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Seriously, what do you expect? Money doesn't work. If you invest and want to turn an above-average profit, you need to put up something, be it knowledge, skills, or effort. As you said, owning a house requires a certain skillset, but that's exactly where your money would come from.

So if you're already in the construction business, or a real-estate lawyer, or simply have lots of experience and spare time, it's a good choice. If you're a software engineer who can't tell drywall from masonry and simply wants to do a few mouse clicks to gain a passive income, it's definitely not for you.

Anybody who has rented know most of the work is way overblown. The average landlord I've had can barely be bothered to lift his middle finger at you if something goes wrong. If the toilet is clogged, or the heat stops, or whatever it's generally left for the renter to figure out and take the loss. What are you going to do, sue with whatever meager stash the average renter has left after paying the rent?

Much of the work is "gigged" out anyway. When something breaks at my current rental, I get told the job has been tendered, and then I get let known when someone has accepted the job. I'm not sure what happens if no-one accepts it.

It's also not the landlord doing that, it's the real-estate company.

And that's exactly the kind of investment that yields average returns. If you're fine with that you can also directly invest into a company doing this. If you want more, you have to cut some middlemen.

Owning a home takes a huge amount off of your taxes in the United States. This mainly applies to single people or people who don't file with dependents as they're taxed the most.

A home acts as a way to store and grow cash (mostly) securely. They also, generally, have higher than (stock) market rates of returns for the cash that you stuff in them. For instance, do a $50k kitchen renovation and that may entice a future buyer to buy at $100k more. There's a lot of examples like this throughout the housing renovation industry. Some home renovations are going to net you nothing, but defer something negative. For instance, I had to install a Radon system in my home because radioactive gas was leaking out of the crust deep beneath my basement. I won't get that $3k back but I won't live in a radioactive container and future buyers won't be scared off (rightfully so).

If you're renting (since you mentioned landlords) the economics change a bit. You need the house to look nice but you either need it super-durable or inexpensive to repair. What usually happens is that a rented home gets a makeover that will put it squarely in the price the landlord wants per month. This is done as cheap as possible because a fair amount of tenants are radioactive and will destroy everything not nailed down.

If you're selling your home after five years you may have some nominal value increase coupled with equity. For me, that amounted to about $35k on a $215k home. To replicate that in the markets you'd have to get involved in a life insurance plan that acts as a tax-free market account, which is significantly more complicated to manage. I know because I almost did it when I moved to California!

If you plan to stay in a house less than 5-8 years, I just wouldn't buy. You'll be somewhat upside down depending on your market.

> This is done as cheap as possible because a fair amount of tenants are radioactive and will destroy everything not nailed down.

The other way of phrasing this is that landlords are as cheap as possible, resulting in tenants who are fed up of being fleeced for garbage.

No, those things are separate problems, not two ways of saying the same thing.

Tenants being destructive is a known issue. My mother had a tenant that put four undocumented pitbulls in the house and one dug it's way through the flooring. She had another that refused to pay rent or move out and had to wait for months to get an eviction order. All of that is purely money lost if you're renting to people with no assets.

What I was talking about with landlords being cheap on renovations has to do with the economics of the situation. For instance, my mother won't put granite countertops in a house or use the most expensive paint or even moderately expensive carpet. In her state, every property that's had an animal in it requires new paint and new carpets every time there's a new tenant. If she was putting the nicest stuff in the tenants she rents to now would never be able to afford her rates.

Where landlords get unjustifiably cheap is when they make repairs on the cheap that cause more issues for the tenant.

In Australia it's backwards and bonkers, the tax legislation is geared toward giving real-estate investment properties a bunch of tax breaks while someone living in their home gets diddly squat.

I'm not necessarily saying we shouldn't pay tax on properties we live in, but I will say it's pretty on the nose to continue giving investment properties huge tax breaks while people are struggling to finance homes they live in or pay rent. The price inflation of homes caused by easy money and negative-gearing made easier due to lopsided tax policy makes the property market entirely detached from the average Australian.

This isn't really accurate. Homeowners get the enormous PPOR CGT exemption, which means they pay no capital gains on their primary home when they sell - This can be a massive amount of money in an up market (the past two decades, especially)

I appreciate the correction, but I feel that doesn't help people trying to live in their homes. We're not all climbing the property ladder after all.

There's a whole bunch of tax advantages and structural advantages. The mortgage interest tax deduction is the big one, and I think there's another one that applies to those who own up to 4 properties?

> In 2022, you'd be lucky if a computer from 2002 sells for maybe 5% - 10% of what it sold for in 2002. In 2022, you're telling me a house sells for.. enough more (in real terms) than what it sold for in 2002 that it would have been a worthwhile investment despite now being 20 years old(er)? That feels like some kind of violation of whatever is the financial equivalent of the laws of thermodynamics

The secret ingredient is that it's essentially illegal to build new homes anywhere remotely desirable.

Also god's not making any more land. So owning crap buildings on great locations is a great way to land bank for a payday in the future. Though climate change will redraw a lot of maps in this regard.

There is an excess of land, particularly in the USA.

The issue is that people want to live near, you know, stuff.

That's one reason why I'm so idealistic about the work-from-home trend we saw after Covid. I'm from one of those empty rural communities - the way of life is great if you can manage to make a living.

Not just near stuff... most people don't want to live in the middle of a desert, or where there's snow on the ground 9+ months a year (a lot of that undeveloped land is in Alaska, and not the little coastal strip where 90% of the population lives, either)

Leverage. You can borrow 80% for an investment property but no bank will lend you (not an individual anyway) money to buy ETFs. You might get a margin loan, which is much riskier than a mortgage and requires you to have X upfront to borrow 0.8X. A mortgage means you can borrow 5X.

There ade also tax benefits to real easte in some countries (most notably Australia). In short, the game is rigged and the market distorted to make real estate more attractive then it should be.

Leverage takes place with Stock and ETFs, too - it is just less obvious. Companies you buy stock of are of course leveraging their financial investments by taking loans from banks or emitting corporate bonds - and these loans are used to invest and generate profits, of which you receive your share.

Many of these are managed by a good agent. I answer 1 email per week pretty much, the effort is minuscule.

Leverage was the thing which made the numbers attractive. Example numbers in the UK for instance £50k deposit, £200k purchase price, £150k mortgage @ 2%, £12k per year rent = 18% gross yield (£9k return on your £50k cash in.). Before capital gains.

Imagine if you have £200k for 4 deposits then you could even be financially independent if your costs are low. It has been a very easy path to wealth.

With interest rates rising then the whole dynamic changes, but it has been an extraordinarily profitable and easy play for almost 20 years.

At least in the US, mortgage rates currently are around 7%, not 2%. That eats a lot of margin, especially on a managed property.

Indeed. The higher rates remove all benefits of leverage, and the investment borderline at best. It has worked well for the last 15 years however.

All of that makes sense if your options are a) buy this property with cash, or b) buy these stocks with cash.

If you don't have a handy $300k sitting around doing nothing, buying the property makes more sense, because you're buying it with someone else's money!

The lender makes their profit off the interest they are charging you. You can offset that cost partially (and, over time, completely) with rental income. When you dispose of the unit, any profit comes straight to you.

There are very few other places where you can use someone elses money to make a profit.

That's only if the rent you receive is greater than the mortgage with interest you pay to the bank. Sometimes that math doesn't work out.

> That's only if the rent you receive is greater than the mortgage and interest you pay to the bank. Sometimes that math doesn't check out.

Rarely does it not check out over time. Rents go up every year, more in those years that see an interest rate increase. Repayments track the interest only.

In the first two years, your rental (and costs of rental) won't match the mortgage.

After five years it's unlikely that your rental income doesn't match the mortgage, interests and costs.

>Rents go up every year,

Unless you live in an area with rent control or have a tenant who has payment issues and evictions are long and tedious.

Well, then, don't buy a property with the aim of renting it out in a rent-controlled area.

And seeing as how you're essentially getting a return by investing someone else's money, go through the 3 month long eviction process and vet your renter more thoroughly.

Honestly, the way you say it, one would think that most landlords make a loss by renting out their properties.

Trust me, they aren't.

It's one of the reasons why rent control works negatively in the long run.

> Your investment's locked up for a long time, it takes weeks / months to sell real estate.

Most people overlook this in their calculations, as well as ignoring the 6% real estate commission on a sale.

I'm with you on "nope" to real estate investments.

Your investment isn’t locked up at all. You can call up a bank and cash out the equity in one property to purchase others. You can use the equity to get a secured loan at an extremely low interest rate. And the income you make from real estate improves your DTI which opens up your ability to get a loan for additional property and you can repeat the cycle over and over.

Of course, the real question is why would you want to frequently liquidate property if it is generating cash and tax benefits? Owning real estate isn’t about gambling for short term gains, it’s a long term wealth building tool.

> That feels like some kind of violation of whatever is the financial equivalent of the laws of thermodynamics

Houses lose in value slower. A 20 year old computer is worth basically nothing because of technological progress, the house I’m currently living in is 60 years old.

Then there’s the land the house stands on. Land is a limited resource that cannot be increased by production, especially in proximity to population centers. It follows completely different laws than mass-producible products.

You seem to be completely forgetting that a rental property basically means someone else is paying down your loan and building your equity for you.

Only if it has positive cashflow, a low vacancy rate, and no major damage from the renters.

That is far from guaranteed, and the first one hasn’t been true in a lot of areas for almost a decade.

Not true. I currently own one unit, and do have a slightly negative cashflow, but that's not really a problem.

The biggest advantage of real estate is that enables you to hedge your capital. My bank happily gave me a loan for 80% of the property value.

I would not be able to get a loan at these conditions without having the real estate as collateral.

So, while I do pay a small amount per month myself (which has gone down substantially recently due to 10% indexation), my tenant pays the biggest share of my loan.

As for rules and legislative obligations: I pay a professional organization to manage this for me. This does come at a cost, but it buys me a peace of mind. (It's all about risk vs reward, so no big surprise there.)

And finally: once the loan is finished, I can hedge that rental income to finance (multiple) new properties.

Update: one additional remark for those who might be triggered by this comment: I prefer to buy older buildings, so I have to make sure that l have "some" extra cash available for big ticket items coming my way: replacement of roofs, elevators and such. So I am betting on having to invest some extra cash over the course of one or more decades. However, if you do not want to do that, you can reduce the risk by going for newly-built, paying the extra premium upfront, have a reasonably steady cash flow from the start.

Also, as a rule of thumb, consider 10/12 of the yearly rent as a "regular" income. This should be more than enough to cover the "normal" expenses you might have.

So you’re losing money now, speculating on future gains.

That is different than leveraging capital for positive cash flow, and one that has historically burned folks bad during downturns.

But we’ll see how it goes!

physical maintenance and unclogging toilets: you don't need to do this maintenance yourself, you can outsource this to contractors, and even outsource the calling of those contractors to a management company.

knowing landlord-tenant laws inside and out: absolutely, yes, if you are doing it professionally. But this applies to everywhere you are doing business in.

properly evaluating properties, contractors that don't rip you off, etc.: absolutely an issue, yes. This is something you learn with experience however, and on the other hand it means that if you know this, you have an edge. See the blog entry by the mr money mustache guy who bought his house very cheaply from an older guy who didn't know that prices have went up in the decades he has owned the property [0]. So yes, this means that ideally you own multiple properties and have enough capital that you can afford one or two mistaken purchases or contractors, but you also need to have enough dedication and ability to learn. Also note that even with stocks you have this issue, there is a lot of advisors out there who are selling funds with high management fees, etc.

small scale property investment impossible: absolutely true, yes. Real estate investment is something for rich enough people, or at least people with good contacts, not for the average joe.

huge leverage is usual: yes, but on the other hand property investment is seen as a very secure way of investing, which is why such leverage is possible at all. Stocks on the other hand you never get that much leverage for them.

anyone with enough money can do it: this is in conflict to your other point about needing to know how to properly evaluate properties and finding good but not too expensive contractors.

investment being locked up: yes this is true. But moving around stocks too much is also generally a bad pattern.

tenants from hell: yes, this is a risk. Ideally you distribute the risk by owning multiple properties, e.g. an entire building instead of just one apartment, which brings us back to the "need to have money to own real estate" point. Also, you ideally don't own real estate where the rent is cheap but one where the rent is expensive. If it's expensive enough then only rich enough people can afford it, i.e. ideally DINK white collar workers. Those can still cause problems but you benefit from their higher job stability, lower incarceration rates, etc. The disadvantage is of course that it's harder to own multiple properties if the rent is expensive, as you need to invest more, and also if the tenant doesn't pay the rent for N months then a larger sum of money is lost. But on the other hand, if the tenant fucks up the sink and you need to replace it, then having 1500$ rent compared to 500$ rent means that your 3000$ sink pays off again with two rent payments for one tenant, and with 6 from the other (assuming you are mortgage free, the calculation is different if you add in mortgage).

I do agree with you however about your general point. Real estate investment is absolutely not for everyone, as (broad low fee index fund) stocks are for example. It is more complicated and higher maintenance. Still, if you have tons of money then putting a part of your portfolio into real estate seems like a good idea to me.

[0]: https://www.mrmoneymustache.com/2017/08/02/introducing-the-m...