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> The only meaningful way to realize that extra wealth is to sell This is true only on first approximation. On second approximation rent prices are positively
by TrainedMonkey 3y ago
> The only meaningful way to realize that extra wealth is to sell
This is true only on first approximation. On second approximation rent prices are positively correlated with property prices. This means that rent_amount / mortgage >>> 1 and if you rent the place out you can essentially get passive income. You are correct that you still need to live somewhere and that is going to come at a cost which will eat up the passive income, but effective rent will still be lower.
Another option is to realize that lower mortgage compared to equivalent rent means that extra cash is freed up towards other things. This can either be extra investments every month, experiences such as traveling the world, or even a lower paying job with a lot less stress.
- psunavy03 3y agoThe problem these days, though, is that the equity in House 1 is often needed to buy House 2 if you move, otherwise you're dipping into your nest egg for a second down payment, which is not financially wise. Equities generally have a higher rate of return than real estate. Also, multiple homes mean multiple maintenance bills, and also the potential for bad tenants wrecking the place. I had a rental property in the past and had to spend multiple thousand dollars staging it for sale because, renters generally DGAF about maintenance, and property managers get lazy and do the bare minimum to get it rented.
- creato 3y agoI don't see the problem here. You aren't entitled to ownership of multiple houses. Being forced to sell one house in order to buy another one sounds like working as intended to me.
- stouset 3y agoBut that’s entirely my point. It’s hard to actually realize these gains in practice since when you sell your house, the increase in value is absorbed by buying your next residence, which has on average also inflated in value.
- ThePowerOfFuet 3y agoUnless you move somewhere the cost of living isn't crazy, and pocket the difference.
- stouset 3y agoThat’s a one-time trick, and it only really works if you were already wealthy enough to own in a HCOL area to begin with. Plus “moving to a less desirable area” doesn’t really dovetail with most people’s assumption of “increased personal wealth”. It is sometimes a good option for retiring somewhere cheap, which absolutely reflects a real increase in net worth. But it’s far from liquid worth and requires steep compromises not everyone is a fan of.
- psunavy03 3y agoMy point was that "rent it out and print money" doesn't always work. I did it with a home I owned, but that was also a period of time where I was a) bouncing around the country renting the roof over my own head and b) waiting to sell after taking it in the shorts value-wise during the Great Recession. I was never underwater, but would have taken a huge capital loss for awhile if I'd sold.
- pc86 3y agoYou aren't entitled to ownership of a single house, either.
- psunavy03 3y agoThis is an English sentence with grammatical structure, yet no coherent meaning. If I can be approved for a mortgage or have cash on hand, and have someone agree to sell me a house, and I sign a contract with them to purchase said house on such-and-such a date, and I fulfill my end of the deal and don't default on the contract, then yes, I am entitled to ownership of a single house. Because I bought it fair and square, and it's now legally mine. Just like if I were to stop making payments on said house, the bank would then seize it, and then I wouldn't be entitled to own that house any more, because I defaulted. This is not rocket science.