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There is another difference that is related to risk. Larger loans allow access to lower risk opportunities. If I had many millions in stocks, and I was greedy
by Apreche 2y ago
There is another difference that is related to risk.
Larger loans allow access to lower risk opportunities.
If I had many millions in stocks, and I was greedy for more, I would borrow against it to develop residential real estate in a high rent neighborhood. Yes, there's some risk, but it's as close as you can get to buying a money fountain. I'd be very confident that the rents from the building would pay back the money I borrowed and then some.
Even if I borrow against all my holdings, I can't afford to make that kind of investment. The only options I have are much higher risk. And as you said, I won't survive a failure. Therefore, while the bank would let me do it, I would be very foolish to try.
- dullcrisp 2y agoWanna go halfsies on some residential real estate in a high rent neighborhood?
- throwaway2037 2y agoEverything that I read about real estate investing says you should aim for middle class housing, as the return-on-investment from rental cashflow is (normally) higher that more expensive housing. To be clear: My statement is only looking at rental cashflow, not capital appreciation. To me, there are both important, but separate concerns.
- Apreche 2y agoSure, but we'll have to go thousandsies, or at least hundredsies.
- tightbookkeeper 2y agoRich people having more options, and being more insulated from risk, is not news.
- Apreche 2y agoIt's not news to the world, but it's news to many.
- tightbookkeeper 2y agoI don’t think so. Stronger and attractive people have more options and opportunity too! This is the kind of thing you can’t lose sleep over.
- bruce511 2y agoI've owned property to rent in the past. I feel it's worth pointing out to folks keen on this route that, while profitable, it's a Lot of work. Owning stocks is zero effort. You might glance at your results from time to time. Your fund manager does the heavy lifting (and gets a small % fee for it.) Owning a property is a pretty constant stream of work. Organizing maintainence. Dealing with complaints. Occasionally evicting non-payers. Finding new tenants. Filtering applicants to filter out the non-payers. It's so much work you'll likely offload this onto someone rise to do. The cost is not insignificant. (Neither is maintainence.) The returns may be good, but its not "passive income".
- throwaway2037 2y agoI agree with most of your comments. However, most tax authorities in highly advanced countries view income earned from rental property as passive income, regardless of how much work you need to do. This might be some minor deductions if you act as a real estate agent, but that is a lot of work in most jurisdictions, as real estate agency is normally a highly regulated area of work.
- bruce511 2y agoFor many reasons, including tax and liability, any serious property owner will have a company structure to own the building, collect rent, pay bills etc. Doing it in your personal capacity is pretty insane. So yeah, you have all the paperwork to run the business as well.
- throwaway2037 2y ago"[S]erious property owner" -- This phrase sounds like a "no true Scotsman" test. What exactly qualifies as "serious"? I know numerous people who own a bunch of properties and don't have a separate company structure, as there is no tax advantage (in my jurisdiction). They use local real estate agents to find new renters when old renters leave. It's pretty simple. And, the agent also coordinates monthly payments (to the owner) and any repairs.
- 2y ago