Real Estate is a Bad Investment

Verain - I didn't mean it to be.
I think one can tire of FI quickly.
Chelsea has a lot more going for it.
It has more going for it than it did
10 years ago, or 15 years ago. FI
is still .......... FI.

FI is also at risk of being blown away,
down, under, by weather conditions.

Chelsea will be desperate soon

tevejhx said
5 - stocks have historically always been a better "investment" than owner-occupied residential real estate. Just a fact, look it up.

and how i's the market feeling today

I did a little research, and now I understand who this stevejhx guy is by looking at the premise of this discussion.

How is the proof on this working out?

dope!

i just discover this link.
The first entry by stevejhx is RETARDED

I was hoping for some good discussion, but this is a flame war. Plus there's no logic to the whole initial post by the poster.

"The first entry by stevejhx is RETARDED"

Not if you consider buying a place to live as capitalized rent to hedge against future rent increases. If you think that buying owner-occupied real estate is an INVESTMENT, then renting is ALWAYS better.

haha, yes, most people buying a home think to themselves, am I "consider buying a place to live as capitalized rent to hedge against future rent increases" especially since this home isn't available to rent and I have no idea what the words capitalized and hedge really mean?

haven't we all learned when someone says ALWAYS they are lying or are ignorant?

"when someone says ALWAYS they are lying or are ignorant?"

The earth always revolves around the sun.

Yup. I'm a liar.

haha.

Durst. Galbreath. Koeppel. Malkin. Rose. Rudin. Silverstein. Wilpon. Zeckendorf ... shall I go on?

These are all families who made tons in real estate and continue to be big owners.

They would have been better renting, right?

more:
"No matter how you slice it, renting is ALWAYS financially more beneficial over time than owning.

Let's make some financial assumptions that are borne out by decades of empirical evidence:

1) Real property prices and rents increase at the rate of income, or 0.7% per year adjusted for inflation.

2) The S&P 500 increases at a real rate of 8.0% per annum."

You tell me, in the past 10 years, invest in the S&P or invest in Manhattan real estate?

fs78790, are you confusing owner-occupied residential real estate with investment real estate, wherein someone else pays your principal?

The economics are entirely different.

"in the past 10 years, invest in the S&P or invest in Manhattan real estate?"

Pick and choose your start and end dates, and you'll get whatever answer you want. On a moving average basis, S&P.

Ask me that question in 18 months time, and I'll give you my answer.

Which is it, ALWAYS, or just when it works out for your argument?

fs78790, are you confusing owner-occupied residential real estate with investment real estate, wherein someone else pays your principal?
Also, this is an entirely bogus argument on your part. What difference could it possibly make who buys the property or who lives in it?

Your simple minded logic says that investors buying a building to rent out can become wealthy, and a renter in that exact building will do better by having rented in that building instead of buying. That makes no sense.

There are tens of millions of homeowners in the U.S., does this mean that they are all stupid?

No, doesn't mean that, this whole argument is channeled by angry people.

> There are tens of millions of homeowners in the U.S., does this mean that they are all stupid?

No, just not investors.

It means some folks are just paying for a place to live. But calling that "investment" is ridiculous. Your house isn't an investment, it is what you pay for to meet your family's basic needs.

A lot of folks need cars to drive to work, too. Anyone calling them all "investors" is an idiot.

stevejhx
about 8 months ago
ignore this person
report abuse No matter how you slice it, renting is ALWAYS financially more beneficial over time than owning.
Let's make some financial assumptions that are borne out by decades of empirical evidence:
1) Real property prices and rents increase at the rate of income, or 0.7% per year adjusted for inflation.
2) The S&P 500 increases at a real rate of 8.0% per annum.
These being true, it is ALWAYS better to rent property than to buy, if you invest the down payment in the S&P 500.

Happy New Year Steve

Welcome back verian. Are you an alias?

The thing I don't understand about the argument that (given the assumptions stevejhx lays out) renting is always better than buying is that everyone seems to be ignoring the tax deductibility of interest. If your mortgage payment (gross) is equivalent to your rental payment, the ability to deduct the interest is a huge benefit. In one of the old examples on a prior page ($100k income, $375k mortgage, etc.), it was stated that renting is better than buying if your rental payment is the same as your mortgage payment (roughly $2,248 per month).

But in the 28% federal tax bracket, you're writing off a lot of interest ($6,265 interest-related tax savings in the first year) and so your net mortgage payment (after bumping your exemptions higher to compensate for interest deductibility) falls below the rental payment. Now, let's say you're getting that nice 8% return in the S&P 500. If I take my annual tax savings from writing off interest and invest each of the annual savings in the market each year, that works out to roughly $571k in 30 years (that first year savings of $6,265 is worth $58k alone in 30 years), and that's just with annual compounding; you could be investing your monthly tax savings each month at 8% p.a. to get the significant benefit of monthly compounding. All those numbers are assuming the money is put in the market at the end of the year.

So all the examples that were given (most of which were from this stevejhx guy) arrive at their conclusions without giving the benefit of $571,000 - seems like that tips the scale in favor of owning in all those examples. Granted, this is entirely contingent upon having your gross mortgage equal to your rent, but given the amount of dollars we're talking about, there is some room for the gross mortgage payment to be even higher than rent).

You still need to be price conscious and mindful of the rent/mortgage ratio, and it goes without saying that buying in a hyperinflated market would significantly alter the above, but I disagree that renting is better than buying in most circumstances.

Nothing like bringing back an old standby!

If renting is always better than buying, you've got a tough case to make to most wealthier families in the US and around the world that the land owning class is inferior to the renting serf class.

I found this whole discussion amusing, now that I saw plenty of it excerpted today.

"If renting is always better than buying, you've got a tough case to make to most wealthier families in the US and around the world that the land owning class is inferior to the renting serf class."

Thats like saying BMWs are good investments, because people with BMWs are usually rich.

so, $1 in the stock market in 1997 + renting vs. $1 in Manhattan real estate in 1997 and owning.

Good thing the world only begun in 1997.

The long term shows a near 0% real return on real estate... (Shiller analysis)

Fortunes in real estate are more than fortunes in internet or oil.

Fortunes lost you mean?

no, fortunes made.

There is one instant where buying real estate isn't a bad investment: if you can pay for your property with cash and not have to finance.

Keep dreaming.......
The only point of buying is the leverage you get with a small downpayment and hopefully a low interest rate that allows you to flip and make a high rate of return on your downpayment.
So if you lock up all your cash in the property you would almost certainly be better of renting and investing in a CD which pays in 10 years so you get deferred taxes

"The only point of buying is the leverage you get with a small downpayment and hopefully a low interest rate that allows you to flip and make a high rate of return on your downpayment."

Your passion for maximum returns must make you pretty popular with the ladies, Joe.

stevejhx:WHAT IN THE WORLD IS YOUR AD NAUSEUM INTEREST AND MOTIVATION IN FOSTERING REAL ESTATE NEGATIVITY ON THIS SITE ;SO RELENTLISLY AND REGULARLY ?I GET IT:YOU,RE SMART AND YOU BELIEVE REAL ESTATE OWNERSHIP IS NOT JUSTIFIED,NOW.BUT WHY DO YOU CONTINUE ON AND ON AND ON,AS IF YOU'RE IN HEAT ABOUT YOR PONT OF VIEW?ARE YOU SUCESSFUL,DO YOU HAVE NO OTHER INTERISTS,OR DO YOU HAVE SME KIND OF AGENDA TO ATTEMPT TO HARM A CORNERSTONE AMERICAN INDUSTRY ?

Having rented and owned in NYC I've kind of wondered that myself. I love owning in NYC but HATED owning a country house. Hated it. Actually, thinking through it I have never noticed the difference between owning a NYC apartment and renting. It's really just who the check goes to. But, a stand alone house. That's where I saw the true pain in the ass quality of owning. That said, i would never get insane on someone who loved their country place.

I think jrw asked a reasonable question Steve. What drives your passion about this?

like everyone else here folks, Steve is trying to drive down prices with his hyperbole posts. But I think he jumped overboard after he got cllaed out for being a racist the other week.

spinnaker -- look at the post by Luchiasdream : wants to pay cash --please interpret the response in that context -- purely an economic argument --
what are ladies?

How can a rent vs. buy decision be based on race or racism alpine292? I understand Wells Fargo, but seriously, who is being racist, and how can they justify it in this context?

JoeDavis I never said I would lock up ALL of my cash. You just assume I would. And why would I take out a mortgage with interest when I don't have too, that's just stupid.

Because you borrow on your home and you put it in the stock market.

"Because you borrow on your home and you put it in the stock market."

That is an EXCELLENT idea. I wonder how all the people who did this last summer are doing today...

jrw293, it wasn't steve that bumped this very old thread... you should vent at the appropriate people

SpecialK the thread is apparently TIMELESS! :)

> Steve is trying to drive down prices with his hyperbole posts

Unlike alpine, who is trying to drive them up with hyperbole posts. And Steve's are 100x closer to reality.

Remember "MANHATTAN IS NOT DOWN 20%. SHOW ME JUST ONE EXAMPLE!"

That idiot line still cracks me up.

> That is an EXCELLENT idea. I wonder how all the people who did this last summer are doing today...

Shitting in their pants. Fortunately, that is a rare few in the stock market. margin is usually capped at 50%

In RE, however, most of the country seems to have made that huge boner, and is now shitting in their pants.

nyc10022, nice language, shitting and huge boners. What kind of sex do you like?

Owning on the upper west side and upper east side is making a lot of sense compared to renting because the rentals that aren't stabilized are either in mediocre condition or too expensive. If you want a good quality well built coop renting isn't an option unless of course you are saving up to own something.

here reference to this
http://www.streeteasy.com/nyc/talk/discussion/12997-renters-are-losers-underwater-homeowners-are-winners-under-nww-govt-plan

This analysis is ALWAYS right.

steve - I'm not going to read all of these posts but your assumptions are a bit flawed. Let me start by saying that I understand your points. Currently I rent because I don't think it makes sense to own in this market. I'd rather have my money invested elsewhere. A person can time the season in the market when it makes time to buy and sell. Last year was the time to sell (it was so clear), and someday in the next 5 years will be the time to buy (it's not right now).
Now back to your assumptions - your biggest oversight is that you consider income as the only source a person has to make mortgage payments. There are trillions of dollars in the US that will be inherited someday, this money over long periods of time makes a huge difference in the ability of people to buy real estate. How many to you know who received their down payment as gifts from their parents (a early payout of this inheritance)? Also, there are plenty of unrealized gains in all kinds of investments that people can borrow against. For instance, my friend bought IBM stock 20 years ago. He has a huge unrealized gain. Instead of selling the stock he choses to borrow against the gains. His gains are real. They are income. They just don't figure into your calculations. My point is simply that your assumptions on the growth of incomes is a bit misguided, what you really want to measure is the growth of the populous' ability to make housing payments.

No fooling, right?

No matter how you slice it, renting is ALWAYS financially more beneficial over time than owning.

Let's make some financial assumptions that are borne out by decades of empirical evidence:

1) Real property prices and rents are decreasing 15% this year

2) The S&P 500 increases over 50% since March.

3) This is a new one, rents are declining about 20%.

These being true, it is ALWAYS better to rent property than to buy, if you invest the down payment in the S&P 500. Watch:

http://www.sunshineprofits.com/files/images/research/20081126/2_home_price_index.png

Maybe residential real estate goes down another 10%. Maybe more and maybe less. Stocks have had their ups and downs as well and over the last 10 years the Dow was flat. But my experience is if you ask first generation people who have saved a few shekels and have a few wrinkles and grey, they'll talk about the virtues of real estate. To many of these investors stocks are just pieces of paper. While not trashing stocks and bonds, there is something tangible about real estate.

Handsonlow, your assumptions are flawed.

1. Real property prices and rents are decreasing 15% this year. Big deal. Over the past 20 years, they're still up by 50%, and in another 20, they will have regained their value and continued their upwards climb. That is, of course, unless you think we'll remain in a depression *forever*.

2. While your down payment *might* do better over the long term in other investments (don't hold your breath on that one), you're conveniently forgetting that owners are essentially paying THEMSELVES and building equity with each monthly mortgage check they write, rather than the renters who are paying SOMEONE ELSE every single month. Once the mortgage is paid off, the owner now actually OWNS his property, regardless of its value. Renters ,however, will never stop paying those monthly rent checks, which over the course of their neighbor's mortgage, have by now doubled or even tripled. And they will have absolutely NOTHING to show for all those rent checks, except maybe a stack of cancelled rent checks.

so...are you suggesting 20 years to get back to prior value?

While your down payment *might* do better over the long term in other investments (don't hold your breath on that one), you're conveniently forgetting that owners are essentially paying THEMSELVES and building equity with each monthly mortgage check they write, rather than the renters who are paying SOMEONE ELSE every single month. Once the mortgage is paid off, the owner now actually OWNS his property, regardless of its value. Renters ,however, will never stop paying those monthly rent checks, which over the course of their neighbor's mortgage, have by now doubled or even tripled. And they will have absolutely NOTHING to show for all those rent checks, except maybe a stack of cancelled rent checks.

wow, this is stupid. your real estate taxes and common charges ... what do you have to show for those cancelled checks? Your interest payments to the bank? What do you get for those cancelled checks at the end of 30 years? The principal payments, well, what if those principal payments the person put it in the bank? At the end of the 30 years, the owner has a home, the renter has a big bank account with all that principal. Are you really that naive to use one of those "throwing money away" "arguments"?

meet matt.

he doesn't mean well.

and he's stupid.

Do you mean well? Or nasty?

One thing is grouchy, the other mean.

"wow, this is stupid. your real estate taxes and common charges ... what do you have to show for those cancelled checks? Your interest payments to the bank? What do you get for those cancelled checks at the end of 30 years? The principal payments, well, what if those principal payments the person put it in the bank? At the end of the 30 years, the owner has a home, the renter has a big bank account with all that principal. Are you really that naive to use one of those "throwing money away" "arguments"?"

Your wrong. At the end of the 30 years, the owner has the deed to show for the property they own FREE AND CLEAR. At the ned of 30 years, the tenant has nothing to show for their money.

Were does mimi the foreigner slumlord fit in on all this

lol

wow - the true meaning of "virtual" slumlord. Not only does she only exist in cyberspace, but she doesn't even own any buildings/slums except in cyberspace.

mimi said she is buying a SRO, ask her.

I heard mimi cleared the building of tenants by attaching them to balloons. Last I heard they were drifting towards Colorado.

These days you can rent a $1 million apartment for only $3600 per month. Wow! That's 278 months to break even. Here it is: http://ellingtonnyc.com/18_28_c.html

Yeah but the maintenance. What about the tax benefit? What about the transaction costs? You can't count the opportunity cost unless you count the offsetting benefits.

Juicy? LICC? Petfitz? Printer?

"Your wrong. At the end of the 30 years, the owner has the deed to show for the property they own FREE AND CLEAR. At the ned of 30 years, the tenant has nothing to show for their money."

Its like saying that its ok to spend twice as much for the same item because you get the miles.

Moronic.

If the renters ended up paying $2 million less, then who cares that they don't have a $1 million apartment to show for it.

I'm not going to waste $100 just say I got a lollipop.

"While your down payment *might* do better over the long term in other investments (don't hold your breath on that one), you're conveniently forgetting that owners are essentially paying THEMSELVES and building equity with each monthly mortgage check they write, rather than the renters who are paying SOMEONE ELSE every single month."

This is one of the dumber things written on this board.

The taxes you pay go to SOMEONE ELSE. The interest you pay goes to SOMEONE ELSE. The common charges you pay go to SOMEONE else.

If you think you are "getting them", you have no idea what you are talking about. The common charges you pay are essentially the same as rent.

Oh, EddieWilson (aka nyc10022), welcome back as somewhereelse!

This is moronic.

Tell the property and building owners in NYC who are so rich and have been in the landlord business for many years that all this time they were making a mistake and it was the tenants who were smarter than them.

Duh

Talk about moronic. Thats like saying the lottery is a smart investment strategy because you can talk to the winners.

Duh.

Talk to the brilliant "investors" like the manicurist who bought five houses and lost them all.
Talk to the folks who are overextended and underwater.
Talk to the folks who have a second job managing their investment and barely get paid for it.

Richest developer in the world - who owned BPC and canary wharf and more NYC real estate than anyone except the church and the government - went completely bust.
Zeckendorf went bust several times.
Trump, well he's another moron, but also multiple busts.

You hear about the winners, sure, but you also rarely hear anything about the small busts.... and the people who plodded along for years and made 3% return while having to put in all the world as landlords.

BTW, the most successful long-term landlords are the ones who didn't go for big bucks and big mortgages, and moved slowly... and also recognized that it was a job/business like any other. They WORKED for their money.

Managing properties is not easy.

Its like saying the investment banker made a great investment buying the suit, which let him make millions.

Hey EddieWilson, how smart are you if you think real estate is like a lottery ticket? How smart are you if you think that an institutional building owner is like a manicurist? Which investment banker have you ever said that his millions were based on the suit he bought? Or did you just make that up?

nother, which moron are you? you sound like perfitz and alpo.

So are you denying or admitting?

How do you compare real estate with a lottery ticket?

How can you say that real estate is a business you have to work at to be successful and then at the same time call petrfitz a moron when that's exactly what he does - buy slowly and manage his buildings?

I disagree, I sold my place in January and think it would be worth 10% less now but still the place tripled in value from 01 and my equity return was beyond an investment in Google at the IPO. I'm renting now, which I'm pleased with, but I think after 2 years I'm going to have another great opportunity to do it again. Renting is the sidelines. But the game is owning and investing.

> How do you compare real estate with a lottery ticket?

You're right, lottery tickets are paying out much better than RE these days.

> How smart are you if you think that an institutional building owner is like a manicurist?

Even smarter than you (more so than usual). The manicurist walks away from the properties.

The institutional building owners are tanking. Besides the list I gave, Extell just got nailed too.

So much for anecdotal evidence.

> Renting is the sidelines. But the game is owning and investing.

And some games are for suckers. Like anything in a bubble (if you're not shorting it).
I'm happy to be on the sidelines for roulette, too.

Just because its the game doesn't mean its the right game to play.

"Just because its the game doesn't mean its the right game to play."

You're basically saying owning real estate is a suckers' game? Clearly, you're nyc10022 under a new name (yet again, so weird), yet when I've questioned in the past that you're really not interested in buying, you've denied it. Something's off here.

sorry, bjw, I won't be your friend. Stop trying to hump me.

nyc, as I said before:

"Oh, shucks, you big curmudgeon, you. I was really looking forward to holidays at your place, where we'd gather around the fireplace and you'd read some Crain's clippings and regale us with how you nailed that steveF real good on an anonymous internet message board that one time. But truly, I think the lady doth protest too much - you would have hit the "ignore this person" link by now, so it's clear you'll keep on sniffing."

This discussion never happened.
Renting is NOT not ALWAYS better than owning.
Stevejhx did not say this.
Nothing to see here.
Nothing at all.

real estate is not a great investment. In 1980 the avg price paid for a home in the USA was $72k. In 2010 (30 yrs later) the avg price paid for a home was $283k (source = US Census). That's a 294% increase in value (excluding transaction costs - which are significant). If you invested $72k in the S&P 500 in 1980, in 2010 you would have had $634k. Thats a 780% increase in value and more than 2x better than the return you would have gotten from buying and selling a home. I realize historical performance is not an indicator of future growth, but that applies to housing prices just as much as it does to the S&P 500. The USA encourages debt and the notion that owning a home is always better than renting is simply not true.

FYI, the % increase for home value is not adjusted downward for inflation while the return on the S&P 500 is -- if it weren't adjusted then the S&P 500 return on your $72k investment would be $2.5M.

OK. So, stay a renter then if that is what you prefer. We don't care. The implied annual compound growth rate in your figures is 4.7% for real estate; and 7.5% for the S&P. In my estimation, sounds accurate as estimates for the future, and I don't disagree with that as a foward-looking projection. But I own, as I can not live in a blue chip stock. (To be fair in your analysis, you'd need to subtract the costs of owning versus the costs of renting equivalent space, and it will then tend o bring the S&P 500 returns down more than the "ownership" returns. Cheers. PS: isn't this board tired of the rent versus own debate. Rent if you prefer it and it suits your lifestyle. Buy if like the idea of permanancy of living space.

why aren't rents received part of the equation, never minding sch E pg 2 write-offs?

apparently all landlords do is buy units in 1980 and leave them empty, unrented and sell in 2010.

the conversation is about owner-occupied RE.

otherwise, the equivalent cost of renting... is zero. much cheaper.

title reads RE is a bad INVESTMENT, yet doesn't include rents received. oy

What is the rate of return if I invested all the money saved from not renting over those 30 years in the S&P 500?

negative. because you didn't save money not renting.

owning cost more for a long time.

so, do the math correctly... how much would all the money you saved *by renting* be worth in the S&P?

It was stated to buy a house for 73K or put that 73K into S&P. The house would be fully paid for at 73K. The house appreciated from 73K to 283K and the same 73K in the S&P increased to 634k. The difference between renting and maintaining that fully paid for house could be invested in the S&P getting the same rate of return. Unless you are saying that maintaining the house would be more expensive than renting.

bob420, that scenario worked for me, but only because I bought cheap in 1992. That purchase is now throwing off a tax-free $30K per year to be stashed away. It's been less in some years and more in others, as rents and maintenance have varied, but I like to think of it as inflation-adjusted.

Maybe I could've done better by buying the SPY equivalent back then, and paying rent, but I'm not going to beat myself up by figuring it out.

Commence "FINANCIAL BLINDERS ON SEQUENCE!"

Hahahahahahaaaaaaaaa.... ..btw my apple position is giving me $30.5K/yr in div and I got a $200K equity kicker... OH WELL...

Commence "DOUBLE BLINDER SEQUENCE!!!!!"

hahahhahaaaaaaaaaaaa.... I'm getting hoarse........ hahhahahahahahahahahahahahahhahahaaaaaaaa

OH that's after my $2MM gain on Sprint in a year.........

Looks like now would be a good time to continue this heated discussion! Love this link http://www.millersamuel.com/files/2012/10/DE100yearsNYC.pdf

bluesky, Start a new thread please. Old threads get out of control.

300_mercer is now SE's moderator. Can't even afford the mortgage but he's in charge here.