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I did not miss those people, but my wording was loaded and so the point got lost in translation. I implicitly captured them under b) "[...] it's dumb to buy est

I did not miss those people, but my wording was loaded and so the point got lost in translation. I implicitly captured them under b) "[...] it's dumb to buy estates where the price is set by people and institutions that have n times your own income/net worth", where dumb is a loaded term for your >"to the point where it no longer seems rational". >But crucially, the presence of this group of people arguably turns the bubble into something else. I agree with this, it's not a bubble in the sense of 2008. I said so in the comment you replied to! We're in the same boat here. By the way: I'm precicely in that demographic. I just turned 30 and do well for myself as an employed consultant, but I wouldn't consider buying the dip, unless the dip is at least ~100% of the current market prices (which I don't see happening, but who knows). Going in debt for 30-40 years has zero appeal for me, it just seems like a terrible move. The counter-argument I hear from people my age group is always the same "but then you'll never own anything!" -- then so be it, whats the point?! Even if someone gave me a million Euros, I wouldn't spend 600k of those on a house and then another 300k on renovations, that seems like a terrible waste of resources. With that kind of money, you can buy three small companies in Germany, or stop worrying about retirement, etc. Buying estate = de facto being in debt for the entire career and then some, plus having to pay all repairs, anything. I don't see how that would ease my life at all. If someone wants to give me a house, nice, but buying a house just for the sake of doing so reminds me of a signature I often read on market-ticker.org -- leave the rats race to the rats.

lmt55 4y ago
This is fair, you didn't miss those people. But I think it was worth me highlighting them because they are, as I argued, very important. I somewhat agree with your argument. Housing costs more than other assets compared to its economic value, exactly because people have an emotional reaction to the idea of owning it - or the idea of not owning it. However I have seen middle-class people overextend themselves to 'buy the dip', while their equally wealthy peers sit it out, for over 15 years now. Many of the people who did the former now consider themselves to have got a bargain, while many of the latter changed their minds and ended up buying several years later and at much higher prices. I'm definitely not arguing that this makes buying right and renting wrong! Just that so far, this is how that choice played out.
- pooper 4y ago
  A real estate investment newsletter suggests that for a successful real estate investment, as a rule of thumb you should be able to charge almost one percent of the cost of the house as rent because a rational investor shouldn't count on the value of the house going up. I am curious what you guys think of this statement. I think the idea is if the potential rent you get out of your investment is too much under one percent, you might be better off investing in something else? Now imagine a smallish 4 bed, 2 bath, 1,638 sqft built home on a 5,861 sqft lot in Longmont, Colorado (so not exactly a city but my preference because municipal fiber) that has a sticker price of USD 499,900. I can't imagine paying USD 4,999 every month in rent for this house at the moment. What gives? Is rent too low? My instinct is home prices are way too high but it can't just be "dumb money" keeping prices high, right? Eventually, there should be more supply causing prices to drop? Is something preventing this correction? If so, how do we fix it?
  - lmt55 4y ago
    An old rule of thumb was 'buy at 10, sell at 20'. That's the ratio of price to annual rent. So if you could get 0.86% of the house price in monthly rent, it was a big bargain. If you couldn't get more than 0.43%, then it wasn't worth owning. The rule of thumb is now obsolete, and 30-40 times rent is perfectly common in lots of places. The newsletter is quite a lot more aggressive than even the rule of thumb from the 'good old days' when interest rates were much higher. I used to pay around 0.2% of the market price of my apartment per month. The landlord was a professional property management company, and this situation persisted through several new contracts.
  - ddorian43 4y ago
    > A real estate investment newsletter suggests that for a successful real estate investment, as a rule of thumb you should be able to charge almost one percent of the cost of the house as rent because a rational investor shouldn't count on the value of the house going up. Does this have all taxes(property,rent,etc) included in the cost?
    - pooper 4y ago
pjc50 4y ago
> Going in debt for 30-40 years has zero appeal for me Going into debt at the lowest interest rate you'll ever be offered to buy a leveraged asset that's likely to increase in price and reduce the overhead you pay on your largest expense, housing, and hedge against the risk of rent increases and security against the whims of landlords? > Germany Oh, Germany. Somehow Germany has escaped the constantly increasing house price effect, as has Japan. If you owned a house in London its annual value increases would almost certainly out-earn your salary. And you don't have to pay tax on that.
- lmt55 4y ago
  I own a house in London. Its total value increase since I bought it 5 years ago is much less than my salary.
  - celticninja 4y ago
    You bought near the peak of the market then. Definitely been some downward pressure on prices since covid as people sold up in London, took that premium price and moved to larger properties elsewhere. Not saying it was a bad investment, just that the return will take longer than it has in the past.
    - lmt55 4y ago
      It doesn't matter where I bought. If I haven't made much money in the last 5 years, nor has anyone else (on average), regardless of how long they've owned their property. The suggestion that 'the return will take longer than it has in the past' is a prediction with no evidential basis.
    - IG_Semmelweiss 4y ago
      Isnt that exactly the scenario that op is describing? Lack of flexibility at precisely the right time? Owning in any large city + servicing debt during the pandemic when you must move elsewhwre that is sane (and less risky to your health) would seem to have a premium attached to it
  - 4y ago
itsoktocry 4y ago
>Going in debt for 30-40 years has zero appeal for me, it just seems like a terrible move. Buying a house isn't for everyone, sure. But this is a serious misunderstanding of what "going into debt" is. You're not buying a TV you'll throw out in 5 years, you're buying an asset class that has a history of appreciating in value over 100+ years that you can get incredible leverage on. In the US and Canada, at least, buying a house for a decent deal (in "normal" times, not at insane prices) is a no-brainer investment. You mention buying companies...that's just a different asset class, but the idea is the same. It's not valueless the moment you buy it, you now have an asset. >Buying estate = de facto being in debt for the entire career and then some, plus having to pay all repairs, anything. Do you think this is all happening for free as a renter? At what point in your life do you plan on not paying for shelter?
- agent008t 4y ago
  >buying an asset class that has a history of appreciating in value Correction - over a time period of decreasing interest rates. Housing, on its own, is a depreciating asset. It is a consumable like a TV. It deteriorates with time. "Housing always goes up", without an understanding of why it has been going up, can be a dangerous belief and could be one of the reasons why housing at the moment is so expensive relative to rents.
  - milkshakes 4y ago
    housing might depreciate, but the same is not generally true for the real estate it sits on
    - bombcar 4y ago
      Land values can turn around, especially if desirability of the area changes.
    - ratsforhorses 4y ago
      Is this also true for places like Detroit, small inner towns in the mid ? West... my impression was that once banks got involved lending money the prices took off, I was under the impression that getting a house loan directly contributes to the amount of money in circulation...thereby increasing ? inflation.... another myth?) I heard was that in China houses are leased for x years (80?) thereby leading to a lot of Chinese buying foreign Real Estate.... if RE has the reputation of accruing value surely it'd be a good thing to put the brakes on companies from investing in it? I mean seeing endless same housing is kind of mind numbing.... I also have a theory that high RE prices are a perfect vehicule for stashing/laundering large sums of money.... Also to what extent isn't it political cronyism with the construction industry that leads to such shitty urbanistic decisions like we have in Romania where people are pawns to short term greed ...
eadmund 4y ago
> I just turned 30 and do well for myself as an employed consultant, but I wouldn't consider buying the dip, unless the dip is at least ~100% of the current market prices (which I don't see happening, but who knows). You wouldn't buy a house unless it was essentially free? A dip of ~100% means prices at ~0% their current level. > Going in debt for 30-40 years has zero appeal for me, it just seems like a terrible move. Debt on its own doesn't matter so much. You already know that you will need to live somewhere for the rest of your life, so that expense is unavoidable. The question is whether you want the amount of that expense to fluctuate according to the market, or if you want to lock in a steadily-decreasing expense with a 30-year fixed rate mortgage (steadily decreasing in real terms, because $100 in 30 years will be worth $50–60; yes, property taxes are likely to increase, and maintenance will move with the market, but mortgage interest and principal will decrease in real terms). > Even if someone gave me a million Euros, I wouldn't spend 600k of those on a house and then another 300k on renovations, that seems like a terrible waste of resources. With that kind of money, you can buy three small companies in Germany, or stop worrying about retirement, etc. $1.05 million is hardly enough to live on. That's just $35,000 per annum. It's not nothing, and I surely wouldn't sneer at a gift of $1.05 million, but it wouldn't let me retire today.
- thiago_fm 4y ago
  35K year is a lot of money. It is close to the average yearly salary in Germany, the country he has mentioned, and this is not including taxes etc. So is $1mi. For a lot of countries, this is money you could retire on.
jjav 4y ago
> Going in debt for 30-40 years has zero appeal for me, it just seems like a terrible move. That's not the best way to look at it. Unless you plan on being homeless, you're already inevitably committed to a monthly housing payment for most of your life. So the decision becomes, do you pay someone else to enrich them and commmit to having to pay for the rest of your life? Or do you invest in something where you partly pay yourself and there is an end (even if far) to the payments, so when you're old you no longer have those monthly payments?
rchaud 4y ago
> With that kind of money, you can buy three small companies in Germany, or stop worrying about retirement, etc. What are the closing costs of purchasing a whole company? How much would you pay for an accountant to go over the books and a lawyer to go over the forms? I don't know how much homes cost in Germany, but surely if people have 600k to spend, they would buy companies too, would they not? Why do they buy homes instead?

lmt55 4y ago

This is fair, you didn't miss those people. But I think it was worth me highlighting them because they are, as I argued, very important. I somewhat agree with your argument. Housing costs more than other assets compared to its economic value, exactly because people have an emotional reaction to the idea of owning it - or the idea of not owning it. However I have seen middle-class people overextend themselves to 'buy the dip', while their equally wealthy peers sit it out, for over 15 years now. Many of the people who did the former now consider themselves to have got a bargain, while many of the latter changed their minds and ended up buying several years later and at much higher prices. I'm definitely not arguing that this makes buying right and renting wrong! Just that so far, this is how that choice played out.

pooper 4y ago
A real estate investment newsletter suggests that for a successful real estate investment, as a rule of thumb you should be able to charge almost one percent of the cost of the house as rent because a rational investor shouldn't count on the value of the house going up. I am curious what you guys think of this statement. I think the idea is if the potential rent you get out of your investment is too much under one percent, you might be better off investing in something else? Now imagine a smallish 4 bed, 2 bath, 1,638 sqft built home on a 5,861 sqft lot in Longmont, Colorado (so not exactly a city but my preference because municipal fiber) that has a sticker price of USD 499,900. I can't imagine paying USD 4,999 every month in rent for this house at the moment. What gives? Is rent too low? My instinct is home prices are way too high but it can't just be "dumb money" keeping prices high, right? Eventually, there should be more supply causing prices to drop? Is something preventing this correction? If so, how do we fix it?
- lmt55 4y ago
  An old rule of thumb was 'buy at 10, sell at 20'. That's the ratio of price to annual rent. So if you could get 0.86% of the house price in monthly rent, it was a big bargain. If you couldn't get more than 0.43%, then it wasn't worth owning. The rule of thumb is now obsolete, and 30-40 times rent is perfectly common in lots of places. The newsletter is quite a lot more aggressive than even the rule of thumb from the 'good old days' when interest rates were much higher. I used to pay around 0.2% of the market price of my apartment per month. The landlord was a professional property management company, and this situation persisted through several new contracts.
- ddorian43 4y ago
  > A real estate investment newsletter suggests that for a successful real estate investment, as a rule of thumb you should be able to charge almost one percent of the cost of the house as rent because a rational investor shouldn't count on the value of the house going up. Does this have all taxes(property,rent,etc) included in the cost?
  - pooper 4y ago

pjc50 4y ago

> Going in debt for 30-40 years has zero appeal for me Going into debt at the lowest interest rate you'll ever be offered to buy a leveraged asset that's likely to increase in price and reduce the overhead you pay on your largest expense, housing, and hedge against the risk of rent increases and security against the whims of landlords? > Germany Oh, Germany. Somehow Germany has escaped the constantly increasing house price effect, as has Japan. If you owned a house in London its annual value increases would almost certainly out-earn your salary. And you don't have to pay tax on that.

lmt55 4y ago
I own a house in London. Its total value increase since I bought it 5 years ago is much less than my salary.
- celticninja 4y ago
  You bought near the peak of the market then. Definitely been some downward pressure on prices since covid as people sold up in London, took that premium price and moved to larger properties elsewhere. Not saying it was a bad investment, just that the return will take longer than it has in the past.
  - lmt55 4y ago
    It doesn't matter where I bought. If I haven't made much money in the last 5 years, nor has anyone else (on average), regardless of how long they've owned their property. The suggestion that 'the return will take longer than it has in the past' is a prediction with no evidential basis.
  - IG_Semmelweiss 4y ago
    Isnt that exactly the scenario that op is describing? Lack of flexibility at precisely the right time? Owning in any large city + servicing debt during the pandemic when you must move elsewhwre that is sane (and less risky to your health) would seem to have a premium attached to it
- 4y ago

itsoktocry 4y ago

>Going in debt for 30-40 years has zero appeal for me, it just seems like a terrible move. Buying a house isn't for everyone, sure. But this is a serious misunderstanding of what "going into debt" is. You're not buying a TV you'll throw out in 5 years, you're buying an asset class that has a history of appreciating in value over 100+ years that you can get incredible leverage on. In the US and Canada, at least, buying a house for a decent deal (in "normal" times, not at insane prices) is a no-brainer investment. You mention buying companies...that's just a different asset class, but the idea is the same. It's not valueless the moment you buy it, you now have an asset. >Buying estate = de facto being in debt for the entire career and then some, plus having to pay all repairs, anything. Do you think this is all happening for free as a renter? At what point in your life do you plan on not paying for shelter?

agent008t 4y ago
>buying an asset class that has a history of appreciating in value Correction - over a time period of decreasing interest rates. Housing, on its own, is a depreciating asset. It is a consumable like a TV. It deteriorates with time. "Housing always goes up", without an understanding of why it has been going up, can be a dangerous belief and could be one of the reasons why housing at the moment is so expensive relative to rents.
- milkshakes 4y ago
  housing might depreciate, but the same is not generally true for the real estate it sits on
  - bombcar 4y ago
    Land values can turn around, especially if desirability of the area changes.
  - ratsforhorses 4y ago
    Is this also true for places like Detroit, small inner towns in the mid ? West... my impression was that once banks got involved lending money the prices took off, I was under the impression that getting a house loan directly contributes to the amount of money in circulation...thereby increasing ? inflation.... another myth?) I heard was that in China houses are leased for x years (80?) thereby leading to a lot of Chinese buying foreign Real Estate.... if RE has the reputation of accruing value surely it'd be a good thing to put the brakes on companies from investing in it? I mean seeing endless same housing is kind of mind numbing.... I also have a theory that high RE prices are a perfect vehicule for stashing/laundering large sums of money.... Also to what extent isn't it political cronyism with the construction industry that leads to such shitty urbanistic decisions like we have in Romania where people are pawns to short term greed ...

eadmund 4y ago

> I just turned 30 and do well for myself as an employed consultant, but I wouldn't consider buying the dip, unless the dip is at least ~100% of the current market prices (which I don't see happening, but who knows). You wouldn't buy a house unless it was essentially free? A dip of ~100% means prices at ~0% their current level. > Going in debt for 30-40 years has zero appeal for me, it just seems like a terrible move. Debt on its own doesn't matter so much. You already know that you will need to live somewhere for the rest of your life, so that expense is unavoidable. The question is whether you want the amount of that expense to fluctuate according to the market, or if you want to lock in a steadily-decreasing expense with a 30-year fixed rate mortgage (steadily decreasing in real terms, because $100 in 30 years will be worth $50–60; yes, property taxes are likely to increase, and maintenance will move with the market, but mortgage interest and principal will decrease in real terms). > Even if someone gave me a million Euros, I wouldn't spend 600k of those on a house and then another 300k on renovations, that seems like a terrible waste of resources. With that kind of money, you can buy three small companies in Germany, or stop worrying about retirement, etc. $1.05 million is hardly enough to live on. That's just $35,000 per annum. It's not nothing, and I surely wouldn't sneer at a gift of $1.05 million, but it wouldn't let me retire today.

thiago_fm 4y ago
35K year is a lot of money. It is close to the average yearly salary in Germany, the country he has mentioned, and this is not including taxes etc. So is $1mi. For a lot of countries, this is money you could retire on.

jjav 4y ago

> Going in debt for 30-40 years has zero appeal for me, it just seems like a terrible move. That's not the best way to look at it. Unless you plan on being homeless, you're already inevitably committed to a monthly housing payment for most of your life. So the decision becomes, do you pay someone else to enrich them and commmit to having to pay for the rest of your life? Or do you invest in something where you partly pay yourself and there is an end (even if far) to the payments, so when you're old you no longer have those monthly payments?

rchaud 4y ago

> With that kind of money, you can buy three small companies in Germany, or stop worrying about retirement, etc. What are the closing costs of purchasing a whole company? How much would you pay for an accountant to go over the books and a lawyer to go over the forms? I don't know how much homes cost in Germany, but surely if people have 600k to spend, they would buy companies too, would they not? Why do they buy homes instead?