Real estate increase 25% in 1 year in my town.

[harryg]

From a financial standpoint I don't think that renting is ever better than buying. If it were, the private rental sector wouldn't exist. And of course owning your own house is not only financial, it's somewhere to live independent of the current price/value. Even at a house value of 0 you can live in it. And whilst property taxes and renovation costs go up with inflation, these will be passed on to the tenant if you are renting.

However, in the shorter term, renting gives you flexibility both of movement and of capital. A bit like 'Yodean', it's all going rather well at the moment, and the idea of being 'all-in', rather than spending a sizeable % of funds on a house is somewhat appealing.

The maths isn't quite that straightforward since in the UK there is no capital gains on primary residence, so you would have to make more net on your portfolio rent deducted than you would have made gross on the house, (simplifying). For a second property this wouldn't apply.

I agree that the reason that so many people do well on houses is that a mortgage is a forced saving régime, and the relative illiquidity of property cuts down on transaction frequency.

Interesting chit chat.

[stefk]

New trend in real estate, and for me its a good trend. If you want to buy a house, buy little. Little house means less energy consumption, less mortgage, less taxes, BUT it means you can buy a bigger garden. Its all good

https://trendesignbook.com/blog/decor-t ... ing-trend/

[AstuteShift]

Honestly depends on your goal.

As a trader, you really don’t need a mortgage especially if you’re killing it.

The masses get into real estate since they suck at investing, it’s that simple. This is just my observation tho, people get too emotional in this space.

Also tying yourself down to a location implies you trust that your future is safe when in reality, safety is an illusion. If the trend tells me to leave, I leave.

Any investment that ties along with your emotion is a losing one, following the crowd is always a formula to the secret desire to lose syndrome

[Yodean]

The masses get into real estate since they suck at investing, it’s that simple. ... people get too emotional in this space.
Also tying yourself down to a location implies you trust that your future is safe when in reality, safety is an illusion.
Any investment that ties along with your emotion is a losing one, following the crowd is ...

This sums it up for me wrt real estate, for the most part. Renting has worked out really for me for 30+ years (left home when I was 18) and counting ... I am well ahead, at least in financial and psychological terms, if one must compare, against pretty much everyone I know personally who bought real estate, making appropriate adjustments for those who inherited large sums of wealth from their parents.

Yeh, following the Herd in anything leads to mediocre to terrible results, >85% of the time, in my experience.

Plus, my base case is real estate will crater a bit next year in the U.S. at some point ...

[Triplethought]

Plus, my base case is real estate will crater a bit next year in the U.S. at some point ...

I will disagree with you there. At most I think real estate stops going up and trends sideways. I don't see a scenario short of global war or severe economic depression where it craters again like 2008.

[Triplethought]

All true. but in addition to the forced savings is the ability to write off interest payments.

This is why the masses lose. Most people (even CPAs and engineers with state licences saying they're good at math) think they are somehow ahead if they pay $20,000 in interest and get to deduct $20k from taxable earnings... Last I checked nobody in North America is taxed at 100%. One thing COVID has taught me is that just because you have a state licences saying you're capable of doing math, doesn't mean you're smart enough to realize you should do some ducking math. (See other posts about the Dunning Kruger Effect).

So smart guy (not aimed at anyone here), let's do the math... You paid $20k in interest and got to deduct it from table earnings... But you only pay 40% in combined state and federal taxes... So you paid the bank $20,000 for the privilege of not paying the government ($20k x .4=.$8,000) $8,000... According to my math you're $12,000 in the red...

I agree doing something solely for tax reason can be bad math. But in your analysis the $20K you paid in interest may well be roughly equivalent to what you would pay in rent. Usually rent is a little less than a highly financed mortgage but in todays world your rent can be the same or more than the mortgage payment. So the house interest deduction saves you that $8000 per year in taxes and becomes like a discount on your rent payment. The actual amount depends on your assumptions of course.

Let me do a quick sample calc. I have a small $291,000 house with $29,100 down payment and mortgage of $261,900 payments at 3.5% are $1638 per month (mostly interest at first). Zillow says rent is $1498/month on that house. I believe at 3.5% interest you pay $9000 1st year in interest and 40% tax rate you only save $3600 in taxes. So that is 2 months free rent. I guess your point is if you can make more than $3600 (which is 12.5% apr) on your $29,100 down payment in the stock market you're money ahead. Not to mention you save $140 per month on rent versus mortgage and have far fewer maintenance costs. I can see the logic.. IF you can make 12.5% (Most money managers won't quote that rate). However we have not discussed the 3.6% depreciation on your house each year which gives you additional tax benefits. Nor have we factored in 4-7% appreciation of the home value per year (in recent years more like 14-25% which is huge)

[Yodean]

At most I think real estate stops going up and trends sideways. I don't see a scenario short of global war or severe economic depression where it craters again like 2008.

Well, a >20% drop in the general equity markets in 2022, even if short-lived, would crater the real estate markets, overall, and could be viewed as an "economic depression." It's coming, and will provide tremendous buying opportunities.

I don't believe in huge global military wars, for the most part - too much intermingling of culture, finances, immigration, etc. - but little "contained" conflicts in Ukraine, South China Sea, etc. are possible.

The "wars" in the 21st century will be fought with digital $$$, advanced A.I.tech., Herd Psychology through mainstream media propaganda, political pressure, etc.

[Triplethought]

Well, a >20% drop in the general equity markets in 2022, even if short-lived, would crater the real estate markets, overall, and could be viewed as an "economic depression." It's coming, and will provide tremendous buying opportunities.

I don't believe in huge global military wars, for the most part - too much intermingling of culture, finances, immigration, etc. - but little "contained" conflicts in Ukraine, South China Sea, etc. are possible.

The "wars" in the 21st century will be fought with digital $$$, advanced A.I.tech., Herd Psychology through mainstream media propaganda, political pressure, etc.

I'd have to look at the graphs but in general I don't think real estate plummets immediately upon plummeting of the stock market. In fact I recall the two lines don't track each other closely at all. If the market drops 20% in 2022 I seriously doubt it will crater real estate markets much at all.

[Yodean]

I'd have to look at the graphs but in general I don't think real estate plummets immediately upon plummeting of the stock market. In fact I recall the two lines don't track each other closely at all. If the market drops 20% in 2022 I seriously doubt it will crater real estate markets much at all.

Well, anything may happen, of course, but often, the real estate bubble pops a bit ----> small caps drop -----> general equity market indices drop. Keep an eye out for this kind of thing in Q2/Q3 2022.

Pretty common pattern ... but of course, while history does not always repeat, it does tend to rhyme.

Long-term, real estate's fine ... I am planning to buy some brick and mortar stuff in that sector in a few different countries once the bubbles pop. On the other hand, if it doesn't happen, it doesn't happen. Less hassle for me, in a way.

[purgolder83]

And isn't a bigger point about asset allocation? People in my 'hood have made huge (paper) profits on their houses, but I bet many of them have a much smaller percentage of their wealth in equities.

[Yodean]

And isn't a bigger point about asset allocation? People in my 'hood have made huge (paper) profits on their houses, but I bet many of them have a much smaller percentage of their wealth in equities.

Yeah, I've been discussing this kind of thing with family and friends for years. There's this persistent mainstream narrative that real estate is a "safe" investment, that it "never" goes down, etc., etc.

A lot of people I know don't think twice about putting 80% or more of their present and future net worth into a piece of real estate, yet call me "crazy" when I deploy 5% to 10% of my net worth into a single sector or asset. Of course, some of these people last year were double-masked when making love to their wives, so there's that ...

Anyways, the "real estate" mainstream narrative, to me at least, falls in the same category as mainstream memes like, "You MUST have children, it's the greatest thing ever!" or "You MUST get married, it's the best!" or "Grow up and be nice to everyone!" etc. The last one, I get told a lot, for some unfathomable reason.

[Yodean]