Renting vs purchasing is a hyper-local question. It's impossible to debate it effectively here. For me, I bought my current place with cheap money (a little over 3%). I used to pay extra on the principal, but stopped because the purchasing power of a dollar in consistently declining. I have not seen inflation as a factor in this part of the thread, but it is a real consideration. If you borrow $250k today, what will you get today? And what will you get for $250k in 5 years? 5 years ago, $250k bought me twice the amount of eggs compared to what I can buy today. You guys talking about investing and the yields, I will guess you don't have a sizeable portfolio. In the US anyway, those days of modest ,realistic gains are long gone. Where I live, renting will cost you $500 more a month. But again, that is local, and I bought when loans were cheap.
Real estate thread
- Thread starter Roosh
- Start date
Define sizable. Also I keep hearing that about those days being gone, but it's not true.
I posted this the other day in another thread:
So nobody knows what the future holds but if you did nothing and invested in an index the past 10 years you'd be way ahead even adjusting for inflation.
Sizeable is personal, like real estate is local. I will define it as an amount that is an integral part of your survival, that if lost could likely not be regained and will cause your standard of living to decreased dramatically. I am of Gen X age, so I have been in this market longer than 10 years. Yes, the S&P (with dividends reinvested) performed at over 10% in your time frame. I am of the opinion that will not be the case for the next 10 year. I could be wrong. But when I see the 2-3 companies who own the controlling shares in almost every large publicly traded company moving money to China, I don't think the future in stocks will be like the past.
ISR92
Robin
Let's see. Maintenance costs, illiquid market, risk of damage from fire/the elements/civil unrest, the fact that most housing markets have gone parabolic for 50+ years, comparatively low returns versus stocks/Bitcoin, not portable.
I like real estate, but as I said, just don't make it the majority of your portfolio.
The house you live in is part of your portfolio, of course. How could it not be? There will be gains on it when you sell, but when taking into account inflation, it'll probably be limited.
Well i wasn't specifically talking about housing when I said real estate is the best investment but regardless unless it was an extreme extenuating circumstance there has been no safe and better investment on the planet rather than real estate. I wish my properties would catch on fire, that would be a gift from god. Stocks and Bitcoin is gambling, real estate is not even in the same conversation as those things.
The house you live in is in your portfolio on paper only, there are no realized gains from it. If you sell your house then you have to buy another house, in the same market you sold it in. That's not even taking into account interest along with all costs of owning, buying and selling a home.
and the risk of astromomic high property taxes as well as mandatory mortgages.
ISR92
Robin
Ask the people who bought real estate in the various war zones, flood-prone areas, earthquake-prone areas how their investments are doing in say, 50 years.
The fact that a house can go up in flames disqualifies it from being a "safe" investment.
Now is one of the worst times to get into real estate too. We are on the cusp on mass civil unrest with the Western regimes continuosly ignoring the will of the people and the upcoming failure of the USD which will send shockwaves worldwide.
I like real estate for its function. But if your house is the majority of your portfolio, you're going to have a bad time.
You really need to run the numbers and figure it out, because that's frequently not the case. In many of the hotter markets, along side rising interest rates, rents don't even cover the interest portion of a mortgage on 50% of the property. Some of the more egregious ones don't even cover ongoing costs if owner outright. We're talking gross cap rates in the 1-3% range.
So why would anyone buy places that take not just cash, but actual asset value out of your pocket each month? Evaluated as an ongoing business it would be worthless.
That's because rents are set by the market and what people can afford as a function of their earnings, not by the landlords costs + profits.
The thing is that at least in Canada, we're on the backs of a 30 year winning appreciation streak. We have more in houses, higher debt, worse financial metrics than the US or Japan did when they fell off the edge. Yet people were jumping in with both feet because loseing $1k a month on rent was offset by 5k a month in appreciation. The market has frozen up since most can't even afford to even buy the house they currently have, let alone upgrade and pay for moving/realty expenses. Not to mention first time buyers. To buy an average house within about 1 hr of a big city, you literally need to be a 1%er. Obviously that's not sustainable, you'd logically think that a 1%er would corrospondingly be able to afford a 1%er house. But the gov't just wants to keep kicking the can down the road, as it's really the only glimmer of economic growth. So when they released the budget a few weeks ago, now people who aren't even paying the interest on mortgages are now operating on new terms where the loan just gets extended to 75+ years.
Then the issue is is that much of the economic "growth" we've seen has been purely on paper. A 10 chicken farm going to 20, or a 10 br hotel going to 20 br is 100% growth. A 3br basic place going from 600k to 1.2m didn't really double in value, in terms of it's productive utility. Yet the owners can still borrow against it, spur economic activity, most often into more RE inflating the bubble further.
Rents are too low in my city compared to mortgage costs. Prices here have shot way up in the past 10 years, and now when you look at the typical house here with the rise in interest rates, the cost for a mortgage is out of sight.
The cheapest house in the metro area is $400,000. That's a very modest house in a cheap neighborhood. Assuming a 3% down payment, the monthly payment including principle, interest, taxes, homeowners insurance and mortgage insurance adds up to about $3000 a month for that mortgage. Assuming 36% is the maximum percentage of your monthly income that can go to a mortgage, you have to make $100,000 to afford this.
That's a really good income for a single person, well above average, just to afford the cheapest house. I suppose a dual income couple is more likely to afford it, but only 35% of couples in the US make that much. So most people can't afford a mortgage for the cheapest house in the metro area.
Meanwhile, the rent for that house right now in my city is only about $2000/month. It used to be that rent was about equal to the PITI on an 80% mortgage, which would have no PMI. Now it is way less than that. If you buy a house to rent out, you either have to have about a 35-40% down payment, or find somebody making a distressed sale and get it way under market value.
Not sure if you're reading what I'm typing brother.
Again I'm not talking specifically about residential but you do understand the concept of insurance right?
I would be over the moon if my properties flooded, caught fire or fell apart in an earth quake. Also who exactly is buying in a war zone right now? You're listing extreme circumstances as if they are absolutes but then list crypto and stocks as good investments? But really if you want to dig deeper into that, people that bought up cheap real estate in war zones made out like bandits after the dust settled.
The issue with real estate for most people is the barrier to entry, nobody turns down cheap property if they can afford it.
Also I specifically said that your house isn't part of your portfolio at all, only on paper so not sure why you're mentioning that, I agreed with that and even furthered it.
I've lost money on crypto and I've lost money on stocks but I've never lost on a real estate investment....ever. Not when I was a teenager on my first condo, not in my 20's through the recession buying small dumpy houses and not in my now 30's through the boom we just went through buying buildings and I'll be buying with both hands once things tank again.
Every successful person I know has done well with real estate and actively look for real estate before any other investment.
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ISR92
Robin
Basically, if your goal is to build wealth, buy stocks or crypto. If you want a place to live, buy real estate.
This is because capital gains on real estate are small when compared with how Bitcoin, good stocks have performed. And these require low/no servicing fees to maintain, unlike the insurance, rates, maintenance costs etc associated with housing.
Areas can become war zones when people don't expect it.
If you lost out on crypto, you bought at a misfortunate time, sold prematurely or forayed into a dodgy altcoin.
As I've said twice, I like real estate. I will buy real estate. But as an investor, you have to realize that it is not portable, often requires a mortgage (which eats up your wealth), experiences less capital gains than other alternatives (depending on where you buy), has already had a strong run etc.
So you don't make it the majority of your portfolio because you have to spread your risk and plan for the unexpected.
A mortgage on a real estate investment? Real estate doesn't build wealth and it's only for a place to live? War zones?
What are you talking about?
You obviously prefer crypto and stocks and there is nothing wrong with that i own both myself but that stuff is playing the lottery compared to real estate.
Brother I don't know if things just work differently in New Zealand but from the things you're saying you appear to be way out of your depth here.....
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I invite you to consider that CPI is not a good metric by inflation. To be frank, it's worthless. It doesn't include housing and I'd be happy to expand on that, but it has been covered at length in the "inflation/deflation, interest rates, and the fed" thread.
I bought for $600k in 2017 and now Zillow says $930k. That is pretty good, but not uncommon over the last few years.
@rainy I would add another difference to the equation:
- Renting takes less time, involves fewer headaches. You bug the landlord for things.
- Ownership takes more time, and costs maintenance, but it also presents you with the opportunity to improve your home and build wealth through home improvement.
- If you want to build a business, work hard at a job, or otherwise occupy yourself, you might be happier renting.
- If you can get by with your job, have a little free time, and want to add something fun and lucrative, improving a home can be very worthwhile. My experience is that friends, church members, neighbors, etc all enjoy talking shop around homes and improvements. I've built a network like this and it is enjoyable to me. Not for everyone.
Also, I believe you forgot the mortgage interest tax deduction? Renters don't get that.
My last thought is just that you have no idea in what direction the economy might present landlords with a huge opportunity. Interest rates could plummet, lowering your payment. Rents could skyrocket, in which case landlords do very well. Appreciation/inflation could take off, in which case your low-interest rate debt becomes worth less, or even worthless. If you are renting, none of these scenarios benefit you. You could benefit from the S&P growing though if you invest more there or elsewhere.
CPI isn't worthless. Housing inflation is a different calculation but my point remains. People grossly overestimate how 'up' they are and how great an investment it is, when it's not really an investment.
Much of the 'talking shop' about homes is ego driven and keeping up with the Jones. Same with cars. You also had to mention that you have an almost million dollar home which shows me you like to brag. No offense brother but you know that's partly why you posted that.
There is an entire ecosystem of people who simply don't care about how expensive their cars or homes are. I see it as simple slavery having huge mortgages or continuing to pile on home improvements to impress people who don't care about you. I'd take that money liquid anyday and stop playing the game.
Once you've won by having enough to retire, why keep playing the game? That's how boomers and others lost their shirts in 2008 and will continue to in the future. The greed has no bounds.
Not trying to derail either, but since you mentioned it I saw a guy on twitter also say that the reason "Keith" (Hedgeye founder McCullough) rails so much on Pal in the more recent history is that he was a Goldman Sachs guy originally and (the twitter handle claimed) he is the point person of Davos/WEF regarding the cryptosphere. The guy suggested that he sold out Britain/was a traitor in order to become a "European" instead.
Sadly, this all fits what I've thought of him from day 1, which was not really an awful impression but one of a smooth talking (accented) financial elitist, who tried above all to be politically correct instead of being more interested in the truth. I found that out while posting comments when I had a RV sub years ago.
Seems to me that it would be better to ban residential rentals, or at least put a lot of controls on it. Add the entire system is based on usury. This is where a lot of the distortions are coming from. People may complain, but what about people who want to work somewhere temporarily etc. Any qualms pale in comparison to the problems of current arrangements. It seems to me everything to do with renting veers towards being a rootless cosmopolitan.
If this was banned/controlled it would soon cause many changes, just as the institution of the current system has created unnatural Antichrist distortions.
Students, of which there should be far fewer would have to live in dorms again. No need for gender segregation when women are not accepted as students.
Sure -- but that only shows ~$300k of gain, and in many wealthy countries over 10% of the population are millionaires. I am still fully middle class.
I hope you keep in mind that I am renting out properties and then expanding. Is my real estate hobby more of an obsession, even a new form of slavery? Quite possibly, but when I was commuting 55 minutes each way to and from a job that didn't pay particularly well, then I really felt trapped. Now I have a better job, zero commute, and I am acquiring assets that will allow me to escape, retire, move to another country. I think it's a less bad form of slavery.
I don't believe I have nearly enough to retire. Until then I will acquire more mortgages and play the game.
So many people in society still cite CPI as if it's "the" metric we should use. Only in 2022 did the US gov't finally admit inflation was a problem, meanwhile prices of housing and healthcare have been crippling people for 20+ years.
So my rental properties are creating "antichrist distortions" and we're also apparently banning women from college.....
Right
He's not wrong, encouraging a rentier class is obviously destructive to society as the less people that have a stake in society, the quicker it decays. It's usurious at it's core, as the key component in usury is material multiplying itself, not interest rates, but it's not as if it's the worst thing in the West as it stands, it's more just a symptom of sickness/lack of love than a cause.
I don't see an issue if you're renting a space in the home you live in, because it's unfeasible to do it alone, and you're trying to raise a family. It's another if you're renting multiple residential properties for the sake of gain, so you can "retire" like the man in Luke 12:16-21 The rentier aspect of behavior has to have some higher goal for it to be morally justifiable.
Some people haven't earned a stake in society