4 ms·

When examining crypto and equity investments, I first started understanding the "store of value" investments, and that was my first introduction to the poor fit

When examining crypto and equity investments, I first started understanding the "store of value" investments, and that was my first introduction to the poor fit of real estate to be an investment. I know a few people who are mortgage rich, and cash poor (or house rich? I don't know the saying). They are essentially stuck. They can't sell the house and move into a new property because relative to everything else, all real estate has essentially moved at a similar rate. They can't sell their bathroom if they needed to. They have to keep investing in the house to keep it in good condition, so it costs money to keep the investment. If they want to sell their house, they have to find somebody who wants THEIR house, not the one next door, not one in a different town, but their exact house. This is in contrast to other investments, gold, stocks, crypto, where you can sell to anyone, you can make money (dividends) if the business is doing well, you can sell any portion of your investment and buy another investment with it. There is no cost to you to hold on to the investment, etc etc. The only argument I see for owning a house is the "I'm paying myself my mortgage, so it is like investing in myself", but if your money can do better in another investment, I feel you're better off renting and making money in other ways. The two big questions I think we have are 1) if we suffer population collapse - which is a possibility - what will happen to house prices 2) will millenials, or whoever comes next want to own houses? We thought it was crazy that somebody wouldn't want to own a car, I think it's crazy that any of them would want to have a University degree. We're seeing digital nomads as a fringe atm, but perhaps that becomes more mainstream. What happens to housing?

chrisco255 5y ago
We already are at a demographic cliff as older boomers begin to pass and younger boomers are retiring. Baby boomers are the largest generation in human history and it's looking like Millennials and Gen Z will not have nearly as many kids as their parents and grandparents. So even if they do want to own houses as much as boomers did, there's going to be a lot less of them to absorb the supply of housing on the market over time.
jamie_ca 5y ago
> if your money can do better in another investment, I feel you're better off renting and making money in other ways. This can be true, but the math is complicated - it depends on the differential between a mortgage payment and what rent in the area would be, as well as expected maintenance costs. If you assume a mortgage runs 3% (which seems to be approximately correct this month in Canada), housing appreciates 5%/year, we're looking at a 500k house over 25 years, and you can invest cash at 8%: - Annual mortgage is 28,395, or 2,366/mo - Total mortgage payments are 710k - Home value is 1,693k - ROI is 983k - Matching that ROI at 8% needs almost exactly $1510/mo - So naively you'd need to find rent at $856/mo to come out ahead renting - But now adjust for property taxes and maintenance (over 25 years you probably need a new roof, maybe new siding, furnace, hot water tank...). Like I said, it gets complicated. The other reason people buy homes is stability and control - you can't be evicted from a home you own other than for non-payment (no risk of the landlord wanting to move in), and you also have the freedom to renovate to suit your changing needs.
- nickcox 5y ago
  Many jurisdictions also have generous tax incentives for property ownership. In Australia, for example, there's no CGT payable on your primary residence which means paying down a giant mortgage and then downsizing at retirement is a cost effective investment strategy for building a nest egg.
bredren 5y ago
> The only argument I see for owning a house is… Landlords and property management firms are also often miserable to deal with. Landlords and property managers need to get job-level accountability the way cab drivers did when Uber and Lyft showed up. It does no help to complain about a past landlord because you often need them as a reference. This is an asymmetric power dynamic and landlords take advantage of this. There are some rules but mostly it seems like only the most egregiously bad landlording gets paid any attention. Even when a landlord unlawfully evicts people it can tie up renters in courts for years. Landlords and property managers need to get job-level accountability the way cab drivers did when Uber and Lyft showed up.
- novok 5y ago
  There is a lot of rental regulations, and jurisdictions are rated on how renter or landlord friendly it is. Rental regulations are old, and you happen to live in a place where its landlord slanted. In places like SF, you can stop paying your rent and tie up your landlord for YEARS and not get evicted. Rent control ensures your rent goes up at a rate way below inflation, something like %0.5, and so on and so forth.
  - bredren 5y ago
    You were not talking about people who are not paying the rent. You were talking about people who could potentially buy a house. What you are failing to account for are unaccounted for costs of being a “good” renter. A great deal of Landlords do not promptly take care of problems. They don’t take care of the property. And in general they don’t act professionally. I managed an apartment building in Oakland several years ago. The landlords for an older couple that cut corners all of the time. Their posture was that the people living there did not care if the place was nice. So it was not worth investing money in trying to make it nice. Except their idea of investment was just normal maintenance other than the least possible expense to comply with the law. They hired their kid to paint the building even though it was obviously done very poorly. All of the windows had paint splattered all of them. Electrical work would include stapling over extension cord wires. Even in hiring me to manage the place they did it primarily to comply not because they wanted professional management. I’ve seen this in two other rentals I’ve been in. Even when the rent is higher than market, landlords too often cut corners to squeeze as much money out of properties as possible. From what I can tell, they do it because they’re either greedy or they see housing as a business instead of a need. Like I said, most of the focus is on eviction. But it is the day-to-day apathy of landlords that creates costs for renters that go unaccounted.
asdff 5y ago
That doesn't make much sense in areas where the market is really moving, though. Most people when they upgrade houses don't sell their house for x and buy another one for x. They sell for x which is well above what they paid, which gives them a fat down payment on a mortgage with record low rates which allows them to get quite a bit of property for not a bad monthly payment.

chrisco255 5y ago

We already are at a demographic cliff as older boomers begin to pass and younger boomers are retiring. Baby boomers are the largest generation in human history and it's looking like Millennials and Gen Z will not have nearly as many kids as their parents and grandparents. So even if they do want to own houses as much as boomers did, there's going to be a lot less of them to absorb the supply of housing on the market over time.

jamie_ca 5y ago

> if your money can do better in another investment, I feel you're better off renting and making money in other ways. This can be true, but the math is complicated - it depends on the differential between a mortgage payment and what rent in the area would be, as well as expected maintenance costs. If you assume a mortgage runs 3% (which seems to be approximately correct this month in Canada), housing appreciates 5%/year, we're looking at a 500k house over 25 years, and you can invest cash at 8%: - Annual mortgage is 28,395, or 2,366/mo - Total mortgage payments are 710k - Home value is 1,693k - ROI is 983k - Matching that ROI at 8% needs almost exactly $1510/mo - So naively you'd need to find rent at $856/mo to come out ahead renting - But now adjust for property taxes and maintenance (over 25 years you probably need a new roof, maybe new siding, furnace, hot water tank...). Like I said, it gets complicated. The other reason people buy homes is stability and control - you can't be evicted from a home you own other than for non-payment (no risk of the landlord wanting to move in), and you also have the freedom to renovate to suit your changing needs.

nickcox 5y ago
Many jurisdictions also have generous tax incentives for property ownership. In Australia, for example, there's no CGT payable on your primary residence which means paying down a giant mortgage and then downsizing at retirement is a cost effective investment strategy for building a nest egg.

bredren 5y ago

> The only argument I see for owning a house is… Landlords and property management firms are also often miserable to deal with. Landlords and property managers need to get job-level accountability the way cab drivers did when Uber and Lyft showed up. It does no help to complain about a past landlord because you often need them as a reference. This is an asymmetric power dynamic and landlords take advantage of this. There are some rules but mostly it seems like only the most egregiously bad landlording gets paid any attention. Even when a landlord unlawfully evicts people it can tie up renters in courts for years. Landlords and property managers need to get job-level accountability the way cab drivers did when Uber and Lyft showed up.

novok 5y ago
There is a lot of rental regulations, and jurisdictions are rated on how renter or landlord friendly it is. Rental regulations are old, and you happen to live in a place where its landlord slanted. In places like SF, you can stop paying your rent and tie up your landlord for YEARS and not get evicted. Rent control ensures your rent goes up at a rate way below inflation, something like %0.5, and so on and so forth.
- bredren 5y ago
  You were not talking about people who are not paying the rent. You were talking about people who could potentially buy a house. What you are failing to account for are unaccounted for costs of being a “good” renter. A great deal of Landlords do not promptly take care of problems. They don’t take care of the property. And in general they don’t act professionally. I managed an apartment building in Oakland several years ago. The landlords for an older couple that cut corners all of the time. Their posture was that the people living there did not care if the place was nice. So it was not worth investing money in trying to make it nice. Except their idea of investment was just normal maintenance other than the least possible expense to comply with the law. They hired their kid to paint the building even though it was obviously done very poorly. All of the windows had paint splattered all of them. Electrical work would include stapling over extension cord wires. Even in hiring me to manage the place they did it primarily to comply not because they wanted professional management. I’ve seen this in two other rentals I’ve been in. Even when the rent is higher than market, landlords too often cut corners to squeeze as much money out of properties as possible. From what I can tell, they do it because they’re either greedy or they see housing as a business instead of a need. Like I said, most of the focus is on eviction. But it is the day-to-day apathy of landlords that creates costs for renters that go unaccounted.

asdff 5y ago

That doesn't make much sense in areas where the market is really moving, though. Most people when they upgrade houses don't sell their house for x and buy another one for x. They sell for x which is well above what they paid, which gives them a fat down payment on a mortgage with record low rates which allows them to get quite a bit of property for not a bad monthly payment.