Hacker News Reader

Comment by runbathtime | Hacker News Reader

Real estate might be the best play for the average joe. Where else can you borrow a ton of money at low interest rates for 30 years with a real asset (the house) as collateral? It is like a free call option, with government policies. If you overpay you can always turn in the key or get the bank to write down your loan to fair value for the home. You make money on the debt, paying back in dollars with lower purchasing power, you do not need the home price to go up.

View on HN

Real estate might be the best play for the average joe.

I agree with your general analysis, but I'm also seeing that it's becoming harder and harder for the average joe to get into the real estate market. Unless you can make a hefty down-payment banks just won't talk to you. The big driver of inequality going forwards is going to be between those who managed to get on the property ladder and those who didn't.

I think that will be a big topic that government will try to solve. I think they will offer policies that help inequality directly in housing, giving away homes to those that qualify, further pushing up home prices ultimately.

As a home owner, I'm really hoping that the government gets involved in helping with first time buyer down payments. Each $1,000 of government assistance will be a ~$15,000 higher sale price. Would also benefit those renting out units as well as the overall market would surge upwards

REITs are your friend.

You can't get a mortgage to invest in REITs. Also you can't live in your REIT investment, so you still have to pay rent.

Of course if you have an investment portfolio adding an RETI is probably a good idea, but it's not really comparable to investing in actual real estate.

I can invest in a lot more rental markets and manage idiosyncratic risk. Plus I don't have to deal with maintenance issues with physical property upkeep.

I have also invested in vehicles (private offerings) that fund residential construction especially in housing constrained markets. Very nice reliable returns

All this is assuming you have liquid funds to invest or have some other access to credit. The only realistic shot your "average joe" has at any sort of reasonable leverage is getting a mortgage and buying some property.

Obviously if you're already rich then you have lots of better options to become even richer (like the ones you've mentioned), but they're not really open to your "average joe", if for no other reason than that most of them require you to be an accredited investor or require a high minimum investment.

Valid points, but also you don't have to pay maintenance expenses or property taxes on your REIT.

How do you make money on the debt? Rent it out?

If inflation hits 4% and your mortgage is 3.5% you would be making 0.5% a year off the mortgage interest + the tax deduction you get from it. If inflation picks up to 70s levels, current homeowners will have a great time assuming they do not have a variable rate

> If inflation hits 4% and your mortgage is 3.5% you would be making 0.5% a year off the mortgage interest

This ignores the rates-price and inflation-rates nexuses. When inflation goes up, ceteris paribus, rates rise. When rates rise, all else held equal, the price of leveraged assets like real estate falls.

TL; DR this trade is an arbitrage only if you've perfectly hedged the price of your underlying asset, the house.

Agreed this is an overly simplified model. Another thing to keep in mind would be population dynamics. Are people moving out of the area the home is in (Chicago) or are people moving in (Nashville).

The hedge is refinancing out any market appreciation, like a piggy bank, keeping debt high while interest rates are low, you can always hand back the key if it goes south.

Reply on news.ycombinator.com