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Investing in real estate is not "speculating". I provide a home to young families who have become too large to live in an apartment but haven't saved enough mon

Investing in real estate is not "speculating". I provide a home to young families who have become too large to live in an apartment but haven't saved enough money for a down payment to buy their own house. I also pay for all repairs, maintenance, taxes and fees. You should learn more about an industry before you insult the people working in it.

junofan 4y ago
Come on. You buy up starter homes.
gabereiser 4y ago
You are right about it not being speculation but you are wrong on how you see your tenants. You may have a family in there now that said “Oh, we are saving to buy a house soon, we just haven’t been able to save enough” which was my statement I used to give. The reality is I had student loans, credit card debt, an ex-wife that didn’t work and loved to shop. You’re right about your liabilities. Repairs, etc. Most landlords don’t go so far. When I was renting for 20 years, I only had one landlord that offered to do repairs. All the rest of them said for me to do it and they’ll reimburse me which led to a bunch of back and forth as to why it broke and who was “at fault”. I grew up poor. My family didn’t own a home. It took me until I was 40 to be able to save enough for 20% down.
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jwilber 4y ago
You can save the song and dance. You’re not convincing any home-owners (or even potential renters) with your savior-complex lording. Just be honest. You bought an asset you expect to increase in value, and renting allows you an easy manner to pay for that. If you’re renting at current market rates, which have screwed over current renter’s savings in almost every market in the country, you’re likely contributing to this family’s lack of savings. (Again, if were being transparent, all so you can see your asset appreciate). Taxes, maintenance, etc. are a small price to pay for the earned appreciation. Even smaller when compared to the rent.
GoldenRacer 4y ago
It isn't always speculation and doesn't have to be speculation. Here's a model of what that might look like: I buy a house for $500,000. I know property taxes + repairs/depreciation + the amount of time I spend interacting with tenets will cost ~3-4% the cost of my property per year. I know with the stock market, I can average returns of around 8%. So, in order to make the real estate property attractive, I need to rent it out for ~12% of the purchase price per year or since we usually discuss rent in a monthly rate, I need to charge tenets about 1% per month. In this example, $5,000 per month. Where I live, apartments are selling for $500,000 but rent for similar apartments are closer to $2,000-$2500. Not $5,000. So, the owners of the property are getting 6% of the property value in rent per year which minus the 3-4% costs gives them a net profit of 2-3% the cost of the property. Why would anyone do this? Some might have bought the property at a lower value but they could always sell and invest in something more lucrative if they wanted. From an opportunity cost perspective, they aren't much different than someone buying in at the higher rate. So, from an actually logical viewpoint (let's not claim real estate investors are just too stupid to realize what they're doing), I see 2 possibilities: 1. They're speculating that the price will go up. My area has seen housing prices go up an average of 5% per year for the last 30+ years. If you are getting 2-3% ROI from rent and 5% ROI from housing price increase, that's 7-8% ROI which isn't bad. You're claiming real estate isn't speculative so let's take a look at the other option I can imagine to see if it paints a better picture. 2. They're highly leveraged. If you have 20x leverage at an interest rate of 2.5%, and subtract your interest payments from the 3% you made, you get 0.5% of the property value in profit when you only invested 5% giving you a 10% ROI. Again, not too bad a deal for the landlord. Different risk profile than stocks but about the similar returns. Unfortunately, this situation isn't very flattering to landlords IMO. In that case they're basically taking advantage of the fact that they have access to cheap credit and their tenets don't. That cheap credit by the way only existed because of the federal reserve and we'll all be paying it back in some form or another (possibly through high inflation rates possibly some other way). I'm not saying landlords are evil or anything. This is the game that our government created and landlords are just playing the game. I am however saying that I don't think this game is good or sustainable and maybe our government should change the game. If that requires screwing over the people that have bought housing in the last few years, so be it. I'm not going to feel too bad for either the person that has been speculating on housing or the person that over leveraged themselves. If you aren't either of those people, housing prices collapsing shouldn't scare you that much. If you noticed, my argument is based on rent being too low in comparison to house prices. I can absolutely see a situation where home prices drop a significant amount but rent prices stay about the same. That scenario shouldn't hurt you if you aren't in either of the camps I listed above.
chank 4y ago
> I also pay for all repairs, maintenance, taxes and fees. You may pay that when the bill comes due, but lets be honest, your tenet actually pays that over time. If you haven't calculated that into your rental then that would be bad business. Are you really filling a gap, or just investing in an asset like any other instrument with disregard to restricting the market by reducing availability of affordable housing. I'm pretty sure it's the later.

junofan 4y ago

Come on. You buy up starter homes.

gabereiser 4y ago

You are right about it not being speculation but you are wrong on how you see your tenants. You may have a family in there now that said “Oh, we are saving to buy a house soon, we just haven’t been able to save enough” which was my statement I used to give. The reality is I had student loans, credit card debt, an ex-wife that didn’t work and loved to shop. You’re right about your liabilities. Repairs, etc. Most landlords don’t go so far. When I was renting for 20 years, I only had one landlord that offered to do repairs. All the rest of them said for me to do it and they’ll reimburse me which led to a bunch of back and forth as to why it broke and who was “at fault”. I grew up poor. My family didn’t own a home. It took me until I was 40 to be able to save enough for 20% down.

deleted 4y ago
[deleted]

jwilber 4y ago

You can save the song and dance. You’re not convincing any home-owners (or even potential renters) with your savior-complex lording. Just be honest. You bought an asset you expect to increase in value, and renting allows you an easy manner to pay for that. If you’re renting at current market rates, which have screwed over current renter’s savings in almost every market in the country, you’re likely contributing to this family’s lack of savings. (Again, if were being transparent, all so you can see your asset appreciate). Taxes, maintenance, etc. are a small price to pay for the earned appreciation. Even smaller when compared to the rent.

GoldenRacer 4y ago

It isn't always speculation and doesn't have to be speculation. Here's a model of what that might look like: I buy a house for $500,000. I know property taxes + repairs/depreciation + the amount of time I spend interacting with tenets will cost ~3-4% the cost of my property per year. I know with the stock market, I can average returns of around 8%. So, in order to make the real estate property attractive, I need to rent it out for ~12% of the purchase price per year or since we usually discuss rent in a monthly rate, I need to charge tenets about 1% per month. In this example, $5,000 per month. Where I live, apartments are selling for $500,000 but rent for similar apartments are closer to $2,000-$2500. Not $5,000. So, the owners of the property are getting 6% of the property value in rent per year which minus the 3-4% costs gives them a net profit of 2-3% the cost of the property. Why would anyone do this? Some might have bought the property at a lower value but they could always sell and invest in something more lucrative if they wanted. From an opportunity cost perspective, they aren't much different than someone buying in at the higher rate. So, from an actually logical viewpoint (let's not claim real estate investors are just too stupid to realize what they're doing), I see 2 possibilities: 1. They're speculating that the price will go up. My area has seen housing prices go up an average of 5% per year for the last 30+ years. If you are getting 2-3% ROI from rent and 5% ROI from housing price increase, that's 7-8% ROI which isn't bad. You're claiming real estate isn't speculative so let's take a look at the other option I can imagine to see if it paints a better picture. 2. They're highly leveraged. If you have 20x leverage at an interest rate of 2.5%, and subtract your interest payments from the 3% you made, you get 0.5% of the property value in profit when you only invested 5% giving you a 10% ROI. Again, not too bad a deal for the landlord. Different risk profile than stocks but about the similar returns. Unfortunately, this situation isn't very flattering to landlords IMO. In that case they're basically taking advantage of the fact that they have access to cheap credit and their tenets don't. That cheap credit by the way only existed because of the federal reserve and we'll all be paying it back in some form or another (possibly through high inflation rates possibly some other way). I'm not saying landlords are evil or anything. This is the game that our government created and landlords are just playing the game. I am however saying that I don't think this game is good or sustainable and maybe our government should change the game. If that requires screwing over the people that have bought housing in the last few years, so be it. I'm not going to feel too bad for either the person that has been speculating on housing or the person that over leveraged themselves. If you aren't either of those people, housing prices collapsing shouldn't scare you that much. If you noticed, my argument is based on rent being too low in comparison to house prices. I can absolutely see a situation where home prices drop a significant amount but rent prices stay about the same. That scenario shouldn't hurt you if you aren't in either of the camps I listed above.

chank 4y ago

> I also pay for all repairs, maintenance, taxes and fees. You may pay that when the bill comes due, but lets be honest, your tenet actually pays that over time. If you haven't calculated that into your rental then that would be bad business. Are you really filling a gap, or just investing in an asset like any other instrument with disregard to restricting the market by reducing availability of affordable housing. I'm pretty sure it's the later.