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Nah, it is indeed much easier to invest in real estate on 5-10x leverage than doing the same with stocks or ETFs, because the banks are usually much more comfor

Nah, it is indeed much easier to invest in real estate on 5-10x leverage than doing the same with stocks or ETFs, because the banks are usually much more comfortable lending you the money in the first case. I think it's because of the mind trickery that makes the first thing a solid "buying a house" investment and the second thing a "gambling on the stock market" game. You can easily see that trickery at work: just confront someone who bought a house on credit with the fact that he just put all his money into a highly leveraged single investment, which combines two of the usual "don'ts" from the "Investment for Dummies" book. You will usually earn blank stares. Not saying that doing such an investment doesn't make sense in certain circumstances (use the house yourself and plan on staying there for decades), but one should be very clear about the risk profile of it.

phatfish 7y ago
This seems to be the benefit to me as well. The average person won't get a £100,000+ loan from a bank so easily for anything else. Want to start a business with that money? Better have a rock solid business plan. Investing elsewhere? No chance, a bank won't lone that money for you to play with on the stock market, and the rate you would get would wipe out any gains from something safer like a tracker fund. For anyone that is not content living in the same area for the rest of their life buying is a poor decision. But it is the only way most people can access a loan that size and leverage in that way. I've resigned myself to the fact you have to buy (in my country at least), and I will just make sure it can be rented easily when I want to move. Some European countries are much more renter friendly and I would consider renting exclusively there. Germany and Berlin seem more appealing in that regard with the rent control that was put into place recently.
- scarby2 7y ago
  The thing is housing almost comes with a rock solid business plan and as a basic need is somewhat resistant to radical decreases in price (it is almost impossible that your house would depreciate by 100% - company stock/your own business investments could). With the way the market is it is likely that mortgage principal + interest + maintenance is actually less than rent...
  - mywittyname 7y ago
    Lots of things can drag down the value of a home to zero. Lack of maintenance or a natural disaster are two big ones, but also the neighborhood could turn to crap or an infrastructure crisis that isn't resolved. Add to that property taxes continue to accumulate on buildings. There are quite a few ways to drive a house to worthless. I used to live in a region where houses were <$10k because they were condemned shells in crime-ridden areas.
    - xchaotic 7y ago
      It still wouldn’t be 0. There’s land value and even in depressed areas like Detroit you see price rebound because you get good value for money.
eldavido 7y ago
I see it a bit differently. A house provides a basic human necessity (shelter) and can be insured. It stands to reason that it can be mostly financed with very long-term, cheap, debt capital. Other than mass-scale depopulation, not much will cause a house to dramatically lose value, especially to a first-lien lender. Stocks are a different animal. Even assuming a company performs well, which it may or may not, there are all sorts of crazy things -- trade tensions, interest rates, valuation changes, investor sentiment for/against various sectors, completely leaving aside rational changes in value due to company performance -- which cause price swings far detached from company fundamentals. US equity markets went up ~30% in the past year. They could fall as well. If anything like this happened in housing, you'd literally get riots in the streets. I don't think it's an accident that the financial system provides so much credit for housing. Yes, it should probably be a little more expensive (thank Fannie and Freddie for that) and yes, maybe we could use a little more equity, 20%, or 30%. But suggesting houses should be 100% equity-financed like most stock purchases? Doesn't make sense.
viklove 7y ago
Well you can live in a house... Can you live in an ETF if things go south?
- Slartie 7y ago
  If "south" is a sudden and extreme loss of value, then you might be just as screwed with a house as well: think of a flooding of an area, having a catastrophic wildfire nearby, or a sudden increase of crime in your neighborhood (technically leaving you able to live in the house, but maybe you don't want to do that for your dear life).
  - viklove 7y ago
    Well home insurance is a thing that most people have to protect against those possibilities. I don't think something similar exists for ETFs. Also, if an ETF loses 90% of its value, it's pretty much worthless. If a home loses 90% of its value... you can still live in it!
    - Slartie 7y ago
      You probably can't, because there must be a reason for it to have lost 90% of its value, and that reason probably has to do with the house somehow (I named a few examples, but there are more possibilities) losing its capability to "house" people, because after all, that is the only value proposition of a house - that capability literally gives it its value.
      - speedplane 7y ago
        > You probably can't [live in a home that loses 90% of its value], because there must be a reason for it to have lost 90% of its value I agree 90% is extreme. However, the nice thing about owning a home is that even if it loses value, more often than not, other homes will also lose their value. Say you buy a 1 bedroom place for 500k, and 5 years later you have 2 children and need a 3 bedroom place, but your home lost value and is now only worth 400k. The good news is that the 3 bedroom place also probably lost value. So even though your home decreased 20% in dollar value, the 3-bedrooms also did too, so your house (as far as in-kind value) is worth the same. In fact, in some cases you could go further and say it's good if your real-estate loses money. Suppose that you bought that 500k place, and had 100k left in your bank account afterwards. Now 5 years later the real-estate market sinks 20% and your home is worth 400k. Suppose you didn't invest your 100k and it's still all cash. When the housing market sinks 20%, your in-kind trade value plus your existing cash is actually worth more than if the real-estate market did the opposite. For the above reasons, it's better to think about your primary residence as planting a flag in the area that you want to live rather than a financial investment.

phatfish 7y ago

This seems to be the benefit to me as well. The average person won't get a £100,000+ loan from a bank so easily for anything else. Want to start a business with that money? Better have a rock solid business plan. Investing elsewhere? No chance, a bank won't lone that money for you to play with on the stock market, and the rate you would get would wipe out any gains from something safer like a tracker fund. For anyone that is not content living in the same area for the rest of their life buying is a poor decision. But it is the only way most people can access a loan that size and leverage in that way. I've resigned myself to the fact you have to buy (in my country at least), and I will just make sure it can be rented easily when I want to move. Some European countries are much more renter friendly and I would consider renting exclusively there. Germany and Berlin seem more appealing in that regard with the rent control that was put into place recently.

scarby2 7y ago
The thing is housing almost comes with a rock solid business plan and as a basic need is somewhat resistant to radical decreases in price (it is almost impossible that your house would depreciate by 100% - company stock/your own business investments could). With the way the market is it is likely that mortgage principal + interest + maintenance is actually less than rent...
- mywittyname 7y ago
  Lots of things can drag down the value of a home to zero. Lack of maintenance or a natural disaster are two big ones, but also the neighborhood could turn to crap or an infrastructure crisis that isn't resolved. Add to that property taxes continue to accumulate on buildings. There are quite a few ways to drive a house to worthless. I used to live in a region where houses were <$10k because they were condemned shells in crime-ridden areas.
  - xchaotic 7y ago
    It still wouldn’t be 0. There’s land value and even in depressed areas like Detroit you see price rebound because you get good value for money.

eldavido 7y ago

I see it a bit differently. A house provides a basic human necessity (shelter) and can be insured. It stands to reason that it can be mostly financed with very long-term, cheap, debt capital. Other than mass-scale depopulation, not much will cause a house to dramatically lose value, especially to a first-lien lender. Stocks are a different animal. Even assuming a company performs well, which it may or may not, there are all sorts of crazy things -- trade tensions, interest rates, valuation changes, investor sentiment for/against various sectors, completely leaving aside rational changes in value due to company performance -- which cause price swings far detached from company fundamentals. US equity markets went up ~30% in the past year. They could fall as well. If anything like this happened in housing, you'd literally get riots in the streets. I don't think it's an accident that the financial system provides so much credit for housing. Yes, it should probably be a little more expensive (thank Fannie and Freddie for that) and yes, maybe we could use a little more equity, 20%, or 30%. But suggesting houses should be 100% equity-financed like most stock purchases? Doesn't make sense.

viklove 7y ago

Well you can live in a house... Can you live in an ETF if things go south?

Slartie 7y ago
If "south" is a sudden and extreme loss of value, then you might be just as screwed with a house as well: think of a flooding of an area, having a catastrophic wildfire nearby, or a sudden increase of crime in your neighborhood (technically leaving you able to live in the house, but maybe you don't want to do that for your dear life).
- viklove 7y ago
  Well home insurance is a thing that most people have to protect against those possibilities. I don't think something similar exists for ETFs. Also, if an ETF loses 90% of its value, it's pretty much worthless. If a home loses 90% of its value... you can still live in it!
  - Slartie 7y ago
    You probably can't, because there must be a reason for it to have lost 90% of its value, and that reason probably has to do with the house somehow (I named a few examples, but there are more possibilities) losing its capability to "house" people, because after all, that is the only value proposition of a house - that capability literally gives it its value.
    - speedplane 7y ago
      > You probably can't [live in a home that loses 90% of its value], because there must be a reason for it to have lost 90% of its value I agree 90% is extreme. However, the nice thing about owning a home is that even if it loses value, more often than not, other homes will also lose their value. Say you buy a 1 bedroom place for 500k, and 5 years later you have 2 children and need a 3 bedroom place, but your home lost value and is now only worth 400k. The good news is that the 3 bedroom place also probably lost value. So even though your home decreased 20% in dollar value, the 3-bedrooms also did too, so your house (as far as in-kind value) is worth the same. In fact, in some cases you could go further and say it's good if your real-estate loses money. Suppose that you bought that 500k place, and had 100k left in your bank account afterwards. Now 5 years later the real-estate market sinks 20% and your home is worth 400k. Suppose you didn't invest your 100k and it's still all cash. When the housing market sinks 20%, your in-kind trade value plus your existing cash is actually worth more than if the real-estate market did the opposite. For the above reasons, it's better to think about your primary residence as planting a flag in the area that you want to live rather than a financial investment.