My Secret Non-Software-Developer Life

"Suppose you find a stock that you know will increase in value. You go to the bank and say, “hey, can I borrow $90k to buy this stock? I’ll put down a down payment of $10k.” You’ll be laughed right out of there."

And then, later:

"Now suppose you find a house that you think is a good deal for $100k. ... suppose you go into the bank and say “hey, can I borrow $90k to buy this house, and I’ll put down $10k?” If you have decent credit, you’ll get the loan easily."

Leverage, i.e. a multiplication of your investment by borrowing money, is quite frowned upon when investing in stocks[1] but is not frowned upon, in fact positively encouraged, when investing in real estate. This is because "owning a home" has a sentimental value attached to it by policy makers that equity investing does not. It is a weird market distortion caused by bad policy, particularly in the US.

Leverage by retail investors is frowned upon because they can get badly burned and lose a ton of money. Real estate is not as volatile as equities, but as the financial crisis of 2007 showed, large numbers of retail investors going into real estate solely as a speculative investment can lose them huge amounts of money.

In all investing, the size of your return is related to the risk you are taking on. If you can get a 30% return investing in housing, as the author suggests, and only 6-7% investing in mutual funds, that's because housing is 4-5x more risky than a mutual fund. Higher returns are not just sitting around waiting for you to notice how much more money you can make.

So by all means leverage away if you've got capital and want to take on more risk for the chance of higher reward, but don't go into it thinking it's an "almost guaranteed way" to make money, as the author has concluded.

[1] Unless you are a large bank, but that's a whole other story.

"Now suppose you go into the bank and say “hey, can I borrow $90k to buy this house, and I’ll put down $10k?” If you have decent credit, you’ll get the loan easily."

"So you end up making a profit of let’s say $110k – $100k = $10k on your $10k investment. Cha-ching $10k became $20k, a 100% return on investment."

less than 5 years after the worst financial crash since the great depression caused exactly by that exact line of reasoning by millions of people. This is a guy who claims to have learned "a lot about .... investing."

More than likely it's all affiliate/SEO spam for the book he's flogging in the post. And we've all (including myself) made it worse by commenting on the post here I'm sure.

To buy at least one every year I had to take out a low interest HELOC on the first investment purchase to help finance the new ones. Thankfully I was able to pay the prior HELOC amount back in full prior to buying a new one and just keep using the same credit line since there's a 5-year draw period.

I live and buy here in southern CA so the prices have risen to the point where I don't feel comfortable buying anymore, but thankfully so have the property values of the homes I do own.

I never looked into getting my real estate license, but we have a great agent now who we've bought our last four homes through (including the one we live in). She also recommended an excellent property manager that we now use exclusively (our last one was worthless). A good property manager makes all the difference. I actually spend more time sorting the taxes for the properties than I spend doing anything else for them, and that's one a couple hours a year.

I think real estate is a great industry for hackers. I've always been good with money, but I had no background in real estate when I started. I could have done a lot of things better and I probably got lucky, but it's still a goo industry for us.

Investing in equities is too information-centric and it's hard to compete or gain a legal competitive advantage. But in real estate the market is so fragmented, varies by region, and realtors are so old-fashioned that it's easy to gain an advantage if you think differently.

I suspect that anyone who can run a startup as a single founder (i.e. they have a wide range of skills) could dominate the real estate market in most non-major cities within five years if they wanted to. If they document and systematize their process, realtors would pay tens of thousands for it a pop. Real estate agents tend to always be looking for shortcuts, are unfazed by loud and spammy advertisements, and want new quick ways to get leads than most other markets and have a lot of money to spend doing it, especially here in southern California where a commission can be over $100,000.

If I weren't set on running my company for the next 10+ years I'd probably go into real estate to see if I could do what I suggested above. Anyway, a few closing tips: find a good lender if you borrow, find a reliable and reputable inspector before you decide, thoroughly research the area (historical prices, industry, jobs, schools, crime, future major builds plans, etc.), and condos are easier to manage than single family homes since the HOA covers everything, plus your margins are higher.

Buying one property per year doesn't seem to be too much, but 5-6 years into it you're way more leveraged than you should be; it's easy to get carried away by imagining potential future rewards and ignore the actual risks involved.

[1] http://www.arizonarealestatenotebook.com/wp-content/uploads/...

If you rent, to a human landlord (let's avoid a corporate landlord), the the money you give each month is used by a human person, probably for good things, like buying products you or your brother are making.

on the other hand, if you borrow money from a bank to buy, you're giving money (at least the interests, but they may make up an significant part of the price for long term borrowing), to a BANK, which will use this money to further enslave you and other human being, provoking ecnonomic crisis, and gaining political and ecnonomic control everywhere.

This is a prisoner dilema; renting is harder, but it is better for the humans as a whole.