3 ms·

Why not invest in the market then?

throw_nbvc1234 5y ago
Two, somewhat hypothetical questions, I'd have to answer first. What would happen to the if everyone suddenly agreed that there was a hard-cap to how much the global economy can grow; Especially if that cap was somewhat near to where we are today? How do you solve the core problem of "climate change" (which I'll define here as the unsustainable use of natural resources) without essentially implementing a hard cap of the global economy. This question isn't just about electricity versus oil. It's about trash, disposable (or planned obsolescence) consumer goods, fish/wildlife, forests, ect... You could interpret the change in climate is just a single symptom of this runaway train. And any effort to pull the brakes is likely to cause the whole train to derail and crash. Maybe we'll make it to mars before then. Or maybe there will be a massive decrease in human life (war or another pandemic) and this whole question will solve itself.
mywittyname 5y ago
You can do both. But housing has the benefit of high leverage-to-cost ratio. One can get 20% leverage at ~4% on a stock portfolio. One can get 2000% leverage (5% down) at 2.9% on a house. Granted, the leverage on the house requires paying interest and 1/3600th of principle each month. But, unlike the stock portfolio, it's not callable.
- shados 5y ago
  The math for this ends up being extremely complex. The leverage is one part, and a big one. You have to account for closing costs (especially when selling), and uncertainty around how long you'll stay. But you could theoretically rent it out. But as we've seen, some cities could keep an eviction moratorium going and that could be costly. Housing in some areas skyrocketed in values, but you could be buying a lemon since "no inspection contingency" is the norm in hot markets. Taxes and HoA fees can go up a fair bit too, and there's maintenance. There's a few psychological factors that don't factor in the math, like how you may do renovations that don't translate 1:1 to home value that you wouldn't do if you're renting. On the other hand, rent does go up, generally faster than property taxes. It's really a toss up based on a lot of variables, but generally, yeah, home ownership will come up ahead. Not always though. While if you invest in a total market index, you're main risk is the entire country tanking, it's different with a home. You're gambling on that ONE PARTICULAR HOME in one particular place. That's a lot riskier than an index fund. But you get to make holes in the walls without anyone yelling at you, and that's a big plus.
  - yazaddaruvala 5y ago
    What would be great are hyper-specific REITs. e.g. I want to “own land” in Seattle so I’m never priced out, but averaged across the city so there is no single point of risk. With the added benefit that I can add capital in small increments. If such a REIT were structured as a COOP that would be even even better from my perspective.
    - shados 5y ago
      Yeah. At the same time, I have a condo in a super hot area of a tech hub, and it still didn't really appreciate any faster than the market (you'd think it did with those crazy leaps, but the market has been pretty crazy for the last couple of years too). If it wasn't for the leverage, no tax capital gain and rent saving and fringe benefits of owning a home, it wouldn't be that great an investment, so REIT don't really compare.

Two, somewhat hypothetical questions, I'd have to answer first. What would happen to the if everyone suddenly agreed that there was a hard-cap to how much the global economy can grow; Especially if that cap was somewhat near to where we are today? How do you solve the core problem of "climate change" (which I'll define here as the unsustainable use of natural resources) without essentially implementing a hard cap of the global economy. This question isn't just about electricity versus oil. It's about trash, disposable (or planned obsolescence) consumer goods, fish/wildlife, forests, ect... You could interpret the change in climate is just a single symptom of this runaway train. And any effort to pull the brakes is likely to cause the whole train to derail and crash. Maybe we'll make it to mars before then. Or maybe there will be a massive decrease in human life (war or another pandemic) and this whole question will solve itself.

mywittyname 5y ago

You can do both. But housing has the benefit of high leverage-to-cost ratio. One can get 20% leverage at ~4% on a stock portfolio. One can get 2000% leverage (5% down) at 2.9% on a house. Granted, the leverage on the house requires paying interest and 1/3600th of principle each month. But, unlike the stock portfolio, it's not callable.

shados 5y ago
The math for this ends up being extremely complex. The leverage is one part, and a big one. You have to account for closing costs (especially when selling), and uncertainty around how long you'll stay. But you could theoretically rent it out. But as we've seen, some cities could keep an eviction moratorium going and that could be costly. Housing in some areas skyrocketed in values, but you could be buying a lemon since "no inspection contingency" is the norm in hot markets. Taxes and HoA fees can go up a fair bit too, and there's maintenance. There's a few psychological factors that don't factor in the math, like how you may do renovations that don't translate 1:1 to home value that you wouldn't do if you're renting. On the other hand, rent does go up, generally faster than property taxes. It's really a toss up based on a lot of variables, but generally, yeah, home ownership will come up ahead. Not always though. While if you invest in a total market index, you're main risk is the entire country tanking, it's different with a home. You're gambling on that ONE PARTICULAR HOME in one particular place. That's a lot riskier than an index fund. But you get to make holes in the walls without anyone yelling at you, and that's a big plus.
- yazaddaruvala 5y ago
  What would be great are hyper-specific REITs. e.g. I want to “own land” in Seattle so I’m never priced out, but averaged across the city so there is no single point of risk. With the added benefit that I can add capital in small increments. If such a REIT were structured as a COOP that would be even even better from my perspective.
  - shados 5y ago
    Yeah. At the same time, I have a condo in a super hot area of a tech hub, and it still didn't really appreciate any faster than the market (you'd think it did with those crazy leaps, but the market has been pretty crazy for the last couple of years too). If it wasn't for the leverage, no tax capital gain and rent saving and fringe benefits of owning a home, it wouldn't be that great an investment, so REIT don't really compare.