patrick.net

clambo says

Whether a house/condo is a good investment or not would largely depend on ... how you pay for it in the first place.

Not to be too pedantic, but how you pay for a house (outright verses with mortgage) determines your leverage and so determines the magnitude of your investment goodness or badness, not whether the investment is good or bad. The good or bad is determined mostly by appreciation (or lack thereof) and/or ownership costs relative to rental costs. If you have nice appreciation, it's a good investment regardless of how you pay; if you have depreciation, it's a bad investment regardless of how you pay (but mailing in your keys to the mortgage holder might be able to limit your downside on a bad investment).

In the scenario of paying cash and not borrowing to buy the place, taking out $910,000 from my investments in stock mutual funds to buy a house that I cannot possibly rent out for $90,000 a year seems very silly.

Of course, to move the computer mouse and sell financial investments to put that $910,000 into a cash account I would owe huge taxes and end up with less in the first place.

Or, maybe I was just oddball enough to have $910,000 sitting in a money market checking account making zero interest. Maybe I found a suitcase of cash, like in "No country for old men."

I know of cases where it was a good investment to buy with cash; those happen at times like the fall of 2008.

1) Every time the "rent vs buy" topic comes up, I'm always amazed at how many people try to reason their position with overly simplistic math that usually only compares 1 or 2 factors (i.e., "my mortgage is X and your rent is Y, and X > Y so ha!"). Cmon, use the damn calculator and get realistic answers: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html
2) My rule of thumb for discussions about financial calculations: if they don't consider opportunity cost, it's usually not sophisticated enough to get a realistic result.
3) Many landlords are not mathematically rational decision makers, and they don't charge a rent based on what it would cost someone else to offer the same house if they were to buy it at todays prices paying todays tax rates while considering what a good CAGR would be on their capital. Instead, these landlords happened to own the house somehow, such as an inheritance, and often have very low property tax, and this allows them to rent the house at a very low cost - a cost that another landlord could not duplicate if they had to buy the same home tomorrow. This situation is common, and greatly skews the price to rent ratios of certain regions, and the SF bay is one of these places. Yes, most of them should almost certainly sell the home and reinvest the money elsewhere and enjoy superior returns, but many don't. Some have valid reasons that may not be apparent (sentimentality, wanting to help their tenants, or maybe they're about to die and want to let their heirs enjoy the step up in tax basis that occurs at death - avoiding tax on 1 million of capital gains, etc...), but I think most just don't know better.