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Comment by mentat | Hacker News Reader

However, how many people stay in a place for the life of the mortgage? This is the flexibility part of the equation. If you lose your job in one area then while renting you can adapt quickly. If you own you have to sell (at a loss) or try to rent, at 3% of your cost. These are not features in times of economic instability. You say, "it isn't for everyone", but really there are very few who benefit from an illiquid housing market with low rents.

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Actually, anybody can benefit from an illiquid housing market with low rents. Anyone that is smart enough not to buy and just wants to rent and invest their hard earned money elsewhere. In my affluent neighborhood I can rent a house for $2,000 a month that would cost $4,000 a month to pay a mortgage on, not counting maintenance, repairs, and upkeep. I could take that extra $2,000 a month and invest it in conservative financial instruments and make at least 6-7% return. Or I could be paying a $4,000 mortgage with only about $500 of that going towards equity and having to pay an additional $10,000 annually of maintenance and upkeep (generally considered to be 1.5% of total house price per year).

Which one would you do? The reason why _some_ people make money from housing is leverage. You take out a huge loan and if it goes up in value a few %, you made much more than your starting value. Leverage works exactly the same way when prices are declining. Your small $50,000 downpayment is quickly erased by a 5% decline in value.

I don't like leverage in my investments. I prefer to know that I can't lose more money than I invested in the first place. I diversify my risk so that I can never lose more than 10-25% of what I own with a single investment. Why would I put so much money in a single asset that is extremely illiquid and has so much leverage that I can lose more than my net worth?

Housing just doesn't make sense until the market returns to reality - and with federal subsidies including tax credits, Fannie Mae and Freddie Mac, it won't return to a fair market until _all_ government subsidies are removed, including mortgage interest tax credits, Fannie/Freddy backing mortgages, etc.

Conservative financial instruments that make 6-7% return? In the past few years?

I'd sure like to know more about those.

My thoughts, also. It used to be that you could reasonably argue the money you'd spend "investing" in a home would be better spent in the market, but that would not seem to be the case, these days. Not to mention, there is now a distinct value to having a roof over your head that is your own that is, perhaps, more emphasized than five years ago.

One thing to always consider is that even when the housing market makes money there are ways to benefit from it without owning a house.

For instance, buy an index with a low maintenance fee that tracks the REIT. It's also a lot quicker (and easier) to get out of that index fund than it is to get out of your home. https://personal.vanguard.com/us/FundsSnapshot?FundId=0123&#...

The key is, you can invest in real estate without owning a home and better still: be diversified into multiple kinds of real estate. A home is a very homogeneous investment vehicle. Think of it more like a savings account with a maintenance fee but you can live inside it.

"For instance, buy an index with a low maintenance fee that tracks the REIT."

That throws the calculation way off, because you don't get the tax benefits associated with buying and living in a house.

In effect you may be owning a very small sliver of the loan the person renting the apartment to you is paying off. By giving them a tax break, their ability to repay the loan improves and as one of the many people who has invested in their success, you get a return on your investment for taking a risk in that market. It's not like that interest saved vanishes. Someone benefits from it. In this case it happens to be the financial system backing the loan as well as the person who took the loan.

Money flows, tax breaks can decrease the viscosity of that flow.

There's more than one way to play the game. :)

from a tax and dividend point of view probably better to own the REIT

$AUD Term Deposit? 5 years paid annually at 7.1% http://www.infochoice.com.au/banking/savings-account/bankwes...

That's not a conservative option for someone in the US, as it leaves you exposed to forex risk.

Keeping money in USD involves an even graver forex risk, at this stage....

Please see http://crawlingroad.com - 9.8% over the last 40 years is more like it if you invest wisely.

The catch is "if you invest wisely". :)

> Conservative financial instruments that make 6-7% return? In the past few years?

This will obviously not be accessible to you - but just to illustrate that they do exist for special protected classes of individuals.

When I heard this from my co-worker, I was flabbergasted.

Her relatives, senior citizens in India, get +9% interest on their personal savings. Call it subsidized, but there is no risk.

She is really annoyed when they harangue her about her middling 1-2% interest rates.

http://www.bankofindia.com/rupeetermdeposit.aspx

India has high interest to try to cover up high inflation.

Young people? Probably not many anymore. Elderly, or people who've got a decade+ invested in a large company? Tons will stay put for 10-15 years or longer... (hah, self fulfilling prophecy - if you CANT sell, you'll stay longer too).

What happens when those companies downsize or outsource their jobs? They can't move and they don't want to learn new skills. If anyone thinks that because they've had the same job for 10 years they're going to have it for the next 10, I'd say they're crazy. (Having been through layoffs a couple times in the last decade.)

True. That's a big risk and that's one major reason to hold off on buying a home. However, at some point, you have to either decide that you're going to live somewhere or you have to decide you're going to spend your entire life as a nomad. I've been with the same company my entire adult life and my feeling of uncertainty made me delay buying a home by almost fifteen years. I eventually decided I can't just keep living my life (relationships, purchases, etc) based on a fear that I may or may not be in one spot long term.

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