Comment by bradly

> That’s fascinating to me. Generally, the homes people buy to live in aren’t optimal investment properties. Why not sell and buy something optimized for return and growth?

Great question and one I wrestled with until hearing Paula Pant's perspective:

You _really_ know the house you already own. You have a much better understanding of its issues and capital expenses in the next 1-5 years, than a house you are purchasing with an inspection. You know the yard, the neighbors, the city regs, the roof, the plumbing, the weird dog two doors down, and the weirder neighbor three doors down. The mom and pop investor have a much greater risk-of-ruin on a single property than an institutional investor, so this knowledge is extremely valuable.

The second reason is you most likely purchased that house with a non-investment mortgage, so you get priced in a bit to converting to an investment property after the living in it. My non-owner occupied mortgages for my investment properties required 30-35% down and had a much higher interest rate. Converting your existing home avoids all that.

Thirdly, taxes. Selling a house triggers a taxable event and with investment properties will heavily push the seller towards a 1031 exchange to avoid a hefty tax bill that year. A 1031 basically requires you to pick 3 specific properties when your property closes with a requirement to purchase one of those three in the immediate six months or face a capital gains bill is a hard bill to swallow. Depending on the state in the United States, purchasing a new property will also reset your property tax bill, while an existing property can have property taxes well below the current rate based solely on property values when purchased.

That's the first order analysis. It's correct within its assumptions, but it neglects leverage.

But if you bought a place before the pandemic you could lock in a ridiculously low interest rate for 30 years.

Now you have the value of the mortgage (leverage) locked at an interest rate lower than inflation. Let's say rent covers expenses and mortgage. The return on an initial $50k down on a 250k property might be around $10k/year, or 20%.

Tell me, where does one get an investment returning 20% annum?

Real estate is the easiest and safest way to leverage your investment.

The U.S. is unique in that it offers fixed-rate 30 year mortgages to basically everyone who can afford the monthly payments. Once you've locked in a 30 year mortgage at a great rate, it's super cheap money - your new goal is to basically hold it until it's completely paid off. Then, the only way you can move is by renting out your old place.

Land rents are pretty great in the US at least. Landowners get bailed out by taxpayers when times are hard in many instances. Plus laws are generally designed to protect land rents.

Why wouldn’t it be a good house to rent? It’s usually not tourist rental (airbnb), it’s long term living rental (annual lease). Anyone who doesn’t own has to rent an apartment or house.

Theres also a chunk of people who “don’t believe in debt” so even when they have kids and live in a house they rent until they can pay cash. Or there’s young people who get together in a group of 4 and rent a house to share etc etc.

because of your existing mortgage rate