WanderingDoc wrote: ↑
Wed Oct 04, 2017 10:17 am
chicagoan23 wrote: ↑
Wed Oct 04, 2017 6:55 am
WanderingDoc wrote: ↑
Wed Oct 04, 2017 12:31 am
chicagoan23 wrote: ↑
Tue Oct 03, 2017 5:12 pm
visualguy wrote: ↑
Tue Oct 03, 2017 3:53 pm
And you're right - I don't see real estate in good areas of NYC/SF/LA as being "risky". Sure, anything could happen, but losing money on that would be at the very bottom of my worry list when considering history.
Must be recent history.....NYC real estate was destroyed in the 70s and 80s; an old neighbor of mine in Chicago lost 30% on his NY co-op that he sold in the early 80s and vowed never to return to that city. SoCal real estate was similarly crushed in the housing bust (down 50%) and was crushed in the early-mid 90s after Japanese investors dried up and the defense industry contracted (down 35%). Both places were still "the most desirable areas for the educated, creative, entrepreneurial, and wealthy" at the time that the real estate market was crashing.
Investing in real estate is not "safe" when compared to bonds. Not saying you shouldn't do it, especially if you make that your career and know what's a good deal and how to maintain properties, but based on the history I've seen, I would expect
20%-50% losses for real estate in each of those areas at some point.
I doubt you'll ever see anything close to that type of decline in bonds, which means putting several million in bonds, as opposed to a concentrated real estate position, is actually likely to lead to more wealth for descendants. If it were that easy and/or guaranteed, everyone would do it. It's not.
You are just wrong.
Real estate in NYC, SF, LA, San Jose, and Honolulu has returned 9-11% YoY in capital appreciation and 6%+ in rent growth, over the last 40-50+ years. Year over year. This includes the downturns!! This is publicly available data.
Real estate has benefits stock and mutual funds can't touch.
1) Very easy to leverage. Let the bank take the risk.
2) Ability to make an infinite return (buy at 70% LTV or ARV, rehab or wait, pull out 80% or less of LTV or ARV = infinite return).
3) Insider trading is not only legal, it's encouraged.
4) Ability to increase your returns at whim like choosing to self-manage instead of hiring a PM in lean times
5) Paying $0 or less in taxes on rentals while actually earning a good return.
6) Ability to retire in 3-5 years on a teacher's salary and a teachers IQ. Happens every day with real estate. Try doing that with mutual funds and a 401k lol.
I could go on but my fingers are getting sore. I have done # 1 - 5 of the above. I cannot say I have done # 6 since I'm not a teacher..
OK, thank you for correcting me. It's gone up 10% per year for 50 years, so you can't lose. Go ahead and put everything you have into SF rentals and enjoy your guaranteed windfall.
Sorry for making you hurt your fingers to correct my misguided suggestion that it is possible to see significant declines in real estate.
It's no problem. Already did and already FI in my early 30s. Stocks can go to zero, real estate can't. Also, many areas actually see a lower vacancy during downturns. It's a more forgiving investment imo.
I am now diversifying into mutual funds but I dont see it anything other than a long and slow investment. Please correct me if I am wrong.
If you are FI in your early 30s, then let's say you started building your real estate empire in 2009 at the bottom of the financial crisis. According to this data
and again here
, the S&P CoreLogic Case-Shiller San Francisco Home Price NSA Index bottomed out at about 120 or so. It's now at 245. Great, that's more than doubling up in only 8 years, with a lot of income coming in from rents. Of course, the S&P 500 has gone from 685 to 2540, a 3.5x increase. A small cap index (say, VB) has done even better; you'd have earned 4x your money.
Some people don't want income; they want appreciation. Income thrown off by real estate is not helpful to them, even if they are taking generous depreciation deductions to avoid taxes for now. They'd rather have the faster appreciation. And over the last 40 or 50 years, small caps destroy real estate in any locale as an investment. (Tip: That doesn't mean you should put 100% of your investment portfolio into small caps).
I am not trying to discourage anyone from investing in real estate; if you like it and you're good at it, I'm happy for you. You can make a lot of money. But I think it is wrong for someone to claim that, for an investor with $10+ million, putting $3 million into SF real estate is safer and makes more sense than putting that money into bonds, with the balance in equities. There is ample Nobel Prize winning evidence on portfolio theory and the efficient frontier proving that keeping some bonds in your portfolio will reduce your risk without costing you much in return. That's why everyone here does it. Over long periods of time and several boom and bust cycles, you will likely come out ahead with the diversified approach. And that ignores the many hassles of managing a real estate portfolio (Tip: If you are monitoring your property manager only a few minutes per month, there is a good chance someone is stealing from you).
I'm glad you are diversifying into mutual funds, and don't disagree that it is a long and slow investment. That's basically the point. You will be happy that you have money in a diversified portfolio when the next real estate crash comes, and it will come. I recommend that you take advantage of some of the non-Millennial wisdom from this group, you'll be happy you did.