Why not Real Estate instead of Stocks?

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AerialWombat
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Re: Why not Real Estate instead of Stocks?

Post by AerialWombat »

.....
Last edited by AerialWombat on Fri Apr 02, 2021 6:01 pm, edited 1 time in total.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
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unclescrooge
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Re: Why not Real Estate instead of Stocks?

Post by unclescrooge »

Sasquatch1 wrote: Mon Oct 05, 2020 8:00 pm
willthrill81 wrote: Mon Oct 05, 2020 7:54 pm
flaccidsteele wrote: Mon Oct 05, 2020 4:36 pm
Priam wrote: Sun Oct 04, 2020 11:57 am In my opinion the U.S is going to need to figure out the housing situation otherwise we will end up like places like Germany where 5% of the population owns 50% of the housing.
The price/sqft of new homes hasn’t changed much in over 50+ years

Americans just want bigger and bigger homes because they’re not financially literate, and think the home is an investment

Image

Image
The median sq. ft. per person in newly built homes has doubled since 1970, bringing it to around 1,000 sq. ft. per person. Historically, that's beyond insane. Think of how few families have children that share a bedroom. That used to be the norm.
RJ5 wrote: Mon Oct 05, 2020 5:55 pm There are plenty of people who are perfectly willing to buy a 1,800-2,000 sq ft 4BR 2 1/2 BA single family house. The problem is, the builder can't build them for the price that people are willing to pay.
If builders can't build for that price, it's their own fault. The inflation-adjusted price per sq. ft. of homes hasn't changed materially in 50 years, so if builders could make them 50 years ago, they should be able to make them today.

A great many of the homes in our neighborhood are brand new or relatively new 3 and 4 bedroom homes with no more than about 2,200 sq. ft. The builder here must be able to make them profitably with no problem.
No matter what building takes, they still have the older homes go up for sale. Smaller average sized homes.

But noooo wayyy could today’s generation be caught dead in a 1500 sq ft house with 8’ ceilings! That’s for the peasants

Then on top of that, homes are no longer and life long hold. It’s very common for people to move 2-3 times before they even 40! People are never happy anymore! They don’t keep a home long enough to make it worth the closing cost they keep losing on rebuying over and over.

There will be people Now days that will pay for the value of one full house just in closing cost totals in their lifetime
Once you grade the land, get the permits, pull utilities, pour the foundation, put in electrical and plumbing, and lay the sewer line down, whether you make a 1,500 sqft 3 bedroom/1 bath house, or a 1,800 sqft 3 bedroom/2 bath, the cost is virtually the same.

The builder would be stupid to build it and the buyer even dumber to buy it.
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Re: Why not Real Estate instead of Stocks?

Post by sd323232 »

Real estate is part time job, even full time job sometimes. That's the beauty of passive investment, no work required. Stocks all the way.
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Re: Why not Real Estate instead of Stocks?

Post by stoptothink »

willthrill81 wrote: Mon Oct 05, 2020 7:54 pm A great many of the homes in our neighborhood are brand new or relatively new 3 and 4 bedroom homes with no more than about 2,200 sq. ft. The builder here must be able to make them profitably with no problem.
So annoying. We LOVE our area, but wife wants a SFH home (we own a 1480 sq. ft. townhome). We don't have any need or want for more square footage (with 2 kids), but it is literally impossible to find a relatively newer home (less than 30yrs old) in my area <2,500 sq. ft. Almost all of the newer builds in our area are >3,500 sq. ft. It isn't an affordability issue for us, we do not want a McMansion. This reason alone may end up keeping us in our townhome long-term (which I am perfectly fine with).
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Re: Why not Real Estate instead of Stocks?

Post by willthrill81 »

stoptothink wrote: Tue Oct 06, 2020 10:06 am
willthrill81 wrote: Mon Oct 05, 2020 7:54 pm A great many of the homes in our neighborhood are brand new or relatively new 3 and 4 bedroom homes with no more than about 2,200 sq. ft. The builder here must be able to make them profitably with no problem.
So annoying. We LOVE our area, but wife wants a SFH home (we own a 1480 sq. ft. townhome). We don't have any need or want for more square footage (with 2 kids), but it is literally impossible to find a relatively newer home (less than 30yrs old) in my area <2,500 sq. ft. Almost all of the newer builds in our area are >3,500 sq. ft. It isn't an affordability issue for us, we do not want a McMansion. This reason alone may end up keeping us in our townhome long-term (which I am perfectly fine with).
Outside of our neighborhood, the market is just as you describe. It's very difficult to find new or relatively new homes with under 2,500 sq. ft. and many are 3,500 or larger. I believe that that, along with our great location that's also quiet, is part of the reason we've seen 50% appreciation of our home in the last six years; many want relatively small, newer homes, and the builder has found a great and seemingly quite profitable niche. Retirees are one of the largest groups in our area, strongly preferring smaller homes with a single level, which is what we actually have ourselves and love.
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Re: Why not Real Estate instead of Stocks?

Post by tomtoms »

sd323232 wrote: Tue Oct 06, 2020 9:51 am Real estate is part time job, even full time job sometimes. That's the beauty of passive investment, no work required. Stocks all the way.
I talk to my property manager 1-2 hours per year. It is not 100% passive but I think it is pretty close.
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Re: Why not Real Estate instead of Stocks?

Post by willthrill81 »

tomtoms wrote: Tue Oct 06, 2020 10:29 am
sd323232 wrote: Tue Oct 06, 2020 9:51 am Real estate is part time job, even full time job sometimes. That's the beauty of passive investment, no work required. Stocks all the way.
I talk to my property manager 1-2 hours per year. It is not 100% passive but I think it is pretty close.
Many here have had very different experiences managing rental properties. The reason many say that it can be a part-time job is because that's been their own personal experience.
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Re: Why not Real Estate instead of Stocks?

Post by tomtoms »

willthrill81 wrote: Tue Oct 06, 2020 10:34 am
tomtoms wrote: Tue Oct 06, 2020 10:29 am
sd323232 wrote: Tue Oct 06, 2020 9:51 am Real estate is part time job, even full time job sometimes. That's the beauty of passive investment, no work required. Stocks all the way.
I talk to my property manager 1-2 hours per year. It is not 100% passive but I think it is pretty close.
Many here have had very different experiences managing rental properties. The reason many say that it can be a part-time job is because that's been their own personal experience.
Fair enough but to make a general statement like, “Real estate is part time job” implies working 20 hours a week. That is certainly not the norm especially when you can hire property management.

I don’t even think my property manager spends that much time on my properties. It is a well run oil machine. If there is a roof leak, she calls Joe. If there is a toilet problem, she calls Bob. It is not rocket science.

Your job as an investor is to find quality rentable properties. The rest you can outsource it to professionals.

Just to give others a better understanding of where I am coming from....in addition to investing in stocks and rental properties, I also have a 9-5 job and I own a business. All four earned 6 figures last year. I can tell you buying rental properties is not only easier than what you often hear on this forum but it is also more fulfilling. You can do good things just by being a good landlord.
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Re: Why not Real Estate instead of Stocks?

Post by tibbitts »

tomtoms wrote: Tue Oct 06, 2020 12:13 pm I don’t even think my property manager spends that much time on my properties. It is a well run oil machine. If there is a roof leak, she calls Joe...
I understand you have apparently found a good property manager, but that's like finding a good auto mechanic or financial adviser or whatever. If it was me, my property manager would call Joe, who would charge 4x to repair that roof vs. what you pay, and give a 30% kickback to the property manager. So I would fire the property manager, but the next one would charge 5x and give a 50% kickback. Sounds like a well oiled machine to me, no argument there.

Ultimately the difference is that if you buy low cost index funds, there is really not the same variability in experiences. You can argue how much of your experience is due to skill vs. luck, but you don't need either (except maybe to the extent you need a generally prosperous economy) if you invest passively.
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Re: Why not Real Estate instead of Stocks?

Post by tomtoms »

tibbitts wrote: Tue Oct 06, 2020 12:24 pm
tomtoms wrote: Tue Oct 06, 2020 12:13 pm I don’t even think my property manager spends that much time on my properties. It is a well run oil machine. If there is a roof leak, she calls Joe...
I understand you have apparently found a good property manager, but that's like finding a good auto mechanic or financial adviser or whatever. If it was me, my property manager would call Joe, who would charge 4x to repair that roof vs. what you pay, and give a 30% kickback to the property manager. So I would fire the property manager, but the next one would charge 5x and give a 50% kickback. Sounds like a well oiled machine to me, no argument there.

Ultimately the difference is that if you buy low cost index funds, there is really not the same variability in experiences. You can argue how much of your experience is due to skill vs. luck, but you don't need either (except maybe to the extent you need a generally prosperous economy) if you invest passively.
The process starts with you as an investor. You need to find a good rentable property. This makes it easier for your property manager to find quality tenants and this reduces future maintenance cost.

Is it THAT difficult to find a good mechanic, handyman or a property manager nowadays? There is Yelp. There is Angie’s List. There are real estate meet up groups. There are plenty of good people.
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Re: Why not Real Estate instead of Stocks?

Post by galawdawg »

Addy wrote: Sat Oct 03, 2020 9:19 pm Would like to get everyone's opinion on this.

The forecast of next 10 years US stocks returns is pretty low. E.g.:

U.S. equities 3.9%-5.9%
Global equities ex-U.S. (unhedged) 7.4%-9.4%
https://americas.vanguard.com/instituti ... ctives.htm

And for people who have, say, 1/3rd of Stocks in Foreign equities, this means a return of 6%. (If the median of the forecast turns out to be true.)

It seems one can find Real Estate, for which, even when making conservative assumptions, one can get a 9% return ...

If this is so, why not invest in Real Estate rather then Stocks?
Three reasons that come to mind immediately:

1. Forecasts of future returns are frequently wrong. For example, in June 2010, Vanguard issued their forecast that ten year returns of US equities and Global equities would each be in the range of 9-12%. As of June 2020, Total US Stock Market had a ten year average annual return of about 13.5%, but International Index had a ten year average annual return of about 4.1%. So who knows what future returns will be.

2. Real estate is an illiquid asset with very high transaction costs.

3. Real estate requires an investment of both money and time.

That's not to suggest that investors should not hold real estate as a portion of their portfolio, but as an investment it has very little in common with investment in the market.
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Re: Why not Real Estate instead of Stocks?

Post by flaccidsteele »

willthrill81 wrote: Tue Oct 06, 2020 10:34 am
tomtoms wrote: Tue Oct 06, 2020 10:29 am
sd323232 wrote: Tue Oct 06, 2020 9:51 am Real estate is part time job, even full time job sometimes. That's the beauty of passive investment, no work required. Stocks all the way.
I talk to my property manager 1-2 hours per year. It is not 100% passive but I think it is pretty close.
Many here have had very different experiences managing rental properties. The reason many say that it can be a part-time job is because that's been their own personal experience.
My experience is the same as @tomtoms

People should mention what number range of rentals they own before posting, like 1, 5+, 10+, 100+, etc. because some of the comments are blatantly ignorant or wrong

I’m in the 15+ cohort
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: Why not Real Estate instead of Stocks?

Post by Abe »

Sasquatch1 wrote: Mon Oct 05, 2020 8:00 pm But noooo wayyy could today’s generation be caught dead in a 1500 sq ft house with 8’ ceilings! That’s for the peasants
A 1500 sq ft house would be fine with me; however, I am from the baby boomer generation. And maybe 10 foot ceilings. :happy
Slow and steady wins the race.
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Re: Why not Real Estate instead of Stocks?

Post by Sasquatch1 »

unclescrooge wrote: Tue Oct 06, 2020 9:24 am
Sasquatch1 wrote: Mon Oct 05, 2020 8:00 pm
willthrill81 wrote: Mon Oct 05, 2020 7:54 pm
flaccidsteele wrote: Mon Oct 05, 2020 4:36 pm
Priam wrote: Sun Oct 04, 2020 11:57 am In my opinion the U.S is going to need to figure out the housing situation otherwise we will end up like places like Germany where 5% of the population owns 50% of the housing.
The price/sqft of new homes hasn’t changed much in over 50+ years

Americans just want bigger and bigger homes because they’re not financially literate, and think the home is an investment

Image

Image
The median sq. ft. per person in newly built homes has doubled since 1970, bringing it to around 1,000 sq. ft. per person. Historically, that's beyond insane. Think of how few families have children that share a bedroom. That used to be the norm.
RJ5 wrote: Mon Oct 05, 2020 5:55 pm There are plenty of people who are perfectly willing to buy a 1,800-2,000 sq ft 4BR 2 1/2 BA single family house. The problem is, the builder can't build them for the price that people are willing to pay.
If builders can't build for that price, it's their own fault. The inflation-adjusted price per sq. ft. of homes hasn't changed materially in 50 years, so if builders could make them 50 years ago, they should be able to make them today.

A great many of the homes in our neighborhood are brand new or relatively new 3 and 4 bedroom homes with no more than about 2,200 sq. ft. The builder here must be able to make them profitably with no problem.
No matter what building takes, they still have the older homes go up for sale. Smaller average sized homes.

But noooo wayyy could today’s generation be caught dead in a 1500 sq ft house with 8’ ceilings! That’s for the peasants

Then on top of that, homes are no longer and life long hold. It’s very common for people to move 2-3 times before they even 40! People are never happy anymore! They don’t keep a home long enough to make it worth the closing cost they keep losing on rebuying over and over.

There will be people Now days that will pay for the value of one full house just in closing cost totals in their lifetime
Once you grade the land, get the permits, pull utilities, pour the foundation, put in electrical and plumbing, and lay the sewer line down, whether you make a 1,500 sqft 3 bedroom/1 bath house, or a 1,800 sqft 3 bedroom/2 bath, the cost is virtually the same.

The builder would be stupid to build it and the buyer even dumber to buy it.
Yea, it’s be crazy to not want more than you need. Besides, bigger houses don’t come with more tax, more upkeep, higher taxes from appraisal, and higher entergy cost.


The point is, people’s big dreams and wants are putting them in debt to their eye balls with no way out and almost anchor them into modern day slavery at some job.

Then they cry it’s other people’s fault they can’t afford to live
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Re: Why not Real Estate instead of Stocks?

Post by willthrill81 »

unclescrooge wrote: Tue Oct 06, 2020 9:24 am
Sasquatch1 wrote: Mon Oct 05, 2020 8:00 pm
willthrill81 wrote: Mon Oct 05, 2020 7:54 pm
flaccidsteele wrote: Mon Oct 05, 2020 4:36 pm
Priam wrote: Sun Oct 04, 2020 11:57 am In my opinion the U.S is going to need to figure out the housing situation otherwise we will end up like places like Germany where 5% of the population owns 50% of the housing.
The price/sqft of new homes hasn’t changed much in over 50+ years

Americans just want bigger and bigger homes because they’re not financially literate, and think the home is an investment

Image

Image
The median sq. ft. per person in newly built homes has doubled since 1970, bringing it to around 1,000 sq. ft. per person. Historically, that's beyond insane. Think of how few families have children that share a bedroom. That used to be the norm.
RJ5 wrote: Mon Oct 05, 2020 5:55 pm There are plenty of people who are perfectly willing to buy a 1,800-2,000 sq ft 4BR 2 1/2 BA single family house. The problem is, the builder can't build them for the price that people are willing to pay.
If builders can't build for that price, it's their own fault. The inflation-adjusted price per sq. ft. of homes hasn't changed materially in 50 years, so if builders could make them 50 years ago, they should be able to make them today.

A great many of the homes in our neighborhood are brand new or relatively new 3 and 4 bedroom homes with no more than about 2,200 sq. ft. The builder here must be able to make them profitably with no problem.
No matter what building takes, they still have the older homes go up for sale. Smaller average sized homes.

But noooo wayyy could today’s generation be caught dead in a 1500 sq ft house with 8’ ceilings! That’s for the peasants

Then on top of that, homes are no longer and life long hold. It’s very common for people to move 2-3 times before they even 40! People are never happy anymore! They don’t keep a home long enough to make it worth the closing cost they keep losing on rebuying over and over.

There will be people Now days that will pay for the value of one full house just in closing cost totals in their lifetime
Once you grade the land, get the permits, pull utilities, pour the foundation, put in electrical and plumbing, and lay the sewer line down, whether you make a 1,500 sqft 3 bedroom/1 bath house, or a 1,800 sqft 3 bedroom/2 bath, the cost is virtually the same.
Not in our area. Our 1,200 sq. ft. 3/2 was significantly cheaper than 1,500 sq. ft. 3/2 homes in the same neighborhood, and those were cheaper than 1,800 sq. ft. homes. And now, years later, the same is still true of newly built homes.
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Re: Why not Real Estate instead of Stocks?

Post by tomtoms »

Home price is up 5.9% YTY. If you had purchased a rental with 20% down payment, you made 29.5% return on appreciation.

https://www.calculatedriskblog.com/2020 ... r.html?m=1
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Re: Why not Real Estate instead of Stocks?

Post by willthrill81 »

tomtoms wrote: Tue Oct 06, 2020 4:59 pm Home price is up 5.9% YTY. If you had purchased a rental with 20% down payment, you made 29.5% return on appreciation.

https://www.calculatedriskblog.com/2020 ... r.html?m=1
And if you had bought UPRO on March 23rd, you would now be up 300%.

Leverage works in both directions. And home prices don't typically increase much faster than inflation.
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Re: Why not Real Estate instead of Stocks?

Post by tibbitts »

tomtoms wrote: Tue Oct 06, 2020 12:42 pm Is it THAT difficult to find a good mechanic, handyman or a property manager nowadays? There is Yelp. There is Angie’s List. There are real estate meet up groups. There are plenty of good people.
Yes it is THAT difficult. I've used all of those resources and they are completely hit or miss. Some of the highest rated businesses have produced the worst results for me. It's not always easy to recognize manufactured positive reviews for local services (not as easy as it sometimes is on Amazon, for example.) And realistically you're not dealing with thousands of reviews for most of those services; you're only dealing with dozens, and not all are typically recent. Generally people having services performed aren't expert at performing those services, so even if reviews are "genuine" they may not be useful.
Last edited by tibbitts on Tue Oct 06, 2020 5:14 pm, edited 1 time in total.
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unclescrooge
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Re: Why not Real Estate instead of Stocks?

Post by unclescrooge »

willthrill81 wrote: Tue Oct 06, 2020 4:49 pm
unclescrooge wrote: Tue Oct 06, 2020 9:24 am
Sasquatch1 wrote: Mon Oct 05, 2020 8:00 pm
willthrill81 wrote: Mon Oct 05, 2020 7:54 pm
flaccidsteele wrote: Mon Oct 05, 2020 4:36 pm

The price/sqft of new homes hasn’t changed much in over 50+ years

Americans just want bigger and bigger homes because they’re not financially literate, and think the home is an investment

Image

Image
The median sq. ft. per person in newly built homes has doubled since 1970, bringing it to around 1,000 sq. ft. per person. Historically, that's beyond insane. Think of how few families have children that share a bedroom. That used to be the norm.
RJ5 wrote: Mon Oct 05, 2020 5:55 pm There are plenty of people who are perfectly willing to buy a 1,800-2,000 sq ft 4BR 2 1/2 BA single family house. The problem is, the builder can't build them for the price that people are willing to pay.
If builders can't build for that price, it's their own fault. The inflation-adjusted price per sq. ft. of homes hasn't changed materially in 50 years, so if builders could make them 50 years ago, they should be able to make them today.

A great many of the homes in our neighborhood are brand new or relatively new 3 and 4 bedroom homes with no more than about 2,200 sq. ft. The builder here must be able to make them profitably with no problem.
No matter what building takes, they still have the older homes go up for sale. Smaller average sized homes.

But noooo wayyy could today’s generation be caught dead in a 1500 sq ft house with 8’ ceilings! That’s for the peasants

Then on top of that, homes are no longer and life long hold. It’s very common for people to move 2-3 times before they even 40! People are never happy anymore! They don’t keep a home long enough to make it worth the closing cost they keep losing on rebuying over and over.

There will be people Now days that will pay for the value of one full house just in closing cost totals in their lifetime
Once you grade the land, get the permits, pull utilities, pour the foundation, put in electrical and plumbing, and lay the sewer line down, whether you make a 1,500 sqft 3 bedroom/1 bath house, or a 1,800 sqft 3 bedroom/2 bath, the cost is virtually the same.
Not in our area. Our 1,200 sq. ft. 3/2 was significantly cheaper than 1,500 sq. ft. 3/2 homes in the same neighborhood, and those were cheaper than 1,800 sq. ft. homes. And now, years later, the same is still true of newly built homes.
How much difference are we talking?
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Re: Why not Real Estate instead of Stocks?

Post by tomtoms »

willthrill81 wrote: Tue Oct 06, 2020 5:04 pm
tomtoms wrote: Tue Oct 06, 2020 4:59 pm Home price is up 5.9% YTY. If you had purchased a rental with 20% down payment, you made 29.5% return on appreciation.

https://www.calculatedriskblog.com/2020 ... r.html?m=1
And if you had bought UPRO on March 23rd, you would now be up 300%.

Leverage works in both directions. And home prices don't typically increase much faster than inflation.
Not too many people have the gut to put $100 k on something as leveraged as UPRO on March 23. Know anyone who did?

Let’s say inflation is 3% and home price went up 3%. If you had put down 20%, you would make 15% return on appreciation.

Real estate protects you from inflation.
Last edited by tomtoms on Tue Oct 06, 2020 5:18 pm, edited 2 times in total.
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Re: Why not Real Estate instead of Stocks?

Post by willthrill81 »

unclescrooge wrote: Tue Oct 06, 2020 5:13 pm
willthrill81 wrote: Tue Oct 06, 2020 4:49 pm
unclescrooge wrote: Tue Oct 06, 2020 9:24 am Once you grade the land, get the permits, pull utilities, pour the foundation, put in electrical and plumbing, and lay the sewer line down, whether you make a 1,500 sqft 3 bedroom/1 bath house, or a 1,800 sqft 3 bedroom/2 bath, the cost is virtually the same.
Not in our area. Our 1,200 sq. ft. 3/2 was significantly cheaper than 1,500 sq. ft. 3/2 homes in the same neighborhood, and those were cheaper than 1,800 sq. ft. homes. And now, years later, the same is still true of newly built homes.
How much difference are we talking?
Right now, about $30k more for a 1,500 sq. ft. instead of 1,200 sq. ft., same number of beds and baths and same lot size. The price per sq. ft. is definitely higher with smaller homes, but they're still cheaper.
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Re: Why not Real Estate instead of Stocks?

Post by gwe67 »

Here are two landlord nightmare scenarios posted on Bogleheads today.

Rental Repairs
viewtopic.php?f=2&t=327154&newpost=5534180

Need Help Exiting Rental Property
viewtopic.php?f=2&t=327158&newpost=5534049
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Re: Why not Real Estate instead of Stocks?

Post by tomtoms »

gwe67 wrote: Tue Oct 06, 2020 5:49 pm Here are two landlord nightmare scenarios posted on Bogleheads today.

Rental Repairs
viewtopic.php?f=2&t=327154&newpost=5534180

Need Help Exiting Rental Property
viewtopic.php?f=2&t=327158&newpost=5534049
Where were you when the S&P 500 dropped almost 40% in March?

This is what I don't get...our gain in real estate is not your loss. Like investing in the stock market, there are things you should and shouldn't do in real estate. You can learn something if you stopped dismissing our success as an anomaly.
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Re: Why not Real Estate instead of Stocks?

Post by gwe67 »

I'm sure those two landlords will be working more than "1-2 hours per year". :P
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Re: Why not Real Estate instead of Stocks?

Post by stoptothink »

tomtoms wrote: Tue Oct 06, 2020 6:06 pm
gwe67 wrote: Tue Oct 06, 2020 5:49 pm Here are two landlord nightmare scenarios posted on Bogleheads today.

Rental Repairs
viewtopic.php?f=2&t=327154&newpost=5534180

Need Help Exiting Rental Property
viewtopic.php?f=2&t=327158&newpost=5534049
Where were you when the S&P 500 dropped almost 40% in March?

This is what I don't get...our gain in real estate is not your loss. Like investing in the stock market, there are things you should and shouldn't do in real estate. You can learn something if you stopped dismissing our success as an anomaly.
And then in back to where it was. I assume you had a point, but I'm not seeing it. For the board regulars, I bet they all knew this would turn into another tomtoms trolling thread...and they were correct.
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Re: Why not Real Estate instead of Stocks?

Post by AerialWombat »

.....
Last edited by AerialWombat on Fri Apr 02, 2021 5:51 pm, edited 1 time in total.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
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unclescrooge
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Re: Why not Real Estate instead of Stocks?

Post by unclescrooge »

willthrill81 wrote: Tue Oct 06, 2020 5:17 pm
unclescrooge wrote: Tue Oct 06, 2020 5:13 pm
willthrill81 wrote: Tue Oct 06, 2020 4:49 pm
unclescrooge wrote: Tue Oct 06, 2020 9:24 am Once you grade the land, get the permits, pull utilities, pour the foundation, put in electrical and plumbing, and lay the sewer line down, whether you make a 1,500 sqft 3 bedroom/1 bath house, or a 1,800 sqft 3 bedroom/2 bath, the cost is virtually the same.
Not in our area. Our 1,200 sq. ft. 3/2 was significantly cheaper than 1,500 sq. ft. 3/2 homes in the same neighborhood, and those were cheaper than 1,800 sq. ft. homes. And now, years later, the same is still true of newly built homes.
How much difference are we talking?
Right now, about $30k more for a 1,500 sq. ft. instead of 1,200 sq. ft., same number of beds and baths and same lot size. The price per sq. ft. is definitely higher with smaller homes, but they're still cheaper.
If you're going to count rural areas where less than 20% of the population lives, you are definitely going to see a large difference as a percentage of the overall cost.

Where I live, the county assessor says my lot (note I said lot, not parcel, not compound, not estate) at $1.2 million dollars, based on my purchase price of $1.3 million. Comparing this against a place where you can buy a lot for $20k is going to lead to vastly different conclusions.
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Re: Why not Real Estate instead of Stocks?

Post by tomtoms »

gwe67 wrote: Tue Oct 06, 2020 6:09 pm I'm sure those two landlords will be working more than "1-2 hours per year". :P
That is why I always recommend hiring a good property manager. The sad part is you find enjoyment from their failure.
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Re: Why not Real Estate instead of Stocks?

Post by willthrill81 »

unclescrooge wrote: Tue Oct 06, 2020 6:35 pm
willthrill81 wrote: Tue Oct 06, 2020 5:17 pm
unclescrooge wrote: Tue Oct 06, 2020 5:13 pm
willthrill81 wrote: Tue Oct 06, 2020 4:49 pm
unclescrooge wrote: Tue Oct 06, 2020 9:24 am Once you grade the land, get the permits, pull utilities, pour the foundation, put in electrical and plumbing, and lay the sewer line down, whether you make a 1,500 sqft 3 bedroom/1 bath house, or a 1,800 sqft 3 bedroom/2 bath, the cost is virtually the same.
Not in our area. Our 1,200 sq. ft. 3/2 was significantly cheaper than 1,500 sq. ft. 3/2 homes in the same neighborhood, and those were cheaper than 1,800 sq. ft. homes. And now, years later, the same is still true of newly built homes.
How much difference are we talking?
Right now, about $30k more for a 1,500 sq. ft. instead of 1,200 sq. ft., same number of beds and baths and same lot size. The price per sq. ft. is definitely higher with smaller homes, but they're still cheaper.
If you're going to count rural areas where less than 20% of the population lives, you are definitely going to see a large difference as a percentage of the overall cost.

Where I live, the county assessor says my lot (note I said lot, not parcel, not compound, not estate) at $1.2 million dollars, based on my purchase price of $1.3 million. Comparing this against a place where you can buy a lot for $20k is going to lead to vastly different conclusions.
We live nearby one of the 100 largest cities in the nation in the suburbs. Nothing rural about it.

You live in one of the most expensive cities in the world. Most of the nation doesn't live in a VHCOL area.
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Re: Why not Real Estate instead of Stocks?

Post by abuss368 »

We have friends of the family who at one time had invested in a huge amount of residential real estate. They did very well including US REITS. The cash flows allowed a very early retirement.
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Re: Why not Real Estate instead of Stocks?

Post by 000 »

willthrill81 wrote: Tue Oct 06, 2020 6:39 pm We live nearby one of the 100 largest cities in the nation in the suburbs. Nothing rural about it.

You live in one of the most expensive cities in the world. Most of the nation doesn't live in a VHCOL area.
+1

It's always funny to hear people who live in home prices at the 98th percentile blindly applying their assumptions to the rest of the country.
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Re: Why not Real Estate instead of Stocks?

Post by tibbitts »

AerialWombat wrote: Tue Oct 06, 2020 6:21 pm
tomtoms wrote: Tue Oct 06, 2020 6:06 pm Where were you when the S&P 500 dropped almost 40% in March?

This is what I don't get...our gain in real estate is not your loss. Like investing in the stock market, there are things you should and shouldn't do in real estate. You can learn something if you stopped dismissing our success as an anomaly.
You gotta pick your battles. Bogleheads is an echo chamber about many things, including the majority opinion here about real estate investing. I no longer try. There are just better things to do with my time than try convincing people here that, yes, I really do have rental properties with 37% cash-on-cash annual return. You can show BH the actual numbers, from real properties, and it will still be summarily dismissed. :oops:
Nobody is doubting your numbers, we're doubting that your results are as reproducible as someone taking a few minutes to set up an account, buying a mutual fund, leaving it invested for the same period as you own a home, and taking distributions periodically. The many decisions you make along the way, many of which you might not even think about and just do instinctively, are what make your business profitable. Ironically, any decisions you make after purchasing your fund investments are likely to make that investment less profitable.
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Re: Why not Real Estate instead of Stocks?

Post by RJ5 »

willthrill81 wrote: Mon Oct 05, 2020 7:54 pm
flaccidsteele wrote: Mon Oct 05, 2020 4:36 pm
Priam wrote: Sun Oct 04, 2020 11:57 am In my opinion the U.S is going to need to figure out the housing situation otherwise we will end up like places like Germany where 5% of the population owns 50% of the housing.
The price/sqft of new homes hasn’t changed much in over 50+ years

Americans just want bigger and bigger homes because they’re not financially literate, and think the home is an investment

Image

Image
The median sq. ft. per person in newly built homes has doubled since 1970, bringing it to around 1,000 sq. ft. per person. Historically, that's beyond insane. Think of how few families have children that share a bedroom. That used to be the norm.
RJ5 wrote: Mon Oct 05, 2020 5:55 pm There are plenty of people who are perfectly willing to buy a 1,800-2,000 sq ft 4BR 2 1/2 BA single family house. The problem is, the builder can't build them for the price that people are willing to pay.
If builders can't build for that price, it's their own fault. The inflation-adjusted price per sq. ft. of homes hasn't changed materially in 50 years, so if builders could make them 50 years ago, they should be able to make them today.

A great many of the homes in our neighborhood are brand new or relatively new 3 and 4 bedroom homes with no more than about 2,200 sq. ft. The builder here must be able to make them profitably with no problem.
No, it's not the builders fault at all. Builder profit margin on single family homes are in the single digits and we've already reached the peak of building efficiency (without going with a non-traditional building process which would not meet code). Cost of materials and labor are huge cost drivers, not to mention the cost of land to build on. The icing on the cost cake are the regulations and requirements that builders are forced to adhere to (some townships have minimum plot sizes, further reducing the # of homes that the builder can build). In order to account for these costs, they have to build bigger homes to boost the selling price. That is just the way the basic math works out when the price per sq ft has remained the same. It's simple multiplication

Your 2nd point touches on how real estate is regional, and that is very true. Where I am, new construction is very expensive ($499,000-$1,000,000) and the only way for someone in the middle class to afford housing is to buy an existing home that needs work, or a townhome (but even townhomes are being pushed up in price right now). Our township has 1 townhome development and a builder wanted to build a 2nd, the township denied the zoning application. Instead the builder had to build luxury single family homes for $800,000+ to make the same profit as they would have building a townhome community with affordable homes. This touches on the other part of my post which you excluded in your quote - builders have to either build larger homes to account for the costs, or they have to scale with townhomes, triples, or do multi-family.

For some comparison if I drove 1 hr North-West of my town, the same home would 1/2 of the price. The reason for the price difference? - land is considerably cheaper, the county and township are less restrictive and don't have onerous requirements, the list goes on and on. Heck if I lived an hour outside of DFW, I could get the same house for even less than that
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Re: Why not Real Estate instead of Stocks?

Post by willthrill81 »

RJ5 wrote: Tue Oct 06, 2020 8:43 pm
willthrill81 wrote: Mon Oct 05, 2020 7:54 pm
flaccidsteele wrote: Mon Oct 05, 2020 4:36 pm
Priam wrote: Sun Oct 04, 2020 11:57 am In my opinion the U.S is going to need to figure out the housing situation otherwise we will end up like places like Germany where 5% of the population owns 50% of the housing.
The price/sqft of new homes hasn’t changed much in over 50+ years

Americans just want bigger and bigger homes because they’re not financially literate, and think the home is an investment

Image

Image
The median sq. ft. per person in newly built homes has doubled since 1970, bringing it to around 1,000 sq. ft. per person. Historically, that's beyond insane. Think of how few families have children that share a bedroom. That used to be the norm.
RJ5 wrote: Mon Oct 05, 2020 5:55 pm There are plenty of people who are perfectly willing to buy a 1,800-2,000 sq ft 4BR 2 1/2 BA single family house. The problem is, the builder can't build them for the price that people are willing to pay.
If builders can't build for that price, it's their own fault. The inflation-adjusted price per sq. ft. of homes hasn't changed materially in 50 years, so if builders could make them 50 years ago, they should be able to make them today.

A great many of the homes in our neighborhood are brand new or relatively new 3 and 4 bedroom homes with no more than about 2,200 sq. ft. The builder here must be able to make them profitably with no problem.
No, it's not the builders fault at all. Builder profit margin on single family homes are in the single digits and we've already reached the peak of building efficiency (without going with a non-traditional building process which would not meet code). Cost of materials and labor are huge cost drivers, not to mention the cost of land to build on. The icing on the cost cake are the regulations and requirements that builders are forced to adhere to (some townships have minimum plot sizes, further reducing the # of homes that the builder can build). In order to account for these costs, they have to build bigger homes to boost the selling price. That is just the way the basic math works out when the price per sq ft has remained the same. It's simple multiplication

Your 2nd point touches on how real estate is regional, and that is very true. Where I am, new construction is very expensive ($499,000-$1,000,000) and the only way for someone in the middle class to afford housing is to buy an existing home that needs work, or a townhome (but even townhomes are being pushed up in price right now). Our township has 1 townhome development and a builder wanted to build a 2nd, the township denied the zoning application. Instead the builder had to build luxury single family homes for $800,000+ to make the same profit as they would have building a townhome community with affordable homes. This touches on the other part of my post which you excluded in your quote - builders have to either build larger homes to account for the costs, or they have to scale with townhomes, triples, or do multi-family.

For some comparison if I drove 1 hr North-West of my town, the same home would 1/2 of the price. The reason for the price difference? - land is considerably cheaper, the county and township are less restrictive and don't have onerous requirements, the list goes on and on. Heck if I lived an hour outside of DFW, I could get the same house for even less than that
As I noted, the inflation-adjusted price per sq. ft. of homes hasn't really changed in the last 50 years, so unless the cost of building homes has gone up (e.g. materials, labor), that should be the same.

Your point about regulations is definitely valid. Many areas mandate that homes be at least a certain size, especially in HOAs. An HOA a couple of miles from us has a 2,400 sq. ft. minimum standard, and if the home requires a daylight basement, which most there do, the minimum goes up to a whopping 3,600 sq. ft., and most who live there are retirees. Local governments have had a big role in this as well in many areas.
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Re: Why not Real Estate instead of Stocks?

Post by AerialWombat »

.....
Last edited by AerialWombat on Fri Apr 02, 2021 5:52 pm, edited 1 time in total.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
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Re: Why not Real Estate instead of Stocks?

Post by Bosro »

I, for one, appreciate you sharing your experience and wisdom. Thank you :beer
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Re: Why not Real Estate instead of Stocks?

Post by 000 »

Bosro wrote: Tue Oct 06, 2020 9:45 pm I, for one, appreciate you sharing your experience and wisdom. Thank you :beer
I agree. Thanks, AerialWombat.
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Re: Why not Real Estate instead of Stocks?

Post by unclescrooge »

willthrill81 wrote: Tue Oct 06, 2020 6:39 pm
unclescrooge wrote: Tue Oct 06, 2020 6:35 pm If you're going to count rural areas where less than 20% of the population lives, you are definitely going to see a large difference as a percentage of the overall cost.

Where I live, the county assessor says my lot (note I said lot, not parcel, not compound, not estate) at $1.2 million dollars, based on my purchase price of $1.3 million. Comparing this against a place where you can buy a lot for $20k is going to lead to vastly different conclusions.
We live nearby one of the 100 largest cities in the nation in the suburbs. Nothing rural about it.

You live in one of the most expensive cities in the world. Most of the nation doesn't live in a VHCOL area.
Okay, so you live next to a city with 250,000.

Doesn't change my conclusion.

It only changes my definition of rural. :mrgreen:
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Re: Why not Real Estate instead of Stocks?

Post by tomtoms »

AerialWombat wrote: Tue Oct 06, 2020 9:35 pm
tibbitts wrote: Tue Oct 06, 2020 8:04 pm
AerialWombat wrote: Tue Oct 06, 2020 6:21 pm
tomtoms wrote: Tue Oct 06, 2020 6:06 pm Where were you when the S&P 500 dropped almost 40% in March?

This is what I don't get...our gain in real estate is not your loss. Like investing in the stock market, there are things you should and shouldn't do in real estate. You can learn something if you stopped dismissing our success as an anomaly.
You gotta pick your battles. Bogleheads is an echo chamber about many things, including the majority opinion here about real estate investing. I no longer try. There are just better things to do with my time than try convincing people here that, yes, I really do have rental properties with 37% cash-on-cash annual return. You can show BH the actual numbers, from real properties, and it will still be summarily dismissed. :oops:
Nobody is doubting your numbers, we're doubting that your results are as reproducible as someone taking a few minutes to set up an account, buying a mutual fund, leaving it invested for the same period as you own a home, and taking distributions periodically. The many decisions you make along the way, many of which you might not even think about and just do instinctively, are what make your business profitable. Ironically, any decisions you make after purchasing your fund investments are likely to make that investment less profitable.
You are correct that it takes more than a few minutes, and it's obviously not as simple as buying a mutual fund. But it's also not nearly as hard as people think it is, and it is reproducible. Anybody with an income above about $45k per year or so and no other debt could get the exact same mortgages that I get, to purchase the exact same properties I buy (many of which are new construction). I also now have properties in three different states, with three different property managers, so it's not as if I got lucky with one location or with finding that magical property manager. Nor am I operating in dirt-cheap markets in fly-over country. All of my rentals are located outside of, but within commuting distance, of Seattle, Denver, and Salt Lake City. So I'm buying adjacent to and in the suburbs of hot housing markets, and making it work.

Averaged across the year, I literally spend more time every month adding money to my brokerage accounts and placing mutual fund orders than I do working on my rental properties. I definitely spend far more time fretting about my securities portfolio, too.

But, I digress. I shouldn't even have wasted my time typing this reply, as I know it will simply be dismissed along with the many like it. This marsupial will saunter back into his hole...
Well said, AerialWombat! I should spend less time on BH and spend more time on my rental properties. Maybe I will do a drive by this weekend.
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Re: Why not Real Estate instead of Stocks?

Post by unclescrooge »

willthrill81 wrote: Tue Oct 06, 2020 8:57 pm
RJ5 wrote: Tue Oct 06, 2020 8:43 pm
willthrill81 wrote: Mon Oct 05, 2020 7:54 pm
flaccidsteele wrote: Mon Oct 05, 2020 4:36 pm
Priam wrote: Sun Oct 04, 2020 11:57 am In my opinion the U.S is going to need to figure out the housing situation otherwise we will end up like places like Germany where 5% of the population owns 50% of the housing.
The price/sqft of new homes hasn’t changed much in over 50+ years

Americans just want bigger and bigger homes because they’re not financially literate, and think the home is an investment

Image

Image
The median sq. ft. per person in newly built homes has doubled since 1970, bringing it to around 1,000 sq. ft. per person. Historically, that's beyond insane. Think of how few families have children that share a bedroom. That used to be the norm.
RJ5 wrote: Mon Oct 05, 2020 5:55 pm There are plenty of people who are perfectly willing to buy a 1,800-2,000 sq ft 4BR 2 1/2 BA single family house. The problem is, the builder can't build them for the price that people are willing to pay.
If builders can't build for that price, it's their own fault. The inflation-adjusted price per sq. ft. of homes hasn't changed materially in 50 years, so if builders could make them 50 years ago, they should be able to make them today.

A great many of the homes in our neighborhood are brand new or relatively new 3 and 4 bedroom homes with no more than about 2,200 sq. ft. The builder here must be able to make them profitably with no problem.
No, it's not the builders fault at all. Builder profit margin on single family homes are in the single digits and we've already reached the peak of building efficiency (without going with a non-traditional building process which would not meet code). Cost of materials and labor are huge cost drivers, not to mention the cost of land to build on. The icing on the cost cake are the regulations and requirements that builders are forced to adhere to (some townships have minimum plot sizes, further reducing the # of homes that the builder can build). In order to account for these costs, they have to build bigger homes to boost the selling price. That is just the way the basic math works out when the price per sq ft has remained the same. It's simple multiplication

Your 2nd point touches on how real estate is regional, and that is very true. Where I am, new construction is very expensive ($499,000-$1,000,000) and the only way for someone in the middle class to afford housing is to buy an existing home that needs work, or a townhome (but even townhomes are being pushed up in price right now). Our township has 1 townhome development and a builder wanted to build a 2nd, the township denied the zoning application. Instead the builder had to build luxury single family homes for $800,000+ to make the same profit as they would have building a townhome community with affordable homes. This touches on the other part of my post which you excluded in your quote - builders have to either build larger homes to account for the costs, or they have to scale with townhomes, triples, or do multi-family.

For some comparison if I drove 1 hr North-West of my town, the same home would 1/2 of the price. The reason for the price difference? - land is considerably cheaper, the county and township are less restrictive and don't have onerous requirements, the list goes on and on. Heck if I lived an hour outside of DFW, I could get the same house for even less than that
As I noted, the inflation-adjusted price per sq. ft. of homes hasn't really changed in the last 50 years, so unless the cost of building homes has gone up (e.g. materials, labor), that should be the same.

Your point about regulations is definitely valid. Many areas mandate that homes be at least a certain size, especially in HOAs. An HOA a couple of miles from us has a 2,400 sq. ft. minimum standard, and if the home requires a daylight basement, which most there do, the minimum goes up to a whopping 3,600 sq. ft., and most who live there are retirees. Local governments have had a big role in this as well in many areas.
Why would they possibly want to mandate that? :shock:
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Re: Why not Real Estate instead of Stocks?

Post by balbrec2 »

Addy wrote: Sat Oct 03, 2020 9:19 pm Would like to get everyone's opinion on this.

The forecast of next 10 years US stocks returns is pretty low. E.g.:

U.S. equities 3.9%-5.9%
Global equities ex-U.S. (unhedged) 7.4%-9.4%
https://americas.vanguard.com/instituti ... ctives.htm

And for people who have, say, 1/3rd of Stocks in Foreign equities, this means a return of 6%. (If the median of the forecast turns out to be true.)

It seems one can find Real Estate, for which, even when making conservative assumptions, one can get a 9% return e.g.: https://www.calculator.net/rental-prope ... &x=89&y=27.

If this is so, why not invest in Real Estate rather then Stocks?
Real estate is as much a job as it is an investment
Do you have the time and temperment ?
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Re: Why not Real Estate instead of Stocks?

Post by willthrill81 »

unclescrooge wrote: Wed Oct 07, 2020 12:09 am
willthrill81 wrote: Tue Oct 06, 2020 8:57 pm
RJ5 wrote: Tue Oct 06, 2020 8:43 pm
willthrill81 wrote: Mon Oct 05, 2020 7:54 pm
flaccidsteele wrote: Mon Oct 05, 2020 4:36 pm

The price/sqft of new homes hasn’t changed much in over 50+ years

Americans just want bigger and bigger homes because they’re not financially literate, and think the home is an investment

Image

Image
The median sq. ft. per person in newly built homes has doubled since 1970, bringing it to around 1,000 sq. ft. per person. Historically, that's beyond insane. Think of how few families have children that share a bedroom. That used to be the norm.
RJ5 wrote: Mon Oct 05, 2020 5:55 pm There are plenty of people who are perfectly willing to buy a 1,800-2,000 sq ft 4BR 2 1/2 BA single family house. The problem is, the builder can't build them for the price that people are willing to pay.
If builders can't build for that price, it's their own fault. The inflation-adjusted price per sq. ft. of homes hasn't changed materially in 50 years, so if builders could make them 50 years ago, they should be able to make them today.

A great many of the homes in our neighborhood are brand new or relatively new 3 and 4 bedroom homes with no more than about 2,200 sq. ft. The builder here must be able to make them profitably with no problem.
No, it's not the builders fault at all. Builder profit margin on single family homes are in the single digits and we've already reached the peak of building efficiency (without going with a non-traditional building process which would not meet code). Cost of materials and labor are huge cost drivers, not to mention the cost of land to build on. The icing on the cost cake are the regulations and requirements that builders are forced to adhere to (some townships have minimum plot sizes, further reducing the # of homes that the builder can build). In order to account for these costs, they have to build bigger homes to boost the selling price. That is just the way the basic math works out when the price per sq ft has remained the same. It's simple multiplication

Your 2nd point touches on how real estate is regional, and that is very true. Where I am, new construction is very expensive ($499,000-$1,000,000) and the only way for someone in the middle class to afford housing is to buy an existing home that needs work, or a townhome (but even townhomes are being pushed up in price right now). Our township has 1 townhome development and a builder wanted to build a 2nd, the township denied the zoning application. Instead the builder had to build luxury single family homes for $800,000+ to make the same profit as they would have building a townhome community with affordable homes. This touches on the other part of my post which you excluded in your quote - builders have to either build larger homes to account for the costs, or they have to scale with townhomes, triples, or do multi-family.

For some comparison if I drove 1 hr North-West of my town, the same home would 1/2 of the price. The reason for the price difference? - land is considerably cheaper, the county and township are less restrictive and don't have onerous requirements, the list goes on and on. Heck if I lived an hour outside of DFW, I could get the same house for even less than that
As I noted, the inflation-adjusted price per sq. ft. of homes hasn't really changed in the last 50 years, so unless the cost of building homes has gone up (e.g. materials, labor), that should be the same.

Your point about regulations is definitely valid. Many areas mandate that homes be at least a certain size, especially in HOAs. An HOA a couple of miles from us has a 2,400 sq. ft. minimum standard, and if the home requires a daylight basement, which most there do, the minimum goes up to a whopping 3,600 sq. ft., and most who live there are retirees. Local governments have had a big role in this as well in many areas.
Why would they possibly want to mandate that? :shock:
To keep home prices very high, since home size is strongly correlated with price. :D
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Re: Why not Real Estate instead of Stocks?

Post by abuss368 »

unclescrooge wrote: Wed Oct 07, 2020 12:09 am
willthrill81 wrote: Tue Oct 06, 2020 8:57 pm
RJ5 wrote: Tue Oct 06, 2020 8:43 pm
willthrill81 wrote: Mon Oct 05, 2020 7:54 pm
flaccidsteele wrote: Mon Oct 05, 2020 4:36 pm

The price/sqft of new homes hasn’t changed much in over 50+ years

Americans just want bigger and bigger homes because they’re not financially literate, and think the home is an investment

Image

Image
The median sq. ft. per person in newly built homes has doubled since 1970, bringing it to around 1,000 sq. ft. per person. Historically, that's beyond insane. Think of how few families have children that share a bedroom. That used to be the norm.
RJ5 wrote: Mon Oct 05, 2020 5:55 pm There are plenty of people who are perfectly willing to buy a 1,800-2,000 sq ft 4BR 2 1/2 BA single family house. The problem is, the builder can't build them for the price that people are willing to pay.
If builders can't build for that price, it's their own fault. The inflation-adjusted price per sq. ft. of homes hasn't changed materially in 50 years, so if builders could make them 50 years ago, they should be able to make them today.

A great many of the homes in our neighborhood are brand new or relatively new 3 and 4 bedroom homes with no more than about 2,200 sq. ft. The builder here must be able to make them profitably with no problem.
No, it's not the builders fault at all. Builder profit margin on single family homes are in the single digits and we've already reached the peak of building efficiency (without going with a non-traditional building process which would not meet code). Cost of materials and labor are huge cost drivers, not to mention the cost of land to build on. The icing on the cost cake are the regulations and requirements that builders are forced to adhere to (some townships have minimum plot sizes, further reducing the # of homes that the builder can build). In order to account for these costs, they have to build bigger homes to boost the selling price. That is just the way the basic math works out when the price per sq ft has remained the same. It's simple multiplication

Your 2nd point touches on how real estate is regional, and that is very true. Where I am, new construction is very expensive ($499,000-$1,000,000) and the only way for someone in the middle class to afford housing is to buy an existing home that needs work, or a townhome (but even townhomes are being pushed up in price right now). Our township has 1 townhome development and a builder wanted to build a 2nd, the township denied the zoning application. Instead the builder had to build luxury single family homes for $800,000+ to make the same profit as they would have building a townhome community with affordable homes. This touches on the other part of my post which you excluded in your quote - builders have to either build larger homes to account for the costs, or they have to scale with townhomes, triples, or do multi-family.

For some comparison if I drove 1 hr North-West of my town, the same home would 1/2 of the price. The reason for the price difference? - land is considerably cheaper, the county and township are less restrictive and don't have onerous requirements, the list goes on and on. Heck if I lived an hour outside of DFW, I could get the same house for even less than that
As I noted, the inflation-adjusted price per sq. ft. of homes hasn't really changed in the last 50 years, so unless the cost of building homes has gone up (e.g. materials, labor), that should be the same.

Your point about regulations is definitely valid. Many areas mandate that homes be at least a certain size, especially in HOAs. An HOA a couple of miles from us has a 2,400 sq. ft. minimum standard, and if the home requires a daylight basement, which most there do, the minimum goes up to a whopping 3,600 sq. ft., and most who live there are retirees. Local governments have had a big role in this as well in many areas.
Why would they possibly want to mandate that? :shock:
Easy. Keep prices high.
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willthrill81
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Re: Why not Real Estate instead of Stocks?

Post by willthrill81 »

abuss368 wrote: Wed Oct 07, 2020 10:20 am
unclescrooge wrote: Wed Oct 07, 2020 12:09 am
willthrill81 wrote: Tue Oct 06, 2020 8:57 pm
RJ5 wrote: Tue Oct 06, 2020 8:43 pm
willthrill81 wrote: Mon Oct 05, 2020 7:54 pm

The median sq. ft. per person in newly built homes has doubled since 1970, bringing it to around 1,000 sq. ft. per person. Historically, that's beyond insane. Think of how few families have children that share a bedroom. That used to be the norm.



If builders can't build for that price, it's their own fault. The inflation-adjusted price per sq. ft. of homes hasn't changed materially in 50 years, so if builders could make them 50 years ago, they should be able to make them today.

A great many of the homes in our neighborhood are brand new or relatively new 3 and 4 bedroom homes with no more than about 2,200 sq. ft. The builder here must be able to make them profitably with no problem.
No, it's not the builders fault at all. Builder profit margin on single family homes are in the single digits and we've already reached the peak of building efficiency (without going with a non-traditional building process which would not meet code). Cost of materials and labor are huge cost drivers, not to mention the cost of land to build on. The icing on the cost cake are the regulations and requirements that builders are forced to adhere to (some townships have minimum plot sizes, further reducing the # of homes that the builder can build). In order to account for these costs, they have to build bigger homes to boost the selling price. That is just the way the basic math works out when the price per sq ft has remained the same. It's simple multiplication

Your 2nd point touches on how real estate is regional, and that is very true. Where I am, new construction is very expensive ($499,000-$1,000,000) and the only way for someone in the middle class to afford housing is to buy an existing home that needs work, or a townhome (but even townhomes are being pushed up in price right now). Our township has 1 townhome development and a builder wanted to build a 2nd, the township denied the zoning application. Instead the builder had to build luxury single family homes for $800,000+ to make the same profit as they would have building a townhome community with affordable homes. This touches on the other part of my post which you excluded in your quote - builders have to either build larger homes to account for the costs, or they have to scale with townhomes, triples, or do multi-family.

For some comparison if I drove 1 hr North-West of my town, the same home would 1/2 of the price. The reason for the price difference? - land is considerably cheaper, the county and township are less restrictive and don't have onerous requirements, the list goes on and on. Heck if I lived an hour outside of DFW, I could get the same house for even less than that
As I noted, the inflation-adjusted price per sq. ft. of homes hasn't really changed in the last 50 years, so unless the cost of building homes has gone up (e.g. materials, labor), that should be the same.

Your point about regulations is definitely valid. Many areas mandate that homes be at least a certain size, especially in HOAs. An HOA a couple of miles from us has a 2,400 sq. ft. minimum standard, and if the home requires a daylight basement, which most there do, the minimum goes up to a whopping 3,600 sq. ft., and most who live there are retirees. Local governments have had a big role in this as well in many areas.
Why would they possibly want to mandate that? :shock:
Easy. Keep prices high.
And that's why certain local governments have done the same. Not only does it keep their property tax to services provided ratio high, it's a means for them to legally prevent certain people from living in the area. Our city has a moratorium in place for apartments for just that reason.
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Re: Why not Real Estate instead of Stocks?

Post by abuss368 »

willthrill81 wrote: Wed Oct 07, 2020 10:27 am
abuss368 wrote: Wed Oct 07, 2020 10:20 am
unclescrooge wrote: Wed Oct 07, 2020 12:09 am
willthrill81 wrote: Tue Oct 06, 2020 8:57 pm
RJ5 wrote: Tue Oct 06, 2020 8:43 pm

No, it's not the builders fault at all. Builder profit margin on single family homes are in the single digits and we've already reached the peak of building efficiency (without going with a non-traditional building process which would not meet code). Cost of materials and labor are huge cost drivers, not to mention the cost of land to build on. The icing on the cost cake are the regulations and requirements that builders are forced to adhere to (some townships have minimum plot sizes, further reducing the # of homes that the builder can build). In order to account for these costs, they have to build bigger homes to boost the selling price. That is just the way the basic math works out when the price per sq ft has remained the same. It's simple multiplication

Your 2nd point touches on how real estate is regional, and that is very true. Where I am, new construction is very expensive ($499,000-$1,000,000) and the only way for someone in the middle class to afford housing is to buy an existing home that needs work, or a townhome (but even townhomes are being pushed up in price right now). Our township has 1 townhome development and a builder wanted to build a 2nd, the township denied the zoning application. Instead the builder had to build luxury single family homes for $800,000+ to make the same profit as they would have building a townhome community with affordable homes. This touches on the other part of my post which you excluded in your quote - builders have to either build larger homes to account for the costs, or they have to scale with townhomes, triples, or do multi-family.

For some comparison if I drove 1 hr North-West of my town, the same home would 1/2 of the price. The reason for the price difference? - land is considerably cheaper, the county and township are less restrictive and don't have onerous requirements, the list goes on and on. Heck if I lived an hour outside of DFW, I could get the same house for even less than that
As I noted, the inflation-adjusted price per sq. ft. of homes hasn't really changed in the last 50 years, so unless the cost of building homes has gone up (e.g. materials, labor), that should be the same.

Your point about regulations is definitely valid. Many areas mandate that homes be at least a certain size, especially in HOAs. An HOA a couple of miles from us has a 2,400 sq. ft. minimum standard, and if the home requires a daylight basement, which most there do, the minimum goes up to a whopping 3,600 sq. ft., and most who live there are retirees. Local governments have had a big role in this as well in many areas.
Why would they possibly want to mandate that? :shock:
Easy. Keep prices high.
And that's why certain local governments have done the same. Not only does it keep their property tax to services provided ratio high, it's a means for them to legally prevent certain people from living in the area. Our city has a moratorium in place for apartments for just that reason.
I would agree. Our town made top 30 or so in an issue of Fortune or one of the financial magazines. The area is insane.
John C. Bogle: “Simplicity is the master key to financial success."
tomtoms
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Re: Why not Real Estate instead of Stocks?

Post by tomtoms »

“Home prices have climbed 14% compared to a year ago, the fastest growth rate since 2013”

https://www.google.com/amp/s/www.mansio ... ays-220062

I feel bad for some of my friends who keep on waiting for prices to drop. They could have purchased a property last year and refinance it this year (record low interest rate).
toomanysidehustles
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Re: Why not Real Estate instead of Stocks?

Post by toomanysidehustles »

AerialWombat wrote: Tue Oct 06, 2020 9:35 pm But, I digress. I shouldn't even have wasted my time typing this reply, as I know it will simply be dismissed along with the many like it. This marsupial will saunter back into his hole...

First time poster, long time lurker. Thought I would share our recent real estate strategy. My wife and I own small businesses, one has completely blown up this year (consumer direct bicycle manufacturing and sales online) during COVID. See all those families biking? That's who we are selling to, we are up 200% since March. Our bike business is a heavy inventory based business - think a 40' container every 6 weeks and we need a spot to put it. We outgrew our own 3 car garage (no cars in it) and 30x50 storage space. Instead of the more traditional commercial/industrial spot typically by the highway - we thought outside the box and more to residential real estate strategies. We are in the Denver metro area, appreciation on housing has been very high, very fast.

This time last year we bought a single family house as an investment property (2500 sq/ft ranch on 3/4 of an acre) 3bed/3.5 bath - no garage attached to the house. On the back of the property separated from the house by about 80 feet is a 3 car garage which is 700 square feet and a 1500 sq/ft shop attached to the 3 car garage. Glorified 9 parking spots and about 2200 sq/ft. 12 foot ceilings.

My wife and I set up an LLC on the property, and our bike business rents the 2200 square feet of the shop space for $3100.00/month from our LLC. Our mortgage on the property is $2900.00.

If you made it this far, you are thinking crappy to no cash flow, right? But the HOUSE we put about 4 months of sweat equity, $30k in furnishings and decided to AirBnB since we are in a zone that is AirBnB friendly. Per our tax adviser encouraged us to launch in December 2019 and immediately got 2 bookings in December right before Christmas. By March we had made superhost status. We positioned it as higher end rental, and $300-350 a night with 3 night minimum booking. We have been booked every weekend, typically Thursday-Sunday/Monday.

With current rental bookings we are at $58,600 on the AirBnB for 2020. Still a few months of booking opportunity in 2020 so that number will go up.
Our bike business pays our LLC rent of $37,200.

It is a part time job to manage the rental for sure, but we love it. Probably because we love the house and the workshop. I epoxy coated 2200 square feet of floor and it's a premium level space you can eat off the floor! I want to start more businesses and buy more properties like this one, watching this bucket of money grow has been fun. A bit non-traditional, but my traditional investments are slow and steady. It's nice to have multiple income streams from multiple businesses and side hustles.
Last edited by toomanysidehustles on Wed Oct 07, 2020 11:32 pm, edited 1 time in total.
tomtoms
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Re: Why not Real Estate instead of Stocks?

Post by tomtoms »

Before I invested in rental properties, I kept on hearing how tenants won’t pay their rent when there is a recession.

That didn’t happen in 2008. Rent collection has been steady during this pandemic (unchanged vs Oct 2019):

“NMHC: Rent Payment Tracker Shows Households Paying Rent Unchanged in October”

https://www.calculatedriskblog.com/2020 ... s.html?m=1

That being said, I do encourage landlords to put away 10% of rent for vacancy.
tomtoms
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Re: Why not Real Estate instead of Stocks?

Post by tomtoms »

Home price is up 15% YTY. If you had put down 20%, you made 5 x 15% = 75% return just on the appreciation.

Why wouldn’t you want to put in some extra landlord work for that kind of return?
Go Cy
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Re: Why not Real Estate instead of Stocks?

Post by Go Cy »

We treat unleveraged Real Estate as a proxy for some of the bond allocation in our portfolio. We invest in quality single family homes in an area with very stable valuations (home prices dropped only 2-3% during the great recession). Our philosophy is to buy a property with leverage, pay it off as quickly as possible, then repeat. We keep the number of properties under leverage at any time to only one. The rate of return on the unleveraged property is much lower, but the risk of your initial investment is also low, hence my analogy bonds.

Our paid off property sees a cash-on-cash rate of return (cashflow from rent) of 6%, with a typical yearly appreciation of 3% in our market. Overall, I view it as further diversification of our portfolio with a higher rate of return than bonds in this low interest rate environment.
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