Is Real Estate Actually a Good Investment on Average?
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@Jimmy9008 said in Is Real Estate Actually a Good Investment on Average?:
Like I said, I get it if rent was far less than mortgage. But where I am, its not.
I think our point is that you are considering the market to be a static thing. It's not. It moves over time. What makes sense today might not make sense tomorrow.
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@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
What makes sense today might not make sense tomorrow.
This is very true, which is why drawing conclusions from historical data is always flawed. So "is real estate actually a good investment on average"? Who knows, you can't predict the future.
In as much as there is a correlation between house prices and interest rates, we look to be moving in to a period of higher interest rates, so would expect prices to fall, but who knows.
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In looking at it from Scott's point of view - it looks like renting property is almost never worth the investment. So then who are the idiots who are buying these home and renting them to others?
How are these investment groups making any money buying all of these houses and then renting them all - taking all of these putting them under an umbrella and then selling ownership shares in that umbrella... how are they making money?
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@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
In looking at it from Scott's point of view - it looks like renting property is almost never worth the investment. So then who are the idiots who are buying these home and renting them to others?
How are these investment groups making any money buying all of these houses and then renting them all - taking all of these putting them under an umbrella and then selling ownership shares in that umbrella... how are they making money?
I know in this area, most of the single-family rental properties were bought as tax write-offs. They're known to always loose money, so we've got slum lords that buy these things and rent them out till they get condemned by the city/county.
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Another point that's only briefly really covered here is - the difference between living in the home you are buying versus buying as an investment property with the express purpose of making money.
In Jared's example - claiming that he'll need to sell the home for $460K to break even - hardly... because Jared got value from living there. The chances are he would be paying nearly that same amount of money to live anywhere else in that area (a place he specifically wants to live because of the schools and community).
Chances are Jared could move out when his children leave for collage - sell the house, pay off the mortgage and walk away with some nickles in his pocket - but now he'll be homeless - he can't live in that money.
Huge difference between the home you're buying/owning versus money you're investing into the stock market. You sell your home - hopefully you have some money, but you're homeless - you sell your stocks (other investments) and you have cash, but they don't change your living arrangements...
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@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...
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@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
I'll use myself as another example. I had a mortgage of $1600/mo recently. Now I rent a bigger place for $350/mo. In a place that I like more. ANd now I don't need a car, but I needed one before. That's even more savings. Assuming that rent will always equal mortgage just isn't a reasonable assumption.
Your situation changed beyond drastically. Moved from first world country to third world country. Moved from a place where typical wages (according to google) are $16/hr to a place (again according to google) are $1.70/hr (https://take-profit.org/en/statistics/wages/nicaragua/) average monthly wages around $310/m.
You'll get no disagreement from me on the whole need a car thing... one of my favorite things about Rome was a market on nearly every corner... of course - the reliance upon the need to get groceries nearly daily (because small homes, little food storage, etc) breeds it's potential issues.
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@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
But we all expect London to undergo a staggering crash
Whose we?
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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?:
But we all expect London to undergo a staggering crash
Whose we?
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.
All the people who don't think Bitcoin is magic and will just make the planet rich, lol.
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There are fundamental problems with the "the price will always increase" model. First that there is no historic or logical reason behind it. Why would this happen? There's not a great and greater value to the housing, if anything, it is decreasing. So why would the price go up if the value is not?
Second is that housing is a self regulating market. It has to be. It cannot simply keep increasing because people cannot afford it. And once they cannot afford it, they stop buying. And once they stop buying, houses stop selling and their value start to plummet.
It's impossible for house prices to get too high, because you literally run out of buyers.
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@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
How are these investment groups making any money buying all of these houses and then renting them all
It's not guaranteed that they do. Look at some recent examples of companies over paying for homes and getting screwed. It happens a lot. It's also not only about making money for them on the house, it's about holding money. There's so many loop holes in the system that it is a way to legally launder, avoid other things such as taxes, etc.
That said, when you can buy homes with cash, it is less likely to be a liability. They avoid PMI, mortgage, interest, not living in the home so aren't tied to it, much easier to time the market to buy and sell, etc. They tend to immediately find renters because these home are usually move in ready. If not, they have other plans.
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@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
Your situation changed beyond drastically. Moved from first world country to third world country. Moved from a place where typical wages (according to google) are $16/hr to a place (again according to google) are $1.70/hr (https://take-profit.org/en/statistics/wages/nicaragua/) average monthly wages around $310/m.
It did, and most people have those options. And most people bypass them because of home ownership. Buying a house is a key factor in people paying too much in many aspects of their life and can be a bigger millstone than people calculate.
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@Obsolesce said in Is Real Estate Actually a Good Investment on Average?:
Look at some recent examples of companies over paying for homes and getting screwed. It happens a lot.
Even happened to Zillow!
And the ENTIRE nicaraguan housing market. Everyone thought it was going to go up for forever, now it is at a historic low. Almost everyone lost their shirts on what the thought was a sure bet.
Or San Francisco in 1905... seemed like the best real estate bet in the country. Boy were they wrong. And now people think the same thing 120 years later but... likely the same thing is going to happen.
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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?:
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?
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@travisdh1 said in Is Real Estate Actually a Good Investment on Average?:
@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
In looking at it from Scott's point of view - it looks like renting property is almost never worth the investment. So then who are the idiots who are buying these home and renting them to others?
How are these investment groups making any money buying all of these houses and then renting them all - taking all of these putting them under an umbrella and then selling ownership shares in that umbrella... how are they making money?
I know in this area, most of the single-family rental properties were bought as tax write-offs. They're known to always loose money, so we've got slum lords that buy these things and rent them out till they get condemned by the city/county.
For sure, anything can be used as a tax shelter. Real estate is really good for that because it's so easy to document and so easy to manipulate down when you need to and heavily protected against staggering loss.
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@Carnival-Boy said in Is Real Estate Actually a Good Investment on Average?:
This is very true, which is why drawing conclusions from historical data is always flawed. So "is real estate actually a good investment on average"? Who knows, you can't predict the future.
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. For example, we know that the house prices in London will come down. We don't know how fast or when.
At some point, markets operate like molecules. When markets are large, it all becomes "math and physics" and individual actors aren't significant enough to affect the outcome.
While yes, a meteor could take out the entire planet and end the markets entirely... barring the totally absurd examples, we actually can and always have been able to predict the future in a reasonable sense. Avoiding historical data is not a good idea, but it absolutely tells us what we need to know on a broad scale.
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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?:
Your situation changed beyond drastically. Moved from first world country to third world country. Moved from a place where typical wages (according to google) are $16/hr to a place (again according to google) are $1.70/hr (https://take-profit.org/en/statistics/wages/nicaragua/) average monthly wages around $310/m.
It did, and most people have those options. And most people bypass them because of home ownership. Buying a house is a key factor in people paying too much in many aspects of their life and can be a bigger millstone than people calculate.
wow - maybe - I know home ownership has zero to do with why I don't do what you did. I don't because = wife. My wife has zero desire what so ever to live there. She also wants to be a teacher - wants to go into a classroom and teach, I'm assuming she could do that there, but she also doesn't speak spanish, so she'd have to learn that first.
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@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
In looking at it from Scott's point of view - it looks like renting property is almost never worth the investment. So then who are the idiots who are buying these home and renting them to others?
How are these investment groups making any money buying all of these houses and then renting them all - taking all of these putting them under an umbrella and then selling ownership shares in that umbrella... how are they making money?
So this is an interesting question and having been both the renter of the top example AND a part of an investment group for the bottom portion I think that I have some insights.
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Individuals renting out property rarely earn money compared to the baseline. That's super rare. And, like anything, you get isolated pockets of success either by property or in time (it make bank this year, loses next) offset by large amounts of small loses everywhere else. For everyone making $100 on renting houses, there are ten people losing $10. It all offsets over time. Find people renting out a single house and chances are you'll find people unhappy and unsuccessful. I know lots and lots of people who have done this or are doing it now, and it's bleak. There are exceptions, but they are rare and when they are successful it is because they mimic the behaviour I'm about to describe below.
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Big investment groups are rarely real estate investors. That's beyond rare. Large investment groups sometimes invest in real estate for ancillary reasons (keeping a competitor at bay). I do this myself, as do my competitors, here, for example. The real estate itself loses money, but it has other values (they can't open a restaurant next door to mine.)
Rental businesses don't make money on their real estate, generally, they lose. but they need it in order to do other things. Where do they make their money? On maintenance and operations. Most firms that you will think of as real estate firms, aren't. But it's an easy way to view them. But a big apartment complex will likely make its money on the operations, maintenance, upkeep, events, collections and so forth of a complex. And even bigger ones also make their money on the construction of said buildings. When I worked for a big "real estate" company this is what they did. They literally had two operational units... one built homes, the other maintained homes. Neither wanted to "own" homes, unless they had no buyers. They'd build and sell whenever possible, but to keep the management and construction businesses busy, they were willing to own themselves when necessary (and it often was.)
The actual real estate didn't do they any favours, it was costly and complex. But since they had these other businesses that depended on there buying a buyer, as long as they didn't lose too much on buying it was worth it.
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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?:
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...
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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?:
Your situation changed beyond drastically. Moved from first world country to third world country. Moved from a place where typical wages (according to google) are $16/hr to a place (again according to google) are $1.70/hr (https://take-profit.org/en/statistics/wages/nicaragua/) average monthly wages around $310/m.
It did, and most people have those options. And most people bypass them because of home ownership. Buying a house is a key factor in people paying too much in many aspects of their life and can be a bigger millstone than people calculate.
wow - maybe - I know home ownership has zero to do with why I don't do what you did. I don't because = wife. My wife has zero desire what so ever to live there. She also wants to be a teacher - wants to go into a classroom and teach, I'm assuming she could do that there, but she also doesn't speak spanish, so she'd have to learn that first.
Or she could teach remotely to the US. That's quite common from here. But that's not going into a classroom. But there are English language schools here within walking distance of my house. And four universities at least (partially English.)
