Why is everyone on blind so maniacal about buying a house?
Especially in the Bay, you lock in hundreds of thousands of dollars for down payment and you ensure yourself a life of slavery by paying an insanely fat mortgage every month that puts so much stress on you, then 3 years from now you change job and your commute now becomes twice as long just because you can’t move closer to work because of your house.
Why can’t you just rent a smaller place close to work and invest everything somewhere else? (E.g. rental real estate where it actually makes sense and reasonable price/rent ratio, or stock market index funds).
Is it because you have big families and many kids?
NW: 1.2M (all in vanguard)
- Microsoft / EngKennyHBecause Bay Area housing has had incredible double digit returns over the last bull market. Oakland has done 70% or something. You won’t get that kind of ROI in vanguard unless you’re an options genius.
- Idiot OP is ignorant af. Do you know housing returns are tax deferred or exempt? If you live in a house more than 2 years your taxes are waived. That's a 15 - 40% jump in returns right there compared to vanguard or S&P500. Get the logic, idiot? And I haven't even talked about rental income in case you move and how that can be offset against depreciation, and the 1031 rule. Once a slave, always a slave - stay there and stop wondering why people but houses. Otherwise grow an owners mentality and buy one and learn.Dec 2, 20181
- I am up 1.2 million on my 2 houses. House is the best way to build equity. Rent is a waste.
- You can’t leverage the same way in stock market.
With rental properties you can put 25% to 30% down and have the rent cover the PITI and other expenses. Thus as long as rent doesn’t decrease year by year you will never face a ‘margin call’.
With stocks, you get margin call when its price goes down (which is much more likely than rent going down yoy). And I honestly can’t find any stock that pays enough dividends to cover a hypothetical 30-year mortgage on itself.
- Rent is unstable and unpredictable; mortgages are the same for decades with a max yearly increase of 2% propery tax. Interest rates have been insanely low for over the past decade which made leveraging money almost free. People enjoy owning property as it is theirs improve or do what they want without any permission needed. Finally people are hopeful that appreciation continues to outpace the norm and real estate is a pretty low risk leverage leading to wealth. Not for everyone of course.
- Incorrect. A mortgage payment is locked for 30 years. Rent changes anytime the owner wants and market allows. Buy a house today and your payment in year 1 and 25 is exactly the same (less property taxes). Rent on the other hand is likely to change every year. Even if housing values drop 50% one year over 30 it's likely to beat renting.
- Because Blind is full of Asians (both East and South) and Asians tend to overinvest in real estate. I fully agree with OP. If 80-90% of your wealth is in one asset class, hell, just one particular asset, then it's not a very diversified portfolio. Don't buy property for the sake of buying property.
- So you would claim everything I claim except mortgage interest. Should be minor. Tax rate should still be low. Whatevs. I believe you. At a bare minimum I really hope you are claiming depreciation.
@op syndications are great. Just go with guys who have a proven track record. Returns should beat s&p500, and passive. Good way of diversifying. Returns are usually in the 12-14% range.
- I don’t believe in index funds or equities in general. What should I buy?
Plus real estates have favorable tax treatment.($500K tax free appreciation for primary residence. Depreciation deduction for rentals and 1031 exchange to defer capital gains indefinitely)
And massive leverage for real estates.
- I’m not obsessed with index funds. I just don’t want to buy a house in the Bay because price/rent ratio is ridiculously low so there’s no way I would even break even after accounting for all the PITI expenses and maintenance. So I was wondering how people justify such a big expense to them, especially at the top of the market like now.
And I don’t have the stomach/education to invest out of state in places where real estate is instead a good cash flow source.
Since I happen to believe that the stock market is not a scam but it’s actually tied to the productivity of the underlying companies and entitles me to get a real share of their profits (minus the short term volatility, just like real estate), its my best option.
- OK, but you got your entire net worth in index funds even though you are not obsessed with them.
A house is something you can live in and it is a basic necessity. I can understand why ppl put all their money in it or be ‘obsessed’ about it.
If you are talking about investment returns, then Bay Area real estate still did very well even with no leverage compared to S&P index. And I mentioned there are tax advantages.
- So you would recommend to a person like me to sell 400k+ of my index funds now (~30%) and go get a mortgage for a 1.5M (minus 400k down payment) house in SF? Curious.
And what if next year I decide to take a job in the Deep South Bay, meaning that I either move away from my house and rent it for less than my mortgage, or handle a terrible commute of 4 hours a day just because I have to live there?
I’m just honestly asking for your point of view if you were me, no sarcasm.
- That really depends on whether you want to own and whether you want to be a landlord. I hate renting and I don’t move too much so I own. I am already a landlord so adding another property is OK for me.
If I had 1.2M and TC 400K in SF I would be looking to buy some multi-units with good numbers in SF and probably live in one unit myself.
- Well I envy you then. I work too hard and thus have very little time to build an education in real estate and roam around to evaluate properties. If I were to go out and buy a multi family in SF I would for sure buy a lemon, lose my down payment and then get sued by some tenant who breaks his leg inside my unit. It’s really more like a business, in the sense that you have to know what you’re doing. It’s more like putting 400k on a single stock, you really have to evaluate the fundamentals of your property, you can’t just bank on “oh well, the economy will go up and so will my property”.
- It is a business. And stock trading is also a business. There is no easy way to generate a good return on your 1.2M capital. And I don’t think passive ETFs are the answer.
I wish my job could motivate me more so I work harder and make more. But it looks like I will be my own boss at some point in the future and get rid of this job.
Owning a SFH is still a good idea financially if you are staying in SF longterm. SFHs are mediocre investments but they are still better than index funds if you don’t trade it too often.
- You guys talk about housing as investment because you're already wealthy and you have options. But most people can barely scrape some downpayment for a residence to give them some peace of mind that they won't have to struggle to keep pace with increasing rents or asshole landlords. Bring kids into the picture and it makes a lot of sense to try to grow roots in whichever place you can afford.
You have to consider that not many jobs have such big opportunities as tech. Those people wouldn't think about commute and relocation that much. There are also self employed people for whom driving around is part of the job.
I didn't grow up here but when I was a kid the perspective of moving even in a different part of town was the scariest thought ever. Not all people are very adaptable. I still don't like moving around and I wouldn't exclude foregoing a job if it's too far.
I bought a small condo this year. Not ideal but I had no financial perspectives for the near future. I wasn't able to save much every year, far less than the appreciation in the last few years. Basically half of my income was going on rent. So when I got a one-off bigger chunk of money I preferred to put it into a downpayment. If I were to invest it, it would have taken many years of big gains to afford more. And then my salary still wouldn't be able to cover a bigger loan.
Sometimes I feel you guys are living in a bubble, totally disconnected from the rest of the society. It's not all roses and 300-400k TC.
- While there is truth to what you say, you can save more by spending less. Even if you make 80k a year, you can live cheap and invest often. The longer your money is in the market the higher appreciation you should see. Read the book rich dad poor dad it may change your perspective.
- I kept hearing about that book from people into personal development and since I believe that's a scam I never considered to read it. But I've seen it recommended here too so I'm adding it to the list.
The thing is I've been neting 4-5k with rent climbing to 2.5k, add utilities, gas, insurance, food, I'm barely left with a couple of hundred at the end of the month. I haven't eaten in a restaurant for months. Recently bought a pair of shoes for $15. Electronics are 5-6 years old. I'm really not a big spender. The only way I could have saved a little more was to move with roommates which is the only thing I don't want to compromise on.
The more money you have, the easier it gets to make more money.
- The thing about real estate as an investment that I never hear anyone talk about is the kind of leverage you get. Where else can you get 5x leverage for 30 years? If you have a margin account, you can get 4x, but you can't even hold that overnight.
- Food, shelter and procreation are the primary pursuits of mankind.
Add visa issues, and you get Blind.
- It's the "American Dream" - to have McMansion in the suburbs with a white picket fence, 2.4 kids and 0.6 pets.
- I think it makes more sense for people with families or thinking of starting one. would your kids have to move with you if you get a new job?
- In previous years if you bought early you gaining money through appreciation and your housing payment was a fixed cost (outside of property tax increase) vs. rent changing depending on rental supply and demand.
Now is not a good time as the buy vs. rent favors renting unless you need the space and have a large dog or kids and you don't want to take them to the park.
- Common myth: buying a house makes you stuck. It's not hard to sell a house and regain your equity. Realtor does most of the work.
Common myth 2: stocks outperform real estate. 7% annual return on index funds. Likewise, homes appreciate around 5% in California. Except you are using a loan and put 20% down. That makes your ROI 25% excluding mortgage payment.
Here's a thought. Buy a house, move buy a house move. Keep building equity. Ride the appreciation wave. And keep buying stock. Makes you far more diversified.
- You can get a cheaper seller agent and pay 3.5% commission. As long as you have had gains beyond that.
Other homes appreciating will impact your next home as it will be more expensive. Rent would also go up though. This is equally a problem with index funds and it's not a bad problem.
You can further hedge by buying a fixer upper and adding value to the home. This forced appreciation is not possible with stocks. Take a look at 203k loans.
- It's too circumstantial per market. Opportunity cost depends on rent vs mortgage, tax deductions, etc.
I ran some numbers on biggerpockets calculator. Including mortgage, year 2 ROI is 5%. Year 5 ROI is 10%. This is assuming an upward real estate market with 5% appreciation.
Most tech markets have far exceeded 5% btw.
- The days of drawing out a mortgage for a lifetime should be done by now
- Lol, you either have cash in hand as you pay 2.5x the value of the house or you sacrifice short term opportunity, pay that bad boy off quick and capitalize on larger opportunities with less debt overhead.
If I was 40-60 and buying a first house, sure pay it off slow because I’m probably not going much of anywhere with kids and prolly grand kids. But in my 20 and 30s I want to make big, drastic, risky moves that set me up for a comfy second half. So a little sacrifice now, saves a lot of wealth over the course of my life and allows me to work less over all to make more money.
For instance, my current situation has me paying for grad school and a $370k home off in 5 years on a 2.5% 5/1 arm.
When I get done paying it off all I need is 40k more of home value to get back all my money+ the interest I lid the bank + the selling fees when I sell. So my house works like a piggy bank.
Then in 5 years I can’t start my own company or buy 10 homes and repeat the process since I started this one with just 30k, or become a renter or whatever. Basically, the house is now profitable and is a $400k piggy bank that grows with the property value
All I had to choose my location wisely, which I did.
Money isn’t everything though people.
- Your math is overly simplistic. Real estate is one of the best vehicles for wealth creation there is. Leveraged money and tax incentives make it a lucrative investment. A loan for millions can be had at 3 to 4% whereas the stock market returns 7 to 8%. You cannot think of it as paying 2.tax the value of the house, you are forgetting to include time value of money. If you had the cash to pay off a mortgage entirely it would not make sense to do so at all. Collateriazed debt is not the same as debt. In my 20s when my friends where buying cars I was buying as many houses as I could exactly so I wouldn't have to work in my 40s. Highly recommended. And yes money isnt everything but it's much easier to realize that once you have it.
- You definitely can approach it my way if you don’t want to play the stock market.
I personally am testing stock atm. However I chose to real estate instead rather than in conjunction because it’s much safer. In my situation I got my house at $330k so I gained 40k value right off the bat with a projected 50k in 5-10 years. Given everything that’s going in life, I see myself being here for 5-10 years so no big.
But I don’t have room to come up a thousand short one month while paying for grad school. In fact, my monthly budget is maxed out on one mortgage and grad school. Once school is finished though, I’ll have 3 times the buying power I had when this all started.
Now I could split that and buy stocks to return interest which covers the interest I pay on a second home.... or I could remove the interest completely, take my cash and buy 10 homes, out renters in them and start churning a 30-70% profit year after year.
Stocks requires me to believe other people are going to use my money better than I can use my money and I just don’t believe that. Lol
A case could be made for taking out a loan for grad school, but I just don’t believe in uncollateriazed debt such as school loans. Sure it helps get a job but really... I know people with 100k+ in debt that they are paying off while working retails stores with their masters degree. Not a smart move IMO
- Because small places closer to work aren’t cheaper. The mortgage on a single family home in SF is about the same as what we currently pay to rent in SF.
It is about quality of life. I don’t want to ask permission to do things and I can afford it.
- Is it really though? The average price/rent ratio in SF is about 0.3, pointing at the fact that most of those properties would actually lose money if they were bought, mortgaged and rented to other people, after accounting for all expenses (maintenance, insurance, taxes, capex). It’s essentially an appreciation play.
But by all means, if it’s a luxury one wants, it’s perfectly fine, I’m just pointing out my observations on your comment mortgage==rent
- Well I’m talking about your average. Are you saying that your actual PITI (so all your house expenses, in particular mortgage, taxes and insurance) plus maintenance are on your average equal to your rent? If so, you got yourself a smoking hot deal in SF, and kudos to you.
- Google ZzyxxCoz past 3-4 years, everyone has been putting all they have to buy a house and then watch their house appreciate like crazy. Went very well and everyone thought they are genius as many consider housing as investment. Then came summer 2018 and let’s just say the folks who bought in April-May are not having the same genius feeing.
Buy house to live, if buying to invest, especially in a high value market like Bay Area, be ready to digest the churn.
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- Because if you can’t afford to buy a modest house less than an hour away from where you work; why the FUCK are you even living there?
- Cisco randynashBecause "housing always goes up" until it goes down and people with those smart leverage plays foreclose and lose their entire equity.
The last recession was exactly this logic at a wider scale. This time, it'll only affect the rich overpriced houses. Bay area house prices are strongly tied to:
1. Company stocks (declining. Nobody seriously thinks the same company stocks will keep going up forever)
2. Highly paid Immigrants (leaving the US because we all know why)
This story has played out in Detroit suburbs in 60s and 70s and we are none the wiser.
Someone will be left holding the bag and that will be a brutal day. Just pray that day doesn't come in the next 30 years.