[dionidium]

Buying a house in the United States. For as little as 5% down, and low-single-digit-fixed rates over a 30-year term, you can purchase an asset worth hundreds of thousands of dollars and you get to keep all the upside if its value goes up (which is historically quite likely, especially since housing policy in the U.S. deliberately keeps supply low). It's insane leverage, an excellent inflation hedge, and you get to deduct the interest payments from your taxes, to boot. Oh, and when you do sell, a bunch of that upside (up to $500k) is tax-exempt if it's your primary residence.

[nerdawson]

Where’s the huge upside though? You need a roof over your head so if your property goes up 10%, so has every property you’re likely to want to move to when it comes time to sell.

You only really benefit if you’re investing outside of your primary residence.

What’s more, the risk is huge. In the AMD example, you could lose 100% of your investment. Get things wrong with a house and you’re going to be out way more than your initial investment.

I own a home because it’s the most comfortable option for me and my family. With that said, I view it as a utility and not an investment.

[dionidium]

> You need a roof over your head so if your property goes up 10%, so has every property you’re likely to want to move to when it comes time to sell.

I think this common argument massively overstates the case. I have friends whose parents left them their primary residence. Mine did not. "Where’s the huge upside though?" sounds to me like sort of an insane question, when viewed through that lens.

But just to lay out the argument further, here are some concrete examples of upside:

1. The money is real and you could move to a lower-cost-of-living area. Owning a house in San Francisco is like having a standing offer of a million dollars to move to the Midwest. That's not nothing. "But I don't want that million dollars, I want to stay here," is not a compelling argument. The offer exists whether you take it or not.

2. You can sell and rent and keep all the equity, which you get to invest elsewhere. Congratulations, you're now a renter, just like millions of ordinary hard-working people. The difference between you and them is the cash you put in your pocket when you sold.

3. Your mortgage payment is fixed, so it's an inflation hedge.

4. You can borrow against your equity.

5. Because you can buy with so little down, having a lot of equity means it's pretty easy to buy again, even if prices go up. An existing homeowner is much better positioned to buy than a non-homeowner, all else equal.

The benefits of owning a valuable asset don't disappear just because you don't want to sell it at the moment. The asset represents options, if nothing else.

[nerdawson]

> I have friends whose parents left them their primary residence. Mine did not.

I fail to see how that factors in to buying a property. You have friends who benefited from an inheritance.

> Owning a house in San Francisco is like having a standing offer of a million dollars to move to the Midwest.

Owning a house in the Midwest is like having an $xyz offer to move to <area with even lower house prices>. The offer exists whether you take it or not.

You could sell up and live in a tent too.

I don’t believe most people are willing to uproot their lives simply because they can get cheaper housing elsewhere. I’m sure it factors in but it’s rarely the driving motivator.

I think some of the points you made were fair. As a homeowner for instance you do generally have access to cheaper capital.

> You can borrow against your equity.

What equity? You advocated for putting as little as 5% down. You’re already going to have a higher than average interest rate and with such a small deposit it’ll be easy to tip into negative equity.

You only see the benefit years down the line and that relies on house prices rising in the short term.

> Because you can buy with so little down, having a lot of equity means it's pretty easy to buy again,

I’m not really following this argument. You’re suggesting buying with a small downpayment. You don’t have a lot of equity.

[dionidium]

> I fail to see how that factors in to buying a property. You have friends who benefited from an inheritance.

I mean, somebody had to decide to buy the house at some point in time. I would have told them to do it.

> Owning a house in the Midwest is like having an $xyz offer to move to <area with even lower house prices>.

Yes, that is correct. The argument generalizes.

> I don’t believe most people are willing to uproot their lives simply because they can get cheaper housing elsewhere.

If I offer you a million dollars to move, then you're free to turn that down. What you are not free to do is pretend that it's not a real offer that you have that other people don't have. It exists. It's real. And if you own a home in California, then you have that offer. And other people do not. What you choose to do with that offer is up to you.

> What equity? You advocated for putting as little as 5% down. You’re already going to have a higher than average interest rate and with such a small deposit it’ll be easy to tip into negative equity.

The house I bought in 2020 is worth $xxx more today than what I paid for it. Had that not happened, then I'd just live here, either way, and I'd be in no worse position than had I stayed in the apartment I left to move here. (As you yourself argued, I need a roof over my head, anyway.) Since it did happen, I get to keep every bit of the upside, tax free.

[nerdawson]

> The house I bought in 2020 is worth $120k more today than what I paid for it.

You bought at just the right time. Would buying the same property at 95% LTV be a great decision today?

With potential for a major loss, where’s the asymmetric upside the OP asked about?

I bought 6 years ago and prices remained flat for the first 4 years. It wasn’t until the pandemic fuelled boom that I saw any meaningful growth.

Had I chosen to sell before 2020 it would have been a negative “investment” once costs had been factored in.

[evilbob93]

> I don’t believe most people are willing to uproot their lives simply because they can get cheaper housing elsewhere. I’m sure it factors in but it’s rarely the driving motivator.

Retirees and other fixed income people may have a different opinion. Where I am in Colorado, a bunch of boomer-aged people seem to be disappearing to places that have a lower cost of living, with or without bubble payouts.

[peyton]

It’s an asset you buy with 20x leverage with up-only price action supported by government intervention. That’s huge upside.

[nerdawson]

> That’s huge upside.

That’s a big gamble. I thought this was about asymmetric upsides but here there’s a pretty huge downside.

Firstly, how do you realise the gain when you need somewhere to live? Primary residence != investment.

Secondly, 20x leverage shouldn’t be a selling point. A tiny dip in prices leaves you in negative equity and unable to move home. Less of an investment and more of a prison.

95% LTV mortgages tend to come with well above average rates to match the level of risk too. The gamble isn’t cheap.

Property can be a great investment but people are confusing buying a home with investing in property. They aren’t the same thing.

[overrun11]

Short sales, in the United States at least, limit downside. You can generally sell a house underwater and not owe anything, so the risk to you is only whatever you put in plus some harm to your credit worthiness over the next 5-7 years.

[dionidium]

Your own argument is that you need a roof over your head, either way, so if the value doesn't increase, then you simply live there. If it does, then you keep all the profit, tax free.

[nerdawson]

No, if the value doesn’t increase, you have to live there. You no longer have the option.

Find yourself at a peak and you could be stuck for years to come.

Again, this was all about asymmetric upside. Being unable to move even as life circumstances change seems like a pretty sharp downside.

[dionidium]

Yes, you probably shouldn't buy a house if you imagine you'll want or need to move in the next 7-10 years. And, yes, it's also not the case that there is zero risk. It's just lots of leverage with favorable tax treatment. But it's not a magic money machine.

[refurb]

Leverage works both ways.

Put $100k down on a $500k home. House drops 20% and you now have a 100% loss of your investment.

[dionidium]

Unrealized losses. The risk, of course, is not zero, but you only really lose if you're forced to sell. In the meantime, you need a place to live, either way. Not a good gamble if your time horizon is less than 7-10 years, to be sure.

[refurb]

I'm not sure why "unrealized losses" would make anyone feel better? People need to move, get divorced, lose their jobs. "Just stay in the house and keep paying the mortgage" is not an alternative available to everyone.

Look at Las Vegas. It only recovered to the 2008 peak last year. It's been a terrible investment.

[dionidium]

This is more of an argument against investing at all than it is specifically about housing. Obviously, if you want upside, then you have to tolerate some level of risk. If the argument is just, "things could go badly in your life at exactly the time you're in the red," then that's true of anything.

[refurb]

The argument was buying a home using debt is a "high upside/low downside" bet. It's not. Leverage works both ways.

Leverage amplifies upside and downside.