There are two things that have been bothering me on the real estate side. First is that it's a completely illiquid asset. So with an investment in the s&p you generally can pull money out if you need it pretty easily. But if you have a house the only way to pull money out is to take out a HELOC or refinance. Those are pretty significant interest rates right now. Maybe when interest rates were 3% it was a different story but we're in a different world now.
The other issue I have is people talk about refinancing taking money out and buying more property. I guess I understand how that works the last few years when appreciation was through the roof. But how's that going to work going forward rents are already pretty high and you have to Jack them up to cover your refinance. Plus now you're going to pay a much higher interest rate then your original loan. So pulling cash out to purchase more property seems less likely going forward.
So maybe over the last 10 years with these ridiculously low interest rates and ridiculously high appreciation it beat the s&p. However I don't see how going forward that's going to be the case.
I know people keep saying well when interest rates go down... The truth is they may never go down. They hit 16 to 18% in the 80s. We may be just the beginning of a rise that may not end for another decade or two. And if interest rates do drop and houses begin to appreciate it the rate they were before the entire market will collapse because there's no way people can afford this continued increase in price.
So what once was may not be in the future. Where as even when interest rates were through the roof the s&p still pulled 10 to 11%
