4 ms·

Other commenters mostly made the points I had in mind about companies in the fractional ownership space. Regarding agents dampening investment in housing, I had

by iisan7 3y ago

Other commenters mostly made the points I had in mind about companies in the fractional ownership space. Regarding agents dampening investment in housing, I had on mind the fact that the transaction costs of 6% or so when selling makes housing an unattractive short term investment. If that wasn't there I think there'd be more incentive to speculate in housing markets.

taeric 3y ago
I doubt that, personally. Especially back when people could dream of larger returns as illustrated on many TV shows, I seriously doubt 6% even registered on most people. Seems the main thing holding back more folks was lack of capital. Not fear of 6%. Would be interesting to see data on this. Didn't Redfin have a reduced commission path? Any evidence that led to more speculation?
- neeleshs 3y ago
  If you look at it as an investment and profits, it's not 6% anymore, but a much larger percentage of your profits. I buy a house for 100,000, incur about 5k in government, administrative fees. Sell it for 125k, netting 20k - less if you consider insurance and property taxes. So let's say 18k. But I've paid the realtor 6% on 125k. That's 7.5k. That's a whopping 41.67% of profits
  - WalterBright 3y ago
    Most people seem to just ignore the costs of transacting a house. They'll say they bought a a 100,000 house and sold it for 125,000 and say they made 25,000 in profits. Neglecting the fees, commissions, insurance, loan points, repairs, time, taxes, the cost of the house sitting there vacant, etc. Houses are historically lousy investments.
    - dotancohen 3y ago
      > Houses are historically lousy investments. Yes, but land is an historically safe investment. However very often in well-developed areas, it is difficult to acquire one without the other.
    - thfuran 3y ago
      Yes, but most people aren't speculating on real estate, they're just occasionally buying a new place to live.
    - hnburnsy 3y ago
      What you are missing is that a home purchase is typically leveraged. You buy the house for 100K and put 20K down. The house increases to 125K and you more than doubled your money. Now take out those fees and etc. Problem is you still need a place to live and those houses have gone up in value too, so you need all of that profit for the new down payment. Not saying this makes houses good investments, but it is something to consider. I think that this is the cheapest leverage a typically person in the US could obtain.
      - WalterBright 3y ago
        There's nothing special about borrowing money to invest in things. The ROI is based on the amount invested, including borrowed money.
        taeric 3y ago
        I think the only special thing, here, is that home purchases are the most common thing bought on leverage that can almost be seen as an investment? Only other leveraged loan that most people will do is a vehicle, and those laughably lose half their value as soon as you close the loan.
        sir0010010 3y ago
        At least the US government heavily subsidizes leverage for real estate investment specifically, with institutions such as Fannie Mae for example. Absent that, no bank would offer a middle class individual a 30 year fixed rate loan for 80 - 95% of the value of a home. A loan to buy stocks on the other hand will typically be floating rate and the brokerage will retain the ability to liquidate your position AND require additional margin if your investments don't perform. Fannie Mae has a short history page here for those interested: https://www.fanniemae.com/about-us/who-we-are/history https://www.fanniemae.com/about-us/who-we-are/history
  - taeric 3y ago
    First, I want to be clear that I'm not saying you are wrong. I don't know. I personally doubt the fees enter most people's speculations, though. Specifically, my intuition is that most people don't speculate in housing because they don't have the capital to do so. More, most of the people I have known that had the capital to do so, did, in fact, speculate in real estate. Similarly, most people I know that have purchased homes could only do so on highly leveraged loans. Again, they didn't have the capital to do speculation. They still stretched for as large of a loan as they could, at large. Which is its own form of speculation. I'd be curious to know how much the fee for day trading can be. I know it isn't directly comparable, due to volume differences, but I'm assuming you weren't thinking real estate would get to day trader levels of speculation?
    - neeleshs 3y ago
      I am not disagreeing with you either on most people not speculating. Every transaction has overheads. But I'm just talking about house flipping, or even when upgrading from one house to another, 41% of any money I, as an individual could use towards the new house, kids education or whatever, going as a transaction overhead is simply crazy, and almost extortionist given how monopolistic this is in the US Re: Day trading - That would be REIT and related instruments.
      - poulsbohemian 3y ago
        > I'm just talking about house flipping Realtor here - if you are house flipping, you are in a unique category and not really a member of the general public. You should either get your real estate license (if you believe you are able and willing to market property yourself) or you should find a dedicated agent partner with whom you have a negotiated rate. But also consider that as an agent, my out of pocket costs to market your example property could easily be $1000, plus my brokerage (assuming I'm affiliated and it isn't my own brokerage) also is taking their 40%+ cut of my commission, so I'm not making nearly as much as you think -- which is why especially on a house priced at the lower end of the spectrum I need to keep my commission % higher.
        3y ago

by iisan7 3y ago

taeric 3y ago

I doubt that, personally. Especially back when people could dream of larger returns as illustrated on many TV shows, I seriously doubt 6% even registered on most people. Seems the main thing holding back more folks was lack of capital. Not fear of 6%. Would be interesting to see data on this. Didn't Redfin have a reduced commission path? Any evidence that led to more speculation?

neeleshs 3y ago
If you look at it as an investment and profits, it's not 6% anymore, but a much larger percentage of your profits. I buy a house for 100,000, incur about 5k in government, administrative fees. Sell it for 125k, netting 20k - less if you consider insurance and property taxes. So let's say 18k. But I've paid the realtor 6% on 125k. That's 7.5k. That's a whopping 41.67% of profits
- WalterBright 3y ago
  Most people seem to just ignore the costs of transacting a house. They'll say they bought a a 100,000 house and sold it for 125,000 and say they made 25,000 in profits. Neglecting the fees, commissions, insurance, loan points, repairs, time, taxes, the cost of the house sitting there vacant, etc. Houses are historically lousy investments.
  - dotancohen 3y ago
    > Houses are historically lousy investments. Yes, but land is an historically safe investment. However very often in well-developed areas, it is difficult to acquire one without the other.
  - thfuran 3y ago
    Yes, but most people aren't speculating on real estate, they're just occasionally buying a new place to live.
  - hnburnsy 3y ago
    What you are missing is that a home purchase is typically leveraged. You buy the house for 100K and put 20K down. The house increases to 125K and you more than doubled your money. Now take out those fees and etc. Problem is you still need a place to live and those houses have gone up in value too, so you need all of that profit for the new down payment. Not saying this makes houses good investments, but it is something to consider. I think that this is the cheapest leverage a typically person in the US could obtain.
    - WalterBright 3y ago
      There's nothing special about borrowing money to invest in things. The ROI is based on the amount invested, including borrowed money.
      - taeric 3y ago
        I think the only special thing, here, is that home purchases are the most common thing bought on leverage that can almost be seen as an investment? Only other leveraged loan that most people will do is a vehicle, and those laughably lose half their value as soon as you close the loan.
      - sir0010010 3y ago
        At least the US government heavily subsidizes leverage for real estate investment specifically, with institutions such as Fannie Mae for example. Absent that, no bank would offer a middle class individual a 30 year fixed rate loan for 80 - 95% of the value of a home. A loan to buy stocks on the other hand will typically be floating rate and the brokerage will retain the ability to liquidate your position AND require additional margin if your investments don't perform. Fannie Mae has a short history page here for those interested: https://www.fanniemae.com/about-us/who-we-are/history https://www.fanniemae.com/about-us/who-we-are/history
- taeric 3y ago
  First, I want to be clear that I'm not saying you are wrong. I don't know. I personally doubt the fees enter most people's speculations, though. Specifically, my intuition is that most people don't speculate in housing because they don't have the capital to do so. More, most of the people I have known that had the capital to do so, did, in fact, speculate in real estate. Similarly, most people I know that have purchased homes could only do so on highly leveraged loans. Again, they didn't have the capital to do speculation. They still stretched for as large of a loan as they could, at large. Which is its own form of speculation. I'd be curious to know how much the fee for day trading can be. I know it isn't directly comparable, due to volume differences, but I'm assuming you weren't thinking real estate would get to day trader levels of speculation?
  - neeleshs 3y ago
    I am not disagreeing with you either on most people not speculating. Every transaction has overheads. But I'm just talking about house flipping, or even when upgrading from one house to another, 41% of any money I, as an individual could use towards the new house, kids education or whatever, going as a transaction overhead is simply crazy, and almost extortionist given how monopolistic this is in the US Re: Day trading - That would be REIT and related instruments.
    - poulsbohemian 3y ago
      > I'm just talking about house flipping Realtor here - if you are house flipping, you are in a unique category and not really a member of the general public. You should either get your real estate license (if you believe you are able and willing to market property yourself) or you should find a dedicated agent partner with whom you have a negotiated rate. But also consider that as an agent, my out of pocket costs to market your example property could easily be $1000, plus my brokerage (assuming I'm affiliated and it isn't my own brokerage) also is taking their 40%+ cut of my commission, so I'm not making nearly as much as you think -- which is why especially on a house priced at the lower end of the spectrum I need to keep my commission % higher.
      - 3y ago