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If the house is also an investment, they can make money by buying rather than renting it. This is part of the problem with so much speculation and housing being
by spoonie 10y ago
If the house is also an investment, they can make money by buying rather than renting it. This is part of the problem with so much speculation and housing being treated as an investment: you earn potentially greater returns by buying a house, so everyone starts doing it and th values keep going up.
As to why they don't rent it out when they aren't in town, I can think of a few reasons: they don't want the risk of items in the house being damaged, they don't want "other people" in their house, they like visiting on short notice (even if it's only a few times a year) which isn't compatible with renting.
- gregpilling 10y agoThere is also magnification on the investment with leverage, and it can be a good hedge against inflation. Condsider a property that costs $1,000,000 which you may be able to finance 75% of. You have $250k invested, but it is the whole value that appreciates. So in a competitive market like Paris, perhaps that $1M house is worth $1.75M in 10 years. Now you have earned $750,000 for your $250,000 investment in 10 years. All the while having something relatively safe, and fun to use. If it was inflation that caused the increase in home value, then you are covered for that too, much better than keeping cash in a CD or savings account.
- jfk13 10y ago> Now you have earned $750,000 Minus the interest you're paying on the $750K you borrowed in the first place. If that interest outstrips the appreciation of the asset, you lose.
- pcmaffey 10y agoAssuming this was paid off in 10 years, you'd pay 250k in interest. A 500k return is 10% annual. Still good, but not world beating. Also property ownership comes with its own costs (taxes, upkeep, time, etc). A worthy investment all the same, but its not all rainbows and butterflies.