5 ms·

The 22 yr is just playing the wrong game. He needs to take out a fixed rate mortgage, as large as possible. Then rent the property.

by _hcuq 5y ago

thallium205 5y ago
Ah yes, taking a big loan to speculate on investments. This kind of risky behavior is exactly what is wrong with high inflation environments.
- imtringued 5y ago
  Yeah the worst part about either deflation or inflation is the positive feedback loop.
- deleted 5y ago
  [deleted]
- ephbit 5y ago
  Also, it's quite a risky assumption as an individual that one's able to make a long-term profitable bet against an army of professional investors that dedicate lots of resources towards making profitable bets in the same market. As an individual, one is most likely to outperform other non-commercial individuals. It's rather likely in a complex investment environment that money will flow upward from the less well informed and less well equipped investors towards the big players. Which is why individuals should be extremely cautious where they invest .. lots of options can probably be summed up as: individual lends big player their money gets negligible real return, while big player makes orders of magnitude bigger return.
oneoff786 5y ago
Renting is frequently a losing activity
- ejb999 5y ago
  especially now where in all likelihood you are going to overpay for the property, and at anytime the government just decides that your tenants can stop paying rent for a year or more, but you still need to make your mortgage payments, property tax payments and keep insurance and the heat on etc. Some people do well with rental properties over the long haul, I wouldn't touch it with a ten foot pool these days - especially if you live in a state where tenants have more rights than the owners of the property.
- vkou 5y ago
  But owning property is not. And renting offsets some of the costs, while in the long-term, you pocket all the capital gains.
pharmakom 5y ago
Why is high leverage on an illiquid and non-diverse asset considered by so many to be a prudent move?
- deleted 5y ago
  [deleted]
- adventured 5y ago
  Why would asset diversity be considered prudent rather than being an incompetent means to chase mediocre returns? It's not necessarily high leverage, since you don't know anything about the person's balance sheet. It matters a lot more how much (and what type of) debt the person has, not so much how much debt the real-estate has. Their monthly debt payment to income ratio may be low for example, such that the mortgage isn't a problem at all (and it's an inexpensive way to borrow while inflation is high and mortgage rates are well below that rate of inflation, which is a historical oddity for the US). Diversification-as-mantra is for people that don't know what they're doing and don't know where to focus. This is what morons on television preach, and other pop investment experts, because they too have no idea what they're doing, they just know that spewing out "diversify" won't get them fired and it seems safe (mediocre returns are anything but safe). The typical person is incapable of being an expert at many asset categories. It is possible, over time, to become an expert at one or a few however, including real-estate. If you acquire competency at real-estate investing, it will pay off handsomely over time (as with equity investing). Unless you're born wealthy or acquire a lot of money in some other way, you're going to start off buying one property. Certainly one can reasonably debate the amount of down-payment to start with on that first property, depending on personal finances. The most prudent investment path is to focus on an area narrowly, concentrate at becoming good at a thing, develop as much skill at something as possible. That competency is your safety, not diversification (which is primarily useful when you have little to no skill and need to spread your investments around widely because you don't know what to focus on to generate superior returns for yourself; this is why someone like Warren Buffett advises the average person to just buy a low cost index fund, it's because they're incompetent investors ill suited to managing anything on their own - they simply do not have the skill to do so - and the index fund provides relatively safe generic diversification in the stock market, and the matching returns for that as well).
anotherman554 5y ago
This would be a very risky move.
BitwiseFool 5y ago
How reasonable is it to expect a 22 year old to be able to take out a mortgage, given their age and likely lack of any meaningful down payment? When I was 22 all I had was about $5K in savings, less than a year of experience at my first full-time salaried position and student loan debt to pay off. I imagine any reasonable loan officer would deny me on the spot for a mortgage given my liabilities and lack of proven ability to make payments.
- CyanBird 5y ago
  > How reasonable is it to expect a 22 year old to be able to take out a mortgage, given their age and likely lack of any meaningful down payment? In the 60s when the wages were high and inflation high as well? Very expectable, it was common place for people in their early 20 to be able to afford homes, and it was seen as very good that was the case
  - themaninthedark 5y ago
    Let me preface this by saying that housing prices are ridiculous. That said, a new house from the 60's is very different from a new house today. The things that come to mind: Much larger kitchen space. Shared bathroom vs every bedroom has a bathroom plus half bath for guests. Major code differences for electrical.
    - chiefofgxbxl 5y ago
      I see similar arguments with vehicle prices, where vehicles are more expensive, but they are higher build quality, have more features (heated seats, blind-spot warning, etc.), so it's not technically correct to use the term "inflation" since the product is different. But it still feels wrong to say that this isn't a concern and to dismiss it with that argument, since people still need entry-level options, even if we tout the new bells and whistles we've added to the houses or vehicles over the past few decades. Saying "housing prices are ridiculous" followed by, "but you get more features!" is no consolation to the family looking to get their foot in the door of the housing market.
    - 5y ago
ska 5y ago
You aren't wrong, but that is a symptom of how screwed up things are.
nly 5y ago
Gross rent yields on residential property are as low as 3% in major cities here in the UK with average prices at 8x median earnings. Mortgages rates are fixed for 2-5 years on average, with lifetime (25-35 year) fixes non-existent, if not so in the BTL sector. Central bank rates are rising. Buy to let as an investment is history. Landlords are leaving the game rather than joining it.

The 22 yr is just playing the wrong game. He needs to take out a fixed rate mortgage, as large as possible. Then rent the property.

by _hcuq 5y ago

The 22 yr is just playing the wrong game. He needs to take out a fixed rate mortgage, as large as possible. Then rent the property.

thallium205 5y ago

Ah yes, taking a big loan to speculate on investments. This kind of risky behavior is exactly what is wrong with high inflation environments.

imtringued 5y ago
Yeah the worst part about either deflation or inflation is the positive feedback loop.
deleted 5y ago
[deleted]
ephbit 5y ago
Also, it's quite a risky assumption as an individual that one's able to make a long-term profitable bet against an army of professional investors that dedicate lots of resources towards making profitable bets in the same market. As an individual, one is most likely to outperform other non-commercial individuals. It's rather likely in a complex investment environment that money will flow upward from the less well informed and less well equipped investors towards the big players. Which is why individuals should be extremely cautious where they invest .. lots of options can probably be summed up as: individual lends big player their money gets negligible real return, while big player makes orders of magnitude bigger return.

oneoff786 5y ago

Renting is frequently a losing activity

ejb999 5y ago
especially now where in all likelihood you are going to overpay for the property, and at anytime the government just decides that your tenants can stop paying rent for a year or more, but you still need to make your mortgage payments, property tax payments and keep insurance and the heat on etc. Some people do well with rental properties over the long haul, I wouldn't touch it with a ten foot pool these days - especially if you live in a state where tenants have more rights than the owners of the property.
vkou 5y ago
But owning property is not. And renting offsets some of the costs, while in the long-term, you pocket all the capital gains.

pharmakom 5y ago

Why is high leverage on an illiquid and non-diverse asset considered by so many to be a prudent move?

deleted 5y ago
[deleted]
adventured 5y ago
Why would asset diversity be considered prudent rather than being an incompetent means to chase mediocre returns? It's not necessarily high leverage, since you don't know anything about the person's balance sheet. It matters a lot more how much (and what type of) debt the person has, not so much how much debt the real-estate has. Their monthly debt payment to income ratio may be low for example, such that the mortgage isn't a problem at all (and it's an inexpensive way to borrow while inflation is high and mortgage rates are well below that rate of inflation, which is a historical oddity for the US). Diversification-as-mantra is for people that don't know what they're doing and don't know where to focus. This is what morons on television preach, and other pop investment experts, because they too have no idea what they're doing, they just know that spewing out "diversify" won't get them fired and it seems safe (mediocre returns are anything but safe). The typical person is incapable of being an expert at many asset categories. It is possible, over time, to become an expert at one or a few however, including real-estate. If you acquire competency at real-estate investing, it will pay off handsomely over time (as with equity investing). Unless you're born wealthy or acquire a lot of money in some other way, you're going to start off buying one property. Certainly one can reasonably debate the amount of down-payment to start with on that first property, depending on personal finances. The most prudent investment path is to focus on an area narrowly, concentrate at becoming good at a thing, develop as much skill at something as possible. That competency is your safety, not diversification (which is primarily useful when you have little to no skill and need to spread your investments around widely because you don't know what to focus on to generate superior returns for yourself; this is why someone like Warren Buffett advises the average person to just buy a low cost index fund, it's because they're incompetent investors ill suited to managing anything on their own - they simply do not have the skill to do so - and the index fund provides relatively safe generic diversification in the stock market, and the matching returns for that as well).

anotherman554 5y ago

This would be a very risky move.

BitwiseFool 5y ago

How reasonable is it to expect a 22 year old to be able to take out a mortgage, given their age and likely lack of any meaningful down payment? When I was 22 all I had was about $5K in savings, less than a year of experience at my first full-time salaried position and student loan debt to pay off. I imagine any reasonable loan officer would deny me on the spot for a mortgage given my liabilities and lack of proven ability to make payments.

CyanBird 5y ago
> How reasonable is it to expect a 22 year old to be able to take out a mortgage, given their age and likely lack of any meaningful down payment? In the 60s when the wages were high and inflation high as well? Very expectable, it was common place for people in their early 20 to be able to afford homes, and it was seen as very good that was the case
- themaninthedark 5y ago
  Let me preface this by saying that housing prices are ridiculous. That said, a new house from the 60's is very different from a new house today. The things that come to mind: Much larger kitchen space. Shared bathroom vs every bedroom has a bathroom plus half bath for guests. Major code differences for electrical.
  - chiefofgxbxl 5y ago
    I see similar arguments with vehicle prices, where vehicles are more expensive, but they are higher build quality, have more features (heated seats, blind-spot warning, etc.), so it's not technically correct to use the term "inflation" since the product is different. But it still feels wrong to say that this isn't a concern and to dismiss it with that argument, since people still need entry-level options, even if we tout the new bells and whistles we've added to the houses or vehicles over the past few decades. Saying "housing prices are ridiculous" followed by, "but you get more features!" is no consolation to the family looking to get their foot in the door of the housing market.
  - 5y ago

ska 5y ago

You aren't wrong, but that is a symptom of how screwed up things are.

nly 5y ago

Gross rent yields on residential property are as low as 3% in major cities here in the UK with average prices at 8x median earnings. Mortgages rates are fixed for 2-5 years on average, with lifetime (25-35 year) fixes non-existent, if not so in the BTL sector. Central bank rates are rising. Buy to let as an investment is history. Landlords are leaving the game rather than joining it.