Claire Corlett

Fish Food, Fish Tanks, and More

Is Real Estate a Good Investment | Ken Fisher | Fisher Investments [2019]


Real estate can be a perfectly fine
investment, but it usually isn’t. And the reason it usually isn’t is… simply that most of the time, people don’t take into account
the full costs of owning the real estate,
which includes: the taxes, the interest payments,
the deferred maintenance, and all of the rest that go into calculating the real total return
of the real estate. Historically, the real returns have been
some place much lower than stocks,
but much higher than cash, and that means they can be okay. The problems include, usually you’ve got to run them yourself,
which is labor on your part, or you’ve got to pay somebody to do it and they largely take you
to the cleaners, usually. The costs of property management are high. And then thirdly, you’ve got to do it in the right place
and the right location. There’s residential,
there’s sub-sets of non-residential, and then there’s the old saying,
“Location, location, location.” When you actually look at the way
most people, however, think about real estate… because it’s non-volatile they like it, and they tend to not look
at the full cost, so they tend to think their returns
are higher than the returns actually are. And so, real estate has a better image
than its reality. Now, there’s one final feature,
which is that with real estate you can lever it really heavily. But remember you could lever
almost anything else also. And so people calculate the return
as if its levered where they should think about
their total financial situation as if it was comparably levered. That is, that’s a piece of a pie that they’re allocating that return to
when their overall financial situation has a certain piece of the pie
that’s leverage. Overall, real estate’s okay,
it can be bad, it can be good. It’s usually worse
than people think it is. And it tends to fall on
a spectrum of total return that’s in-between stocks being higher
in the long term, cash being lower in the long term,
and it being in between.

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