Poleo's investment journal

[poleo]

Hi everyone, it's time for me to get serious about investing.

Some stats:
28 years of age, my partner is 26.
Current occupation: aspiring farmer, while my partner works full time in the local school.
Area of the world: Northern Norway
Current goal: getting our farm project up and running, for the 2016-season, and getting informed about investing.
Long term goal: Financial independence, by means of said investments and whatever the land may yield.

I know this forum is full of sound financial advice, though I'm a novice and have no idea where to start. I know it's annoying, but if someone would take the time to recommend some beginner's reading, I'd be grateful. Pointers to good threads on this forum would be lovely too - most of the time I stumble upon one the discussions go way over my head. Just the acronyms people are using are enough to confuse my simple mind.

Anyway, what I've thought so far: I think bitcoins are cool, with all the no-central-bank and government thing going on, so I've bought an amount of them. About €1800, which amounts to about 15% of my total available capital. Where we live now, real estate prices are much more friendly than in Norwegian cities (no surprise), so I've also been looking into buying a house for renting out. This seems like a great opportunity, though I'm still not all too close to pulling the trigger. The anxiety of ownership, and size of investment both are a bit scary.

Apart from this I have an amount of money lying around in the bank doing no good. Interest rates nowadays are from what I gather, pretty much the same as keeping cash in the mattress?

I've also read, very briefly, about dividend and index fund investing, and both strategies seem sensible enough, though I don't feel like I have the necessary knowledge to make judge them.

What I want to achieve is:
A) Understand what the hell I'm doing, so it doesn't feel like gambling.
B) Earn tons of money.

Jokes aside, I hope my point is clear - I need to know why I'm doing things and why I think it'll be successful or not.

If someone else has made this thread already, which doesn't seem unlikely, I'd be thrilled to be pointed in its direction.

[nitelight]

Hi Poleo,

I'm new myself so nto sure if you will get anything out of this. These are just my thoughts and might be entirely incorrect.
Because of the current job issues in Norway atm (oil based, and oil dependent), I'm not sure if we've seen the full effect on housing prices yet. Is there a bubble. I would consider looking a bit into this before committing to buying.

Did you scrap the caravan idea? Kabe and Cabby (swedish) are two of the best all year wagons, along with the the Norwegian brand Bjølseth (they went broke but there are still lots of used wagons around on the market). Be aware that the Bjølseth wagons can be a bit tricky to discover leakages/moisture/rot, even with moisture test aparatus, there are ways of discovering it, but you want someone who knows what they are doing with you if buying. that prob. goes for the other brands as well, but more so with Bjølseth.

[ether]

Check out the book "The Little Book of Common Sense Investing" at your local library!

[poleo]

Hi, thanks for your input. One of my main economical problems is my addiction to books of all kinds, though I'll see if I can get hold of that one without buying it new.

I didn't ditch the caravan idea - buying real estate was in any case thought as an investment. Ie. a rental property. As far as I understand, such a property should be fairly tolerant of any ill bubble effect? My reasoning is that first of all, being away from the attractive cities, the prices aren't that inflated anyway. Besides, even if the market crashes, people will still need a place to live. The places with the highest rent - again, the cities - will be prohibitive to some, which might increase demand in my area. In any case it seems unlikely that demand will decrease much. To me it seems that the rental market is only very loosely coupled with the homeowner market. So yeah, I was thinking that I'd live in a caravan and own a house in the nearby town to rent out. In the future I'd perhaps buy more properties, if the first venture works out, or sell, if it becomes too much of a hassle. I do realize selling such a property, and especially in a not so hot market, isn't like selling crack on the street corners, and thus may take a while.

[nitelight]

I see, I'm no expert but there are some rules saying that if you live in the rental property yourself you avoid taxes on renting it out.

Not sure about the exact rules:

http://www.nettavisen.no/3200536.html
http://www.dinside.no/841326/maa-du-ska ... einntekter
http://www.skatteetaten.no/no/person/se ... pa-utleie/

might not be updated so you have to check what applies now, but there might be some strong tax benefits in living in the apartement without renting out check with your local tax office.

again only a suggestion , personally there are other things i'd put my money in before real estate, but I don't know if this is a silly notion or not.

[poleo]

Yeah, I'm aware of the tax rules. What I'm looking at now is not really an apartment, but rather a house containing multiple apartments. So it's a choice between renting out all of it, thus maximizing yield though paying taxes, or renting out less and keeping the tax money. From my calculations it doesn't seem to make too much of a difference - also the taxation is a fixed 28% for this type of income. Which is pretty neat.

What would you put your money in and why? And why not real estate?

[nitelight]

Double post

[nitelight]

Well of i could cash out a house I'd maybe do it.
I guess the biggest reason is worry about high debt and increase in interest. Please bear in mind that these are just thoughts of mine and my understanding of economics is not very good, I am a beginner here probably I know less that you.

I'm aiming for maybe 5 percent in gold and silver coins as a store of value not an investment in case of worst scenario. I also have son cash, some index funds klp seems to be quite good here in Norway. Some other stocks and a tiny amount of dividend stock which I want to increase. I guess I'll go hard into index funds because historically this seems to have worked. Unfortunately this doesn't mean that it will in the future.

Well the reason I'm sceptical at least to the Norwegian housing market is this: look at housing prices in Norway over 200 years inflation adjusted, and compare with increase in income. In my opinion many houses apartments are overpriced. Also I don't think we have seen the effect of the layoffs in the oil industry yet. Again these are just thoughts of mine I haven't done and brighter do I have the skills to do any analysis. If you think it's a good idea to go into real estate it might vary we'll be so, only thing I want you to do is think through it before you jump which you might very well have already done probably there are others on the forum who have a good understanding of all this unfortunately i don't, so don't use my concerns as investment advice. Sorry about the spelling, wiring on my phone.

[poleo]

For the Norwegian housing market in specific, I think it needs to be looked at in two ways - central, attractive areas, and less central, unattractive areas.

My opinion is that the prices in the attractive areas are very bubbly. One example of this is currently Stavanger, where the housing market has largely stagnated, thanks to the petroleum situation. Oslo and other cities are next; activity is going down, Norway generally responds to unemployment by employing people in the public sector, and the private debt burden is super high thanks to previous optimism/naivety. Furthermore, the future of economic productivity is most probably not in the places where it has been until now, perhaps apart from Oslo.

In other words, I would consider investment in real estate in such areas a very safe way of losing money. Not only will the value of the houses sooner or later drop dramatically, the rental market will also be dead. I think this will be pretty close to a Detroit scenario.

Having said that, the places that are today considered remote and uninteresting have all chances at becoming the opposite in the future, depending on fate and how they play their cards. Norway being fairly communist in management of public services, I would put much trust in the latter option. What can be said fairly surely though, is that coastal industry; fisheries, fish farming and other seafood is going to grow. There is plenty of demand, and likewise plenty of unused space along the coast. I think especially Helgeland, Lofoten, Vesterålen, and perhaps slightly further north, will be the new Stavanger area.

This all means that investing in real estate here might be a good idea. I don't like this kind of predictions though, as who knows what will really happen. One day Putin might decide that he likes salmon more than peace.

In any case, I think the unattractive areas have two things going for them anyway, which is A) an already farily realistic price level in real estate, and B) also an already farily low and stable rental market. There are people who need to rent, and the supply/demand is in good shape. This means that even if house prices were to drop, the demand for rental would likely not drop much. In order for it to drop, all local industry would need to disappear, and this industry already being seafood based, this seems rather unlikely. So the worst case scenario is that the house I'd buy would decrease in value, but that it would still be possible to rent out, perhaps at a somewhat reduced rate. If the investment is in any case meant to be long term for the purpose of rental, this should cause a minor inconvenience, not big trouble.

This is my analysis of the real estate option in Norway, and it may very well need more work. I'd love to hear any opinion on it - especially regarding perceived flaws of reasoning.

[poleo]

Something slightly different:

I'm struggling to find out whether or not we (my partner and I) should concentrate on getting rid of our student debt or investing the money in something else. More precisely, I'm at loss for a proper way to calculate the potential of an amount of cash I might have. That is, if I have 1000 dollars and use them A) for reducing debt, or B) for an investment that yields X interest.

We have just sold off our old home, and to calculate how much money this is worth I have taken the sale price minus the mortgage. This gives me the available cash that I will have as soon as all the technicalities of the transaction are carried out.

How does this work in relation to my debt though? Let's say the house is worth 100 000 dollars, and I have 150 000 dollars of debt. This means I am worth -50 000 dollars, right? But reducing this debt will yield very small reductions in expense, so it may very well not be the quickest way of making this net worth figure a positive number.

What I'm trying to do, is calculate the income potential of a sum of money, directed towards different things. The idea of being debt free is quite enticing, while at the same time the rates on these student loans are extremely low - like 1,95 %.

Also, how do I think of this in terms of my financial situation? Let's say I have 10 000 dollars in a bank account, but owe 50 000 dollars to a student loan. I still have those 10 000 dollars available though, in spite of also owing them - does this even make sense? I don't understand this.