Mark Twain once said: "Buy land, they're not making it anymore." Real estate is one of the oldest industries
in the world. It's not a coincidence that we have been told
that a house is the best investment you can ever make. Of course, in the 21st century, we have far
more investing tools than generations before us had. Derivatives, options, bonds are no longer
the instruments that only the rich have access to. With a simple investing app on your 200 dollar
smartphone, you can start trading stocks. And besides, best-performing investments are
not even coming from the rich but from the bottom, such as the Cryptocurrencies that
are challenging the status quo. Regardless of all of these investments, real
estate still remains the king of investments. Because unlike anything else, it simple, you
can touch it, and easy to understand.
You don't have to look far for some evidence, once worlds richest man, bill gates is also
pouring millions into real estate,, Bill Gates now is America's Biggest Owner Of Farmland. he purchased 242,000 acres of farmland across
the U.S. — enough to make him the top private farmland owner in America.
But regardless of how great this market is, it still goes through ups and downs, and if
you end up buying a house when the market is at its peak, you are going to lose because
sooner or later, the value of your house will crash. And there is a huge difference between buying
a house and investing in real estate. They might look as if they are the same thing,
but your needs usually do not align with what is better from an investing point of view. So as a real estate investor, I want to share
with you why millennials should not buy a house, or at least, if you are buying a house,
you have to consider all these factors that I am about to share with you. So give this video a thumbs up, and let's
jump right into it!
Bidding is a bad sign.
A house with an asking price of 3.5 million dollars was sold for 4.5 million dollars because
the seller received 7 offers, and the price bid kept rising to the point where the house
was sold for an extra million dollars. If you are the seller, that's a good sign. If you are a buyer, then you might be wondering
whether it worth paying an extra million dollars or not. And this is not a single case. It's happening all across the market. Even when it comes to houses that cost just
a few hundred thousand dollars, people are overpaying by 30, 40, or even 50 percent just
to be the one who is going to buy that house, and that's normal in a market when there is
a shortage of houses.
This graph explains it all (show it from the year 2000).
It illustrates the number of Monthly Supply
of Houses in the United States. Starting from 2010, when we got out of the
last housing crash, the supply of houses was at a stable rate, so house prices grew steadily,
but there is a clear sign of how the number of houses in the market dropped significantly
in April 2020. And even though we are almost out of this
pandemic and the future seems a little more predictable Than it was a year ago, the number
of houses didn't increase much in the market. And that's probably because the sellers are
looking at how fast home prices are rising and are like, "why should I sell when I can
wait and keep getting wealthier doing nothing unless I will get an offer that's really good? I am not selling." That's why in a single year, home prices rose
by 17 percent.
In a single year, home prices rose as much
as they did in the last ten years. That's a good reason not to sell. It's psychologically difficult to convince
yourself to sell when everything is rising. It really doesn't matter if it's a stock,
bitcoin, or crypto. When it's rising, for some reason, you imagine
it's going to rise forever, and if it's falling, you imagine it's going to fall forever; that's
why people often quickly sell to minimize losses. Most people are short-term thinkers and not
long-term thinkers. In these kinds of times, I like to remember
what Warren Buffett said once: be "fearful when others are greedy, and greedy when others
are fearful." Now is the time when everyone is greedy.
I am not saying there is going to be a crash
or how much more prices are going to rise. All I am saying is that just take a look at
what's happening in the market. Do you think you can find a good deal? A good deal is to when the house price is
at least slightly lower than markets average so that you can renovate it, it will rise
significantly in value, or you can rent it out for a much higher price or at least a
deal that's not above the markets average, but that's never going to happen when you
are in a bidding war against dozens of other buyers.
Don't get me wrong, owning a house is far better than paying rent your entire life,
especially if you are going to live in the same area for a long time, even though homeownership
comes at a higher price.
It includes renovation and other expenses. However, you also have to consider the opportunity
cost. This is the cost that people don't count at
all when they are thinking of purchasing a house. Every penny you use to buy a house is a penny
that could be invested elsewhere like the stock market, bitcoin or anything else, including
your own business. But let's take something more stable like
the SP500. An index fund that invests in the top 500
US companies. It usually grows by around 10 percent in the
long run, but lets be a bit conservative and take 8 percent, just to be safe. When you take a mortgage, it's a 30 year investment,
you are going to become a homeowner, but you have to keep making your monthly mortgage
payments. So let's take a look at what if you invest
that money instead and rent a place. Let's take a 300K dollar house. With a 20 percent downpayment and 3 percent
mortgage rate, you are going to pay 1017 dollars per month. That's significantly cheaper than renting
since that house would be rented out for at least 2000 dollars.
But if you count property taxes (300 USD),
renovation which is another 1 percent of the total price of your house ( 300 USD), insurance
which let's say another 100 dollars, you will end up with 1700 dollars. Not bad. Buying a house still looks like a far better
deal. But now, let's count the opportunity cost. That 60K dollars you paid upfront as a downpayment,
let's say you are going to invest it in the sp500, and as I said earlier, we are going
to be conservative and take just 8 percent.
With the compound interest, it will grow to
603,759 dollars or 1677 dollars a month, which makes your real cost of ownership 3377 dollars. Of course, the price of your house is also
going to rise but if we have learned anything from 2008 crises, home prices can also crash. Especially since home prices had risen by
17 percent last year, only time will tell you how this astronomical rise is going to
But in order to invest in the stock market, you have to understand how the stock market
works and that means you have to spend months to master it! But I have some good news for you. I have spent years investing in the stock
market and to save you time. I have summarised all my experience in the
stock market into a short, straightforward fully animated course and the best part is
that it's available on skillshare and you can get it for free if you use the link in
the description. At the end of the course, there is an assignment
that I will personally check and provide you with a feedback.
Anyways. Buying a house isn't always a bad decision. In fact, it can be a great decision, especially
when you are setting down and building a family., but right now, when we are getting out of
the pandemic, we are not sure if we are going to continue working remotely or we are going
to get back to how everything was pre-pandemic, when there is a bidding war in the market. Finding a good deal has never been more difficult.
Especially all the headaches you have to go
through when buying a house. You might buy a house now and then realize
a year later that it was a mistake and life is getting back to normal, so that house that
seemed attractive during the pandemic is no longer that attractive. And who knows where the market is going to
be at that time. Chances that you will lose money on that house
is way higher than you make money.
And now it's your turn to let me know in the comments below what do you think about buying
a house now? Is it a good time or its better to wait until
things calm down?
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