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Comment by breitling | Hacker News Reader

The attraction of buying a house has always been (to me) the leveraging of the money. I can buy a $500K house for $100K down and the X% appreciation applies to the full $500K.

Better yet, I can put 5% down and buy the same property. Then the X% appreciation of a property turns into X% times 20 return.

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You can do the same by buying stocks on margin.

It does not mean this is a good idea, however.

In practice,it’s hard to get much beyond 3x leverage in the equities market. It’s typical to find 5x, fairly common to get 20x, and possible to get to 33x in the real estate market.

Use options and you can get very leveraged.

The option premium limits your leverage for holding a leveraged position for long using options.

You can get massive leverage on CFDs (Contracts for Difference), you can run on as little as 5% margin (i.e. 20x).

Maybe it's different in the USA, but in New Zealand the lowest I've seen is 5%, which is uncommon, 10% for lower value houses, and only 20% margin is common.

GGP was “stocks on margin” and my response of (unqualified) equities I meant stocks as well.

Can you really get 20x leverage on margin?

in most states, mortgages are no recourse. If I borrow a million bucks and default on it, I lose the house and take a credit hit, even if I have millions in the bank. If I borrow a million dollars (margin) to invest in equities and I need to cover the loan, they can sue me/force me into bankruptcy.

This is incorrect. You pay interest/maintenance/insurance/tax costs for this home. Then one must calculate cost to sell the house. The appreciation of the home value simply does not all go toward the increase in your investment. One must also subtract the opportunity cost of the downpayment.

I did this math at one point for my particular scenario. Housing was not a good investment for me unless I assumed that there would be some sort of outlandish growth in value without course corrections.

That said, there are compelling reasons to own your personal dwelling beyond money.

The lever works both ways, as people found out in 2008 when their debts far exceeded the value of the house.

The other argument is that it forces people to save money (to pay back mortgage). All buy vs. rent comparison assume you save and invest some money, which requires financial discipline.

(It's an argument I discovered recently, does not apply to everyone but I think it makes some sense)

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