Real Estate in your city

[SIGSEGV]

Originally Posted by Steely Dan

^ yeah, that was essentially my point with the whole "pick your poison" thing.



I ain't gonna get rich of off owning my Chicago home.

I do know and openly acknowledge that. It's simply true.

But I do like the fact that I get to even own a family-sized urban home in a higher-tier US city in the first place.

As I frequently say, there are advantages to home ownership that transcend investment potential.

yes, and homes are a very poor investment vehicle compared to, like stocks, which have negligible transaction costs, allow for easy diversification, etc. If you're not already filthy rich, the only way you can make money off investing in a home is to move to the new hot area before anyone else figures it out (and be right about it!), so that you buy a property that is undervalued compared to its future investment potential (it doesn't have the appreciation priced in already). But most people have other considerations in where they want to live...

[Investing In Chicago]

Originally Posted by SIGSEGV

yes, and homes are a very poor investment vehicle compared to, like stocks, which have negligible transaction costs, allow for easy diversification, etc. If you're not already filthy rich, the only way you can make money off investing in a home is to move to the new hot area before anyone else figures it out (and be right about it!), so that you buy a property that is undervalued compared to its future investment potential (it doesn't have the appreciation priced in already). But most people have other considerations in where they want to live...

You're assuming the price of stocks always go up, certainly at the macro level the stock market typically increases in value over time, but at the micro level, stocks can and do go down in value. Additionally, if you hold a stock less than a year you will pay short term cap gains.

As for housing, moving to the new hot area before anyone else figures it out isn't the ONLY way to make money in real estate.

If I bought a house for $400,000 ten years ago, and that house today was worth $1.5M I would consider a cash out ReFi if I needed some of the equity in my house or take on a HELOC, since rates are insanely low. There are certainly ways to leverage the equity in your house other than selling, as you need to live somewhere.

[LA21st]

Originally Posted by iheartthed

The coastal cities recovered faster in 2008/2009. And San Francisco barely even felt it at all. If there were another crisis like that, it would probably be the weaker markets that are most affected.

I don't think this is true. La and Miami got destroyed for awhile.

[Crawford]

Originally Posted by JManc

Exactly. A home should be a home first and foremost, not merely an investment opportunity.

This is why they have rentals. If you don't care about long-term investment opportunity, you rent.

[Steely Dan]

Originally Posted by Crawford

I was on the South Side of Chicago, though, and not in a particularly fancy or touristy area.

yes, technically speaking, that's true, but the near south side is really more "central area" these days.

i'd wager that most chicagoans would tell you that "the real south side" doesn't start until you're south of the stevenson.

kinda like how "the real west side" doesn't start until you're west of ashland.

Originally Posted by Crawford

If you don't care about long-term investment opportunity, you rent.

i've found that there are plenty of advantages to owning that go far beyond investment potential.

[iheartthed]

I don't think the math works on maintaining "affordability" and also maintaining a vibrant and dynamic metropolis. Cities thrive on monopolizing proximity to something, and urban real estate reflects the pressure of people trying to be as close to that something as possible.

If people aren't complaining about the cost of living in your city, that's probably not a good omen for the long term prospects of the city.

[mhays]

I'd draw the line at replacement cost.

If a property is typically worth less than what it costs to create it, that's either a stagnant market or at best temporarily underpriced. If it's typically worth more (with a profit), then it's a healthy market.

Replacement cost can vary tremendously...labor cost, construction types, land cost... Some markets can profitably produce homes (houses, townhouses, condos) that sell for $250,000 and others just can't.

[Steely Dan]

Originally Posted by iheartthed

If people aren't complaining about the cost of living in your city, that's probably not a good omen for the long term prospects of the city.

people complain about the cost of housing in chicago 24/7.

we have legions of soldiers in the anti-gentrify army.

so i guess we're doing something right in your eyes.


remember, relative to its region, chicago is "expensive". relative to bos-wash or cali, it's "cheap".

[The North One]

Originally Posted by iheartthed

If people aren't complaining about the cost of living in your city, that's probably not a good omen for the long term prospects of the city.

LMAO, what?

I don't think the math works on maintaining "affordability" and also maintaining a vibrant and dynamic metropolis. Cities thrive on monopolizing proximity to something, and urban real estate reflects the pressure of people trying to be as close to that something as possible.

There are plenty of vibrant affordable cities in the world. This just sounds like projection.

[The North One]

Originally Posted by Steely Dan

people complain about the cost of housing in chicago 24/7.

we have legions of soldiers in the anti-gentrify army.

so i guess we're doing something right in your eyes.


remember, relative to its region, chicago is "expensive". relative to bos-wash or cali, it's "cheap".

I don't think there's any city in the US where there isn't some complaining about the cost of housing, even in the cheapest markets, and that's because housing is commodified in this country.

Anti-gentrification movements especially outside the coasts is usually just NIMBYism in disguise.

[mhays]

If your life is built around $600 rents and eventually a $50,000 purchase (for an extreme), the prospect of $800 rents and a $100,000 purchase can be scary. (Not referring to any city here)

[Steely Dan]

Originally Posted by The North One

Anti-gentrification movements especially outside the coasts is usually just NIMBYism in disguise.

oh, there's always some element of that to it as well, but in chicago, the anti-gen crowd is primarily working class latino pushing back against generally wealthier/whiter people moving into neighborhoods like logan square and pilsen, so the racial/ethnic tribal aspect makes it A LOT hotter than regular old "i don't want that thing in my neighborhood" NIMBYism. it also takes on a much more personal and ugly "i don't want those people in my neighborhood" as well.

[SIGSEGV]

Originally Posted by Crawford

This is why they have rentals. If you don't care about long-term investment opportunity, you rent.

Except rents can (and often do) go up arbitrarily in the future, absent rent control. If you want to live somewhere and guarantee you'll be able to live there in X years, then buying makes sense financially even if it's not necessarily a good investment. Plus homeowning is tax-advantaged (which arguably is a mistake).

[SIGSEGV]

Originally Posted by Investing In Chicago

You're assuming the price of stocks always go up, certainly at the macro level the stock market typically increases in value over time, but at the micro level, stocks can and do go down in value. Additionally, if you hold a stock less than a year you will pay short term cap gains.

Sure, but you can diversify with stocks, use mutual funds and ETF's, etc. Most people can't buy houses in multiple cities/neighborhoods to diversify in a similar way.

As for housing, moving to the new hot area before anyone else figures it out isn't the ONLY way to make money in real estate.

If I bought a house for $400,000 ten years ago, and that house today was worth $1.5M I would consider a cash out ReFi if I needed some of the equity in my house or take on a HELOC, since rates are insanely low. There are certainly ways to leverage the equity in your house other than selling, as you need to live somewhere.

Yeah, you don't have to sell your home to make use of its value, but my point is that unless you can afford a $1.5M home right now, you have to find the 400,000 home you think might become a $1.5M home at some point in the future. But if everyone knew it would be worth that much in the future, it probably wouldn't be a $400,000 home .

[JManc]

^ If I bought $400k worth of APPL ten years ago, it would be worth $4 million today. Plus you can unload all or a portion of it if needed fairly easily.

Originally Posted by Crawford

This is why they have rentals. If you don't care about long-term investment opportunity, you rent.

That's the problem. Too many people see housing as investment opportunities first and homes a distant second. People actually want to own for reasons other than how much they can flip their house for in 10-15 years. This is why real-estate is so fucking out of control in so many areas and all but priced everyone but the upper middle class and beyond out.

[10023]

Originally Posted by Crawford

This is why they have rentals. If you don't care about long-term investment opportunity, you rent.

As someone who has rented for a long time (largely because of the ridiculous up front property taxes here, but that’s a different story), I don’t quite agree.

The main benefit of owning a home is that you can do stuff to it. You can re-do the kitchen or bathrooms, knock down a wall, build an addition or extension (if it’s a house), add built-in storage, etc. In a rental you can’t do much (and I say this as a person who painted a bedroom in my last apartment black).

Otherwise the main benefit of housing as an investment is actually leverage (and tax deductibility of the interest). There aren’t a lot of other ways for most individuals to borrow hundreds of thousands of dollars (or more) at low interest rates in order to juice equity returns on an otherwise relatively less risky asset. Leveraged ETFs aren’t quite the same thing. If I could get an 85% LTV loan at 2% interest to buy the S&P 500 index, I would do that and rent.

[Steely Dan]

Originally Posted by JManc

People actually want to own for reasons other than how much they can flip their house for in 10-15 years.

yes.

i'm bewildered by the apparent belief of some on this forum that the ONLY reason someone would ever want to own their own home would be investment potential.



here are some of my reasons for owning:

stability: as long as i live up to my end of the bargain with the mortgage payments, no one can kick my family out of our home. as our neighborhood continues to get wealthier, no landlord can ever jack the rent on us and force us to move out of our community. the value of that peace of mind is immeasurable when you're raising a family, IMO.

predictability: unlike rent, which only ever seems to increase over time, my mortgage payments will be exactly the same in 20 years as they are today.

pride: because i own it, i take much greater care with my home than i ever did with any of the rental properties that i lived in when i was younger. not that i was some savage who destroyed other people's properties, but when something 100% belongs to you, you simply care more about it.

customization: because my home is mine, if i want to make changes to improve it or otherwise better suit my needs/desires, i don't have to seek the approval of some landlord who may not be on board with my plans. if i wanna redo a bathroom, boom, i redo a bathroom. i'm not at anyone else's mercy.



there are better investments than buying a home (in most markets), but for all of the intangibles listed above, especially when it comes to family-raising, i would never again want to be subject to the vagaries of the rental game. i enjoy calling my own shots too much.

[10023]

Originally Posted by JManc

^ If I bought $400k worth of APPL ten years ago, it would be worth $4 million today. Plus you can unload all or a portion of it if needed fairly easily.

See above. If you bought a house for $400k, it wouldn’t have been $400k of actual money. It might have been $80k of actual money and a $320k mortgage. Then when you sell for $1.5m, less the $320k mortgage (let’s assume interest-only for simplicity), less some debt service (let’s say 5% for 10 years or $160k), you’ve got equity worth $1.02m.

That’s an almost 13x return, which is better than if you’d put your entire down payment into Apple shares.

Oh, and you didn’t have to pay rent. Let’s say there’s a 6% rental yield on that $400k house, so the same living arrangement would have cost you $24k/yr. That goes up by a few per cent per annum so it’s $32k by year 10. Add the c.$280k you would have spent on rent, and deduct the tax shield on the interest payments (let’s say $50k), and your $80k investment has provided you with $1.35m of wealth in 10 years. That’s almost 17x cash on cash.

Some of that gets eaten up by property taxes and maintenance/repairs that the landlord would have been responsible for if you were renting, but still, in a scenario where the value of the house does go up by threefold in 10 years, you are talking a low- to mid-teens cash on cash return.

[10023]

Originally Posted by Steely Dan

stability: as long as i live up to my end of the bargain with the mortgage payments, no one can kick my family out of our home. as our neighborhood continues to get wealthier, no landlord can ever jack the rent on us and force us to move out of our community. the value of that peace of mind is immeasurable when you're raising a family, IMO.

predictability: unlike rent, which only ever seems to increase over time, my mortgage payments will be exactly the same in 20 years as they are today.

It should be said that these two are not inherent to owning vs. renting. They are functions of the legal, tax and financial systems in a given jurisdiction.

Here in the UK, we do not have 30-year fixed rate mortgages. You can get a 25 or 30 year mortgage, but the rate is only fixed for a short period (usually 2 or 5 years) and then resets. There are some that are fixed for 10 years (at higher rates) but these are new and still a somewhat exotic product.

On the other hand, we do not have annual property taxes. Those can go up wildly and unpredictably in the US, either because of legislative increases in the rate or value appreciation. And this can be a reason why one might be forced to sell a house and move even if they don’t want to.

In places like Germany, and even many localities in the US or UK with strong tenant protections, it’s very hard for landlord to kick out a tenant either. They basically have to offer to renew your lease.

It should also be said that Chicago is a particularly shitty market for housing investment amongst major US cities.

[iheartthed]

Originally Posted by JManc

This is why real-estate is so fucking out of control in so many areas and all but priced everyone but the upper middle class and beyond out.

So... speaking from a New York perspective, high-prices have definitely stabilized the city's population. I think this is a different problem from what fast growing Sun Belt cities encounter.

Older, well developed cities like New York need to be expensive to encourage productive uses of land. When the Bloomberg administration rezoned north Brooklyn to allow taller buildings, it suddenly made economic sense to repurpose a lot of the empty lots and abandoned buildings that were left over from the post-industrial collapse. Constraining land use patterns allowed the market to take care of de-industrialization on its own. I grew up in the Rust Belt and I've watched my own hometown struggle with top-down government solutions to the same problems that the market is handling on its own here in NYC.