Here's a piece filed under "I like this because the guy says what I already believe!" -- aka, confirmation bias.
Doesn't, as we shall see, mean Mr. Pickford (and I!) are wrong:
Real estate is a shitcoin
today, while rents and tenant demand are running higher than ever, landlords complain that a pile-up of regulation and tax changes, higher mortgage interest rates and sluggish house price growth have soured the investment case for the private rented sector.
Yes. You should have owned ("invested" in) something else.
"'For very little less money, and a whole lot less hassle and risk, you can stick your money in a high-interest account and sleep easier at night,' he says"
True. He does forget the very convenient, safe, and cheap way of shorting the currency (#980184), getting unfairly rich the old-fashioned way the boomers did #1468968
Pretty good returns if you've been in this game for a long time. Not if you got in at any point in the last decade or so. (I'd like to see the returns broken down by real economic services, i.e., rents, and capital appreciation/arbitraging the real-term collapsing currency).
1996, Sept.
I have a guy who talks about this (buy-to-let, real estate better investment blah-blah-blah) all the time, lenders sourcing/qualifying mortgages not on the financial health of the owner but the status of the property income stream itself. Ponzi scheme in different clothing.
What the UK changed was make favorable tax/mortgage rules for buying real estate with the intention of letting it out. The idea was that it'd pull more people/money into the sector and create more (rental) houses. The 2015 George Osborne gov
Reacting to longstanding criticism that landlord investors were squeezing out first-time buyers, he used his Budget to phase out tax relief on mortgage interest costs for individual buy-to-let owners. This left landlords who owned within a company still free to deduct these costs, and set the stage for the subsequent growth of the professional, incorporated landlord, often with larger portfolios.
For the first time, individuals rather than companies could take out a mortgage on a property with the intention of renting it out, and the affordability of the loan would be judged not only on the circumstances of the owner but crucially on the rental income the home could generate.
Lots of interesting observations in this story;
- the property-renting out business game is mostly over
- economies of scale matters more now, centralizing forces
- arbitrage?
"[Saville] found profits made by individual landlords in 2024-25 were down 11.2 per cent on the previous year, after a 32 per cent rise in mortgage costs."
Nice quote from a landlord (admittedly planning to sell his stock of homes, but whatever):
"I don’t see there being a good investment case for residential property over the next 10 years."
Of course not, because residential property doesn't have investment returns; it's in the name, sort of.
The only way in which real estate (or the investment case therefore) is useful is to short the currency. I yap about this so much that even my guy (above) knows this phrase by now.
Good analysis, but don't forget the US government's long time encouragement of real estate investment through incentives. Check out The Crane Doctrine. Among other stuff:
Also.check out 1031 exchanges.
I knew of the 1031 stuff, but the Crane Doctrine is new to me. Thanks!
If you really want to get pissed off about Boomers (not mentioning any names) using these techniques, think about using the Crane Doctrine AND 1031 exchange in tandem: writing off the full purchase price over time while only investing your down payment, then avoiding the recapture of that depreciation by using a 1031 exchange into a higher value property. Rinse and repeat.
you sound like you have extensive experience with shady real estate deals
Not shady. Perfectly legal. This is a crazy story. I will never forget the day I learned about the Crane Doctrine. I was taking an advanced real estate class in law school. I learned about the Crane Doctrine in the morning. During the lunch break I watched footage of The Challenger exploding. It was a sad day, but it was also the day I realized why everyone wanted to own real estate.
Reminds me of the step up basis for inheriting stocks. When you die and your heirs inherit your stocks, the cost basis they use when they sell it is based on the value when they inherited it, not the value when the stock was purchased. You can pretty much defer paying capital gains tax forever by doing this.
Personally, I love it. I can't wait for my kids to erase all the capital gains I supposedly owe on my stocks.
Exactly.
sounds sneaky. And clever. And exeeeedingly profitable.
v nice, sir, v nice. I won't tell if you don't!
It's all perfectly legal. Trump's father was doing it while the Donald was still in high school. It's how the elites remain in power while everyone else suffers.
tell me the difference between stupid and illegal and I'll have my wife's brother arrested
Nailed it. Real estate is a shitcoin with maintenance.
Returns last 20y were mostly fiat debasement + cheap debt + tax subsidy, not actual economic value. As soon as UK pulled the BTL perks in 2015 and rates went up, the ponzi shows.
Illiquid, local, taxable, tenant risk, regulation risk. You can't take a house across a border.
Bitcoin is savings in a house with no roof to fix, no tenant, no council.
#Bitcoin #BTC #Money #Fasuchem #Chikasun #Chikasunbeats #Business
ah yes, speak LLM to me sir.
30 mortgage at 2.75% APR is shorting the currency especially if you don’t pay an extra cent on the principal
It’s wild to get both those low rates and rapid appreciation. Our real estate equity has basically 10x’d over the past decade.
Yeah it’s absolutely crazy. I can’t even imagine paying 7% on a mortgage I think prices have to come down or this real estate market is going to remain frozen.
Enjoying the money printer, are we!
aren’t we all?
When in Rome
Residential Real Estate as an investment is a dead end in the 21st century.
As a yield instrument it sits about 4%, under current long term gov debt yields with less overheads like tenancy and maintenance. It’s a drag.
Significant parts of it exist as 20th century construction technology which will only depreciate further as we enter an age of AI-assisted construction.
Next decade we will see automated construction building houses and apartments at enormous rates, better quality and better quality of life for their owners.
Of course you would need to live somewhere! so there will always be market for ownership and construction.
But owning a series of residential properties for yield through residential rent, you will lighting money on fire.
Better off owning the true means of production: compute (cpu/gpu/tpu), memory (ram and storage), network connectivity and bandwidth. Consider sand to token.
“A hyena's bite can hurt, and words have power. But merely saying the word ‘bread’ does not create bread. Wealth is the means of turning an ungrasped idea into something tangible and real. The life we live in the material world and the wealth we build are the result of transforming ideas into reality.”
A more natural interpretation of the core message is:
“Words are powerful, but words alone do not produce results. Wealth comes from converting ideas into concrete actions and tangible value in the real world.”
Me no understand
Residential property pays dividends (rent or implied rent) and can be sold as an asset. How is it different from any other financial asset in that sense, other than low liquidity and divisibility?
And as you say, location is scarce. Price go up when currency devalues.
Bc its purpose and use isn't investment; it doesn't really produce anything, and more importantly, it's done for real/consumer use, not production of profitable returns.
Everything else is (monetarily) accidental
location and space are both enormously productive though. they're capital investments
Real estate gets pretty complicated once rates, taxes and inflation enter the picture.
Real estate as an investment vehicle faces a structural shift that most analyses miss: the demographic cliff. Countries like Japan and now China are seeing population decline that directly reduces housing demand. In Japan, rural properties are literally being given away (akiya houses).
The bull case for RE used to be: population grows, land is finite, so prices rise. Remove the first premise and the whole thesis collapses. In 20 years, the only RE worth holding will be in the handful of cities that remain magnets for talent and capital.