Is Real Estate Actually a Good Investment on Average?
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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?:
@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
My dad is a great example, once I moved away, the pets were gone, and my mom had passed... the house that he bought when I was born and held for 40 years cost so much in taxes that he couldn't afford to live there, it made no sense (it was only a liability.) He didn't make money on the sale, even having held for 40 years, but it was necessary so that he could move to a small, appropriate, modern apartment where he could have someone else mow the grass, pay a small fraction in energy costs, and doesn't need the vehicle to go to the store.
His house didn't increase in value at all compared to when he moved in? or he continued to siphon the equity out while he lived there? It seems pretty unlikely - though not strictly impossible - that in 40 years the house value went up zero, unless the house was basically ready to be demo'ed because it was in such bad shape...
It, like average homes, did not gain value. That's the expectation of the housing market. Houses do not increase in value, period. That's fact. Not at the market level. So don't act surprised that it behaved at the average "expected" behaviour. It did exactly what houses normally do... it help to the inflation line almost exactly.
You say that the absolutely proven knowledge of real estate is "unlikely". Why? Why is everything known about the history of American real estate "unlikely" in the case of my dad's relatively average house? That makes no sense. What's your basis for expecting my dad's house to do something that the average house would not?
Alright - he didn't make money - but he did get a whole lot more than he paid for it - because inflation...
No, he got about HALF what he paid for it because of interest. Inflation must be assumed in "getting what you paid", because if you don't include inflation you cant' even make the assessment. The value in was the value out.
You expect a house to hold value (on average.) Cash just in a mattress loses value. If you put $100 in a mattress for 100 years, you lose money (generally). If you put $100 into a house for 100 years, you maintain your money (generally.)
Don't start thinking that $100 in 1900 and $100 today equals "not losing money", that leads to all financial thinking being wrong.
Yeah - I definitely get that.
though interest is the cost of actually living in the house, if that's all he lost over the life of the house, which I'm sure in 40 years wasn't the case (taxes, reno's, repairs, etc).
There is value to actually living in the house - so at worse, to me - sounds like he broken even. I'm guessing a typical bond would have done better - investment wise - but could he actually afford to do that in live somewhere, and if so - what do you guess his actual walk away cash in hand would be today had he done that instead of buying the house (mind you - he'd be paying rent somewhere else).
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@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
lack of social interaction with peers - i.e. water cooler work.
Of course lack of #2 is good for the employer - should mean the employee is spending more time on the job...
That's awful for an employer. Employers don't make money by people not working nor from them "being at work". They make money from them working. Water cooler time isn't just bad, it's the absolute worst. Employees view it as "working" and the government views it as "working" and it carries all the costs of people working and all the risks and insurance problems... yet it has zero business value. Huge negative business value.
A smart employer wants the water cooler thing out the window more than almost anything. Water cooler time is loathed by productive employees who are there to work and it makes them disenchanted. It's mostly a tool to avoid work at the employer's expense.
Middle managers willing to sabotage their businesses for their own gains like water coolers because they make it easy to fool upper management that work is being done when really, everyone is lost and doesn't know what to do.
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@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
I'm guessing a typical bond would have done better
Bonds are the highest risk, worst performing type of investment. Nothing doesn't do better than a standard bond.
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@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
though interest is the cost of actually living in the house, if that's all he lost over the life of the house, which I'm sure in 40 years wasn't the case (taxes, reno's, repairs, etc).
We had a single renovation that cost more than the entire original purchase. Buying older property in the US where construction is wood comes with a lot of costs. That houses so often have a very limited lifespan means you often get left with a house that actually devalues to zero at some point within a few generations.
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@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
There is value to actually living in the house - so at worse, to me - sounds like he broken even.
For sure, but the mortgage would have been easily double the cost of rent in the area. That makes it pretty hard to justify as an investment considering the downpayment would have had so much time to have grown.
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@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
There is value to actually living in the house - so at worse, to me - sounds like he broken even.
I believe that the downpayment was $35K in 1976. An index would have generator $1.55m in 2021 when he sold it.
Assuming 45 years of monthly rent of $1,500 (way, WAY above market for the entire time) that would have been just $810K, or about half of what the money would have cost.
In reality, in those early years rent of $400 would have been more accurate. And by the end, more like $1300. So really, actually renting on his street would like have cost around $450K - $500K over those 45 years.
So roughly, considering he "gained" around $100K on the house, and would have spent $600K... He only LOST about $800K... plus any additional improvements that he had to make over the years which I know were more than $300K.
So his total cost for ownership over renting was easily a loss of more than $1,000,000 USD.
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@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
Anyone in financial circles or with financial knowledge. Or real estate experience.
Anyone with the common sense that a market cannot simply go up and up based on no underlying value.You got any links because I've heard no-one predict any kind of "staggering crash" and I have some financial knowledge. There's a massive difference between not going up and a staggering crash.
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@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
Actually, that's not quite how it works. Historic data is actually incredibly telling and ALL evidence tells us that we absolutely can predict the future, within a known cone of uncertainty.
It is how it works. Or if you like, let's just say the "cone of uncertainty" is a really, really big cone
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@Carnival-Boy said in Is Real Estate Actually a Good Investment on Average?:
@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
Actually, that's not quite how it works. Historic data is actually incredibly telling and ALL evidence tells us that we absolutely can predict the future, within a known cone of uncertainty.
It is how it works. Or if you like, let's just say the "cone of uncertainty" is a really, really big cone
Other than "how soon", it's surprisingly small. It always feels big when you are "in it" because emotions take over. But just like the 2008 crash, the dotcom bubble, everyone not feeling the "but I might get rich" flood of emotions was pretty much all together and expecting exactly what happened.
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Here's a real example.
I'm renting. I love the area we're in. There are other areas where we would enjoy living as well that are exactly the same.
I'm paying under $3K a month for rent. It's a large condo, 3BR 2Bath, wonderful area, 4 pools 4 hot tubs, awesome view, great location, great & quiet neighbors, great community.
Renting other places around here are similar priced, many are a few hundred $ more for now, but still in range.
We'd like to buy a house in our current area, or another area we like, and pretty much keep our current standard of living as we are in this condo, but in house form.
If we did that, the minimum mortgage payment we're looking at MINIMUM is $6.5K, that is with dumping a bunch of cash as a down payment... note that the $6.5K does not include insurance, PMI, taxes, closing costs, etc.
So you see, renting and owning a home is not the same thing. Just because I choose to rent, doesn't mean that I automatically will rent the same kind of house that I would want to buy. So it's just not logical to me to compare them like that. Typically, you rent to save money. Sure, I could rent a house for $8K a month, but wtf would I do that? I'd rather buy! Except, I don't want to buy, because I need the freedom to be mobile and choose where to live and not be stuck... I don't want to throw all my money into a house and live paycheck to paycheck and be forced to sell at the next higher bubble than is currently to make anything.
Yeah, we could move to a cheaper area, but we don't want to. There's no point because we just don't want to give up what makes us live happy and looking forward to the next day/weekend/time off, etc.
I'd rather keep renting, and saving money, and investing money, that I'm not throwing into a house that I may or may not get back plus more later, if life works out perfectly for home ownership. I'm very likely to move as well, need that freedom, while saving! We can't time our life according to the house, we need our housing to work for us.
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@Carnival-Boy said in Is Real Estate Actually a Good Investment on Average?:
@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
Anyone in financial circles or with financial knowledge. Or real estate experience.
Anyone with the common sense that a market cannot simply go up and up based on no underlying value.You got any links because I've heard no-one predict any kind of "staggering crash" and I have some financial knowledge. There's a massive difference between not going up and a staggering crash.
Sort of, in the terms of house prices there is already a big drop from 2004's peak that the UK hasn't returned to. So even today it's 18 years of lower than the peak (after adjustment for inflation.) Holding steady (not adjusted for inflation) is a pretty rapid crash in reality if that holds for any length of time because that's a lot of loss on top of maintenance and other overhead costs, especially when it's already down so much from the top.
Unfortunately the UK doesn't have the hundreds of years of data that places like the US have because the housing market wasn't an open economy until recently and council houses weren't for sale until the 1980s. So the UK lacks the historical data of baseline and the historical knowledge of investing at the generational level, that many other countries have. So you get a much more wild west market of fluctuations more like crypto where speculation is more rampant.
But if you had prices stop increasing altogether and simply match inflation, I think most people would feel like it was a pretty serious crash and not just a "cooling off".
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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?:
lack of social interaction with peers - i.e. water cooler work.
Of course lack of #2 is good for the employer - should mean the employee is spending more time on the job...
That's awful for an employer. Employers don't make money by people not working nor from them "being at work". They make money from them working. Water cooler time isn't just bad, it's the absolute worst. Employees view it as "working" and the government views it as "working" and it carries all the costs of people working and all the risks and insurance problems... yet it has zero business value. Huge negative business value.
A smart employer wants the water cooler thing out the window more than almost anything. Water cooler time is loathed by productive employees who are there to work and it makes them disenchanted. It's mostly a tool to avoid work at the employer's expense.
Middle managers willing to sabotage their businesses for their own gains like water coolers because they make it easy to fool upper management that work is being done when really, everyone is lost and doesn't know what to do.
Did you miss where I said - "lack" of #2 is good for the employer?
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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?:
There is value to actually living in the house - so at worse, to me - sounds like he broken even.
I believe that the downpayment was $35K in 1976. An index would have generator $1.55m in 2021 when he sold it.
Assuming 45 years of monthly rent of $1,500 (way, WAY above market for the entire time) that would have been just $810K, or about half of what the money would have cost.
In reality, in those early years rent of $400 would have been more accurate. And by the end, more like $1300. So really, actually renting on his street would like have cost around $450K - $500K over those 45 years.
So roughly, considering he "gained" around $100K on the house, and would have spent $600K... He only LOST about $800K... plus any additional improvements that he had to make over the years which I know were more than $300K.
So his total cost for ownership over renting was easily a loss of more than $1,000,000 USD.
Where are you getting rent of $1500 in 1976? Did he live in a mansion?
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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?:
There is value to actually living in the house - so at worse, to me - sounds like he broken even.
I believe that the downpayment was $35K in 1976. An index would have generator $1.55m in 2021 when he sold it.
Assuming 45 years of monthly rent of $1,500 (way, WAY above market for the entire time) that would have been just $810K, or about half of what the money would have cost.
In reality, in those early years rent of $400 would have been more accurate. And by the end, more like $1300. So really, actually renting on his street would like have cost around $450K - $500K over those 45 years.
So roughly, considering he "gained" around $100K on the house, and would have spent $600K... He only LOST about $800K... plus any additional improvements that he had to make over the years which I know were more than $300K.
So his total cost for ownership over renting was easily a loss of more than $1,000,000 USD.
Where are you getting rent of $1500 in 1976? Did he live in a mansion?
That's my point. Going with a flat rate HIGHER than it would have ever been the entire time, even now, the rent number could never get high enough to make owning have made sense. He LOST a fortune by owning.
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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?:
lack of social interaction with peers - i.e. water cooler work.
Of course lack of #2 is good for the employer - should mean the employee is spending more time on the job...
That's awful for an employer. Employers don't make money by people not working nor from them "being at work". They make money from them working. Water cooler time isn't just bad, it's the absolute worst. Employees view it as "working" and the government views it as "working" and it carries all the costs of people working and all the risks and insurance problems... yet it has zero business value. Huge negative business value.
A smart employer wants the water cooler thing out the window more than almost anything. Water cooler time is loathed by productive employees who are there to work and it makes them disenchanted. It's mostly a tool to avoid work at the employer's expense.
Middle managers willing to sabotage their businesses for their own gains like water coolers because they make it easy to fool upper management that work is being done when really, everyone is lost and doesn't know what to do.
Did you miss where I said - "lack" of #2 is good for the employer?
Oh, must have, sorry. Yeah, lacking that is great.
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@Obsolesce said in Is Real Estate Actually a Good Investment on Average?:
Here's a real example.
I'm renting. I love the area we're in. There are other areas where we would enjoy living as well that are exactly the same.
I'm paying under $3K a month for rent. It's a large condo, 3BR 2Bath, wonderful area, 4 pools 4 hot tubs, awesome view, great location, great & quiet neighbors, great community.
Renting other places around here are similar priced, many are a few hundred $ more for now, but still in range.
We'd like to buy a house in our current area, or another area we like, and pretty much keep our current standard of living as we are in this condo, but in house form.
If we did that, the minimum mortgage payment we're looking at MINIMUM is $6.5K, that is with dumping a bunch of cash as a down payment... note that the $6.5K does not include insurance, PMI, taxes, closing costs, etc.
So you see, renting and owning a home is not the same thing. Just because I choose to rent, doesn't mean that I automatically will rent the same kind of house that I would want to buy. So it's just not logical to me to compare them like that. Typically, you rent to save money. Sure, I could rent a house for $8K a month, but wtf would I do that? I'd rather buy! Except, I don't want to buy, because I need the freedom to be mobile and choose where to live and not be stuck... I don't want to throw all my money into a house and live paycheck to paycheck and be forced to sell at the next higher bubble than is currently to make anything.
Yeah, we could move to a cheaper area, but we don't want to. There's no point because we just don't want to give up what makes us live happy and looking forward to the next day/weekend/time off, etc.
I'd rather keep renting, and saving money, and investing money, that I'm not throwing into a house that I may or may not get back plus more later, if life works out perfectly for home ownership. I'm very likely to move as well, need that freedom, while saving! We can't time our life according to the house, we need our housing to work for us.
What does your condo look like - more like a duplex or an apt building?
Condos have the advantage of shared resources, i.e. less land per unit so costs 'can' be lower compared to a single family home.
additionally - there is a huge value add to single family home compared to condo - so definitely not an apples to apples comparison.
What does a single family home rent for in that area?
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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?:
@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
lack of social interaction with peers - i.e. water cooler work.
Of course lack of #2 is good for the employer - should mean the employee is spending more time on the job...
That's awful for an employer. Employers don't make money by people not working nor from them "being at work". They make money from them working. Water cooler time isn't just bad, it's the absolute worst. Employees view it as "working" and the government views it as "working" and it carries all the costs of people working and all the risks and insurance problems... yet it has zero business value. Huge negative business value.
A smart employer wants the water cooler thing out the window more than almost anything. Water cooler time is loathed by productive employees who are there to work and it makes them disenchanted. It's mostly a tool to avoid work at the employer's expense.
Middle managers willing to sabotage their businesses for their own gains like water coolers because they make it easy to fool upper management that work is being done when really, everyone is lost and doesn't know what to do.
Did you miss where I said - "lack" of #2 is good for the employer?
Oh, must have, sorry. Yeah, lacking that is great.
While I completely understand where you're coming from for this - from an employee moral point of view - it's often a big factor.
Makes me wonder if the work day shouldn't be something more akin to 36ish working hours and 4 dedicated BS hours - at least that way everyone knows what's really happening.. but the reality is that some will always bend it more, not matter how much you give them.
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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?:
@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
lack of social interaction with peers - i.e. water cooler work.
Of course lack of #2 is good for the employer - should mean the employee is spending more time on the job...
That's awful for an employer. Employers don't make money by people not working nor from them "being at work". They make money from them working. Water cooler time isn't just bad, it's the absolute worst. Employees view it as "working" and the government views it as "working" and it carries all the costs of people working and all the risks and insurance problems... yet it has zero business value. Huge negative business value.
A smart employer wants the water cooler thing out the window more than almost anything. Water cooler time is loathed by productive employees who are there to work and it makes them disenchanted. It's mostly a tool to avoid work at the employer's expense.
Middle managers willing to sabotage their businesses for their own gains like water coolers because they make it easy to fool upper management that work is being done when really, everyone is lost and doesn't know what to do.
Did you miss where I said - "lack" of #2 is good for the employer?
Oh, must have, sorry. Yeah, lacking that is great.
While I completely understand where you're coming from for this - from an employee moral point of view - it's often a big factor.
Makes me wonder if the work day shouldn't be something more akin to 36ish working hours and 4 dedicated BS hours - at least that way everyone knows what's really happening.. but the reality is that some will always bend it more, not matter how much you give them.
He is also in one of the most unbalanced areas of the U.S. by choice . Most of the country does not have that type or rent vs mortgage disparity.
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I don't know what it's like in the US, but in the UK renting sucks. Landlords and letting agents are generally awful people. Trying to get a landlord to fix anything is often a nightmare. Standard contracts mean you can get evicted at any time with just six months notice, which is particularly awful if you have kids and are forced to move away, maybe twice a year. And then they will try and steal your deposit on spurious grounds. You generally can't have pets, decorate, or even put up pictures on the wall. Mostly, you're treated as second class citizens.
At best, renting is ok if you're young and don't have kids, which is just as well since it's pretty much impossible to afford a house here if you're under 30.
I believe it's a lot better in the rest of Europe.
Oh, and "water cooler" time is good for generating trust and forming bonds within teams, which is essential. Raj Choudhury has some good things to say on this subject here https://hbr.org/2020/11/our-work-from-anywhere-future
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Another market where people thought that there was no end to the meteoric growth... China.
