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Housing is strictly a significantly worse investment over the long run than stock markets, if you consider just appreciation and expenses. However, it's pretty

Housing is strictly a significantly worse investment over the long run than stock markets, if you consider just appreciation and expenses. However, it's pretty lucrative to buy and rent, if you can find tenants. That points to the obvious problem: there's not enough housing. Unfortunately, our governments create massive hurdles to build more housing, usually spurred on by interest groups.

AYBABTME 3y ago
You can't live in your stock portfolio.
- JumpCrisscross 3y ago
  > can't live in your stock portfolio Of course you can. You sell or harvest dividends. The same as living in an investment property forces you to give up its cash yield.
  - Izkata 3y ago
    They said "in", not "on".
  - pdonis 3y ago
    > You sell or harvest dividends. But then you're not owning anything and renting it out, which was what the GGP was talking about.
  - AYBABTME 3y ago
    Your stock portfolio isn't intrinsically useful. A house is intrinsically useful, even if you rent it out: you can do an owner-move-in, and you secured your ability to live somewhere. If the stock market crash, you can't do anything useful with your stock portfolio. If the housing market crash, you can do something useful with the house: live in it. I don't argue that you can rent with the yield of your portfolio. I'm just saying that when the music stops, a house is useful and a portfolio of stock isn't. So to me, owning a house is worth it over having a souped up stock portfolio. And if you rent out your house, even if in a high CoL area like the SF Bay area, the long term yield can be comparable to a stock portfolio. And during that time, you have an anchor in one of the most economically productive area of the world.
- enos_feedler 3y ago
  you can collect dividends on it and allocate some of that cash flow to renting while the stocks grow in value. I currently have an 8% yield on cost that I am living off of and renting $1800/mo in Palo Alto. Been there for over 5 years and they aren't raising rent on me. The game with renting is not pay current market rates.
  - almost_usual 3y ago
    > I currently have an 8% yield on cost that I am living off of and renting $1800/mo in Palo Alto. That seems really cheap for Palo Alto.
  - pdonis 3y ago
    > you can collect dividends on it and allocate some of that cash flow to renting while the stocks grow in value. But then you're not buying any property and renting it out, which was what the GGP was talking about.
    - enos_feedler 3y ago
      I was refuting the idea that you can't live in your stock portfolio. You can if the dividend yield is less than the rent.
      - pdonis 3y ago
        > I was refuting the idea that you can't live in your stock portfolio. That post was not made in a vacuum. It was made in response to a particular claim, which was not as simple as "oh, sure, you can own stocks and pay your rent out of the dividends".
  - jjav 3y ago
    > The game with renting is not pay current market rates. If you can somehow do that, sure! If you can get a service below market rates, take advantage. But surely it's obvious that by definition, very few people are going to be able to luck into such a position. So it's not broadly applicable advise. > renting $1800/mo in Palo Alto [...] and they aren't raising rent on me That's the deal of the century in terms of housing. Yes you're way better off renting on those terms. Since nobody else can find a rent so low in Palo Alto, let alone one that won't go up, for most people reality is different.
hifromLA 3y ago
I’m not sure that’s exactly true. Maybe in % increase yes, but are you considering the leverage when buying a home and the money that would have been spent on rent (which can increase year over year)? I recommend the NY Times rent vs buy calculator because there is no one size fits all answer. Also like some people I know, they have paid off a house which is a steady stream of passive (ish) income before buying their current place. That can also pay off on a longer timeline.
EricDeb 3y ago
Only if take the same leverage in the stock market and hold through massive drops
paulddraper 3y ago
That analysis assumes no utility from the house itself. I.e. it ignores the cost of rent that you would otherwise be paying.
- jandrewrogers 3y ago
  It doesn't ignore the cost of rent. The numbers still pencil out on average. To put it another way, renting gives you an option to buy a house at any point in the future from a strictly better financial position than you'd be in than if you bought a house now. Owning a house is expensive, and the cost basis of the landlord is almost always much lower than your cost basis, so they can make a profit renting it for less than your cost if you bought it. This is particularly true in the current market. For example, if you bought the place I own today with a 20% down payment, the monthly payments after subtracting payments against principal would significantly exceed the rent on the same place. Yet I could rent it out at a profit. If it was purely about optimizing financial outcomes, it would make no sense for anyone to buy my place. You can very easily come out ahead financially by renting in many markets.
  - pdonis 3y ago
    > The numbers still pencil out on average. You're going to need to show your work here, because, to me and apparently to several other posters at least, it makes no sense to even compare the numbers in the two cases you describe, because, as another poster responding to you said, you can't live in your stock portfolio. > renting... Renting the place you live in vs. owning it is not the comparison you are claiming to make when you say buying a house and living in it is a "bad investment". The comparison you are claiming to make is between buying a house and living in it, vs. buying a house and renting it out. Which, as noted above, doesn't even make sense as a comparison.
    - jandrewrogers 3y ago
      The comparison is renting versus buying the same place to live in. A common fallacy is assuming that the financial loss from renting is always larger than the financial loss from buying. I gave a concrete example of why your pure losses owning that place would be thousands of dollars higher than the pure losses from renting the same place. I didn't say being a landlord had a good return on investment, just that landlords can make a profit charging a rent below your cost to buy. As a consequence, if you invest the difference reasonably then your net worth can grow faster as a renter. To put it another way, you could rent and save enough money to buy the house with cash before you'd be able to pay off your mortgage, ceteris paribus. You'd still have the house at the end. Financial models that show you often come out ahead if you rent and put the difference in other investments have been done ad nauseam on the Internet, it doesn't need to be rehashed here.
throwaw12 3y ago
IMO, very unpopular opinion, it's not because governments are not allowing more houses, it is because of mortgage. People who bought 10 years ago for 200k do not want to sell it for 250k, because they paid more interest, let's say "initial price + interest = 300k" today. If anyone wants to sell, they want to get at least 300k, buyer again gets a mortgage and in 10 years same house costs 400k or more. rinse and repeat, houses will cost double digit millions. See Seoul for example, avg house costs around 1M$, while average salary is around 35K$/year (30x difference)
- ttymck 3y ago
  > People who bought 10 years ago for 200k do not want to sell it for 250k, because they paid more interest, let's say "initial price + interest = 300k" today. I think you are significantly overestimating the average American's willingness and ability to calculate and understand something as simple as their "cash on cash return".
  - throwaw12 3y ago
    > I think you are significantly overestimating the average American's willingness and ability to calculate and understand something as simple as their "cash on cash return". I think you are also underestimating market forces, average American doesn't need to calculate, real estate agents will tell you the price, they are not going to sell your house for 100K, if it costs 1M
- A_D_E_P_T 3y ago
  [dead]
- tzs 3y ago
  I think what most people who are living in their house look at when deciding if they well sell is if (selling price - remaining amount on mortgage) will give them enough that when they put the proceeds toward buying a house where they are moving too they will be in good shape financially.
- jjav 3y ago
  > People who bought 10 years ago for 200k do not want to sell it for 250k, because they paid more interest, let's say "initial price + interest = 300k" today. I doubt there are many people who think that way. If they want to sell, the market determines the price so stomping your feet and saying I want 300K just because, isn't going to work. Second, that's an incorrect calculation anyway. They may have put 300K into it, but they also got 10 years worth of a place to live out of it already, which is a lot of value. So the breakeven price considering the rent they didn't have to pay for 10 years is not the full 300K.
bitcurious 3y ago
Is that true when you factor in leverage?
wink 3y ago
Not everyone thinks purely in how good of an investment it is. While there are of course downsides, there are advantages, like just decorating and building out stuff just how you like, and not having to ask your landlord. Also people who are more risk averse towards stock markets (Hi, I'm German) will probably prefer a house/flat over some stocks.
- bachmeier 3y ago
  > Also people who are more risk averse towards stock markets (Hi, I'm German) will probably prefer a house/flat over some stocks. The risk averse might prefer renting in that case. It can be quite a shock to find out that you need to pay $15,000 to replace your roof after a storm goes through. The ups and downs of the stock market don't require you to make a large payment on short notice.
  - jjav 3y ago
    > The risk averse might prefer renting in that case. If your risk averse window is only short term, that might make sense. If you think of housing risk over your lifetime, renting is the worst because now you have this huge uncertainty over how much housing will cost in 10, 20, 30, 40 years from now. How much will it cost in retirement 50 or 60 years from now (for someone in their 20s) when you have no income anymore? Will rent increase so much you'll be homeless in old age? If you're risk averse, buy a house and make housing costs quite predictable for the rest of your life.
pdonis 3y ago
> Housing is strictly a significantly worse investment over the long run than stock markets, if you consider just appreciation and expenses. But if you live in the house, then just considering appreciation and expenses leaves out a huge benefit: you have a place to live without spending any other money. If you buy and rent, you have to spend additional money for your own place to live. The latter situation is comparable to investing into the stock market instead of in buying and then renting a house, but the former is not. That's why so many people take the former option even though, "on paper" (i.e., leaving out the huge benefit of living in the house), it looks like a "bad investment".
- _huayra_ 3y ago
  > But if you live in the house, then just considering appreciation and expenses leaves out a huge benefit: you have a place to live without spending any other money. What matters at the end of the day are the irrecoverable costs. When renting, it is just the rent. When owning, it is certainly not free: you're paying other irrecoverable costs (e.g. out of PITI+HOA, everything but P is irrecoverable; add on separate costs for when you must pay for repairs and it gets steeper). Sure, you have stability and can write off mortgage interest when you own (although the latter is an extremely unfair policy), but unless one is absolutely sure that one can stay in the home for close to ~7 years (the rough time it took for many HCOL cities in the US to recover their nominal prices from the GFC peak), it can be considered to be a risky time to make such a big financial commitment. Ben Felix has some videos on this concept of "irrecoverable costs" which I find helpful to illustrate this, such as this one [0]. Although I disagree with his idea that leasing cars is a good idea (expressed in some of his podcasts), I find his ideas on renting vs. buying to be quite sound. Personally speaking, I just doubled my compensation by moving from one HCOL city to another in the US because I was renting and not "locked in" to a mortgage. So many colleagues at my former place could not afford to come to the closing table with cash to close out their mortgage at a loss to move (the company I went to basically wanted to hire my whole team, but I was the only one who could manage because I wasn't committed to a mortgage). Eventually I do want to own a home myself, but it was eye-opening how poor of a choice it was for my former colleagues (although my choice to go to grad school during most of the QE decade probably more than compensates for this one win...). [0] https://www.youtube.com/watch?v=q9Golcxjpi8 https://www.youtube.com/watch?v=q9Golcxjpi8

AYBABTME 3y ago

You can't live in your stock portfolio.

JumpCrisscross 3y ago
> can't live in your stock portfolio Of course you can. You sell or harvest dividends. The same as living in an investment property forces you to give up its cash yield.
- Izkata 3y ago
  They said "in", not "on".
- pdonis 3y ago
  > You sell or harvest dividends. But then you're not owning anything and renting it out, which was what the GGP was talking about.
- AYBABTME 3y ago
  Your stock portfolio isn't intrinsically useful. A house is intrinsically useful, even if you rent it out: you can do an owner-move-in, and you secured your ability to live somewhere. If the stock market crash, you can't do anything useful with your stock portfolio. If the housing market crash, you can do something useful with the house: live in it. I don't argue that you can rent with the yield of your portfolio. I'm just saying that when the music stops, a house is useful and a portfolio of stock isn't. So to me, owning a house is worth it over having a souped up stock portfolio. And if you rent out your house, even if in a high CoL area like the SF Bay area, the long term yield can be comparable to a stock portfolio. And during that time, you have an anchor in one of the most economically productive area of the world.
enos_feedler 3y ago
you can collect dividends on it and allocate some of that cash flow to renting while the stocks grow in value. I currently have an 8% yield on cost that I am living off of and renting $1800/mo in Palo Alto. Been there for over 5 years and they aren't raising rent on me. The game with renting is not pay current market rates.
- almost_usual 3y ago
  > I currently have an 8% yield on cost that I am living off of and renting $1800/mo in Palo Alto. That seems really cheap for Palo Alto.
- pdonis 3y ago
  > you can collect dividends on it and allocate some of that cash flow to renting while the stocks grow in value. But then you're not buying any property and renting it out, which was what the GGP was talking about.
  - enos_feedler 3y ago
    I was refuting the idea that you can't live in your stock portfolio. You can if the dividend yield is less than the rent.
    - pdonis 3y ago
      > I was refuting the idea that you can't live in your stock portfolio. That post was not made in a vacuum. It was made in response to a particular claim, which was not as simple as "oh, sure, you can own stocks and pay your rent out of the dividends".
- jjav 3y ago
  > The game with renting is not pay current market rates. If you can somehow do that, sure! If you can get a service below market rates, take advantage. But surely it's obvious that by definition, very few people are going to be able to luck into such a position. So it's not broadly applicable advise. > renting $1800/mo in Palo Alto [...] and they aren't raising rent on me That's the deal of the century in terms of housing. Yes you're way better off renting on those terms. Since nobody else can find a rent so low in Palo Alto, let alone one that won't go up, for most people reality is different.

hifromLA 3y ago

I’m not sure that’s exactly true. Maybe in % increase yes, but are you considering the leverage when buying a home and the money that would have been spent on rent (which can increase year over year)? I recommend the NY Times rent vs buy calculator because there is no one size fits all answer. Also like some people I know, they have paid off a house which is a steady stream of passive (ish) income before buying their current place. That can also pay off on a longer timeline.

EricDeb 3y ago

Only if take the same leverage in the stock market and hold through massive drops

paulddraper 3y ago

That analysis assumes no utility from the house itself. I.e. it ignores the cost of rent that you would otherwise be paying.

jandrewrogers 3y ago
It doesn't ignore the cost of rent. The numbers still pencil out on average. To put it another way, renting gives you an option to buy a house at any point in the future from a strictly better financial position than you'd be in than if you bought a house now. Owning a house is expensive, and the cost basis of the landlord is almost always much lower than your cost basis, so they can make a profit renting it for less than your cost if you bought it. This is particularly true in the current market. For example, if you bought the place I own today with a 20% down payment, the monthly payments after subtracting payments against principal would significantly exceed the rent on the same place. Yet I could rent it out at a profit. If it was purely about optimizing financial outcomes, it would make no sense for anyone to buy my place. You can very easily come out ahead financially by renting in many markets.
- pdonis 3y ago
  > The numbers still pencil out on average. You're going to need to show your work here, because, to me and apparently to several other posters at least, it makes no sense to even compare the numbers in the two cases you describe, because, as another poster responding to you said, you can't live in your stock portfolio. > renting... Renting the place you live in vs. owning it is not the comparison you are claiming to make when you say buying a house and living in it is a "bad investment". The comparison you are claiming to make is between buying a house and living in it, vs. buying a house and renting it out. Which, as noted above, doesn't even make sense as a comparison.
  - jandrewrogers 3y ago
    The comparison is renting versus buying the same place to live in. A common fallacy is assuming that the financial loss from renting is always larger than the financial loss from buying. I gave a concrete example of why your pure losses owning that place would be thousands of dollars higher than the pure losses from renting the same place. I didn't say being a landlord had a good return on investment, just that landlords can make a profit charging a rent below your cost to buy. As a consequence, if you invest the difference reasonably then your net worth can grow faster as a renter. To put it another way, you could rent and save enough money to buy the house with cash before you'd be able to pay off your mortgage, ceteris paribus. You'd still have the house at the end. Financial models that show you often come out ahead if you rent and put the difference in other investments have been done ad nauseam on the Internet, it doesn't need to be rehashed here.

throwaw12 3y ago

IMO, very unpopular opinion, it's not because governments are not allowing more houses, it is because of mortgage. People who bought 10 years ago for 200k do not want to sell it for 250k, because they paid more interest, let's say "initial price + interest = 300k" today. If anyone wants to sell, they want to get at least 300k, buyer again gets a mortgage and in 10 years same house costs 400k or more. rinse and repeat, houses will cost double digit millions. See Seoul for example, avg house costs around 1M$, while average salary is around 35K$/year (30x difference)

ttymck 3y ago
> People who bought 10 years ago for 200k do not want to sell it for 250k, because they paid more interest, let's say "initial price + interest = 300k" today. I think you are significantly overestimating the average American's willingness and ability to calculate and understand something as simple as their "cash on cash return".
- throwaw12 3y ago
  > I think you are significantly overestimating the average American's willingness and ability to calculate and understand something as simple as their "cash on cash return". I think you are also underestimating market forces, average American doesn't need to calculate, real estate agents will tell you the price, they are not going to sell your house for 100K, if it costs 1M
A_D_E_P_T 3y ago
[dead]
tzs 3y ago
I think what most people who are living in their house look at when deciding if they well sell is if (selling price - remaining amount on mortgage) will give them enough that when they put the proceeds toward buying a house where they are moving too they will be in good shape financially.
jjav 3y ago
> People who bought 10 years ago for 200k do not want to sell it for 250k, because they paid more interest, let's say "initial price + interest = 300k" today. I doubt there are many people who think that way. If they want to sell, the market determines the price so stomping your feet and saying I want 300K just because, isn't going to work. Second, that's an incorrect calculation anyway. They may have put 300K into it, but they also got 10 years worth of a place to live out of it already, which is a lot of value. So the breakeven price considering the rent they didn't have to pay for 10 years is not the full 300K.

bitcurious 3y ago

Is that true when you factor in leverage?

wink 3y ago

Not everyone thinks purely in how good of an investment it is. While there are of course downsides, there are advantages, like just decorating and building out stuff just how you like, and not having to ask your landlord. Also people who are more risk averse towards stock markets (Hi, I'm German) will probably prefer a house/flat over some stocks.

bachmeier 3y ago
> Also people who are more risk averse towards stock markets (Hi, I'm German) will probably prefer a house/flat over some stocks. The risk averse might prefer renting in that case. It can be quite a shock to find out that you need to pay $15,000 to replace your roof after a storm goes through. The ups and downs of the stock market don't require you to make a large payment on short notice.
- jjav 3y ago
  > The risk averse might prefer renting in that case. If your risk averse window is only short term, that might make sense. If you think of housing risk over your lifetime, renting is the worst because now you have this huge uncertainty over how much housing will cost in 10, 20, 30, 40 years from now. How much will it cost in retirement 50 or 60 years from now (for someone in their 20s) when you have no income anymore? Will rent increase so much you'll be homeless in old age? If you're risk averse, buy a house and make housing costs quite predictable for the rest of your life.

pdonis 3y ago

> Housing is strictly a significantly worse investment over the long run than stock markets, if you consider just appreciation and expenses. But if you live in the house, then just considering appreciation and expenses leaves out a huge benefit: you have a place to live without spending any other money. If you buy and rent, you have to spend additional money for your own place to live. The latter situation is comparable to investing into the stock market instead of in buying and then renting a house, but the former is not. That's why so many people take the former option even though, "on paper" (i.e., leaving out the huge benefit of living in the house), it looks like a "bad investment".

_huayra_ 3y ago
> But if you live in the house, then just considering appreciation and expenses leaves out a huge benefit: you have a place to live without spending any other money. What matters at the end of the day are the irrecoverable costs. When renting, it is just the rent. When owning, it is certainly not free: you're paying other irrecoverable costs (e.g. out of PITI+HOA, everything but P is irrecoverable; add on separate costs for when you must pay for repairs and it gets steeper). Sure, you have stability and can write off mortgage interest when you own (although the latter is an extremely unfair policy), but unless one is absolutely sure that one can stay in the home for close to ~7 years (the rough time it took for many HCOL cities in the US to recover their nominal prices from the GFC peak), it can be considered to be a risky time to make such a big financial commitment. Ben Felix has some videos on this concept of "irrecoverable costs" which I find helpful to illustrate this, such as this one [0]. Although I disagree with his idea that leasing cars is a good idea (expressed in some of his podcasts), I find his ideas on renting vs. buying to be quite sound. Personally speaking, I just doubled my compensation by moving from one HCOL city to another in the US because I was renting and not "locked in" to a mortgage. So many colleagues at my former place could not afford to come to the closing table with cash to close out their mortgage at a loss to move (the company I went to basically wanted to hire my whole team, but I was the only one who could manage because I wasn't committed to a mortgage). Eventually I do want to own a home myself, but it was eye-opening how poor of a choice it was for my former colleagues (although my choice to go to grad school during most of the QE decade probably more than compensates for this one win...). [0] https://www.youtube.com/watch?v=q9Golcxjpi8 https://www.youtube.com/watch?v=q9Golcxjpi8