[shaewest]

Real estate is generally a "good" investment as it's considered a relatively safe way to get significant leverage. 5x leverage in the case of a 20% deposit, or even up to 20x leverage with countries that allow for 5% deposits (New Zealand).

In addition, the interest payments almost always end up being near the rent the owner would have paid, so mortgage payments are higher, but that increase is generally (and quickly becomes) principal while being able to counteract inflation of rent.

[bcjdjsndon]

> Real estate is generally a "good" investment as it's considered a relatively safe way to get significant leverage

Leverage? People don't normally invest in property (normally involves taking out a loan) for the purpose of taking out another loan. That so called "leverage" is being used to buy the house...ie you don't have any leverage

[shaewest]

The leverage is the loan taken for the mortgage. If you have a $1M property, $900k loan. If the property's value increases by 5%, that's $1.05M, so you've made 50% returns on your $100k capital invested. That's leverage, the leveraging of $100k to get the returns of $1M asset.

[bcjdjsndon]

> That's leverage, the leveraging of $100k to get the returns of $1M asset.

Obviously. But that's not leveraging real estate, that's just leveraging cash.

Leveraging real estate would be using the property as collateral for a loan larger than the property itself

[shaewest]

Isn't it incredibly obvious in my first message that the leverage is on your deposit, and therefore leveraging the cash.

[bcjdjsndon]

Nah cos you said real estate is a good way to get leverage...

If I own a house outright, and use it as collateral for a loan... this my friend, is "using real estate for leverage"

Going to the bank and asking for money so you can do the above is NOT "using real estate for leverage"... It's using your cash deposit for leverage

[throwaway2037]

    > relatively safe way to get significant leverage

This only works if housing prices keep rising. This post could have been written in 2007.

[nonameiguess]

We can estimate this. US median home price right before the crash in 2007 was $240,000. Today, it is about $400,000. Median rent in 2007 was $810. Today, it is $1,698. There's some simplifying assumptions we have no choice but to make. Let's say renter's insurance is negligible enough to ignore. Meanwhile, we'll just let an online mortgage calculator assume a median $50,000 home insurance coverage payment and bake it in. We'll assume 1.1% of assessed value for property insurance, which is currently the US national average (it varies a lot state to state in reality). We'll assume an FHA loan with 4% down.

This gives us a $1,995 a month payment when we purchased and a $2,142 a month payment today, due to higher assessed value for the tax.

We can see upsides and downsides in both cases. Rent would have been quite a bit cheaper in 2007, but it has very nearly caught up by now. Meanwhile, you're probably talking about renting maybe a 2 bed/1 bath apartment, whereas the median single-family house is more like 4 beds/2 baths, with a yard. Whether or not that extra space and privacy matters to you likely depends a lot on whether you're single or have or ever plan to have a family. You could have invested into something like the S&P 500, which has historically returned about 10.5% since 1957 annually in nominal returns. Let's just kind of naively split the difference here and assume you can invest $1,000 saved on rent versus mortage a month for the first 10 years and $200 a month for the next 9. That would have gotten you somewhere around $240,000 by now. Meanwhile, you're looking at about $248,000 in home equity by now for the purchase case.

Choose different parameters if you please, but I'm not really seeing the case for renting here over the long term, and that's in spite of choosing the single worst time in the last century you could have made the purchase.

[shaewest]

Oh I don't disagree, I hate real estate as an investment, it's a terrible asset only made "viable" by tax benefits, rent-replacement and excessive amounts of risk via leverage.

[throwaway2037]

What is "rent-replacement"? I never heard that term before. I cannot find anything obvious using Google search.

[shaewest]

It's my shortcut for describing the idea that you'd spend $X a month on either interest lost to a bank or rent lost to a landlord, and therefore you can mostly consider that a constant expense when considering rent versus mortgage.