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> People without this wealth are forced to pay their rent to others, who accept both the rent and then the real estate gains. I note this in that not owning re

> People without this wealth are forced to pay their rent to others, who accept both the rent and then the real estate gains. I note this in that not owning results in being beholden to increasing rents and at a cost disadvantage in buying a future home. But the property value gains are hard to realize in a meaningful way. Yes, you can potentially leverage your equity into acquiring more homes. But real estate gains have traditionally lagged the stock market. So as you continue this cycle, you increase your leverage dramatically while investing in highly-correlated and slightly underperforming assets. Meanwhile, little of these gains are able to be used for actual lifestyle improvements until you start unloading these properties.

lazide 3y ago
Uh, home equity lines of credit are a thing in most places. They certainly are in the US! Also, renting out rooms. Also ‘granny flats’, etc.
- raydev 3y ago
  HELOC isn't free money. You have to pay it back. Unless you're suggesting that you use the money to make bets.
  - pseudo0 3y ago
    That's a pretty common investing strategy. Take a HELOC, invest the money in index funds or whatever, and take a tax write-off for the interest. As long as the average return beats the HELOC rate (minus tax deductions) you come out ahead.
  - lazide 3y ago
    Someone noted it as an investment strategy (which is one way), but I was specifically using it to address the ‘you don’t get the money until you sell’ element. You pull money out of the HELOC, which does give you access to the equity. You then pay it down similar to a mortgage, at very low rates. You just cashed out some of the ‘inaccessible’ equity by using it as loan collateral. You’d still get to live there, and any gains in equity will be 100% yours. But you have cash now, with low payments and low interest to pay it back. If you do sell, proceeds could go right into paying it off. There are similar ways to setup second mortgages, etc.
epistasis 3y ago
Well the location is the lifestyle. If the homeowner doesn't value the location as much as all the wealthy people clamoring for a spot in the neighborhood, yet they still hold onto their home, it truly is a bad allocation of resources among people. None of these homeowners would even consider the option of selling their home and renting it from the purchaser, because it is so obviously a bad idea in every way. But their blindness to the alternative is also indicative of just how amazing a form of wealth is. Super wealthy people are always convincing themselves that they are not wealthy, because they always see others with a higher level of lifestyle. I knew an older man who had built an empire of hotels, but because he wasn't Hilton, he always felt like a failure despite never flying commercial, owning mansions across the world, and being surrounded by servants at his beck and call. When people have raised their wealth without their lifestyle "changing," yet they can now move nearly anywhere else and have a massive lifestyle improvement in consumption, without the location they were in, they somehow trick themselves into thinking this is not wealth.
- jjav 3y ago
  > they still hold onto their home, it truly is a bad allocation of resources among people. The above statement assumes that a home is nothing but a cold investment decision. A home is a place to live and a neighborhood to grow older in. It is not an "allocation of resources". People hold on to their home because they like it there, they like the neighbors, their kids like their friends in the area and so on. It is not a financial decision. It's a home. This is often lost in these discussions.
  - dukeyukey 3y ago
    A home is all those that things, but it's also a scarce resource that costs a lot to build and that we don't have enough of. So for every market inefficiency we accept on the basis that a home is special (which isn't wrong!) we accept some level of people dying in the streets, or young people being pushed out of their hometowns, or families never being started.
    - tourmalinetaco 3y ago
kjkjadksj 3y ago
I think you are forgetting the most common way people realize this: sell house for gain, use money to afford down payment on nicer home, perhaps enough to end up paying a similar monthly payment in the end. People act like you need to go from paid off house to paid off house but thats hardly the case. Partially paid off house to even less paid off house is common especially if you know you will be working for another few decades.
- stouset 3y ago
  I’m not forgetting this. The house was a store of wealth. Assuming your house went up 50% in value, it’s reasonable to assume a better house in a nicer area also went up by something near 50% in that time. This is an assumption, but on average this is true. If that’s the case, the extra wealth you have for purchasing the new home was simply having a convenient way to store your down payment while saving additional money each month in the form of your principal. Some people do actually realize a good part of their gains by retiring to the countryside and keeping the lion’s share of their RE gains. But this is something you get to do more or less once, and it’s something generally done in one’s twilight years. Nothing to sneeze at of course, but it again doesn’t really dovetail with the notion of a means to become practically wealthy.
HWR_14 3y ago
> real estate gains have traditionally lagged the stock market Does that take into account the relative ease and long term leveraging in real estate vs. the stock market?
- lumost 3y ago
  Considering the above scenario where real estate is gaining at 75k per year. A wealthy individual could easily leaver themselves to 75*5 = 375k/yr. Using the starting cost of a home at 600k, this would equate to an average rate of return of about 300% Such rates of returns are simply impossible in the general stock market without getting very lucky.
- stouset 3y ago
  You can lever yourself in the stock market too.
  - HWR_14 3y ago
    Not with 30-year lock-in in rates and with a similar commitment to avoiding margin calls for that long if your bet goes poorly in the short term.
squeaky-clean 3y ago
My parents bought their house for $150k in Miami in the 90's. They sold it last year for 800k. Then moved to a cheaper town in central Florida where they got a place for 200k.

lazide 3y ago

Uh, home equity lines of credit are a thing in most places. They certainly are in the US! Also, renting out rooms. Also ‘granny flats’, etc.

raydev 3y ago
HELOC isn't free money. You have to pay it back. Unless you're suggesting that you use the money to make bets.
- pseudo0 3y ago
  That's a pretty common investing strategy. Take a HELOC, invest the money in index funds or whatever, and take a tax write-off for the interest. As long as the average return beats the HELOC rate (minus tax deductions) you come out ahead.
- lazide 3y ago
  Someone noted it as an investment strategy (which is one way), but I was specifically using it to address the ‘you don’t get the money until you sell’ element. You pull money out of the HELOC, which does give you access to the equity. You then pay it down similar to a mortgage, at very low rates. You just cashed out some of the ‘inaccessible’ equity by using it as loan collateral. You’d still get to live there, and any gains in equity will be 100% yours. But you have cash now, with low payments and low interest to pay it back. If you do sell, proceeds could go right into paying it off. There are similar ways to setup second mortgages, etc.

epistasis 3y ago

Well the location is the lifestyle. If the homeowner doesn't value the location as much as all the wealthy people clamoring for a spot in the neighborhood, yet they still hold onto their home, it truly is a bad allocation of resources among people. None of these homeowners would even consider the option of selling their home and renting it from the purchaser, because it is so obviously a bad idea in every way. But their blindness to the alternative is also indicative of just how amazing a form of wealth is. Super wealthy people are always convincing themselves that they are not wealthy, because they always see others with a higher level of lifestyle. I knew an older man who had built an empire of hotels, but because he wasn't Hilton, he always felt like a failure despite never flying commercial, owning mansions across the world, and being surrounded by servants at his beck and call. When people have raised their wealth without their lifestyle "changing," yet they can now move nearly anywhere else and have a massive lifestyle improvement in consumption, without the location they were in, they somehow trick themselves into thinking this is not wealth.

jjav 3y ago
> they still hold onto their home, it truly is a bad allocation of resources among people. The above statement assumes that a home is nothing but a cold investment decision. A home is a place to live and a neighborhood to grow older in. It is not an "allocation of resources". People hold on to their home because they like it there, they like the neighbors, their kids like their friends in the area and so on. It is not a financial decision. It's a home. This is often lost in these discussions.
- dukeyukey 3y ago
  A home is all those that things, but it's also a scarce resource that costs a lot to build and that we don't have enough of. So for every market inefficiency we accept on the basis that a home is special (which isn't wrong!) we accept some level of people dying in the streets, or young people being pushed out of their hometowns, or families never being started.
  - tourmalinetaco 3y ago

kjkjadksj 3y ago

I think you are forgetting the most common way people realize this: sell house for gain, use money to afford down payment on nicer home, perhaps enough to end up paying a similar monthly payment in the end. People act like you need to go from paid off house to paid off house but thats hardly the case. Partially paid off house to even less paid off house is common especially if you know you will be working for another few decades.

stouset 3y ago
I’m not forgetting this. The house was a store of wealth. Assuming your house went up 50% in value, it’s reasonable to assume a better house in a nicer area also went up by something near 50% in that time. This is an assumption, but on average this is true. If that’s the case, the extra wealth you have for purchasing the new home was simply having a convenient way to store your down payment while saving additional money each month in the form of your principal. Some people do actually realize a good part of their gains by retiring to the countryside and keeping the lion’s share of their RE gains. But this is something you get to do more or less once, and it’s something generally done in one’s twilight years. Nothing to sneeze at of course, but it again doesn’t really dovetail with the notion of a means to become practically wealthy.

HWR_14 3y ago

> real estate gains have traditionally lagged the stock market Does that take into account the relative ease and long term leveraging in real estate vs. the stock market?

lumost 3y ago
Considering the above scenario where real estate is gaining at 75k per year. A wealthy individual could easily leaver themselves to 75*5 = 375k/yr. Using the starting cost of a home at 600k, this would equate to an average rate of return of about 300% Such rates of returns are simply impossible in the general stock market without getting very lucky.
stouset 3y ago
You can lever yourself in the stock market too.
- HWR_14 3y ago
  Not with 30-year lock-in in rates and with a similar commitment to avoiding margin calls for that long if your bet goes poorly in the short term.

squeaky-clean 3y ago

My parents bought their house for $150k in Miami in the 90's. They sold it last year for 800k. Then moved to a cheaper town in central Florida where they got a place for 200k.