The Really Useful Gold Thread

GOLD vs. PROPERTY
(excerpt):
Description of the Problem
The move into real estate and (non-PM) stocks may seem to many PM investors like a trivial (and enjoyable) problem to be dealt with at leisure once PMs skyrocket. However, if fiat currency is collapsing, the traditional unit of account will be useless too. For example, if your PM holdings cost $50,000 and have risen to $500,000, is it a good time to buy a rental property that has fallen from $200,000 to $100,000? How about if the property has instead risen to $400,000? (It is not at all clear whether and to what extent a deflationary collapse in prices will be preceded by a hyperinflationary blow-off.) How is the psychology of your decision-making process affected if your $200 of weekly groceries now cost $400, and a tank of gas is $500? (Smaller consumer essentials are likely to rise under either asset price inflation or deflation merely as a result of financially disrupted supply networks.)

Is it therefore advisable to sit back and wait until real estate prices have stabilized before making purchases? No, because the opportunity may be less than you imagine. Allow me to explain. Unless you are already wealthy, you are holding PMs with the hope of radically improving your lifestyle. In concrete terms this usually means obtaining financial freedom - not having to work at a job you dislike. The supremacy of fiat currency stands in your way. However, the death of fiat currency may not occur in one stroke. Consider the following scenario: gold spikes to $2,500 per ounce, followed by the President announcing that the dollar is to be backed 10% by gold. This announcement might come the morning after the nationalization of all US gold mines and all foreign and domestic gold held in US banks.

My calculations indicate that a $2,500 gold price would be sufficient to achieve a 10% backing of a $1.3 trillion M1 money supply.3
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Valuing a Small Rental Property Using Historical Ratios
A logical starting point for projecting the value of property after a fiat collapse is to look at what prices were just before the beginning of modern fiat currency. Several famous dates come to mind, but I think the best date to use is 1913 (the year the Federal Reserve was created).
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Real estate will always sell at a premium or discount to the national average, depending on location. One could likely determine the local adjustment ratio based on today's prices, as such a ratio would remain unchanged in all but the most extreme post-fiat scenarios. As well, if fiat currency doesn't vanish all at once, valuing a property in silver still has use as a second check on the property's fiat dollar price.
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If we know the average gross rent, the typical ratio of net rent, and the expected (or required) rate of return, we should be able to arrive at a market value for a typical rental property. Based on my research, average annual rent in 1909 was $55 per year (40 oz Ag), 50% of this was net profit to landlords after all expenses, depreciation etc., and the return on their investment would likely have been around 6%. This suggests that the typical rental property would sell for 333 oz Ag under normal market conditions.

How does this compare to today's prices? Many readers of this website would agree that today's real estate is overvalued. According to official statistics I've seen reported (secondhand), in 2002 the average house in the United States sold for $158,000 (31,600 oz Ag, at $5.00/oz Ag). The average house today is likely larger and more luxurious than the average rental property in 1909, but probably not by a factor of 90 - or even 9. Let's take a closer look at how I arrived at my input values.

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NOTE:
333 oz. x $410 / $1.76 = £77,573
versus Ave.UK Prop.=£ 130,000 (could fall by 40%?)