Americans still think they can make money flipping houses • Hacker News Board

Re: Americans still think they can make money flipping houses

#131

Post by Joel_Mckay » Sat, Jul 09, 2022, 2:14 PM UTC

Las Vegas was built on the irrational ambition of gamblers, and on average every visitor still loses to this day. However, there are some rules about Dirt that have held for a few centuries:

1. “30% rule”: if your principle+interest+tax payments exceed 30% of your income for the duration of the debt, than your family will always remain poor and unlikely understand why

2. “200 month rule”: a holdings true worth is only what can be extracted from renting it for 200 months... the rest is 100% BS...

3. “Check regional population trends age profile”: Most speculative investors understand there is a >17% population decline happening over the next decade, and will focus on urban centers for risk mitigation. In my opinion, inner-city senior care homes are a good investment for the same reason.

4. “Never trust anyone not legally obligated to respect your interests”: Make sure a bonded financial-adviser fiduciary type appropriate to your needs is signed on with your legal representatives. Opinions from Bankers, random investment advisers, and golf buddies can have ulterior motives (toxic assets, TV hyped pump-and-dump scams, and cult stock-swarming scams).

Dirt backed holdings are not what most people assume, and watching the equity get clawed back by banks again never ceases to amaze. The real insult was the 3 million foreclosed American homes still making payments in the last credit-crunch, reacquired with taxpayer bailout money, and then rented back by wall-street funded holding firms to the same families at another address. No one went to jail, nothing changed legally, and like any successful con it will likely happen again soon.

Re: Americans still think they can make money flipping houses

#132

Post by ljlolel » Sat, Jul 09, 2022, 2:15 PM UTC

Retric wrote: post #105

epistasis wrote: post #59

Earlier quoted context omitted.

Every modern bank loan is "printing money" because there is no amount of corresponding money that the bank is actually loaning out. The bank must survive stress tests, but not have actual deposits on hand for the amount loaned out. However, even if the bank needed to have deposits or collateral on hand, to stop the "printing money" aspect of new loans, this same thing could happen because homes are collateral on mort…

Banks do need cash on hand to hand out loans, they don't need cash on hand for deposits. However, they can sell old loans to get money for new loans. Really there is nothing magic about loans. Handing a bank 1,000$ and thinking you still have that money rather the the bank owing you 1,000$ is how money is created.

Actually during 2020 they removed reserve requirement to 0%. Yes really

Re: Americans still think they can make money flipping houses

#133

Post by lotsofpulp » Sat, Jul 09, 2022, 2:24 PM UTC

HWR_14 wrote: post #100

lotsofpulp wrote: post #33

Earlier quoted context omitted.

I was referring to taxpayers subsidizing the actual loan itself, not the act of owning a home. What are the tax incentives (in the US)? On a federal level, all I can think of is mortgage interest tax deduction, but that was greatly neutered in 2017 TCJA, and less than 10% of Americans can benefit from it. And that is a tax incentive to borrow money to buy a home, not a tax incentive for home owners. Only other one is…

If you sell an owner-occupied house (something like primary residence for 3 years) your first $500k of capital gains aren't taxed.

This is a good example I forgot.

Re: Americans still think they can make money flipping houses

#134

Post by robjan » Sat, Jul 09, 2022, 2:27 PM UTC

s1artibartfast wrote: post #108

mchusma wrote: post #4

If real estate is to be a good investment, it must become less affordable over time. The idea that real estate in general is a good investment is dangerous to our economy. The solution to housing is reducing subsidies and removing supply side restrictions. However these are not politically popular in a world where people want housing prices to go up.

>If real estate is to be a good investment, it must become less affordable over time. False. Value can increase if gdp increases without changing the %income spent on housing. If house prices double while salaries double, affordability is the same but dollar value still went up.

In that scenario the value is going up relative to the currency the property was purchased in but that's because the value of the currency is diminished.

Re: Americans still think they can make money flipping houses

#135

Post by usrn » Sat, Jul 09, 2022, 2:27 PM UTC

m0llusk wrote: post #18

It is an amazing contrast with the situation when I was younger. House prices were bounded by wages and were understood to be depreciating assets. That is, without constant investment they lost their value and became unusable and difficult to trade. Even in the best of times it takes time, preparation, and fees to sell real estate. Landlording was a rich person's game because of the risk involved and if you really wa…

It's all distorted by credit which heavily discourages building new housing.

If I don't get a house this year I'm giving up on using real estate and moving onto my boat. I wish more people would do things like this.

Re: Americans still think they can make money flipping houses

#136

Post by Frost1x » Sat, Jul 09, 2022, 2:29 PM UTC

inglor_cz wrote: post #102

m0llusk wrote: post #18

It is an amazing contrast with the situation when I was younger. House prices were bounded by wages and were understood to be depreciating assets. That is, without constant investment they lost their value and became unusable and difficult to trade. Even in the best of times it takes time, preparation, and fees to sell real estate. Landlording was a rich person's game because of the risk involved and if you really wa…

I sort-of agree and sort-of no. These are my objections: First of all, we should separate the value of the house from the value of the land , which is determined by its location. In my country, brand new houses in Ostrava (a rust belt city where I was born) cost about half as much as brand new houses around Prague (the capital), even though they are of the same size, on same sized lots, built from the very same mater…

>First of all, we should separate the value of the house from the value of the land, which is determined by its location.

I'd say this is fairly true in the US. When you compare houses and the amount of similar quality property of say San Francisco or Austin to rural parts of say... Texas or Wyoming, you're going to find that at the same price point (a reflection of market value estimation), you get a lot more in Wyoming or rural Texas in terms of land and the quality of house than in the metropolitan areas described. When you compare metropolitan areas, housing and property is often significantly more expensive in areas where there is more opportunity for the working class or even businesses.

Re: Americans still think they can make money flipping houses

#137

Post by KallDrexx » Sat, Jul 09, 2022, 2:31 PM UTC

ljlolel wrote: post #132

Retric wrote: post #105

Earlier quoted context omitted.

Banks do need cash on hand to hand out loans, they don't need cash on hand for deposits. However, they can sell old loans to get money for new loans. Really there is nothing magic about loans. Handing a bank 1,000$ and thinking you still have that money rather the the bank owing you 1,000$ is how money is created.

Actually during 2020 they removed reserve requirement to 0%. Yes really

Which isn't that crazy when bank reserves are at record highs, and was at relative highs when the rule was put into place.

https://fred.stlouisfed.org/series/TOTRESNS

Banks did not want to lend out money and lowering the reserve percentage is one of the few tools they have to try to encourage banks making loans. It just so happens that it didn't do cause an uptick in loans

Re: Americans still think they can make money flipping houses

#138

Post by andsoitis » Sat, Jul 09, 2022, 2:31 PM UTC

pooper wrote: post #97

zacherates wrote: post #69

Earlier quoted context omitted.

The biggest tax benefit of living in an owner occupied home is that nobody pays income tax on the rent you would pay if you were living in a house someone else owned. ... but most places don't have the stones to tax imputed rent [1]: Belgium, Iceland, Luxembourg, the Netherlands, Slovenia, Spain and Switzerland being exceptions. [1] https://en.m.wikipedia.org/wiki/Imputed_rent

If the choices are between implementing tax on imputed rent and killing all economists by boiling them all alive, I'll gladly start gathering firewood. I'm just joking. I am all for higher taxes on everyone. I have one condition though. If I should pay tax on imputed rent, then Google and Facebook should pay taxes everytime someone clicks on a sponsored link that takes them to their own property. Every time I bring u…

> No, you can't give yourself a "discount" and say well we charged ourselves zero dollars so we owe no taxes. Pay taxes on the market rate. Either make it free of cost for everyone or pay taxes when you use things internally.

Could they just say we "licensed/sold" it at a loss, and therefore take a tax deduction?

Re: Americans still think they can make money flipping houses

#139

Post by mistrial9 » Sat, Jul 09, 2022, 2:31 PM UTC

giaour wrote: post #109

chrisseaton wrote: post #42

Earlier quoted context omitted.

> House prices were bounded by wages and were understood to be depreciating assets. When was this ever true? If you literally abandoned a house and let it rot then yeah maybe in ten years it will have lost value because it will need a lot of work, but other than that I think it's never been the case they're depreciating in any meaningful sense.

The overall value of a "house" is the value of the structure plus the value of the land, and it's common for the former to depreciate while the value of the latter increases. Construction costs have gone down over time (adjusting for inflation), and most building materials degrade. When I was looking for a house in Seattle, many of the $800K bungalows were sold with the expectation that the buyer would level the exis…

this makes sense, yet there is another lense to view valuation. The value of the house is in the legal statement of ownership. What is owned is important of course, but the legal statement of ownership itself is traded for these values. A corollary is that the ability to trade ownership records is a gating factor. "Do not cast your gaze here, these fine things are not for the likes of you" .. is a poetic line from the point of view of someone that is outside that line.

Re: Americans still think they can make money flipping houses

#140

Post by Retric » Sat, Jul 09, 2022, 2:36 PM UTC

ljlolel wrote: post #132

Retric wrote: post #105

Earlier quoted context omitted.

Banks do need cash on hand to hand out loans, they don't need cash on hand for deposits. However, they can sell old loans to get money for new loans. Really there is nothing magic about loans. Handing a bank 1,000$ and thinking you still have that money rather the the bank owing you 1,000$ is how money is created.

Actually during 2020 they removed reserve requirement to 0%. Yes really

Reserve requirements are only a question of deposits, but they limit everything from paying expenses to dividends from the exact same pool of money used to issues loans. Which is critical to understand because banks don't just offer loans they also use money for everything else normal business do.

On the other hand, if they didn't need cash on hand to offer loans any random small bank could loan a 1 trillion dollars to someone. They can't because they don't actually have that money.

Consider a bank with 3 billion dollars total and 2 billion in deposits. They only need to care about reserve requirements on 2 billion and can use the other 1 billion for anything because it's their money. In effect cash on hand are assets and deposits are debt. Reserve requirements are just a question of how much leverage they can legally have.