The dissapearing property ladder

MFW_ASAP

westernpromise wrote: »

Which doesn't work because we're not talking about manufacturing margin, but stock appreciation.

The finished article's price has inflated to 60p, so if you bought one at 50p, you're ahead .

Yes, so using my example...

If you bought the pre-blight bars from the manufacturer at £50 and sold them for £60, you'd make a £10 profit and pay tax on that profit. Post blight you're lucky enough to have a warehouse full of £50 mars bars but you increase the price of them in line with inflation and sell them for £65, you've made a £15 profit and would pay tax on that profit.

I'm confused why you don't think the retailer has made a profit?

westernpromise

MFW_ASAP wrote: »

Yes, so using my example...

If you bought the pre-blight bars from the manufacturer at £50 and sold them for £60, you'd make a £10 profit and pay tax on that profit. Post blight you're lucky enough to have a warehouse full of £50 mars bars but you increase the price of them in line with inflation and sell them for £65, you've made a £15 profit and would pay tax on that profit.

I'm confused why you don't think the retailer has made a profit?

Because of the limits of the analogy. Someone who buys a Mars bar for 50p, then finds he can sell it for 60p, hasn't made a profit if he needs to replace that Mars bar, and the price of doing so is also 60p.

Nobody would argue that the 10p by which the Mars bar has inflated is capital gain, either. It's not, because if he buys at 50, sells at 60 and buys back at 60, he's spent 50 and owns one Mars bar.

I am struggling equally to see where the profit is.

MFW_ASAP

westernpromise wrote: »

I'm the buyer and seller of the house too. I buy the house for X, I later sell it for X+. A replacement house costs me X+. Where's the profit?

The profit comes from buying the house for £x and selling it for £x+. What you choose to do with that profit is upto you. You may use it to buy a canal boat, to emigrate to Australia, to buy another house. It's your choice.

If you bought 10 shares in BT for £100 and solid them for £130, then you made a £30 profit. If you then bought 10 more BT shares for £140, you've made a loss but that's your choice to waste your original £30 profit.

westernpromise wrote: »

You can't sell holidays on (yet) but what would be the difference? I bought a holiday for £1000 and it appreciated to £1200. I enjoyed a capital gain compared to those who bought later, even though if I'd cancelled and rebooked I'd pay what they did.

You haven't made a gain, you've made a saving. Your £200 stayed in your bank account. You're no better off financially because someone else had to pay more. The trvael company pocketed the £200 increase, not you.

MFW_ASAP

westernpromise wrote: »

Because of the limits of the analogy. Someone who buys a Mars bar for 50p, then finds he can sell it for 60p, hasn't made a profit if he needs to replace that Mars bar, and the price of doing so is also 60p.

Nobody would argue that the 10p by which the Mars bar has inflated is capital gain, either. It's not, because if he buys at 50, sells at 60 and buys back at 60, he's spent 50 and owns one Mars bar.

I am struggling equally to see where the profit is.

Are you really saying you don't know how retailers make a profit from selling wholesale goods?

If someone can buy a Mars bar at 50p and sell it for 60p, why can't he buy a Mars bar at 60p and sell it for 70p? Or is that not allowed in your example?

IveSeenTheLight

westernpromise wrote: »

He's got the same actual assets as before - 100 Mars bars. they could have a notional value of £1000 but he can't ever realise it. As soon as he sells for £1000 he has to pay that to replace them.

Consider this if you will

Borrow £50,000
Buy £50,000 assets.
Sell them for £60,000.
Repay £50,000 + and extra £1,000 for borrowing interest

Nett result = £9,000 profit.

The next week.
Borrow £60,000
Buy £60,000 assets.
Sell them for £72,000.
Repay £60,000 + and extra £1,200 for borrowing interest

Nett result = £10,800 profit.

Week 3
Borrow £72,000
Buy £72,000 assets.
Sell them for £86,400.
Repay £72,000 + and extra £1,440 for borrowing interest

Nett result = £12,960 profit.

Week 4
Borrow £86,400
Buy £86,400 assets.
Sell them for £103,680.
Repay £86,400 + and extra £1,728 for borrowing interest

Nett result = £15,552 profit

4 Week result = £48312 cash, no debts and no assets

The above is far to simplistic and profits from inflationary factors, not really a real life example, but shows how you can have nothing, borrow to buy the assets and make a profit selling them for the inflation

westernpromise

IveSeenTheLight wrote: »

Consider this if you will

Borrow £50,000
Buy £50,000 assets.
Sell them for £60,000.
Repay £50,000 + and extra £1,000 for borrowing interest

Nett result = £9,000 profit.

Now buy another identical asset, such as main home that is nearer your childrens' school / your elderly parents / your new job.

Cost of identical asset: £60,000.
Borrow: £50,000
Inflationary gain: £9,000
Nett result: you're £1,000 short.

How is it possible to make a profit buying and selling an asset and then not have enough to buy an identical asset?

Loughton_Monkey

westernpromise wrote: »

........How is it possible to make a profit buying and selling an asset and then not have enough to buy an identical asset?

How about you notice (and befriend) a little guy down the road. His name is "Gill Bates" and he is inventing a computer operating system in his shed. Looks like he has almost finished his product [called 'Oft Micros Windsow'] but is simply getting tired, bored, restless, and frustrated.

You offer to buy his whole business (shed included) for £10K and he bites your hand off.

You get your wiz kid son on the case, and before you know it, he's perfected the system, obtained all the patents, and arranged for manufacturing. You, meanwhile employ a couple of salesemen and before you know it, you're up and running.

Business takes off. You have never paid tax because in such a growing business, your spare revenue has been ploughed back into the business.

After a while, you (and your son) get a bit bored. So you 'incorporate' and float a billion shares at £36.50 each on the Stock Exchange. After costs of £499,990,000, plus the £10K original invesatment, the flotation nets you a profit of precisely £36 billion.

Tomorrow, you regret your decision, and seek to buy the company back, only to find that you don't have the extra £500 million to hand. So you cannot buy your asset back. Maybe you have a couple of shillings tax to pay.


But inflation has not been involved.

You would not find yourself down the pub crying into your beer.....

Loughton_Monkey

westernpromise wrote: »

......How is it possible to make a profit buying and selling an asset and then not have enough to buy an identical asset?

There's a guy down the other end of Loughton in the Council estate. Lives in Winnie Mandela House, and drives a yellow three-wheeler. His nickname is "Led Boy" on account of his propensity to sell Taiwanese LED Christmas lights at inflated prices.

The other day, he did a house clearance and offered the little old lady moving into a home £15. She agreed, and gave him a receipt for £15 in return for her house contents. He had borrowed it from his !!!!!! brother called 'Yonder' [because he was always 'not there'].

His father in law happened to come round. Being an antiques dealer, he looked at the 'tat' that Led Boy had removed. He almost had a heart attack when he noticed an old pocket watch. It looked like a specific 17th century navigational piece - 1 of only 5 ever made.

The day after that, at Sotherby's, they confirmed the provenence of the timepiece and put it in the sale that very day. It netted £7 million.

He paid his brother Yonder back his £15, and immediately regretted having sold the watch. Sadly, however, he was £15 short of the price needed to buy back the same asset.

Loughton_Monkey

westernpromise wrote: »

......How is it possible to make a profit buying and selling an asset and then not have enough to buy an identical asset?

Many years ago, after a company take-over, I negotiated a redundancy [don't worry, 6 months salary, tax free, walked into one (of a choice of two) job at 50% more salary.]

Being a hard negotiator, and having a company car, I negotiated that they 'give' me the car as well. After all, I needed something to drive for the next two weeks.

A look at Glass's guide told me that it was 'worth' about £5,500 retail, and a litle bit less perhaps in a private sale. Not wishing to be bothered advertising it, and being very flush with money, I simply drove it to a man called Arthur Lady who ran a used car lot. He paid me £4,500 in used notes.

When my wife's car broke down the next day, I sought to buy the car back from the dealer. He wanted £5,500 which, after all, is what it was worth. By then, I had bunged all my redundancy money into my pension and was totally boracic, apart from the £4,500. I couldn't possibly buy back the asset with my profit of £4,500.

It didn't take me long to 'get over' this sad episode. After all, I considered myself well 'in profit'.

MFW_ASAP

westernpromise wrote: »

Now buy another identical asset, such as main home that is nearer your childrens' school / your elderly parents / your new job.

Cost of identical asset: £60,000.
Borrow: £50,000
Inflationary gain: £9,000
Nett result: you're £1,000 short.

How is it possible to make a profit buying and selling an asset and then not have enough to buy an identical asset?

If your child was at a school that wasn't local to your house, there must be a reason why you chose it. Ususally it's because the school is superior to the ones nearby your current home. It's therefore likely that instead of paying the same amount for an identical asset, you'd pay more because it is in the catchment area of a popular school and so you're paying a premium (or Inflation as you like to call it) for living there.

This also follows if you move to an area with better employment prospects. London and the SE has far higher 'home inflation' than Hull because it has better employment prospects (amongst other things) and you'd therefore pay more to live there.

If you bought in an unpopular part of london in 2001 because you speculated that it was an 'up and coming' area and you were correct and had much higher 'inflation' than the surrounding areas, you've made more of a profit with your speculation than if you had bought in an established area.