And as I remember he was very conservative and was only operating with about 30% leverage, not the 80% or 90% Goofy is talking about.
http://nofeeboards.com/rehp/viewtopic.php?f=2&t=3487&……
Oh, Lordy!! Hocus was there. Glad he has disappeared.
Yeah, no, golfwaymore didn’t diversify into real-estate. He did the opposite of diversify. He went 100% in to one asset class. An asset class which is almost always low liquidity. In one geographic area. Dumb.
I like being a homeowner because I like my home and yard (though not right now after the recent ice storm and a million downed limbs 
), but I really don’t consider it an investment. It’s where I live.
…
And this is the whole point. It’s hard to make sense when half the people in the room are talking about investments and the other half are talking about what to buy with their investments. You gotta live somewhere. What floats your boat? It has a price.
I know I am unusual, but even my primary residence has to have an unexploited potential for increase. I am not an emotional buyer, but understand that most buyers are and look to see what emotional buttons I can put in to improve the value of my property. Perhaps it’s removal of wallpaper, or a place with good bones but a dated kitchen and baths, old carpet covering hardwood floors. Our current residence had a yard with lake frontage, but trees blocking the view, vines climbing those trees and so much deferred maintenance. Looks fabulous now and those views are supreme. We are cutting a large window in to the brick wall to show off that beautiful lake view and allow more natural light into the lower level apartment. What is currently a useless hallway to nowhere will become an upstairs laundry unit and an addition to the primary bedroom closet. I could go on and on, but will stop the narrative there.
We have moved quite a bit, so it has become ingrained in me to look for a property that I can improve, to minimize risk of losing money on the transfer. We were not always able to chose our exit date for our home, which is one of the big risks to investments both in real estate and stocks. Transforming an ugly duckling home into a swan is also one of my creative outlets. I love doing it. Not everyone does, but not wanting to should be your reason for not choosing to do so, not being told it can’t be done.
IP
S&P500 over the past 30 years returned 10.4% annualized versus 5.4% annualized in the top US city (Portland OR). One dollar invested in a Portland home got you $4.84 after 30 years, $19.46 if invested in the S&P500.
You should also consider the leverage you get from your mortgage. That is, if you put 20% down, you reap 100% of the gain in home price. Obviously your mortgage has to be paid each month, so it’s not like you get to multiply the gain by five. I recall doing the math many years ago, and the real interest rate return on a home was between the two numbers you listed.
Another advantage is that when you retire the mortgage, you live in your home rent-free (of course, paying property tax and insurance). The renter pays rent for his or her lifetime. So, maybe we could look at the “return” over 60 years, where the homeowner lives rent-free for half that time. Also, my mortgage has pretty much gone down…I refi’ed when interest rates went down three times. I’ll bet that rents have gone up over the last 35 years in just about every market.
The bottom line is that even if I were convinced that owning a home is an inferior investment, I prefer to live a certain lifestyle and retire a couple years later than to forego everything and be able to leave a bunch of money to some organizations when I die. Although we’ve always been careful with our money, it would be a shame to have “retire early” an a single goal then get hit by a truck the day after ER or become too sick or immobile to finally do the travel/leisure/whatever I’d put off all those years.
Some great points, Curious. Let me add a few based on my youth and what Youngest is now facing having taken a job in a high cost city.
I grew up in a very high cost of living area, with my first “apartments” being renting rooms in people’s homes. These rentals helped the owners afford to live in a house that they could then pay for much more quickly/easily.
Youngest is headed to a high COL area. Rents for a 1 bedroom apartment are $1500/month, with shared larger apartments not much less. He is scrambling to find a low cost rental as rents have spiked up 20+% this year and he is rightly concerned that will happen in year 2 also.
He will start by renting a room in someone’s 4br house, furnished and utilities included, for $175/week. This will give him the opportunity to get to know the area and determine if his new job is all that he thinks it is. If after 6 months he decides it is the great job that it seems to be, (great opportunity for growth and he anticipates being there a long time,) we will consider giving him a 100% LTV interest only FRM with a balloon payment in 5 years. (This is why we pulled out of buying another rental this week.) With his job, at current 30 yr FRM rates he can afford a $400K mortgage this way. Renting out rooms to roommates allows him to pay down the mortgage faster or put in improvements and build equity so that he can refinance within 5 years. He is currently 24, and this will allow him to start building equity earlier than most.
IP,
who likes to think outside the box
" An asset class which is almost always low liquidity. In one geographic area. Dumb."
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Not dumb - possibly poor execution or decision making.
After all, there are people who made a fortune investing in property in one geographic area and
one asset class.
NYC comes to mind.
Howie52
Any approach can be successful and “smart” - just as any approach can be dismal and dumb.
actually the same approach can be both - but at different times.
“Do not think of your housing decisions as part of your investment portfolio.” Housing represents a lifestyle choice . . .
This.
I’ve heard that a few times over the years. Your home is where you live. That it happens to be able to produce a return on investment is secondary. I don’t expect my car to produce any ROI either.
…I would have lived with my family in a tent?
Having a family also delays your retirement by several years, especially with multiple offspring (and their associated costs).
" An asset class which is almost always low liquidity. In one geographic area. Dumb."
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Not dumb - possibly poor execution or decision making.
After all, there are people who made a fortune investing in property in one geographic area and
one asset class.
NYC comes to mind.
I would never call GWM “dumb,” but reckless yes, not to have had more safety checks to ensure survivorship of an investment. No doubt there are many examples of extreme benefit from a concentrated investment strategy. Intrcst’s Dell and Pfizer investments come to mind. There are, I suspect, more extreme failures, but no one brags about those.
If you are going to invest in a risky way, you need to figure out a way to survive the downturns so that you can get back into the game. GWM failed to do that, not because it was real estate, but because it was a concentrated investment strategy without contingency plans.
IP
I don’t expect my car to produce any ROI either.
With few exceptions, cars are depreciating assets. I wouldn’t borrow to buy one, either.
IP
I don’t expect my car to produce any ROI either.
How much money did that car rake in by allowing you to get back and forth to work?
I’ve known people who lost their job and the money and potentially everything when the car went south. And people who got a better job by buying a car and going farther to work instead of taking the bus to low end / poor potential local jobs. Maybe it’s a glass-half-full way of assessing it? Or the “You have to spend money to make money” economic principle?
(I’m going back to being retired. This human interaction is too stressful.)
With few exceptions, cars are depreciating assets. I wouldn’t borrow to buy one, either.
I have done several 0% loans over the years.
PSU
If you are going to invest in a risky way, you need to figure out a way to survive the downturns…
Quibble. First you need to understand that it is a “risky way”. A lot of folks think they’re relatively safe, when they are not. During the real estate boom prior to Obama, people thought it would never stop. They didn’t realize the risk of the leverage they were using, or didn’t even realize they were using leverage. When it popped, they were hosed. I recall comments (don’t remember where) from people who were saying “I own 12 properties, what am I supposed to do?”. They were clueless.
Just jump into the ocean unless you know how to swim.
How much money did that car rake in by allowing you to get back and forth to work?
Valid point, though you do list some alternatives (e.g. the bus).
Just like you can rent a house (i.e. “the bus”), or own it. I have to live somewhere. I have to have a means to get to work. I don’t expect either to produce an ROI on its own. Either choice can enable me to earn money. If I get an ROI of the asset in addition, that’s just a happy side effect.
1poorguy (bought an ID4 last year for cash…first time I didn’t finance a vehicle, but I don’t buy that often…I drive them until they die)
You should also consider the leverage you get from your mortgage. That is, if you put 20% down, you reap 100% of the gain in home price. Obviously your mortgage has to be paid each month, so it’s not like you get to multiply the gain by five. I recall doing the math many years ago, and the real interest rate return on a home was between the two numbers you listed.
The other thing that is getting lost is the imputed value of rent. It isn’t like you could put the whole mortgage payment in the stock market because some of it would have to go for rent. And just through inflation, your mortgage cost will decrease over time. Because I bought a while ago, renting an equivalent property to what I own would cost about 2.5 times my mortgage, taxes, and interest. I couldn’t even rent an apartment in the suburbs for what I’m paying now.
The other thing that is getting lost is the imputed value of rent. It isn’t like you could put the whole mortgage payment in the stock market because some of it would have to go for rent. And just through inflation, your mortgage cost will decrease over time. Because I bought a while ago, renting an equivalent property to what I own would cost about 2.5 times my mortgage, taxes, and interest. I couldn’t even rent an apartment in the suburbs for what I’m paying now.
Excellent point. With our 30% down and 2% FRM, even having only bought 2.5 years ago our PITI on the mortgage is 1/3 what we would rent this out for as a long term rental.
IP
Valid point, though you do list some alternatives (e.g. the bus).
You might have misread the point. The alternative is only an alternative when it is an alternative. For the one whose car is a sine qua non to and from work or for the guy who needs to stretch for that job 30 minutes up I-95 and ditch the low-potential job in Philly, Das Boos is not an alternative. They only make money with the car.
Yeah, no, golfwaymore didn’t diversify into real-estate. He did the opposite of diversify. He went 100% in to one asset class. An asset class which is almost always low liquidity. In one geographic area. Dumb.
Really? That’s not what I read. https://discussion.fool.com/gwm2-cliffs-notes-28626946.aspx?sort…
* I reallocated my assets from stocks and a major piece of commercial real estate (which is what I’m assuming you’re referring to by a single non-liquid investment) into: stocks, debt instruments, residential real estate, a few local small businesses, and a little bit of commercial real estate.
Sounds to me like he did move that non-stock investment in a single piece of commercial real estate into debt instruments, residential real estate, small businesses and a little commercial real estate. That said, it still wasn’t that diversified, because all of the non-stock investments were still pretty highly correlated, and apparently, mostly in a single geographic area.
AJ
1pg: Just like you can rent a house (i.e. “the bus”), or own it. I have to live somewhere. I have to have a means to get to work. I don’t expect either to produce an ROI on its own.
This is intercst’s point?
Here’s what I get from reading intercst’s comments:
However, IF a person wants to retire LATER, rather than sooner… by all means - max out the housing costs.
ralph retired early due to being “woke” enough by TMF and the old REHP board to recognize the LUCK that befell me and then applying intercst’s philosphies about homeownership, maximize income/minimize outgo, and LBYM within that “luck” …
mostly in a single geographic area.
And with an undiversified employment base. When housing tanked, so did the carpet business that was the basis of employment in that part of GA.
Thanks for the link. I believe I had left that board by that time and didn’t see the return of GWMII.
IP
rented for the first 10 years…
then built a small 1350 sq foot house on a nice hilltop - superb radio location. $42,000
Had to sell 6 years later (at $52,000) but new company paid all expenses including transaction costs to buy nice townhouse in Arlington VA for $127,000.
Got transferred and company paid to sell townhouse for $227,000. Made $100,000 on that.
Built nice 2400 sq foot house, with pool, in excellent school system in Plano TX. 4 bedrooms, 3 baths.
My parents stayed with me for several months a year. Later dad died but mom now spent six months a year at my house. That lasted 11 years till mom passed. Have occasional guests but not all that many.
Nice to have own pool. For 5+ months a year, just take off clothes, open pool door and get in pool. No traipsing to community pool, full of sunbathers, drinkers, smokers, and who knows what else. (esp with the crud going around).
Been here 31 years.
Yeah, it’s more than renting but a 2 bedroom or 3 bedroom place and finding one that allows antennas not easy.
I still managed to save 30-40% of my paycheck each month. Retired at 52.5
Intercst has so many millions now, spends penuriously and will be one of those that die with 100 million in the bank…(or stock market). Haven’t heard too many stories of his plane episodes…likely not too many new ones since most folks with planes , after zipping around locally for five or 7 years, have run out of ideas to hop in the plane and go somewhere interesting. (Happened with my friends in central VA). Most of the problem is you get somewhere, don’t have a car, and finding a rental car at all these days is tough and many are $300/day for whatever they might scrounge up. Or you spend a fortune on Uber. Then you get stuck with weather on the return trip and spend an extra day waiting for it to clear.
Golf is a lot less expensive if that’s your thing. Not me - allergic to fresh cut grass and it bores the heck out of me whacking little balls around. I guess if you want to be VP you better play a decent game of golf. Good way for the execs to escape the office for a ‘meeting’ on the golf course.
t.