Image of the day: new housing as investment
High up-front costs, a steady stream of future benefits
Illustration by Deny Sullivan: Pension funds can be housing champions.
This is the defining problem of real estate investing. It takes a ton of upfront money to build an apartment. Rental income may be 3-5 years away from the start of construction. But once built, buildings last decades.
An exchange on Twitter about housing as an investment when prices are stable. Alex Armlovich:
Stable home prices can still yield normal returns: You'll buy a home for rental yield, not speculative gains.
E.g. my home was $300K; buying it avoids rent of $2200/month. That gross rent yield is 9%! Net operating income yield is 6% after tax&maintenance. That's a fine return even on a flat home value.
After abundance, homes will be like AAA corporate bonds. When you buy a Coca-Cola bond, it yields 5% for 30 years until you get your principal back. Your home will be like that: You'll earn a steady 5% rental yield, then sell it for the same inflation-adjusted price you paid.
Ben Southwood:
Building homes is real investment, as in, you reduce current consumption to provide consumption over time. Becomes clearer when you think about it as a planner of a command economy, rather than with $$$ in the way which can be confusing.
Alex Armlovich:
Exactly! Don't get confused by the dollar veil. At the bottom line, everyone in your country having more & bigger homes means by definition they are wealthier!
There's just no way for scarcity to raise *real incomes* more than abundance.