patrick.net

RentingForHalfTheCost says

5-1 leverage is risk. You can play that risk with stocks with derivatives. However, investors can see the risk of raw -4% becoming -20% to you there. Because we have been brainwashed by the greed machine wrt real estate, everyone ignores this effect in housing. Good try.

You didn't answer my question. Are you including income in your calculation or just appreciation??

Very few people buy an investment home solely for the appreciation.

tatupu70 says

RentingForHalfTheCost says

5-1 leverage is risk. You can play that risk with stocks with derivatives. However, investors can see the risk of raw -4% becoming -20% to you there. Because we have been brainwashed by the greed machine wrt real estate, everyone ignores this effect in housing. Good try.

You didn't answer my question. Are you including income in your calculation or just appreciation??

Very few people buy an investment home solely for the appreciation.

Income can be dividends also. Absolutely including both. Housing is one of the worst forms of investments. Tracks to inflation. Other investment actually grow your capital. A house is a shelter.

I'll stop you with the income portion of rental property by saying permits for building apaprtments were almost nonexistent for the ten years from 2000. Builders did build millions of crap shacks for cheap, and sold them for premium prices.

As builders go back to building for "cash flow" smaller investors will be squeezed by the high prices they paid for crap.

Can I say crap on this site? I'm new here.

The rents you are looking at today are a part of that over all "feeling" of wealth Bernanke is talking about. Historically low interest rates, gives you a feeling on passive income, while ignoring the debt you are going to pay off.

OK, so what you end up owning that crap shack? Who is going to buy it? You just carried the property, and paid twice the price of it's value, but who will take it off your hands?

The type of thinking that is expressed here is the stuff slum lords are made of.

David Losh says

OK, so what you end up owning that crap shack? Who is going to buy it? You just carried the property, and paid twice the price of it's value, but who will take it off your hands?

Something tells me the Pockster can swing it. Being that his current finances hold up. Playing with in your means is the most important rule everyone should follow. NOT that nobody should ever buy a house that you or I would consider grossly inflated and out of our league. That is why I bought a house that the mortgage/ins/taxes would equal to the the average rent I was paying for ten years prior. Now had I the Pocksters money, I would have bought in Coral Gables and not thought twice about it.

RentingForHalfTheCost says

Income can be dividends also. Absolutely including both. Housing is one of the worst forms of investments. Tracks to inflation. Other investment actually grow your capital. A house is a shelter.

That is not correct. Housing appreciation tracks inflation. Housing return including income absolutely does not.

Stocks returns include dividends. So, you need to include income to compare apples to apples.

tatupu70 says

RentingForHalfTheCost says

Income can be dividends also. Absolutely including both. Housing is one of the worst forms of investments. Tracks to inflation. Other investment actually grow your capital. A house is a shelter.

That is not correct. Housing appreciation tracks inflation. Housing return including income absolutely does not.

Stocks returns include dividends. So, you need to include income to compare apples to apples.

Your correct. My bad. Appreciation tracks inflation, income is additional.

From the start of 1980 to the end of 2004, home sale prices increased 247%. A pretty sweet deal, it would seem. Over the same period, however, the S&P 500 shot up more than 1,000%.

You better be generating a lot of income to go from 247% to 1000%. A lot! Not 3K/mth on a 1million+ dollar home.

robertoaribas says

RentingForHalfTheCost says

Housing is one of the worst forms of investments.

another idiotic blanket statement....

my properties are paying 10% income in rent, factoring in vacancy and maintenance, and over the past year, have appreciated wildly...

Another idiotic blanket statement saying past performance guarantees future performance.

robertoaribas says

RentingForHalfTheCost says

Housing is one of the worst forms of investments.

another idiotic blanket statement....

my properties are paying 10% income in rent, factoring in vacancy and maintenance, and over the past year, have appreciated wildly...

yes RE is one of the BEST forms of investment, not the worst.
Didvidends have HUGE risks you can never ever know - such as 'oops we cooked the books for last 10 years, now we are folding the company up'. Or they eliminate dividend completely (very common). Basically all stocks are opaque - accounting rules are cheated until they get caught. WIth RE you are in charge of the cheating! lol

tatupu70 says

RentingForHalfTheCost says

The truth is that investments in stocks has been shown to always out perform real estate. Always!

I've never invested in real estate because I don't want to be a landlord, but I'm not sure about that statement.

Are you looking solely at appreciation or are you also factoring in income?

Food for thought

http://realestate.msn.com/blogs/listedblogpost.aspx?post=9c291709-2cc8-49a4-9ffe-d7f85942b0a8

http://observationsandnotes.blogspot.com/2011/10/housing-real-estate-stock-market.html

http://online.wsj.com/article/SB10001424052702304259304576375323652341888.html

robertoaribas says

RentingForHalfTheCost says

Housing is one of the worst forms of investments.

another idiotic blanket statement....

my properties are paying 10% income in rent, factoring in vacancy and maintenance, and over the past year, have appreciated wildly...

I know I am just wasting my time with you Roberto. But anyway. Here is a situation that makes my statement hold up to your claim it is 'idiotic'. Again, anyone disagreeing with your incomplete view on investing is wrong. I feel sad for you sometimes. Just sometimes. ;)

"Here's another way of looking at the situation. If a disciplined investor who might have considered purchasing that median-price house in 1980 had opted instead to invest the 20% down payment of $19,910 and the normal homeownership expenses (above the cost of renting) over the years in the Dow Jones Industrial Index, the value of his portfolio in 2010 would have been $1,800,016. The stocks would have been worth more than the house by $1,503,196. If the analysis is based on 2007, the stock portfolio would have been worth $2,186,120, exceeding the house value by $1,625,850. "

http://online.wsj.com/article/SB10001424052702304259304576375323652341888.html

If you are financing 700,000 there is no way your payment on the loan is only $1600. $4000+ is more like it if you are paying it off.

Now interest only ARM, I don't know about that one, but you wouldn't be the first person to commit an ARM suicide. Plenty of people who lived through 2006 can tell you about that hook, line, and sinker.

What happened to all the wise people who used to post on patrick.net who didn't stretch their finances and only bought with either all cash or conservatively with no risk?

RentingForHalfTheCost says

"Here's another way of looking at the situation. If a disciplined investor who might have considered purchasing that median-price house in 1980 had opted instead to invest the 20% down payment of $19,910 and the normal homeownership expenses (above the cost of renting) over the years in the Dow Jones Industrial Index, the value of his portfolio in 2010 would have been $1,800,016. The stocks would have been worth more than the house by $1,503,196. If the analysis is based on 2007, the stock portfolio would have been worth $2,186,120, exceeding the house value by $1,625,850.

So what, Stocks aren't going to have large moves like that ever again in history.. Unless they are moving in tandem with housing. If our economy improves stocks and housing will improve together. If the economy falls off the track again.. Stocks will probably drop 50% in 3-6 months. That won't happen to housing in such a short period of time.

LOL. You can purchase whatever you want as long as you don't elect government leaders who will use taxpayer money to bail you out if you cut a bad deal.

No whining, ok?

Roberto is right. This board is filled with idiots who hate the system and dont care to work within it. Not the basis for a proper discussion on investment.

Maybe they should be on a communist message board.

Pocky your success is a detriment to everyone else success.
It's kind of like the popular thinking that Diabetes is contagious and if you sit on a plane next a fat person then you will contract diabetes and your health insurance will go up.

CaptainShuddup says

Pocky your success is a detriment to everyone else success.

It's kind of like the popular thinking that Diabetes is contagious and if you sit on a plane next a fat person then you will contract diabetes and your health insurance will go up.

I wouldn't call being in debt a success. Isn't patrick.net slogan "Debt is slavery"? We as a nation gone through this in 06 already.

I'm comparing him to Robert and I'm seeing a very different situation. Robert buys cheap rentals and rents them for profit taking virtually no risk. Pocky on the other hand just signed his life away, at least that is how I see it.

That isn't success, I feel that all the good advice from this board on financial prudence went out the window at some point, or at least some chose to ignore it.

I get that roberto is highly conservative, and has almost zero risk in his investments (so its crazy he gets bashed and harrassed right? so funny here). I am placing a bet on future appreciation with this one house. I am looking to buy conservative investment rentals, but in my area its a feeding frenzy for these and they cost 3 to 5 times what roberto is paying, but only generate maybe twice the rental income.

At any rate I can always go back to renting. So I dont see any real risk at all to what im doing. Will it kill me? no.

robertoaribas says

I am very close to finished writing on patrick.net. I am closing in on a housing worth (net) of over 2 million dollars

Sell now and you will thank yourself later. You have benefited from the Fed giving more and more gifts out. That will ultimately end no doubt, and then we can start paying the price for our greed.

BoomAndBustCycle says

So what, Stocks aren't going to have large moves like that ever again in history.. Unless they are moving in tandem with housing. If our economy improves stocks and housing will improve together. If the economy falls off the track again.. Stocks will probably drop 50% in 3-6 months. That won't happen to housing in such a short period of time.

Well, we definitely differ here then. I can say the same argument you just used the other way around. Earnings are the floor of stocks and hence are more protected than housing. Housing is a ponzi scheme and the rental floor is so much lower than current valuations. Many stocks right now are running at Price/Earnings of single digits. i.e. they are making 10-15% or more returns just on earnings. Consistently. Housing as an investment has a P/E of about 30. Good luck to all. The rain is coming so your shelter will at least keep your from getting wet. ;)

RentingForHalfTheCost says

and the normal homeownership expenses (above the cost of renting) over the years in the Dow Jones Industrial Index

I agree with Roberto--I'd like to see the study in more detail. How is he determining the above rental costs? Without more detail, I'm a bit skeptical of the study's conclusions.

I've never paid more to own then what I would be paying to rent.

tatupu70 says

RentingForHalfTheCost says

and the normal homeownership expenses (above the cost of renting) over the years in the Dow Jones Industrial Index

I agree with Roberto--I'd like to see the study in more detail. How is he determining the above rental costs? Without more detail, I'm a bit skeptical of the study's conclusions.

I've never paid more to own then what I would be paying to rent.

You most likely have, many (if not all) do and just don't know it. You are missing many important components like opportunity costs by having your downpayment and any other equity tied up in housing. People think comparing their mortgage payment to the rent payment is the whole story. It is not. Believe what you want.

robertoaribas says

I am closing in on a housing worth (net) of over 2 million dollars

That has one big caveat! It depends on the greater fools being around when you try to sell. ;)

$912 Prop Tax on a $875k property -- that's monthly, right?

BoomAndBustCycle says

So what, Stocks aren't going to have large moves like that ever again in history.. Unless they are moving in tandem with housing. If our economy improves stocks and housing will improve together. If the economy falls off the track again.. Stocks will probably drop 50% in 3-6 months. That won't happen to housing in such a short period of time.

Whoa, whoa, whoa. Stocks might drop 50% in 6 months, but they're crawl right back up within a few years - generally speaking. Yeah, there are exceptions like the Great Depression, but then you have the post-war boom and the 80s-90s boom, with a sideways dozen years inbetween both in the 70s and 2000s.

Many stocks still pay dividends when the price doesn't move. You can also Straddle stocks you expect to face volatility. You can buy puts to lock in gains. There are all kinds of option plays you can use to generate income from stocks you hold and to hedge against big moves.

These things are not available in the R/E Markets.

thunderlips11 says

$912 Prop Tax on a $875k property -- that's monthly, right?

yeah it monthly. very cheap property tax too. in TX it would be triple this amount. (low prop tax in CA is one of many reasons prices are sky high. A high tax rate that re-assessed yearly will cap house prices.)

War says

You get poor in a hurry buying retail items like houses.

For people like us, that may be true.. chill dude.

very cheap property tax too. in TX it would be triple this amount
Same, B/S in TX your hause will cost 3X less.

War says

No. For depreciating items like houses.

:) Right here on Pat.net, top article, Bears are right but prices are rising anyway.

http://ochousingnews.com/news/the-housing-bears-are-right-but-prices-will-go-up-anyway

Frightful short term reality I know.

RentingForHalfTheCost says

You most likely have, many (if not all) do and just don't know it. You are missing many important components like opportunity costs by having your downpayment and any other equity tied up in housing. People think comparing their mortgage payment to the rent payment is the whole story. It is not. Believe what you want.

lol. No I'm positive that I was paying less buying. I'm well aware of all the costs AND benefits of buying.

Don't forget about tax savings, principal repayment, inflation hedge, etc.

The fact that you think many if not all owners are paying more than renting is laughable.

However many of us live in the SF Bay area where real estate prices are some of the highest in the country.
It rained today.... wahhh!... Oh wait.... where are my skis?

PS - I'm kidding. I can't afford skis.

Our fearless leader said: But will prices continue to be much higher than rent for the same quality house in the same location?
Probably, as long as urbanization trends continue. To put this in perspective, the last two families I know of bought SFHs in Richmond. Not the Richmond District in Ess Eff, but Richmond, California.

No, fewer people can afford the debt. Consumer debt is at an all time high, just like the federal deficit. Consumer debt is $15 Trillion. Affording the payment is meaningless if you lose a job, have a pay cut, or need to move.

It's fifteen years of debt on a thirty year mortgage.

Let me correct you on the term tangible asset. Gold just sits there. There are no working parts, or reason to maintain, insure, or pay taxes.

Real Estate can either be an asset or a liability. Most, at least fifty percent of, property has debt associated with it. That makes it a liability until there is a solid equity position. Looking at Zillow, or an appraisal is much different than having a sale.

The problem today is having a sale, for a lot of reasons. Low inventory coupled with low interest rates is only creating exhuberance. Gold is an exhuberance commodity, and now we can add Real Estate.

The problem is the banking industry, and it's continued loan practices on the consumers promise to pay, rather than what the "asset" will sell for.

When you go to the court house step auctions you see property, after property returned to the banks for a higher price than the consumer, investor, or public is willing to pay.

The price of Real Estate is obscene. There is no room for growth. If you are hoping for inflation you're going to have a long wait, and longer if Romney is elected.

Once we start paying deficit, the money banks have been happy to loan will get tougher to get.

PockyClipsNow says

This board is filled with idiots who hate the system and dont care to work within it.

I don't think people hate the system enough...too lazy or distracted or comfortable or scared.

David Losh says

No, fewer people can afford the debt.

Even more accurate would be to say that more people are eligible for more debt. There is a reason for this! Remember, we need the wealth effect more than we need actual wealth or even solvency!

I think wealth effect isn't just an economic driver in this credit-fueled consumer economy, it is also a palliative for the working class. We need people to feel like they're building wealth just by virtue of living in a property. These phantoms of freedom keep people in the harness, where they are needed, and distract them from the rug that is being slipped out from under them.

“…everyone but an idiot knows that the lower classes must be kept poor, or they will never be industrious.”

—Arthur Young; 1771

It was not always so. John Talbott's excellent book "Sell Now!" demonstrates that the price/rent ratio in San Francisco was the same as everywhere else before the year 2000.

From Amazon's review of Sell Now...

"As a guide for the average homeowner, this book is a convincing argument broken down into laymen's terms, albeit one fueled by bias: Talbott admits he, "allowed his anger and bitterness," to influence his writing, making it less a studied survey than a "creative analysis," as Talbott terms it."

Hanging your hat on the "creative analysis" of someone fueled by bias with a self admitted axe to grind is propbably not the best proof that the price/rent ratio in San Francisco, let alone the fortress, was the same as everywhere else.

robertoaribas says

You can't live your life worrying about the worst thing that could happen. You could have a stroke tonight and die too, so don't ever invest anything...

That is your argument for accumulating debt in real estate holdings. That is a philosophy on living. Not an argument to analyze risk of housing verses risk of other investments. BTW, I agree for a change in what you just wrote. The debate is where people see risk verses reward. We each have a different view. I'm glad we do or one asset class would get all the loot.

How about accounting for the 175K DP stuck with the bank? You should at least deduct your imaginary profit by the conservative estimate of returns from that 175K,that also over the life of loan.

Here's a link to another thread, http://patrick.net/?p=1218026#comment-888205

What the other guy is saying is that your equity can go negative quickly with Real Estate. When it does you can be prepared for rent reductions.

Rent reductions are very real. It has happened many times in the past couple of decades.

All I can say is this site just keeps on Delivering!

I don't like the information I'm getting.

But I realize I am not a hedge fund or a wealthy cash investor that can waltz up to the court house steps and snatch up a bargain.

The overpriced bank dribble is just plain irritating.

Well, you're not getting the larger picture of what we just experienced. Property equity went negative. Millions of people are under water. Those properties you bought at auction are from people who sent the property back to the bank.

The problem however is the banks are still standing and we have a new group of banks that are too big to fail.

Unless the economy was allowed to collapse, unless banks forgave debt, unless you bought below fair market value, you are sitting on negative equity in every property you bought.

Banking, the Fed, the government programs are all propping up the housing industry so we can kick the can down the road.

So bank your rental income, because you are going to need it.

It's happened before on a much smaller scale, but nothing like what is going on today.

Oh, and rent reductions have happened massively in the 1980s, 1990s, and 2000s. Some properties are just now digging out with the exhuberance of the market place we have. What could possibly go wrong?