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Housing Vs Stocks & Bonds

By Jimbo in SF follow Jimbo in SF   2012 Mar 8, 1:28am 11,961 views   26 comments   watch   nsfw   quote   share    


What type of issues should one consider when deciding whether to invest in either Housing or Stocks/Bonds over the next 25 yrs.

These benefits come to mind:
Housing - Leverage, monthly return (rent), prop 13, $500k profit tax free for a couple
Stocks/Bonds - supposed better rate of return (7% ?), yearly return (Dividends), 15% Capital Gains tax, easy liquidity

Anything else?
Which one would you choose to invest in?

#housing

1   freak80   ignore (4)   2012 Mar 8, 2:10am     ↓ dislike (0)   quote   flag      

A few points:

-Stocks and bonds are much more liquid (easier to buy and sell)

-Stocks and bonds are much easier to diversify (unlike sinking all of your wealth into a plot of land or two)

-Taxes tend to favor housing rather than stocks and bonds

-You don't have to pay property taxes, insurance, or maintainence on stocks and bonds (but do watch those fees)

-You might have problems with tenants. Being a landlord is at least a part-time job.

2   clambo   ignore (5)   2012 Mar 8, 3:41pm     ↓ dislike (0)   quote   flag      

The appreciation of real estate is just wage inflation. If you borrow to have this asset, eventually you hope to collect rent free and clear, but this might take a while.
If you have enough cash to buy the building outright, it's wiser and safer to just buy assets that produce income (if you want income).
Many people don't know why they are investing. Is it "more money" or income, or to beat inflation, to grow capital, etc?
Most of us need to 1. grow capital first 2. hope to turn some of this grown capital into cash flow or income when we are older.
If I were rich enough to pay cash for an apartment building, I would not buy one since it's so much trouble.
If I were not rich I would buy stocks in mutual funds to acummulate or grow capital.
I wish I had the strength of my conviction a few years ago. I bought some AAPL but kept to my "rule" of mostly owning mutual funds for safety.
If I had put just put a bit more into AAPL in 2008 than I did, I would be able to buy several houses here for cash.
I keep remembering my businesswoman grandmother. She was a feminist before such a word existed I guess. She was doing several kinds of business begininning in the 20's until the 60's or so. She rented houses but I never knew she rented them until I was older.
She however was not as rich as my little lady neighbor who is in her 90's and has owned stocks forever. She is richer than God because she has owned stocks and kept them.
Owning a rental property if you are rich may also tie you down. Why mess around with tenants and toilets if you don't have to?

3   edvard2   ignore (1)   2012 Mar 9, 1:16am     ↓ dislike (0)   quote   flag      

In general stocks outperform housing by a long shot. Over the last 100+ years or so, stocks have on average over the long term delivered a median return of between 7-10% versus real estate, which returns around 3-4%.

One last thing... stocks don't require down payments, paint, light bulbs, plumbing, carpet, new roofs, lawn care, or 12:00 at night emergency repairs.

Disclaimer:
* Not financial advice.

4   edvard2   ignore (1)   2012 Mar 9, 1:51am     ↓ dislike (0)   quote   flag      

E-man says

Ed, :)

I'll let the readers be the judge since we've been down this road before. If you keep on insisting this fallacy in your analysis, let me show you the light and you tell me where I'm wrong.

I don't have to back up anything I claim. What I mention is very plain and very well understood basic econ-101. There aren't exactly many Billionaires in this world that got rich buying wooden boxes.

The OP asked a question that was extremely broad, which is what performs better? Real Estate or Stocks? The answer is stocks. Your argument is that:

" oh yeah? Well I do well buying and selling houses, so there!" But- the context is more like what if you took X number of millions of investors and compared them to whatever they invested in. That's why statistics are such wonderful things. Take millions of house investors and millions of stock investors. The stock investors will come out ahead and hence the numbers I mentioned before.

I could just as easily counter by saying: " Oh yeah? Well I bought XXX Stock and it took off and I made millions, so my experience dispproves your statistics because surely everyone bought the exact same stocks... right?"

5   SFace   ignore (0)   2012 Mar 9, 1:53am     ↓ dislike (0)   quote   flag      

edvard2 says

In general stocks outperform housing by a long shot. Over the last 100+ years or so, stocks have on average over the long term delivered a median return of between 7-10% versus real estate, which returns around 3-4%.

You choose to ignore the housing dividend again.

If I bought a house for investment for 200K and rent is 1,300 bucks a month on the get-go, historicaly over 100 years, that 200K house had returned 3%-4% appreciation, well below equity.

But the caveat is the housing dividend that are not counted:

Annual rent: 15,600
Property tax: (2,500)
Provision for maintenance (2,000)
Insurance and other Cost (1,500)
Return 9,600
Housing Dividend 4.8%

If you bought a house for investment historically, in addition to the actual appreciation, the home owner pocketed about 5% as well. Actual return is on par with equity. If you bought a home to live, the 200K investment saved you (15,600 bucks in rents avoided less direct cost) 9,600 bucks in rent as well, another form of dividend.

How does an apartment REIT make their money? They make money on the cash return from operations and the cash return from appreciation. A mortgage doesn't change that fact as leverage offsets the cash flow reduction. You would know housing did better because REIT's peformed better than the stock market historically.

I'll let the readers judge as well, no need to respond as that is the end of this.

6   edvard2   ignore (1)   2012 Mar 9, 1:55am     ↓ dislike (0)   quote   flag      

I'm not going down this road again. I've already proven these points repeatedly.

7   FortWayne   ignore (4)   2012 Mar 9, 6:11am     ↓ dislike (0)   quote   flag      

SFAce you are assuming that you get to own that money spent as equity.

Jimbo you are better off investing into stocks on small scale, investing into housing usually involves buying a deal at an auction and flipping it. Incredibly risky if you don't know what you are getting into.

8   thomas.wong1986   ignore (3)   2012 Mar 9, 8:58am     ↓ dislike (0)   quote   flag      

Jimbo in SF says

What type of issues should one consider when deciding whether to invest in either Housing or Stocks/Bonds over the next 25 yrs.

Portibility, homes you cant take it with you. Stocks travel well.

9   clambo   ignore (5)   2012 Mar 9, 12:37pm     ↓ dislike (0)   quote   flag      

E-man is making a comparision where you must assume that the "investor" is already rich.
How much money does it take to invest in stocks? $0 at T.Rowe Price, if you sign up for automatic contribution of $50/month from your checking account.
How much money does it take to buy a foreclosed house on the steps of the courthouse? A little bit more.
Stocks 1. appreciate capital 2. can be owned fractionally via mutual funds 3. can be bought with little money to begin 4. are very liquid and trading mutual funds has no commission. 5. can grow to produce dividends which can be reinvested into more shares, or income.
If you have already a lot of capital, then you have more options and maybe being a landlord appeals to you.
I like the idea of being a landlord in an inexpensive place, e.g. Baja Mexico. The little house is inexpensive but you can rent it out for a few hundred bucks, so your yield is very good.

10   toothfairy   ignore (1)   2012 Mar 10, 7:27am     ↓ dislike (0)   quote   flag      

I like both i like the leverage of real estate and i like the low barrier of entry to stocks and bonds. I wouldnt feel diversified with only one or the other.

11   clambo   ignore (5)   2012 Mar 10, 8:03am     ↓ dislike (0)   quote   flag      

The entry level for a mutual fund is $0. You must have a checking account however and this must have a few dollars in it.
I'm suspicious of anything "educational" that costs $5000.

12   Austinhousingbubble   ignore (1)   2012 Mar 13, 3:34pm     ↓ dislike (0)   quote   flag      

E-man says

In general stocks outperform housing by a long shot. Over the last 100+ years or so, stocks have on average over the long term delivered a median return of between 7-10% versus real estate, which returns around 3-4%.

I find it interesting how all the stock market cheerleaders seem so readily willing to overlook how their 401k or their IRA or their Vanguard fund is most likely entirely invested in multinational companies whose collective infractions against human rights, labor and the environment are being subsidized and even vindicated by their dollars. Think about it: your own hard earned wages are being deployed in opposition to the goal of the greater commonwealth. At the very least, it must require an incomprehensible level of cognitive dissonance in order to put so much energy/wealth behind underwriting your own gradual demise.

13   Austinhousingbubble   ignore (1)   2012 Mar 13, 3:47pm     ↓ dislike (0)   quote   flag      

E-man says

If u open up your mind a little bit and expand your horizon, u will realize that real estate can be bought with no money or 0% down NOW. Huh, in this environment? Yes, in this tight credit environment.

Put another way, if you can somehow lick down your hackles and relax your natural and totally wholesome aversion to the concepts of larceny and perpetuating hollowed-out rentier economies, then you too can become a landlord!

14   freak80   ignore (4)   2012 Mar 13, 7:35pm     ↓ dislike (0)   quote   flag      

clambo says

I like the idea of being a landlord in an inexpensive place, e.g. Baja Mexico. The little house is inexpensive but you can rent it out for a few hundred bucks, so your yield is very good.

It's good until that gang of criminal thugs comes into town and burns the little house down.

15   freak80   ignore (4)   2012 Mar 13, 7:43pm     ↓ dislike (0)   quote   flag      

E-man says

If u had money, your return would be exponentially in R.E. because u could leverage it many times. How many times can u do that with your mutual funds, bonds and stocks?

Using lots of leverage is a great idea when speculating in risky assets.

16   edvard2   ignore (1)   2012 Mar 14, 1:52am     ↓ dislike (0)   quote   flag      

Austinhousingbubble says

I find it interesting how all the stock market cheerleaders seem so readily willing to overlook how their 401k or their IRA or their Vanguard fund is most likely entirely invested in multinational companies whose collective infractions against human rights, labor and the environment are being subsidized and even vindicated by their dollars. Think about it: your own hard earned wages are being deployed in opposition to the goal of the greater commonwealth.

That's not really much of an argument seeing as how that every single person in the US at this point has a home, car, wardrobe, and even pantry chok-full of goods, wares, and foodstuffs imported from various overseas countries that are also owned by the very companies that are part of most any common investor's slew of international funds. So what's the difference? Either you buy cheap electronics, T-shirts, shoes, and food or you buy stocks. SAME thing...

17   freak80   ignore (4)   2012 Mar 14, 2:15am     ↓ dislike (0)   quote   flag      

Austinhousingbubble says

I find it interesting how all the stock market cheerleaders seem so readily willing to overlook how their 401k or their IRA or their Vanguard fund is most likely entirely invested in multinational companies whose collective infractions against human rights, labor and the environment are being subsidized and even vindicated by their dollars. Think about it: your own hard earned wages are being deployed in opposition to the goal of the greater commonwealth. At the very least, it must require an incomprehensible level of cognitive dissonance in order to put so much energy/wealth behind underwriting your own gradual demise.

God bless capitalism.

18   RentingForHalfTheCost   ignore (5)   2012 Mar 14, 2:55am     ↓ dislike (0)   quote   flag      

wthrfrk80 says

Austinhousingbubble says

I find it interesting how all the stock market cheerleaders seem so readily willing to overlook how their 401k or their IRA or their Vanguard fund is most likely entirely invested in multinational companies whose collective infractions against human rights, labor and the environment are being subsidized and even vindicated by their dollars. Think about it: your own hard earned wages are being deployed in opposition to the goal of the greater commonwealth. At the very least, it must require an incomprehensible level of cognitive dissonance in order to put so much energy/wealth behind underwriting your own gradual demise.

God bless capitalism.

Yup, and you haven't even talked about how housing hurts trees, is destructive to the environment, employees illegals to works long hours with little wages, benefits, etc. etc. My point is that each side has it problems. The only way you can have as small a footprint as possible on the earths resources is to stop living. If you decide to keep living then you are impacting this place. Every decision you make throughout the day can lighten your footprint slightly, but it will always be there. To post how bad stocks are for the world is unfair if you don't also analyze the opposing subject (housing). It has many problems as well.

19   Austinhousingbubble   ignore (1)   2012 Mar 14, 5:38pm     ↓ dislike (0)   quote   flag      

edvard2 says

That's not really much of an argument seeing as how that every single person in the US at this point has a home, car, wardrobe, and even pantry chok-full of goods, wares, and foodstuffs imported from various overseas countries that are also owned by the very companies that are part of most any common investor's slew of international funds. So what's the difference? Either you buy cheap electronics, T-shirts, shoes, and food or you buy stocks. SAME thing...

You've just pointed to another facet of our collective cognitive dissonance, which actually supports rather than diminishes my argument; of course consumers cast a vote against themselves and in support of corporate welfare and banker greed every single day. Many American's seem to have muscle memory for the over-the-barrel position. Maybe they like getting fucked; maybe they're used to it. I don't know...but here's the good news: I'm seeing a growing cottage industry movement in America, primarily among younger men and women who seem to suffer from Stockholm Syndrome a little less than previous generations. More people today seem to think and care about where and how something was made than even six or seven years ago. I'm optimistic.

FWIW neither my pantry or my closets or my shed are chock-full of imported crap; I read the labels and I spend a little extra time and money if I need to in order to vote with my wallet. (I'm actually sitting here looking around my place and the only thing I can see or think of that might have fed the beast is my antique laptop that my wife donated to me when she upgraded five years ago.) I'm concerned about quality but I'm also not blinkered enough to think that, if it can happen over there, it can NEVER happen over here. Buying up Apple this and Nike that is a tacit vindication of basic human rights abuses and labor arbitrage. For similar reasons, I also haven't used a bank in over twelve years.

Americans have more power with their dollars than they do at the ballot box, and yet, they constantly vote against their own interests, while often times spouting off about how much they hate the system. It's fucking remarkable, to say the least.

20   Austinhousingbubble   ignore (1)   2012 Mar 14, 5:43pm     ↓ dislike (0)   quote   flag      

RentingForHalfTheCost says

The only way you can have as small a footprint as possible on the earths resources is to stop living. If you decide to keep living then you are impacting this place. Every decision you make throughout the day can lighten your footprint slightly, but it will always be there. To post how bad stocks are for the world is unfair if you don't also analyze the opposing subject (housing). It has many problems as well.

I see your point, though I think it's tangential to mine. Besides, we are nature. Our footprint is part of the natural ecology, not alien from it. It's our gift of discernment (right/wrong) that we seem ready to discard whenever it is more immediately equitable or even just plain convenient to our needs and desires.

21   Austinhousingbubble   ignore (1)   2012 Mar 14, 5:44pm     ↓ dislike (0)   quote   flag      

wthrfrk80 says

God bless capitalism.

It isn't capitalism.

22   freak80   ignore (4)   2012 Mar 14, 11:28pm     ↓ dislike (0)   quote   flag      

Austinhousingbubble says

It isn't capitalism.

No? I don't understand.

Capitalism is all about profit, not how those profits are obtained.

That said, the commie's are full of shit too. I don't think anyone has managed to create a good system yet.

23   Austinhousingbubble   ignore (1)   2012 Mar 15, 10:46pm     ↓ dislike (0)   quote   flag      

wthrfrk80 says

Capitalism is all about profit, not how those profits are obtained.

Well, at least one of the basic precepts of capitalism as I understand it is competition. To have real competition requires a level playing field, which we sent to the scrapheap decades ago. I would say what we have today is extreme crony capitalism if we have anything like capitalism at all. Corporatism would better describe it.

24   freak80   ignore (4)   2012 Mar 16, 12:38am     ↓ dislike (0)   quote   flag      

Austinhousingbubble says

Well, at least one of the basic precepts of capitalism as I understand it is competition. To have real competition requires a level playing field, which we sent to the scrapheap decades ago. I would say what we have today is extreme crony capitalism if we have anything like capitalism at all. Corporatism would better describe it.

Amen to that.

25   FortWayne   ignore (4)   2012 Mar 27, 2:06am     ↓ dislike (0)   quote   flag      

E-man says

Fortwayne,

Just in case u missed what Jimbo said above. I guess there is no risk investing in stocks or bonds. :)

Everything has a risk, but...
to clarify my position, as I did assume obvious did not need to be stated:

- Housing has very poor liquidity, almost non existent.
- Housing has no diversification.
- Housing requires very risky high leveraging.
- Lots of cash simply given up during a purchase.
- Housing has ongoing costs for maintenance, taxes, insurance, etc..
- And lastly closing costs on a loan which are much much higher than transaction cost of $2 - $4 per trade.

26   CL   ignore (0)   2012 Mar 27, 7:34am     ↓ dislike (0)   quote   flag      

Austinhousingbubble says

. Besides, we are nature. Our footprint is part of the natural ecology, not alien from it.

While I mostly agree, you think coal-fired powerplants giving you energy to post on blogs is a part of nature, or an aberration?

The question being, does man participate, a la "the state of nature" or has man, with the birth of consciousness, transcended nature?

Do beasts have the atom bomb?

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