by John Darer
Six Sigma Master Black Belt John Ryan, President and Chief Operating Officer of Stone Street Capital seems to encourage people to sell their structured settlements at deep discounts to buy Real Estate which he states is discounted. He says on the Stone Street "grog":
"Many structured settlement recipients are seeing the current housing market as an opportunity to buy a home well below recently appraised values. These structured settlement recipients are leveraging their structured settlements to take advantage of a prime home buying or investing opportunity. I was surprised and impressed to see that some structured settlement recipients are seizing the opportunity to efficiently use their structured settlement to buy in a down market".
With respect to "recently appraised values" it's safe to say that "recently appraised values" may not be worth the paper they are written on. Has Ryan predicted a bottom? The stock market pundits told a similar story in September 2008. The big losers were those who bought back in when they thought it couldn't possibly go much lower, but in the succeeding months.
Robert Shiller, Yale University finance and law professor, author of Irrational Exuberance, who looked back all the way to 1890, contends that only twice has real estate produced truly outstanding returns: after World War II, when returning troops were starting their families, and from 1998 to 2005, a period he thinks is a bubble. Source : CNNMoney
While the historical rates of return on Real Estate investments shows that they tend to be more stable and less likely to spike up and down in erratic and unpredictable fashion like the Stock Market, Real Estate investments tend to have high transaction costs When you buy, you shell out for mortgage processing, credit reports, title insurance, appraisals, a lawyer for the bank, a lawyer for you, local transfer taxes and other charges. You may also pay a percentage point or more of the loan up front to lower your interest rate. Unless you have one big ass structured settlement, chances are that the "financial crack" is not going to be enough to buy the house with all cash down. Plus you may just have to effectively pay credit card like discount rates to get that cash.
Furthermore, you must have enough dough to pay the taxes on your property. Remember that all property is unique, with its own characteristics and potential.
Don't let John Ryan "judo chop" your financial plan!