A cash-flow negative house that doesn't appreciate and become ever more cash-flow negative is a TERRIBLE investment compared to the S&P 500.
In the simplest terms, take a $100k house. 20% down = $20k downpayment + $3k closing costs. Generally, this is a house that would rent for at least $800/m.
Your payment is $337/m. Of that, only $143 is principal. If the house is even 5% cash-flow negative - that means you're only getting ~$100/m in principal.
You'd get ~$145 on your $23k downpayment in the S&P 500. And instead of being cash-flow negative and taking money OUT of your investments, you could instead ADD to it.
Add to that the fact that you'll pay an additional ~6%+ transaction costs at closing -> And even a 5% cash-flow negative house with 0% appreciation is likely to come out negative.
This only works because the Fed pretty much guarantees that house prices will appreciate >3% per year for the last 20 years.
3%*5:1 leverage => Crushes the S&P 500 average. Even if you're 10% cash-flow negative, it usually beats the S&P.
Add to that the fact that $250k of the capital gains are tax free -> And that pretty much eliminates the 10% transaction fee and makes it better tax-wise than the S&P 500.
I think we're talking past each other. You're not describing a house that's cashflow negative, you're describing a cashflow positive house, with 337+mainrenance expenses and >800/m revenue
Generally a cashflow negative house will have a much higher payment over a shorter term with much more principal, and much more in rent.
You also forgot inflation of the house price. You have to take into account 2% increase in house prices even without the fed doing anything, and leverage that. When you do that you find out that almost all of your interest payments disappear and much more goes towards you principal, thus increasing your equity gain.
Inflation essentially guarantees appreciation at the rate of inflation for hard assets.
If you have a house with a 20 year mortgage at 3% interest where maintenance is 50% of the mortgage payment, with no appreciation in real terms and 2% inflation, 50% of what rent is becomes profit. (1/((1.03-1.02)^20))*0.66 = 54.5%
If you put down as down-payment 100 000$ for a property worth 1800$ in rent, which is realistic, you get 11 000$ in profit per year from a 100 000$ investment, which is great.
That's assuming no appreciation in real terms, ie, the cost of the house exactly matches inflation.
Therefore, renting is profitable even without appreciation of real estate in real terms.*
In the simplest terms, take a $100k house. 20% down = $20k downpayment + $3k closing costs. Generally, this is a house that would rent for at least $800/m.
Your payment is $337/m. Of that, only $143 is principal. If the house is even 5% cash-flow negative - that means you're only getting ~$100/m in principal.
You'd get ~$145 on your $23k downpayment in the S&P 500. And instead of being cash-flow negative and taking money OUT of your investments, you could instead ADD to it.
Add to that the fact that you'll pay an additional ~6%+ transaction costs at closing -> And even a 5% cash-flow negative house with 0% appreciation is likely to come out negative.
This only works because the Fed pretty much guarantees that house prices will appreciate >3% per year for the last 20 years.
3%*5:1 leverage => Crushes the S&P 500 average. Even if you're 10% cash-flow negative, it usually beats the S&P.
Add to that the fact that $250k of the capital gains are tax free -> And that pretty much eliminates the 10% transaction fee and makes it better tax-wise than the S&P 500.