Originally Posted by gwd
Tell us how you measure risks when you consider alternative uses for money?
I generally take insurance on my investments. But when I invest in stocks I have all the historical trends available to me showing exactly how that stock has performed. Thousands of data points. With my landlord I don't have any data points on how prepayments have worked out historically. If I'm lucky I might be able to get a few data points from other tenants, but it would still take hundreds of years for me to reach the same level of certainty about the likelihood of loss.
Originally Posted by gwd
Especially risks of events that as far as you can tell have never been observed?
"As far as I can tell have never been observed" and "never been observed" are vastly different things. The fact that I've never seen my neighbors ******* means that I've never cared to look. If it were the case that no one has ever seen her ******* then that would mean she probably doesn't have one. Vastly different conclusions.
Originally Posted by gwd
In 28 years of renting I've heard and experienced bad landlord stories but not a landlord abandoning property occupied by tenants in such a way that the tenants would suffer un compensated financial loss AND no government or non profit tenant advocacy group could help. What evidence do you have that the probability of this event you describe is significant?
I'm not interested in the probability of this event. I'm interested in the risk of loss (the probability multiplied by the money invested). No matter how small the probability of the event is, the risk can be made significant by increasing the size of the investment. For most people, a year's worth of housing expenses is a relatively sizable investment.
Also, your landlord skipping town isn't the only thing you have to worry about. What if you need to skip town due to an emergency? Even if you could get the money back at a later date, I would think that having it available would be a godsend for whatever emergency compelled you to leave in the first place.
Originally Posted by gwd
How do you adjust the rate of return so it can be compared with investments that your broker presents to you? For that matter how does your broker describe risk to you and how does he use it to adjust rates of return say in comparing investments in for example in a REIT compared to a utility holding company?
Comparing investments at different risk levels is not a simple matter. That's why fund managers make a lot of money. That's also why I prefer to invest in FDIC insured accounts. I figure my time is better spent saving/earning money elsewhere than analyzing my exposure to risk and my expected returns.
All I'm looking for is recognition that you can't directly compare your rate of return from prepayment with your rate of return in an FDIC insured savings account (and I would hope that no one is investing their monthly housing money in anything more risky than an FDIC insured account). I'm not saying it's a bad idea to do the prepayment. In fact, I will most definitely be mentioning it next time I'm negotiating a lease, thanks to you. But when I mention it I'll be sure to keep in mind the additional risk involved (perhaps I would get renter's insurance to hedge some of the risk...but of course that would eat into my discount).
Originally Posted by gwd
Some of the posts here in this thread have been concerned with investing money. Teach them a better way if you know one.
Uhh, ok. My advice to anyone looking to invest money is to pay attention to your risk exposure (hedge your bets) and try to think outside of the box. The total amount of your money doesn't matter. What matters is how that amount compares to what everyone else has. Therefore, if you invest in what everyone else invests in then you'll never get ahead. In my opinion, everything else boils down to personal preference (your appetite for risk, the amount of time you want to spend tending to your investments, etc).