Why Buying Real Estate Instead of REITs Is Boneheaded
Buying property is a boneheaded thing to do.
Did this thought ever cross your mind when your parents lectured you about it? I’m sure they said it’s the only responsible course of action as an adult.
Well, I decided it’s not, after spending years saving up to buy an apartment. Once I had enough money and did the research, it just made no financial sense.
The eye-opener was when my real estate agent mentioned how property prices, where I lived, were directly correlated with the stock market.
Of course! In hindsight, it was so obvious.
Just think of all the foreclosures that happened in 2008–9 when the stock market crashed. It wasn’t because everyone lost money in stocks. The value of their houses plummetted and they couldn’t make the necessary margin payments to their banks.
This realization helped me reframe the question of whether to buy an apartment or not, differently.
I asked myself if I was comfortable doing these three things:
- Putting my life savings into a single stock holding.
- Taking a loan out from a bank to leverage this stock position by 3–10x.
- Adding a 10%+ premium to the stock price, by paying a 5% broker fee…
