I can’t really wrap my head around it, you can have a tenant in there that maybe covers the mortgage, but it’s not really a good investment if you’re not getting a return?
Even if you use 500k to buy a property cash, wouldn’t that money be better off in the market?
In: Economics
Imagine a family member dies and leaves me their house.
If I sell it, I make the value of the house.
If I keep it and rent it out, then I make money from it every month, as well as continuing to own it and (likely) watch the value grow over time.
Thus, keeping it is an investment.
It’s an OK investment, that you can also put some of your time into to make a better investment. In the end it’s a low risk investment because at the end you still have a house even if it was not worth it.
I have a house that I purchased with the VA loan. I didn’t put anything down and financed 100%. I only lived in it for 2 years but have continued to rent it out for the last 12 years.
I live in a different state and only make about $3K per year in rental income. Over the last 12 years the house has appreciated from $250K to about $550K. I could take the equity out of that house and finance other properties but I probably won’t. However, eventually this house will be paid off and it will be 100% profit for a very little investment.
If you have a good amount of assets, you’re better off buying leveraged REIT funds that are professionally managed, and lever up further with a margin account.
No property taxes, no maintenance, no insurance, no occupancy issues, none of the nonsense. You can liquidate it on a moment’s notice. You get a tax deduction on the distributions (assuming they get extended which they likely will). They can yield 8% or more in this environment and you can either reinvest it or pay down the margin loan. And You can easily diversify sectors and geographies and types of real estate.
And, you can actually sell and rebuy as the market pricing swings, which you can’t do on a house without paying a ton of commissions and fees.
Oh, and no commissions and fees when buying/selling/refinancing.
Before anyone says margin loans are expensive, step one is to negotiate a better margin rate (see first line about “if you have a good amount of assets”). If you pay the standard rate then you’re not gonna be a happy camper.
Added to the other great answers. Real estate has done 6% a year since recorded history began. Better than gold and plus it is an essential life need, gold is not.
I have made more money with residential investments (one house at a time, rentals) than I ever did in the stock market.
What makes it a good investment is Mortgage interest is deductible (in the US.).
Rents bring in income beyond being employed.
Property tends to increase in value over time.
You can sell your lower cost income properties for more than you paid and invest in better properties over time. Over and over. Bad part is property taxes also increase and now flood and fire insurance is really over the top. $3000 more this year than last (florida).
Like you were 5, good investment grow over time and Residential properties (houses and homes) are usually good investments. I started with a no real down payment house for $20,000 (a dump) and leveraged that into our current rental at $325,000 if we sold it now. (over 25 years)
companies can go enron or lehmann brothers or deutche bank but houses usually stay put and insurance is relatively very cheap.
It’s a good investment for the owner because it’s a bad investment for the tenant who pays the bills while the property appreciates over time. But historically real estate has not done as well as other investments.
Some people prefer investing in tangible assets, but they don’t normally get into real estate by paying cash. I bough a house on the coast, pretty run down but good location. No trouble renting it out and i break even with a little extra set aside for repairs. It’s kind of fun, and I only had to invest $100k. The house is worth about $100k more now after several years, plus the mortgage has been paid down a bit. And each year it cash flows a little bit more due to inflation, while the mortgage is fixed.
In 20 years it will be paid off, and renting at market conditions, and I will have option to sell or keep it as passive income. But there’s still a lot of risk
Because House ALWAYS appreciates in value. the only question is how long.
This is due to the simple fact that housing is a VERY limited supply with near unlimited demand.
As long as human population are increasing, there will be a need for more housing.
And unfortunately, ground is a VERY finite resource.
“but what if housing crashed” A house, after the market crashed, can still have its price climb back up. A Stock, after a market crash, and simply vanish into nothing.
ELI5 answer:
First, it’s an investment you can live in. You need to live someplace, right? So a house is an investment you can live in, so in a way it saves you money that you would otherwise spend on rent.
The nicer the house, the more luxurious your living experience will be. Even if you don’t live in it yourself, you can let someone else live in it, who will pay you rent, making you income.
Second, real estate often goes up in value pretty reliably and holds its value, although there have been crashes, etc., for the most part it is far less volatile than the market. You would not see homes losing half their value.
Third, if you have a mortgage, and you pay income taxes from a job, the mortgage will save you money by reducing your taxes.
There are a few downsides to home ownership, such as property taxes, insurance and upkeep, things you don’t need to pay for if you invest in the market.
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