Using the Permanent Portfolio to raise money to buy property
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Using the Permanent Portfolio to raise money to buy property
I was wondering what the brain trust here thinks about using the Permanent Portfolio to raise money in order to get a downpayment for a mortgage? It's a strategy I've been using to some success. Any criticisms?
Re: Using the Permanent Portfolio to raise money to buy property
Sounds fine to me.
If the time frame is less than 1-2 years, I might just use cash. The hassle of setting up brokerage accounts and dealing with capital gains may not be worth it on that time scale, and the opportunity cost isn't a very big deal either.
For similar reasons I'd be more inclined to use PERM or PRPFX for a downpayment fund, than a separate 4x25. A single fund is less hassle and the expense ratio is less of a worry on a short holding period.
If the downpayment is small relative to your portfolio, you could also consider melding the two, and accumulate a downpayment-sized chunk of PermPort cash in a taxable account. Then when you buy the property you'd just withdraw some of the cash. That might not even trigger a rebalance, but if it did you might be able to get away with doing the rebalance inside tax-sheltered accounts. That would probably be more tax-efficient then buying taxable PP assets then selling them a few years later.
If the time frame is less than 1-2 years, I might just use cash. The hassle of setting up brokerage accounts and dealing with capital gains may not be worth it on that time scale, and the opportunity cost isn't a very big deal either.
For similar reasons I'd be more inclined to use PERM or PRPFX for a downpayment fund, than a separate 4x25. A single fund is less hassle and the expense ratio is less of a worry on a short holding period.
If the downpayment is small relative to your portfolio, you could also consider melding the two, and accumulate a downpayment-sized chunk of PermPort cash in a taxable account. Then when you buy the property you'd just withdraw some of the cash. That might not even trigger a rebalance, but if it did you might be able to get away with doing the rebalance inside tax-sheltered accounts. That would probably be more tax-efficient then buying taxable PP assets then selling them a few years later.
Re: Using the Permanent Portfolio to raise money to buy property
I have considered the same question, and we have thus far opted to keep our down payment money (we're on the 100% down plan) in a money market fund.
I look at this the same way as an emergency fund, and seeing the daily fluctuations in market price would make me uneasy, even if they were relatively small. There have been times where the portfolio has seen rather large short-term swings in price, and I'm not willing to tolerate that for money that I anticipate needing within the next couple of years.
To me, at the end of the day peace of mind is most important; you have to do what allows you to sleep best at night.
I have recently been considering moving the funds into individual T-bills, but I haven't pulled the trigger on that. It hasn't yet passed the gut test, which is the final hurdle for all of my decisions.
I look at this the same way as an emergency fund, and seeing the daily fluctuations in market price would make me uneasy, even if they were relatively small. There have been times where the portfolio has seen rather large short-term swings in price, and I'm not willing to tolerate that for money that I anticipate needing within the next couple of years.
To me, at the end of the day peace of mind is most important; you have to do what allows you to sleep best at night.
I have recently been considering moving the funds into individual T-bills, but I haven't pulled the trigger on that. It hasn't yet passed the gut test, which is the final hurdle for all of my decisions.
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shoestring
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Re: Using the Permanent Portfolio to raise money to buy property
KevinW has read my mind! Well that's not true, if he read my mind he'd be traumatized.
I'm not saving for RE right now, but I plan to in just a few years.
Regardless I have kind of the same system. If it's a cost to be incurred within 1 year, or 2 years of it's estimable, I generally sock away the cash for it. Big stuff, things more than 2 years away or costs which I'm otherwise not sure of yet, I stick it in my asset allocation (IE the PP).
I currently have a 4 slice setup for the purpose, but I'm strongly, strongly considering PERM, although I have reservations about it.
Generally the more concrete and immediate the goal becomes, the more I start moving into boring old cash.
I'm not saving for RE right now, but I plan to in just a few years.
Regardless I have kind of the same system. If it's a cost to be incurred within 1 year, or 2 years of it's estimable, I generally sock away the cash for it. Big stuff, things more than 2 years away or costs which I'm otherwise not sure of yet, I stick it in my asset allocation (IE the PP).
I currently have a 4 slice setup for the purpose, but I'm strongly, strongly considering PERM, although I have reservations about it.
Generally the more concrete and immediate the goal becomes, the more I start moving into boring old cash.
Re: Using the Permanent Portfolio to raise money to buy property
I haven't yet bought our first home yet and want to buy one in 5 years because children are growing and needing more room. We are hoping a drastic drop in housing prices in Vancouver. Who knows when that will happen so I decided to invest all my saving (about 200K) into a pp. So far I have invested half of the money in a pp and I'm thinking of keeping the rest in a savings account just because I don't know when I will need the money. Is it 5 years too short to do a pp? Thanks!
Re: Using the Permanent Portfolio to raise money to buy property
metta,
How have rents kept up with housing prices around there?
I think what can help facilitate a housing price drop is other options becoming apparent. If housing in general, rents included, goes parabolic for a period, it's probably a lot harder for a home price adjustment to take place.
I could be wrong, though.
How have rents kept up with housing prices around there?
I think what can help facilitate a housing price drop is other options becoming apparent. If housing in general, rents included, goes parabolic for a period, it's probably a lot harder for a home price adjustment to take place.
I could be wrong, though.
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."
- Thomas Paine
- Thomas Paine
Re: Using the Permanent Portfolio to raise money to buy property
With a 5-year time horizon I would be in the PP. Looking back at the last 5 years and seeing all that has happened, I'd rather have the protection of the PP. If you're counting on a drastic drop in housing prices, I could envision a similar scenario to what the US went through after the housing market crashed. Once you get to the point where you're starting to look at houses with the intent to buy, I'd start moving money into cash so it's ready at hand when you need to close the deal.metta2006 wrote: I haven't yet bought our first home yet and want to buy one in 5 years because children are growing and needing more room. We are hoping a drastic drop in housing prices in Vancouver. Who knows when that will happen so I decided to invest all my saving (about 200K) into a pp. So far I have invested half of the money in a pp and I'm thinking of keeping the rest in a savings account just because I don't know when I will need the money. Is it 5 years too short to do a pp? Thanks!
Also, keeping in mind that there could be a crash given the high real-estate prices there, I would be wary of taking out a big mortgage. Bear in mind HB's wisdom that housing is a consumption item, not an investment. Don't count on getting your money back.
Re: Using the Permanent Portfolio to raise money to buy property
I would be happy to rent if rents are reasonable. But I think 3000 for a three bedroom house is too much. People who wouldn't want to pay that much for rent would be willing to pay that much for mortgage monthly. I can't bring myself up to pay that much for rent either because that means we save nothing. That's why we are stuck in a 960sqft 2bdroom suite with two little kids.moda0306 wrote: metta,
How have rents kept up with housing prices around there?
I think what can help facilitate a housing price drop is other options becoming apparent. If housing in general, rents included, goes parabolic for a period, it's probably a lot harder for a home price adjustment to take place.
I could be wrong, though.
Re: Using the Permanent Portfolio to raise money to buy property
metta,
What would the mortgage payment be on that 3-bedroom home? If about $3,000, do you really gain much by buying and subjecting yourself to maintenence, etc.?
It's a lot harder for housing to crash if rents are comperable, and a lot harder for it to boom if rents are stagnant (or, at least, boom without busting).
What would the mortgage payment be on that 3-bedroom home? If about $3,000, do you really gain much by buying and subjecting yourself to maintenence, etc.?
It's a lot harder for housing to crash if rents are comperable, and a lot harder for it to boom if rents are stagnant (or, at least, boom without busting).
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."
- Thomas Paine
- Thomas Paine
Re: Using the Permanent Portfolio to raise money to buy property
Metta,
Is there a big difference in your present rent and what you feel you would be able to afford for the mortgage (plus upkeep/maintenance etc) in your future home buying plan?
Maybe try to "live" on that amount, but in actuality, sock away the difference into savings/PP.
That way you could kind of test drive the home buying plan without jumping in.
You could also see how that compares to $3000 rent + utilities for a house.
Being a fellow Canadian living in the Lower Mainland, I feel your pain.
It truly is the most expensive place to live in Canada whether you rent or buy.
Is there a big difference in your present rent and what you feel you would be able to afford for the mortgage (plus upkeep/maintenance etc) in your future home buying plan?
Maybe try to "live" on that amount, but in actuality, sock away the difference into savings/PP.
That way you could kind of test drive the home buying plan without jumping in.
You could also see how that compares to $3000 rent + utilities for a house.
Being a fellow Canadian living in the Lower Mainland, I feel your pain.
It truly is the most expensive place to live in Canada whether you rent or buy.
Re: Using the Permanent Portfolio to raise money to buy property
Studies show that renting is actually cheaper than owning in Vancouver. I wouldn't consider buying into this market and would move to somewhere else if I decide to buy.
What did Harry Brown say about owning the primary residence? Is it more of a budget issue if own's one home is consumption, not investment. I bet this sounds so foreign to most people in Canada who thinks owing a home is the best and only retirement plan. I also question myself if I should invest money in stock market or even a pp when I don't even own my own house and waste money on rent. Buying a home should not be the priority if you have a growing family? I don't know...
Our take home income after tax is 7000 dollars a month. Our rent for a tiny two bedroom suite is 1700 including utilities. We save about 1500-2000 a month. We need to move to a three bedroom soon as kids are growing. Then I will have to shed at least 2500-3000 dollars plus utilities in our area. Would we be spending way too much on rent compared to our income? Basically we will save nothing. That's how most people in Vancouver live.
What portion of your income would it be appropriate to be spent on housing cost, rent or mortgage? Maybe time to move out of Vancouver....
What did Harry Brown say about owning the primary residence? Is it more of a budget issue if own's one home is consumption, not investment. I bet this sounds so foreign to most people in Canada who thinks owing a home is the best and only retirement plan. I also question myself if I should invest money in stock market or even a pp when I don't even own my own house and waste money on rent. Buying a home should not be the priority if you have a growing family? I don't know...
Our take home income after tax is 7000 dollars a month. Our rent for a tiny two bedroom suite is 1700 including utilities. We save about 1500-2000 a month. We need to move to a three bedroom soon as kids are growing. Then I will have to shed at least 2500-3000 dollars plus utilities in our area. Would we be spending way too much on rent compared to our income? Basically we will save nothing. That's how most people in Vancouver live.
What portion of your income would it be appropriate to be spent on housing cost, rent or mortgage? Maybe time to move out of Vancouver....
Last edited by metta2006 on Tue Apr 17, 2012 4:27 pm, edited 1 time in total.
Re: Using the Permanent Portfolio to raise money to buy property
Metta,
I'm a fan of "Til Debt Due us Part" on TV.
Gail Vaz-Ozlade basically feels that housing costs in total should be no more than 35% of one's take home income; that's just one number tossed about...seems a little on the high side to me.
She also has a web site: gailvazoxlade.com and her books are available at local libraries.
I think you have to do what feels comfortable for your situation and your family.
Everyone and every situation is unique.
I know it seems like a long way off with a young, growing family, but a big factor to consider for the future would be retirement planning and whether or not you will receive a pension other than OAS and CPP.
Receiving a company/government pension, esp one that's indexed, will make a huge difference in your long term financial plan.
We left the Lower Mainland in 2006, moved to the Sunshine Coast and have not looked back.
It's Vancouver's best kept secret.
It is only a 40' ferry to Horseshoe Bay, where there is a commuter bus to downtown Vancouver. Many people are commuting from the Coast as it beats commuting from White Rock or the Fraser Valley. The housing here is still affordable. One can rent a relatively new 1300' 3 bed/2 bath home for $1350 per month. Check out realtor.ca for housing prices on the Sunshine Coast (Gibsons, Roberts Creek, Sechelt, Halfmoon Bay). It's a beautiful place to raise a family with every imaginable outdoor activity, low crime and small-town appeal.
Best of luck:)
I'm a fan of "Til Debt Due us Part" on TV.
Gail Vaz-Ozlade basically feels that housing costs in total should be no more than 35% of one's take home income; that's just one number tossed about...seems a little on the high side to me.
She also has a web site: gailvazoxlade.com and her books are available at local libraries.
I think you have to do what feels comfortable for your situation and your family.
Everyone and every situation is unique.
I know it seems like a long way off with a young, growing family, but a big factor to consider for the future would be retirement planning and whether or not you will receive a pension other than OAS and CPP.
Receiving a company/government pension, esp one that's indexed, will make a huge difference in your long term financial plan.
We left the Lower Mainland in 2006, moved to the Sunshine Coast and have not looked back.
It's Vancouver's best kept secret.
It is only a 40' ferry to Horseshoe Bay, where there is a commuter bus to downtown Vancouver. Many people are commuting from the Coast as it beats commuting from White Rock or the Fraser Valley. The housing here is still affordable. One can rent a relatively new 1300' 3 bed/2 bath home for $1350 per month. Check out realtor.ca for housing prices on the Sunshine Coast (Gibsons, Roberts Creek, Sechelt, Halfmoon Bay). It's a beautiful place to raise a family with every imaginable outdoor activity, low crime and small-town appeal.
Best of luck:)
Re: Using the Permanent Portfolio to raise money to buy property
I'm a fan of her show, too, and also her show "(She's a )Princess." Comes on the CNBC cable channels; the shows are about people in deep debt and what they have to do to get out of it. If they follow her advice and show that they've changed their profligate spending ways, and make a dent in their debt, she gives them a check--usually around $5000--to help them along their way.bluedog wrote: I'm a fan of "Til Debt Due us Part" on TV.
Gail Vaz-Ozlade basically feels that housing costs in total should be no more than 35% of one's take home income; that's just one number tossed about...seems a little on the high side to me.
BTW, 35% is not too high if you consider that the figure is to be looked at as a maximum, not a minimum or even a median, and it includes more than just the mortgage and taxes. In addition to the mortgage and real estate taxes, it includes homeowners insurance, maintenance--you'll need a new roof every couple of decades, new carpets every few years, new paint (interior and exterior) every few years etc.), general repairs, lawn/garden/driveway maintenance, technological improvements (central air conditioning, specialty insulated windows), and more. The figure is high also to take into consideration that there are regions where housing costs are MUCH steeper than in other parts of the country. A non-government stabilized 2 bedroom apartment in an ordinary neighborhood in the NYC Metro area will cost $2000 to $4000 per month (there are a few slightly cheaper, and some much, much higher). The 35% figure even covers housing costs like that--especially if you take apartment sharing into consideration.