Hi, is buying a house in cash generally a worse investment than

>>963729
Depends how much you could make from your mutual funds vs how much your house appreciates over the same period... do a simple PV calculation.

Having zero personal debt is never a bad thing.

The thing you want to avoid is being house poor.

There is not a real simple answer to this question, because there are so many variables, such as the current economic outlook, the price of the house, and your financial stability.

You'd be getting fucked in the ass right now if you invested in index funds.

>>963798
>You'd be getting fucked in the ass right now if you invested in index funds.
Maybe. You don't know that.

That's why people diversify, OP.

What you could do is, put 50-70% down on the home, take a loan on the rest. Take the cash you would have spent on the home and put it in the market. That will insure you are at least diversified.

I'm not saying I would invest in index funds right now, because I wouldn't.

OP here: I was generally assuming that real estate appreciation matches inflation (I've read so), and the stock market's average annual return of 11% (about 7% above inflation in a given year). Even bumping the real estate percentage up a couple points didn't close the gap completely (if say you knew a residential area would become hot). In light of those figures, why wouldn't stock diversification almost always be better than real estate investment?

>>964252
>believing the 7% myth

If you're willing to churn hard and the market doesn't fluctuate much (pro tip: it will, for the forseeable future), maybe. 4% is the "smart" assumption to make.

>>964252
Because the market also drops, significantly. The S&P500 dropped by 25-30% per year for 4 of the last 15 years.

You're not comparing apples to apples. Or more accurately stated, you're comparing a more risky asset class (stocks) to a less risky asset class (real estate). Its makes perfect sense that the riskier asset class outperforms over the long run. We would also predict more volatility with the riskier asset class, which is confirmed as well.

If you want to compare two different types of assets, you need to do so on a risk-adjusted basis. In this instance, you'd be looking at something like a 50/50% stock/bond portfolio, and not a 100% stock portfolio. I predict that once you do an appropriate risk adjustment, the two assets will perform comparably.

You've also failed to test the most obvious (and common) case: take out a mortgage, buy the house, and invest the balance of your cash. Best of both worlds, which is why most financial savvy people do exactly this.

>>963729
>house
>a liability
>not an asset

Also, never take any debt that doesn't directly produce money for you. That means having rules of spending according to your budget. (ie: buying a house shouldn't be no more than a year's entire salary, the payments should only be 20% of monthly income, yadda yadda)

>>963729
Buy a shitty house, invest an extra 10-30% in remodeling fees and (done strategically) your return is much higher than any stock

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>>964252
Do the following: Put 20% down on a reasonably priced home. Get an option arm 5/1 loan and only pay interest. Congratulations, you are now in a home really cheaply. Now, you decide where to put the money that you would be putting into equity. You have two choices: equity, anything else. When you get to 5 years, if you don't like interest rates, you can sell your home and rent. Otherwise, if you continue to like rates, just refinance into another loan. In my area, it is much cheaper to pay interest on a loan than to rent. In general, home prices are not going to soar like stock prices.

>>964256
Link me to a source citing stock market averages 4% above inflation.

>>964287
I'm planning to move in my next house for likely just a few years, I didn't mention; a long-term mortgage isn't a good investment if you don't plan on staying in the house long, correct?

>>964508
Interesting; how much to I need to know to likely do well with that fixer-upper strategy?

>>964596
>a long-term mortgage isn't a good investment if
A mortgage isn't an investment. It's a type of loan.

You need to do a LOT more research.

Khan academy answered exactly this question. Basically, it depends.
https://youtu.be/JNL6f1xkie4

He even created a detailed spreadsheet you can download and mess with.
https://youtu.be/mtL_plJXv3c

>>965009
The problem with theKhan academy model is it completely ignores the fact capital growth is driven by policy.
It is a very black and white passive model which excludes 3 major points.
1. Savvy people will always try and steal a house price wise when purchasing. So your house value growth column will always spike after first year
2. Like I mentioned above, policy drives capital growth in real estate. Governmental policy on rates, money lending, employment generatorion, zoning, state planning frameworks, building codes, even foreign investment etc etc etc. changes to anyone of these can have dramatic effects on values.
3. Most importantly buying a home is a free economic education. It helps you develop lifeskills with money where renting debatably sets you backwards.

>>965065
>buying a home is a free economic education
>buying a home
>free

>>965101
I bet you're the type of gentleman who pays big money to go to seminars where some glorified agent gives you advice on how to buy property. The fact you don't understand what that quoted statement you posted alludes to speaks volumes about where you are in life.

>>965065
Further to this post. Just say you land a dream job somewhere OP. And after 12 months of living and working there there is a rental squeeze due to under supply.
What then?
Travel 4 hours daily to your once dream job as you rent in the suburban fringes? Spend x% more of your wage in rent payments?
Buying a property is securing a property, understanding tenure is important knowledge in property.

>>965132
Agent here.
God so much this.
People so often say when scared to proceed buying a property that theyre not going to make an emotional decision regarding the property.
But the truth is if you love living in an area for your job, business, schools, lifestyle then its already an emotional decision anyway.
If emotions don't matter to you and play no part in where you choose to live then move to Detroit.

>>964763
I'm speaking to the notion of mortgaging a house with much lower down payment and then investing the rest elsewhere, versus buying house in cash or renting and investing everything in stock.

>>965132
You sound like you're recommending against buying a home?

>>965195
Emotions should matter for everyone to the extent of maximizing their happiness. Bad emotion buying involves overstating a fact, or several, of how it'll actually affect your happiness.

>>963811

You just confirmed my plan OP thanks mayne

>Tfw paid 45% down on my condo of 120k making a $588 mo payment
>39k left to pay
>invest 10k in renovations
>making a $1200 monthly dividend from airbnb my spare room
> now its worth 200k two years later

Thats how you play it niggas

>>965598
If I put 100% down on a shitty condo around here my monthly payment would be more than $588. More than half that is the median HoA fee in the state.

>>965598
Well, 200k minus your 10k renovations minus the cost of your time or labor for said renovations minus the interest payments you've made over 2 years for your loan etc. etc.

Once you factor in the true costs of owning a home it typically doesn't appreciate in value as much as most people seem to think unless you bought in a busy and sold in a boom. Buying a house should be a security/stability thing more than an investment since most forms of investment are probably a touch better overall - more liquid mainly, wheras a house can be difficult to get rid of

>>965603
That's true, but you also add the cost of rent for each year to your total return, as that is a cost of living you negated.

Anyone else have information on assuming that the stock market will only average 4% annual return over inflation as one claimed, or that's not true? It's important, thanks.

>>965645
I think the guy from vanguard said it last week, but I think it was US growth not shares

>>965645
>that's not true?
It's not true. Or more accurately stated, its one guy's prediction. Whether its true or not: we'll know in a decade.

>>963729
You missed the whole point of buying the house. Cheap Leverage.

Generally you enter the house Cash to get favorable price and aggressive terms and time tables.
You mortgage out and repeat 5x to increase cashflow stability. You'd ideally like 4k a month to put out fires in a Real estate business. Than use company credit to grow to the point of stability.

The cashflow risk of real estate is extremely large at smaller scale.

Frankly if you've got the money to do a medium house cash. I'd say, try to buy a business, or commercial real estate. Significantly better terms, and a much easier negotiation.

>>965651
http://www.morningstar.com/cover/videocenter.aspx?id=718639
He's talking over a decade, meaning expecting crash and then rise again or stagnant gurgle up. I do not suspect meteoric rise than catastrophic fall. Or obscene inflation.

>>965603

Trust me brah.. I understand NPV

I should have a 13% IRR after subtracting expenses and then adding in opportunity costs of rent, also my cash flows from renting my room

However i have many unusual skills and circumstances that most people wont have

https://www.youtube.com/watch?v=xdfeXqHFmPI

>>965645
4% over inflation? That's 7%, which is the average. The guy saying it was saying 4% period, not over inflation.

>>966372
This is actually bad news for property in USA. When inflation rises so do house prices, it could be a year of slow growth or stagnation for property.

>>964252
homes have a 'market' just like equities do
that home market is influenced by a hell of a lot more factors than just inflation
some housing markets can even DECLINE, yes! it's true!

Just like there are some markets that decline, there are other markets that can do better over that same time period.

Ask a home owner in Auckland New Zealand whether they've made as much in the equities markets as they have on home appreciation.

That being said, sitting on a home is not a good way to grow wealth. People make money in real estate by developing and improving shitty stock, where the profits are determined by how low you can get the purchase price, and then determining the equity required to get it to the most desirable fit/finish. The moral of the story is you actually have to be actively working to make money in real estate; but when you do, the rewards are immense.

If you just want to not have shit to do with real estate, live in as cheap a place as you can stomach and put your money in the stock market. In my experience, if you don't mind a little bit of management, you're going to do better with a multifamily property (4+ units) in a desirable neighborhood than you are investing in stocks, but then you gotta come up with a downpayment somehow.

>>966391
>New Zealand

The prices there are jaw dropping

>>966161
I guess I should make clear now that I have thin knowledge of financial markets; as such, your response generally went over my head. Mind simplifying?

>>966372
7% average? Not according to the following article, an analysis of the S&P 500: http://blog.petetheplanner.com/what-rate-of-return-should-you-expect-on-your-investments/#sthash.kpVJyxrT.dpbs
>"I took some time this week to ask some industry colleagues their thoughts on this issue. Some still show 12%, some show 10%, and a great deal of them show somewhere in the range of 8%."

>>966391
For the moment, I'm looking for investment where I have almost nothing to do in the way of real work (this will change later).

>>963729
Why not buy 5 houses with 20% down on each, live in one and cash flow the other 4? Learn how to leverage.

>>966702
See my previous post (in fact, the sentence just above your post).