Why is everyone obsessed about housing?
Nov 30, 2018
103 Comments
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?
Age: 32
TC: 400k
NW: 1.2M (all in vanguard)
comments
Perhaps you are referring to the fact that by owning a house you can get leverage much easier?
Most people on blind don't understand leveraging.
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.
I derive significant net-income from mine so it works a bit differently.
My first property was 19 years ago (when rates were 11%)
25% of the portfolio was purchased between 2008 & 2011
I’m just coasting now.
Not trying to diminish your accomplishments but 75% of my rentals are paid off and I’m getting 6 figure post expense income. No accountant can disappear that cash without IRS scrutiny.
Cheers.
@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.
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.
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.
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.
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.
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.
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 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.
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.
Add visa issues, and you get Blind.
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 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.
I’m thinking buy in a slump and sell when you’re ready to move to a lower CoL area.
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.
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.
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.
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
It is about quality of life. I don’t want to ask permission to do things and I can afford it.
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
Buy house to live, if buying to invest, especially in a high value market like Bay Area, be ready to digest the churn.
Bay Area real estate didn’t crash as hard as the national average in 2008 and recovered very quickly afterwards.
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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.