

The best investment I never made - bradlind
http://www.lindventures.com/blog/2012/06/23/the-best-investment-i-never-made/

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ajiang
One data point, one result. Obviously it's a universal truth right?

There are probably thousands of examples of people making an outstanding
return on investing in property. And the example given in the post is
extremely contrived:

"For example if you can start a new business with $50,000 then sell 20% of it
to an investor for $200,000 in 1 or two years, you’ve created $1m worth of
value in that time. Do you think if you bought a property for $1m with a 10%
deposit, it would be worth $2m in two years or less? No way."

How many people can create companies worth $1M in 1-2 years that with
certainty? How about compared to how many people can buy property? And what if
you had invested in a house in China back in 2007-2008? The value of your home
would have doubled by now so that your $1M would have been worth $2M with no
extra effort.

Context, timing, skill, and luck play a great role into what makes a good
investment. Let's be wary of over-generalizations made from anecdotal
examples.

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moocow01
"For example if you can start a new business with $50,000 then sell 20% of it
to an investor for $200,000 in 1 or two years, you’ve created $1m worth of
value in that time. Do you think if you bought a property for $1m with a 10%
deposit, it would be worth $2m in two years or less? No way."

Sorry but I have to point out that this is a very flawed comparison. How much
work did you put into that house? - I think the assumption here is none. How
much work did you put into your business? - depending on how much you consider
your rate to be probably a lot... potentially even more than $200,000.

A more fair comparison would be an actual home builder or developer and there
are many that do just this and could cite comparable or even much higher
returns.

~~~
michael_fine
What a lot of people miss when comparing the returns of a home to say, the
stock market, is that a home also __provides a place to live __. Of course a
home would return less, because if it didn't the price would quickly shoot up
because people see the inherent value in having your (lackluster) investment
put a roof over your head.

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kenrikm
I bought a 300k house for 70k (4.9% Fixed) after the bubble burst (Florida)
the house had never been under 100k since it was built in the 80s Now it's
value is back up to 150k, rent pays mortgage and maintenance 3x. I understand
your point, however property can be a good investment if you make smart
choices.

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bradlind
In Australia you wouldn't be able to buy a bus shelter for $70,000.

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kenrikm
My house is 5/4 with garage, 4 miles from Miami Beach. Since Florida was the
epicenter of the bust we now have the best prices. :)

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bobrenjc93
Just a heads up, my anti virus Nod32 says that there is a trojan embedded in
this link.

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antsam
Getting the same warning here, Firefox won't even let me load the page.

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dedward
Just to clarify - when you refer to buying (or not buying) a property - do you
mean actually buying it, or taking out a loan (mortgage) to "buy" the
property. I've noticed, especially in north america, people tend to refer to
"buying" a house when really they are borrowing it and paying for it for a
long time...... just curious.

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sopooneo
That's the reality of the situation when you boil it down. But technically, a
mortgage holder did completely buy his home form its previous owner, and does
now own it himself. It's true he paid for it with money borrowed from the bank
(and the bank lent it under certain conditions), but it legally his house, not
the bank's.

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_delirium
The argument seems to be that not buying property was a good decision, because
investing that capital into a startup instead produced a better ROI than
property investment would have.

But is that the normal case? What are median returns for property investment
versus self-funded-startup investment?

~~~
ams6110
For me the part that hit a nerve was this: "Nobody likes to have debt and as
soon as you have it, you become restricted in what you can do."

Most of us hear the constant refrain of what a good idea home ownership is,
and how it so much better than renting, when you take into account the
mortgage interest deductions and appreciation. And that's all true, but what
they never really emphasize is that once you take out a mortgage you've got
that $1,000 monthly payment (for example) that you've got to meet EVERY month,
for the next 30 years or until you sell. And you have insurance, property
taxes, maintenance, etc.

Carrying long-term debt and especially owning a home really does impact your
thinking. You become more risk-averse. You start thinking that a steady
paycheck is a better idea than taking the risk of starting a business. As time
goes on, you feel like you have MORE to lose because you've been paying on the
debt for a while and you actually have some equity. It's why banks view
mortgages with equity as lower risk, and why car insurance is cheaper if you
own a home.

As far as buying property as an investment, i.e. renting it out, the "common
wisdom" is that you make your money when you buy. You absolutely need to get a
really good deal when you buy, because the rent you're able to collect will
basically be a break-even on your expenses, so wnen you eventually sell your
profit is a function of your purchase price. Unfortunately a lot of people pay
too much for houses that they think are in a "hot" rental area, and they never
really make any money on them.

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Domenic_S
> _what they never really emphasize is that once you take out a mortgage
> you've got that $1,000 monthly payment (for example) that you've got to meet
> EVERY month, for the next 30 years or until you sell. And you have
> insurance, property taxes, maintenance, etc._

You've got a similar obligation if you rent. Rent or buy, you're still out on
the street if you stop paying.

> _Carrying long-term debt and especially owning a home really does impact
> your thinking. You become more risk-averse._

Meh, student loans, the ultimate long-term financial obligation, didn't make
me risk-averse at all. I'm slightly more risk-averse today -- and I do own a
home -- but I attribute a great deal of that to getting older. The prospect of
starting over from 0 becomes less appealing the older you get.

> _As far as buying property as an investment, i.e. renting it out, the
> "common wisdom" is that you make your money when you [sell]. You absolutely
> need to get a really good deal when you buy [...]_

Yes. If you're considering buying a place that you'll possibly rent out in the
future, you need to be serious about it and do your research. When I was
scouring the internet for articles and forums about it, I was shocked to see
just how serious -- and * unbelievably fiscally conservative* the people are
who buy rentals seriously are.

~~~
potatolicious
> _"Rent or buy, you're still out on the street if you stop paying."_

Not true at all. Buying means you've _committed_ to a particular lifestyle,
city, and income level for a very, very long time. Renting carries none of
these commitments and risks.

If I lost my job today I wouldn't be anywhere near screwed - my lifestyle can
be downsized a _lot_ in very short order (on the order of 1-2 months to reduce
my burn rate by 5x).

This freedom is important to me. Right now I'm in the middle of a relocation -
I want to experience a new place, with a different pace and different culture.
I wouldn't be able to do this if I had bought property. If I wanted to
bootstrap a startup I can easily move into a much, much cheaper place and
immediately free up a lot of capital.

~~~
Domenic_S
> _Not true at all._

Well yes, it's true that if you stop paying your rent or mortgage you will be
evicted. Although you're safer in a house you bought because the bank has to
foreclose first.

> _Buying means you've committed to a particular lifestyle, city, and income
> level for a very, very long time._

Depends on your definition of "a very, very long time". 5 years is the
accepted minimum threshold for buying a place, and if you did your homework
properly you should be able to break even renting it out. There was a time
when 5 years seemed like an eternity to me, but not these days :)

> _This freedom is important to me._

This is the important bit. There are 1,000s of rent vs. buy arguments all over
the internet but IMO it comes down to what you want for yourself. That freedom
to move about at will is important to you, so it sounds like you've made the
right choice for you. I like where I live and I despise moving, so buying was
right for me.

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rdl
There are markets where the monthly cash cost of owning a home is lower than
renting. It sort of looks like that could be the case in parts of the
Peninsula right now -- but mainly because there just isn't much inventory
either way.

Thinking like Warren Buffet ($1 today is not $1, but actually $20 after it
compounds many cycles) is technically inaccurate (the correct thing is
DCF/DV), but products a more correct result.

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paulgb
Trulia/Movity did a visualization on this
<http://trulia.movity.com/rentvsbuy/>

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rdl
Wow, that is awesome.

The big change in the past year is that private equity and hedge funds have
gotten into buying single family homes, using automation, to rent. The thing
which terrifies me is that they are more efficient than random individuals as
landlords, so they may all exit the market together. I've also heard that they
are much more efficient at setting rents, doing so based on income in an area,
vs comparables -- if they can take enough inventory out of the market, that
ends up making a lot of sense.

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paulgb
That sounds like a really interesting market, is this first-hand information
or have you read about it? I'd love to read a good article on this if you know
of any.

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rdl
[http://online.wsj.com/article/SB1000142405311190429250457648...](http://online.wsj.com/article/SB10001424053111904292504576484571234105448.html)

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paulgb
Thanks!

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jfoster
The overall principles (being free of debt = good) in this post apply
anywhere, but I think some context might help. AU hasn't had a housing bubble
pop in a long time. It's currently not possible to find a reasonable place to
live for less than $500k.

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vacri
A couple of things for perspective. Here in Australia HELP (it used to be
HECS) is a government student loan that you pay back as you earn later in
life. You can pay your course fees upfront instead if you like, but either way
the amount is not onerous for a basic degree, and it's basically a few percent
extra on your income tax until it's paid off (if your wage exceeds $X)

The other is that housing in Australia has gone berserk in price. We have the
most expensive housing relative to average income in the developed world,
except for Hong Kong. That's happened in only the past 10 years. What was a
$200k house then is now a $500-600k house, and wages have not grown to match.
Buying a house now is not a good investment. Buying a house back then was a
good investment, with the benefit of hindsight.

~~~
robryan
Depends on location, there is probably still money to be made in property.
Melbourne of instance probably now has very little undeveloped land within
10km of the CBD, even 20kms is mostly filled in. The population is still
rising quickly and lots want to live inner city. So I don't see those prices
crashing any time soon.

Granted it is a little like Apple shares, as expected high future demand would
be built into the prices.

HECS is such a better system that what you read about US student loans that I
wonder why they don't have similar. HECS doesn't touch your wage until you
earn around 50k and even then only takes a small percentage. No one feels like
they are taking a big financial risk here undertaking higher education.

