Investing in Nonfinancial Assets: Collectibles,Resources, and

1
Chapter 23

• Investing in Non-financial Assets
  Collectibles,Resources, and
• Real Estate

2
Important General Considerations

• Source of returns is primarily possible price
  appreciation.
• Risks
• usual investment risks
• additional risks such as possibility of fraud or
  theft

3
Marketability

• Lack of liquidity
• Poorly developed secondary markets
• Role of dealers and auctions

4
Illustrations of Collectibles

• Art
• Oriental rugs
• Antiques

5
Investing in Gold

• Gold coins
• Gold bullion
• Mining stocks
• Specialized mutual funds
• Gold futures and options

6
Investing in Natural Resources

• Owning the resource (e.g. a tree farm)
• essentially is running a business
• Importance of cash flow
• Supervision - active management required

7
Alternative Means to Invest in Natural Resources

• Partnerships
• Stocks in resource companies

8
Importance of the Price Response

• Inelasticity of supply

9
Real Estate

• Home ownership
• Potential price appreciation
• Tax benefits of home ownership

10
Home Ownership
11
Mortgage Rates
12
Mortgages

• Conventional mortgages loans
• Adjustable-rate mortgages (ARMs)
• Renegotiable mortgages
• Graduated-payment mortgages
• Role of the FHA and VA

13
Land and Rental Properties

• Revenues
• Minus operating expenses
• depreciation
• interest
• taxes
• Equals net income

14
Cash Flow

• Earnings plus non-cash expenses
• Possible to operate at a loss but generate cash

15
Real Estate Investment Trusts (REITs)

• Specialized investment company
• Equity trust - owns properties
• Mortgage trust - holds mortgages
• Cash flow may be distributed to stockholders.