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My financial security is way below someone who went balls deep into debt in 2000 on housing.

That may be true, but that doesn't mean opportunities for FI disappeared with depressed home prices after the dot-com bust.

Unfortunately real estate is often the go-to option since it's (relatively) easy to get a RE purchase financed, whereas good luck getting a loan to e.g. buy into index funds.

"very boring conservative Vanguard index funds and a __rental house or two__."

It's still possible, depending on what real estate market you look in, and if you're ok buying somewhere out of state and having someone manage it for you. A friend who lives in the bay area bought two rental properties in Dallas ~2 years ago and (even with a property manager fee) it's been a great supplement to her income. I've been thinking about doing something similar.

Must be nice especially if you have a family slaving away in your rental houses for you so you can capture all their labour.

This is a weird thing to say... makes no sense, really.

>It's still possible, depending on what real estate market you look in, and if you're ok buying somewhere out of state and having someone manage it for you. A friend who lives in the bay area bought two rental properties in Dallas ~2 years ago and (even with a property manager fee) it's been a great supplement to her income. I've been thinking about doing something similar.

From personal experience -- buying in a market you are not familiar with (i.e. you don't live there) inherently increases the riskiness of the investment because you are on the short end of information asymmetry. You may be able to ride momentum, but in aggregate you are signing up to the short end of the bargain.

More importantly, what are her after tax returns on capital after the management fees, and what is her leverage? What is the profile of her risk exposure on these properties? Just because the properties are working out for her now from an absolute returns perspective doesn't mean that (a) there aren't better investment options out there, and (b) the risk adjusted returns are good. Just my 2c.

Most amateur landlords do not factor in voids, repairs or the possibility that housing will not rise and rise.

Luckily most don't have to factor in opportunity cost because most don't "own" but are in fact highly leveraged. Housing is the only mainstream access to leveraged debt - that's why people love it.

Go to your bank and ask to borrow $400K "because you think google's shares will go up". They will say no.

But real estate? They love it, especially as it's all back-stopped by the government now.

Everyone wants to pile in and exploit other people working to capture some of their labour.

What happened to adding value and working hard? Can we all be rentiers? Who will grow the food?

>Go to your bank and ask to borrow $400K "because you think google's shares will go up". They will say no.

You could buy call options, which include a leverage component.

An at-the-money 1 year call option (LEAPs) is a huge leveraged bet that the price will spike. If you are wrong, buy another at-the-money option in a year. But you must be prepared to lose 100% if you are wrong. (Like like you would have lost 100% if you were leveraged to the max on housing in 2008.)

This is why I put "only mainstream". Every time I put that someone like you who thinks options are a way to show financial intelligence comes along.

Can everyone try to get a reliable income stream off of housing? No, because it's not generating wealth it's just playing the crazy system we have.

This is my beef with this and the reason for my last comment about this guy capturing labour of others. Can we all just rent off each other and watch the dollars roll in? No - other people have to do actual work so rentiers can kick back.

>Retired in his 30s to have a family. Must be nice especially if you have a family slaving away in your rental houses for you so you can capture all their labour.

I will never understand this kind of thinking. A rental agreement is beneficial to both parties - otherwise it would never have existed. You're no more "capture[ing] all their labour" than they are "squatting on your property".

Land is special because it can't be made. Imagine that you land on some planet, with no way to go back. You can work remotely using the intergalactic internet. It turns out you're the second guy there, the first guy now legally owns all the land. He agrees to rent you some land for living, at the maximum price you are capable of paying. Isn't he capturing your labor?

It's still 'beneficial' to both parties, because if you don't pay you will get legally killed for trespassing by police robots.

That's the situation on Earth, except 'the guy' is 'older generations' and the homeless are generally allowed to sleep rough on public land in most countries. Also no intergalactic internet.

On Earth, you can turn away and choose someone else.

If someone is renting too high of a price, then you go somewhere else.

Where do you think all the money comes from due to the huge rise in housing costs between now and 1990? It comes from the next generation paying more of their labour for the same house someone had to work far less for 20 years back.

And this is because banks have financialised housing. Prices are set by available credit.

We all have no choice in a world where land is financialised. You can't float in the air. You either live miles away from the source of most jobs (cities) and pay in commute time or you live nearer in and give someone a huge slice of your wages whilst they cream it in.

And in our current system it will always be like this. Productivity up? More wages to spend on rent!

If your argument is the government should be far less involved in housing and stop monkeying with the currency so much, then I'm with you.

But unless you're an absolute dictator you have to live in the environment in which you find yourself. People who buy real assets risk the possibility they'll go down in value, too - a lot of people where I live got wiped out in 2008.

Yes but it's better to not think "ah I see we are in a bad situation let me try to get on the side of the exploiters and get me a piece of the pie". It's just wrong, they are exploiting people.

Some did get wiped out in 2008 - those who got in late. Not MMM blog man who has "retired" but still takes rental income based on the differential between buying back before 2000 or so before housing was financialised and the cost of renting now. This doesn't take finance knowledge you just have to be born at the right time.

So many blogs have "yeah I saved a bit and my 3 houses quintupled in value and I wasn't handing over half my pay to a landlord like kids now...so let me give you some advice!"

For too many for too long housing has been a one way bet. And because they are creating nothing that money comes from the labour of others.

The more productive we become the greater the economic advantage of the land and therefore the greater the rent. If we all work harder and/or smarter the landlord gets it. And if we all try to get our slice of the pie we go to hell in a handcart. Together.

Can't reply to your reply Zrail.

Due to the financialisation of housing the yield has not been 4%. People have gotten massive appreciation on their land which has left them with a lot of equity if they bought before banking went insane (pre 1990-1997).

The primary cost of housing is the land, not the cost to build, not the upkeep. The land. And the land price is set by available credit. Banks can create credit at will. They only have to stop when the price of land reaches the maximum and individual can service monthly in interest on the debt. With ZIRP this has reached insane levels. All of it is utterly unrelated to either wages or the cost to build.

I'm not blaming "home owners". I'm blaming speculators who are buying more than one home. A place to live and a place to extract economic rent from others. These guys are the foot soldiers for the banks. An army of exploiters in a zero sum game devoid of wealth creation.

Financial speculation in an item pushes prices way beyond their reasonable utility. For example the tulip bubble - people didn't want to live in a tulip but up the price went as speculators piled in.

If you're cool with that then fine. I'm not.

Imagine the opposite extreme. No one is allowed to own a dwelling they don't live in. Graduate college, get a job, and want to live someplace? Pony up to buy a place, hope you have the 10-20% downpayment bucko...because there's no housing for rent. Every time you move, you're on the hook for 5-8% of the total value of the house in commissions and fees. You think that UHaul truck was expensive? Wait until the moving costs are that plus $15K each time. (which comes out of/delays your next downpayment savings)

Suddenly, the availability of short and mid-term rentals seems like an economic good compared to a world where there were none of those dastardly "foot soldiers for the banks".

Rentals are fine but without massive equity accumulation. Speculators are enabling banks to push up prices and then new speculators buy in at high prices and lock in high rents as they need to pay back huge amounts of interest to the banks.

We basically need land value tax to discourage land speculation and to inhibit the huge unearned income flowing to land owners. And once this tax is introduced get rid of labour tax.

I suspect that would end up quite regressive, as the renters would end up paying the land tax on the buildings they rent (indirectly, of course).

Many of the lower income renters pay little net tax (often negative with EIC) today.

I don't understand your argument. Everyone has to live somewhere. For some people, that means renting. Someone has to own the building they live in.

It's not like the person who owns the building does nothing to earn their rent. Building maintenance, loan servicing, taxes, insurance, vacancies, all of that and more has a cost (just ask a homeowner). From what I understand, 4% annually is a good return after expenses.

If you're arguing specifically about rents in the Bay Area, then sure that's a problem that needs to be fixed. But blaming the property owners for high rents is sort of blaming the messenger, no? No additional land and laws that prevent building upwards directly leads to higher rents because of increased competition, and high salaries at tech companies (combined with a bunch of other externalities like private buses) just makes it worse.

>But blaming the property owners for high rents is sort of blaming the messenger, no?

In the Bay Area, property owners directly influence the community rules and laws that restrict the construction of high density developments. This is the case in both SV and SF.

I don't blame the land owners -- they are acting in their self interest, as they have the right to be doing.

Is there some kind of crazy "only land owners can vote" policy there? Or is it like everyplace else in the country: all residents can vote?

hah - suddenly the reply button appears - i guess it's a timeout to stop rage replies. I replied above. Take it or leave it :-)

I don't see that anyone is being exploited here. Pre-2008 in my area rents were far below the equivalent house payment because there were more people who wanted to own property and rent it out than there were people who wanted to rent. In effect the renters were subsidized by buyers who were betting on rising home prices.

Historically, in the US at least, as a land owner your appreciation tracks the CPI pretty closely. It will go out of whack for a few years, but then there's a correction. I just can't buy into your exploiter-exploited mindset.

The tonne smells of England or so, which is at least relatively tight on housing (which is a situation where rent tends to end up including quite a bit of economic rent).

Yes, but we've seen this in the US also. The whole system totally messed up to bail out the banks from ramping housing up to 2008.

> Land prices for the boomers made them. For their kids unless they are bequeathed land they will have to pay a vast chunk of their salary to rentiers.

My parents are boomers; I received no land and only some help with my college tuition, and I've owned my own place for over a decade.

My secret? I don't waste money on stupid stuff (and especially, I didn't waste money on stupid stuff when I was younger). I've never had cable. I didn't spend tons of money eating out or partying, back in my 20s when that was the thing to do. I drove a crappy used car for over a decade. Back when I rented, I rented a crappy old apartment without dedicated parking spaces; when I bought a place, I bought a crappy little place.

Meanwhile, I had a colleague earning more than me, who literally had no savings, nothing more than a few $20 bills in his pocket, and I've known plenty more young people in straits nearly as bad. Sure, they drive nice cars, eat at fancy places and drink fancy drinks, live in swank apartments nicer than what you'd see on TV, wear nice clothes and nicer colognes, and so on and so forth—but they have no savings, or almost no savings!

You can trim your lifestyle, and you can save 20% of what you make. Saving from your very first paycheque is possible, and it's desirable.

A strange attitude to have and display. Yes, the 'game' is rigged to a certain extent. Everyone knows this. Every age has had the rules set by someone other than them.

My answer is : so what? Either you want financial independence and security, or you don't.

You can blame QE and land supply and all sorts of things. You can rant on the porch at passers by until the day you die.

You can be a victim of circumstance or you can make your own circumstances. The choice happens whether you make it consciously or not. It all depends on the attitude you want to take into it.

Personally I try every day to acknowledge where I am in life is a result of the choices that I have made. I am not a victim of anything because all outcomes I have a say in. If I want different outcomes I acknowledge I must make different choices.

Playing the victim card requires acknowledging that you are powerless. Some people prefer to live that way. I don't.

Are you saying that our current system is one in which the actors are mostly in control of their own actions? And those actions are mostly transactions with other actors? If so, how is your position (that the actors are mostly in control of the consequences) self-consistent?

e: the people who disagree with you (eg, me) are saying that intent does not clearly translate to effect in a chaotic system.

> If I want different outcomes I acknowledge I must make different choices.

Would love to see you try and sell this in Iraq, for example. An extreme but it illustrates the flaw in your theory.

I get seriously depressed by renting, and the realisation it's only going to get worse. Inflation up, rent up, wages stagnant. It won't be long until over 80% of my salary would get me a studio 20 miles from work. Currently, renting a room in a landlord's money spinner is 25%.

Maybe you'll be renting from one of HN's many "entrepreneurs" :-)