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Comment by frongpik | Hacker News Reader

If it was just about the money, it would be better to invest the downpayment into a margin trading account with 1 to 5 leverage.

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Home ownership, with a mortgage and down-payment less than 20% is higher leverage than that with more stability.

Put 10% down on 1M. Goes up in value to 1.5M in a few years. Boom. 500K gain on 100k. Not that uncommon.

Also, if it's your primary, then tax free income up to that 500k if filing jointly when you sell if you lived in it for 2 years. Hard to beat.

Or just put those 100k into a margin trading account with 1:10 leverage in a "west coast real estate index". No commissions, no agents, no property taxes, no leaking roofs.

Still doesn't offer that tax advantage (either in capital gains or the numerous deductions). And if you have to live somewhere like the parent comment, this doesn't help you.

You will have a commission in the expense ratio indefinitely.

But yes, definitely a decent option if you want to put your money in real estate with less headache.

The tax advantage is up to comical 250k that will be promptly eaten away by brokerage fees, transfer fees and other god knows what fees, on top of all the house maintanence costs over those years.

Those who have a million or two but a house not because it's good for financials, but because they can't stand cranny rentals. Those with bare minimum money jump into a mortgage because for them it's the only efficient financial instrument available (a margin trading account essentially). If they tried to open such an account with a brokerage, they would be told no after looking at their net worth.

It's 500k of tax free gains for married couples.

How is that, or even the 250k individual comical? Also, that's the gain that has no taxes AFTER fees/commissions. It does not get "eaten away".

You can also do 1031 exchanges, opportunity zones with real estate, or put it into an LLC. A lot of flexibility and tax strategy available.

I'd rather pay capital gains tax on a 250k stock appreciation, than have my house appreciate by the same amount. It's just ordinary people don't have brokerage accounts that can appreciate by so much.

As a slight diversion, this thread danced around a pretty interesting point in my eyes - why are ordinary people denied access to brokerage accounts with advantageous rates - it's not likely that the money actions will be nearly as dynamic or require nearly as much oversight as folks with a lot of money and the minimum investment bars seem unreasonably high before you start dodging the heavy fees. Isn't that system just furthering wealth inequality?

Regular people do not get 1:10 leverage in a margin account. Furthermore if you lever yourself up to 10x with options or exotic ETFs or whatever, and the market goes down by 10%, you don't have any money left. If you put 10% down on a house and the value goes down by 10%, you still have a house to live in even if you don't have any equity. You can choose to just sit and wait for the market to recover. There's no recovery from getting margin-called on your 10x leveraged account.

  1M. Goes up in value to 1.5M in a few years. Boom. 500K gain on 100k. Not that uncommon.

Extremely uncommon, even if you buy during a lull and sell on a peak. (SV homeowner 34 years)

I'm in LA and it's not extremely uncommon. I'm also seeing it in a few other Southern California areas.

Also there are tons of options to flip if you want to put in some work and have the funds. Not that hard when the price per square foot grossly exceeds the cost to build.

If it's just about money then you should diversify - but owning your own home is a self-securing investment, it means you can't go broke no matter how bad fate treats you - with the exception of going underwater on your property value which is only ever actually a problem since banks can effectively margin-call their mortgaged properties.

> owning your own home is a self-securing investment, it means you can't go broke no matter how bad fate treats you

lol what? Trees fall on houses all the time. Pipes break and water damage can seriously impact structure & foundation. Dumb-ass kids accidently drive their mom's car through the veranda. Houses burn down and kill people. A factory shuts down and now there are no more jobs so everyone leaves, driving your house price down.

Assuming a home is a secure investment -- even in a hot market like SF or DC -- is foolish.

> More than one-quarter (27%) of reported fires in 2014-2018 occurred in homes. Even worse, more than three-quarters (77%) of civilian fire deaths and almost three-quarters (73%) of all reported injuries were caused by home fires.

> During this five-year period, US fire departments responded to an estimated average of 353,100 home structure fires per year. These fires caused an annual average of 2,620 civilian deaths; 11,030 civilian fire injuries; and $7.2 billion in direct property damage.

https://www.nfpa.org/News-and-Research/Data-research-and-too...

No, because if you're investing on a 1-5 margin, the market dropping by 20% in two weeks, and then going up by 80% over the next five will leave you flat out broke.

Meanwhile, someone not investing on margin will be up 60%.

Nitpick, but they’d only be up 44%. 0.8*1.8 = 1.44, not 1.6.

Only if there were margin calls on real estate loans (there aren’t) of if there were no margin calls or forced selling on brokerage accounts (there are) this would be good advice.

There are margin calls on real estate loans - they aren't nearly as capricious but when mortgages are renegotiated banks will usually refuse to offer a new mortgage if the property is underwater - in that case the bank will generally try to foreclose on the property and recoup the lost mortgage balance through debt collection. This happened all over the place in 2006 and led to the housing bubble.

In the United States, very few people are on short-term mortgages, which means that you have the option, but not the requirement to reneg on it.

You should generally only reneg if interest rates are dropping - and interest rates dropping causes an upward pressure on home prices.

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