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That's because you don't understand finance. Leverage is the easiest way to make a larger percentage on your money, as long as it's used prudently. Borrowing

That's because you don't understand finance. Leverage is the easiest way to make a larger percentage on your money, as long as it's used prudently. Borrowing money to buy real estate and then collect income is a very common way to leverage your money. Over time that builds real wealth. My friend has bought 5 properties and is renting them all out. When he retires, the properties will have been paid for, and the rental money will act like his pension until he dies.

mindslight 7y ago
> Borrowing money to buy real estate and then collect income is a very common way to leverage your money. Over time that builds real wealth. My friend has bought 5 properties and is renting them all out This only "builds real wealth" for one person. For the larger system consisting of all 6 people, it's a net loss (the interest payments are still leaving, upwards). We've built a financial system where it is in everybody's self interest to make everybody else worse off. The positive sum progress from the economy was enough to outrun this setup when there was abundant energy and foreign countries to colonize, hence the focus on "growth". But that era is over, and we're now stuck with a black hole of debt that still needs to be serviced...
- marcus_holmes 7y ago
  I used to own a house. Now I rent. The ability to walk away from the obligations that house-owning involve is worth a lot of money to me. I probably lose financially, maybe, but meanwhile I get to have a much better standard of living.
  - mancerayder 7y ago
    Ditto. And in this crisis, they're suspending evictions and presumably suspending mortgage payments too. I feel very lucky to have gotten out of that chain. Now I'm renting and fairly comfortable compared to the much larger structure I used to own which included land (now I'm in a one bedroom condo). I just wish I could drill a pull-up bar and TV articulating arm into the wall. However, I'm able to rent and live in a much nicer area than where I could afford to buy.
    - marcus_holmes 7y ago
      I recently moved to Berlin, and the whole rental market here is awesome. Rent controls mean the rents aren't huge (but they are rising because of the high demand). But the amazing thing (to someone from UK/Australia anyway) is that I can repaint, make alterations, drill holes in the walls, etc. I might have to put it back the way it was at the end, but the landlord can't stop me from doing what I like to the place while I'm here. A whole different attitude to renting.
      - tathougies 7y ago
        > I might have to put it back the way it was at the end, but the landlord can't stop me from doing what I like to the place while I'm here. A whole different attitude to renting. This is the same in the US, FWIW. Most landlords aren't going to care what you do, as long as you don't damage common areas and return it in mint conditoin.
        mancerayder 7y ago
        Nah, it depends on the building rules. There's no such law. In my building you need to give a deposit just to install curtain rods, for example, or hang a TV.
  - bumpkinjunkie 7y ago
    I'm in the same boat (or, house...boats are not great investments) The justifications/case for home ownership can often be over-hyped. Everything works out well in a rising market. When shit hits the fan, sure my landlord can raise my rent, but I can move to another city for a better job with a very minimal hit. The stock market has created higher long term gains than the real estate market and is a hell of a lot more liquid. The fact that people say your house is an "asset" is abuse of the definition and IMHO drives people to buy more house than they need. Sure it's an asset, but you also live there. Your liquidity is greatly reduced and your options become very limited. Rental properties are another story. If you know what you're doing and can afford it, then I don't see issues with using that as an investing strategy. Just maybe don't buy all of them in the same city, or the same type of property. Just like with stocks and side hustles, diversification is important.
  - pjc50 7y ago
    I'm rather surprised; the inabiilty to paint the walls or put up pictures or have pets? The knowledge that you might have to leave at short notice?
    - marcus_holmes 7y ago
      I don't have pets - I'm not able to commit to 10+ years of being able to look after them, so I don't have them. This isn't due to renting, but due to me being bored with places easily. I can paint the walls, put up pictures (Berlin has better rules than UK/Australia). Not that I do when I can. I've only been evicted a couple of times, and even then I wanted to move anyway so it was convenient. It's usually me/us moving on and the landlord annoyed that they have to find a new tenant. And don't forget the wonderful bonus of anything that goes wrong being someone else's problem. Roof leaking? Phone the landlord. Rising damp? Phone the landlord. Mold problems? Neighbours building a new fence? Frost damage to the pathway? Pipes frozen? Window cracked? All not my problem.
- tathougies 7y ago
  That's why we have a stock market, a futures market, businesses, etc. The commenter above gave an example of a real estate investor. That is a particular type of investor which has to deal with some particular kinds of risk that not everyone is suited to or wants to deal with. For those people, there are other investments they would be good at, and they should engage in.
  - mindslight 7y ago
    You didn't actually respond to my points, but just pointed out the existence of other types of business where the centralizing flow is less obvious than real estate.
    - tathougies 7y ago
      If everyone participates in acquiring assets, then everyone builds wealth. Your claim is that real estate builds wealth for one person (or in aggregate, particular people). This is certainly true. If there are 300 million Americans, then, if everyone were a landlord holding 4 other properties (other than their house), only 60 million Americans could benefit from real estate. However, the other 240 million could benefit from owning a business, or owning a stake in one, or owning any of the myriad of assets available to invest in. Societal wealth is built by one person building a lot of wealth based on others paying him, and just replicating that millions of times over the population.
      - mindslight 7y ago
        > Your claim is that real estate builds wealth for one person (or in aggregate, particular people). No, leaving out the critical piece does not represent my claim. Rather you're just shoehorning into the traditional narrative that each person trying to build the most individual wealth inductively extrapolates to society as a whole becoming richer. The critical part of my claim is: > For the larger system consisting of all 6 people, it's a net loss Not merely a loss for 5 and a gain for 1, but a net loss for all 6 parties summed together. Draw a boundary around them and analyze cross-boundary flow. The interest payments flow away, meaning the group is worse off even though the landlord individually benefits. Our economy is based around debt rather than positive wealth. For someone to have financial wealth, others must be in debt. The shining ideal where everybody is financially independent is impossible under the current system. And the more the financial bubble grows in relation to actual physical wealth, the truer this becomes.
soperj 7y ago
That's fine unless he was in Detroit.
marcus_holmes 7y ago
Which is great in a rising market, but will ruin him when the market falls (which it looks like it's about to do). Leverage works both ways, it will amplify both gains and losses.
- pba 7y ago
  The market falling as a whole does not mean that every single individual investment one could have a position in during that time loses value.
- gnopgnip 7y ago
  Leverage does not work the same way for real estate. There is no margin call like there is with stock. Even if you are upside down on the mortgage in many cases you are still cashflow positive and can ride it out. And if you are not, even in recourse states in practice the losses are not amplified and a strategic default, deed in lieu, or short sale are still possible.
  - marcus_holmes 7y ago
    Utterly not true outside the US. I've seen lots of people in negative equity, unable to afford the mortgage and unable to sell (the mortgage liability doesn't go away if you sell the property. If the mortgage is bigger than the current house price, selling doesn't help). People with multiple properties and multiple mortgages are in worse trouble. It's very easy to go bankrupt in this situation, I've seen it happen.
jbay808 7y ago
If it was so certain to work, why we would anyone lend me money to do it when they could just buy the property themselves?

mindslight 7y ago

> Borrowing money to buy real estate and then collect income is a very common way to leverage your money. Over time that builds real wealth. My friend has bought 5 properties and is renting them all out This only "builds real wealth" for one person. For the larger system consisting of all 6 people, it's a net loss (the interest payments are still leaving, upwards). We've built a financial system where it is in everybody's self interest to make everybody else worse off. The positive sum progress from the economy was enough to outrun this setup when there was abundant energy and foreign countries to colonize, hence the focus on "growth". But that era is over, and we're now stuck with a black hole of debt that still needs to be serviced...

marcus_holmes 7y ago
I used to own a house. Now I rent. The ability to walk away from the obligations that house-owning involve is worth a lot of money to me. I probably lose financially, maybe, but meanwhile I get to have a much better standard of living.
- mancerayder 7y ago
  Ditto. And in this crisis, they're suspending evictions and presumably suspending mortgage payments too. I feel very lucky to have gotten out of that chain. Now I'm renting and fairly comfortable compared to the much larger structure I used to own which included land (now I'm in a one bedroom condo). I just wish I could drill a pull-up bar and TV articulating arm into the wall. However, I'm able to rent and live in a much nicer area than where I could afford to buy.
  - marcus_holmes 7y ago
    I recently moved to Berlin, and the whole rental market here is awesome. Rent controls mean the rents aren't huge (but they are rising because of the high demand). But the amazing thing (to someone from UK/Australia anyway) is that I can repaint, make alterations, drill holes in the walls, etc. I might have to put it back the way it was at the end, but the landlord can't stop me from doing what I like to the place while I'm here. A whole different attitude to renting.
    - tathougies 7y ago
      > I might have to put it back the way it was at the end, but the landlord can't stop me from doing what I like to the place while I'm here. A whole different attitude to renting. This is the same in the US, FWIW. Most landlords aren't going to care what you do, as long as you don't damage common areas and return it in mint conditoin.
      - mancerayder 7y ago
        Nah, it depends on the building rules. There's no such law. In my building you need to give a deposit just to install curtain rods, for example, or hang a TV.
- bumpkinjunkie 7y ago
  I'm in the same boat (or, house...boats are not great investments) The justifications/case for home ownership can often be over-hyped. Everything works out well in a rising market. When shit hits the fan, sure my landlord can raise my rent, but I can move to another city for a better job with a very minimal hit. The stock market has created higher long term gains than the real estate market and is a hell of a lot more liquid. The fact that people say your house is an "asset" is abuse of the definition and IMHO drives people to buy more house than they need. Sure it's an asset, but you also live there. Your liquidity is greatly reduced and your options become very limited. Rental properties are another story. If you know what you're doing and can afford it, then I don't see issues with using that as an investing strategy. Just maybe don't buy all of them in the same city, or the same type of property. Just like with stocks and side hustles, diversification is important.
- pjc50 7y ago
  I'm rather surprised; the inabiilty to paint the walls or put up pictures or have pets? The knowledge that you might have to leave at short notice?
  - marcus_holmes 7y ago
    I don't have pets - I'm not able to commit to 10+ years of being able to look after them, so I don't have them. This isn't due to renting, but due to me being bored with places easily. I can paint the walls, put up pictures (Berlin has better rules than UK/Australia). Not that I do when I can. I've only been evicted a couple of times, and even then I wanted to move anyway so it was convenient. It's usually me/us moving on and the landlord annoyed that they have to find a new tenant. And don't forget the wonderful bonus of anything that goes wrong being someone else's problem. Roof leaking? Phone the landlord. Rising damp? Phone the landlord. Mold problems? Neighbours building a new fence? Frost damage to the pathway? Pipes frozen? Window cracked? All not my problem.
tathougies 7y ago
That's why we have a stock market, a futures market, businesses, etc. The commenter above gave an example of a real estate investor. That is a particular type of investor which has to deal with some particular kinds of risk that not everyone is suited to or wants to deal with. For those people, there are other investments they would be good at, and they should engage in.
- mindslight 7y ago
  You didn't actually respond to my points, but just pointed out the existence of other types of business where the centralizing flow is less obvious than real estate.
  - tathougies 7y ago
    If everyone participates in acquiring assets, then everyone builds wealth. Your claim is that real estate builds wealth for one person (or in aggregate, particular people). This is certainly true. If there are 300 million Americans, then, if everyone were a landlord holding 4 other properties (other than their house), only 60 million Americans could benefit from real estate. However, the other 240 million could benefit from owning a business, or owning a stake in one, or owning any of the myriad of assets available to invest in. Societal wealth is built by one person building a lot of wealth based on others paying him, and just replicating that millions of times over the population.
    - mindslight 7y ago
      > Your claim is that real estate builds wealth for one person (or in aggregate, particular people). No, leaving out the critical piece does not represent my claim. Rather you're just shoehorning into the traditional narrative that each person trying to build the most individual wealth inductively extrapolates to society as a whole becoming richer. The critical part of my claim is: > For the larger system consisting of all 6 people, it's a net loss Not merely a loss for 5 and a gain for 1, but a net loss for all 6 parties summed together. Draw a boundary around them and analyze cross-boundary flow. The interest payments flow away, meaning the group is worse off even though the landlord individually benefits. Our economy is based around debt rather than positive wealth. For someone to have financial wealth, others must be in debt. The shining ideal where everybody is financially independent is impossible under the current system. And the more the financial bubble grows in relation to actual physical wealth, the truer this becomes.

soperj 7y ago

That's fine unless he was in Detroit.

marcus_holmes 7y ago

Which is great in a rising market, but will ruin him when the market falls (which it looks like it's about to do). Leverage works both ways, it will amplify both gains and losses.

pba 7y ago
The market falling as a whole does not mean that every single individual investment one could have a position in during that time loses value.
gnopgnip 7y ago
Leverage does not work the same way for real estate. There is no margin call like there is with stock. Even if you are upside down on the mortgage in many cases you are still cashflow positive and can ride it out. And if you are not, even in recourse states in practice the losses are not amplified and a strategic default, deed in lieu, or short sale are still possible.
- marcus_holmes 7y ago
  Utterly not true outside the US. I've seen lots of people in negative equity, unable to afford the mortgage and unable to sell (the mortgage liability doesn't go away if you sell the property. If the mortgage is bigger than the current house price, selling doesn't help). People with multiple properties and multiple mortgages are in worse trouble. It's very easy to go bankrupt in this situation, I've seen it happen.

jbay808 7y ago

If it was so certain to work, why we would anyone lend me money to do it when they could just buy the property themselves?