Why you should buy real estate.......

Absolutely Nothing About Goldman Sachs

Reporting from Laguna Beach, California...

n today’s edition of The Daily Reckoning, we’ll take a departure from our habitual musings. You won’t read anything about the demise of the US dollar, the decay of the US Empire or the debauchery of the global monetary and financial “system.”

Instead, we will share a personal anecdote of no particular importance and then launched into a couple of nonhabitual musings about investing in real estate overseas. Even if you have absolutely no interest in buying property outside of the US, you should at least scroll down the page to see the pretty pictures.

So sit back, relax and enjoy today’s edition which we have titled:

“Absolutely Nothing About Goldman Sachs”
By Eric J. Fry

Joseph Saylin did not like to take chances. He didn’t trust people very much and he didn’t trust paper wealth very much. He trusted dogs and real estate...and that’s about it.

Joseph Saylin, my grandfather, was the son of Latvian immigrants. Joseph worked hard... always. And saved money... always. He was ambitious. He was a physician at the age of 21, a lieutenant in the US Army at the age of 24, a captain at 27, a major at 31, a colonel at 35. “I was always the ‘boy this’ and the ‘boy that,’” he would often boast during his twilight years. “I was the ‘boy doctor’ and the ‘boy colonel.’ A lot of guys were jealous. But they didn’t even think about how hard I worked.”

Don’t get the wrong idea; Joseph was not one of those all-work-and- no-play guys. In his 1912 high school yearbook from El Monte, California, he offered the following senior quote:

“I am very fond of the company of ladies.”

To be sure, Joseph knew how to play; but more to the point of our tale, Joseph also knew how not to play. In other words, he did not play in the highflying stock market of the 1920s. Joseph parked his savings in real estate. Between 1923 and 1973 he bought a variety of houses and office buildings in Southern California.

He once bought 4,000 acres of sand and sagebrush in Utah, just because it was so cheap. He called it “the ranch” and always tried to drag his grandkids up there for long weekends. But his youngest grandchild, your editor, always refused to take the 12-hour car ride just to look at sand and sagebrush.

Fortunately, Joseph also bought properties of greater aesthetic and/or investment value. He purchased residential and commercial properties in Venice Beach, Brentwood, Arcadia, Orange and Lake Arrowhead. He even owned a gas station in Torrance. He always bought them cheap. Unfortunately, he often sold them cheap as well.

If only he had held onto his large house on South Rockingham in Brentwood, California (yes, the same Rockingham made famous by a former professional football player with anger management issues), he would have tripled or quadrupled the ultimate size of his estate.

But no matter, Joseph was not hurting financially. Throughout two World Wars, one Great Depression, one hyperinflation and numerous lesser crises, he maintained course and speed: Buying Southern California real estate, while using little or no debt financing.

Joseph’s frugal tactics served him well. He accumulated a small fortune during his 86 years on this planet.

He might have amassed an even larger nest egg, if his wife had not devoted her golden years to traveling around the world — first-class — with her best friend. These two feisty, 70-something women would book around-the-world flights on Pan Am and disembark wherever their whim dictated. India, Egypt, Israel. In fact, my grandmother was in Israel in 1967 when the Six-Day War broke out.

Joseph’s lifelong commitment to real estate served him extremely well. Importantly, he made most of his money during the postwar years, when America was in the sweetest “sweet spot” of its entire history. As a result, American real estate was a “strong buy” from many, many decades. It may still be a “buy,” but it probably isn’t a “strong buy.”

Now that the latest US housing boom has gone bust, a few select portions of the US real estate market may have become “strong buys” once again. But the US economy is unlikely to provide a multi-decade tailwind to housing prices like it did after the Second World War.

Of course there will still be opportunities here in the United States. But some of the best real estate bets may be in the fastest growing economies of the world. Therefore, the would-be real estate tycoon may want to cast a glance overseas and consider the opportunities that beckon from foreign shores.

Obviously, buying a beach house in Ecuador is not the same thing as buying a beach house on the Jersey Shore. But maybe that’s a good thing.

Over the next couple of days, we’re going to feature some observations about foreign real estate, courtesy of our friends over at International Living. Even if you have no interest in buying an overseas residence anytime soon, you may enjoy daydreaming with us.

Eric Fry,
The Daily Reckoning