5 ms·

"and renting for $3K per month" I think you make a lot of assumptions, like the one above, which don't fit my admittedly anecdotal experience. I live in one of

by jshen 9y ago

"and renting for $3K per month" I think you make a lot of assumptions, like the one above, which don't fit my admittedly anecdotal experience. I live in one of the hot markets, I bot a place at the peak of the market before the last crash, and found myself nearly $200k in the hole on paper. That was roughly 10 years ago, and here's what happened. I lived in it for 10 years, and I just sold it for more than I paid for it. Obviously this in isolation wasn't a good investment, but I did nearly the worst thing, bought at a peak before a crash, and still came out net positive 10 years later. Second, you said "and renting for $3K per month" which is a mistake because it's assuming rent will not go up in any significant way. Where I live, rent goes up a lot. That place I bought 10 years ago, a couple years back we thought about selling and renting (to get into a different school district) and we realized that our mortgage was lower than what we would have to pay in rent to get a similar place in the same area. Again, these are just anecdotes, but my experience doesn't fit with the assumptions you are making above.

Retric 9y ago
That's with a small correction followed by a new bubble. Property values have dropped over 50% in various corrections around the world EX: Shanghai @ 64%. The US is easily that inflated relative to historic norms, so what we think of as a huge correction could basally be a minor blip vs what's next. Or even just a 20+ year stagnation in housing prices. Worse real estate transaction fees are are massive. PS: Same as it ever was. http://www.businessinsider.com/the-economic-crash-repeated-every-generation-1800-2012-1 http://www.businessinsider.com/the-economic-crash-repeated-e...
larrik 9y ago
I bought a condo at the peak of the market before the crash, 11 years ago. So far, it's only gone down in value, regardless of what the rest of the market does. Even after refinancing it years ago into a 15 year mortgage, it's STILL worth less than I owe on it. Hurts
mgce 9y ago
I didn't see where the parent assumed the $3k per month would stay static. Also recall that selling a place for more than you paid for it doesn't mean you've made money. As I'm sure you know, owning property also involves substantial ongoing costs (beyond the purchase price) that never get recouped: maintenance, property fees, incidental construction / renovation, insurance, mortgage taxes, real estate fees, and so on. Never mind the lost investment potential from the down payment, which is now a sunk cost vs. something that could have earned interest in the markets. I'm not trying to challenge your anecdote; just to recognize that even with stories like yours the truth is complicated and hard to assess. For my part, my experience has taught me to be especially wary of "hot markets" - the hype that comes with them IMO artificially inflates real estate prices to a point where the underlying value can easily get lost. I happen to be very lucky in having a rent situation that easily beats purchasing, even over multiple years. But I acknowledge rental arrangements can also get hyped, so a bad rental situation can also cost you.
ProfessorLayton 9y ago
$1 today is worth .85¢ in 2007. You'd have to sell your place for 21% more than its peak price just to break even (15% inflation + ~6% realtor fees and other costs) and that doesn't include the returns you could have made in, say, an index fund over the last 10 years. I'm not trying to make any assumptions on your anecdote, but only the very hottest markets have been able to pull off that kind of recovery. https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1.00&year1=201704&year2=200704 https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1.00&year1=201...
- curiouscats 9y ago
  In most cases you have a mortgage so it isn't as simple as that. For example, you didn't pay $1 million (even if that is the cost) - maybe you put down $200,000. If it goes to $1.2 million you sell it and get $400,000 (paying off the $800,000 you borrowed). That is 100% of your $200,000 even though the price only went up 20%. This is oversimplified for illustrative purposes. You have to pay interest, taxes, get a place to live... but the example shows why you don't need the sales price to go up by inflation to break even or make a profit even in 2007 dollars.
  - mgce 9y ago
    Good point. What you're describing, at core, is leverage. The general principle of leverage is that it exaggerates the market's natural results. When things go up you stand to make a lot of money. But when things go down you stand to lose a lot of money. One mistake (IMO) many people make about housing is not adequately thinking through the second possibility.
  - ProfessorLayton 9y ago
    I agree that I don't have all the info to make a true apples to apples comparison, but even your illustrative example is way off: 1.2M - 6% realtor fees is 1.128M. Thats 72K just for realtor fees right off the bat. not including including costs like city transfer tax, capital gains for short term sales, and countless other seller fees that vary by market temperature. All this comes off your 200k "profits", which is still great, but homeowners typically take years just to stop being underwater when buying a home.
deleted 9y ago
[deleted]

by jshen 9y ago

Retric 9y ago

That's with a small correction followed by a new bubble. Property values have dropped over 50% in various corrections around the world EX: Shanghai @ 64%. The US is easily that inflated relative to historic norms, so what we think of as a huge correction could basally be a minor blip vs what's next. Or even just a 20+ year stagnation in housing prices. Worse real estate transaction fees are are massive. PS: Same as it ever was. http://www.businessinsider.com/the-economic-crash-repeated-every-generation-1800-2012-1 http://www.businessinsider.com/the-economic-crash-repeated-e...

larrik 9y ago

I bought a condo at the peak of the market before the crash, 11 years ago. So far, it's only gone down in value, regardless of what the rest of the market does. Even after refinancing it years ago into a 15 year mortgage, it's STILL worth less than I owe on it. Hurts

mgce 9y ago

I didn't see where the parent assumed the $3k per month would stay static. Also recall that selling a place for more than you paid for it doesn't mean you've made money. As I'm sure you know, owning property also involves substantial ongoing costs (beyond the purchase price) that never get recouped: maintenance, property fees, incidental construction / renovation, insurance, mortgage taxes, real estate fees, and so on. Never mind the lost investment potential from the down payment, which is now a sunk cost vs. something that could have earned interest in the markets. I'm not trying to challenge your anecdote; just to recognize that even with stories like yours the truth is complicated and hard to assess. For my part, my experience has taught me to be especially wary of "hot markets" - the hype that comes with them IMO artificially inflates real estate prices to a point where the underlying value can easily get lost. I happen to be very lucky in having a rent situation that easily beats purchasing, even over multiple years. But I acknowledge rental arrangements can also get hyped, so a bad rental situation can also cost you.

ProfessorLayton 9y ago

$1 today is worth .85¢ in 2007. You'd have to sell your place for 21% more than its peak price just to break even (15% inflation + ~6% realtor fees and other costs) and that doesn't include the returns you could have made in, say, an index fund over the last 10 years. I'm not trying to make any assumptions on your anecdote, but only the very hottest markets have been able to pull off that kind of recovery. https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1.00&year1=201704&year2=200704 https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1.00&year1=201...

curiouscats 9y ago
In most cases you have a mortgage so it isn't as simple as that. For example, you didn't pay $1 million (even if that is the cost) - maybe you put down $200,000. If it goes to $1.2 million you sell it and get $400,000 (paying off the $800,000 you borrowed). That is 100% of your $200,000 even though the price only went up 20%. This is oversimplified for illustrative purposes. You have to pay interest, taxes, get a place to live... but the example shows why you don't need the sales price to go up by inflation to break even or make a profit even in 2007 dollars.
- mgce 9y ago
  Good point. What you're describing, at core, is leverage. The general principle of leverage is that it exaggerates the market's natural results. When things go up you stand to make a lot of money. But when things go down you stand to lose a lot of money. One mistake (IMO) many people make about housing is not adequately thinking through the second possibility.
- ProfessorLayton 9y ago
  I agree that I don't have all the info to make a true apples to apples comparison, but even your illustrative example is way off: 1.2M - 6% realtor fees is 1.128M. Thats 72K just for realtor fees right off the bat. not including including costs like city transfer tax, capital gains for short term sales, and countless other seller fees that vary by market temperature. All this comes off your 200k "profits", which is still great, but homeowners typically take years just to stop being underwater when buying a home.

deleted 9y ago

[deleted]