Is investing in real estate immoral if you use it to buy your first home?
Is investing in real estate immoral if you use it to buy your first home?
I'm someone who believes landlording (and investing in property outside of just the one you live in) is immoral, because it makes it harder for other people to afford a home, and takes what should be a human right, and turns it into an investment.
At the same time, It's highly unlikely that I'll ever be able to own a home without investing my money.
And just investing in stocks means I won't have a diversified portfolio that could resist a financial crash as much as real estate can.
If I were to invest fractionally in real estate, say, through REITs, would it not be as immoral as landlording if I were to later sell all my shares of the REIT in order to buy my own home?
I personally think investing in general is usually immoral to some degree, since it relies on the exploitation of other's labour, but at the same time, it feels more like I'm buying back my own lost labour value, rather than solely exploiting others.
I'm curious how any of you might see this as it applies to real estate, so feel free to discuss :)
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And just investing in stocks means I won’t have a diversified portfolio that could resist a financial crash as much as real estate can.
That's nonsense. A house would be equally difficult to liquidate in a financial crash than stocks would. Probably even more so. If you have a diversified portfolio and enough savings so that you don't need to touch your investments then you'll handle crashes like that just fine. The stock market has always bounced back up. Always.
I’m someone who believes landlording is immoral
Wouldn't that then mean that there would be no rental apartments available and everyone would be forced to take a loan and buy a home? To me this kind of thinking is just the opposite far end of the spectrum where as what is optimal is likely somewhere in the middle as is the case with most things.
Housing handled by the government leading to removing the requirement to take a loan to buy a house is an option. Landlords are never a mandatory thing, it's absurd to think so.
So the government is your landlord then?
They effectively already are, stop paying property taxes on a property that you own and see what happens. They get to set all kinds of restrictions on what you can do with your property, how and when.
Sounds a lot like a landlord to me.
Having rented before and now owning my own house I can gurantee you that there's a major difference in the freedom between those two.
You think homeowners should not be required to pay property tax and build whatever they want on their property disregarding all safety regulations and building codes? I can definitely see how that would go horribly wrong..
I'm also a former renter, current homeowner, and you certainly get more freedom as a homeowner than you normally would as a renter (although you do sometimes hit the jackpot with a landlord who will let you do anything you want to your rental) but it's not absolute freedom.
The second half of your comment though, is putting words in my mouth that I didn't say. I agree with building codes, safety regulations, permits, etc. I certainly don't trust the morons living next door to me to not blow their house up and mine along with it because they tried to service their own gas line, and I'm willing to give up that bit of freedom for myself because the benefits outweigh the inconvenience.
I am, however, not a fan of property taxes, because I'd like to know that if I someday end up disabled, lose my job, and broke, I'd like to know I'd at least be able tocount on having a roof over my head even if I can't afford to keep the heat and lights on, it would keep me out of the elements and provide some physical security. I like everything those property taxes pay for, but I want it to come out of income taxes.
There's also of course the issue of things like eminent domain and civil asset forfeiture. If the government can just take your home away from you, how real is your ownership of it? Just like how a landlord can decide to evict you or sell the property at any time, sure there's a process they need to go through, but the government has hoops to jump through when they do it as well.
I don't know where you live but the property tax on my house is 200€ a year which is less than half of what I spend on groceries every month. If I end up disabled and without a job, the property tax, from a financial perspective would be among the least of my worries.
In the USA, property taxes are how most towns and cities get the majority of their funding. 200€/year would be crazy low.
In my medium cost of living town (USA), taxes come out to 4, sometimes 5 figures a year. Plus as the area becomes more desirable, property taxes (based on the sale price of a home) go up for recent buyers.
And how crushing would it be if you have no food, no money, no job, and not even a safe place that you're just allowed to exist for want of $200?
Also the taxes in my area, which isn't even a particularly expensive area for the US are something like 10x that.
Well debate about wether taxes are good or not are a whole another discussion. I live in a wellfare state myself so I don't mind the relatively high taxes I'm paying because I've benefited from what the government spends it on my whole life and continue to benefit in the future as well, not to even mention the people less fortunate than me.
If you're broke, disabled and unable to provide for yourself the government will provide you with an apartment and money for food. 200€ a year is pennies compared to the benefits people like this are receiving.
But if it weren't for property taxes, the government wouldn't need to provide me a place to live as a homeowner, every penny of welfare I would need could go to food, utilities, etc. and that frees up the government provided housing for those who don't already have a place to live.
And again, I'm not anti tax, just anti property tax, raise the sales taxes, income taxes, etc. to cover things, especially on the wealthy, my house isn't making me any money until I sell it, so why should I be taxed on it like it is?
As a government employee, I have rented from the government (USA) many times over the years. It is a pretty good deal usually. It includes utilities almost always. Sometimes the house is really bad but usually they are ok, and the price per month (they do it by day) is pretty good.
To be clear, I wasn't talking about liquidations, I was talking about actual market performance. Housing is necessary, even during a financial crisis, whereas unnecessary purchases of goods from corporations become secondary. Thus, housing can stay more stable while stocks crash.
While the market does always go back up, to some degree, I want to be at least slightly more resistant to the possibility of a major failure, (i.e. multiple major tech companies going under from some highly unforseen event) that could lead to entire stocks not existing to go back up again in the future.
I would also theoretically be investing via publicly-traded REIT funds, which could be liquidated in the same manner as stocks.
Wouldn’t that then mean that there would be no rental apartments available and everyone would be forced to take a loan and buy a home?
Not exactly, first off, I mostly mean real estate that is required for survival. Housing, not including the types of places you'd use for a quick vacation stay like hotels, corporate office real estate, etc.
If there weren't landlords, there would be a significant decrease in housing prices, due to a few factors, namely banks now offering lower-rate loans (since the higher-paying institutional investors are out of the picture), higher supply availability (instead of investor hoarding of empty rentals for property value over use by humans), and generally larger amounts of capital available to spend on new homes, rather than rent payments going to alternative asset classes in wealthy investor portfolios.
It also doesn't mean no rentals would exist at all, but that properties wouldn't exist solely for the purpose of being rented. (think someone renting a portion of their existing house, or adding an ADU, instead of buying an entire single-family home solely for the purpose of renting it as an investment.)
Landlording is only a problem because it reduces the supply of housing available for people to own directly, and by the extent of it existing, increases housing values. If existing properties are partially used as rentals by those who have extra space to spare, any of the issues I mentioned functionally don't exist.
But what does it matter if the value of your stocks drop in a market crash? Assumeably you're in it for the long run so you can always just wait for them to go back up before selling. Even if a property might hold it's value better during a crash, which is not guranteed either, that would still be irrelevant unless you intend to sell the house, which again would be difficult during a market crash. If you want something that holds it's value that you can liquidate at any time then perhaps you should buy gold instead.
If you're invested into something such as S&P 500 and something happens which causes a significant number of those companies to go out of business at once, then we're talking about an extremely rare world wide event that'll effect your investments no matter what they're tied into. Keep in mind that the ~7% yearly average growth of the stock market includes events such as both world wars.
TLDR; I want to protect against systemic risk factors, as most of my net worth will be in the market, unable to support me during a financial emergency. It could also carry possible tax benefits, and make it easier to sustain mortgage payments on a home.
I'm mostly trying to ensure that if, for instance, my entire emergency fund is drained from a major medical emergency (or something similar) during that time, I have something I can rely on that is generally more stable to sell during that time, which will overall carry lower tax implications on sale than stocks that have already appreciated significantly more.
Plus, once I get to the point of being close to owning a home, I want to ensure no major financial event could potentially significantly impact my ability to afford mortgage payments.
I plan on investing as much of my income as I can to retire as early as possible, which means the majority of my liquid cash net worth will just be in my emergency fund, with a smaller additional amount in savings. I would prefer some level of extended, more stable assets, that will still grow at least a bit over time to meet my financial goals, but won't be subject to as large drops as the whole market.
I don't plan on investing much of my portfolio into real estate if I do decide to go that route, only 5-10% total, more as a hedge than as a primary strategy. Most of my investing is still in comparatively high-growth index funds.
REITs tend to move like the rest of the market. If there's a big crash they go down like everything else. I think hedging against a big crash the way you're thinking is probably not going to be worthwhile, you're not really gaining significant protection.