Comment by bko | Hacker News Reader

Comment by bko | Hacker News Reader

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Why are the wealthy parking their funds in real estate? They don't have a crystal ball so its not because they know its going to appreciate. It's a terrible investment by almost all accounts. It's historically expensive, undiversified, large transaction costs, high maintenance, taxed continuously, politically visible, etc. And they don't even bother to use it.

My understanding is that there are limits to where they can store their wealth with relative safety. A Russian oligarch can't just open up a Robinhood account and park hundreds of millions of dollars in a low cost ETF. Their wealth is in constant risk of confiscation by the state. That's much less true in the US. I don't think Mark Cuban would just sit on hundreds of millions worth of real estate in Vancouver. Vacation homes and private islands are different, but I think its mostly a developing market oligarch phenomenon.

I wonder if crypto could alleviate some of the strain caused by work-arounds to unequal banking systems.

You just answered the question. This is not about the "very" rich as in Jeff Bezos or Mark Zuckerberg. This is about the $10-100m guys who made their money in shady ways or didn't pay their taxes. Real estate is great as there are little tracks in how the money is moving.

You could buy a house in a neighboring country for money that you paid tax on (say $500k) and then do renovation work that cost $500k but that money could be moved mostly in cash and is the shady part. It's also very hard for your original country to "know about it (the renovation)" and the host country most likely doesn't care.

It’s also people that may have made their money legitimately, but live under authoritarian regimes and want an escape plan

I think part of it is also a “safety net” of sorts for the oligarch buyers. If your corrupt government goes under or if you fall out of favor it’s likely your assets will be seized but it’s much harder for your opponents to seize your condo on the other side of the world.

I don’t think crypto is the answer though. If anything it’s allowing the issue to continue. Vancouver, for example, recently implemented AML requirements for real estate transactions and crypto’s major selling point is allowing users to avoid compliance with that sort of pesky regulation.

My understanding is that housing is viewed as an inflation hedge. They’re buying those assets now on credit because they’re expecting elevated inflation over the medium term. Which means they’ll be able to raise and collect rent over that time, and likely sell at a profit.

This is a problem that many countries have solved by banning or heavily taxing ownership of housing by corporate and foreign entities. We pretend these problems are unique and intractable because solving them would mean a level of wealth redistribution, but honestly that’s well overdue.

It is also an asset you can borrow against.

Once you get past a particular point with money, debt becomes a tool, not something you do to get something. Paying back debt is considered a business expense. Once you see that and you understand that you can work the tax system to pay less in taxes. Rent is just a bonus. Sometimes they will set the rent high just so they do not have to mess with it.

One of the few things that 2016 tax plan did was to put a cap on how much you could write off in many conditions.

I have several hundreds thousands of disposable money. Good quality appartement in a nice city looks like a very solid investment choice:

- I get to buy a touchable, physical, valuable assets. If something happens to me, I can use that asset for myself.

- It looks like the assets is going to increase in value in the foreseeable future

- Regular, predictable additional income when I rent it

- I cannot "spend" the house, unless I pull the plug and sell it - which is a big commitment. I cannot enter a spiral that leads to me slowly but surely waste that money.

- Assets value is not easy to evaluate, as opposed to stocks/bond which evolve on a daily basis. I currently have stocks, and I end up checking their value almost daily. I believe it actually adds stress in my life and that stuff is addictive. I am not sure I like it that much.

It certainly is not the absolute best placement I can make, but I am not looking to maximize my ROI at all cost, I just want to optimize my happiness and use that money to enjoy life a bit more.

Real estate looks like a great way to store that money, hedge against inflation/stock market crash, protect this money from myself, and reduct my potential anxiety when it comes to managing it.

I would strongly advise otherwise.

> I get to buy a touchable, physical, valuable assets. If something happens to me, I can use that asset for myself.

There are expenses in maintenance. If you're in a condo, you'll have to pay condo fees and taxes every year. These will go up as your property appreciates

> It looks like the assets is going to increase in value in the foreseeable future

You don't know this, but if you want a positional bet on real estate there are cheaper managed options such as REITs

> Regular, predictable additional income when I rent it

Renting is non-trivial. You can make good income that may even cover your mortgage, but one bad tenant or a few months vacancy will wipe out your returns. Eviction for non-payment is also non-trivial and takes 6 months to 2 years depending on the state. In non-US its often longer. Something like covid also means your tenant is likely living rent free indefinitely. You'll also have to maintain the tenant and pay for stuff. Fridge breaks down, need a new HVAC, plumbing, electrical, all on you. It's not predictable. You can pay someone to manage the rentals for you, but the rate is something like 10% of gross rent and that doesn't cover expenses that may arise.

> I cannot "spend" the house, unless I pull the plug and sell it - which is a big commitment. I cannot enter a spiral that leads to me slowly but surely waste that money.

Homes depreciate and require a lot of maintenance. More true for houses, but condos have other expenses such as condo fees

> Assets value is not easy to evaluate, as opposed to stocks/bond which evolve on a daily basis. I currently have stocks, and I end up checking their value almost daily. I believe it actually adds stress in my life and that stuff is addictive. I am not sure I like it that much.

There are less liquid investment vehicles other than stock that don't have the daily update factor. There's a lot more stress when your property needs a new roof and you're trying to manage maintenance when you're not there to supervise.

Thank you for that. As explained earlier, the money is current not in real estate but in diverse stocks/bond (think ETF). I am quite risk adverse and a bit naturally anxious, so I did consider real estate as a solution, but that might not be the best option for me either.

The current us stock market is overvalued and will continue to be as long as they keep printing money. The billionaires know this and are diversifying into real estate

Real Estate gives you access to secured leverage

Because there is nothing else to buy. Real global growth is almost zero, so the dollars around the world are starting to come back, but as I mentioned, there is almost nothing else to buy.

The economy bus crashed into a wall a couple of years ago, but while the the front is completely wrecked the rear still hasn’t noticed the impact. Money is flowing front to back trying to escape, yet at the same time governments pour even more money at the windshield so people at the back don’t notice the accident.

Stocks are safe assets as long as the fed keeps thinking stocks are the economy, real state is a safe asset as long as the government and police exists.

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