Full Fledged Socialism is Impossible

Socialists can never really be proven wrong in their own eyes, because we will never see a fully socialist system.  Even the worst of the worst, like the old Soviet Union, was not 100% socialist.  They relied, at least to a certain extent, on production and prices from other places, which guided their central planning.  As Ludwig von Mises pointed out, socialism has to collapse due to a lack of a pricing system.

Even Keynesians, such as Paul Krugman, can never be proven wrong in their own eyes.  Someone like Krugman will always say that we should spend more and run bigger deficits.  Whenever the economy is showing bad news, Krugman will always say that it is because the government didn’t spend enough or because the central bank didn’t print enough.

If Krugman became dictator of his own country, what would he do?  He would be free to spend as much as he wanted.  Things would collapse quickly, or else he would have to admit that the government/ dictator has to show some restraint.  It is so typical of the left to throw their own under the bus when something doesn’t work out.

I think it is funny when you get a really leftist state or city where they keep electing Democrats and they get into a major budget crunch.  At some point, either a Republican gets elected or else the Democrat is forced to make budget cuts, or at least show some restraint.  Then the left will throw that person under the bus saying that he shouldn’t have made those cuts.  Either that, or they will ignore it.

But the reality is that budget restraint is forced upon those in office at some point.  It is simply impossible to keep spending ever greater amounts of money.  The money simply isn’t there.  These leftists are asking others to defy gravity.  It is easy to preach that we (meaning the government) need to spend more money on schools, on infrastructure, on healthcare, on the needy, etc.  But at some point, it is just not possible to spend any more.

Even Obama has been somewhat limited.  The budget increased much faster under 8 years of George W. Bush.  Since the first year Obama was in office, the federal budget has not increased much at all.  It is just that he is starting out with a much higher number than where Bush started out.  So in that sense, Obama’s spending is worse.  But the budget increases are far less.  I would wager that things would not be that much different if the Democrats controlled the House.  What would they have done, run $2 trillion yearly deficits and risked a complete meltdown?

So the left will always find excuses.  If the economy is bad, it will be because of the Republicans gutting education (which increased much greater under Bush), or because there aren’t enough regulations, or because of greedy businessmen, or because of too little taxation on the rich.  It is amazing that Democrats still find these same excuses today with the massive spending and deficits and regulations.  Again, it is never enough.

It is important for libertarians (and others who are free market oriented) to constantly point out the fact that we do not live in anything close to a true free market.  Yes, the U.S. is far better than Cuba or North Korea or many other places around the world.  But that doesn’t change the fact that we have big government controlling our lives and the economy.

Update on Interest Rates – May 29, 2013

Interest rates have gone up in the last few weeks.  I like to look at the 10-year yield.  As of this writing, it stands at about 2.12%.  The 10-year yield is highly correlated with mortgage rates.

The 10-year yield has been fluctuating over the last couple of years, but mostly in a range of just below 1.5% and just above 2%.  These are big moves in percentage terms only because the rate is so low.  But an increase of half a percent when the rate is higher is not much.  If the 10-year yield were 7% and it went to 7.5%, then it wouldn’t be that much.

It is also important to take some perspective too.  The 10-year yield was actually over 3% back in early 2011.  If someone had told me two and a half years ago that the yield would be 2.12% today, I would have thought the person was crazy, or at least I would have considered that a very low rate.

So just because the rate has ticked up in the last few weeks, it doesn’t mean that the bond bubble is about to burst.  The rate is up off of near all-time lows.

I still don’t think it is time to short the bond market.  I think we will see significantly higher interest rates one day, but I am doubtful that it will be in the near future (within the next 6 months).  I am certainly not confident enough to put money into a short position on bonds right now.  There will come a time when it will be a good gamble to do so, but I don’t think now is the time.

I don’t see rates going up significantly as long as the Fed keeps creating new money out of thin air and consumer price increases are relatively tame.  I think rates will only go up when the market has a strong fear of price inflation or when the Fed stops buying debt for a sustained period of time.  But the only way the Fed is going to stop all of its so-called quantitative easing is if it is forced to stop due to rising prices.  In other words, I think we will only get much higher rates when we start to see much higher prices.

The price of gold is still just under $1,400 per ounce, which is well off of its all-time highs.  Interest rates are not paying much of a premium for inflation fears and they are paying almost no premium for fears of an outright government default.  So we have low interest rates.

If gold starts spiking up near or above its all-time highs, then that might be the sign that inflation fears are picking up.  That might be the time to consider dipping a toe in the water of shorting bonds, which is betting on higher interest rates.

Rates are still extremely low.  It is still a great opportunity to buy a house using a 30-year loan with a fixed interest rate and paying back your loan with depreciating money.  Your last mortgage payment in 30 years might be the equivalent of a lunch at that point.

Contradictory Markets or Contradictory Media?

Tuesday, May 28, 2013 – The stock market was up.  The Dow gained over 100 points.  The S&P 500 gained over 10 points.  Yet the 10-year yield was telling another story.  Bonds plummeted, which means that interest rates rose.  The 10-year yield went up over 6% in one day.  The yield is now at about 2.13%.

I think the most interesting thing about the markets was the explanations given by the news media.  Whenever there is price movement in the markets, there are usually reasons given for it.

A Yahoo Finance article was titled “Dow ends at record as central banks reassure Wall Street”.  The articles starts off saying, “Stocks rose on Tuesday, with the Dow closing at yet another record high, in the wake of Wall Street’s first three-day losing streak of the year, after central banks reassured investors that they will keep policies designed to foster global growth.”  In other words, the stock market went up because investors expect more digital money printing in the future.

The article later addresses the rising interest rates.  It said, “But even with the reassurance, speculation persisted that a tapering of the Fed’s bond-buying plan could be on the horizon, sending U.S. Treasury debt yields to their highest levels in over a year and pulling equities back from their session highs.”  In other words, the bond market went down because investors expect less digital money printing in the future.

The article is either contradicting itself or is saying that investors are contradicting themselves.  I would tend to believe that the article is contradicting itself.

If the author has no idea why the markets are doing what they are doing, then just say so.  But I guess they would give the job to someone else then who will make up reasons for why things are happening. Can the guy at least not contradict himself within the same article, only a few paragraphs away?

So which is it?  Are investors expecting more “quantitative easing” from the Fed or are they expecting less?  If that was the main thing moving markets, then I guess that stock investors and bond investors have completely different thoughts on this.

The markets always come down to buyers and sellers.  The market prices will reflect where the parties are meeting.  When stock prices go up, it usually means that there are more buyers than sellers, at least in terms of the previous prices.  There isn’t always an explanation for this.  There are billions of people on this planet.  There are tens of millions of investors.  They act for various reasons.

This article, and others similar to it today, are a good example of why you should take them with a grain of salt.  The authors try desperately to provide reasons for market movements, but they really can only guess.  In this case, they guess both ways.

The Factors of Price Inflation and Hyperinflation

Chris Casey has written an article that was published as a daily article on Mises.org.  The theme of his piece is regarding the vast increase in the money supply, especially the monetary base, over the last 5 years and how it will likely eventually translate into higher price inflation.  He touches on other issues affecting price inflation such as excess reserves and the demand for money.

Casey concludes that much higher price inflation is likely in the not-too-distant future.  Overall, I think his article is a good summary of what is happening currently.  Probably 99 out of 100 Americans would not know or understand much of what he is discussing.

I do have a couple of quips with his otherwise excellent article.  One is a minor factual issue and the other is more substantial.

First, in the section of his article where he is writing about the Fed purchasing assets, he said that the Federal Reserve “committed to monthly asset purchases of $85 billion” on September 13, 2012.  But this is a little misleading in that the Fed was only announcing the creation of $40 billion per month (in mortgage-backed securities) at that time.  The rest of the purchases was part of its “Operation Twist” program in which it bought longer-term securities while selling shorter-term securities.  So while the Fed was buying $85 billion per month, it was only adding $40 billion in net new money at that time, as $45 billion in shorter-term debt was being sold.  It wasn’t until three months later that the Fed announced that it would actually be expanding the monetary base by $85 billion per month.

Second, and far more importantly, Casey writes near the end of his piece (just before the conclusion) the following:

“It is important to note that regardless of any future curtailment of monetary expansion, the inflationary forces are already within the system.  It does not matter if the Federal Reserve ends its ‘highly accommodative stance on monetary policy.’  Its past actions will have a pronounced future reaction.”

While I agree that the Fed’s past actions will have consequences (and are already having severe consequences in helping to misallocate resources), I disagree that it does not matter if the Fed changes its monetary policy.

I think the late 1970s and early 1980s show that it matters a great deal.  That was a time when there was already high price inflation.  When Paul Volcker stepped in and stopped creating new money and allowed interest rates to rise, it eventually put a halt to the severe price inflation.  People regained their trust in the dollar.  The U.S. went through a really tough recession (or two), but the actions of Volcker and the Fed essentially saved the dollar at that time.

If the Fed were to announce tomorrow that it would stop all of its quantitative easing immediately, at least for a period of several years, then I am doubtful that we would see any serious price inflation, assuming that the Fed was telling the truth and that people believed what was being said.  We would hit a severe recession or depression, but it would really likely offset much or all of the previous monetary inflation that took place.  It doesn’t automatically repair all of the previous damage done, but it prevents more damage from being done in the future.  It would cause a major liquidation and reallocation of resources.  But there is little question that confidence in the dollar would rise and the demand for money would rise significantly.

It is true that price inflation typically follows monetary inflation, but it doesn’t always have to be this way either.  The demand for money (velocity) is just as important.  It is just that the demand for money typically will go down when there is severe monetary inflation.  I suppose that the current time we live in is somewhat unique in the sense that there is high monetary inflation, yet the demand for money has not weakened yet.

It is also technically possible to have high price inflation, or even hyperinflation, without having an increasing money supply.  If everyone woke up tomorrow as a student of Austrian school economics and suddenly believed that the dollar should no longer serve as money, then it is possible for the demand for the dollar to go way down (high velocity), sending the value of the dollar way down.  Again, this is not likely, but it is not impossible.

In conclusion, it is important to understand all of the aspects that affect overall price inflation.  If you don’t factor everything in, it is easy to get burned with bad predictions.  While higher price inflation in the near future looks like a good bet, it is not inevitable.

Negative Real Interest Rates and Gold

Real interest rates are calculated by taking the nominal interest rate minus the inflation rate, which is usually determined from the CPI.  This is a hard subject to dive into because the CPI isn’t necessarily the best statistic to use.  In addition, you can use different interest rates based on the length of time.

You can view the current Treasury rates here.  As of this writing, the 30-year yield is 3.18%.  The 10-year yield is 2.01%.  The 1-year yield is .12 %.  The 1-month yield is .03%, which is almost zero.

I think the one-year rate is a good one to use.  At .12%, this is very close to nothing.  You would have to wait hundreds of years just to double your money.  The inflation rate, even using the CPI, is much higher than this.  So in terms of a one-year treasury, the real interest rate is negative.

The crazy thing is that for the tiny bit that you would earn in interest, you would actually have to pay taxes on your gains, thus making the real return that much further below zero.

If you bought a 10-year bond right now, you would earn just over 2% per year.  This is slightly higher than the current CPI numbers show, but there is no guarantee that the price inflation rate would stay the same for 10 years.  You are locked into your bond rate for 10 years.  If the CPI goes to 3% next year, you will then be losing money on your so-called investment.  And again, you would have to pay taxes on the 2% you do earn each year, making your loss even worse.

In addition, there is obviously much debate about the accuracy of the CPI and whether it is a good measure.  I think the CPI is useful in telling us the trends of consumer prices, although nothing is near perfect.  And of course the CPI does not really take into account the increased prices in assets such as stocks and real estate.  But I also acknowledge that using the money supply, such as the adjusted monetary base, has its limitations because it is only one factor in determining consumer prices.

Currently, the CPI is showing an increase of 1.1% over the last year.  Taking the less volatile measure of CPI without food and energy, there is an increase of 1.7% over the last year.

But even when we use the government’s more conservative CPI numbers, we are obviously in an environment of negative real interest rates.  As long as this is the case, then I am long-term bullish on gold.

A rise in interest rates might hurt real estate prices, making mortgage payments higher.  But a rise in interest rates does not necessarily hurt gold, unless it is a rise in rates without a commensurate rise in price inflation.  As long as rates and price inflation are going up together, with real interest rates remaining negative, then I see a long-term uptrend for gold.

We will only see a situation of higher interest rates with a lower CPI when the Federal Reserve stops creating new money for a sustained period of time.  I do not see this happening any time soon.

U.S. Senate Unanimously Passes Legislation Against Iran

The U.S. Senate passed S. Res. 65, sponsored by Lindsey Graham, which reinforces support for sanctions against Iran and the U.S. government’s alliance with Israel.  In other words, it is meant to stoke the flames of war, while continuing to harm the innocent people of Iran.  Of course, it is also full of lies and distortions.  (Thanks to Daniel McAdams on the LRC blog.)

The most incredible thing about this legislation is that it passed unanimously in the Senate.  Whenever something passes unanimously in Congress, you can be virtually assured that it is terrible legislation.

When Ron Paul was in the House, it was common to see him as a lone vote against many pieces of legislation.  This would usually mean that the legislation was extremely harmful and, of course, unconstitutional.  Even the vote after 9/11 for the Authorization for Use of Military Force was nearly unanimous.  The one “no” vote was by Barbara Lee, a Democrat from California.  It turned out that this was also horrible legislation, as it has been used by the executive branch ever since as an open invitation of war against anyone.

It is no surprise that the so-called Tea Party senators from the Republican Party voted in favor of provoking war against Iran.  Rubio and Cruz have already shown that they are pro war.  Unfortunately, Rand Paul is also part of this crowd.  He has proven once again that he is not even close to his father.

I believe that Rand Paul felt compelled to vote for this legislation.  He has presidential aspirations and he knows he cannot get the Republican nomination if he appears too “soft” on the so-called enemies.  I don’t know just how pro war he is in his blood, but he is not anti war enough to take a stand.  Instead, he continues to do the politically expedient thing.  I hope libertarians are not fooled into thinking that he is just pretending here so that he can carry out his libertarian agenda once he gets elected president.

That never happens and we shouldn’t expect it to happen this time.  If anything, most politicians become more pro war and more in bed with the establishment once they are in office.  If Rand Paul can’t take a stand against this horrible legislation, it is unlikely he will take much of a stand in favor of liberty.  In fact, he might even hurt the cause, much in the same way that Reagan did.  He will be labeled a libertarian and then the bad results from his anti-liberty policies will be labeled libertarian by the media.

I much prefer when someone like Obama is in office when the economy is bad.  Most everyone will acknowledge that he is not in favor of a completely free market.  So when the economic news is bad, at least free market capitalism doesn’t get the blame.

I have already resolved that I will not support Rand Paul for president, unless something drastic changes.  He has little in common with his father.  I’m sure Rand is a decent guy to hang out with, but we don’t need another politician who is not going to take a stand against war and tyranny.

Bernanke Speaks, Markets React

Ben Bernanke spoke to Congress earlier today (May 22).  Stocks went up when he started speaking, but ended up going down for the day.

Minutes were released from the FOMC’s last meeting and they indicated that some of the members are willing to cut back on the Fed’s massive monetary inflation in the coming months (although they didn’t say it quite like that).

So there is a fear in the market that the Fed may pull back if we start to see some good economic news, which would include an improvement in unemployment.  On the other hand, Bernanke also said that it is possible that the Fed could actually increase its monthly buying if the economy shows signs of trouble.

This is incredible.  The Fed is already buying $85 billion per month in assets.  This is approximately $1 trillion over a one year period.  And yet the Fed is actually considering increasing this rate of monetary inflation?  It is important to remember that the total holdings of the Fed was under $1 trillion before the fall of 2008.

The 10-year yield went up today, ending over 2%.  While the rates have ticked up in the last few weeks, I don’t necessarily consider this a trend.  I continue to predict that rates will only spike up if one of two things happens.  If the Fed stops, or significantly lowers, its pace of monetary inflation over a substantial period of time, then we could see rates spike up.  Rates would go up simply because of a fall in demand for bonds.  Private investors would have to pick up the slack from the Fed’s lack of buying.

The other scenario where rates could spike is if we see much higher price inflation.  At this point, we haven’t seen consumer prices rise in correlation to the huge increase in the monetary base.  We have seen stocks prices go up and we have seen real estate prices tick up.  On the other hand, gold is down.  Until we see gold going up significantly again or we see an increasing CPI, then I don’t expect to see rates going up.

Actually, I think price inflation will be the main indicator for rates.  Because as long as price inflation stays in check, then I expect that the Fed will keep up with some monetary inflation, even if it is less than what we see now.  I think the only way the Fed will stop buying new debt for a sustained period of time is if we see higher consumer prices.  So for this reason, I don’t expect a huge jump up in interest rates until we see a higher CPI number and a higher gold price.

There isn’t much we can do about the Fed’s terrible monetary policy.  These elitists think they can centrally plan the economy.  They are simply misallocating resources on a giant scale.  In the meantime, hunker down.  If you can lock in a low fixed rate for your home mortgage, take advantage of it while you can.  Things are going to get tough.

Why Are There Huge Excess Reserves?

I have written frequently about the massive expansion of the adjusted monetary base that has occurred over the last 5 years.  I have also written about the corresponding increase in excess reserves held by banks.  But I have only touched on some of the reasons on why we have seen a huge increase in the excess reserves.

I recently wrote a post about the excess reserves and how these are deposits that are available to depositors.  The excess reserves are technically not “owned” by the banks in most cases.  I received the following comments/ questions to that post:

“Why are the banks not lending money out?  Fractional-reserve banking is the biggest scam ever and the banks make a ton of money off of it.  So, why no lending?  Too risky?  Rates are too low to make it worthwhile?  The Fed is pressuring them not to lend because it is worried that increased velocity will cause price inflation?”

I don’t have all of the answers to these questions, but I have some guesses about what is happening.  First, I would say that fractional reserve banking is only the biggest scam ever because it is fully backed by the government and the Fed.  If there was no FDIC and no expectations of bailouts, then fractional reserves would not be a major problem, or at least not compared to what it is now.

Second, the comment did not mention anything about the Fed paying interest on the excess reserves.  I only mention this because a lot of people think that this is a big factor in the buildup of reserves.  However, I think the commenter here is on target for ignoring this.  The Fed is only paying .25 percent interest on reserves.  This is practically nothing and is not much of a deterrent for banks to lend.

Third, the last sentence/ question may be on the mark, but we can’t know for sure.  “The Fed is pressuring them not to lend because it is worried that increased velocity will cause price inflation?”  I have thought for a while now that the Fed likes what the banks are doing.  The Fed can say things and pretend that they want to encourage more credit and lending, but having these massive excess reserves is what allows the Fed to keep creating massive amounts of money while keeping price inflation relatively low.

So it is impossible to say if the Fed is telling the banks not to lend behind closed doors.  The Fed is buying $40 billion per month in mortgage-backed securities, which is essentially a bank bailout.  It would not be surprising if the Fed were calling the shots, at least with the major banks.

With all of that said, it does make some sense why the banks have built up huge reserves, even if the Fed weren’t instructing them to do so.  While the recession ended officially, it is obvious that the economy has been under duress since at least 2008.  There is a lot of fear.  People are scared about unemployment and reduced wages.  People are trying to get out of debt and save some money.  In other words, the demand for money has increased.  Velocity has been slower since the fall of 2008.  This goes hand in hand with the banks not lending as much.

In addition, it is not just a decision by the banks not to lend.  There are two sides to this transaction.  People and businesses are also reluctant to borrow.  Again, this all ties to together with the higher demand for money.

When there is a loan, the interest rate serves as the price of that loan.  With these massive excess reserves, it means that the lenders and the borrowers are not meeting in the middle.  Lenders will only lend for so low of a rate.  Borrowers are not willing to borrow at the rates available, even though the rates are low.  This is a generalization.  Of course, there are some people who are borrowing money for 30 years to buy a house.

It is also important to know that some borrowers simply can’t qualify.  While lending standards are probably still below where they ought to be, the banks have become a little bit stricter since the housing bust.  People with really bad credit can’t just walk into a bank and borrow money for a house, unless they have a huge down payment as collateral.

Lastly, it was less than 5 years ago that the banks were on the verge of insolvency.  Or maybe you could say they are always insolvent, but it was becoming apparent back in 2008.  So the banks are building up reserves as a way to hedge against more trouble ahead.  It gives them more cushion for more defaults or a run on the banks.  We saw companies like Lehman go down so quickly.  It is understandable that banks would want more of a cushion in case something goes wrong.  They don’t want a direct bailout and all of the bad publicity that goes with it.  That is why the Fed is doing it in a controlled and more underhanded way now by buying mortgage debt.

I don’t know if this build up in excess reserves will last, but the Fed’s massive monetary inflation is still doing great harm to the economy, even if price inflation stays relatively tame.

Gold Manipulation and Long-Term Expectations

I have seen a lot of stories, mostly by gold bugs, who blame the recent fall in the gold price on manipulation.  Usually it refers to manipulation by either the big financial institutions, or the Federal Reserve itself.

I understand why gold advocates want to call foul and blame the whole thing on manipulation.  Perhaps they are right to a certain degree and that there are people in the establishment trying to bring down, or at least hold down, the price of gold.

But we also have to realize that just because you are an advocate of having some gold holdings and gold investments, it doesn’t mean we have to make excuses or find someone to blame whenever the price doesn’t move in our favor.  The gold price went up from under $300 per ounce to over $1,900 per ounce in a 12 year period.  It shouldn’t be that big of a surprise that it went back to just under $1,400.  Almost nothing goes straight up.  It is often two steps forward and one step back.  Sometimes you take more than one step back.  This can play out over years.

Even if there is manipulation in the gold market, then people should see that as a wonderful buying opportunity.  If the price is being artificially suppressed, then that means it is a good time to buy.  You will make money just by having market forces correct the artificial price.

If the price of gold is being manipulated by some big players, including the Fed, then this is limited.  You can only short a market so much for so long.  Eventually, buyers of physical gold will win out.  If there is strong enough demand for physical gold, then the paper market will have to reflect this at some point.

So, with a long-term view of this, I would not worry about the drop in the gold price and I would not worry about possible manipulation.  I would concentrate on the fact that the U.S. government’s debt and spending is huge, that the Fed is creating $85 billion per month in new money, and that real interest rates (interest rates minus inflation) are negative.

I do not need to make excuses when the price of gold goes down.  I don’t recommend it for short-term trading in most cases.  If you have a longer-term view of things, then you should not worry about the price of gold dropping in terms of U.S. dollars.  If you are light on gold holdings for your investments, then you should take it as another opportunity to buy more.

10 Tips for Rental Real Estate Investors

I am an advocate of getting involved in investment real estate, if you are in the right position to do so.  Here are 10 basic tips that I have if you are considering buying rental properties.

1) If you don’t have more than a couple of thousand dollars in liquid savings, then I would forget the idea.  It might still be possible for you to be successful, but you will be sweating it out a lot at the beginning.  All it takes is one little thing to go wrong.  You might not get it rented out right away.  You might have emergency repairs.  You might have bigger closing costs than you expected.  Your insurance might be higher than you originally thought.  Save some more money before buying a rental property.

2) If you do take the plunge, don’t try to get the highest rent possible.  If you are trying to get $1,000 per month and it sits empty for two months, you would have been better off renting it at $900 per month and getting someone in there right away.

3) If you find a tenant who is low maintenance and pays you on time every month, then don’t be anxious to raise the rent.  You are better off keeping the person happy and staying in there longer.  Continuity is important.  If you can find a long-term renter, then be happy, even if you are charging on the low end.

4) When you first buy a place or if you are getting new tenants, then you should certainly clean it up and make necessary repairs.  But don’t go high end.  Most people looking to rent are not looking for high end things.  You don’t have to buy stainless steel appliances.  You don’t have to get expensive hardwood floors.  You don’t know what your tenants will be like.  You don’t want to spend a lot of money on something that may not be well cared for.

5) If you had bought a place five or ten years ago, you may have actually been better off getting a variable rate loan.  However, I see this as a risky move now.  If interest rates move higher quickly, you are going to want have a fixed rate loan.  I would recommend locking in a fixed rate loan, unless you are planning to pay off your mortgage very quickly.

6) For most people starting out, you should probably get a 30-year loan.  While the interest rate might be a little better on a shorter-term loan, allow yourself the flexibility.  You want to have manageable payments, particularly at the beginning.

7) While I recommend a 30-year mortgage for most people to start, don’t be afraid to pay off your loan in the longer term.  Isn’t that the ultimate goal?  Eventually, you will want to have rental property that is owned free an clear so that you can make a substantial income from the rent you charge.

8) If you have a lot of cash in the bank, I am not opposed to buying a rental property free and clear, as long as you will still have plenty of cash left over.  Not only do you avoid paying interest on a loan, but you can also find better deals with the ability to close quickly.  Most sellers would be willing to sell for a few thousand dollars less to someone who is willing to close within a couple of weeks, as opposed to a couple of months.  Having cash in the bank allows this possibility.

9) You should generally buy rental properties that are located in a decent neighborhood.  You will be more likely to attract good tenants who will pay on time and take care of your place.  In addition, do not buy in too nice of a neighborhood or buy too big of a house.  You will get a better return on your money with a basic 3 or 4 bedroom house than you will with a 6 bedroom mansion.

10) You should generally only buy a place that will generate positive cash flow, assuming you are making a down payment of somewhere between 10 and 20 percent.  You should definitely not purchase anything that is going to produce negative cash flow on an ongoing basis.  It simply doesn’t make sense and it is a bad use for your capital.