Housing as an Investment
By Vedran Vuk
Here’s an interesting video on Yahoo!Finance of James Altucher from Formula Capital discussing home ownership as an investment. I don’t agree with a lot of his points, but a few are really great insights. Previously, I’ve compared buying a house to investing in the stock market, but Altucher takes it one step further. He notes that buying a house is essentially the opposite of diversifying your portfolio. In very few cases would anyone want to place so much weight on one sector. Second, if an investor wants to play the real estate market, there’s no need to actually purchase properties; the stock market exists for a reason.
Another intriguing point was the use of leverage. One of his interviewers asks what about the people who bought a house for $20,000 in 1970 and made a fortune today. Altucher comes back by saying, well, what if an investor utilized the same amount of leverage to purchase the S&P 500 in 1970. They would have also done really well, if not better.
And third, he points out the risk of owning a home on job mobility. Not only are homes illiquid, but the worse times get, the more illiquid a house becomes. You essentially trap yourself at the worst possible moment. I know a lot of readers underwater on their mortgages are feeling this pain.
However, one of the interviewers makes an interesting point that housing is the only way to get some folks to buy and hold, an interesting thought also.
~Casey's Daily Dispatch 2011-0330
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