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Offline Tom Bishop

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Buying a home is a terrible investment
« on: September 10, 2016, 09:01:56 PM »
It is a common myth perpetuated in our society that buying a home is a good investment. Home ownership is seen as one of the best things you could do in your life. You purchase your home and at some time in the future it will greatly increase in value.

Lets say we bought a home in 1980. The average price of a home in the United States in 1980 was $68,714.00. If we hold onto it for 30 years on a mortgage and sell in 2010, the average price of a home in the United States is now $272,900. Huge profit!

It is 2010 and you sell your house. You now theoretically have $272,900 in the bank. But wait, you still need somewhere to live. You probably want to live in at least the same quality of house as the one you were living before, right? Who would want to downgrade their living experience? But those houses are now all averaging at $272,900, too. It seems that in the end you didn't really make anything in your investment.

The only advantage you would seemingly get is to put the new home on another 30 year mortgage from the bank, to be paid off in monthly payments, and enjoy your money in the present. But now you are merely living on borrowed money, not your own. Eventually you will need to have to pay off your new home with your money, old or new, or the bank will take it back and claim what is theirs, all profits from your home investment strategy eventually equaling zero.
« Last Edit: September 10, 2016, 10:29:36 PM by Tom Bishop »

Re: Buying a house is a terrible investment
« Reply #1 on: September 10, 2016, 09:20:23 PM »
It's a good investment if you're dealing in real estate and aren't required to live in your investment. If the property you're buying is also your home, then sure, you sell it and now you've just gotta buy a new house to live in, though I would assume most who do that do move somewhere cheaper, or have either increased their property value living at their old house through property improvements. But if you're buying real estate, renting out your property, and then sell it later, you did make a profit. And there's no requirement to buy a new house.
« Last Edit: September 10, 2016, 09:23:05 PM by trekky0623 »

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Offline Tom Bishop

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Re: Buying a house is a terrible investment
« Reply #2 on: September 10, 2016, 10:02:11 PM »
It's a good investment if you're dealing in real estate and aren't required to live in your investment. If the property you're buying is also your home, then sure, you sell it and now you've just gotta buy a new house to live in, though I would assume most who do that do move somewhere cheaper, or have either increased their property value living at their old house through property improvements. But if you're buying real estate, renting out your property, and then sell it later, you did make a profit. And there's no requirement to buy a new house.

Well, that's not really "buying a home" as implied by the topic. And most people can't do that. Furthermore, I submit that you wouldn't really be making much money doing that, either, and is largely a waste.

Say we bought a house in 1980 for $68,714.00. We rent it out to some people and they basically pay our morgage for 30 years. Maybe charge them a little extra for property tax and wear and tear and maintenance, but there are no real profits. The people are primarily paying off your mortgage for you, so you can "profit" in the end when the house is sold.

It is now 2010. The amount you invested in 1980's lending rates was $68,714.00. But that's not really $68,714.00 anymore. Adjusting for US Dollar inflation from 1980 to 2010 and that amount is now equivalent to $181,838.59 (assuming you just put that money somewhere else that at least kept up with inflation).

An average home in 2010 goes for $272,900, so if we sell we profit $91,061. Divide by 30 and it appears that we've made $3035 a year over 30 years. That doesn't sound like a very good investment to me. That money should have gone towards a much better investment.
« Last Edit: September 10, 2016, 10:22:39 PM by Tom Bishop »

Re: Buying a home is a terrible investment
« Reply #3 on: September 10, 2016, 10:05:47 PM »
Why would you sell it if you couldn't turn a profit and profit was your only motivation?

The investment of a house, quite simply, is having a house rather than reselling it.  Unless you don't live there, like trekky said.  The investment for most, however, is:
1. A place to live.
2. You own it once you're done paying for it.  Renting does nothing.  It's money for no long term ownership.
3. You can use it as collateral for other loans.
4. It increases your credit score if you pay your mortgage on time.
5. You have something large and tangible to pass down to your children when you die.

A house is an investment, just not always for flipping.

Re: Buying a house is a terrible investment
« Reply #4 on: September 10, 2016, 10:51:30 PM »
in comparison to what?  i don't think anyone says that owning one home and living in it for thirty years and then immediately selling it is an awesome investment.  but it beats the shit out of renting for 30 years.

Say we bought a house in 1980 for $68,714.00. We rent it out to some people and they basically pay our morgage for 30 years. Maybe charge them a little extra for property tax and wear and tear and maintenance, but there are no real profits.

someone is buying equity for you.  you profit each month that someone else pays down your mortgage.  total assets = total liabilities + equity.  if net change in equity is positive, and if net change in liabilities is zero, then you're earning profit.

also, the goal of renting residential property in this way isn't to sell the property as soon as the mortgage is paid; it's to pay the mortgage and then have a bunch of money coming at you every month for forever.
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Offline Tom Bishop

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Re: Buying a house is a terrible investment
« Reply #5 on: September 11, 2016, 12:05:09 AM »
in comparison to what?  i don't think anyone says that owning one home and living in it for thirty years and then immediately selling it is an awesome investment.  but it beats the shit out of renting for 30 years.

How so? You are paying off a very large loan for a 30 year-distant benefit of a free monthly rent check.

Are you telling me that you are so stupid that you can't figure out a better way of turning $300,000 into something better than $1350 a month?

Quote
Say we bought a house in 1980 for $68,714.00. We rent it out to some people and they basically pay our morgage for 30 years. Maybe charge them a little extra for property tax and wear and tear and maintenance, but there are no real profits.

someone is buying equity for you.  you profit each month that someone else pays down your mortgage.  total assets = total liabilities + equity.  if net change in equity is positive, and if net change in liabilities is zero, then you're earning profit.

also, the goal of renting residential property in this way isn't to sell the property as soon as the mortgage is paid; it's to pay the mortgage and then have a bunch of money coming at you every month for forever.

Young people aren't being told to buy a house for themselves + a house to rent out. They can't really do that. The myth is that home ownership is a great investment and that young people should buy homes.
« Last Edit: September 11, 2016, 12:17:10 AM by Tom Bishop »

Re: Buying a home is a terrible investment
« Reply #6 on: September 11, 2016, 12:23:54 AM »
The OP conflates buying with getting a loan.

It is a common myth perpetuated in our society that
when you have a mortgage, you "own" the home. 












If you buy a house cash, there is nothing terrible.  It is just a choice. 
If you get a loan from the banksters to buy a house, you do not own anything until the moment the ENTIRE mortgage is paid off.  Until such time, you are a tenant under delusion. 
watch?v=xhcVJcINzn8

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Offline Rama Set

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Re: Buying a home is a terrible investment
« Reply #7 on: September 11, 2016, 01:58:49 PM »
Buying a home usually does not get the best ROI on your cash because your occupancy costs are often lower while renting and if you invest the difference in a higher ROI investment then you end up getting more value. That being said, the non-monetary benefit of owning a home are also very real, so it comes down to what your priorities are.

If money is all you care about, then Tom is right on average. If you are talking about buying in hot markets at the right time, he is wrong. We bought our house 4 years ago at 500k and an extremely conservative appraisal in the spring valued our house at $825k before we improved our backyard and several other features. If we sold at the appraised price, and began renting we would get approximately 8% ROI which is pretty damn good. Not what you could get on a high risk equities or securities portfolio, but pretty damn good and tax free.

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Re: Buying a house is a terrible investment
« Reply #8 on: September 11, 2016, 02:54:09 PM »
in comparison to what?  i don't think anyone says that owning one home and living in it for thirty years and then immediately selling it is an awesome investment.  but it beats the shit out of renting for 30 years.

How so?

because you're buying equity in an asset.  you don't buy any equity when you pay rent to your landlord.  that's all liability.  net assets is negative.  when you make a mortgage payment, you gain equity and reduce liability (the loan).  net assets is positive.  this is pretty basic shit.

Are you telling me that you are so stupid that you can't figure out a better way of turning $300,000 into something better than $1350 a month?

good luck getting a bank to lend you 300k to invest in mutual funds.  lol.  you don't seem to grasp that the choice is between "rent or mortgage," not "rent or mortage or index funds."

it's true that nothing beats indexes for return on investment, but home ownership doesn't trade off with that.  roi isn't the reason it's makes good sense to own your home.

Young people aren't being told to buy a house for themselves + a house to rent out. They can't really do that. The myth is that home ownership is a great investment and that young people should buy homes.

the actual claim made by folks in finance is that home ownership is typically (but not always) better than renting, not that it's a "great investment" compared to everything else available.  this is a classic example of you making a straw-mountain of a molehill: who out there is claiming that owning one home and living in it yields "great" returns?
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Offline Tom Bishop

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Re: Buying a house is a terrible investment
« Reply #9 on: September 11, 2016, 03:50:09 PM »
in comparison to what?  i don't think anyone says that owning one home and living in it for thirty years and then immediately selling it is an awesome investment.  but it beats the shit out of renting for 30 years.

How so?

because you're buying equity in an asset.  you don't buy any equity when you pay rent to your landlord.  that's all liability.  net assets is negative.  when you make a mortgage payment, you gain equity and reduce liability (the loan).  net assets is positive.  this is pretty basic shit.


Yes, you are spending a lot of your money for ownership in something 30 years away, but what it the benefit of that compared to renting really?

- When you rent you are also not responsible for the house in the event of fire or flooding or repairs.

- When you rent you have the option of moving at any time you want. Maybe you find a new good job which is an hour away. You can move to be close to your new work site.

- What if your wife or kids have a job or a school that is further away. Those things are always changing. The ability to move to a equatable location would help them too.

- The initial investment to rent a home or apartment is quite low. Buyers often need to put down a large deposit to buy a home.

- If you rent from an older person who bought their house a long time ago, they have a much smaller mortgage to pay and is willing to rent to you for less than what a new mortgage on a new home would be.

- If so inclined you can live with house mates, which cuts your monthly proportion considerably, especially when compared to home mortgage.

Your main argument seems to be that in 30 years you can stop paying rent. But in that time you are also limiting your freedom and holding yourself back from better jobs which might increase your income significantly right now, not some 30 year distant benefit. 30 years is a long time. 20 years is considered a generation, after all. In 30 years from now you might very well be dead. What a ridiculous investment.
« Last Edit: September 11, 2016, 04:58:17 PM by Tom Bishop »

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Offline Tom Bishop

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Re: Buying a home is a terrible investment
« Reply #10 on: September 11, 2016, 05:08:26 PM »
good luck getting a bank to lend you 300k to invest in mutual funds.  lol.  you don't seem to grasp that the choice is between "rent or mortgage," not "rent or mortage or index funds."

it's true that nothing beats indexes for return on investment, but home ownership doesn't trade off with that.  roi isn't the reason it's makes good sense to own your home.

In renting you can often make sure that you are paying less than what a morgage would be. You also don't have to pay a down payment.

Imagine that the down payment for a $300,000 home is 10% or $30,000. The recommended 20% down payment is 60,000. Either of those amounts are enough to start a business of some sort. There is risk involved in a small business, but that really depends on how smart you are. With more immediate capital in renting you also have the advantage of trying again and again until you get it right.

Young people should be encouraged to start businesses, not invest all of their money into a worthless home. That is terrible advice to give a young person.
« Last Edit: September 11, 2016, 05:17:38 PM by Tom Bishop »

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Offline Rama Set

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Re: Buying a house is a terrible investment
« Reply #11 on: September 11, 2016, 05:25:56 PM »
Yes, you are spending a lot of your money for ownership in something 30 years away, but what it the benefit of that compared to renting really?

- When you rent you are also not responsible for the house in the event of fire or flooding or repairs.

But you do control the timeline that repairs happen on.  Having had a shoddy landlord, this is a real relief sometimes.

Quote
- When you rent you have the option of moving at any time you want. Maybe you find a new good job which is an hour away. You can move to be close to your new work site.

Typically with a minimum 30 days notice.  So not quite any time you want, but point taken.

Quote
- What if your wife or kids have a job or a school that is further away. Those things are always changing. The ability to move to a equatable location would help them too.

Since moving is one of the most stressful thing a person does in their life, more stressful than commuting, a lot of people value the stability of a home base over the flexibility.  Not everyone obviously, but many.

Quote
- The initial investment to rent a home or apartment is quite low. Buyers often need to put down a large deposit to buy a home.

As pointed out though, there is not ROI on renting other than potentially freeing up cash to invest elsewhere.  You have to do a proper cash flow comparison to really see if the down payment is boon or a bane, and every case will vary.

Quote
- If you rent from an older person who bought their house a long time ago, they have a much smaller mortgage to pay and is willing to rent to you for less than what a new mortgage on a new home would be.

Are they?  So old people are never greedy?

Quote
- If so inclined you can live with house mates, which cuts your monthly proportion considerably, especially when compared to home mortgage.

Ditto for home ownership.

Quote
Your main argument seems to be that in 30 years you can stop paying rent. But in that time you are also limiting your freedom and holding yourself back from better jobs which might increase your income significantly right now, not some 30 year distant benefit. 30 years is a long time. 20 years is considered a generation, after all. In 30 years from now you might very well be dead. What a ridiculous investment.

When you make a completely inaccurate assessment of the limits home ownership places on you, then yes, it does seem ridiculous.

Imagine that the down payment for a $300,000 home is 10% or $30,000. The recommended 20% down payment is 60,000. Either of those amounts are enough to start a business of some sort. There is risk involved in a small business, but that really depends on how smart you are. With more immediate capital in renting you also have the advantage of trying again and again until you get it right.

Wait, you think it's easy to come up with 30-60k to start a new business every time you fail?  Well then wouldn't it be similarly easy to start a rental property empire?  Take small 2nd mortgages on every property you acquire to purchase another property, make sure your rental pricing can cover your carrying costs and voila!  You are the next Donald Trump!  Steady income and appreciating assets!

Quote
Young people should be encouraged to start businesses, not invest all of their money into a worthless home. That is terrible advice to give a young person.

Young people are encouraged to start businesses.  Entrepreneurship is heavily messaged.
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Offline Tom Bishop

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Re: Buying a home is a terrible investment
« Reply #12 on: September 11, 2016, 05:56:03 PM »
So a young person should buy a home AND start a business? It needs to be one or the other. You can't be putting all of your money into a home and expect to start a business of any momentum. The money that would be put into a home should be put into a business if that is the path.

It's not 30-60K for each attempt. After the big things are out of the way, like a website and whatever other core assets, the costs to try again and again are just marketing, which can downscale to hundreds of dollars. Once the ball is rolling the profits of a working business should cover future marketing.

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Offline Rama Set

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Re: Buying a home is a terrible investment
« Reply #13 on: September 11, 2016, 05:58:52 PM »
So a young person should buy a home AND start a business? It needs to be one or the other. You can't be putting all of your money into a home and expect to start a business of any momentum. The money that would be put into a home should be put into a business if that is the path.

It's not 30-60K for each attempt. After the big things are out of the way, like a website and whatever other core assets, the costs to try again and again are just marketing, which can downscale to hundreds of dollars. Once the ball is rolling the profits of a working business should cover future marketing.

If you follow my plan, you have a business of buying homes, which has profit and assets, which unlike almost every other asset businesses own, almost always appreciate in value.  My plan is way better than yours.
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Offline Tom Bishop

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Re: Buying a home is a terrible investment
« Reply #14 on: September 11, 2016, 07:30:01 PM »
If you follow my plan, you have a business of buying homes, which has profit and assets, which unlike almost every other asset businesses own, almost always appreciate in value.  My plan is way better than yours.

The bank doesn't give you unlimited loans, and a 2nd mortgage doesn't give you full value. You are over your head in debt when the plug is pulled and lose it all. You weren't smart enough. You are now a failed entrepreneur, I am afraid, and it is back to renting for you. :(

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Re: Buying a home is a terrible investment
« Reply #15 on: September 11, 2016, 07:46:56 PM »
If you follow my plan, you have a business of buying homes, which has profit and assets, which unlike almost every other asset businesses own, almost always appreciate in value.  My plan is way better than yours.

The bank doesn't give you unlimited loans, and a 2nd mortgage doesn't give you full value. You are over your head in debt when the plug is pulled and lose it all. You weren't smart enough. You are now a failed entrepreneur, I am afraid, and it is back to renting for you. :(

No I planned well and am now a real estate tycoon laughing at Billy selling Kombucha starters from his website. Someone needs to read "The Apprenticeship of Duddy Kravitz" I think. 
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Re: Buying a home is a terrible investment
« Reply #16 on: September 11, 2016, 07:59:44 PM »
So a young person should buy a home AND start a business? It needs to be one or the other. You can't be putting all of your money into a home and expect to start a business of any momentum. The money that would be put into a home should be put into a business if that is the path.

It's not 30-60K for each attempt. After the big things are out of the way, like a website and whatever other core assets, the costs to try again and again are just marketing, which can downscale to hundreds of dollars. Once the ball is rolling the profits of a working business should cover future marketing.

UUuuhhhh....
That's not correct.  Like, at all.
If you fail at your business, you likely have a lot of product you purchased that needs to be sold.  And you'll sell it at a loss.

And any upfront costs are going to be the same as in order to cover the cost of failing, you need to liquefy whatever assets you own.

Let's take something simple: an accounting business.
Permits. -One time unless you change the name.  Which you would do if you want a fresh start.
Office space - Same as the upfront cost.  Unless you work out of your home.
Equipment - Sure some you can save but odds are, you've got debt to pay so you sold it.
Employees - Same cost.  No savings there from retrying.
Websites - If your first try failed, you're gonna redo your website.
Marketing - Yeah... this isn't a few hundred dollars, this is a few thousand.  Radio ads are not cheap, nor news paper ads.

http://fitsmallbusiness.com/radio-advertising-costs/

$500 a week is not cheap, especially if you're doing it multiple weeks.


Sorry but you're assumptions are totally off base.

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Offline Rushy

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Re: Buying a home is a terrible investment
« Reply #17 on: September 11, 2016, 08:03:01 PM »
Mortgage rates are at all time lows across the US. Buying a home is not only a good long term way to maintain wealth, but it's currently better than it's been in almost a century.

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Offline Tom Bishop

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Re: Buying a home is a terrible investment
« Reply #18 on: September 11, 2016, 08:29:05 PM »
So a young person should buy a home AND start a business? It needs to be one or the other. You can't be putting all of your money into a home and expect to start a business of any momentum. The money that would be put into a home should be put into a business if that is the path.

It's not 30-60K for each attempt. After the big things are out of the way, like a website and whatever other core assets, the costs to try again and again are just marketing, which can downscale to hundreds of dollars. Once the ball is rolling the profits of a working business should cover future marketing.

UUuuhhhh....
That's not correct.  Like, at all.
If you fail at your business, you likely have a lot of product you purchased that needs to be sold.  And you'll sell it at a loss.

And any upfront costs are going to be the same as in order to cover the cost of failing, you need to liquefy whatever assets you own.

Let's take something simple: an accounting business.
Permits. -One time unless you change the name.  Which you would do if you want a fresh start.
Office space - Same as the upfront cost.  Unless you work out of your home.
Equipment - Sure some you can save but odds are, you've got debt to pay so you sold it.
Employees - Same cost.  No savings there from retrying.
Websites - If your first try failed, you're gonna redo your website.
Marketing - Yeah... this isn't a few hundred dollars, this is a few thousand.  Radio ads are not cheap, nor news paper ads.

http://fitsmallbusiness.com/radio-advertising-costs/

$500 a week is not cheap, especially if you're doing it multiple weeks.


Sorry but you're assumptions are totally off base.

Why would you get office space if you can be a one-man startup? You can meet your clients at their office or home, meet somewhere professional and private, or even rent something by the hour from one of those places for a veil of legitimacy if so inclined.

Why would you start off with employees to pay?

Government licenses to operate aren't really that pricey.

A website for an accountant isn't a significant venture. How hard is it to get Wordpress installed, find a survey form plugin for Wordpress, and customize a template? A properly motivated person could do it themselves if they didn't want to pay someone to do it.

Marketing... modern marketing methods are Pay Per Click, or Pay Per Action, electronically targeted by location, age, interest, and search query. You could just pay for 30 leads and stop if you really wanted. Classifieds exist, as does word of mouth when you do a good job. None of this requires $500 a week to start off small.

You weren't smart enough to start a business and you have failed as well. Back to your mother's house for you. :(

Re: Buying a home is a terrible investment
« Reply #19 on: September 11, 2016, 09:02:55 PM »
Why would you get office space if you can be a one-man startup? You can meet your clients at their office or home, meet somewhere professional and private, or even rent something by the hour from one of those places for a veil of legitimacy if so inclined.
To work?  Unless you do all your work at home.  Which is going to be your apartment.  Do you have enough room for an office?  Or are you going to use the kitchen table?
For legitimacy.  As for renting space:
1. Might not be any space in your area, depending on where you live.
2. Know what sucks?  Having to work around the schedule of your client, you, AND whoever else may try to book your space. 

Of course, if you wanna start up a store, shop, or something else, well... good luck doing it on a "rent by the hour" mode.

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Why would you start off with employees to pay?
Depends on the business.  Maybe not an accountant but certainly other ventures require more than one person.

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Government licenses to operate aren't really that pricey.
True.

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A website for an accountant isn't a significant venture. How hard is it to get Wordpress installed, find a survey form plugin for Wordpress, and customize a template? A properly motivated person could do it themselves if they didn't want to pay someone to do it.
Motivated, sure, but it would likely not look very good.  No amount of motivation is going to give you skills.   
And wordpress?  Really?  Let's make your business look like a joke from the URL.  I'm sure it won't hurt.

Quote
Marketing... modern marketing methods are Pay Per Click, or Pay Per Action, electronically targeted by location, age, interest, and search query. You could just pay for 30 leads and stop if you really wanted. Classifieds exist, as does word of mouth when you do a good job. None of this requires $500 a week to start off small.
Yes, tell me, how often do you click those little pop-up boxes?  I, like many others, block ads.  And geo location is great but you're not gonna get many hits if you're that small.

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You weren't smart enough to start a business and you have failed as well. Back to your mother's house for you. :(
And you are?  How many businesses have you started?  How many times have you failed?