Capital gains tax after election (out of main)

[mickificki]

If you want to argue that some people in real estate make more than 1.5% in annual appreciation, you might as well say you can invest in TSLA when it was $17 pre-split at make over 100+% returns annually. Show me any building or home that doubles in price every year.

sometimes its better to heed the advice/knowledge of those who have more experience and wisdom...

 

[Silentk]

What are you talking about? The wealthy lost $10 trillion in wealth in 2008, and the loss was concentrated on those holding massive real estate portfolios. Lower capital prices also lead to lower rents, which would've happened without federal intervention. Do you know the enormous effort the federal government put in to revive the housing market? Had the government done nothing, most of you holding rental units would've been wiped out.

Hard to take seriously someone called BigPeePeeMember

 

[BigPeePee]

THIS this the CENTRAL POINT you fail on, and the crux of which ALL your false assumptions are based upon.

1) Appreciation on the property is just icing on the cake.
2) The REAL money is made on a) rent and b) tax deductions due to depreciation and any other "costs" you can wrap up associated with the property.

But lets take your point, and rip it to SHREDS:
If my up-front investment on the property is just . . .5% of the value of the property . . . and I make 1.5%, what is my return?

100 x 1.5/5 = 30%, minus my mortgage interest costs, etc. Realistically, 10-20%, year over year.

People always have to have places to live, and residential real-estate is a good investment. The reason "average joe" doesn't do it is that you have to have a reasonable net worth to get the proper loan to make the return worth while. It's a LOT more than buying 1-2 shares of TSLA.

The leveraging on 1.5% only works if you sell the house within a year. If you're holding onto the house and refusing to sell it, there is no leveraging effect, as after the amortization period ends, you'll have an effective growth rate of 1.5% annually (Even less, due to interest)
The only way your argument would make sense is if you're buying 20 or so homes a year, which I doubt you are. Let's see your portfolio of 300 houses.

 

[Tyler34]

Hard to take seriously someone called BigPeePeeMember

Plot twist, its a girl.

 

[bkp_duke]

The leveraging on 1.5% only works if you sell the house within a year. If you're holding onto the house and refusing to sell it, there is no leveraging effect, as after the amortization period ends, you'll have an effective growth rate of 1.5% annually (Even less, due to interest)
The only way your argument would make sense is if you're buying 20 or so homes a year, which I doubt you are.

You smoking some seriously bad stuff. You are 100% wrong on this, but thanks for playing the game, you can get your consolation prize at the door.

The leveraging works for as long as you have a mortgage on the property.

 

[BigPeePee]

You smoking some seriously bad stuff. You are 100% wrong on this, but thanks for playing the game, you can get your consolation prize at the door.

The leveraging works for as long as you have a mortgage on the property.

You don't benefit from the leveraging unless you're selling it before the amortization period ends.
You can not benefit from both rent and leverage. It is one or the other.

Still waiting for your portfolio of 300 houses.

 

[bkp_duke]

You don't benefit from the leveraging unless you're selling it before the amortization period ends.
You can not benefit from both rent and leverage. It is one or the other.

Still waiting for your portfolio of 300 houses.

And to the ignore bin you go.

As they say in my (now retired) profession: I have no cure for stupidity.

 

[Lessmog]

This single statement confirms you have no idea what you are talking about when it comes to real-estate investment.

If you want to argue that some people in real estate make more than 1.5% in annual appreciation, you might as well say you can invest in TSLA when it was $17 pre-split at make over 100+% returns annually. Show me any building or home that doubles in price every year.

PLEASE you guys, take this discussion elsewhere. PM, rent a property, I don't care.

You are destroying an already poor signal to noise ratio here and now.

Maybe I could recommend Autoban? For a few days at least?

 

[Beltsbear]

You don't benefit from the leveraging unless you're selling it before the amortization period ends.
You can not benefit from both rent and leverage. It is one or the other.

Still waiting for your portfolio of 300 houses.

What does this have to do with TSLA? Real estate strategy?
Mods : ok to delete

 

[BigPeePee]

And to the ignore bin you go.

As they say in my (now retired) profession: I have no cure for stupidity.

I'm going to take this to mean you don't have 300 homes, which means you aren't buying 20 homes a year, which makes your leveraging calculation worthless.

 

[BigPeePee]

Many people vastly underestimate how lucrative real estate investing is. Often returns cant be calculated because you can easily buy property with 100% loans once you have accumulated enough equity elsewhere, so the return on an individual investment property is infinite when the invested capital is zero.



I don't know where you are getting the "probably appreciate 1-2% annually going forward" forecast from, but even using that very conservative estimate, if you buy an investment property with 5% down, that 1%-2% capital appreciation means between a 100%-200% return on investment in just 5 years. Do the same calculation assuming a 3-5% annual appreciation rate, or a bull market 8-10% rate.

<insert raining cash GIF>

And that doesn't include return from rental income (rent received less interest, insurance & maintenance costs).

You're making the same mistake the other guy is. Rent and leveraging don't go together. You benefit from only 1. After your amortization period ends, your annual growth rate from the original property price is still at 1.5%. If you include rent and expenses, you may end up with a 3-5% annual return in the best case, which is still lower than the hassle-free 7% stockmarket returns. Most people who buy property at today's prices set rent equal to expenses, so it is even worse than 3-5% a year. Please do the calculation.
Leveraging isn't a magical instrument that multiplies your growth rate unless you're selling and not renting. It's a mechanism for house flippers, which I assume you and he are not. It does not apply to either of you.

The other argument is that you use the other 95% to downpay into 19 other properties, but I highly doubt both you and he have 300 properties each. This makes your leveraging calculation worthless.

 

[Thekiwi]

You're making the same mistake the other guy is. Rent and leveraging don't go together. You benefit from only 1. After your amortization period ends, your annual growth rate from the original property price is still at 1.5%. If you include rent and expenses, you may end up with a 3-5% annual return in the best case, which is still lower than the hassle-free 7% stockmarket returns. Most people who buy property at today's prices set rent equal to expenses, so it is even worse than 3-5% a year. Please do the calculation.
Leveraging isn't a magical instrument that multiplies your growth rate unless you're selling and not renting. It's a mechanism for house flippers, which I assume you and he are not. It does not apply to either of you.

The other argument is that you use the other 95% to downpay into 19 other properties, but I highly doubt both you and he have 300 properties each. This makes your leveraging calculation worthless.

You benefit from both Leverage and rental income from day one on your very first property - I have no idea why you are failing so badly to comprehend such a simple equation.

 

[BigPeePee]

You benefit from both Leverage and rental income from day one on your very first property - I have no idea why you are failing so badly to comprehend such a simple equation.

No, you do not. Leverage only works if you're selling before amortization ends or if you're buying 20 houses in a year assuming 5% down. You are doing neither, so you do not have any leverage and will be making 1.5% annual appreciation.

Again, do the calculation for 30 years (Or however long your mortgage is) and not just 1 year. Don't post back until you do the math.

 

[BigPeePee]

You benefit from both Leverage and rental income from day one on your very first property - I have no idea why you are failing so badly to comprehend such a simple equation.

Ok, since you're scared to do the calculation for you, I'll do it for you.

Suppose you buy 1 house and only 1 house for 30 years. For the sake of simplicity, let's assume that you have a mortgage interest rate of 0%, so you're paying down the principal every year. Let's assume there are no costs involved in the house.
The house price is $100,000 at the start. At the end of 30 years, the house price is 156,308.02 and you paid a total of 100,000 for it, which is a 1.5% annual gain.
Where is your leverage? I don't see it.

Now let's assume every year you buy 1 house (Which is probably more than you buy, but I'll give it to you). Let's assume the same thing for each house and in addition, you don't sell any houses.
At year 30, you will have paid a total of $1,834,071.10, but your final property price is at $4,689,240.66. This is an annual gain of 3.18%. Where is your leverage? This isn't even considering the fact that you're probably losing money on rent for the first 30 years of ownership due to a low 5% downpayment.

Bu...bu... bu... wait... What if I go longer than 30 years? No problem. Let's extend it to 40 years!

My. my. What do we have here? Only 2%!!! With rent, you might be lucky to hit 3%. Where is your leverage?
Something to note is that the annual return converges to the annual appreciation rate of 1.5% the longer this model grows, because newer houses take up an increasing smaller portion of the total payment calculation with each growing year, so there is no point in extending the model out further. It will converge to 1.5%, which is what I said from the start.

Don't blame me because you don't understand when or where to apply formulas. Leveraging only works if you're buying multiple properties with the downpayment or if you're flipping houses. It does not work for people like you who buy 1 property every year (Probably less) and only rent.
Enjoy your crappy 3% annual return with the headache of dealing with tenants while everyone else enjoys a stress-free 7% return.

You may have gotten lucky with 2008, but real estate is not a good investment moving forward, and it most certainly is not an investment the wealthy would flock to en masse if capital gains taxes spiked. In fact, stocks beat out real estate even in 2008. You would've done better by investing in stocks than houses.

There is only 1 way to redeem yourself. You and your friend are banking on leverage for your argument, and they only way the rate of return with the leverage formula holds true is if you're buying 100/X% of downpayment in houses every single year. If we assume 5% like your friend did, you must be buying 20 houses a year, right? Now let's see them! Show us your portfolio of 300+ houses. We're all waiting anxiously for you to provide us this proof.

 

[BigPeePee]

BU...BU...BU... MUH EXPERIENCE! THESE MILLENNIALS AREN'T SUPPOSED TO KNOW MORE ABOUT FINANCE THAN ME!!!

TheKiwi and everyone else that got destroyed, please stop posting and embarrassing yourself.

 

[BigPeePee]

Example of leveraging:

House Price: $100,000
Downpayment: $5,000
Annual appreciation rate: 1.5%
House Price after 1 year: 101,500

Sell the house at $101,500. Subtract $100,000 to get $1,500 in profits.
$1,500 / $5,000 = 30% gain.

This is the benefit of leverage. Holding onto the house doesn't give you leverage. You may think you're gaining more than the annual net appreciation in the initial years, but it will always converge to the annual appreciation rate in the end. If you don't believe me, calculate the annual return for years 2 and beyond. It will keep dropping until it converges to 1.5%.
Boomers make fun of Millennials for wanting free money, but I find this laughable that you guys think leverage is giving you free money. Again, let me repeat so it sinks in for you. Leverage does not work if you hold onto the property.

What astounds me is how many people agree with Kiwi and the other guy when the math clearly shows they're wrong. I've repeatedly asked them to perform the calculation, and they refused either through laziness or because they don't know how to model something as simple as buying a house every year for 30 or 40 years. Is it because you guys don't know how to solve for the annual rate by using logs?
I hope Millennials take away power from the boomers and older Gen X. This thread is a clear illustration that boomers and Gen X don't really understand finance and business as much as they think they do and that the country would be run better by more educated Millennials.

 

[ggr]

To @BigPeePee: as the others have said, there is nothing stopping someone using leverage, and renting the place out too. So all of your examples above assume that they can do one, or the other, but not both.

And, speaking as moderator: your tone is unacceptable in this forum. You're on probation for the time being. --ggr

 

[BigPeePee]

To @BigPeePee: as the others have said, there is nothing stopping someone using leverage, and renting the place out too. So all of your examples above assume that they can do one, or the other, but not both.

And, speaking as moderator: your tone is unacceptable in this forum. You're on probation for the time being. --ggr

I did not assume he can use leverage. My calculation was about proving that leverage doesn't exist in the long-term. Regardless of whether I included rent in my calculation or not, it doesn't change that leveraging on the asset's value disappears in the long-term. Please review the calculation. I do not think you understand it.
The total rate of return converges to the annual appreciation rate if you hold the property. I do not think it is a difficult concept to understand.

 

[Hans5555]

To @BigPeePee: as the others have said, there is nothing stopping someone using leverage, and renting the place out too. So all of your examples above assume that they can do one, or the other, but not both.

And, speaking as moderator: your tone is unacceptable in this forum. You're on probation for the time being. --ggr

Guten Tag from Germany! This thread caught my eye so I wanted to chime in.
I think purpose of bigpeepee's calculation is showing that added growth rate which you call leverage shoots to 0 without selling. Rent is not relevant to the calculation. It was to show leverage is not real in long-term.

I'm just someone who likes math, so forgive me if I did not interpret calculation correctly, but I believe he is more correct than others.

 

[Hans5555]

Sorry for chiming in again but I was doing my own modeling including rent. Unless I did something wrong even using 5% annual rate only shows 86X gain from original 5k downpayment. I assume rent used to cover any expenses so only cost is initial 5k. This is about 16% year return. I think you can easily beat 16% by doing tech and growth stocks that return over 20%.
If growth is 1.5% then average return is 12%.

I agree with bigpeepee. I do not think wealthy people will abandon stock market for houses. It makes no sense. Elon Musk went from 200 million to 100 billion which is 500X. No house is earning that much.