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Opportunity cost. Housing in the Bay Area goes up an average of about 7%/year, roughly inline with the S&P 500. Google stock has increased 13x in the last 11

Opportunity cost. Housing in the Bay Area goes up an average of about 7%/year, roughly inline with the S&P 500. Google stock has increased 13x in the last 11 years, for an average annualized return of about 25%. If you were at AirBnB or Stripe your return is about 100x, making over 100%/year. With leverage the computation gets a bit more complex, but basically you're paying 4.5% interest on 7% appreciation, and not needing to pay rent, so you may get 4-5% real returns. Lever up 5x with a 20% down payment and you get about 25% returns - competitive with Google, but in the same ballpark, and you've taken on the risk of foreclosure or being underwater if there's a housing bust (which happen periodically in the Bay Area and take prices down 10-40%). The stock is a lot more liquid, you can take it anywhere, you can sell it whenever you want, you can move in with a girlfriend and keep it. If you haven't made a conscious decision to stay in the Bay Area, the stock performs much better.

lotsofpulp 6y ago
>but basically you're paying 4.5% interest on 7% appreciation, and not needing to pay rent, so you may get 4-5% real returns. And it's down to 2.5% interest or even lower for 30 year fixed for some people.
- nostrademons 6y ago
  I'm comparing it to historical returns over the last decade, though. Mortgage rates were about 4.5% in 2010, so that's the figure I'm using. I honestly don't know what the next decade will bring. I would personally bet on high inflation, so that 2.5% mortgage rate will likely be a negative real interest rate. (Hence, I bought.) Stock returns may or may not equal the previous decade's, as well.
- quickthrowman 6y ago
  Low rates just mean you pay more to the seller for the asset, and financing costs less. If rates were 5%, you’d pay less for the asset but more in financing costs. The monthly payment probably wouldn’t change substantially. You’d have substantially higher price risk buying at low interest rates. Sort of how a bond’s value moves inverse to yields.
renewiltord 6y ago
And you realistically have access to a 2x-3x lever on margin anyway.
- imtringued 6y ago
  Being long on a leveraged ETF is... possible... but unless you know what you are doing it is highly risky. No, the problem isn't the drift causing losses. When the price tanks 33% in a day on a 3x leveraged ETF you lose everything.

lotsofpulp 6y ago

>but basically you're paying 4.5% interest on 7% appreciation, and not needing to pay rent, so you may get 4-5% real returns. And it's down to 2.5% interest or even lower for 30 year fixed for some people.

nostrademons 6y ago
I'm comparing it to historical returns over the last decade, though. Mortgage rates were about 4.5% in 2010, so that's the figure I'm using. I honestly don't know what the next decade will bring. I would personally bet on high inflation, so that 2.5% mortgage rate will likely be a negative real interest rate. (Hence, I bought.) Stock returns may or may not equal the previous decade's, as well.
quickthrowman 6y ago
Low rates just mean you pay more to the seller for the asset, and financing costs less. If rates were 5%, you’d pay less for the asset but more in financing costs. The monthly payment probably wouldn’t change substantially. You’d have substantially higher price risk buying at low interest rates. Sort of how a bond’s value moves inverse to yields.

renewiltord 6y ago

And you realistically have access to a 2x-3x lever on margin anyway.

imtringued 6y ago
Being long on a leveraged ETF is... possible... but unless you know what you are doing it is highly risky. No, the problem isn't the drift causing losses. When the price tanks 33% in a day on a 3x leveraged ETF you lose everything.