Is Real Estate Still the Best Asset Class?

Head of Real Estate Investing at BiggerPockets · Seattle, WA · Member since 2015 · 356 posts · 830 votes

Real estate is harder than it's been in more than a decade -- we all know this. High prices + high mortgage rates + low inventory is making this a challenge. So my question is -- in an era where you can get a 5% CoCR from bonds, money market accounts, or a high-yield savings account is RE still the best place to put your money?

I'll give you my opinion below, but curious to hear what you all think.

Here's my take, and you probably won't find this shocking, but RE is still the best asset class. I am what I would call a 'total return investor' -- which is that I don't care as much about cashflow, or tax benefits, or appreciation in particular -- I'm in it for the whole package. And when you look at it that way, RE is still the clear winner.

I just put a deal under contract that was on market. It will generate about 4% CoCR, and 2% in amortization. Even with a very modest expectation of 2% annual appreciation, I will earn about 6% there (thanks leverage!), and tax benefits will give me another 1.5%. If I add that all up, I am getting somewhere between a 12-15% annualized return, for an on-market deal that just needs some cosmetic upgrades.

Compare that to bonds (5%), or the average return in the stock market (8-10% depending on who you ask) and REI is a no-brainer to me. Am I missing something here?!?

Sure you could say that RE is at all-time highs and is going to come down. It's possible, but a big correction in residential RE is not likely, and over a long hold period, RE will appreciate. Plus, I am generating modest cashflow now + amortization and tax benefits. Also, the same can be said about the stock market. It's also at all-time highs, and its historical far more volatile than RE.

Now you may be thinking that owning RE is more work than the stock market, and that is undoubtedly true. But the difference between 10% and 12% over a long hold period is enormous. For an investment of $100,000, over a 10 year hold the difference in total return between a 10% annualized rate, and 12% is $51,000. For some that might be worth the work of REI, for others not so much. BUT -- if your hold period is 30 years the difference grows to $1.25M!! Gotta love compounding.

So, back to my original question. Is RE still the best asset class? For me -- a 36 year old who plans to keep working for the next several decades -- there's no doubt in my mind. I will gladly take on the extra work of owning RE, given that, even with more difficult conditions, RE still has a very high probability of delivering me outsized returns over my investing career.

What do you all think?

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Chris SeveneyBusiness Member

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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

Quote from @Russell Brazil:

In investing, there is no such thing as the best, or the worst. There is no such thing as good or bad.

Investing is deploying capital to get a return based on one's risk tolerance. There is merely varying degrees of risk. There is high risk, moderate risk, low risk. Risk is neither good or bad.

Real estate on average tends towards the low end of the spectrum, but of course real estate runs the gamut of risk.

I could not have said it better myself. It may be best for person A but not for person B. I have been in real estate 25 years, my wife in finance for 25 years. Real Estate is the best for me, because I like to think I know what I am doing and can use my experience and knowledge along with being active in the space to enhance returns. My wife, she cannot - but she can do it with investing in the markets and other areas that there is no way I could do that.

I met a guy who does selective breeding of snakes. He sells them for tens of thousands a pop and generates revenue of over $1M a year and has no overhead except his electric bill in his basement for the lighting, a part time employee and of course the food. He has someone take care of the snakes which is like an hour a day. He does whatever he wants. I was sitting next to him along with a group of others in real estate and were like - WTF are we doing dealing with people/tenants/borrowers and this guy is traveling the world while he breeds snakes and generates 7 figures with no debt...

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Account Closed
Investor · Phoenix, AZ · Member since 2018 · 420 posts · 388 votes
2y
Quote from @Eric James:

Quote from @Account Closed:

Quote from @Eric James:

Quote from @Account Closed:

@Dave Meyer it is hands down still the best asset class. As an investor and an agent I can put 5% down and get 3% (more or less) back in commission. If the property cash flows $0, gives me $0 in tax benefits and appreciates at 3% per year on pace with traditional inflation it’s still a massive winner. Let’s put some numbers to it.
$500k purchase price. $25k down. $15k in commissions on an 80/20 split yields a $12k commission. $13k net cash out of pocket (plus closing costs if you can’t get a seller credit to cover, I usually can).
3% appreciation is $15k per year on my original investment of $13k.
Show me another asset class where I can make 115% on my money. It simply does not exist. I did this 8 times in the last 8 years. It is simple and repeatable.

So you have a 0% interest rate, no property taxes, no insurance cost, and no maintenance/repairs?
Did I say that? I said cash flow was $0, so my rental income is equal to my PITI + vacancy & maintenance costs. That’s the basic definition of cash flow after all.

Yes. You wrote $15k appreciation on your $13k investment gives you a 115% return. That is only the case if there are no other expenses. And you're not getting 5% down on a rental property. That would be a primary residence.

You can get 0% down on a rental property if you look hard enough. At best you’re confused, at worst you’re trolling. Either way, you’re awfully certain and completely wrong. If my rental income covers my operational expenses then I don’t contribute a single additional dollar. The 115% return remains intact.
Nevermind the fact that appreciation in Phoenix wasn’t 3%, it was 30%. So $500k became $650k on an original investment of $13k.
But what do I know….I just pulled it off 8 times in a row 🤷🏼‍♂️
2 Reply
Jacopo Iasiello
Investor · Miami Beach, FL · Member since 2017 · 362 posts · 109 votes
2y
thanks dave!
0 Reply
April Rae
New to Real Estate · Dallas, TX · Member since 2024 · 24 posts · 27 votes
2y
Absolutely, real estate can still be a fantastic asset class, especially when viewed from a total return perspective as you've outlined. Your analysis highlights the power of leveraging real estate, both in terms of financing and tax benefits, to achieve attractive returns.
1 Reply
K S.
Member since 2021 · 401 posts · 254 votes
2y
Quote from @Jeff S.:

@K S.
I don't understand the statement that the the broad market index fund returns over the last decade or 100 years was luck. You can say the same for the real estate run over the last decade as well.
Yes I admit being extremely lucky in RE the last 30 years and having been unlucky in the stock market. I think the stock market is fascinating but I am too slow on the uptake getting in on the big winners. There are no guarantees going forward. To me RE is a hands on business where stock investing is just that investing in someone else's businesses. My base is RE and cash and stocks are my speculation. I am more interested in return of capital than return on capital.
Why are you comparing your personal RE or house against your individual stock pick and not the broad market? You would never have lost if you just invested in the broad market in any decade in the last 100 years.
If you want to compare it to individual stocks, then stocks beats RE hands down as TSLA and hundreds of other stocks have skyrocketed. We should try and stay away from personal anedotes whem comparing investment vehicles. Real Estate has averaged 4% returns and index funds like VOO have been 8% with no effort. That is like for like without leverage and without knowing about individual stocks.

So answer the OPs question, traditional buy and hold a house off the MLS is one of the worst investments today for most people as prices and interest rates are up. The amount of capital you have to raise to leverage yourself would be better off spent in the S&P 500 or employer matching 401k. Nobody wants to trap their money in a house and break even for decades while renting their so so C neighborhood home to a stranger and everything that comes with that.
3 Reply
Eric Bilderback
Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes
2y
Quote from @K S.:

Quote from @Jeff S.:

@K S.
I don't understand the statement that the the broad market index fund returns over the last decade or 100 years was luck. You can say the same for the real estate run over the last decade as well.
Yes I admit being extremely lucky in RE the last 30 years and having been unlucky in the stock market. I think the stock market is fascinating but I am too slow on the uptake getting in on the big winners. There are no guarantees going forward. To me RE is a hands on business where stock investing is just that investing in someone else's businesses. My base is RE and cash and stocks are my speculation. I am more interested in return of capital than return on capital.
Why are you comparing your personal RE or house against your individual stock pick and not the broad market? You would never have lost if you just invested in the broad market in any decade in the last 100 years.
If you want to compare it to individual stocks, then stocks beats RE hands down as TSLA and hundreds of other stocks have skyrocketed. We should try and stay away from personal anedotes whem comparing investment vehicles. Real Estate has averaged 4% returns and index funds like VOO have been 8% with no effort. That is like for like without leverage and without knowing about individual stocks.

So answer the OPs question, traditional buy and hold a house off the MLS is one of the worst investments today for most people as prices and interest rates are up. The amount of capital you have to raise to leverage yourself would be better off spent in the S&P 500 or employer matching 401k. Nobody wants to trap their money in a house and break even for decades while renting their so so C neighborhood home to a stranger and everything that comes with that.

What is real estate return when you add on rents? What if you can break even for 4 years while leveraging real estate at 20% assuning 4% appreciation? According to the rule of 72 you are doubling your money. I don't see any opportunity for a normal person that can touch that in any other asset class.
0 Reply
Jeff S.
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
2y
@K S.
So answer the OPs question, traditional buy and hold a house off the MLS is one of the worst investments today for most people as prices and interest rates are up. The amount of capital you have to raise to leverage yourself would be better off spent in the S&P 500 or employer matching 401k. Nobody wants to trap their money in a house and break even for decades while renting their so so C neighborhood home to a stranger and everything that comes with that.
Not sure this applies to the poster's actual post as he is not investing in a C class area. Dave is a pretty smart guy and at his age levering quality RE for the long haul a good plan. We can bet on the fact he is very aware of the benefits of the stock market and is taking advantage of it too.

1 Reply
Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
2y
Quote from @Eric Bilderback:

Quote from @K S.:

Quote from @Jeff S.:

@K S.
I don't understand the statement that the the broad market index fund returns over the last decade or 100 years was luck. You can say the same for the real estate run over the last decade as well.
Yes I admit being extremely lucky in RE the last 30 years and having been unlucky in the stock market. I think the stock market is fascinating but I am too slow on the uptake getting in on the big winners. There are no guarantees going forward. To me RE is a hands on business where stock investing is just that investing in someone else's businesses. My base is RE and cash and stocks are my speculation. I am more interested in return of capital than return on capital.
Why are you comparing your personal RE or house against your individual stock pick and not the broad market? You would never have lost if you just invested in the broad market in any decade in the last 100 years.
If you want to compare it to individual stocks, then stocks beats RE hands down as TSLA and hundreds of other stocks have skyrocketed. We should try and stay away from personal anedotes whem comparing investment vehicles. Real Estate has averaged 4% returns and index funds like VOO have been 8% with no effort. That is like for like without leverage and without knowing about individual stocks.

So answer the OPs question, traditional buy and hold a house off the MLS is one of the worst investments today for most people as prices and interest rates are up. The amount of capital you have to raise to leverage yourself would be better off spent in the S&P 500 or employer matching 401k. Nobody wants to trap their money in a house and break even for decades while renting their so so C neighborhood home to a stranger and everything that comes with that.

What is real estate return when you add on rents? What if you can break even for 4 years while leveraging real estate at 20% assuning 4% appreciation? According to the rule of 72 you are doubling your money. I don't see any opportunity for a normal person that can touch that in any other asset class.

there's always unlimited auxiliary benefits when investing to a "home" where we can live in :
- with househack, we literally mortgageless and live for free , stock index can't do that lol
- lets say we live in CA but kid wanna do college in TX, we buy RE in TX and househack, almost mortgageless again
- again if we keep buying property and DSCR is at least 0.8-0.9 and our W2 could offset the balance, it's another almost mortgageless investment.
The true limiting factor of RE investment is the DTI. And RE can reduce the cost of living or use it for future wealth generation by creating appreciation.
1 Reply
K S.
Member since 2021 · 401 posts · 254 votes
2y
Quote from @Carlos Ptriawan:

Quote from @Eric Bilderback:

Quote from @K S.:

Quote from @Jeff S.:

@K S.
I don't understand the statement that the the broad market index fund returns over the last decade or 100 years was luck. You can say the same for the real estate run over the last decade as well.
Yes I admit being extremely lucky in RE the last 30 years and having been unlucky in the stock market. I think the stock market is fascinating but I am too slow on the uptake getting in on the big winners. There are no guarantees going forward. To me RE is a hands on business where stock investing is just that investing in someone else's businesses. My base is RE and cash and stocks are my speculation. I am more interested in return of capital than return on capital.
Why are you comparing your personal RE or house against your individual stock pick and not the broad market? You would never have lost if you just invested in the broad market in any decade in the last 100 years.
If you want to compare it to individual stocks, then stocks beats RE hands down as TSLA and hundreds of other stocks have skyrocketed. We should try and stay away from personal anedotes whem comparing investment vehicles. Real Estate has averaged 4% returns and index funds like VOO have been 8% with no effort. That is like for like without leverage and without knowing about individual stocks.

So answer the OPs question, traditional buy and hold a house off the MLS is one of the worst investments today for most people as prices and interest rates are up. The amount of capital you have to raise to leverage yourself would be better off spent in the S&P 500 or employer matching 401k. Nobody wants to trap their money in a house and break even for decades while renting their so so C neighborhood home to a stranger and everything that comes with that.

What is real estate return when you add on rents? What if you can break even for 4 years while leveraging real estate at 20% assuning 4% appreciation? According to the rule of 72 you are doubling your money. I don't see any opportunity for a normal person that can touch that in any other asset class.

- with househack, we literally mortgageless and live for free , stock index can't do that lol
- lets say we live in CA but kid wanna do college in TX, we buy RE in TX and househack, almost mortgageless again

The stock market can't do that because it's a made up fairy tale in todays market. You're not going to rent your couch out to a stranger living near your kids and completely pay the mortgage in todays market. By the way that's kinda wierd unless you have a legit ADU with separate entrance, STS walls etc.

I just sold my 500.sqft condo in San Diego. Total costs for the new owner is $4,800/month but I was renting it for $2,400 before the sale. That's a difference of 28k/year.

Investing the savings of $28k/year for 10 years in a broad market index would net $560,000 meanwhile that same condo would net you $300,000 including princpial paydown and 4% appreciation.
Real Estate: $300,000 vs Stocks: $560,000. That's a 260,000 opportunity loss after 10 years for buying my condo instead of renting it.
But that owner of the $4,800 mortgage (The bank owns the house) is still losing 2,400/month in opportunity costs. The intersect between increasing rents vs mortgage could take decades.

So there's a real world example for you guys. Buyer beware if anyone thinks it's best to just buy a house, rent your closet to some stranger and bling, free mortgage!. You may not be able to house hack a stock, but you do have opportunity costs overall that have to be weighted with the end results of both investments at the end of 10, 20, 30 years or whatever your goals are.
2 Reply
Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
2y
Quote from @K S.:

Quote from @Carlos Ptriawan:

Quote from @Eric Bilderback:

Quote from @K S.:

Quote from @Jeff S.:

@K S.
I don't understand the statement that the the broad market index fund returns over the last decade or 100 years was luck. You can say the same for the real estate run over the last decade as well.
Yes I admit being extremely lucky in RE the last 30 years and having been unlucky in the stock market. I think the stock market is fascinating but I am too slow on the uptake getting in on the big winners. There are no guarantees going forward. To me RE is a hands on business where stock investing is just that investing in someone else's businesses. My base is RE and cash and stocks are my speculation. I am more interested in return of capital than return on capital.
Why are you comparing your personal RE or house against your individual stock pick and not the broad market? You would never have lost if you just invested in the broad market in any decade in the last 100 years.
If you want to compare it to individual stocks, then stocks beats RE hands down as TSLA and hundreds of other stocks have skyrocketed. We should try and stay away from personal anedotes whem comparing investment vehicles. Real Estate has averaged 4% returns and index funds like VOO have been 8% with no effort. That is like for like without leverage and without knowing about individual stocks.

So answer the OPs question, traditional buy and hold a house off the MLS is one of the worst investments today for most people as prices and interest rates are up. The amount of capital you have to raise to leverage yourself would be better off spent in the S&P 500 or employer matching 401k. Nobody wants to trap their money in a house and break even for decades while renting their so so C neighborhood home to a stranger and everything that comes with that.

What is real estate return when you add on rents? What if you can break even for 4 years while leveraging real estate at 20% assuning 4% appreciation? According to the rule of 72 you are doubling your money. I don't see any opportunity for a normal person that can touch that in any other asset class.

- with househack, we literally mortgageless and live for free , stock index can't do that lol
- lets say we live in CA but kid wanna do college in TX, we buy RE in TX and househack, almost mortgageless again

The stock market can't do that because it's a made up fairy tale in todays market. You're not going to rent your couch out to a stranger living near your kids and completely pay the mortgage in todays market. By the way that's kinda wierd unless you have a legit ADU with separate entrance, STS walls etc.

I just sold my 500.sqft condo in San Diego. Total costs for the new owner is $4,800/month but I was renting it for $2,400 before the sale. That's a difference of 28k/year.

Investing the savings of $28k/year for 10 years in a broad market index would net $560,000 meanwhile that same condo would net you $300,000 including princpial paydown and 4% appreciation.
Real Estate: $300,000 vs Stocks: $560,000. That's a 260,000 opportunity loss after 10 years for buying my condo instead of renting it.
But that owner of the $4,800 mortgage (The bank owns the house) is still losing 2,400/month in opportunity costs. The intersect between increasing rents vs mortgage could take decades.

So there's a real world example for you guys. Buyer beware if anyone thinks it's best to just buy a house, rent your closet to some stranger and bling, free mortgage!. You may not be able to house hack a stock, but you do have opportunity costs overall that have to be weighted with the end results of both investments at the end of 10, 20, 30 years or whatever your goals are.

Condo you can't househack but single family detach with ADU you can, house hacks or multi family living in SF in CA city is actually pretty common
0 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
2y
Quote from @K S.:

Quote from @Carlos Ptriawan:

Quote from @Eric Bilderback:

Quote from @K S.:

Quote from @Jeff S.:

@K S.
I don't understand the statement that the the broad market index fund returns over the last decade or 100 years was luck. You can say the same for the real estate run over the last decade as well.
Yes I admit being extremely lucky in RE the last 30 years and having been unlucky in the stock market. I think the stock market is fascinating but I am too slow on the uptake getting in on the big winners. There are no guarantees going forward. To me RE is a hands on business where stock investing is just that investing in someone else's businesses. My base is RE and cash and stocks are my speculation. I am more interested in return of capital than return on capital.
Why are you comparing your personal RE or house against your individual stock pick and not the broad market? You would never have lost if you just invested in the broad market in any decade in the last 100 years.
If you want to compare it to individual stocks, then stocks beats RE hands down as TSLA and hundreds of other stocks have skyrocketed. We should try and stay away from personal anedotes whem comparing investment vehicles. Real Estate has averaged 4% returns and index funds like VOO have been 8% with no effort. That is like for like without leverage and without knowing about individual stocks.

So answer the OPs question, traditional buy and hold a house off the MLS is one of the worst investments today for most people as prices and interest rates are up. The amount of capital you have to raise to leverage yourself would be better off spent in the S&P 500 or employer matching 401k. Nobody wants to trap their money in a house and break even for decades while renting their so so C neighborhood home to a stranger and everything that comes with that.

What is real estate return when you add on rents? What if you can break even for 4 years while leveraging real estate at 20% assuning 4% appreciation? According to the rule of 72 you are doubling your money. I don't see any opportunity for a normal person that can touch that in any other asset class.

- with househack, we literally mortgageless and live for free , stock index can't do that lol
- lets say we live in CA but kid wanna do college in TX, we buy RE in TX and househack, almost mortgageless again

The stock market can't do that because it's a made up fairy tale in todays market. You're not going to rent your couch out to a stranger living near your kids and completely pay the mortgage in todays market. By the way that's kinda wierd unless you have a legit ADU with separate entrance, STS walls etc.

I just sold my 500.sqft condo in San Diego. Total costs for the new owner is $4,800/month but I was renting it for $2,400 before the sale. That's a difference of 28k/year.

Investing the savings of $28k/year for 10 years in a broad market index would net $560,000 meanwhile that same condo would net you $300,000 including princpial paydown and 4% appreciation.
Real Estate: $300,000 vs Stocks: $560,000. That's a 260,000 opportunity loss after 10 years for buying my condo instead of renting it.
But that owner of the $4,800 mortgage (The bank owns the house) is still losing 2,400/month in opportunity costs. The intersect between increasing rents vs mortgage could take decades.

So there's a real world example for you guys. Buyer beware if anyone thinks it's best to just buy a house, rent your closet to some stranger and bling, free mortgage!. You may not be able to house hack a stock, but you do have opportunity costs overall that have to be weighted with the end results of both investments at the end of 10, 20, 30 years or whatever your goals are.

If the buyer that purchased your condo purchased it as an RE investment I question his intelligence. If the condo was purchased to owner occupy, the example has zero merit for this thread that we are referring to RE investments. Not a relevant real world example.
Note 4% appreciation if leveraged at 80% LTV is a 20% return from appreciation. If you have cash neutral purchase, which I admit is initially challenging in many markets in this high rate environment, you would have 20% from appreciation and loan pay down.
If you can do a value add, you can do far better but value adds are work and even less passive than rent ready purchases. However, they can provide good return. My purchases from Dec 2021 have already made 7 digitsc.
You have your example, which I believe is not even an example of an investor purchased RE, and I have my example (which was an investor purchased RE).

Best wishes
0 Reply
K S.
Member since 2021 · 401 posts · 254 votes
2y
Quote from @Dan H.:

Quote from @K S.:

Quote from @Carlos Ptriawan:

Quote from @Eric Bilderback:

Quote from @K S.:

Quote from @Jeff S.:

@K S.
I don't understand the statement that the the broad market index fund returns over the last decade or 100 years was luck. You can say the same for the real estate run over the last decade as well.
Yes I admit being extremely lucky in RE the last 30 years and having been unlucky in the stock market. I think the stock market is fascinating but I am too slow on the uptake getting in on the big winners. There are no guarantees going forward. To me RE is a hands on business where stock investing is just that investing in someone else's businesses. My base is RE and cash and stocks are my speculation. I am more interested in return of capital than return on capital.
Why are you comparing your personal RE or house against your individual stock pick and not the broad market? You would never have lost if you just invested in the broad market in any decade in the last 100 years.
If you want to compare it to individual stocks, then stocks beats RE hands down as TSLA and hundreds of other stocks have skyrocketed. We should try and stay away from personal anedotes whem comparing investment vehicles. Real Estate has averaged 4% returns and index funds like VOO have been 8% with no effort. That is like for like without leverage and without knowing about individual stocks.

So answer the OPs question, traditional buy and hold a house off the MLS is one of the worst investments today for most people as prices and interest rates are up. The amount of capital you have to raise to leverage yourself would be better off spent in the S&P 500 or employer matching 401k. Nobody wants to trap their money in a house and break even for decades while renting their so so C neighborhood home to a stranger and everything that comes with that.

What is real estate return when you add on rents? What if you can break even for 4 years while leveraging real estate at 20% assuning 4% appreciation? According to the rule of 72 you are doubling your money. I don't see any opportunity for a normal person that can touch that in any other asset class.

- with househack, we literally mortgageless and live for free , stock index can't do that lol
- lets say we live in CA but kid wanna do college in TX, we buy RE in TX and househack, almost mortgageless again

The stock market can't do that because it's a made up fairy tale in todays market. You're not going to rent your couch out to a stranger living near your kids and completely pay the mortgage in todays market. By the way that's kinda wierd unless you have a legit ADU with separate entrance, STS walls etc.

I just sold my 500.sqft condo in San Diego. Total costs for the new owner is $4,800/month but I was renting it for $2,400 before the sale. That's a difference of 28k/year.

Investing the savings of $28k/year for 10 years in a broad market index would net $560,000 meanwhile that same condo would net you $300,000 including princpial paydown and 4% appreciation.
Real Estate: $300,000 vs Stocks: $560,000. That's a 260,000 opportunity loss after 10 years for buying my condo instead of renting it.
But that owner of the $4,800 mortgage (The bank owns the house) is still losing 2,400/month in opportunity costs. The intersect between increasing rents vs mortgage could take decades.

So there's a real world example for you guys. Buyer beware if anyone thinks it's best to just buy a house, rent your closet to some stranger and bling, free mortgage!. You may not be able to house hack a stock, but you do have opportunity costs overall that have to be weighted with the end results of both investments at the end of 10, 20, 30 years or whatever your goals are.

If the buyer that purchased your condo purchased it as an RE investment I question his intelligence. If the condo was purchased to owner occupy, the example has zero merit for this thread that we are referring to RE investments. Not a relevant real world example.
Note 4% appreciation if leveraged at 80% LTV is a 20% return from appreciation.
I'm not sure why so many people mention this without acknowledging that you will be underwater with just 20% down in major cities or anywhere appreciating especially in San Francisco as Carlos mentioned and at current prices and interest rates. 20% down does not equal 20% returns. That is overly simplistic explanation straight out of rich dad poor dad book. Therefore, it does not invalidate my example as you said or rebut my own without that disclaimer.
0 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
2y
Quote from @K S.:

Quote from @Dan H.:

Quote from @K S.:

Quote from @Carlos Ptriawan:

Quote from @Eric Bilderback:

Quote from @K S.:

Quote from @Jeff S.:

@K S.
I don't understand the statement that the the broad market index fund returns over the last decade or 100 years was luck. You can say the same for the real estate run over the last decade as well.
Yes I admit being extremely lucky in RE the last 30 years and having been unlucky in the stock market. I think the stock market is fascinating but I am too slow on the uptake getting in on the big winners. There are no guarantees going forward. To me RE is a hands on business where stock investing is just that investing in someone else's businesses. My base is RE and cash and stocks are my speculation. I am more interested in return of capital than return on capital.
Why are you comparing your personal RE or house against your individual stock pick and not the broad market? You would never have lost if you just invested in the broad market in any decade in the last 100 years.
If you want to compare it to individual stocks, then stocks beats RE hands down as TSLA and hundreds of other stocks have skyrocketed. We should try and stay away from personal anedotes whem comparing investment vehicles. Real Estate has averaged 4% returns and index funds like VOO have been 8% with no effort. That is like for like without leverage and without knowing about individual stocks.

So answer the OPs question, traditional buy and hold a house off the MLS is one of the worst investments today for most people as prices and interest rates are up. The amount of capital you have to raise to leverage yourself would be better off spent in the S&P 500 or employer matching 401k. Nobody wants to trap their money in a house and break even for decades while renting their so so C neighborhood home to a stranger and everything that comes with that.

What is real estate return when you add on rents? What if you can break even for 4 years while leveraging real estate at 20% assuning 4% appreciation? According to the rule of 72 you are doubling your money. I don't see any opportunity for a normal person that can touch that in any other asset class.

- with househack, we literally mortgageless and live for free , stock index can't do that lol
- lets say we live in CA but kid wanna do college in TX, we buy RE in TX and househack, almost mortgageless again

The stock market can't do that because it's a made up fairy tale in todays market. You're not going to rent your couch out to a stranger living near your kids and completely pay the mortgage in todays market. By the way that's kinda wierd unless you have a legit ADU with separate entrance, STS walls etc.

I just sold my 500.sqft condo in San Diego. Total costs for the new owner is $4,800/month but I was renting it for $2,400 before the sale. That's a difference of 28k/year.

Investing the savings of $28k/year for 10 years in a broad market index would net $560,000 meanwhile that same condo would net you $300,000 including princpial paydown and 4% appreciation.
Real Estate: $300,000 vs Stocks: $560,000. That's a 260,000 opportunity loss after 10 years for buying my condo instead of renting it.
But that owner of the $4,800 mortgage (The bank owns the house) is still losing 2,400/month in opportunity costs. The intersect between increasing rents vs mortgage could take decades.

So there's a real world example for you guys. Buyer beware if anyone thinks it's best to just buy a house, rent your closet to some stranger and bling, free mortgage!. You may not be able to house hack a stock, but you do have opportunity costs overall that have to be weighted with the end results of both investments at the end of 10, 20, 30 years or whatever your goals are.

If the buyer that purchased your condo purchased it as an RE investment I question his intelligence. If the condo was purchased to owner occupy, the example has zero merit for this thread that we are referring to RE investments. Not a relevant real world example.
Note 4% appreciation if leveraged at 80% LTV is a 20% return from appreciation.
I'm not sure why so many people mention this without acknowledging that you will be underwater with just 20% down in major cities or anywhere appreciating especially in San Francisco as Carlos mentioned and at current prices and interest rates. 20% down does not equal 20% returns. That is overly simplistic explanation straight out of rich dad poor dad book. Therefore, it does not invalidate my example as you said or rebut my own without that disclaimer.

You must be a troll as 1) you quoted me stating so many people fail to mention that many purchases at high LTV despite my very next statement that you did not include indicating the challenges of finding a cash neutral property in many markets. How convenient for you to have left that out 2) your examples in every case leave out the multiplier that leverage would provide. In virtually every case there is an LTV greater than zero that achieves cash flow. So in virtually every case leverage can magnify the return from appreciation. 3) you latest example, seeing you did not deny it, was an owner occupied purchase and not purchased by an RE investor and therefore totally irrelevant to this thread.
Please do not selectively quote me Readers can go up one post and see my actual post. Selectively quoting to try to convince the audience of something is deceptive and shows the weakness of your argument.
Just because you have been unable to achieve outstanding returns from RE does not imply that it is impossible or that others cannot. BP is full of example of people who have created generational wealth via RE. Yet, somehow you think it is impossible.
I question if RE is not for you, why do you spend your time on a forum primarily dedicated to RE investing except to troll.

Good luck
1 Reply
Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
2y
Quote from @K S.:

Quote from @Dan H.:

Quote from @K S.:

Quote from @Carlos Ptriawan:

Quote from @Eric Bilderback:

Quote from @K S.:

Quote from @Jeff S.:

@K S.
I don't understand the statement that the the broad market index fund returns over the last decade or 100 years was luck. You can say the same for the real estate run over the last decade as well.
Yes I admit being extremely lucky in RE the last 30 years and having been unlucky in the stock market. I think the stock market is fascinating but I am too slow on the uptake getting in on the big winners. There are no guarantees going forward. To me RE is a hands on business where stock investing is just that investing in someone else's businesses. My base is RE and cash and stocks are my speculation. I am more interested in return of capital than return on capital.
Why are you comparing your personal RE or house against your individual stock pick and not the broad market? You would never have lost if you just invested in the broad market in any decade in the last 100 years.
If you want to compare it to individual stocks, then stocks beats RE hands down as TSLA and hundreds of other stocks have skyrocketed. We should try and stay away from personal anedotes whem comparing investment vehicles. Real Estate has averaged 4% returns and index funds like VOO have been 8% with no effort. That is like for like without leverage and without knowing about individual stocks.

So answer the OPs question, traditional buy and hold a house off the MLS is one of the worst investments today for most people as prices and interest rates are up. The amount of capital you have to raise to leverage yourself would be better off spent in the S&P 500 or employer matching 401k. Nobody wants to trap their money in a house and break even for decades while renting their so so C neighborhood home to a stranger and everything that comes with that.

What is real estate return when you add on rents? What if you can break even for 4 years while leveraging real estate at 20% assuning 4% appreciation? According to the rule of 72 you are doubling your money. I don't see any opportunity for a normal person that can touch that in any other asset class.

- with househack, we literally mortgageless and live for free , stock index can't do that lol
- lets say we live in CA but kid wanna do college in TX, we buy RE in TX and househack, almost mortgageless again

The stock market can't do that because it's a made up fairy tale in todays market. You're not going to rent your couch out to a stranger living near your kids and completely pay the mortgage in todays market. By the way that's kinda wierd unless you have a legit ADU with separate entrance, STS walls etc.

I just sold my 500.sqft condo in San Diego. Total costs for the new owner is $4,800/month but I was renting it for $2,400 before the sale. That's a difference of 28k/year.

Investing the savings of $28k/year for 10 years in a broad market index would net $560,000 meanwhile that same condo would net you $300,000 including princpial paydown and 4% appreciation.
Real Estate: $300,000 vs Stocks: $560,000. That's a 260,000 opportunity loss after 10 years for buying my condo instead of renting it.
But that owner of the $4,800 mortgage (The bank owns the house) is still losing 2,400/month in opportunity costs. The intersect between increasing rents vs mortgage could take decades.

So there's a real world example for you guys. Buyer beware if anyone thinks it's best to just buy a house, rent your closet to some stranger and bling, free mortgage!. You may not be able to house hack a stock, but you do have opportunity costs overall that have to be weighted with the end results of both investments at the end of 10, 20, 30 years or whatever your goals are.

If the buyer that purchased your condo purchased it as an RE investment I question his intelligence. If the condo was purchased to owner occupy, the example has zero merit for this thread that we are referring to RE investments. Not a relevant real world example.
Note 4% appreciation if leveraged at 80% LTV is a 20% return from appreciation.
I'm not sure why so many people mention this without acknowledging that you will be underwater with just 20% down in major cities or anywhere appreciating especially in San Francisco as Carlos mentioned and at current prices and interest rates. 20% down does not equal 20% returns. That is overly simplistic explanation straight out of rich dad poor dad book. Therefore, it does not invalidate my example as you said or rebut my own without that disclaimer.

Hi KS, on average RE market is appreciating at 3-5% right now, there're some exceptions like a condo. A condo in bad location such as in San Francisco has problematic return, but that problem is very local (eg: a sold 1/1 was 400k in 2004 and now in the market for $500k-ish).
But in general, detach single family has appreciation faster than inflation rate, that itself is money making.
now combined with househacking, the house is becoming mortgageless.
househacking is becoming more common these days due to inflation and also being endorsed by the gov. ; it is not something that's uncommon like in the 80s.
So if you see my reply, the single family can be used as "saving mechanism" as well as "generating income". As saving mechanism, the real estate is awesome, I purposedly buy RE in good school district or in okay distance to major university, so kid not need to be in dorm and they can stay inside our family home, that itself also is super awesome to save money.
I would say I live for free in United States and giving my kids free education until university level, thanks to residential real estate.
2 Reply
Henry ClarkPro Member
Developer · Member since 2020 · 4k+ posts · 4k+ votes
2y
Will make a couple posts to dissect the issue.
RISK Stocks:
S&P 500. Rounded P/E ratio 25
REI change to your type. Say 7% cap rate. Convert this is a P/E ratio of 14.
From a pure market valuation standpoint S&P is nearly twice as risky.
Risk bonds, CDs, MM: different lengths of periods. As OP mentioned say 5%.
If interest rates go up another 2% points. You lose value.
If interest rates go down you gain value. But then REI would increase in value both from a dollar to dollar standpoint but far more from a leveraged standpoint. You lost compared to a leverage REI investment.

Let alone the Capital Gain versus Ordinary income on short term cash or debt investments

Risk is higher on financial investments than REI whether the interest rate increases or decreases.
1 Reply
Henry ClarkPro Member
Developer · Member since 2020 · 4k+ posts · 4k+ votes
2y
OP original question is REI better than Stocks Bonds:
Depends on type of investor. As noted many times the U.S. government has favorably stacked the deck towards real estate. The stock market, bond and U.S. government has unfavorably stacked the deck against individual investors in those investment types.
1. Single home owner. REI will always be the best investment by far. Rent replacement. 2/5 primary no taxes. BRRRR sweat equity. Etc
2. Your poor. You can get 0% down and 5% interest rate.
3. Military you get tax free Base Housing Allowance once your an E5 or higher. Say $15,000 up to $50,000. Start with a $30,000 trailer and lot, keep scaling up to a $mm house or many properties by the time you are retired. Who cares about high interest rates. And 2/5 primary no taxes in sales.
4. Bankruptcy you get to keep your house.
Call it 4 A- less liquidity than Stocks and Bonds which is good for a new investor. When you get scared you don’t sell your house in a down turn and you don’t buy your house in an upturn like people do with stocks.
Multi home owners:
5. There is a shortage of houses. As long as you did your deal analysis your rental income or appreciation is good for another 10 years.
6. Newby investor. If you didn’t do a good deal analysis you fail and pay for an education, which is a good return even on a failure. As I say. “Start small and Make Your Big Mistakes Early.”
7. Most 1st world country populations are shrinking. This their REI values are shrinking. There will be for many years to come a demand for US REI from overseas. Keeping prices higher.
8. AirBNB. A 5% swing in the U.S. cowherd determines high and low prices. Although AirBNB may be small, it can swing markets heavily as the % increases in a locale. This increases your value in those markets.
9. Scaling- if you can’t figure your team out. You don’t get to scale economically. Then to scale your investments you may need to go to the stock market. I consider REITS and syndications as the stock market also.
Professional time tested investors:
10. The best and the worst business environments, REI is always the best time to invest. And REI is always the best investment strategy. You just have to adjust.

It’s your money, your always right, even if your wrong.
1 Reply
Henry ClarkPro Member
Developer · Member since 2020 · 4k+ posts · 4k+ votes
2y
Tough market out there?
Helping a new Self Storage investor out. All I heard was there is to much storage where they were at, how about over there.
Worked with him. Found a deal analysis where all in he should be able to invest $50,000 at SBA 10% down or $125k at a 25% conventional. After 2 years he should be cash flowing at 90% occupancy $5,000 per month after all expenses, P/I and income taxes. Everything. At a CAP rate of 7, he should have appraised equity of say $500k plus his original downpayment. COC% looks really good.. For this one person who will succeed, there are probably 30 who would not do the homework and never moved forward.

The big gain will be he will have a system that he can replicate and Scale. Plus he “Jumped off the Cliff” and can now see Financial Freedom. Just needs to execute, make more smaller mistakes and keep learning.
As mentioned there are many different REI strategies. Just specialize in your niche.
REI is far better than the Stock Bond market. Unless you're doing Options or can pick those 4% of the great stocks at an early stage, I'll take 400% COC every 2 years along with the cash flow. Plus being in charge of both either risk and reward execution.
3 Reply
Brandon C.
Real Estate Investor · Milwaukee, WI · Member since 2017 · 25 posts · 9 votes
2y
Looks like I opened a whole can of worms talking about Buffetology, lol.
1 Reply
Henry ClarkPro Member
Developer · Member since 2020 · 4k+ posts · 4k+ votes
2y
No can of worms on Buffet approach and I’m sure he would agree.

Any new SFH investor can beat Berkshire Hathaway returns easily. They have far more investment tools than his company gets to use.

Experienced REI investors would never follow his Buy and Hold approach. As you build equity you lose leverage, one of the key tools of REI.
Only people who have reached Financial Freedom will be able to use what he mentions in part of their wealth. More about wealth protection than REI investing.
1 Reply
Henry ClarkPro Member
Developer · Member since 2020 · 4k+ posts · 4k+ votes
2y
@Dave Meyer @Jim K.

Dave your byline says you’re in the Netherlands. Looks like you subscribe to the top listing of investments by Jim K. The red light district. Please describe your investments there.

Also if your still here in 3 years you didn't engage on the REI side of things.
Stopping by my favorite place in the world to get my Oreo blast. And
Watch the world go by. Making
Money checking in our self storage. Can’t get that with stocks.
2 Reply
Andrew SyriosPro Member
Moderator
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
2y
Overall, real estate is still the best asset class although at this very moment, it probably isn't. But that's likely just a temporary thing.
Podcast Guest on Show #121
1 Reply
V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
2y
Quote from @K S.:

Quote from @Jeff S.:

@K S.
I don't understand the statement that the the broad market index fund returns over the last decade or 100 years was luck. You can say the same for the real estate run over the last decade as well.
Yes I admit being extremely lucky in RE the last 30 years and having been unlucky in the stock market. I think the stock market is fascinating but I am too slow on the uptake getting in on the big winners. There are no guarantees going forward. To me RE is a hands on business where stock investing is just that investing in someone else's businesses. My base is RE and cash and stocks are my speculation. I am more interested in return of capital than return on capital.
Why are you comparing your personal RE or house against your individual stock pick and not the broad market? You would never have lost if you just invested in the broad market in any decade in the last 100 years.
If you want to compare it to individual stocks, then stocks beats RE hands down as TSLA and hundreds of other stocks have skyrocketed. We should try and stay away from personal anedotes whem comparing investment vehicles. Real Estate has averaged 4% returns and index funds like VOO have been 8% with no effort. That is like for like without leverage and without knowing about individual stocks.

So answer the OPs question, traditional buy and hold a house off the MLS is one of the worst investments today for most people as prices and interest rates are up. The amount of capital you have to raise to leverage yourself would be better off spent in the S&P 500 or employer matching 401k. Nobody wants to trap their money in a house and break even for decades while renting their so so C neighborhood home to a stranger and everything that comes with that.
All of it is okay, except the last part. If it's a good house, in a very good neighborhood the investment will pay off. The scarcity on good areas will run a higher premium in the later stages of a 30 YR FRM than we've seen before-- even 21 boom.
1 Reply
K S.
Member since 2021 · 401 posts · 254 votes
2y
Quote from @Dan H.:

Quote from @K S.:

Quote from @Dan H.:

Quote from @K S.:

Quote from @Carlos Ptriawan:

Quote from @Eric Bilderback:

Quote from @K S.:

Quote from @Jeff S.:

@K S.
I don't understand the statement that the the broad market index fund returns over the last decade or 100 years was luck. You can say the same for the real estate run over the last decade as well.
Yes I admit being extremely lucky in RE the last 30 years and having been unlucky in the stock market. I think the stock market is fascinating but I am too slow on the uptake getting in on the big winners. There are no guarantees going forward. To me RE is a hands on business where stock investing is just that investing in someone else's businesses. My base is RE and cash and stocks are my speculation. I am more interested in return of capital than return on capital.
Why are you comparing your personal RE or house against your individual stock pick and not the broad market? You would never have lost if you just invested in the broad market in any decade in the last 100 years.
If you want to compare it to individual stocks, then stocks beats RE hands down as TSLA and hundreds of other stocks have skyrocketed. We should try and stay away from personal anedotes whem comparing investment vehicles. Real Estate has averaged 4% returns and index funds like VOO have been 8% with no effort. That is like for like without leverage and without knowing about individual stocks.

So answer the OPs question, traditional buy and hold a house off the MLS is one of the worst investments today for most people as prices and interest rates are up. The amount of capital you have to raise to leverage yourself would be better off spent in the S&P 500 or employer matching 401k. Nobody wants to trap their money in a house and break even for decades while renting their so so C neighborhood home to a stranger and everything that comes with that.

What is real estate return when you add on rents? What if you can break even for 4 years while leveraging real estate at 20% assuning 4% appreciation? According to the rule of 72 you are doubling your money. I don't see any opportunity for a normal person that can touch that in any other asset class.

- with househack, we literally mortgageless and live for free , stock index can't do that lol
- lets say we live in CA but kid wanna do college in TX, we buy RE in TX and househack, almost mortgageless again

The stock market can't do that because it's a made up fairy tale in todays market. You're not going to rent your couch out to a stranger living near your kids and completely pay the mortgage in todays market. By the way that's kinda wierd unless you have a legit ADU with separate entrance, STS walls etc.

I just sold my 500.sqft condo in San Diego. Total costs for the new owner is $4,800/month but I was renting it for $2,400 before the sale. That's a difference of 28k/year.

Investing the savings of $28k/year for 10 years in a broad market index would net $560,000 meanwhile that same condo would net you $300,000 including princpial paydown and 4% appreciation.
Real Estate: $300,000 vs Stocks: $560,000. That's a 260,000 opportunity loss after 10 years for buying my condo instead of renting it.
But that owner of the $4,800 mortgage (The bank owns the house) is still losing 2,400/month in opportunity costs. The intersect between increasing rents vs mortgage could take decades.

So there's a real world example for you guys. Buyer beware if anyone thinks it's best to just buy a house, rent your closet to some stranger and bling, free mortgage!. You may not be able to house hack a stock, but you do have opportunity costs overall that have to be weighted with the end results of both investments at the end of 10, 20, 30 years or whatever your goals are.

If the buyer that purchased your condo purchased it as an RE investment I question his intelligence. If the condo was purchased to owner occupy, the example has zero merit for this thread that we are referring to RE investments. Not a relevant real world example.
Note 4% appreciation if leveraged at 80% LTV is a 20% return from appreciation.
I'm not sure why so many people mention this without acknowledging that you will be underwater with just 20% down in major cities or anywhere appreciating especially in San Francisco as Carlos mentioned and at current prices and interest rates. 20% down does not equal 20% returns. That is overly simplistic explanation straight out of rich dad poor dad book. Therefore, it does not invalidate my example as you said or rebut my own without that disclaimer.

You must be a troll as 1) you quoted me stating so many people fail to mention that many purchases at high LTV despite my very next statement that you did not include indicating the challenges of finding a cash neutral property in many markets. How convenient for you to have left that out 2) your examples in every case leave out the multiplier that leverage would provide. In virtually every case there is an LTV greater than zero that achieves cash flow. So in virtually every case leverage can magnify the return from appreciation. 3) you latest example, seeing you did not deny it, was an owner occupied purchase and not purchased by an RE investor and therefore totally irrelevant to this thread.
Please do not selectively quote me Readers can go up one post and see my actual post. Selectively quoting to try to convince the audience of something is deceptive and shows the weakness of your argument.
Just because you have been unable to achieve outstanding returns from RE does not imply that it is impossible or that others cannot. BP is full of example of people who have created generational wealth via RE. Yet, somehow you think it is impossible.
I question if RE is not for you, why do you spend your time on a forum primarily dedicated to RE investing except to troll.

Good luck
I'm a troll because I challenged your 20% down = 20% returns statement? Maybe you don't like different viewpoints on this forum and would like to start a members only echo chamber for yourself to confirm your biases.
How am I not successful in Real Estate? My house trippled in value in 15 years and one of my condos doubled in the first 5 yet I still would have been better off investing in the S&P in a like for like scenario for which I gave an accurate break down using multiple online calculators against my own properties at present time.
If you want to give an actual example in todays market where you can put 20% down and return 20% after all expenses then I'm not stopping you but my example is my own whether it's with or without leverage. I can't change my story to reflect your world view.
0 Reply
K S.
Member since 2021 · 401 posts · 254 votes
2y
Quote from @Carlos Ptriawan:

Quote from @K S.:

Quote from @Dan H.:

Quote from @K S.:

Quote from @Carlos Ptriawan:

Quote from @Eric Bilderback:

Quote from @K S.:

Quote from @Jeff S.:

@K S.
I don't understand the statement that the the broad market index fund returns over the last decade or 100 years was luck. You can say the same for the real estate run over the last decade as well.
Yes I admit being extremely lucky in RE the last 30 years and having been unlucky in the stock market. I think the stock market is fascinating but I am too slow on the uptake getting in on the big winners. There are no guarantees going forward. To me RE is a hands on business where stock investing is just that investing in someone else's businesses. My base is RE and cash and stocks are my speculation. I am more interested in return of capital than return on capital.
Why are you comparing your personal RE or house against your individual stock pick and not the broad market? You would never have lost if you just invested in the broad market in any decade in the last 100 years.
If you want to compare it to individual stocks, then stocks beats RE hands down as TSLA and hundreds of other stocks have skyrocketed. We should try and stay away from personal anedotes whem comparing investment vehicles. Real Estate has averaged 4% returns and index funds like VOO have been 8% with no effort. That is like for like without leverage and without knowing about individual stocks.

So answer the OPs question, traditional buy and hold a house off the MLS is one of the worst investments today for most people as prices and interest rates are up. The amount of capital you have to raise to leverage yourself would be better off spent in the S&P 500 or employer matching 401k. Nobody wants to trap their money in a house and break even for decades while renting their so so C neighborhood home to a stranger and everything that comes with that.

What is real estate return when you add on rents? What if you can break even for 4 years while leveraging real estate at 20% assuning 4% appreciation? According to the rule of 72 you are doubling your money. I don't see any opportunity for a normal person that can touch that in any other asset class.

- with househack, we literally mortgageless and live for free , stock index can't do that lol
- lets say we live in CA but kid wanna do college in TX, we buy RE in TX and househack, almost mortgageless again

The stock market can't do that because it's a made up fairy tale in todays market. You're not going to rent your couch out to a stranger living near your kids and completely pay the mortgage in todays market. By the way that's kinda wierd unless you have a legit ADU with separate entrance, STS walls etc.

I just sold my 500.sqft condo in San Diego. Total costs for the new owner is $4,800/month but I was renting it for $2,400 before the sale. That's a difference of 28k/year.

Investing the savings of $28k/year for 10 years in a broad market index would net $560,000 meanwhile that same condo would net you $300,000 including princpial paydown and 4% appreciation.
Real Estate: $300,000 vs Stocks: $560,000. That's a 260,000 opportunity loss after 10 years for buying my condo instead of renting it.
But that owner of the $4,800 mortgage (The bank owns the house) is still losing 2,400/month in opportunity costs. The intersect between increasing rents vs mortgage could take decades.

So there's a real world example for you guys. Buyer beware if anyone thinks it's best to just buy a house, rent your closet to some stranger and bling, free mortgage!. You may not be able to house hack a stock, but you do have opportunity costs overall that have to be weighted with the end results of both investments at the end of 10, 20, 30 years or whatever your goals are.

If the buyer that purchased your condo purchased it as an RE investment I question his intelligence. If the condo was purchased to owner occupy, the example has zero merit for this thread that we are referring to RE investments. Not a relevant real world example.
Note 4% appreciation if leveraged at 80% LTV is a 20% return from appreciation.
I'm not sure why so many people mention this without acknowledging that you will be underwater with just 20% down in major cities or anywhere appreciating especially in San Francisco as Carlos mentioned and at current prices and interest rates. 20% down does not equal 20% returns. That is overly simplistic explanation straight out of rich dad poor dad book. Therefore, it does not invalidate my example as you said or rebut my own without that disclaimer.

Hi KS, on average RE market is appreciating at 3-5% right now, there're some exceptions like a condo. A condo in bad location such as in San Francisco has problematic return, but that problem is very local (eg: a sold 1/1 was 400k in 2004 and now in the market for $500k-ish).
But in general, detach single family has appreciation faster than inflation rate, that itself is money making.
now combined with househacking, the house is becoming mortgageless.
househacking is becoming more common these days due to inflation and also being endorsed by the gov. ; it is not something that's uncommon like in the 80s.
So if you see my reply, the single family can be used as "saving mechanism" as well as "generating income". As saving mechanism, the real estate is awesome, I purposedly buy RE in good school district or in okay distance to major university, so kid not need to be in dorm and they can stay inside our family home, that itself also is super awesome to save money.
I would say I live for free in United States and giving my kids free education until university level, thanks to residential real estate.

I personally like condos with low HOA because of much lower price and expenses. I had an HVAC coil, light bulb and toilet handle replaced in my condo in the last 10 years. HOA insurance pays for roof and parking gate etc. It felt almost like a hotel in convenience. Paid off and no expenses so you can live a decent life on a retail job. Of course someone will say buy 10 of them and rent that out but most condos in todays market in major cities require at least 50% down to break even and like the real world example I gave, buying turns out to cost twice as much as renting at present meaning since the mortgage for the new owner is $4800 and renting that same unit is $2,400, you can invest the difference and come out ahead in in the 10 year example I gave. That is just one extreme example but I don't see houses in SoCal doing much better as nicer homes are minimum 1M to 1.5M i.e. Carlsbad and Tierrasanta.
I'm not sure what to think about house hacking if you have a family unless you have separate ingress/egress and STS walls etc but I understand you can make an extra few hundred bucks a month. I guess I would factor in the price of the ADU if doing it right. I'm trying to build ADUs right now but they restrict short term rentals for the entire lot that you build one on which makes it difficult if you live on a multi-unit zoned property.
0 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
2y
Quote from @K S.:

Quote from @Dan H.:

Quote from @K S.:

Quote from @Dan H.:

Quote from @K S.:

Quote from @Carlos Ptriawan:

Quote from @Eric Bilderback:

Quote from @K S.:

Quote from @Jeff S.:

@K S.
I don't understand the statement that the the broad market index fund returns over the last decade or 100 years was luck. You can say the same for the real estate run over the last decade as well.
Yes I admit being extremely lucky in RE the last 30 years and having been unlucky in the stock market. I think the stock market is fascinating but I am too slow on the uptake getting in on the big winners. There are no guarantees going forward. To me RE is a hands on business where stock investing is just that investing in someone else's businesses. My base is RE and cash and stocks are my speculation. I am more interested in return of capital than return on capital.
Why are you comparing your personal RE or house against your individual stock pick and not the broad market? You would never have lost if you just invested in the broad market in any decade in the last 100 years.
If you want to compare it to individual stocks, then stocks beats RE hands down as TSLA and hundreds of other stocks have skyrocketed. We should try and stay away from personal anedotes whem comparing investment vehicles. Real Estate has averaged 4% returns and index funds like VOO have been 8% with no effort. That is like for like without leverage and without knowing about individual stocks.

So answer the OPs question, traditional buy and hold a house off the MLS is one of the worst investments today for most people as prices and interest rates are up. The amount of capital you have to raise to leverage yourself would be better off spent in the S&P 500 or employer matching 401k. Nobody wants to trap their money in a house and break even for decades while renting their so so C neighborhood home to a stranger and everything that comes with that.

What is real estate return when you add on rents? What if you can break even for 4 years while leveraging real estate at 20% assuning 4% appreciation? According to the rule of 72 you are doubling your money. I don't see any opportunity for a normal person that can touch that in any other asset class.

- with househack, we literally mortgageless and live for free , stock index can't do that lol
- lets say we live in CA but kid wanna do college in TX, we buy RE in TX and househack, almost mortgageless again

The stock market can't do that because it's a made up fairy tale in todays market. You're not going to rent your couch out to a stranger living near your kids and completely pay the mortgage in todays market. By the way that's kinda wierd unless you have a legit ADU with separate entrance, STS walls etc.

I just sold my 500.sqft condo in San Diego. Total costs for the new owner is $4,800/month but I was renting it for $2,400 before the sale. That's a difference of 28k/year.

Investing the savings of $28k/year for 10 years in a broad market index would net $560,000 meanwhile that same condo would net you $300,000 including princpial paydown and 4% appreciation.
Real Estate: $300,000 vs Stocks: $560,000. That's a 260,000 opportunity loss after 10 years for buying my condo instead of renting it.
But that owner of the $4,800 mortgage (The bank owns the house) is still losing 2,400/month in opportunity costs. The intersect between increasing rents vs mortgage could take decades.

So there's a real world example for you guys. Buyer beware if anyone thinks it's best to just buy a house, rent your closet to some stranger and bling, free mortgage!. You may not be able to house hack a stock, but you do have opportunity costs overall that have to be weighted with the end results of both investments at the end of 10, 20, 30 years or whatever your goals are.

If the buyer that purchased your condo purchased it as an RE investment I question his intelligence. If the condo was purchased to owner occupy, the example has zero merit for this thread that we are referring to RE investments. Not a relevant real world example.
Note 4% appreciation if leveraged at 80% LTV is a 20% return from appreciation.
I'm not sure why so many people mention this without acknowledging that you will be underwater with just 20% down in major cities or anywhere appreciating especially in San Francisco as Carlos mentioned and at current prices and interest rates. 20% down does not equal 20% returns. That is overly simplistic explanation straight out of rich dad poor dad book. Therefore, it does not invalidate my example as you said or rebut my own without that disclaimer.

You must be a troll as 1) you quoted me stating so many people fail to mention that many purchases at high LTV despite my very next statement that you did not include indicating the challenges of finding a cash neutral property in many markets. How convenient for you to have left that out 2) your examples in every case leave out the multiplier that leverage would provide. In virtually every case there is an LTV greater than zero that achieves cash flow. So in virtually every case leverage can magnify the return from appreciation. 3) you latest example, seeing you did not deny it, was an owner occupied purchase and not purchased by an RE investor and therefore totally irrelevant to this thread.
Please do not selectively quote me Readers can go up one post and see my actual post. Selectively quoting to try to convince the audience of something is deceptive and shows the weakness of your argument.
Just because you have been unable to achieve outstanding returns from RE does not imply that it is impossible or that others cannot. BP is full of example of people who have created generational wealth via RE. Yet, somehow you think it is impossible.
I question if RE is not for you, why do you spend your time on a forum primarily dedicated to RE investing except to troll.

Good luck
I'm a troll because I challenged your 20% down = 20% returns statement? Maybe you don't like different viewpoints on this forum and would like to start a members only echo chamber for yourself to confirm your biases.
How am I not successful in Real Estate? My house trippled in value in 15 years and one of my condos doubled in the first 5 yet I still would have been better off investing in the S&P in a like for like scenario for which I gave an accurate break down using multiple online calculators against my own properties at present time.
If you want to give an actual example in todays market where you can put 20% down and return 20% after all expenses then I'm not stopping you but my example is my own whether it's with or without leverage. I can't change my story to reflect your world view.

>I'm a troll because I challenged your 20% down = 20% returns statement? Maybe you don't like different viewpoints on this forum and would like to start a members only echo chamber for yourself to confirm your biases.

No. Your a troll because you intentionally selectively quoted me in an attempt to provide the narrative you wanted and because in spite of being told numerous times that leverage is a big reason RE can produce great returns you choose to repeatedly use your in leveraged example. Basically the definition of a troll.
Note both your example even at modest 70% leverage would have whooped the general stock market.
>How am I not successful in Real Estate? My house trippled in value in 15 years and one of my condos doubled in the first 5 yet I still would have been better off investing in the S&P in a like for like scenario …
You’re not a successful RE investor because in a market that you should have used leverage you did not and therefore achieved significantly less return than a more successful RE investor would have. I would not choose RE at the return that decent underwriting would have shown for your RE investments with the use of zero leverage. Did you do any underwriting? If you did, it would have shown S&P to be viable and more passive option than your not leveraged, non value add purchase in your market.

Your examples, because they did not use leverage, are not representative of the performance that most RE investors achieved who purchased when you did.

Best wishes
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Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
2y
Quote from @K S.:

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@K S.
I don't understand the statement that the the broad market index fund returns over the last decade or 100 years was luck. You can say the same for the real estate run over the last decade as well.
Yes I admit being extremely lucky in RE the last 30 years and having been unlucky in the stock market. I think the stock market is fascinating but I am too slow on the uptake getting in on the big winners. There are no guarantees going forward. To me RE is a hands on business where stock investing is just that investing in someone else's businesses. My base is RE and cash and stocks are my speculation. I am more interested in return of capital than return on capital.
Why are you comparing your personal RE or house against your individual stock pick and not the broad market? You would never have lost if you just invested in the broad market in any decade in the last 100 years.
If you want to compare it to individual stocks, then stocks beats RE hands down as TSLA and hundreds of other stocks have skyrocketed. We should try and stay away from personal anedotes whem comparing investment vehicles. Real Estate has averaged 4% returns and index funds like VOO have been 8% with no effort. That is like for like without leverage and without knowing about individual stocks.

So answer the OPs question, traditional buy and hold a house off the MLS is one of the worst investments today for most people as prices and interest rates are up. The amount of capital you have to raise to leverage yourself would be better off spent in the S&P 500 or employer matching 401k. Nobody wants to trap their money in a house and break even for decades while renting their so so C neighborhood home to a stranger and everything that comes with that.

What is real estate return when you add on rents? What if you can break even for 4 years while leveraging real estate at 20% assuning 4% appreciation? According to the rule of 72 you are doubling your money. I don't see any opportunity for a normal person that can touch that in any other asset class.

- with househack, we literally mortgageless and live for free , stock index can't do that lol
- lets say we live in CA but kid wanna do college in TX, we buy RE in TX and househack, almost mortgageless again

The stock market can't do that because it's a made up fairy tale in todays market. You're not going to rent your couch out to a stranger living near your kids and completely pay the mortgage in todays market. By the way that's kinda wierd unless you have a legit ADU with separate entrance, STS walls etc.

I just sold my 500.sqft condo in San Diego. Total costs for the new owner is $4,800/month but I was renting it for $2,400 before the sale. That's a difference of 28k/year.

Investing the savings of $28k/year for 10 years in a broad market index would net $560,000 meanwhile that same condo would net you $300,000 including princpial paydown and 4% appreciation.
Real Estate: $300,000 vs Stocks: $560,000. That's a 260,000 opportunity loss after 10 years for buying my condo instead of renting it.
But that owner of the $4,800 mortgage (The bank owns the house) is still losing 2,400/month in opportunity costs. The intersect between increasing rents vs mortgage could take decades.

So there's a real world example for you guys. Buyer beware if anyone thinks it's best to just buy a house, rent your closet to some stranger and bling, free mortgage!. You may not be able to house hack a stock, but you do have opportunity costs overall that have to be weighted with the end results of both investments at the end of 10, 20, 30 years or whatever your goals are.

If the buyer that purchased your condo purchased it as an RE investment I question his intelligence. If the condo was purchased to owner occupy, the example has zero merit for this thread that we are referring to RE investments. Not a relevant real world example.
Note 4% appreciation if leveraged at 80% LTV is a 20% return from appreciation.
I'm not sure why so many people mention this without acknowledging that you will be underwater with just 20% down in major cities or anywhere appreciating especially in San Francisco as Carlos mentioned and at current prices and interest rates. 20% down does not equal 20% returns. That is overly simplistic explanation straight out of rich dad poor dad book. Therefore, it does not invalidate my example as you said or rebut my own without that disclaimer.

Hi KS, on average RE market is appreciating at 3-5% right now, there're some exceptions like a condo. A condo in bad location such as in San Francisco has problematic return, but that problem is very local (eg: a sold 1/1 was 400k in 2004 and now in the market for $500k-ish).
But in general, detach single family has appreciation faster than inflation rate, that itself is money making.
now combined with househacking, the house is becoming mortgageless.
househacking is becoming more common these days due to inflation and also being endorsed by the gov. ; it is not something that's uncommon like in the 80s.
So if you see my reply, the single family can be used as "saving mechanism" as well as "generating income". As saving mechanism, the real estate is awesome, I purposedly buy RE in good school district or in okay distance to major university, so kid not need to be in dorm and they can stay inside our family home, that itself also is super awesome to save money.
I would say I live for free in United States and giving my kids free education until university level, thanks to residential real estate.

I personally like condos with low HOA because of much lower price and expenses. I had an HVAC coil, light bulb and toilet handle replaced in my condo in the last 10 years. HOA insurance pays for roof and parking gate etc. It felt almost like a hotel in convenience. Paid off and no expenses so you can live a decent life on a retail job. Of course someone will say buy 10 of them and rent that out but most condos in todays market in major cities require at least 50% down to break even and like the real world example I gave, buying turns out to cost twice as much as renting at present meaning since the mortgage for the new owner is $4800 and renting that same unit is $2,400, you can invest the difference and come out ahead in in the 10 year example I gave. That is just one extreme example but I don't see houses in SoCal doing much better as nicer homes are minimum 1M to 1.5M i.e. Carlsbad and Tierrasanta.
I'm not sure what to think about house hacking if you have a family unless you have separate ingress/egress and STS walls etc but I understand you can make an extra few hundred bucks a month. I guess I would factor in the price of the ADU if doing it right. I'm trying to build ADUs right now but they restrict short term rentals for the entire lot that you build one on which makes it difficult if you live on a multi-unit zoned property.

These are all valid points. The trick is to buy a home with an existing ADU so you have no burden of building cost; The gov. is making it easy for us if you want to do househack in a duplex by including the rent so it could reduce the DTI requirement.
The condo is good as long as it's located in the primary neighbourhood and has the best school district. Meaning if average 3/1 is $1.8m and the condo is $700k then it's good buy. But if 3/1 is $500k and the condo is $400k located in the C neighborhood then the condo appreciation is pretty limited.
These problems with condos is very local.
Like any other thing on the investment industry, every investment is meh to ok to good but to create phenomenal return one needs to time it correctly and with lot of dig deeper analysis for adjustment.

For me right now the best use case for the stock market is to create consistent double-digit cash-flows.
I am a bit disappointed with Out of State Real Estate and I think the money that's used for OOS is better to be used in flipping activity (as business) in California. If you ask me between OOS vs SPY I prefer SPY. But between flipping to a good house/good location vs SPY I prefer flipping house in good location.
Everything needs to be adjusted these days. Gone is the day to use a set-and-forget approach either in real estate and the stock market. Passive investment doesn't work. For passive, the stock market is better than OOS, But active investment works or using RE as saving mechanism is absolute golden tool.
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