Mustang5ohMan
Well-Known Member
After 2008, our residential RE took more than 10 years to recover to pre-2008 levels, and that was in a very hot market. Residential RE on average increases about 3% a year. Compare that to the 10% annual stock market average.
FCF analysis is important to determine one's financial health, but some folks don't look to this when planning on long-term purchases like RE. The focus is what is the monthly payment compared to rent and can we handle it. And any savings went to the down payment rather than an emergency fund. So looking forward, they are already in negative cash-flow territory once the closing occurs. It's only after do we see the house-poor situation when that raise/promotion didn't come in, etc., and other things must be changed in order to put food on the table.
Experience over the long term, with many mistakes, helped me to see that in general, residential RE is a poor investment. Yes, one needs a place to live and buying is better than renting. But for most, a primary residence is their largest single asset which only increases by 3% a year on average. Add in the cost of the loan, I won't tie-up much in such a slow/no gainer. Would rather be reasonably leveraged and look to other assets to increase wealth. .
By the way, in June, 2019 we'd been on the down-side of the business cycle for about six months. We'd been moving into less risky assets in anticipation of a mild recessionary period which China was already experiencing. During the March/April 2020 time frame, the portfolio lost about 24%. It's gained back half that as of last week.
All valid points. You are correct it took nearly 10 years to recover. However you have to remember that RE you don’t have use much capital... 20% max of the home cost... and that’s max. A 300k house and let’s say you make $300 a month from the tenant that’s about 1% (tad bit more) and you’re still getting your 3% return (give or take a few percents) and if you put up the 20% that’s roughly what 60k you put into it... the market if you’re getting a 10% return on 60k is 6k a year which is damn close to the RE Market... just depends how much money you got and how you choose to play.
Also remember if your credit is solid you can buy a house for as little as 3.5% down and still get the same roughly the same return. Plenty of multi millionaires in either game so they are both winners.
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