Rosales wrote: ↑Fri Sep 18, 2020 11:49 am
mrekvy491 wrote: ↑Fri Sep 18, 2020 5:06 am
I am in Czechia, and would get AGGH if I have to choose a bond. But I prefer local investment property much more.
RE provides protection against inflation, passive income, and leverage. I like the idea of getting cheap leverage that would help me protect a chunk of my assets against 3% inflation, when I am relatively young.
Moreover, the government provides a lot of benefits like tax deductions, some sort of support to help the RE market since most middle class families sit on the home equities.
I don't like going all in with RE, but it doesn't feel so bad as a bond alternative. Especially when your home currency is not a AAA currency.
I don't think investment in a single property, or many properties in one country is good in terms of diversification.
Could you explain, how does cheap leverage help you protect your assets against inflation?
Sorry, I don't think I put it clearly. I did not mean that leverage itself can protect against inflation.
I wanted to say these things:
1. Local real estates do generally well against inflation, because rents adjust to the level of income in the area. The price may fluctuate, but if you get a RE in the area you want to retire this does provide you with a stable inflation adjusted income. Once you become mortgage free, you don't have to worry too much about interest rate fluctuations.
2. No currency risk. Provides partial protection against currency risk of the whole portfolio if currency hedging is not an option (for bonds or equities)
3. Mortgage loans are generally cheap and easy debts to take on, as the government usually provides benefits and supports. They need to answer to the calls of middle class voters who want affordable housings. Hence they support tax breaks, cheap refinancing etc. Where I live, many people can get up to 90% mortgage. People probably won't be able to get margin account at this level of leverage. There is a risk of defaulting on the interest payment, but this risk is much lower than the risk of getting margins calls. You also probably will have the government supporting you to certain level.
Makes even more sense if you have a small fully paid primary residence and an investment RE. In this case you can have your tenant pay back the mortgage slowing increasing your monthly income so you can start snowballing. This is what I am doing - having a small and economic primary residence in the city I live, and buying a property in an area that has a relatively high demand for rent. Could have bought a single, nice family sized property with mortgage, but never wanted this.
4. Your children can benefit from the property. You may have them as tenants and offer discounted rents etc. This provides an insurance against rapid RE appreciations that would make your children's lives a lot harder. i.e. London, New York, Seoul, Beijing etc.
I am not saying that RE is the answer to everything, but depending on the local market and your situation could make sense. Things are quite stable in Czechia, but in places like Brazil where the inflation and currency swings can be higher RE may provide some advantages. Some countries do not offer easy/cheap access to the financial instruments either. Maybe in places like India this is true?
I come from South Korea, and REs in certain local markets did do better than stocks in the long term, because the growth was really fast and dramatic. And if you consider that there were not efficient equity investment instruments such as world cap weighted ETFs or mutual funds available during the rapid economic growth, it is not so difficult to understand why Koreans are so obsessed with REs, especially those in Seoul. It may look weird to Americans, but still.
RE may not be ideal for accumulation I know. But if you want it for certain purposes in certain places it could be a good option. Not every market is like the US, UK.