I don't think fractional ownership is a silicon valley creation? What makes you say that?
Similarly, how are real estate agents a guard on investing?
I'm not convinced they are bad, mind you. Curious on your angle, though.
Similarly, how are real estate agents a guard on investing?
I'm not convinced they are bad, mind you. Curious on your angle, though.
Would be interesting to see data on this. Didn't Redfin have a reduced commission path? Any evidence that led to more speculation?
I buy a house for 100,000, incur about 5k in government, administrative fees. Sell it for 125k, netting 20k - less if you consider insurance and property taxes. So let's say 18k. But I've paid the realtor 6% on 125k. That's 7.5k. That's a whopping 41.67% of profits
Neglecting the fees, commissions, insurance, loan points, repairs, time, taxes, the cost of the house sitting there vacant, etc.
Houses are historically lousy investments.
> Houses are historically lousy investments.
Not saying this makes houses good investments, but it is something to consider. I think that this is the cheapest leverage a typically person in the US could obtain.
Fannie Mae has a short history page here for those interested: https://www.fanniemae.com/about-us/who-we-are/history
Specifically, my intuition is that most people don't speculate in housing because they don't have the capital to do so. More, most of the people I have known that had the capital to do so, did, in fact, speculate in real estate. Similarly, most people I know that have purchased homes could only do so on highly leveraged loans. Again, they didn't have the capital to do speculation. They still stretched for as large of a loan as they could, at large. Which is its own form of speculation.
I'd be curious to know how much the fee for day trading can be. I know it isn't directly comparable, due to volume differences, but I'm assuming you weren't thinking real estate would get to day trader levels of speculation?
Every transaction has overheads. But I'm just talking about house flipping, or even when upgrading from one house to another, 41% of any money I, as an individual could use towards the new house, kids education or whatever, going as a transaction overhead is simply crazy, and almost extortionist given how monopolistic this is in the US
Re: Day trading - That would be REIT and related instruments.
Realtor here - if you are house flipping, you are in a unique category and not really a member of the general public. You should either get your real estate license (if you believe you are able and willing to market property yourself) or you should find a dedicated agent partner with whom you have a negotiated rate. But also consider that as an agent, my out of pocket costs to market your example property could easily be $1000, plus my brokerage (assuming I'm affiliated and it isn't my own brokerage) also is taking their 40%+ cut of my commission, so I'm not making nearly as much as you think -- which is why especially on a house priced at the lower end of the spectrum I need to keep my commission % higher.
Upgrading a house is another odd one. Most of the upgrades you would do that go with "get a new house" are all size and location related. You might give some pause to the fees involved, but probably not much.
My point on day trading is that transaction fees don't seem to stop people with excess cash to go off and speculate in the market. They won't be as high as realtor fees, of course, but the overall stakes are also not nearly as high.
That said HELOC and similar tools also really highlight just how bad most people's financial considerations are with home values. Refinancing to get a lower rate is a laughable idea when you consider the fees that went into that effort. And that doesn't stop many people at all from doing it. (Not to mention the ones that reset their timelines...)
All of that is to say, I still have my doubts that any of the myriad of fees involved in the process are what stops speculation.
Perhaps fractional ownership was used in limited circumstances before, but some tech co thought they can make it mainstream and didn't stop to think if they should. Cue unforeseen consequences.
I've often felt that trading stocks and real estate investing like this is benefiting from other people's debt. which raises the interesting question. If you were to live according to Dave Ramsey's debt is evil philosophy and everybody got rid of debt, where would you put your money to build for the future?
Why not just buy a REIT?
Transaction costs for diversification. The same reason it makes sense to buy ETFs versus directly balance your own portfolio for anything below your first million.
In general, asking “why not X instead of Y” without giving reasons why X is preferable over Y is just a waste of everyone’s time.
Investing in a REIT is just investing in a company that happens to derive cash flows from real estate. You’re not buying fractional ownership of real estate when investing in a REIT. You’re investing in a management team and a capital allocation strategy. It’s much more similar to a mutual fund or PE fund. The only difference between a normal business and a REIT is that you have to pay income tax on your dividends. Owning a fractional share of a property is taking an ownership stake in a real asset. The two aren’t related at all.
There are some ways we could avoid some or all of it, but I was not considering a situation where you and I shared a primary residence, because we’d spend too much time arguing about taxation basics.
On the other hand, a REIT with more than the required number of members that distributes the required share of profits will pay no income taxes. Investors in the REIT, on the other hand, pay taxes on the dividends.