Is Real Estate Actually a Good Investment on Average?
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Of interesting note because I am sure that people will wonder... is the housing market somehow global? Perhaps it is, but only marginally.
Right now I live in Nicaragua and I can tell you that this local market is totally backwards from the US market. Instead of being at an all time record highest peak in prices, Nicaragua is at an all time record trough of prices. So while the average house in the US is selling at above double its intrinsic value, Nicaragua is at half or less of its intrinsic value. So while these are both cherry picked extreme cases, they are specifically the market I sold in (US) to allow me to buy (Nicaragua) in the other.
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Grant Cardone says invest in income producing multi-unit properties but rent your home, because it's not an investment.
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@Pete-S said in Is Real Estate Actually a Good Investment on Average?:
Grant Cardone says invest in income producing multi-unit properties but rent your home, because it's not an investment.
That's a great way to look at it. Not universally true, but a great thought process.
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@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
Keep in mind that this chart only takes into account the value of the real estate. It does not account for real world factors like taxes, maintenance, and transfer fees / titles / insurance and so forth that make owning a home far more expensive than the mortgage rates would suggest.
Exactly, those things are a HUGE key factor.
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Question: from your experience is renting usually more expensive than owning?
Rent (on a property not owned outright by the owners) needs to collect the mortgage/taxes/insurance/maintenance and hopefully some type of profit for the owner.
Where owning has all those same things except profit for the owner, that only appears in the supposed appreciation in value of the property.
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@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
Keep in mind that this chart only takes into account the value of the real estate. It does not account for real world factors like taxes, maintenance, and transfer fees / titles / insurance and so forth that make owning a home far more expensive than the mortgage rates would suggest.
Exactly, those things are a HUGE key factor.
Yeah, for me I think it was like 25% or more of the monthly costs.
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@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
Question: from your experience is renting usually more expensive than owning?
Almost never in my lifetime would owning have been better than renting. Every time I've rented I won, every time I bought I lost. But that's the time that I did it and where I was and what was going on in my life.
On average, I think over time renting wins by a small margin. Renting is the logical choice as it is almost always really close to owning but with the benefit of hedging against the unknown significantly. Owning really only gains any significant advantage when you have no personal stake in the house and are able and willing to flip it at a moment's notice should an opportunity come along.
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@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
Keep in mind that this chart only takes into account the value of the real estate. It does not account for real world factors like taxes, maintenance, and transfer fees / titles / insurance and so forth that make owning a home far more expensive than the mortgage rates would suggest.
Exactly, those things are a HUGE key factor.
Yeah, for me I think it was like 25% or more of the monthly costs.
yeah with my current house payment $1600 total $500/m - taxes $125/m - insurance $975 to interest and principal.
41.6% and that still doesn't take into account interest, which I think is around $100/m
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How do rentals come into being?
You build a house/apt building and it has these huge costs - we've already talked about how frequently rent is often not high enough to cover the mortgage on place... so how did rentals become a thing?
Was it to many bad investors making/building houses that for whatever reason couldn't afford their mortgages, and forced people to sell - and sometimes the seller was required to sell a noticeably lower than cost prices (say sold for just enough to cover the remaining mortgages, if even)?
I know that was a big part of the 2008 crash. People way over paid for house, tons of people lost their jobs - couldn't afford their houses, tossed the keys inside and walked away - the banks were then left holding the bag (the house) and they needed to get these off the books, so they sold them for whatever they could get in a short period of time, etc...
is that where most rentals have come from?
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Scott mentioned privately to me that NYC has tons of empty or near empty building where they can have apts - so there is no need to build houses/apt buildings.
Is that a national norm?
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@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
Scott mentioned privately to me that NYC has tons of empty or near empty building where they can have apts - so there is no need to build houses/apt buildings.
Is that a national norm?
No, NYC is special in that it is a shrinking market. Most of the US is growing and that is why there is a housing construction boom of epic proportions. Most of the country is building like crazy which, when you can't build fast enough, contributes to a housing bubble. Once the construction catches us, you have a crash.
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@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
You build a house/apt building and it has these huge costs - we've already talked about how frequently rent is often not high enough to cover the mortgage on place... so how did rentals become a thing?
Well, normally one of two ways (but others exist.)
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A rental company builds properties specifically designed to be rentals. This have different construction costs and financing to make renting them make more sense. They are designed to be rented and designed to work in volume.
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Someone buys a house or property that was never intended to be rented and they end up in a situation where they don't need to use it so they rent or sell. These are not designed to be rented, not built with the intention of being rented.
As you can imagine, purpose built are also purpose located.
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@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
is that where most rentals have come from?
Most rentals existed long before 2008. The rental market has always been very large.
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@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
is that where most rentals have come from?
Most rentals existed long before 2008. The rental market has always been very large.
Oh, I'm sure it's been longer than 2008 - but when? When did mass rentals enter the scene?
I guess they really started in the beginning when companies built factory based towns. The company built the houses for their employees so they would have some place to live. etc. -
@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
Oh, I'm sure it's been longer than 2008 - but when? When did mass rentals enter the scene?
I'm sure before the advent of "America". The idea of rentals predates modern history. Renting places is standard in literature, for example, hundreds of years before there was an America. I'm sure they had rentals in ancient Egypt, for example. Rentals aren't a new construct, it's just how shelter is purchased along with outright purchase, once you pass the caveman "everyone builds their own shelter" phase of civilization.
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@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
I guess they really started in the beginning when companies built factory based towns. The company built the houses for their employees so they would have some place to live. etc.
What? That makes no sense as rentals already existed when concepts like factories and companies were new things.
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A good example of why I like to rent... our massive earthquake last night. As a renter, my level of worry is much smaller when something like that happens. All those cracks and plumbing breaks and whatever aren't my issue.
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@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
is that where most rentals have come from?
Most rentals existed long before 2008. The rental market has always been very large.
Oh, I'm sure it's been longer than 2008 - but when? When did mass rentals enter the scene?
I guess they really started in the beginning when companies built factory based towns. The company built the houses for their employees so they would have some place to live. etc.A really long time ago (in the US). Most people used to be renters but after WW2 the majority have been homeowners.
Right now (2022) it's sits at around 65%.
Data is from U.S. Department of Housing and Urban Development.
https://www.huduser.gov/portal/Publications/pdf/HUD-7775.pdf -
@Pete-S good info. I kind of forgot that, but I've seen that before. Home ownership for the bulk of society is a relatively recent thing. For a long time, something like 1% of England owned all the homes and everyone else has to rent.
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@Pete-S said in Is Real Estate Actually a Good Investment on Average?:
@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
is that where most rentals have come from?
Most rentals existed long before 2008. The rental market has always been very large.
Oh, I'm sure it's been longer than 2008 - but when? When did mass rentals enter the scene?
I guess they really started in the beginning when companies built factory based towns. The company built the houses for their employees so they would have some place to live. etc.A really long time ago (in the US). Most people used to be renters but after WW2 the majority have been homeowners.
Right now (2022) it's sits at around 65%.
Data is from U.S. Department of Housing and Urban Development.
https://www.huduser.gov/portal/Publications/pdf/HUD-7775.pdflol - it was almost the majority for the first half of the chart... the increase is way under 50% increase after the war.
