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[patientrenter]

davelj, I agree that returns on money invested in housing must be higher after adjusting for access to, and use of, leverage; tax deductibility of the interest and property taxes; re-fi options; the mail-back-the-key put option on the house itself; and low taxes on the gains.

Have you, or anyone else, seen studies of returns with all these factors brought into play? How about studies with all of them maximized?

Patient renter in OC

[patientrenter]

davelj, I agree that returns on money invested in housing must be higher after adjusting for access to, and use of, leverage; tax deductibility of the interest and property taxes; re-fi options; the mail-back-the-key put option on the house itself; and low taxes on the gains.

Have you, or anyone else, seen studies of returns with all these factors brought into play? How about studies with all of them maximized?

Patient renter in OC

[davelj]

pr, I haven’t seen studies with all of these factors included. I’m sure Jeremy Grantham has a bunch of them stored away in some folder on one of his servers at GMO that we’ll never see.

To get back to this 1.36% number for a second, the other issue is that this is a REAL annualized increase in property prices. If you add in inflation, that number becomes more like 4% (or more). So, if you lever 5 to 1, borrow at 7%, come anywhere close to breaking even on a cash flow basis, and your asset value increases at 4%/year, that’s a 20% return on equity. Assume some friction and you’re down to 15%. That doesn’t seem too bad to me. Now, you gotta buy the property right, of course, which you haven’t been able to do here in SD for five years or so. But I think you see my point. In a “normal” market, real estate can be a reasonably high return, moderate risk investment. It just hasn’t been that way in SoCal for several years now. But I suspect those days will return within a few years.

[davelj]

pr, I haven’t seen studies with all of these factors included. I’m sure Jeremy Grantham has a bunch of them stored away in some folder on one of his servers at GMO that we’ll never see.

To get back to this 1.36% number for a second, the other issue is that this is a REAL annualized increase in property prices. If you add in inflation, that number becomes more like 4% (or more). So, if you lever 5 to 1, borrow at 7%, come anywhere close to breaking even on a cash flow basis, and your asset value increases at 4%/year, that’s a 20% return on equity. Assume some friction and you’re down to 15%. That doesn’t seem too bad to me. Now, you gotta buy the property right, of course, which you haven’t been able to do here in SD for five years or so. But I think you see my point. In a “normal” market, real estate can be a reasonably high return, moderate risk investment. It just hasn’t been that way in SoCal for several years now. But I suspect those days will return within a few years.

[NotCranky]

It gets difficult, Patient, because entry point both specific to the house value and and other economic factors/trends of the ownership period. You have to weight the investors aptitude. What of rents in perpetuity once the house is paid for. Passing properties on to your kids if you have them.

“How about studies with all of them maximized?”

I think there are some people on this blog whose history provides case studies for having all of them maximized. I have elderly friends who never invested in anything but RE, never were tremendous income earners and they are doing pretty well. Good study there. They didn’t get there with one or two percent ROI.

I am not going to say there are no definitive studies. I guess I will shut up.

[NotCranky]

It gets difficult, Patient, because entry point both specific to the house value and and other economic factors/trends of the ownership period. You have to weight the investors aptitude. What of rents in perpetuity once the house is paid for. Passing properties on to your kids if you have them.

“How about studies with all of them maximized?”

I think there are some people on this blog whose history provides case studies for having all of them maximized. I have elderly friends who never invested in anything but RE, never were tremendous income earners and they are doing pretty well. Good study there. They didn’t get there with one or two percent ROI.

I am not going to say there are no definitive studies. I guess I will shut up.

[Author]

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