What are some good boglehead principles around real estate?

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zetsui
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What are some good boglehead principles around real estate?

Post by zetsui »

For instance what are the statistically proven principle to follow for boglehead in the stock market with high liquidity one is investing in the most tax-efficient way into is setting up your asset allocation and risk tolerance. what would be the equivalent for Real Estate?

I think this is important because real estate is often your largest purchase earlier in life and can have a Snowball Effect Downstream with investment retirement jobs and it should be discussed a lot more. For instance there isn't a lot of clear data you can time real estate markets I just see a lot of opinion herereading older threads The local market with high liquidity and I live in a hot Market New York City New Jersey but nationally adjusted for inflation real estate is only grown about half a percent in the last 70 years.

Or should we just think the market is far better an investment passively and to just buy real estate for living? Would you turn just paid off or would you take out a mortgage how does risk tolerance factor into this
annu
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Re: What are some good boglehead principles around real estate?

Post by annu »

Summary of what I have seen most frequently mentioned

1. Do not buy real estate, unless you like fixing toilet on Christmas night at 2 AM
2. Read 1 again and do not buy real estate
bck63
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Re: What are some good boglehead principles around real estate?

Post by bck63 »

I figure people will always need a roof over their heads, so I own apartment REITs, which in turn own apartment complexes all over the country.

Beats fixing a toilet at 2 a.m. and the income is nice.
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Re: What are some good boglehead principles around real estate?

Post by whodidntante »

My Boglehead real estate principle is not to buy too much house. Buying a needlessly expensive house will impress your mom and create the appearance of success among broke people, but it will cost dramatically more to aquire, more to fill with stuff, more in taxes and insurance, and you probably can't park a hooptie in the driveway or let the landscaping wait until you get around to it. And average US single family houses are a terrible investment, and it will tie up and spank a lot of capital that could have been deployed to good investments. It's like a wealth destroying treadmill.
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Re: What are some good boglehead principles around real estate?

Post by flaccidsteele »

Buy rentals during the US housing crash and you’re set for Life

Worked for me
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: What are some good boglehead principles around real estate?

Post by Alchemist »

whodidntante wrote: Tue Nov 10, 2020 9:22 pm My Boglehead real estate principle is not to buy too much house. Buying a needlessly expensive house will impress your mom and create the appearance of success among broke people, but it will cost dramatically more to aquire, more to fill with stuff, more in taxes and insurance, and you probably can't park a hooptie in the driveway or let the landscaping wait until you get around to it. And average US single family houses are a terrible investment, and it will tie up and spank a lot of capital that could have been deployed to good investments. It's like a wealth destroying treadmill.
Should be added to the Wiki......

Real Estate is not an investment like stocks or bonds. It is a consumption item if it is a personal home, and a full time business if you want to pursue rentals.
3funder
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Re: What are some good boglehead principles around real estate?

Post by 3funder »

zetsui wrote: Tue Nov 10, 2020 6:55 pm For instance what are the statistically proven principle to follow for boglehead in the stock market with high liquidity one is investing in the most tax-efficient way into is setting up your asset allocation and risk tolerance. what would be the equivalent for Real Estate?

I think this is important because real estate is often your largest purchase earlier in life and can have a Snowball Effect Downstream with investment retirement jobs and it should be discussed a lot more. For instance there isn't a lot of clear data you can time real estate markets I just see a lot of opinion herereading older threads The local market with high liquidity and I live in a hot Market New York City New Jersey but nationally adjusted for inflation real estate is only grown about half a percent in the last 70 years.

Or should we just think the market is far better an investment passively and to just buy real estate for living? Would you turn just paid off or would you take out a mortgage how does risk tolerance factor into this
My opinion is bolded and underlined.
ThatGuy
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Re: What are some good boglehead principles around real estate?

Post by ThatGuy »

Bogleheads wrote:Rules for real estate:

1. Somebody might lose a job right now, only count one income.
2. That one income must be the lower of the two.
3. Inflation is not a thing. Don't stretch because your wages will never grow.
4. 30 years is too long. Only consider a 15 year mortgage. Make additional payments.
4. Purchase price not to exceed 50% of your investment account.
5. If you absolutely must violate #4, purchase price cannot exceed 2x of (the lower) annual salary.
6. You live in a VHCOL area? Tough, rules of thumb work for everyone. Better yet, move. There are no benefits to living in an above median area.
7. Oh you mean other than a primary residence? DON'T DO IT! You will lose everything, your wife will leave you, your kids will hate you, and you won't be able to fly first class anymore. Your dog might still tolerate you.
Work is the curse of the drinking class - Oscar Wilde
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Re: What are some good boglehead principles around real estate?

Post by abuss368 »

Honestly I would consider Vanguard US REITs and Vanguard International REITs.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: What are some good boglehead principles around real estate?

Post by flaccidsteele »

Good Boglehead principle around real estate is to ignore Bogleheads when it comes to investment real estate

REITs aren’t real estate

Dividends taxed at ordinary rates

No claim on underlying properties

No depreciation

No 1031 exchange

No ability to cash-out refi/HELOC/blanket

REITs similar to a paper investment with highly taxed distributions, and no tax benefits

If I wanted real estate I would buy real estate

As long as a low-fee US index etf exists, there’s no point for me to own a US or ex-US REIT
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: What are some good boglehead principles around real estate?

Post by AerialWombat »

flaccidsteele wrote: Wed Nov 11, 2020 11:30 pm Good Boglehead principle around real estate is to ignore Bogleheads when it comes to investment real estate
+1

I think there are less than a dozen of us here that are pro-rental properties.
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Re: What are some good boglehead principles around real estate?

Post by qwertyjazz »

You can beat market returns by purchasing real estate. You are not competing against Wall Street like buying individual stocks.
But you can also mess up. Buying index funds is easier and guarantees you market returns. In the long run, market returns are really good.
For most people buying real estate, it is a consumption decision and not an investment. So unless you know what you are doing and are trying to beat a local market, do not become house poor with a larger house than index investment portfolio
If you are trying to invest in real estate, you might do really well or you might not. Or as they say YMMV
G.E. Box "All models are wrong, but some are useful."
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Re: What are some good boglehead principles around real estate?

Post by phxjcc »

ThatGuy wrote: Wed Nov 11, 2020 7:06 am
Bogleheads wrote:Rules for real estate:

1. Somebody might lose a job right now, only count one income.
2. That one income must be the lower of the two.
3. Inflation is not a thing. Don't stretch because your wages will never grow.
4. 30 years is too long. Only consider a 15 year mortgage. Make additional payments.
4. Purchase price not to exceed 50% of your investment account.
5. If you absolutely must violate #4, purchase price cannot exceed 2x of (the lower) annual salary.
6. You live in a VHCOL area? Tough, rules of thumb work for everyone. Better yet, move. There are no benefits to living in an above median area.
7. Oh you mean other than a primary residence? DON'T DO IT! You will lose everything, your wife will leave you, your kids will hate you, and you won't be able to fly first class anymore. Your dog might still tolerate you.
Brilliant.

You forgot: live in your student studio apartment for 45 years after graduation, because: rent control!
Also, drive your 1970 240Z for the next 50 years, then sell it on BAT for >$100,000.
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Watty
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Re: What are some good boglehead principles around real estate?

Post by Watty »

What are some good boglehead principles around real estate?
For investment property;

1) Treat it like a business that is worth hundreds of thousands of dollars including having a written business plan with several possible exit strategies and professional tax advice. The taxes will likely be what determines how good a deal it is.

2) Consider how owning investment property will work when you are 70+ years old and may not be as sharp as you are now, or may even be living in a nursing home. Even with a property management company you still need to keep on top of them and occasionally replace them. This is one of the reasons that I do not own any rental property.

3) Consider the age of the house and neighborhood and how it will age when you own it. If you buy a 50 year old 1970s house when you are 30 and keep it for 50 years then it will be 100 years old by the time you are 80. Most houses will be pretty tired by then if they even make it that long. Even if you keep your house well maintained and updated the neighborhood could be far past its prime by then.
Last edited by Watty on Wed Nov 11, 2020 11:56 pm, edited 1 time in total.
Normchad
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Re: What are some good boglehead principles around real estate?

Post by Normchad »

phxjcc wrote: Wed Nov 11, 2020 11:42 pm
ThatGuy wrote: Wed Nov 11, 2020 7:06 am
Bogleheads wrote:Rules for real estate:

1. Somebody might lose a job right now, only count one income.
2. That one income must be the lower of the two.
3. Inflation is not a thing. Don't stretch because your wages will never grow.
4. 30 years is too long. Only consider a 15 year mortgage. Make additional payments.
4. Purchase price not to exceed 50% of your investment account.
5. If you absolutely must violate #4, purchase price cannot exceed 2x of (the lower) annual salary.
6. You live in a VHCOL area? Tough, rules of thumb work for everyone. Better yet, move. There are no benefits to living in an above median area.
7. Oh you mean other than a primary residence? DON'T DO IT! You will lose everything, your wife will leave you, your kids will hate you, and you won't be able to fly first class anymore. Your dog might still tolerate you.
Brilliant.

You forgot: live in your student studio apartment for 45 years after graduation, because: rent control!
Also, drive your 1970 240Z for the next 50 years, then sell it on BAT for >$100,000.
By following these rules, you’ll soon realize that you also have to live in the 1970 240Z. Seriously, I don’t think I’ve met anybody who complies with this......
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Re: What are some good boglehead principles around real estate?

Post by AerialWombat »

zetsui wrote: Tue Nov 10, 2020 6:55 pm what would be the equivalent for Real Estate?
I’ll actually take a stab at trying to answer the original question. Flaccidsteele, Sandtrap, Tomtom, and others may disagree with me, but this could perhaps be a good discussion.

Here are the 10 BH principles:

https://www.bogleheads.org/wiki/Boglehe ... philosophy

One flying marsupial’s real estate equivalents:

1. Develop a workable plan. Oh, it’s the same. Learn, learn, learn. Don’t rush your REI (real estate investing) education. There are countless strategies. Find the one that works for you.

2. Invest early and often. Same. If you’re going to do REI, incorporate it into your overall, long-term plan. Appreciation, debt paydown, rent increases... All are long-term.

3. Never bear too much or too little risk. Hmmm, same. Figure our how much leverage you’re comfortable with (it could be zero). Determine what geographic risks you’re willing to accept. Etc.

4. Diversify. REI is diversification from securities. But it could also mean property types, geography, etc. I choose to own rentals in three states, but choose not to buy apartments.

5. Never market time. With REI, market timing can actually be encouraged. I don’t, I buy my 1-2 houses a year no matter what. But it can certainly work.

6. Buy the same thing over and over. Get to know a type of property, or a neighborhood, buy what you know.

7. Keep loan costs and cap ex low.

8. Take advantage of the special tax breaks real estate can provide.

9. Invest with simplicity. Same. To me this means boring, long term buy and hold rentals. No flips, no creative financing like wraps and subject to. Just boring bank financing on good rentals.

10. Stay the course. Create the plan, work the plan.

So, mostly the same.

How’d I do? :mrgreen:
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zetsui
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Re: What are some good boglehead principles around real estate?

Post by zetsui »

AerialWombat wrote: Thu Nov 12, 2020 12:08 am
zetsui wrote: Tue Nov 10, 2020 6:55 pm what would be the equivalent for Real Estate?
I’ll actually take a stab at trying to answer the original question. Flaccidsteele, Sandtrap, Tomtom, and others may disagree with me, but this could perhaps be a good discussion.

Here are the 10 BH principles:

https://www.bogleheads.org/wiki/Boglehe ... philosophy

One flying marsupial’s real estate equivalents:

1. Develop a workable plan. Oh, it’s the same. Learn, learn, learn. Don’t rush your REI (real estate investing) education. There are countless strategies. Find the one that works for you.

2. Invest early and often. Same. If you’re going to do REI, incorporate it into your overall, long-term plan. Appreciation, debt paydown, rent increases... All are long-term.

3. Never bear too much or too little risk. Hmmm, same. Figure our how much leverage you’re comfortable with (it could be zero). Determine what geographic risks you’re willing to accept. Etc.

4. Diversify. REI is diversification from securities. But it could also mean property types, geography, etc. I choose to own rentals in three states, but choose not to buy apartments.

5. Never market time. With REI, market timing can actually be encouraged. I don’t, I buy my 1-2 houses a year no matter what. But it can certainly work.

6. Buy the same thing over and over. Get to know a type of property, or a neighborhood, buy what you know.

7. Keep loan costs and cap ex low.

8. Take advantage of the special tax breaks real estate can provide.

9. Invest with simplicity. Same. To me this means boring, long term buy and hold rentals. No flips, no creative financing like wraps and subject to. Just boring bank financing on good rentals.

10. Stay the course. Create the plan, work the plan.

So, mostly the same.

How’d I do? :mrgreen:
Better than most of the jokers in the thread :mrgreen:

Where are yo located at mrgreen?

I live in NJ the cost of housing in my old childhood neighborhood topped 830k this year (07302 zipcode). I wonder if I should buy for my self as its by one of the few public transports into NYC (Path train) or should I just buy to rent to others?

What METRICS would you look at to compare our two metros to make the decision?

Our market looks pretty recession proof too. Now seems like the best time to buy, but I do wonder if the government can take action to open up more housing (I doubt it in the coastal cities, there just isn't that much land) or infastructure.

So will the rental mraket or high home values always be there 30 years from now, thoughts? covid vaccine still in the air but i wonder if it will require people to go back or not
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Re: What are some good boglehead principles around real estate?

Post by Scooter57 »

1. All real estate is local. Nationwide statistics are meaningless. You need to understand the local economy and follow local listings and closings to know how likely investments in your local area will do.

2. Real estate is always cyclical. When you hear, "prices can never go down, here," sell.

3. The home you live in is not a real estate investment. You can only profit from it if you live in a HCOL place and move to a LCOL place or if you leave your nice home for a tiny dump.

4. Buy the home you live in because you would be happy living there for ten years or more and remember that at 20 years you will have to buy it all over again as your roof, appliances, carpet, wall treatments, furnace, A/C, windows, drainage, siding, etc, etc will all have to be replaced.

5. There is no such thing as a simple,, cheap addition or remodel. Embark on neither without a strong prenup. When a Realtor suggests you could easily add a new bath, remodel the kitchen, or add a bedroom they are lying. Realtors lie a lot.

6. If you buy rental property be sure you are very familiar with local eviction laws and how well they work. You can screen all you want and still get deadbeat and./ or bizarre tenants and it can take a long time to get them to leave. I learned the latter from someone whose tenants roasted a pig in her basement. Several times.
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Re: What are some good boglehead principles around real estate?

Post by ThatGuy »

Normchad wrote: Wed Nov 11, 2020 11:55 pm By following these rules, you’ll soon realize that you also have to live in the 1970 240Z. Seriously, I don’t think I’ve met anybody who complies with this......
Just to clarify, these rules were not intended to be taken seriously (by me). Except for the last one, I have seen every "rule" stated as iron clad fact on this board.
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Re: What are some good boglehead principles around real estate?

Post by JoMoney »

Operating a business in real estate/being a landlord is a good bit different then owning your own personal residence.
Principles for being successful at one or the other are different. There are personal taste and consumption decisions involved in owning your (and your families) home that should have different objectives of success over making a profit.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: What are some good boglehead principles around real estate?

Post by tibbitts »

I have no idea what the OP is asking, but to answer the question in the subject, the Boglehead principles for real estate are to either:

1. do everything (from building your home to maintaining it) yourself;

2. if you can't do #1, pay someone else far less than market rate to do the work for you.

Those apply for your personal residence or your 9,438 rental properties.

Personally I don't do those things, but then I own about thirty mutual funds, too - not exactly a Boglehead thing to do.
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Re: What are some good boglehead principles around real estate?

Post by Tal- »

I'm both a Boglehead and a real estate investor. Here are my rules:

#1: Never be cash poor. Never. Ever. Keep a big pile of highly liquid money readily available. You will have extended vacancies. You will have $20K repairs. This should be above and beyond your personal emergency fund.

#2: Real estate should be part of, but not your whole (or even, the bulk) of your investment plan. You still need a 401k/IRA/etc.

#3: Real estate is a long term investment. Think 10+ years (20 is the number in my head). It's by far, the most expensive (i.e. loss) investment to buy and sell, meaning you lose money on both the front and back end. You make your money when you hold.

#4: If you can't afford rules 1-3, you can't afford real estate. There's nothing wrong with that. Most people should not own real estate investments.

#5: Real estate is much more about people than houses. Manage your relationships. If you get to the point of googling partners, you've gone awry.

#6: You will have good months, and really really bad months. If you're going to lose sleep in the bad months, I encourage you to invest elsewhere.

#7: Invest for cashflow, and not net worth increases or tax benefits. Pray for all three, but only count on the cashflow.

#8: Ignore silly lists like this and make your own decision. There are zealots out there on both sides of the argument. There are financial worksheets and pro formas that can show REI as anything you want to see. So yes, seek advice, but do you own math. Evaluate your own plan. Evaluate yourself and your relationships. And make then your own decision in the absence of greed or fear.

Happy hunting.
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Re: What are some good boglehead principles around real estate?

Post by arcticpineapplecorp. »

you mention high liquidity but not diversification.

physical real estate is not highly liquid.
there are also greater costs for selling real estate that doesn't exist with stocks.

you're managing a business. even if you don't get the proverbial 2 am calls to unclog the toilet, there are vacancies. you'll have to screen tenants etc. It's not "no" work. It's not passive. It's active. How active may depend upon your tenants, buildings etc. But it's not passive. You may say you'll get a property management company to run the business, but then you have to manage a property management company to make sure they're doing their job and keeping tenants happy. You also lose part of your profits to a property management company. don't think that you'll just raise rents to compensate the property management costs, because you're up against what the market will bear. Charge too much, get too many vacancies.

Even if you want to manage yourself, you have to have a plan for either later in life when you may not want to manage anymore (or be able to) or you become physically unable to work. This happened to my father who had 40 properties, but his health condition made him unable to continue managing his properties. Long, sad story, but basically he lost everything late in life. I often think if he had sold properties over time as he got older and invested in passive index funds, he'd have been ok long term. But the last part of his life was not great. Of course it's easy to say "That'll never happen to me". But if you have no plan for this situation (we all get older. probability of disability increases with age) you could be toast and lose everything you've worked so hard to build. I often say that building wealth is only half the equation. The other half is maintaining the wealth you've built. Plan for that.

furthermore, the amount of real estate you could buy individually will offer no diversification, in number, geographically, or of type (look at the different types of real estate owned in REIT index fund below).

The REIT index fund has $55.2 billion in assets. It's highly liquid.
It's low cost.
It contains publicly traded REITS
It's diversified.

it's not tax efficient, so goes in tax advantaged accounts only.

Image

think you can do better?
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
scott68
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Re: What are some good boglehead principles around real estate?

Post by scott68 »

I think a 15 year fixed rate mortgage is fine as long as you put at least a 20% down payment. The mortgage should not be more than 25% or so of your take home income. I do not support real estate as an investment but simply as a cost effective place to live. I would advocate paying off your house as soon as possible, but not at the expense of maximizing your annual maximum retirement contributions or emergency fund (6 months of expenses). The rest of your investments should go into low cost index funds such as a total stock market index fund as long as your time horizon is more than 5 years. Hope that helps.
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Re: What are some good boglehead principles around real estate?

Post by Ocean77 »

ThatGuy wrote: Wed Nov 11, 2020 7:06 am
Bogleheads wrote:Rules for real estate:

1. Somebody might lose a job right now, only count one income.
2. That one income must be the lower of the two.
3. Inflation is not a thing. Don't stretch because your wages will never grow.
4. 30 years is too long. Only consider a 15 year mortgage. Make additional payments.
4. Purchase price not to exceed 50% of your investment account.
5. If you absolutely must violate #4, purchase price cannot exceed 2x of (the lower) annual salary.
6. You live in a VHCOL area? Tough, rules of thumb work for everyone. Better yet, move. There are no benefits to living in an above median area.
7. Oh you mean other than a primary residence? DON'T DO IT! You will lose everything, your wife will leave you, your kids will hate you, and you won't be able to fly first class anymore. Your dog might still tolerate you.
Interesting! Our home purchase was in a VHCOL area, but I think we still followed these rules pretty well:

1. We only had one income
2. See 1
3. Income went up 4x over the years
4. YES!!! We followed this one, got a 15 year mortgage
4. It was 100%
5. It was 8x my salary at the time
6. Bay area, so as VHCOL as it gets
7. We bought a vacation home, too.


So our score was 1 out of 8, not bad I think! And by the time we left the area and sold the house, it had gone up by $800k. Dang, we had to pay capital gains tax of about $50k, since the gain exceeded the tax free allowance of $500k. I'd suggest a 9th rule: Sell and move out by the time the gain reaches $500k.
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Re: What are some good boglehead principles around real estate?

Post by firebirdparts »

phxjcc wrote: Wed Nov 11, 2020 11:42 pm
ThatGuy wrote: Wed Nov 11, 2020 7:06 am
Bogleheads wrote:Rules for real estate:

1. Somebody might lose a job right now, only count one income.
2. That one income must be the lower of the two.
3. Inflation is not a thing. Don't stretch because your wages will never grow.
4. 30 years is too long. Only consider a 15 year mortgage. Make additional payments.
4. Purchase price not to exceed 50% of your investment account.
5. If you absolutely must violate #4, purchase price cannot exceed 2x of (the lower) annual salary.
6. You live in a VHCOL area? Tough, rules of thumb work for everyone. Better yet, move. There are no benefits to living in an above median area.
7. Oh you mean other than a primary residence? DON'T DO IT! You will lose everything, your wife will leave you, your kids will hate you, and you won't be able to fly first class anymore. Your dog might still tolerate you.
Brilliant.

You forgot: live in your student studio apartment for 45 years after graduation, because: rent control!
Also, drive your 1970 240Z for the next 50 years, then sell it on BAT for >$100,000.
Yeah, I thought that was pretty good too, honestly, even if it's a joke. Style of investing is a smaller factor compared to style of living.

Full disclosure, I don't mess with REITs at all. I do however own a 1970 Datsun.
A fool and your money are soon partners
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Re: What are some good boglehead principles around real estate?

Post by JackoC »

flaccidsteele wrote: Wed Nov 11, 2020 11:30 pm Good Boglehead principle around real estate is to ignore Bogleheads when it comes to investment real estate
By and large I agree. The signal to noise ratio of this forum on real estate topics, either owned home or investment actually, is distinctly less favorable than it is for non-RE financial asset (stock, bond, deposit etc) investing.

On owned home, the correct concept isn't *that*difficult. It is an investment, but you automatically consume the portion of the return that would otherwise be rental income. However personal financial guru's who deal with a low information audience have long concluded that the correct concept is still too complicated for their audience so have usually adopted the supposedly fail safe, but wrong, concept that an owned home is purely a consumption item. So that gets repeated a lot on this forum. The main problem with it is that it's not really fail safe in all cases. It does avoid the problem where people buy too much house and suppose this isn't costing them anything (it is costing them excessive owner imputed rent, easy to see in the comparison of buying $500k house or a $500k duplex and rent out one half of it). But 'house isn't an investment' fallacy can be dangerous where people, in higher cost areas particularly, ignore the big risk position they are taking for house to be maybe 50% or more of assets. They can *say* they value their home at zero. But they aren't going to feel that way if home values decline 50%, they will feel that loss, which will be real despite fantasy explanations to the contrary.

On real estate you own but rent out, it's easier to see it must be in an investment. I don't actually see as much flat out wrong analysis of that here. OK, some people way overhype the issue of 'fixing toilets'. As a rental property owner in highly regulated jurisdiction I'd say keeping up with the paperwork of disclosures and submissions is more notable as something you'd underestimate going in (I recently realized a recent law change now requires we submit a bedbug status report to NYC not just, you know, get rid of the bedbugs like we obviously do if brought to our attention :happy ). Toilets have a pretty high Mean Time Between Failure IME. Yeah I know it's a metaphor, still much such commentary is by people who pretty clearly have no actual experience.

The conceptual issue with rental RE is diversification. It's not dangerously undiversified to have 15% of your assets in one or a handful of rental properties. Just like it wouldn't be to hold a handful of different stocks if stocks were only 15% of your portfolio. We diversify stocks completely with index funds because it's easy and virtually costless, not necessarily because it would be always be dangerous not to. If 85% in a few stocks then yeah, lack of diversification would be a serious issue, as it also would be with 85% in a handful of rental properties. The difference is that with rental RE some people, depending on asset base and local prices, have to put a large % of assets into the first property or few, or can't ever start. Whereas everyone can buy fully diversified index funds for stocks from the first $1. I agree with your and other statements, REIT's can possibly make sense in some cases, but are not a close proxy for small scale rental RE investing.
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Re: What are some good boglehead principles around real estate?

Post by phxjcc »

MTBF on toilets: how true.
R/R's of being a landlord: ditto.

Your point of "dummying up" the home ownership data is a good one.

I am, at least, the fourth generation of landlords in my family.
I think it has to do with setting realistic expectations and therefore not being surprised when those expectations are met.

E.g., Do sinks clog on Thanksgiving?
Heck, yes.
What other day do you (over) cook for 12, making enough food for 20?
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Re: What are some good boglehead principles around real estate?

Post by abuss368 »

flaccidsteele wrote: Wed Nov 11, 2020 11:30 pm Good Boglehead principle around real estate is to ignore Bogleheads when it comes to investment real estate

REITs aren’t real estate

Dividends taxed at ordinary rates

No claim on underlying properties

No depreciation

No 1031 exchange

No ability to cash-out refi/HELOC/blanket

REITs similar to a paper investment with highly taxed distributions, and no tax benefits

If I wanted real estate I would buy real estate

As long as a low-fee US index etf exists, there’s no point for me to own a US or ex-US REIT
I would add that the “return of capital” from REITS is attributed to depreciation. REITs also now have the QBI deduction of 20% which helped level the tax field somewhat.
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Re: What are some good boglehead principles around real estate?

Post by WildBill »

Howdy

I am pretty pro-real estate, having been invested in it in various forms for over 40 years. I like it for cash flow and as an inflation hedge.

Different characteristics -

Raw land - highly illiquid and unleveraged speculation. Minimal time consumption.

Commercial real estate - Analyze on the leveraged cash flow and prospects for redevelopment or appreciation. Good inflation hedge. Usually low time consumption.

Residential - Analyze on cash flow. Maximize leverage. Business model improves with multiple properties and economies of scale.Appreciation variable, SFH best, condos least. Decent inflation hedge. Most time consuming.

May your leases renew favorably and your properties appreciate

W B
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Re: What are some good boglehead principles around real estate?

Post by zetsui »

WildBill wrote: Sat Nov 14, 2020 3:56 pm Howdy

I am pretty pro-real estate, having been invested in it in various forms for over 40 years. I like it for cash flow and as an inflation hedge.

Different characteristics -

Raw land - highly illiquid and unleveraged speculation. Minimal time consumption.

Commercial real estate - Analyze on the leveraged cash flow and prospects for redevelopment or appreciation. Good inflation hedge. Usually low time consumption.

Residential - Analyze on cash flow. Maximize leverage. Business model improves with multiple properties and economies of scale.Appreciation variable, SFH best, condos least. Decent inflation hedge. Most time consuming.

May your leases renew favorably and your properties appreciate

W B
Nice and short. Live in NJ, and it seems like a lot of commercial RE is going broke here, so is now a good time to get in or out? If I have 100k in capital can I somehow invest it in commercial or not?
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Re: What are some good boglehead principles around real estate?

Post by WildBill »

Howdy

100K is pretty light to do much.

My advice would be to look for some guys who are putting together a syndicate or limited partnership to buy a property.

Then analyze the deal. You will learn a lot,whether or not you invest.

Good luck

W B
"Through chances various, through all vicissitudes, we make our way." Virgil, The Aeneid
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Re: What are some good boglehead principles around real estate?

Post by Sandtrap »

zetsui wrote: Tue Nov 10, 2020 6:55 pm For instance what are the statistically proven principle to follow for boglehead in the stock market with high liquidity one is investing in the most tax-efficient way into is setting up your asset allocation and risk tolerance. what would be the equivalent for Real Estate?

I think this is important because real estate is often your largest purchase earlier in life and can have a Snowball Effect Downstream with investment retirement jobs and it should be discussed a lot more. For instance there isn't a lot of clear data you can time real estate markets I just see a lot of opinion herereading older threads The local market with high liquidity and I live in a hot Market New York City New Jersey but nationally adjusted for inflation real estate is only grown about half a percent in the last 70 years.

Or should we just think the market is far better an investment passively and to just buy real estate for living? Would you turn just paid off or would you take out a mortgage how does risk tolerance factor into this
Question context:

How much do you have to invest?
Current income?

Are you interested in leveraging or aquiring debt free?
Residential reals estate income property?
SFH single family homes or multi unit apartment buildings?
Commercial rental property?
Outside cash flow and working capital? How much do you have?
What kind of net returns do you expect?
Self managed or sub to property mangement and leasing agents?
Is the goal to maximize cash flow or long term wealth accumulation?
Staying power? Other assets and cash reserves for long term increase of net worth?
Business and finance experience?
Physically located in HCOL or LCOL area? And investing in which one?
Dependent on R/E invetment income cash flow to live?
Can you or do you want to change a faucet washer? Unplug a toilet? Experience a tenant lawsuit? Deal with health and building dept inspectors?


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Re: What are some good boglehead principles around real estate?

Post by duffer »

ThatGuy wrote: Wed Nov 11, 2020 7:06 am
Bogleheads wrote:Rules for real estate:

1. Somebody might lose a job right now, only count one income.
2. That one income must be the lower of the two.
3. Inflation is not a thing. Don't stretch because your wages will never grow.
4. 30 years is too long. Only consider a 15 year mortgage. Make additional payments.
4. Purchase price not to exceed 50% of your investment account.
5. If you absolutely must violate #4, purchase price cannot exceed 2x of (the lower) annual salary.
6. You live in a VHCOL area? Tough, rules of thumb work for everyone. Better yet, move. There are no benefits to living in an above median area.
7. Oh you mean other than a primary residence? DON'T DO IT! You will lose everything, your wife will leave you, your kids will hate you, and you won't be able to fly first class anymore. Your dog might still tolerate you.
I assume this is satire?
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Re: What are some good boglehead principles around real estate?

Post by lukestuckenhymer »

When I was younger, an older friend of mine told me the story of how he evicted his tenants and they decided to smash every cabinet with a hammer on their way out. Being a landlord is not an enjoyable experience. I never will touch real estate except to purchase a residence.
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Re: What are some good boglehead principles around real estate?

Post by Wanderingwheelz »

flaccidsteele wrote: Tue Nov 10, 2020 9:54 pm Buy rentals during the US housing crash and you’re set for Life

Worked for me
Buying stocks during the same housing crash would have done the trick too, especially if you leveraged yourself like you did with real estate.
Last edited by Wanderingwheelz on Sat Nov 21, 2020 5:32 pm, edited 1 time in total.
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Re: What are some good boglehead principles around real estate?

Post by FIREchief »

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Last edited by FIREchief on Sat Nov 21, 2020 6:42 pm, edited 1 time in total.
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Re: What are some good boglehead principles around real estate?

Post by kupuna »

"I'm both a Boglehead and a real estate investor. Here are my rules:

#1: Never be cash poor. Never. Ever. Keep a big pile of highly liquid money readily available. You will have extended vacancies. You will have $20K repairs. This should be above and beyond your personal emergency fund.

#2: Real estate should be part of, but not your whole (or even, the bulk) of your investment plan. You still need a 401k/IRA/etc.

#3: Real estate is a long term investment. Think 10+ years (20 is the number in my head). It's by far, the most expensive (i.e. loss) investment to buy and sell, meaning you lose money on both the front and back end. You make your money when you hold.

#4: If you can't afford rules 1-3, you can't afford real estate. There's nothing wrong with that. Most people should not own real estate investments.

#5: Real estate is much more about people than houses. Manage your relationships. If you get to the point of googling partners, you've gone awry.

#6: You will have good months, and really really bad months. If you're going to lose sleep in the bad months, I encourage you to invest elsewhere.

#7: Invest for cashflow, and not net worth increases or tax benefits. Pray for all three, but only count on the cashflow.

#8: Ignore silly lists like this and make your own decision. There are zealots out there on both sides of the argument. There are financial worksheets and pro formas that can show REI as anything you want to see. So yes, seek advice, but do you own math. Evaluate your own plan. Evaluate yourself and your relationships. And make then your own decision in the absence of greed or fear."

Listen to Tal above. It is good advice. I invested in Real Estate for over 30 years and made a lot of money. Raw land, Single-family homes and Apartments. After 30 years I have a Master's Degree in toilets. It is like having a second job that runs 24 hours a day 7 days a week. My guess is that less than one-in-five people are cut out for it. Most people quit because they don't like dealing with irresponsible people, or as a fellow investor once said, "It would be wonderful...if it wasn't for the tenants." The money-flow aspect is important but you need to ask yourself if you are emotionally capable of dealing with conflict. Educate yourself; read books and talk to other landlords. We all have horror stories but just consider it part of the business. Much of real estate investing looks good on paper - only. And one last thing, start by replacing all the parts in your toilet. Good luck.

TOM
"I can calculate the motions of the heavenly bodies, but not the madness of people." Sir Isaac Newton
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Re: What are some good boglehead principles around real estate?

Post by privateer79 »

Tal- wrote: Fri Nov 13, 2020 10:57 am .....
#5: Real estate is much more about people than houses. Manage your relationships. If you get to the point of googling partners, you've gone awry.
.....
Absolutely this!... and know yourself. My parents were DIY landlords (which was actually a real eye opener for an upper-middle class teenager to understand the mindset of folks just scraping by) and after watching them deal with chasing rent, evictions, repairs, etc (including having to evict some of their tenants over a year after they passed) I decided that I (and especially my very kind wife) didn't have the constitution for residential rentals. We did however rent out our vacation house on a weeklyish basis.

given the current stories about eviction moritoriums and non-paying tennants, I feel super fortunate that we made this choice and we're not dealing with a residential tennant with 6 months of back-due rent, and another 6 months before we could file for eviction.

And what have I learned this time around? Salt mist rapidly destroys everything except plastic, brass, and Stainless steel :shock: :oops: :D
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Re: What are some good boglehead principles around real estate?

Post by flaccidsteele »

Wanderingwheelz wrote: Sat Nov 21, 2020 5:15 pm
flaccidsteele wrote: Tue Nov 10, 2020 9:54 pm Buy rentals during the US housing crash and you’re set for Life

Worked for me
Buying stocks during the same housing crash would have done the trick too, especially if you leveraged yourself like you did with real estate.
Didn’t use leverage buying rental real estate during the credit crisis

I also bought stocks but they recovered relatively quickly

US stocks recovered while the US real estate market kept falling. Was obvious that expected returns from US RE was higher than US stocks in 2010

US RE purchased from 2010-2014 preformed better than US stocks

Market timing worked out better than expected 👍

NB: any landlord who’s dealing with tenants and evictions, paid too much. I don’t deal with tenants or maintenance. I approve expenses and set rent increases
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: What are some good boglehead principles around real estate?

Post by Semantics »

Alchemist wrote: Tue Nov 10, 2020 10:02 pm
whodidntante wrote: Tue Nov 10, 2020 9:22 pm My Boglehead real estate principle is not to buy too much house. Buying a needlessly expensive house will impress your mom and create the appearance of success among broke people, but it will cost dramatically more to aquire, more to fill with stuff, more in taxes and insurance, and you probably can't park a hooptie in the driveway or let the landscaping wait until you get around to it. And average US single family houses are a terrible investment, and it will tie up and spank a lot of capital that could have been deployed to good investments. It's like a wealth destroying treadmill.
Should be added to the Wiki......

Real Estate is not an investment like stocks or bonds. It is a consumption item if it is a personal home, and a full time business if you want to pursue rentals.
I think it still makes sense to think of it as an investment, because it produces a return on your capital. It's just a very poor one, because it's highly taxed, has concentrated risks, and the yield is low because the market is highly leveraged.

The next few decades could be interesting. The past 30+ years of falling interest rates have made it possible to make a lot of money, even with poor investments or management, by simple leveraged appreciation. Without falling rates going forward, and possibly even headwinds caused by rising rates, a lot of people might have a tough go.
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Re: What are some good boglehead principles around real estate?

Post by Wanderingwheelz »

flaccidsteele wrote: Sun Nov 22, 2020 1:08 am
Wanderingwheelz wrote: Sat Nov 21, 2020 5:15 pm
flaccidsteele wrote: Tue Nov 10, 2020 9:54 pm Buy rentals during the US housing crash and you’re set for Life

Worked for me
Buying stocks during the same housing crash would have done the trick too, especially if you leveraged yourself like you did with real estate.
Didn’t use leverage buying rental real estate during the credit crisis

I also bought stocks but they recovered relatively quickly

US stocks recovered while the US real estate market kept falling. Was obvious that expected returns from US RE was higher than US stocks in 2010

US RE purchased from 2010-2014 preformed better than US stocks

Market timing worked out better than expected 👍

NB: any landlord who’s dealing with tenants and evictions, paid too much. I don’t deal with tenants or maintenance. I approve expenses and set rent increases
Huh?
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Re: What are some good boglehead principles around real estate?

Post by flaccidsteele »

Wanderingwheelz wrote: Sun Nov 22, 2020 7:54 am
flaccidsteele wrote: Sun Nov 22, 2020 1:08 am
Wanderingwheelz wrote: Sat Nov 21, 2020 5:15 pm
flaccidsteele wrote: Tue Nov 10, 2020 9:54 pm Buy rentals during the US housing crash and you’re set for Life

Worked for me
Buying stocks during the same housing crash would have done the trick too, especially if you leveraged yourself like you did with real estate.
Didn’t use leverage buying rental real estate during the credit crisis

I also bought stocks but they recovered relatively quickly

US stocks recovered while the US real estate market kept falling. Was obvious that expected returns from US RE was higher than US stocks in 2010

US RE purchased from 2010-2014 preformed better than US stocks

Market timing worked out better than expected 👍

NB: any landlord who’s dealing with tenants and evictions, paid too much. I don’t deal with tenants or maintenance. I approve expenses and set rent increases
Huh?
Don’t worry. Most people don’t understand what I did either. Maybe one day you’ll reach my level
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: What are some good boglehead principles around real estate?

Post by Wanderingwheelz »

flaccidsteele wrote: Sun Nov 22, 2020 9:37 am
Wanderingwheelz wrote: Sun Nov 22, 2020 7:54 am
flaccidsteele wrote: Sun Nov 22, 2020 1:08 am
Wanderingwheelz wrote: Sat Nov 21, 2020 5:15 pm
flaccidsteele wrote: Tue Nov 10, 2020 9:54 pm Buy rentals during the US housing crash and you’re set for Life

Worked for me
Buying stocks during the same housing crash would have done the trick too, especially if you leveraged yourself like you did with real estate.
Didn’t use leverage buying rental real estate during the credit crisis

I also bought stocks but they recovered relatively quickly

US stocks recovered while the US real estate market kept falling. Was obvious that expected returns from US RE was higher than US stocks in 2010

US RE purchased from 2010-2014 preformed better than US stocks

Market timing worked out better than expected 👍

NB: any landlord who’s dealing with tenants and evictions, paid too much. I don’t deal with tenants or maintenance. I approve expenses and set rent increases
Huh?
Don’t worry. Most people don’t understand what I did either. Maybe one day you’ll reach my level
I’m pretty sure “your level“ isn’t the only thing you and I have to highlight as our differences.
quantAndHold
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Re: What are some good boglehead principles around real estate?

Post by quantAndHold »

Can we discuss diversification?

Bogleheads principle number 7 is diversification. Unless you’re infinitely wealthy already, I have a hard time believing that it’s possible to own enough individual properties, spread across enough locations and enough property types (commercial vs residential, etc) to actually be diversified. Owning ten houses in one location isn’t diversified. If the local market tanks, you’re affected. By the same token, owning only houses, even if they’re in multiple locations, isn’t diversified (see 2008). How get enough diversification within your real estate holdings to mitigate concentration risk, without your entire portfolio becoming overly concentrated in real estate, and while still being able to manage it all? Yeah, I know REITs. But for the purposes of discussion, I’m talking about an individual landlord here.

I’m not opposed to real estate as an investment, I think it has its place. But to say that there’s a proper Boglehead way to do it goes against my understanding of Boglehead principles. So I’d like to hear about how that works.
Yes, I’m really that pedantic.
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Re: What are some good boglehead principles around real estate?

Post by srt7 »

Alchemist wrote: Tue Nov 10, 2020 10:02 pm
whodidntante wrote: Tue Nov 10, 2020 9:22 pm My Boglehead real estate principle is not to buy too much house. Buying a needlessly expensive house will impress your mom and create the appearance of success among broke people, but it will cost dramatically more to aquire, more to fill with stuff, more in taxes and insurance, and you probably can't park a hooptie in the driveway or let the landscaping wait until you get around to it. And average US single family houses are a terrible investment, and it will tie up and spank a lot of capital that could have been deployed to good investments. It's like a wealth destroying treadmill.
Should be added to the Wiki......

Real Estate is not an investment like stocks or bonds. It is a consumption item if it is a personal home, and a full time business if you want to pursue rentals.
I believe you are confusing personal residence with investment real estate. The former is a money pit and is what whodidntante was referring to. The latter is an asset class that when played correctly can make one quite rich.
I can't think of anything more luxurious than owning my time. - remomnyc
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Re: What are some good boglehead principles around real estate?

Post by srt7 »

flaccidsteele wrote: Wed Nov 11, 2020 11:30 pm Good Boglehead principle around real estate is to ignore Bogleheads when it comes to investment real estate
+1 Not the right crowd for real estate or luxury purchases.
I can't think of anything more luxurious than owning my time. - remomnyc
srt7
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Re: What are some good boglehead principles around real estate?

Post by srt7 »

lukestuckenhymer wrote: Sat Nov 21, 2020 5:07 pm When I was younger, an older friend of mine told me the story of how he evicted his tenants and they decided to smash every cabinet with a hammer on their way out. Being a landlord is not an enjoyable experience. I never will touch real estate except to purchase a residence.
Just based on that one experience?
I can't think of anything more luxurious than owning my time. - remomnyc
just_cruisin
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Re: What are some good boglehead principles around real estate?

Post by just_cruisin »

annu wrote: Tue Nov 10, 2020 9:09 pm Summary of what I have seen most frequently mentioned

1. Do not buy real estate, unless you like fixing toilet on Christmas night at 2 AM
2. Read 1 again and do not buy real estate
1. I’ve owned real estate rentals for two decades and never fixed a toilet.
2. For two decades, renters have been paying off my mortgages AND putting money in my pocket.
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zetsui
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Re: What are some good boglehead principles around real estate?

Post by zetsui »

quantAndHold wrote: Sun Nov 22, 2020 1:19 pm Can we discuss diversification?

Bogleheads principle number 7 is diversification. Unless you’re infinitely wealthy already, I have a hard time believing that it’s possible to own enough individual properties, spread across enough locations and enough property types (commercial vs residential, etc) to actually be diversified. Owning ten houses in one location isn’t diversified. If the local market tanks, you’re affected. By the same token, owning only houses, even if they’re in multiple locations, isn’t diversified (see 2008). How get enough diversification within your real estate holdings to mitigate concentration risk, without your entire portfolio becoming overly concentrated in real estate, and while still being able to manage it all? Yeah, I know REITs. But for the purposes of discussion, I’m talking about an individual landlord here.

I’m not opposed to real estate as an investment, I think it has its place. But to say that there’s a proper Boglehead way to do it goes against my understanding of Boglehead principles. So I’d like to hear about how that works.
I think some markets are better. This is a weird metric but here in North Jersey wherever there are asians like Indo Pak, koreans chinese (Ft Lee, Jersey City, Edison) you basically have great public schools and industries like medicine or tech STEM that are recession proof or outperform the larger economy.

I would say there is value for real estate even in one place, as the REAL economy is not just in equities but purchasing power. Remember only about half americans are invested in the stock market
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