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Comment by 7Figures2Commas | Hacker News Reader

If your goal is truly to profit, buying a single property is far from ideal. You don't need to buy a house to profit from these markets. You can buy any number of REITs that own single and multi-family properties, mortgage REITs, homebuilder stocks, closed-end funds with exposure to real estate, leveraged products like ETFs and ETNs, etc. Most of these securities produce income.

As an extreme example, there's a UBS ETN with the ticker MORL that tracks a global mortgage REIT index. It offers 2x leverage. It currently has a 20%+ yield and distributions are paid monthly. Is there risk? Sure. But unlike a house, you can exit your position with a few keystrokes.

The great thing about investing in real estate through securities like this is that when the market slows or changes trend, you can sit on the sidelines or go short.

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The downside of real estate ETFs is you don't see the mortgage interest deduction which can decrease the house payments by ~20% (depending on tax bracket).

This assumes the tax opportunity is zero. What if you take the net amount you would've saved and stick it into an IRA?

IRAs are going to beat returns on buying a house any day. I'm thinking about what to do beyond the contribution maximum ($18k/year).

If you are self-employed, you can set up a solo 401(k). The $18,000 you refer to is the limit for elective employee deferrals. You can contribute 25% of your self-employment compensation (20% if you're a sole proprietor or have a single-member LLC) as an employer profit sharing contribution. In total, between employee and employer contributions, you can contribute a maximum of $53,000/year.

The great thing about a self-directed solo 401(k) is that you can purchase physical real estate in the retirement (speak to qualified counsel about the rules). Also, if you want to buy a home, you can borrow up to half of your 401(k) balance (to use as a down payment) and, if your plan allows, the repayment term for a loan used to purchase a primary residence can typically be extended beyond five years (the typical term).

The mortgage interest deduction is for most people overrated. I believe only about half of homeowners actually claim it, and I recall that the average deduction was around $2,000/year.

Again, if your interest is in profit, real estate-related investments are hard to beat for the average person, especially if you hold them in tax advantaged retirement accounts. Also, consider that with a leveraged product like MORL, which has total annual fees of .80%, you're leveraging at an effective cost of capital you could never get as an individual.

I agree for the average person it's not too significant, but the average person on this site earns well above the average person.

As an example, for a programmer in a ~37% tax bracket owning a million dollar home in the Silicon Valley, you could be talking about a tax-deduction on the order of $12k annually.

With that said, MORL looks like a very interesting product -- and probably a better investment than a house for most people.

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