We often go back to whether the church's purchases of land, buildings, etc., are economically reasonable. On that analysis hinges the question whether the church is a successful business or a failure. I've tried to explain this before but will now do so with numbers. The conclusion is that the investments make perfect sense.

First, if you get rich enough you have no choice but to invest in real estate. Stocks and bonds may do better in the short run, but that only works if you are small enough that your purchases of market securities won't materially affect their prices. Once you get large enough, though, your purchases drive up prices and you end up wasting a lot of money paying that premium. The only way you can do that is by diversifying into the largest pool of income-generating assets in the world: real estate.

Second, as long as society does not collapse completely real estate will always be a productive asset whereas stocks, bonds, paper, and--yes, Cash Warrior--even gold can and do lose much and even all of their value in times of crisis.

Third, for the long-term investor--meaning, I don't know, 30 years? 50 years?--the value of buildings is irrelevant. Ultimately the value of any existing building goes to zero because the structure deteriorates or is rendered otiose by technological and aesthetic changes.

Fourth, any losses incurred by the purchase or construction of useless buildings essentially become rounding errors if the holding period is long enough. Consider this.

The future value of investments in real estate.

V=P(1+R)^P

V is the current value at any point in time.

P is the value of the property right now.

R is the average annual rate of return on the real estates. In recent decades that has been roughly 10%.

P is the number of years you own the real estate.

That means that if the church spends $100 million on real estate right now, the value of that investment will be over $600 million in 20 years; nearly $12 billion in 50 years; and about $1.4 trillion in 100 years.

To maximize profits, the church should minimize its investments in ultimately useless buildings. But even if it spends a few million per new or renovated temple, the cost will be miniscule relative to the value of the land in a few decades.

So if the church wants to sustain the membership cash cow as long as possible, building new temples makes sense. It keeps the money flowing in at a rate of some $7 billion a year and thereby enables the church to purchase more real estate. At some point the membership-generated income may fall below the cost of constructing new buildings and the church may change its strategy. But we are far from that point.

Given the two imperatives--keeping the tithing money coming in while growing the real estate portfolio as fast as possible--the church's current strategy is wise. And I'm sure the church's investment advisors have persuaded the Q15 of that.

I am stiff necked because I'm an apostate, not because I'm happy to see you. But thanks for the explanation.

Doesn't the church get tax advantages from the properties being for religious use? If so, they only need enough active members to qualify for the exemption.

This seems like legalized racketeering that fleeces both taxpayers and church members. In other words, the perfect Utah business!

I'm not an attorney, let alone a tax attorney, so we'd need to defer to someone with at least a rudimentary understanding of the tax code. (And before you speak up, Jesus, I did not say "rude alimentary.")

BoJ, the floor is yours. Enlighten us.



Edited 1 time(s). Last edit at 01/06/2024 01:39AM by Lot's Wife.

...I am not heartened by it. One of the big things pushing house prices out of reach for many, especially the young, is the purchase of real estate for investment purposes. Why? Because there is only a finite amount of real estate and when investors begin purchasing real estate for investment purposes, that crowds out those who are trying to purchase places in which they can reside. And it is a dangerous thing when most of our own citizens (as seems to be happening now) have no property and can no longer purchase their own residences.

No doubt.

I was explaining the utility of the church's strategy, not praising the increasingly dangerous distribution of wealth in society--which terrifies me.

My only purpose in this thread was to explain why an investment strategy that is roundly and frequently criticized as nonsensical is in fact wise when considered from a financial perspective. That is all I wanted to say on the topic in this thread.

I agree with you, Blindguy. I live in a condominium, and in terms of what you can buy, a condo will usually be on the more affordable end of the housing spectrum. Yet condos have been snapped up in my community as investment properties, and then subsequently rented out. People who typically buy in my community (teachers, nurses, police officers, government workers, and skilled tradespeople, along with retirees,) have nowhere else to go. It is a source of frustration to me because once I was younger and in the market for a home as well.

And Lottie, I agree with you as well. We have made it extremely difficult for the poor and lower middle class to claw their way up.

The fundamentals are correct even though they make unregulated capitalism fundamentally a race to the bottom.

It depends on what real estate you are buying and if you buy at the top of a bubble it may not be a great investment. Not all real estate is good.

Obviously investors want to buy good real estate. But the point is that as the time horizon of the investment grows longer, the risk of loss declines--sharply and mathematically.

I know people who bought commercial real estate in Japan in the middle 1980s, saw their investments drop off a cliff, and put aside the property development for 25 years. Then they built, sold, and booked massive profits. But the church's time horizon is far longer than 25 years, meaning that the risk-reward proposition is vastly more interesting financially.* If your holding period is 100 years, the downside risk of overpaying becomes negligible.

And the caution you implicitly advise takes you back to the original problem. If you can't invest in the largest asset market in the world, you're inevitably forced into stocks, bonds, and currencies, which have much greater volatility and hence risk. There's your bad bet.

What do Bill Gates and the church have in common? Enormous wealth and a very long time horizon. So their portfolios will look very similar; in fact, they will be bidding against each other quite often.

The church appears to be very good at getting land in the best areas ripe for development, and then even aids in the development of the immediate area. This ensures the investments will do better than "bad" real estate investment. You don't see the church buying run down buildings in poor or crime areas. They can afford to shop for the best chances of appreciation all over the world.

They do analysis to scoop up potential business opportunities that involve land (farm and ranch land, industrial parks, hunting preserves). They give the members the impression that they are doing it for last day preparation and church security. They "donate" buildings that don't make them money, as they recently did with an old chapel here in SE Idaho which was made into a food bank. This comes off as charity, but the building needed tons of renovation and is old in a less desirable location.

Their process of building temples reminds me of the process other corporations use for selecting locations for their chain stores. I'll bet it is similar. It involves population, local incomes, opportunity for partnering with other construction around the location, getting perks from the city, etc.

It's what Jesus would do of course.

You'll know they have completely gone off the rails when they start buying casinos! J/K

This reminds me. In a post above I inserted an asterisk to signal a footnote but forgot to write the footnote.

The point I wanted to make was that the church's investment strategy belies its doctrine. The strategy is clearly designed for an ultra-long term organization, one that intends to be around and spending money in decades if not centuries.

There is no way to reconcile the structure of the real estate portfolio with the idea that Jesus is coming anytime soon--or even ever.

Lot's Wife Wrote:
-------------------------------------------------------
> We often go back to whether the church's purchases
> of land, buildings, etc., are economically
> reasonable.

Who is "we" here. Don't "we" assume that the church has high-powered investment advisors that make such determinations through a comprehensive evaluation of data that is well beyond the knowledge and expertise of any lay members?

> On that analysis hinges the question
> whether the church is a successful business or a
> failure. I've tried to explain this before but
> will now do so with numbers. The conclusion is
> that the investments make perfect sense.

No business that invests money for profit is successful all of the time in meeting their goals and expectations. By all reasonable measures, the Mormon church is a successful business enterprise -- whatever that may be worth morally or religiously.

> First, if you get rich enough you have no choice
> but to invest in real estate. Stocks and bonds
> may do better in the short run, but that only
> works if you are small enough that your purchases
> of market securities won't materially affect their
> prices. Once you get large enough, though, your
> purchases drive up prices and you end up wasting a
> lot of money paying that premium. The only way
> you can do that is by diversifying into the
> largest pool of income-generating assets in the
> world: real estate.

This analysis makes no sense. In general, when a large and wealthy firm buys a substantial number of shares of stock in another company (controlling shares), and as a result the price of the shares in that stock go up, the purchasing firm makes an immediate capital gain. In essence, they can now sell such shares at market value in excess of what they paid for them. So, the "premium" in such situations, if in fact there is one, is paid by subsequent purchasers of the stock, to the benefit of the purchasing firm, and does not represent a capital loss.
>
> Second, as long as society does not collapse
> completely real estate will always be a productive
> asset whereas stocks, bonds, paper, and--yes, Cash
> Warrior--even gold can and do lose much and even
> all of their value in times of crisis.

Any investment can lose money in the short or long term. The trick is to evaluate as much as possible all of the variables associated with the investment and assess such risks. To suggest that real estate "will always be a productive asset" is simply not true. There are a great many failed real estate investments, where, for example, the capital growth rate did not meet expectations, and where market value declined to an amount significantly below the purchase price.
>
> Third, for the long-term investor--meaning, I
> don't know, 30 years? 50 years?--the value of
> buildings is irrelevant. Ultimately the value of
> any existing building goes to zero because the
> structure deteriorates or is rendered otiose by
> technological and aesthetic changes.

I don't think any real estate investor would agree with this. Even though commercial buildings deteriorate, they often can be upgraded and retrofitted to meet existing standards, even over long periods of time. Moreover, the costs of such improvements can often be assessed to long-term tenants of industrial complexes, who having ground leases, or other long-term leases that provide for such improvements at the tenants' expense.
>
> Fourth, any losses incurred by the purchase or
> construction of useless buildings essentially
> become rounding errors if the holding period is
> long enough. Consider this.
>
> The future value of investments in real estate.
>
> V=P(1+R)^P
>
> V is the current value at any point in time.
>
> P is the value of the property right now.
>
> R is the average annual rate of return on the real
> estates. In recent decades that has been roughly
> 10%.
>
> P is the number of years you own the real estate.

This makes no sense whatsoever. In the first place, you have "V" and "P" both representing current value (or value "now") "V" should be 'future value' but even that would not fix this. Moreover, you have "P" representing both current value (value now), and number of years of ownership.

Second, you cannot use broad, ill-defined, statistical averages to evaluate any specific investment in real estate. (And all investments in real estate are specific (unless they are in investment funds, where each investment within the fund is specific.) Moreover, you cannot use an exponential growth rate realistically, or as the norm. Again, such statistics offer no help in assessing the value of any proposed real estate investment, where the market variables are complex and the future is uncertain.
>
> That means that if the church spends $100 million
> on real estate right now, the value of that
> investment will be over $600 million in 20 years;
> nearly $12 billion in 50 years; and about $1.4
> trillion in 100 years.
> To maximize profits, the church should minimize
> its investments in ultimately useless buildings.
> But even if it spends a few million per new or
> renovated temple, the cost will be miniscule
> relative to the value of the land in a few
> decades.
>
> So if the church wants to sustain the membership
> cash cow as long as possible, building new temples
> makes sense. It keeps the money flowing in at a
> rate of some $7 billion a year and thereby enables
> the church to purchase more real estate. At some
> point the membership-generated income may fall
> below the cost of constructing new buildings and
> the church may change its strategy. But we are
> far from that point.
>
> Given the two imperatives--keeping the tithing
> money coming in while growing the real estate
> portfolio as fast as possible--the church's
> current strategy is wise. And I'm sure the
> church's investment advisors have persuaded the
> Q15 of that.

Nonsense. This is an irresponsible and ill-informed analysis, showing a remarkable lack of understanding of how investments are evaluated and how they work in financial markets.

Hi, Fash. Yes, your writing quirks give you away. Let’s go through your comments, one of which is correct.


> Who is "we" here.

“We” are those people on this board posting on the church’s business activities. Was that unclear?


----------------------
> By all reasonable measures, the
> Mormon church is a successful business enterprise
> -- whatever that may be worth morally or
> religiously.

Once again you take my argument and claim it as your own.


---------------------
> This analysis makes no sense. In general, when a
> large and wealthy firm buys a substantial number
> of shares of stock in another company (controlling
> shares), and as a result the price of the shares
> in that stock go up, the purchasing firm makes an
> immediate capital gain. In essence, they can now
> sell such shares at market value in excess of what
> they paid for them.

Irrelevant. I wasn’t talking about a “large and wealthy firm” that buys and sells shares. I was talking about buy-and-hold real estate investors like the LDS church.


--------------
> So, the "premium" in such
> situations, if in fact there is one, is paid by
> subsequent purchasers of the stock, to the benefit
> of the purchasing firm, and does not represent a
> capital loss.

Bizarre. I am describing the premium paid by an investor whose purchases in multiple lots drive up the price paid for the later-clearing lots. The “premium” is the increase in average price due to the greater demand that the firm itself creates. For a buy-and-hold investor that is absolutely a loss.


-----------------
> To suggest that
> real estate "will always be a productive asset" is
> simply not true. There are a great many failed
> real estate investments, where, for example, the
> capital growth rate did not meet expectations, and
> where market value declined to an amount
> significantly below the purchase price.

My subject is large investment portfolios managed by people who diversify geographically and sectorally. In those circumstances firm-specific risks are by definition eliminated. This is simple CAPM stuff. Alternatively, diversification drives epsilon to zero.

Having put that canard to rest, can you show me one or two capitalist economies (whose “societies did not collapse”) where a diversified real estate portfolio has lost money over a 100-year timeframe? Because that’s the statement you are challenging.

Can you provide examples of that?


---------------
> I don't think any real estate investor would agree
> with this. Even though commercial buildings
> deteriorate, they often can be upgraded and
> retrofitted to meet existing standards, even over
> long periods of time. Moreover, the costs of such
> improvements can often be assessed to long-term
> tenants of industrial complexes, who having ground
> leases, or other long-term leases that provide for
> such improvements at the tenants' expense.

You missed the point. In a diversified portfolio the importance of buildings--and hence improvements thereto--relative to the real estate goes to zero as your time horizon grows longer. If you have a problem with that, take it up not with me but with the concept of asymptotes.


------------------
> This makes no sense whatsoever. In the first
> place, you have "V" and "P" both representing
> current value (or value "now") "V" should be
> 'future value' but even that would not fix this.
> Moreover, you have "P" representing both current
> value (value now), and number of years of
> ownership.

While it’s my equation and I can use any variables I wish, I should have written FV instead of V; and P(n) instead of “P” with “n” as the exponent rather than “p.”

You’ve added value and I promise to give you share of the royalties.


--------------------
> Second, you cannot use broad, ill-defined,
> statistical averages to evaluate any specific
> investment in real estate.

Show me where I said that.


----------------
> (And all investments in
> real estate are specific (unless they are in
> investment funds, where each investment within the
> fund is specific.)

The church is a huge investment fund. I’ve said that several times. Therefore my analysis is apposite.


----------------
> Moreover, you cannot use an
> exponential growth rate realistically, or as the
> norm.

By definition the “average” rate of return is the “norm.” How else would you define it?


----------------
> Again, such statistics offer no help in
> assessing the value of any proposed real estate
> investment, where the market variables are complex
> and the future is uncertain.

The church thinks as a portfolio investor, not as a manager. It works exactly the same way Yale’s endowment did under Mohammed El-Arian: a long-term investor should hold assets whose duration matches its liabilities. Since the church has no outstanding debts to pay, its investment horizon is effectively infinite and its portfolio should be of the longest possible duration. El-Arian was working with a 30-year horizon and the church’s is almost certainly longer than the 100 years I’m hypothetically considering.


----------------------
Next you quote several paragraphs of my text and end without comment other than to say:

> Nonsense. This is an irresponsible and
> ill-informed analysis, showing a remarkable lack
> of understanding of how investments are evaluated
> and how they work in financial markets.

Which parts of those paragraph are “nonsense and ill-informed?” My mathematical projections of what 100 million would be in decades if it grew at the historically normal rate? Because that’s just simple math and can’t be “nonsense.”

Or am I wrong when I say the church wants to invest in temples because it keeps the tithing money coming in? Or incorrect to say that the church is a successful business, a point you awkwardly tried to claim as your own in this very post?


-----------------------
Listen, Fash, you may actually be an investment advisor or at least play one on TV. But you apparently do not know that large investment funds have meetings periodically in which they look at various indices and decide which industries in which to invest for the following period. That analysis is done exactly as I did it above and for cash, stocks, bonds, currencies, private equity, venture capital, and real estate. The church then subcontracts out the management of the various portfolios.



Edited 1 time(s). Last edit at 01/06/2024 02:06PM by Lot's Wife.

Per capita, TSCC is richer than the great and abominable.

If I could ask the Mormon first presidency one question it would be, "When Jesus said 'I must be about my fathers business' do you really think this is the business he meant?"

I'm sure they'd rather focus on the parable of the talents.

I don't think the church functions well as a business, but they have a) a steady income stream, b) volunteer labor and c) tax-exempt status.

If there is a currency collapse, then real estate may be more useful than money, although as we all know, you can buy anything in this world with money.

When you are dealing with the amount of money that the Mormon church has, real estate is going to be a part of a well-balanced portfolio.

Great discussion….imo the true genius is tithing….that continual ingushing of new money makes even half ass business guys look like they have a clue….having some experience in farming owning farm land is a two edged sword….there are only marginal returns on the actual farming….it is the increase in price per acre where the real money is made…few years ago tscc sold off 90000 acres in Australia ….now was that because it had appreciated in value and profit taking…or because it was poorly managed and not showing a solid return….iirc it was more the latter….tithing makes it possible to be a piss poor manager and still look like a genius…..once you get massive….management better really step up their game

> long as society does not collapse completely real estate will always be a productive asset

If society is collapsed by whatever cause, then land will be important. Back to the Middle Ages.