Real Estate 101

Peter Schiff video blog Oct 27th 2009 Also check me out on
/ peterschiff and / peterschiff

[@MaurDL]

Hell yeah that helped. I love how Peter finds that middle ground to where he's not talking down to you or patronizing and he's not talking over your head or being pedantic. He expresses things so succinctly and carefully so that everyone can understand. Being good at explaining things is an undervalued talent.

[@gary4poker]

I bet this guy has no pants one

[@KevinintheUSA]

info still true in 2019. thanks peter

[@cjgood]

damn this was great, I wish you'd do a whole real estate 101 course.

[@LisaMurphy]

The only thing I would have questioned about yesterday's video was the wisdom of getting a 30 mortgage. If I had a fair stash of gold or platinum I'd sell that and pay cash for the property. I don't view a primary residence as an investment, and yet it seems it would be a better to sell assets like PMs or stocks and put it into the property, which could save you the 30 years of interest payments.

[@andre81946]

Pete you totally right !! when you by one house is not only the nominal price.we have:Taxes,maintenance,landscape ,interest e E.T.C. Even if the price go up you just pay for this extras depends on the property this numbers can by very hi.

[@lmankj]

Good one.

[@Picknroll6]

Well said.

[@joejokool]

Wow this is a pretty good video...opened my eyes !!

[@TriCitiesWARealEstate]

Very cool and very informative!

[@MrColt45acp]

Hey Peter, Thanks for posting! Your videos are great.

[@andresmamafoundation6400]

I first found you when I was 16 and understood absolutely NOTHING. I made it my mission and now I'm 18 and can finally understand your position. You have no idea what type of impact you have had on me!!!

[@itrebor]

💪😎👉 same here except 3 years older!

[@PhillGrove]

I like what you are doing with your KZbin channel! I checked out a few videos and I like what I see! Great job!

[@kosmoincalgary]

One big item Peter didnt mention in Real Estate finance is carrying costs. If you use a mortgage, which most people do, the interest payments are eroding the appreciated future value of the building. If you carry a 75% loan to value mortgage for 25 years, the interest payments on that house are going to be close to the original purchase price, which means your house would have to have doubled in value to break even (not factoring in FV).

[@fifteenbyfive]

Another great video. I'd love to hear more fundamentals about Real Estate soon!

[@realestateonli]

great video!!!!

[@shahub5]

world class video

[@TeamVIPWalnutCreek]

Great video about real estate

[@stoneeh]

good video peter

[@aaronready1]

hey thanks peter, appreciate your insight!

[@AndyMH182]

Good video, I wouldn't mind seeing more like this.

[@Cinemaguy2007]

Pete is so right about the Bridgeport example because I live in Stamford (like Peter) and people really don't want to live there (especially don't want to spend 2 mil)

[@imtiazmt]

great explanation

[@LogicDecoded]

Great points made indeed

[@EdThomson]

Peter has been renting for many years, in a video posted months ago he said he was renting when he lived in California during the tech boom. That was longer than 3 years ago. Stock prices can go up from investor speculation, no doubts there, but the long term price rise must come from company performance. Buffett is an obvious example of how investing is not speculation, he isn't merely lucky.

[@haveabeer123]

Taking a company´s yearly cash flows into perpetuity by using some adecuate discount rate is the best way of business valuation...

[@pclajd6]

Nice work Peter!

[@maracom]

The definition of an asset is anything that pays you. The definition of a liability is anything that you have to pay for. A house is just one class of property that could be either one depending on how it affects your balance sheet

[@EdgeRetro]

Longer term, real estate, like any commodity is going to become more valuable because increasing population creates a bigger demand for a limited resource. Real estate seems a safer bet than fiat currency, and has more utility to produce income than gold for instance, and may be easier for a layman to understand and control than betting on stocks.

[@xennelul]

This all makes so much sense, I wish I had known about this before I bought my house.

[@kevinsproul6500]

The house you live in is an expense. That doesn't mean you shouldn't buy one. My family prefers to sleep on a dry bed in a warm home. However to invest in real estate you should be buying houses that rent out at a higher cost than you spend on mortgage, taxes and maintenance. If you manage to open a gap between cost and rental on all the properties you own that is larger than the cost of your lifestyle you are financially free and that is the 1st step to wealth.

[@Atoyota]

You can also look at a mortgage as a forced savings, as you pay down the principle. Because at the end of the day when you move from a rental you have nothing to trade. This being regardless of how the value fluctuates. My situation was that I bought in the early 90's, took a small portion of equity out while refinancing at a much lower rate; and while my home has depreciated due to current valuations, I'm still ahead in principle. At least for now, but foreseeably into the future as well.

[@lindabebe835]

good points made here Peter. Keep up the good work.

[@QXZASX]

Bravo Mr. Schiff. The fact that you took "time" out of your day to clarify to blog comments speaks volumes about your character and dedication to "truthful and real" economics. Fundamental concepts that have almost vanished here in America. Keep up the great work sir. I will be voting for you next year in CT.

[@sdege00]

good blog peter

[@HughWichmann]

Amen. Even here in sleepy Tamworth.... amazing

[@Shaunt1]

I never heard this perspective about homes, but it makes sense. Homes are only as good as their condition.

[@freetrailer4poor]

Gold is not an investment it is a currency.

[@alphabeets]

Thanks again, Professor Schiff!

[@badonkadonk34]

Renting as a investment is far more likely to peform better. Use a spreadsheet. Map out your cash flows. In your terminal value, don't forget to include brokers fees and whatever inflation rate you deem correct. I believe your IRR will be negative. Over the long haul it may be slightly negative or slightly positive, but you own your house, you don't have to deal with a land lord and you are comfortable. That's the real value. Buy cash flows for an investment, not a house. take care.

[@Seabrook57]

Peter, i agree w/ almost everything in your real estate blog, but you left out 2 scenarios (both of which i currently benefit from) in which real estate can be an investment. One is rural property that can be vastly improved over time without significant expense (forest & soil restoration), and the other is living in community (i bought single fam home, lived there AND rented rooms to friends/family for 10 years, sold it at a large profit (including subtracting maintenance costs). Go figure.

[@galikazoid]

thanks for the education

[@overlordsshadow]

Good job Peter!

[@scolopede]

Try reloading it, two green arrows at the top in a little box and see how it goes. I know, I've been having that prob lately too but refreshing it has always cleared it up.

[@pntrain5]

you're absolutely right, based on result, not in theory...but do you buy at the top. Would you buy a house in California knowing that state is bankrupted and houses will continue to fall unless inflation jumps into hyper...

[@inconformant]

thank you peter. you woke me up once again. i was about to reinvest some money into the real estate market again, but i come to realize, there are better deals out there.

[@danik1st]

OK, the house is on the market for $2,500,000. Just interest alone on the house would be $10,500 @ 5% APR. So renting it for $7,500 would save you 3k a month. This just reinforces the point that renting is not always throwing your money away!

[@hc167]

you did not turn me down for saying buying a house is not good investment, what you turn me down is you start buying a house

[@Arginine88]

plenty if debate here! Even Robert Kiyosaki will tell you how many details are involved with investing in real estate... Thanks Peter!

[@christo930]

One thing Peter forgot that's bad is that ether your money is tied up in your home and therefore not earning interest, or your finance it and pay 3x the price for it. I know people who have refinanced every 10 years and have never paid more than a couple thousand into their principle! The first 10 years of your mortgage is nearly ALL interest.

[@iannetta11]

Every buyer in the market should watch this video first. Excellent advice.

[@Jcolinsol]

Yes that was my point. The term "free-market" is a fallacy, there is really no such thing, it's just people in the absence of coercion. My point being that, in the absence of a formalized system, people will develop varied modes of organization. Socialism and Capitalism will exist simultaneously, and in varying levels.

[@dreverends]

I think the point is that you can't always get the same type of mortgage payment as you can a monthly rent for the same level of property. And if I remember correctly there is a calculator online from the Wall Street Journal where you can plug in the numbers of rent vs. buy to see how long it takes before renting isn't worth it anymore, and it's quite shocking how many decades it takes especially when housing prices are falling as they are in some areas.

[@geniocracynow]

I AM RAELIAN I see the future like Peter Schiff. Peter Schiff will be the next president of USA.

[@jawneblaize]

What do you mean by "conspiracies"? Please help me understand what was wrong with the post by Dollarcrisis (please stick to what Dollar wrote). I appreciate your response. Thanks.

[@DavidThePatriot]

I am a Realtor in Missouri. I only sell income producing rental property. I do not donate to Realtor PAC because they lobby Washington to prop up the residential sector.

[@karenbcz22]

Peter, This is now August 2010. What do you see for the RE market in the next 2 yrs.? When do you think the RE market will turn around and start going up again?

[@pntrain5]

Its not, in his example, that's why he didn't mentioned it. Its only appreciate in values based on monetization and inflation.

[@luckyvet]

I'm a RE investor. Long term is the way to go, tenants pay off mortgage - end of story.

[@measax]

MCM homes keep their values and some how they sell, at least here in DC.

[@age_of_reason]

I WILL VOTE FOR PETER SCHIFF.

[@mofofosho13]

No! It's better to have extra money in your pocket immediately for real investment. His example was perfect, $7,500/month to rent vs. 2.5 million, which would take over 30 years to pay off with interest. If you can afford 2.5 million upfront, great, but it's still better to put that 2.5 million into a low risk fund which yields dividends, something a house won't do.

[@badonkadonk34]

Let's take a step back. If you can pay less all in owning a home than renting, you would do that all day, but that trade does not exist. Why not buy a bunch of home and rent them? I think you should own a home if the payment makes sense and you like the perks. There are benefits to owning a home, but it almost always does not make sense as an investment. You are looking to buy, hold, and pay down the mortgage. Not cash out with a HELOC. That is the right approach. Good luck.

[@WideWorldOfWisdom]

You mean buying his primary residence as an investment? Yeah, if he's going to live in it, it's not an investment. If he's going to rent the house out, it's an investment. If that's what he's planning on doing, he just needs to make sure he gets the proper specialized education in RE investing. He needs to know how to read the local market and find a good deal that will rent for the right price. If he's planning on renting it out there's no reason you should automatic-convince against it.

[@haveabeer123]

You know, Einstein used to say: "If you cannot explain it to a 6 year old, you don´t understand it yourself." I think the way Pete explains it, even a 6 year old could get it...

[@OffTheBeatenPath_]

Where I live in Canada housing has more than doubled in 6 years -- like many areas in North America. Who can afford an entry level house for $350,000? People are making the same money they did 6 years ago. Many regular people got rich by doing nothing. Now the govt. is proping up these house prices by super low interest rates. You used to be able to buy a cheap house in the "sticks" to get started, but now they are all the same price... This tower of cards is gonna fall and soon.

[@9secondsflat]

sorry peter, first rule of investing is to own a property no further then one hour away..if you purchase a property outside the country, the cost of a property manager will eat up any potential positive cash flow then would have been generated.

[@Hajduk28]

dont buy property for youself to live in but you buy to rent it out that is an investment and you buy land not air. Land goes up in value and property (building) goes down in value.

[@matrixman8582]

5:20 21 Savage probably bought that house

[@alikokos]

yeh it helped

[@mrmody249]

Unless you are going to start a family, there is no point in buying a house. If you are single, like me and own a house, a home will tie you down. It is better to get with some friends and rent. I know four friends who rent a house together. They each pay about $300/mo and could move to another part of the country or world whenever they felt like it. Minus what I get from my roommate, I pay $700 a month, plus I have done many repairs, and if I want to move, it might be hard to sell my house

[@bookbinder66]

can you comment on the p/e ratio please ,thks in advance

[@JadrankoBrkic]

Buying a home and living in it is not an investment, but it sure beats renting and dumping money month after month with no return of any sort. Purchased property pays for itself by saving money that you don't have to pay for rent. In 20-30 years time you own that home whereas you still need to pay rent if you are renting it. But I still wouldn't buy in the US. I invest into properties in Hong Kong.

[@NEWZZCAFE]

You will break even in 5 years if you have a consistent tenant paying for that period and no major repairs during that same period. If you made that deal this year. It make take 10 years to recoup your $75K. Now Imagine using $75K on gold and silver coins over a 5 year period with the Federal Reserve constantly running the printing presses. Hmm?

[@luckyvet]

Um, No. I have over a dozen mortgages on multi unit properites, but thanks for the insight.

[@tinfoilcap]

Wow, what a timely video. I am looking at potential investment properties this weekend. Glad to hear one of my favorite economists thinks this is a great idea. But I guess tangible assets will out perform paper with dead presidents any day.

[@84crx]

Preach it Brother Schiff...! - and for pete's sake tell them to abolish the stupid tax credit for buying a house!!!

[@googie64]

Buy a farm with an old, fully depreciated farmhouse on 100+ acres in a rural area. It's all about supply and demand- they are not and will never make any more of them.

[@AScannerClearly]

Nope, I'm pretty sure he's been saying for some time the US is no place to invest. The problem with the US has been from the Federal Reserve producing the economic boom that went bust here, and the US Gov't stimulus spending and deficit spending will wipe out the dollar and will doom nearly all investments in this country, so to be safe from all of this is to invest abroad (so long as the Govt continues its present policies). I hope I got that all right, but do correct me if I was wrong.

[@djrickysmith]

ha ha ha 5K in taxes....try more like 20k or higher for that kind of property in Bpt. CT....The mill rate in that town is sky high

[@badonkadonk34]

You are not talking about an investment. If you like owning your home, do not want to put up with a landlord (of course I love my landlord because he jumps through hoops to keep me) and like to garden - that is your choice and your quality of life may be better and worth the additional cost. But run the cash flows. Value is derived from future cash flows. Good luck.

[@McRocket]

Thanks Peter, but I knew and agreed what you meant on the previous vid. But I think this video was a good idea nonetheless. Have a great day.

[@julianchosun]

Anyone care to comment? Gold prices have been suppressed for a long time. The latest and possibly last suppression may come this Friday USA time. The U.S. governments Treasury debt auctions will sell the greatest amount of debt ever sold in one week. The net debt increase of $153 billion is so high it will exceed the current authorized federal debt limit. Flooding the financial markets with so much debt is a sign of weakness for the U.S. dollar. Dollar goes down, gold goes up. Valid?

[@cjzanders5430]

If real estate is such a volatile investment, isn't gold nearly just as volatile of an investment? Or is gold just a hedge against inflation?

[@tlbodine543]

301 views, yet 366 five star ratings?

[@TheFlex21]

well at least when you finish the payments on a home you own...you'll have a place to live rent/payment free

[@deadman12078]

People don't always pay their rent on time if at all.

[@Hajduk28]

you make your money (profit) when you buy the property not when you sell

[@UDPride]

Finally someone says what I've been saying for years to the block-headed home ownership crowd. Renting is not throwing your money away and in probably 2/3s of the cases, people who own homes would be far better off financially if they rented. Nevermind when you lose your job, you are out of your rented home or apartment in 30 or 60 days scot free and arent sweating over depreciation on a $400,000 note.

[@badonkadonk34]

4McClain - ROI is investment gain less cost divided by cost. You also need to adjust for inflation to produce a "real" return. If your house is worth $300K today and inflation has averaged 5% over the last 20 years, your house in real terms is $113K (300 / (1.05^20)). Probably not much more than you paid. Also, you probably have remodeled almost every room over the past 20 years, painted the house 4x, etc. You likely lost money on that house. Good luck.

[@haveabeer123]

I think the next step for Peter after he gets elected as a senator would be the presidency, so he could pardon his father... which I would totally back up.

[@143DREWID]

Get rid of the "anyway" closure. Self defeating.

[@Jcolinsol]

If the problem is that PEOPLE are selfish and dishonest, how does it solve the problem to institute a system where PEOPLE have power over other people? The whole notion of the state is a fallacy. The solution to dishonesty is voluntarism, being able to re-allocate your own resources away from the dishonest, and towards the virtuous, at will. You don't understand the nature of property rights, they don't exist, they are defined subjectively, so of course you can share ownership if you agree to.

[@CaptAnarchy]

he should wear a sound money pin like Ron Paul...

[@Jcolinsol]

No, both capitalism and socialism are simply intellectual constructs used to define non-existent ideals. The reality is, and will always be, much more complex than our models of how reality should work. In the absence of a state extortion racket, human beings will arrange their labor and resources independent of these meaningless ideologies, according to necessity balanced against individual value judgments. Both Socialism, Capitalism, Communism, and other social orders will simply co-exist.

[@quezer0]

rich dad poor dad,^_^ 'a house is a liability' - liabilities eat you - assets feed you.

[@BeingInTheMessiah]

WOHO!! great ending!!

[@caganb]

So renters made 4% each year too. NOT Real estate was a great investment for 80 years , now it sucks. More people got rich on real estate than anything else.

[@buffett1000]

zetsway5000 Most people agree 100% with you about Alex Jones, including me. Good post.

[@panjok2]

MR. SCHIFF PLEASE READ THIS!!!! Dear Mr Schiff, You said that you read some of your comments so Im hoping you read this! Thank you for your videos and I hope that all the people that you have been on tv with (who said that none of this was going to happen) have publicly admitted that you were right!! and that one guy owes you a penny! remember that? could you tell me a good place to invest the 2000 dollars me and my wife have saved! We are poor and only want a little security!! thanks