- Aug 2, 2013
I didn't read the entire thread, but here's my take on RE.
1. RE is overvalued in many different markets due to the ridiculously low interest rate ongoing since 2008. However, this is not enough to create a bubble. To have one, actual demand should be lower than estimated demand. The question we should be asking is therefore: will people need more space, or less in the future?
One way to look at this is to look at the demographic pyramid (and immigration number). As long as a country's population is growing, RE is a sure investment. If you have more and more people, you will need more and more homes.
Since the West is about to have much less people than it was used to, RE is doomed to lose value over the really long-term (50 years or so).
The second way to look at it is the Internet: if the online trend perseveres, it is obvious that there will be fewer need for commercial RE.
2. Not everything is overvalued because not everything has the same demand: it all depends on the location. There will be places that will always have demand (city centers of student cities), just like there will be places whose demand depends on trends, economic growth, etc.
3. I hardly see how RE can be a fastlane strategy. To me, it's similar to the stock market: you invest in it once you became rich, not to become rich, unless you decide to contract a mountain of debt. But even then, you'd better buy a small company and grow it instead of investing into RE. RE is slow to repay itself because let's be honest, it's pretty chilled. You don't do much besides owning the place.
When you rent out a house for 4, it will always be a house for 4. However you manage it, you can't scale the value of your asset.
4. RE is not efficient AT ALL.
In Belgium, you can buy RE in some places for a price approximately 40% lower than in Brussels, and subsequently rent it out to students at a price approximately 20% lower than you would in Brussels, so the ROI is much better than in Brussels. It's been like that for 6-7 years now.
In Bruges, prices per sq/m are 3x what they are in Brussels, and yet, the rent is..50% cheaper. Go figure this out.
I actually think RE is the least efficient of all markets. When I look at prices, it always seems undervalued, or overvalued.
Oil is efficient. So efficient that when there is too much of it, producers will pay you to get it.
I disagree somewhat on RE not being fastlane. If you make the right moves and utilize “intentional iteration” as MJ calls it in TMF, it can be.
In about 5 years, I was able to grow my net worth to over 1.5m while at the same time having a mostly passive positive cash flow (managed) over 5k/month by investing in rental properties (long term leases). Have been able to take one month trips while not working at all and come back home in a better financial position than I was in when I left. At the same time I’ve also “house hacked” where we’ve lived essentially paying almost nothing for housing or at one point getting a surplus positive cash flow on top of mtg, taxes, even utilities where we’ve lived (and in decent homes).
Definitley takes knowing what you’re doing but is possible.
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