## Saturday, May 26, 2007

### A Lesson In Inflationary Economics

"A lesson in deflationary economics…

Stage 1

You buy a Condo as rental property for \$200,000 with 10% down at 5% Interest for 20 years

\$180,000 is what you owe and your payments are \$1187.92/month condo fees are \$100/month and Property taxes are \$100/month = 1387.92/month to “own it” and you rent it out for \$1500

Let’s say real estate takes a 5% hit. At first this is how it looks:

Your condo is worth 190,000 but to sell it the fees are 7% Let’s say so…

It is worth only \$176,700… you just lost \$23,300 and you owe \$177,344.96 after 6 months.

Stage 2

The renter moves out… and you eat a month payment for \$1387.92 and have to drop the rent by \$100 to attract another renter. Loss so far is \$24,487.92

Stage 3

Property taxes are not bringing in enough and are raised by \$25 a month. New payment to “own it” is \$1412.92 renter is paying \$1400…

House prices drop another 5%... The condo is worth \$180,500 but to sell it the fees are 7% let’s say so…

It is worth only \$167,865… you just lost \$33,625.44 and you owe \$174,622.86 after 12 months…

Stage 4

The owners of the rental properties that were bought 5 years previously drop their rents to \$1200/month and your renter moves out again and you take 2 months to “figure it out”.

Loss now = \$36,401.28 + 187.92/month every month after that…

It will cost you \$4,622.86 just to escape if you could sell it in 24 hours for \$170,000… Then factor in “small print penalties” and your total loss could be \$40,000.

Because you were living on credit you have to declare bankruptcy as this investment was enough to finish you…

When residential real estate “Cracks” it will be a blood bath… The person that originally sold it to you for \$200,000 comes in at the bottom and buys it back for \$120,000 and since he had the \$186,000 in silver and it went to \$10 an ounce from \$5 now he owns a condo that generates \$900 a month and has \$252,000 in the bank and you are living in it. Ha ha ha ha ha ha ha ha ha…

Imagine the millions of morons soon to be caught in the American dream scheme…"