Have We Hit The Top?

[mattee2264]

Yeah you can still get rich and clearly you are better off holding real assets than cash. It will just probably take a lot longer and a higher savings rate and a longer working life (especially as with higher life expectancy you need to fund a longer retirement and need to self-fund rather than getting a nice final salary arrangement from your employer). 

 

 

 

[TwoCitiesCapital]

5 hours ago, Gregmal said:

True, but investing and homeownership is really the only path left for a normal person to ever get anywhere. Lets say you are super lucky, and for 30 years average $150k annual pre tax salary. This probably isnt realistic bc most people won't get anywhere close to that number until probably 2/3 of the way through their adult work life. But lets say its the average. After taxes, rent, and what comes with lets say 1.5 kids instead of 2.5, and a wife/husband who doesnt divorce you(even though thats the case like 60% of the time), if you're not investing but just saving, you're probably able to live like a cheapskate and sock away $30k a year? x30-40 years of working? You got like a million bucks....

 

So if you're an extreme outlier for a normal person, and get lucky, and beat the odds, and save for a really, really, really long time, you can be a millionaire at 70! 

 

Conclusion? at some point you need to take control of your shelter situation and to get ahead you need to have your money start making you money at some point. 

 

I mean, this totally if ignores any compounding over those 3-4 decades from any alternative use of the cash...

 

I don't think it's quite as dire as you say. I've owned my condo for the last 6-years. It's built equity which makes me feel good - but most of that is "fake" if I were to try to use it for my benefit. 

 

If I were to sell today to unlock that equity, I'd lose a large chunk of it to the sales commissions/closing costs. The remainder would be roughly equivalent to the cash spent on maintenance/improvements over the last 6-years. And I bought well - from a motivated seller in the middle of winter for 10% less then they were asking at the end of 2017. 

 

Perhaps it's a different story after the next 6-years, but the math hasn't borne out this being a slam dunk of a choice yet. I don't know too many millennials that are willing to stick with something for 10-years to see if it works. I don't know anybody who has stuck with a job that long. I don't know anyone who stuck with public service to get their student loans forgiven for more than a handful of years. Etc. 

 

Maybe that's "their fault". But it does seem like an 8-10 year breakeven for something  to get ahead isn't an OBVIOUS win. But maybe that's just my city? Obviously others will have different experiences, but still seems like CoL in the Midwest is reasonable so perhaps renting is less problematic here. 

[Gregmal]

Yea idk. Maybe it’s not always something that shows up greatly on the financial end of things. But one thing I’ve noticed as I’ve gotten older is holy shit do people love making problems for themselves and worrying about things. 
 

Again anecdotally my little sister is at Lockheed and has been there a while. Makes “good” money, benefits are awesome. Travels to DC, Miami, Qatar…fun stuff as far as work goes….worries regularly about the rent. Last 3 years her rent at a Camden property has nearly doubled in downtown Orlando. Whereas I remember visiting her in 2015 and seeing her current student “house” a 4 bedroom she shared with her friends in Oviedo…was for sale and they were getting kicked out…suggested why don’t we just buy it? $185k was the ask. Too much hassle and work apparently. Today it’s $550k. 
 

I think for most normal people, securing the shelter element of things gives them a lot of peace of mind and security. For one, when you want to move, you don’t have to worry about a down payment. You don’t have to worry about annual rent escalations. It just makes a big part of life simpler.

Edited July 21, 2023 by Gregmal

[Ulti]

https://ritholtz.com/2023/07/transcript-jawad-mian/
 

interesting interview with a global macro facilitator 

[Parsad]

A $5.5T savings wipeout...consumers pandemic savings just about gone.  Cheers!

 

https://ca.finance.yahoo.com/news/5-5-trillion-savings-wipeout-204546794.html

[changegonnacome]

On 7/21/2023 at 8:36 PM, Gregmal said:

I think for most normal people, securing the shelter element of things gives them a lot of peace of mind and security. For one, when you want to move, you don’t have to worry about a down payment. You don’t have to worry about annual rent escalations. It just makes a big part of life simpler.

I agree with this…..all those poor souls buying crypto to stave off the incoming monetary collapse….would have been better advised, using the same crypto framework, to buy hard assets in 2010’s like the roof over their head using a fixed rate debt instrument that goes short the currency. The authorities have sign posted the returns….. 2% a year inflation/hard asset appreciation as a minimum….your mission is simple…..don’t buy property in a clearly identifiable bubble and once that’s not the case (99% of the time)….. your job is to lever that 2% guaranteed return by as much as is humanly possible.

 

Some FHA programs require so little down that I’ve always taught that lots of charities focused on helping the poor would get higher ROI by helping them with down payments……as Greg has pointed out fixing or anchoring your housing costs over the pull changes both monthly cash flow of your household such that’s it’s always improving YoY….but the enforced savings element of building up equity….makes it so you have financial flexibility up the road and importantly into retirement 

[changegonnacome]

6 hours ago, Parsad said:

A $5.5T savings wipeout...consumers pandemic savings just about gone.  Cheers!

 

https://ca.finance.yahoo.com/news/5-5-trillion-savings-wipeout-204546794.html

It’s been on the come for a while……but there’s an inevitability to what happens next……consumers hitting a wall…..credit either not available or prohibitively expensive…..the labor market weakening is what I’m watching closely…..now that core and headline are pretty much converged, to see continued progress on inflation the labor market/nominal spending growth has to join the disinflation party…..the best time for that to happen from an inflation psychology point of view would be right about now…..made in china and Ukraine inflation has flattered the headline but progress is progress and that’s important…..but that damn made in America inflation though needs to cooperate…..the issue with this is good news on that front requires some bad news for profits, unemployment.

[TwoCitiesCapital]

On 7/25/2023 at 1:59 AM, changegonnacome said:

I agree with this…..all those poor souls buying crypto to stave off the incoming monetary collapse….would have been better advised, using the same crypto framework, to buy hard assets in 2010’s like the roof over their head using a fixed rate debt instrument that goes short the currency. The authorities have sign posted the returns….. 2% a year inflation/hard asset appreciation as a minimum….your mission is simple…..don’t buy property in a clearly identifiable bubble and once that’s not the case (99% of the time)….. your job is to lever that 2% guaranteed return by as much as is humanly possible.

 

Some FHA programs require so little down that I’ve always taught that lots of charities focused on helping the poor would get higher ROI by helping them with down payments……as Greg has pointed out fixing or anchoring your housing costs over the pull changes both monthly cash flow of your household such that’s it’s always improving YoY….but the enforced savings element of building up equity….makes it so you have financial flexibility up the road and importantly into retirement 

 

I mean, I'd never advise anyone to buy Bitcoin as opposed to a house if they had a few hundred thousand sitting around...

 

But also, crypto has by far been the best investment of the two over that time period making this statement a little asinine. 

 

In 2010, BTC traded for literal pennies. Every $1,000 put into BTC in 2010 is worth tens of millions, if not hundreds of millions, today. If you bought at the peak in 2013, you still have 30x your money. If you bought in 2016 you'd have achieved a similar 30x-40x. The only time period where you'd have underperformed real estate (maybe) is you bought the 2018 peak that lasted less than a week (and you'd still have done +50% which still beats MANY housing markets over the last 5 years).

 

So in 99% of observations, crypto was better and in that 1% of observations it was still better than much of the R.E. market. And this appreciation didn't require ongoing monthly cash outflows or tons of leverage to accomplish it. Sounds like BTC had the better ROI?

Edited July 26, 2023 by TwoCitiesCapital

[Gregmal]

The difference is that when you buy crypto to gold or whatever, you are 100% banking on appreciation and thats it. Theres far more to it when you buy a primary home. Not everything, to everyone, is purely a financial this or that situation. How many older folks have zero fucks to give because their mortgage is paid off? Same sort of thing. If you took out a mortgage in 2010 or whenever you've just about cleared the tipping point regardless of appreciation and life is about to get much easier and more fun. 

[TwoCitiesCapital]

I tell you what - if I had bought $1,000 of BTC in 2010 or 2011 or 2012, I'd also give zero f*cks

[Gregmal]

Same if I won the lottery. For the normal guy though, playing a normal risk/reward game with the side kicker being “life consideration”, checking off the shelter box greatly supersedes spreadsheets and lottery tickets. I don’t know anyone who bought speculative stuff like BTC pre popularity who wasn’t playing almost entirely with disposable money. Was pretty much the same as venture capital or pre ipo investing.

Edited July 26, 2023 by Gregmal

[Malmqky]

I owned a bunch of Dogecoin in high school. Used it to play online poker at school…got in trouble obviously and that was that lol.

 

Alas it’s lost, otherwise I would be sitting on a pretty penny.

[changegonnacome]

7 hours ago, TwoCitiesCapital said:

I tell you what - if I had bought $1,000 of BTC in 2010 or 2011 or 2012, I'd also give zero f*cks

 

Unfortunately for every BTC buyer.......there was a (insert ICO coin) buyer a couple of years later.....or BTC buyer 18 months ago

 

As Greg says.......if your talking about a slam dunk financial move with unbelievably high probability of a very satisfactory outcome......going short the US dollar with a 30yr fixed rate mortgage via the purchase of a principal private residence......is a slam dunk over 30yrs in 99.999% of cases.....buying crypto XYZ does not have the same probability of success.....it has tail success....but thats way different.

 

My point was that in some respects property works so well......for the same reason BTC is meant to work so well......that fiat currency is being debased by politicians printing money (inflation)......and so hard assets or finite assets benefit......the fact that you can twin a fixed rate debt instrument to a real hard asset is the magic in property.....you get the twins engines of guaranteed 2% inflation plus the American tailwind (GDP growth)....all inside an asset you can live in while it generates those levered returns. It's by far away the smartest financial decision 90% of people make in their lives.

 

Last time I checked no bank will give you 30yr fixed rate loan with 10% down to buy BTC.......and you certainly can't live inside your Bitcoin wallet.

Edited July 26, 2023 by changegonnacome

[Gregmal]

Yea I’m not by any means pointing this “at” @TwoCitiesCapital but mainly the logic…..but what kind of schmuck is like hmmm…should I buy myself a house, or some Bitcoin? Lol like it’s just totally lunacy. Or lives in the rear view mirror where everything they buy they go back and look up everything under the sun and if they find anything that performed better feel like they made a bad decision? I just can’t even process that.

 

I just look to own good assets and as many as I possibly can, in a responsible way, and that’s it. No room for a perpetual loser like cash. 

[Castanza]

1 hour ago, changegonnacome said:

 

Unfortunately for every BTC buyer.......there was a (insert ICO coin) buyer a couple of years later.....or BTC buyer 18 months ago

 

As Greg says.......if your talking about a slam dunk financial move with unbelievably high probability of a very satisfactory outcome......going short the US dollar with a 30yr fixed rate mortgage via the purchase of a principal private residence......is a slam dunk over 30yrs in 99.999% of cases.....buying crypto XYZ does not have the same probability of success.....it has tail success....but thats way different.

 

My point was that in some respects property works so well......for the same reason BTC is meant to work so well......that fiat currency is being debased by politicians printing money (inflation)......and so hard assets or finite assets benefit......the fact that you can twin a fixed rate debt instrument to a real hard asset is the magic in property.....you get the twins engines of guaranteed 2% inflation plus the American tailwind (GDP growth)....all inside an asset you can live in while it generates those levered returns. It's by far away the smartest financial decision 90% of people make in their lives.

 

Last time I checked no bank will give you 30yr fixed rate loan with 10% down to buy BTC.......and you certainly can't live inside your Bitcoin wallet.

How do you guys factor costs of owning a home into this long term? When I bought my house (which I ended up paying off early) I wanted to keep track of every single input cost I have so in 30 years or whenever I decided to sell at this point I can see IF I’ve made a positive return. 
 

I have a journal titled “The Cost of a Home” where I keep a running tally of every single expensive used on the physical maintenance of the house/property. From every major project down to every box of screws, tube of caulk, paint brush, p-trap, toilet flange, load of mulch, etc. 

 

Let me tell you that shit adds up over time! So far I’m ahead based on current market prices and what I could get for it if I sold. Obviously there is typically more upfront costs; but I’m really only through round 1 of repairs/updates over the course of ownership. 
 

I keep track of rents in my general area to get a ballpark for comparison. My gut tells me it might end up being closer than some think. 

[Spekulatius]

@Castanza Maintenance cost of a home is ~1% of the home value annually, if you just maintain your home and don’t do major renovations. Then you have insurance, taxes, that’s another 2%+ annually on carry cost (depending on where you live).

Edited July 27, 2023 by Spekulatius

[Blugolds11]

28 minutes ago, Castanza said:

How do you guys factor costs of owning a home into this long term? When I bought my house (which I ended up paying off early) I wanted to keep track of every single input cost I have so in 30 years or whenever I decided to sell at this point I can see IF I’ve made a positive return. 
 

I have a journal titled “The Cost of a Home” where I keep a running tally of every single expensive used on the physical maintenance of the house/property. From every major project down to every box of screws, tube of caulk, paint brush, p-trap, toilet flange, load of mulch, etc. 

 

Let me tell you that shit adds up over time! So far I’m ahead based on current market prices and what I could get for it if I sold. Obviously there is typically more upfront costs; but I’m really only through round 1 of repairs/updates over the course of ownership. 
 

I keep track of rents in my general area to get a ballpark for comparison. My gut tells me it might end up being closer than some think. 

 

I think it will be closer than people think for sure. But there are other "advantages" of home ownership that dont translate to the bottom line vs renting. 

 

Memories in a home, long term neighbors that become friends, freedom to do what you want in/to the property without checking with landlord etc. Depends on if you assign a "value" to that.

 

Also many home owners "upgrade' their living conditions in the home via emotional taste vs investment decision. Dated kitchen/bathroom needs an upgrade, but that upgrade/refresh could be served with middle of the road finishes, instead they go ultra high end with custom cabinets, counters, fixtures etc tough to get that $80k kitchen remodel money back out of a $600k house. They could have done a "nice" $40k refresh. Like kids that put a $4k set of rims on a $2k car. 

 

Some people say, we arent gonna take a vacation to Europe this year because we are having the bathrooms remodeled in the home. So that money wouldnt have been invested for financial return anyway, they lost out on the memories of a vacation, but gained the joy/pleasure (if thats the case) of what they determine is a nicer home and daily life. Tough to put a value to that. At the time they valued the daily routine improvement over a week or so vacation. Should that count against the buy vs rent calc?

 

Also some peoples taste can actually hinder the sale of the home, they spend a ton of money putting in things that target a specific potential buyer pool that is very small. 

 

I've always looked for properties that I could add value to, I do everything myself so its simple for me to see if there is potential there for improvements, finish basements, add sq ft, add bathroom, build new cabinets and redo kitchen, remodel bathroom, things like that. But I also enjoy doing it, if I bought a 100% complete new property, honestly I think I would be bored LOL. 

 

I have a spreadsheet with every single expense like you're describing for a cabin that a build from the ground up as an investment. Mostly because I thought it was fun to come up with estimates before hand, expected sale price, expected return etc and then as the project progressed, see how I could manipulate those numbers ie. I saved money in this category so that gives me more room in another, or wow that was way more than I planned, I'll cut in another area, it became a game. I never figured in the benefit of having a place to go for vacation that was "free" vs renting a place somewhere thought, if thinking strictly as an investment those should have been considered. 

 

Easy to get carried away worrying about it. To track every single expense down to a furnace filter sounds like a waste of time to me. I dont do that in a portfolio, constantly reevaluating if the return or yield is the best I can get, sweating .1% differences. I dont think it has to be, with a house either. If you're doing the right things with the house, buying in the right area, not grossly overpaying, keeping it current/marketable,  not flying in italian marble slabs to cover all the floors and putting in swarovski chandeliers, diversified in other investments...your result will be acceptable. Rather than focusing on doing everything 100% right, just try and limit the big mistakes of home ownership. If you get the big stuff right, the little stuff just kind of takes care of itself. Like Greg said, own as much good stuff as you can and dont do anything really dumb (be responsible)  and it should work out. 

 

Who cares if you have a positive return on the home. My point is, if you said, live in a rental for 20 years vs live in a home for 20 years with its advantages, but you will end up losing $24k vs renting, "costing you $100/mo to live in the home is that a bad deal? Thats a tank of gas in the truck. Where is that line? Couple hundred a month? As long as it isnt some grossly skewed obvious loss that doesnt make sense, why worry about it. Like I said, get the big stuff right, and th elittle stuff becomes insignificant, at least thats my thinking. 

[Gregmal]

Yea I just don’t get this sort of spreadsheeting every aspect of life mentality. But hey if folks think they can live in an ETF til they die, have at it! I’d rather own places I enjoy and have cashflow optionality and then build around that while everyone worries about termination or increase notices annually. 

[ICUMD]

My home is comfortable and allows me to work earning a good income.  A nice solid house in the country to keep me warm and dry, enough space at 2700 sq ft. And also waterfront as a bonus.

 

Never plan to sell it.

Couldn't care less what someone else values it for.

Do not consider my home as an investment, though these days it would go for 1.5x my purchase price in 2012.

 

OTOH, my condo in the city started getting hit with vacancy taxes which made it too much of a luxury to keep empty as a 'cottage' for personal use. So it's now rented.  

 

 

 

 

 

 

[Castanza]

5 minutes ago, Gregmal said:

Yea I just don’t get this sort of spreadsheeting every aspect of life mentality. But hey if folks think they can live in an ETF til they die, have at it! I’d rather own places I enjoy and have cashflow optionality and then build around that while everyone worries about termination or increase notices annually. 

Im only tracking it for pure entertainment because you always here from people that a house is a great investment! A lot of people talk about the value of a house in terms of a return for when you sell it down the line. But when you actually look at the numbers, most people are underwater. Really the main benefit is it’s paid off in retirement. Outside of that there really isn’t any advantage from a financial standpoint. 
 

I like my house and the upgrades because it’s what we wanted. Most upgrades won’t get your money back. No qualms there! And I agree @Blugolds11 there is more to a house than the financial aspect. 

But…

 

Realistically most people are looking at what 1-2% CAGR over their 30 year mortgage factoring in inflation (pulled out of ass)? Which triggered my idea of tracking every expense to see how it all shakes out in the end. 
 

Im really just curious to see if there are people who go from 25 -> Death who rent their whole lives and actually come out ahead financially vs owning a house.  Part of me (the cynical side) think this might be the case in certain areas (probably not in mine). I guess time will tell. 
 

At the end of the day this is probably a complete waste of time lol. But maybe I’ll be right at which point in retirement I’ll turn it into a shit book with an obnoxious title like “Don't Ever Buy a F$$$ing House!”. Sell thousands of copies and fund my golden years traipsing around Europe sipping fine wine and driving exotic cars
 

 

[changegonnacome]

5 hours ago, Castanza said:

Realistically most people are looking at what 1-2% CAGR over their 30 year mortgage factoring in inflation (pulled out of ass)? Which triggered my idea of tracking every expense to see how it all shakes out in the end. 
 

Im really just curious to see if there are people who go from 25 -> Death who rent their whole lives and actually come out ahead financially vs owning a house.  Part of me (the cynical side) think this might be the case in certain areas (probably not in mine). I guess time will tell. 

In a cold hard spreadsheet anyalsis - one might do better renting a modest home and investing the delta between a mortgage/maintenance vs. renting in SPY for 30yrs…but it presumes perfect execution and behavior.

 

Part of the math why homeownership works out to be successful for most people is that enforces a level of financial discipline on them that wouldn’t exist otherwise the ‘forced’ savings or equity build aspect takes non-savers and consumption junkies and drives ‘hidden’ savings into their day to day lives.

 

A mortgage for most people also creates a perfect income-liabilty matching engine…..30yr mortgage….40yr career….by the time you retire your mortgage is paid down to zero….therefore your monthly housing costs are reduced 90% versus an equivalent renter…this occurs in advance of or around the same time your income also drops 40-60%.
 

Peace of mind is one of the great undervalued assets in life…..and what I’ve described above is just that.

[changegonnacome]

But wait I thought inflation was gone JP!

 

 

[Sweet]

Doesn’t mean he needs to keep raising the rate.  Inflation has fallen significantly.  To keep raising the rates at this point whilst inflation trends in the direction he wants would be silly IMO.

[Sweet]

7 hours ago, Gregmal said:

Yea I just don’t get this sort of spreadsheeting every aspect of life mentality. But hey if folks think they can live in an ETF til they die, have at it! I’d rather own places I enjoy and have cashflow optionality and then build around that while everyone worries about termination or increase notices annually. 

Who thinks they can live in an EFT lol?

 

I’d guess that nearly everyone on the board has at least one home.

 

Anyone I know who has real estate is constantly running after tenants and property fixes etc.

 

I think you’re forgetting how much more relaxing it is to have your money parked in a fund… even if it is a REIT.

 

Strange for a guy who has previously said being able to relax and have fun in life is very important to you - I agree with you btw.

[Gregmal]

50 minutes ago, Sweet said:

Who thinks they can live in an EFT lol?

 

I’d guess that nearly everyone on the board has at least one home.

 

Anyone I know who has real estate is constantly running after tenants and property fixes etc.

 

I think you’re forgetting how much more relaxing it is to have your money parked in a fund… even if it is a REIT.

 

Strange for a guy who has previously said being able to relax and have fun in life is very important to you - I agree with you btw.

The people who continuously have to work or be bothered by their rentals are usually cheapskates who don’t want to spend money to fix problems but rather bandaid them. I have 4 and I do virtually nothing for them. If a major appliance or something goes, I pay up to have it fixed or a quality new one brought in. That or their lease terms are dumb. If your contract states the unit must be returned in the condition it was handed over…you rarely have an out of pocket expense. My leases even state that “there is no such thing as normal wear and tear” lol. 
 

But in regard to the topic here I am simply talking about a primary home. I would imagine most here have them and yes I don’t even think it’s debatable. Another overlooked reason is the built in savings mechanism that occurs with principal pay down. When folks pay their rent they look at what’s left and make whatever decisions they need to. When you pay your mortgage you’re auto saving right off the bat.