.
With an investment property, you may want to use low-grade to medium-grade items and materials just so you can get tenants in.
For your own home, you may want to upgrade. It’s a different kind of call when you are doing your own house as opposed to an investment property.
Ask yourself, how much am I going to invest in my property? Am I going to stay there for a long time in which case I might like to get an upgraded bathroom, an upgraded kitchen and nicer appliances. Also, because it’s your own home and you are living in it, you have more time to save up and do the renovations in your own time.
With an investment property, you don’t have that kind of time. You need that property to start bringing in you an income as soon as possible and you want to do it as cheaply as possible, unless you have a luxury investment property where you can get a very good return on your investment. Then you may want to hire an interior designer to help you make the property as attractive as possible to tenants who will pay a very high rental.
However, if you are going to hire an interior designer, make sure that your builder is willing to work with them. I hired an interior designer to design the kind of kitchen that would be attractive to a prospective tenant who was going to be paying a high rent. She came in, made recommendations on cabinetry, counter tops, hardware and flooring. I was very pleased with the samples she showed me and she gave my builder a list of the things she needed.
Whether the builder was having a bad hair day or he had a hearing loss, or he just didn’t like the interior designer, the end result was that everything that she put down on her list was ignored. She asked for white counter tops of high grade quality and he had substituted a dingy greenish-brown colour of the cheapest grade. Instead of buying new doors for the cabinets, he gave me second hand doors and wanted to charge me for new doors. And the knobs – unbelievable as it may seem, he put on knobs that were different colours and sizes that he must have had lying around from other jobs. They weren’t just different colours and sizes but the wrong colours and the wrong sizes and wherever the doors and cabinets didn’t fit properly, he cut them down to make them almost fit, but not quite fit. The lesson I learned from this was that I needed to buy the materials myself – at least then I could be sure that the interior designer’s instructions had been adhered to.
To summarise:
- know the difference between renovations on your own home and those on an investment property
- with an investment property, try to make a point of supervising builders on a regular basis. If you are not living close by, get someone to check for you and report back to you
- in the current downturn economy, it’s very difficult to buy, fix up and sell a property in a short space of time. This is only for the professionals, not amateurs
With an investment property, what you want to avoid are hassles with your tenants. There are enough things that can go wrong when you are letting a property, so if you can get these things fixed before they move in, chances are you will save yourself a great deal of money and aggravation down the line.
Firstly, the heating. Make sure it works, and if necessary, pay a little extra for a guarantee which gives the tenants an emergency call-out number so that you are not disturbed at a very inconvenient moment.
The damp. The last thing you want is tenants calling you out saying that there are mushrooms growing up on the inside of the walls….In fact, this happened to me with one of my properties. It developed dry rot, a very expensive disaster to remedy, all because the builder did not give me the option of spending an extra $3.00 for three air bricks. Had he done so, my tenants would not have had to contend with huge mushrooms that kept sprouting up all over the bathroom and kitchen walls due to a lack of subfloor ventilation.
It’s amazing that so many damp companies go out of business within a few years of opening their doors. You would think that since most old houses have a bit of damp and people tend to have it treated to prevent major problems from developing, there would be enough work to keep these companies afloat for years to come. The reality is that many companies will give you ten and twenty year guarantees, but a couple of years later, they are out of business. On the odd chance that a company is still in business, their policies are downright ludicrous. Four years ago, I had a whole house treated for damp and they gave me a ten year guarantee. When I called them to come out and look at it, they tried to hit me up for another $110 before they would come out. Their new policy is that if they determine that the damp has come back and it is their fault, then they will fix it – otherwise they want nothing to do with it. So make sure the damp company you are dealing with is reputable.
The roof. Tenants having to use buckets to catch water pouring in, have a tendency to lose patience very quickly and to withhold their rent. A ceiling could fall down and injure your tenants.
I’ve had more problems with roofs than just about anything else in my property investment career.
Flat roofs are often the biggest nightmare. They usually last ten years, sometimes more, sometimes less, but they are always a problem at some stage. My offices had three flat roofs and finding someone who is exceptionally good at doing flat roofs is a real ordeal. I had five different roofers come out to bid for the job and I had five different recommendations.
The first roofer said they were fine and would last me another five years. The second roofer told me to put a coating of tar over them and that would seal them for a good few years. The third one told me to build up the roof with plasterboard and then it would be even and drain away properly. The fourth roofer told me that he could recover the existing roof with more felt and that would do the trick. Finally, the fifth roofer told me that the whole roof had to be stripped away and back to the very bones and then built up from the start. I went along with the fourth roofer who wanted to recover the existing one with the better quality felt. I was assured by my master roofer that this roofer was good but whenever I looked at the roof, there was always a huge pool of water sitting in it and it looked as though it would leak at any time. I keep thinking that a roof should have water draining away from it, not sitting in it. I have since sold that property, but sometimes I wonder how long that flat roof lasted and whether it still has water sitting in it to this day.
The plumbing – have the plumbers check all appliances, drains and gutters before the tenants move in.
At one of my properties, the tenants would regularly phone me saying that there was water leaking down into the lounge ceiling from the upstairs bathroom. The dangerous element here is that it would frequently be coming in through the electric light as well. Several plumbers came out to look at the problem.
One plumber said that problem was the silicone around the bathtub so he whipped it around and for about a week it was fine. Then it started leaking again and I had another plumber come and look at it. This one said it was a leak in the pipes under the bath and he replaced the pipes and said it would be fine. Not so. Another plumber came out and said that the bath was not even and needed to be put on a piece of plasterboard and made even. So they ripped out the bathtub and then put it on a piece of plasterboard. This held for about six months and then it started leaking again. When yet another plumber came out and told me I had to replace the whole bathroom and ceiling, I ushered him out the door. The last plumber I called had a simpler solution. He replaced all the tiling around the bath, regrouted it, and then put in new silicone. That lasted a year until I sold it and I only hope that the new owners have not had further leaks.
The saying, “adversity is the mother of invention” was very true in the case of another of my properties. The toilet had an enormous big copper pipe coming out of the seat at the back. It looked dreadful but each plumber who looked at it said that it was best left alone. They said “if it ain’t broke, don’t fix it.” It was working so I opted for not fixing it. Instead, I painted the pipe a cream colour to match the walls and sold the property as is.
the electrics must be checked by a certified electrician who gives you a document stating that they are safe to use
Basically, anything that involves the structure or safety of your property must be seen to as a matter of priority. The risk you run, otherwise, is that your insurance cover may be invalid.
The areas you can afford to economise on with a rental property are:
- the carpets,
- the appliances
- the paint job
- the curtains/drapes
- the quality of the fittings in the kitchen and bathroom
The areas you must take care of are:
- the plumbing
- the electrics
- the roof
- any damp
- the heating / cooling system
- the washing machine and dryer – make sure they are in working order
Saturday, December 5, 2009
Another 6 US banks fail
This week I am going to discuss the failure of yet another batch of US banks.
Jim Sinclair is a precious metals expert who has authored numerous magazine articles and three books dealing with a variety of investment subjects, including precious metals, trading strategies and geopolitical events, and their relationship to world economics and the markets. He is a frequent and enormously popular speaker at gold investment conferences and his commentary on gold and other financial issues garners extensive media coverage at home and abroad.and a very generous, knowledgeable and person, has a wonderful website www.jsmineset.com that is literally a mine of accurate and essential information about gold. Having followed it for over two years now, I would like to quote from CIGA (Comrade in Golden Arms) Richard in today's posting about six US banks that have just failed:
Earlier this year, the Financial Accounting Standards Board (FASB) capitulated to pressure from banks and financial institutions and allowed financial institutions to value worthless assets at values that the financial institution had concluded were correct, not values that were market-related.
Six more banks were closed this week. Collectively, they had assets of $13.425 billion and deposits of $9.368 billion. The total estimated cost to the FDIC’s Deposit Insurance Fund (“DIF”) is $2.384 billion.
Consistent with recent trends, by the time these banks were finally closed their condition had deteriorated to a point far worse than banks were allowed to in the years before this crisis. As a result, the FDIC continues to incur much higher rescue costs than it would if it were able to close them at a stage more like they have been historically. The total cost to the DIF of closing this week’s failed banks exceeds 25% of their total deposits. By contrast, the FDIC was only required to make up about 5.7% of insured deposits in connection with the three banks it closed in 2007, at the beginning of this crisis.
The details of this week’s closings also point out some troublesome discrepancies between the value of assets stated on the banks’ balance sheets and their perceived market value. Five of the six acquiring banks this week required the FDIC to enter loss-share agreements as a condition of their purchasing the assets of the failed institutions.
Insisting upon a loss-share agreement indicates the prospective buyer is so worried about the value of the assets it is purchasing, it is unwilling to alone bear the risk that their value will turn out to be lower than anticipated. In the case of the three banks closed in 2007, none of the acquiring banks required that the FDIC enter into a loss-share agreement.
The largest of this week’s bank failures was AmTrust Bank of Cleveland, Ohio. On paper, AmTrust appeared to be very well capitalised. It claimed to have assets of $12 billion against deposits of $8 billion, a ratio of 1.5:1.
However, closing AmTrust cost the FDIC an estimated $2.0 billion, 25% of the value of its deposits. Furthermore, the purchasing bank, New York Community Bank (“NYCB”), was only willing to purchase about $9.0 billion (75%) of AmTrust’s assets, and did so only on the condition that the FDIC agree to share the risk of loss with respect to $6.0 billion of that amount. In the final analysis, it appears that NYCB had confidence in the value of only $3 billion of the $12 billion in assets on AmTrust’s balance sheet.
Furthermore, the parties appear to have concluded that the $12 billion in assets listed on AmTrust’s balance sheet were only worth about $6 billion. Otherwise, the FDIC would not have allowed for a $2 billion charge to the DIR to make good on AmTrust’s $8 billion in deposits.
There is not enough information available at this point to determine the causes of this huge discrepancy between the claimed and actual values of AmTrust’s assets. However, in the absence of an allegation of criminal fraud it stands to reason that the failure to require fair value accounting contributed substantially to this discrepancy.
The facts surrounding the closings of the remaining five banks this week raise similar concerns.
This week’s bank closings continue to warn of U.S. banks’ deteriorating balance sheets and of the FDIC’s inability to resolve troubled banks before they cause extraordinary losses. Nationwide, banks are going broke much faster than the FDIC can close them. This creates a domino effect whereby the FDIC loses the ability to mitigate losses at the same time it exhausts its capacity to pay claims.
As of November 12, 2009, the DIF had fallen into deficit and in order to replenish it, the FDIC ordered banks to pre-pay three years’ worth of deposit insurance premiums, amounting to about $45 billion. In the three weeks since then, the FDIC has been forced to acknowledge another $3.394 billion in liabilities – more than 7.5% of the new revenue it is attempting to raise by way of the pre-payments. Very soon the entire $45 billion will be wiped out and the U.S. Treasury will become the FDIC’s sole source of funding for years to come.
Given this dire situation with the banks in the US, the case for holding physical gold strengthens. If you have not yet added gold into your portfolio, I strongly suggest that you investigate your options and consider putting at least 10% of your assets into the yellow metal.
Jim Sinclair is a precious metals expert who has authored numerous magazine articles and three books dealing with a variety of investment subjects, including precious metals, trading strategies and geopolitical events, and their relationship to world economics and the markets. He is a frequent and enormously popular speaker at gold investment conferences and his commentary on gold and other financial issues garners extensive media coverage at home and abroad.and a very generous, knowledgeable and person, has a wonderful website www.jsmineset.com that is literally a mine of accurate and essential information about gold. Having followed it for over two years now, I would like to quote from CIGA (Comrade in Golden Arms) Richard in today's posting about six US banks that have just failed:
Earlier this year, the Financial Accounting Standards Board (FASB) capitulated to pressure from banks and financial institutions and allowed financial institutions to value worthless assets at values that the financial institution had concluded were correct, not values that were market-related.
Six more banks were closed this week. Collectively, they had assets of $13.425 billion and deposits of $9.368 billion. The total estimated cost to the FDIC’s Deposit Insurance Fund (“DIF”) is $2.384 billion.
Consistent with recent trends, by the time these banks were finally closed their condition had deteriorated to a point far worse than banks were allowed to in the years before this crisis. As a result, the FDIC continues to incur much higher rescue costs than it would if it were able to close them at a stage more like they have been historically. The total cost to the DIF of closing this week’s failed banks exceeds 25% of their total deposits. By contrast, the FDIC was only required to make up about 5.7% of insured deposits in connection with the three banks it closed in 2007, at the beginning of this crisis.
The details of this week’s closings also point out some troublesome discrepancies between the value of assets stated on the banks’ balance sheets and their perceived market value. Five of the six acquiring banks this week required the FDIC to enter loss-share agreements as a condition of their purchasing the assets of the failed institutions.
Insisting upon a loss-share agreement indicates the prospective buyer is so worried about the value of the assets it is purchasing, it is unwilling to alone bear the risk that their value will turn out to be lower than anticipated. In the case of the three banks closed in 2007, none of the acquiring banks required that the FDIC enter into a loss-share agreement.
The largest of this week’s bank failures was AmTrust Bank of Cleveland, Ohio. On paper, AmTrust appeared to be very well capitalised. It claimed to have assets of $12 billion against deposits of $8 billion, a ratio of 1.5:1.
However, closing AmTrust cost the FDIC an estimated $2.0 billion, 25% of the value of its deposits. Furthermore, the purchasing bank, New York Community Bank (“NYCB”), was only willing to purchase about $9.0 billion (75%) of AmTrust’s assets, and did so only on the condition that the FDIC agree to share the risk of loss with respect to $6.0 billion of that amount. In the final analysis, it appears that NYCB had confidence in the value of only $3 billion of the $12 billion in assets on AmTrust’s balance sheet.
Furthermore, the parties appear to have concluded that the $12 billion in assets listed on AmTrust’s balance sheet were only worth about $6 billion. Otherwise, the FDIC would not have allowed for a $2 billion charge to the DIR to make good on AmTrust’s $8 billion in deposits.
There is not enough information available at this point to determine the causes of this huge discrepancy between the claimed and actual values of AmTrust’s assets. However, in the absence of an allegation of criminal fraud it stands to reason that the failure to require fair value accounting contributed substantially to this discrepancy.
The facts surrounding the closings of the remaining five banks this week raise similar concerns.
This week’s bank closings continue to warn of U.S. banks’ deteriorating balance sheets and of the FDIC’s inability to resolve troubled banks before they cause extraordinary losses. Nationwide, banks are going broke much faster than the FDIC can close them. This creates a domino effect whereby the FDIC loses the ability to mitigate losses at the same time it exhausts its capacity to pay claims.
As of November 12, 2009, the DIF had fallen into deficit and in order to replenish it, the FDIC ordered banks to pre-pay three years’ worth of deposit insurance premiums, amounting to about $45 billion. In the three weeks since then, the FDIC has been forced to acknowledge another $3.394 billion in liabilities – more than 7.5% of the new revenue it is attempting to raise by way of the pre-payments. Very soon the entire $45 billion will be wiped out and the U.S. Treasury will become the FDIC’s sole source of funding for years to come.
Given this dire situation with the banks in the US, the case for holding physical gold strengthens. If you have not yet added gold into your portfolio, I strongly suggest that you investigate your options and consider putting at least 10% of your assets into the yellow metal.
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