3 ms·

> Just to put numbers to this, if you are levered 5 to 1 (20% down), inflation is 3%, home price grows at inflation, you are getting a 15% nominal return on you

> Just to put numbers to this, if you are levered 5 to 1 (20% down), inflation is 3%, home price grows at inflation, you are getting a 15% nominal return on your investment in the home, and a 12% real return. I'm sorry I didn't follow that calculation perfectly. I (sort of) understand the part where you get a 15% nominal ROI for 20% down. But if you're paying your mortgage every month you're leveraged less and less each successive month right (as you pay off principal and accumulate equity)? Would that change the calculation? Valuation and ROI (beyond simple stuff) is not one of my strengths unfortunately. > Hard to say. Depends on inflation levels. And if inflation is somewhat high (which it hasn't been recently), That's what I was getting at with "on average". Inflation hasn't been high for quite a while. I will grant you that it's not cut-and-dry in favor of index funds under all circumstances.

lmm 9y ago
> if you're paying your mortgage every month you're leveraged less and less each successive month right (as you pay off principal and accumulate equity)? Would that change the calculation? Yes. But you can keep your leverage ratio the same by upsizing every few years and remortgaging when you do. As you get towards retirement you generally delever but that's what you would want to be doing anyway (sacrificing some return for lower risk).
bzbarsky 9y ago
> Would that change the calculation? Yes, it would. As Imm says, this is actually conceptually similar to shifting out of stocks into bonds as you get older: lower returns, less risk. And of course some people do interest-only mortgages and whatnot, just like some people invest all their money in risky stocks... I agree that if one were actually approaching this as a personal financial decision one would need to do some careful calculation, as well as modeling of different inflation expectations and so forth. And that no one does this in practice.

lmm 9y ago

> if you're paying your mortgage every month you're leveraged less and less each successive month right (as you pay off principal and accumulate equity)? Would that change the calculation? Yes. But you can keep your leverage ratio the same by upsizing every few years and remortgaging when you do. As you get towards retirement you generally delever but that's what you would want to be doing anyway (sacrificing some return for lower risk).

bzbarsky 9y ago

> Would that change the calculation? Yes, it would. As Imm says, this is actually conceptually similar to shifting out of stocks into bonds as you get older: lower returns, less risk. And of course some people do interest-only mortgages and whatnot, just like some people invest all their money in risky stocks... I agree that if one were actually approaching this as a personal financial decision one would need to do some careful calculation, as well as modeling of different inflation expectations and so forth. And that no one does this in practice.