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Home ownership, with a mortgage and down-payment less than 20% is higher leverage than that with more stability. Put 10% down on 1M. Goes up in value to 1.5M i

Home ownership, with a mortgage and down-payment less than 20% is higher leverage than that with more stability. Put 10% down on 1M. Goes up in value to 1.5M in a few years. Boom. 500K gain on 100k. Not that uncommon. Also, if it's your primary, then tax free income up to that 500k if filing jointly when you sell if you lived in it for 2 years. Hard to beat.

frongpik 6y ago
Or just put those 100k into a margin trading account with 1:10 leverage in a "west coast real estate index". No commissions, no agents, no property taxes, no leaking roofs.
- exclusiv 6y ago
  Still doesn't offer that tax advantage (either in capital gains or the numerous deductions). And if you have to live somewhere like the parent comment, this doesn't help you. You will have a commission in the expense ratio indefinitely. But yes, definitely a decent option if you want to put your money in real estate with less headache.
  - frongpik 6y ago
    The tax advantage is up to comical 250k that will be promptly eaten away by brokerage fees, transfer fees and other god knows what fees, on top of all the house maintanence costs over those years. Those who have a million or two but a house not because it's good for financials, but because they can't stand cranny rentals. Those with bare minimum money jump into a mortgage because for them it's the only efficient financial instrument available (a margin trading account essentially). If they tried to open such an account with a brokerage, they would be told no after looking at their net worth.
    - exclusiv 6y ago
      It's 500k of tax free gains for married couples. How is that, or even the 250k individual comical? Also, that's the gain that has no taxes AFTER fees/commissions. It does not get "eaten away". You can also do 1031 exchanges, opportunity zones with real estate, or put it into an LLC. A lot of flexibility and tax strategy available.
      - frongpik 6y ago
        I'd rather pay capital gains tax on a 250k stock appreciation, than have my house appreciate by the same amount. It's just ordinary people don't have brokerage accounts that can appreciate by so much.
        munk-a 6y ago
        As a slight diversion, this thread danced around a pretty interesting point in my eyes - why are ordinary people denied access to brokerage accounts with advantageous rates - it's not likely that the money actions will be nearly as dynamic or require nearly as much oversight as folks with a lot of money and the minimum investment bars seem unreasonably high before you start dodging the heavy fees. Isn't that system just furthering wealth inequality?
- defen 6y ago
  Regular people do not get 1:10 leverage in a margin account. Furthermore if you lever yourself up to 10x with options or exotic ETFs or whatever, and the market goes down by 10%, you don't have any money left. If you put 10% down on a house and the value goes down by 10%, you still have a house to live in even if you don't have any equity. You can choose to just sit and wait for the market to recover. There's no recovery from getting margin-called on your 10x leveraged account.
masonic 6y ago
1M. Goes up in value to 1.5M in a few years. Boom. 500K gain on 100k. Not that uncommon. Extremely uncommon, even if you buy during a lull and sell on a peak. (SV homeowner 34 years)
- exclusiv 6y ago
  I'm in LA and it's not extremely uncommon. I'm also seeing it in a few other Southern California areas. Also there are tons of options to flip if you want to put in some work and have the funds. Not that hard when the price per square foot grossly exceeds the cost to build.

frongpik 6y ago

Or just put those 100k into a margin trading account with 1:10 leverage in a "west coast real estate index". No commissions, no agents, no property taxes, no leaking roofs.

exclusiv 6y ago
Still doesn't offer that tax advantage (either in capital gains or the numerous deductions). And if you have to live somewhere like the parent comment, this doesn't help you. You will have a commission in the expense ratio indefinitely. But yes, definitely a decent option if you want to put your money in real estate with less headache.
- frongpik 6y ago
  The tax advantage is up to comical 250k that will be promptly eaten away by brokerage fees, transfer fees and other god knows what fees, on top of all the house maintanence costs over those years. Those who have a million or two but a house not because it's good for financials, but because they can't stand cranny rentals. Those with bare minimum money jump into a mortgage because for them it's the only efficient financial instrument available (a margin trading account essentially). If they tried to open such an account with a brokerage, they would be told no after looking at their net worth.
  - exclusiv 6y ago
    It's 500k of tax free gains for married couples. How is that, or even the 250k individual comical? Also, that's the gain that has no taxes AFTER fees/commissions. It does not get "eaten away". You can also do 1031 exchanges, opportunity zones with real estate, or put it into an LLC. A lot of flexibility and tax strategy available.
    - frongpik 6y ago
      I'd rather pay capital gains tax on a 250k stock appreciation, than have my house appreciate by the same amount. It's just ordinary people don't have brokerage accounts that can appreciate by so much.
      - munk-a 6y ago
        As a slight diversion, this thread danced around a pretty interesting point in my eyes - why are ordinary people denied access to brokerage accounts with advantageous rates - it's not likely that the money actions will be nearly as dynamic or require nearly as much oversight as folks with a lot of money and the minimum investment bars seem unreasonably high before you start dodging the heavy fees. Isn't that system just furthering wealth inequality?
defen 6y ago
Regular people do not get 1:10 leverage in a margin account. Furthermore if you lever yourself up to 10x with options or exotic ETFs or whatever, and the market goes down by 10%, you don't have any money left. If you put 10% down on a house and the value goes down by 10%, you still have a house to live in even if you don't have any equity. You can choose to just sit and wait for the market to recover. There's no recovery from getting margin-called on your 10x leveraged account.

masonic 6y ago

1M. Goes up in value to 1.5M in a few years. Boom. 500K gain on 100k. Not that uncommon. Extremely uncommon, even if you buy during a lull and sell on a peak. (SV homeowner 34 years)

exclusiv 6y ago
I'm in LA and it's not extremely uncommon. I'm also seeing it in a few other Southern California areas. Also there are tons of options to flip if you want to put in some work and have the funds. Not that hard when the price per square foot grossly exceeds the cost to build.