The Economics of Real Estate

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A home is in most developed nations in the world the centrepiece of the family finances, it is simultaneously the largest investment and largest expense of almost any individual lucky enough to break it to this increasingly unattainable market with a massive mortgage.
But is this all for the best? Have houses been conflated with poker chips, as people no longer look at them as shelter for a growing family but rather as an asset to make wild speculative moves on in the hope of equally wild returns.
The property market was at the centre of the last financial downturn in 2008, and as it seems we are on the precipice of another major recession it is probably a prudent time to re-evaluate what is going on with the world of real estate.
To do this we are really going to have to look at things on a few level’s from the macroeconomic factors like over-development and over-leveraging to issues on an economy-wide level which is ultimately going to boil down to answering a few key questions: What does a strong property market mean for the wider economy? Are their better investments out there? And are we over-leveraged right now?
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📚 Want to learn more about the economics of real estate? We recommend reading "Economics, Real Estate and the Supply of Land", by Alan Evans
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#RealEstate #Economics #Recession
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Sources & Citations -
Jowsey, E., 2011. Real estate economics. Macmillan International Higher Education.
Evans, A.W., 2008. Economics, real estate and the supply of land
Barlowe, R., 1978. Land resource economics: the economics of real estate.
DiPasquale, D. and Wheaton, W.C., 1996. Urban economics and real estate markets (Vol. 23, No. 7). Englewood Cliffs, NJ: Prentice Hal
Wheaton, W.C., 1999. Real estate “cycles”: some fundamentals. Real estate economics
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[@EconomicsExplained]

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[@MrDeadlySamurai]

I'm interested to know what you think the connection between debt and inflation is in real terms (not so much theoretical), especially in the context of the deficits that governments are raking up to deal with this crisis.

[@PerryMatt]

Can you do a video on dollar-cost averaging?

[@pranay220]

The argument that the house doesn't produce anything, is the same as saying a bed and breakfast doesn't produce anything. It ignores the basic tenet of utility. By the same logic, the truck doesn't produce anything other than emission, and a retail stores don't produce anything other than jobs.

[@ody2cuffs508]

Tobias Burke GF eeuwhgEd

[@Dichtsau]

you could've nailed down the entire problem like this: your rent will go up 100% of the inflation, but your wages will only go up 50% of the inflation, whilst homes lose value, so you better just buy the land under the house. most workers aren't capable of seeing this.

[@thekingbdon]

A video specifically talking about how short term rentals I.e. Air bnb affect local and regional economies would be awesome!

[@fatetestarossa2774]

indeed : ))))))))

[@ephilihp]

Short term rentals will turn into long term rentals, which kills the jobs cleaning and managing them.

[@davidl.e5203]

VisualPolitikEn made an episode about it. It seems the conclusion is very negligible differences in rents.

[@rzpogi]

It's interesting for the case of the Philippines for the least. Locals don't really like to live inside condominiums. They still buy them to use them for Airbnb. Even condo sales agents promote that and that causes problems for residents especially foreigners since they cannot own land by law.

[@inthevault9603]

High Airbnb rental areas more crime

[@imranward4092]

That last sentence was great. "No great economy was ever built on shuffling around piles of dirt."

[@spelcheak]

The British Empire has left the chat

[@samuelthornton9179]

@@spelcheak the British empire shuffled around slaves and tea

[@christopherburgess96]

@@samuelthornton9179 Don't forget enough Opium to bring down China.

[@scottkirby5016]

Actually I'd REALLY disagree with the statement. Because actually pushing dirt around is the often the basis of good economies. Because you need to push around dirt in many ways to farm, to create both transport and water infrastructure, and also to collect many soil based raw materials like mining, quarrying etc. These are key to forming the basis for a good economy. They are a powerful and strong foundation for stable economies that are not extremely dependent on others. Pushing around dirt is often very useful work and the foundation of a great economy. Pushing around pieces of paper that hold the rights to a pile of dirt is not. That doesn't do anything useful, at its best it a way of creating a "fixed" level of economic friction in order to move the rights to those best able to use them. But that is far far from what the residential real estate market in the developed world is actually like.

[@sko1beer]

Hong Kong does it by restricting the movement of dirt forcing the market to only go one direction

[@l.jturner6617]

I have a personal beef with holiday homes. I live in a small, rural village that a few decades ago could support itself easily. Everyone living in the village spent money in it too, so the local economy was great. Since then, however, half the houses have been bought out as holiday homes. The owners are only here a few weeks of the year and the economy has drastically fallen because of it. Damn near every shop has closed down, the few remaining ones are on the brink. Meanwhile people who genuinely want to live and spend in the village can't because the property price is hugely inflated by rich twats buying it all up...

[@slipNslide]

sums up south west

[@laur-unstagenameactuallyca1587]

that sucks

[@dzungtran314]

Very legitimate concern. 2 potential solutions: One, build more of these homes and price will drop. But zoning law might limit constructions. So the other approach is passing law requiring outsiders to pay premium for homes (in Singapore the premium 20% I think) and use the premium to fund houses for locals. Of course, it's hard to get everyone together. Strong leadership is needed.

[@dustywilson5461]

then perhaps your village should come together and buy up these properties, develop tourism attractions for your town and rent those properties out to tourists from out of town.

[@johnbee7729]

Who was selling the properties?

[@ExasBits]

Never buy a house based on a market’s expected ROI. A real estate agent probably isn’t assigning as much value to my 13 minute commute to work as I am.

[@jaymzx0]

Another value is the idea of my housing costs not being changed at the whims of my landlord, and whether they want more money to buy a boat or send their kids to private school, or just because the 'market price' has increased. Granted, a homeowner is at the whim of the local property taxes and other homeowner expenses, but that's rolled into a lease rate, anyway. Better rental market, nicer car for my landlord because outside of taxes, management (if outsourced), and homeowner overhead, their costs largely remain the same.

[@paulsz6194]

Joseph Rabb well a real estate agents job is to sell,sell,sell! So obviously he will paint the property in the best light possible, but those circumstances will not always materialise, and if they do, it may be temporary. So it’s always down to the buyer doing their due diligence. As the old saying goes: “Caveat Emptor!”

[@AwesomeHairo]

@@paulsz6194 Did you just assume the real estate agent's gender?

[@Giatros89]

@@AwesomeHairo when Paul mentioned the gender did you feel annoyed because you have a need for equality?

[@antonichecinski1116]

@@AwesomeHairo is English your mother tounge? If not it would explain the problem, in English there is an assumed subject which is HE as in English nouns don't have gender like in Spanish la/el or French le/la etc.

[@lazergurka-smerlin6561]

How to invest in real estate Step 1. See houses are increasing in value. Step 2. Take a loan because you don't have enough money. Step 3. Buy house and wait Step 4. Someone wealthier sees houses are increasing in value

[@TKMRacer28]

Lazergurka - Smerlin Kind of like a ponzi scheme 🧐

[@984047]

Lazergurka - Smerlin Possible downside: you end up being the last one to buy the property before the economic downturn.

[@utubesuxbigdonkeybal]

Buy something at an inflated price now with the expectation that an even bigger idiot will buy it at an even more inflated price in the future-- what could go wrong?

[@jp4431]

Man, I should've bought those poppies back then!

[@everest8129.]

If you buy a house for an investment you would usually rent or lease it out for a positive cash flow so you would make money

[@mitchhonan9730]

I studied economics in college, but my career has taken me elsewhere. These videos "scratch an itch" that bookkeeping and mundane payment processing just don't. Thanks for the great content!

[@beckwisa]

Totally agree. Economics major here abut fell into accounting how HR which I like. This channel scratches an itch for sure.

[@mattwood1977]

I did a subject on economics in high school and loved it. Considered further studying economics but didn’t as there weren’t many post graduate job prospects so I’m a carpenter now. I love watching these videos and seeing what really goes on behind the scenes to provide us the things we take for granted everyday. brings back that same hunger for knowledge and desire to change the world for the better I felt in high school.

[@Adrian-op5ni]

Same here. Majored in Econ, and although I work in imports, it’s still deviates from the subject. These are great and remind of what I studied long ago.

[@michaelmckeever2734]

Trying to buy my first house and I'm competing with companies that rent houses out. I've literally had every offer turned down because they have more leverage and power over an individual home owner.

[@michaelmckeever2734]

@@CodeDoge Fortunately, I was able to get an offer accepted and just closed on my first house! I'm excited

[@billylukito5522]

Congrat bro

[@MaxwellJWhite]

if you are occupying the house you can afford to pay more than investment companies tho...

[@alexandermaccumber9021]

You can thank low interest rates for that.

[@piginspandex]

This happened to me, too. I had to put in EIGHT offers before I got one accepted.

[@thomasott2709]

The last words of a US Realtor in 2007: 'and you can always sell it' ; not adding: 'at a huge loss'.

[@12kenbutsuri]

In Japan, due to the population decline and natural desaster issue, your house is worth almost nothing after 30 years. Edit: it was pointed out that Gozzila attacks also play a roll in the land value. Edit 2: maemorri points out a plausible reason below in the comments.

[@tcxd5958]

12ken I’d like to have some real estate in Tokyo or any other metropolitan area in japan for free or cheap please.

[@JK-gu3tl]

So I can buy a 30 year old house for cheap? Sweet.............

[@Asteroid_Jam]

TC ZH the house is worthless but the land is still very valuable in Tokyo or any other metropolitan area.

[@secrets.295]

And also due to the bubble burst in the late 80s. Property prices has been in decline for almost 2 decades. Only recently they started to go up, even then its barely growing

[@tcxd5958]

T-Rex Hunter A house cannot be sold or leased separately from the land so when anyone speaks of the purchase and sale of a house it includes the land otherwise it’s a retarded conversation.

[@Ptaku93]

"No great economy was ever built by shuffling around piles of dirt" *Ancient Egyptians would like to know your location*

[@tooboukou8ball702]

Ptaku93 not to be a stickler... BUT... it was their great economy that allowed then to move the dirt.

[@kolamoose8717]

Mesopotamia wants to know your location

[@aphato2770]

@@kolamoose8717 nobody cares about mesopotamia

[@MoreEvilThanYahweh]

The Pyramids were a massive economic sink.

[@tooboukou8ball702]

White elephant, bridge to no where, literally a shrine for the leader who never did a days work in his life.

[@M.G.R...]

*1:41** - The Good - A Tangible Investment* *5:54** - The Bad - Understand The Real Estate* *7:27** - The Ugly - A Cautionary Tale* 15:50 - Final Thoughts

[@thecocomonk2657]

Why bother breaking into the housing market when you can just break into the house itself.

[@l.jturner6617]

Huzzah, a man of reason!! 😂

[@brianwu6435]

The Cocomonk savage. Hope u joking lol

[@iliquify]

Lol it also produces some goods out of it.. /s

[@tymandude1510]

B and Es are the real investments.

[@danishbutter1847]

And trade drugs in it.

[@NewbyTon]

If there's real estate Then where can I find fake estate

[@EconomicsExplained]

Oh boy do I have a development to talk to you about in Kenya, it's gonna be great.

[@coolguy-ze1gs]

china maybe, the gov owns everything i think or hell not.

[@pentagramprime1585]

World of Warcraft.

[@yourinnation5541]

Time shares

[@messitcool]

@@EconomicsExplained please do

[@nigelbosch3388]

So... what you're trying to say is, free real estate isnt free?

[@slappy8941]

HERESY!

[@oryant3352]

Just like freedom isn’t free. It came with a cost and sacrifices

[@TheRestedOne]

Free, real, estate. You can only choose two.

[@chrisding1976]

TheRestedOne free estate I’ll take it

[@TheRestedOne]

LOL WUT cardboard box it is!

[@sch-corp]

As my grandfather once told me in relation to investing in shares vs investing in property: "You can't sell the back door of your house when the weather changes. But you can close it and ride out the storm." Even though the housing market in Australia is likely to tank, I'm glad I own my own home and am not beholden to landlord sharks anymore.

[@mattja52]

What about the property tax sharks, like roaches they don't seem to die, the vermin have been around for 300 million years according to fossil evidence. That gross value without regard to debts when I assess your property, you better have my money or we will have a discussion on what you own. Don't make your problem my problem, the funds, please!

[@keith1689]

Facts. Great point. Your father was a wise individual.

[@AvoidTheCadaver]

@@mattja52 Currently states in Australia do not charge property tax to owner occupied homes. Property buyers pay a stamp duty at the time of purchase which is dependent on the property price. This is in a way a contributing factor in the difficulty of raising a deposit since the median house price in Sydney for example is about 1.1 million aud. The state govt is proposing abolishing the one of stamp duty in favour of an annual property tax though

[@ZKhweziN]

I've been in real estate for over 15 yrs (side business), but how you explained this has completely changed how I see Real Estate now. Thank you for this!

[@Adrian-op5ni]

The land being a commodity and house being a consumer good. Also, the house losing value, but the land increasing in value over time really did it for me. New perspective.

[@42Channel42]

Real Estate Investing isn’t done just for the market “share” of a property to go up, but more for the cash flow gained by collecting rent. It doesn’t actually matter too much if a property appreciates, what matters is positive cash flow over all expenses. It’s like running any business. You get the tenant to pay all the expenses, you keep a small slice of that pie for providing the resource, and over time you gain equity in the property. Property value matters, but it matters in relation to Cash Flow. That’s my understanding. But I am new to all this.

[@FingeringThings]

Last time I was this early, Vancouver’s housing was affordable

[@125henni]

i feel sorry for yall down there. I'm over here complaingn that i can't get rent in a nice area for under 1300

[@adiabd1]

@@cyzcyt chinese investors are so horrible they reshaped housing market of several cities around Asia-Pacific and American regions Even here in Southeast Asia, most condos are owned by Mainland Chinese

[@noahpolicarpio1530]

@@adiabd1 Blame it on your government. They're doing this to keep their economies going, as stagnant as they are.

[@alexandergreene8027]

You know you're watching a good economics lesson when the ad that interrupts is also an economics lesson and you watch it all the way through.

[@davidlockhart6575]

I appreciate how u 1) make this about the basics, and 2) make it as general across nationalities.

[@laatl824]

I love how all the AirBNB “investors” bought up all the real estate in the city, thereby raising rents, & are now facing bankruptcy. Capitalism at work

[@Augustin54]

Martin S wait til they get bailed out. Socialism for the rich capitalism for the poor

[@carlosandleon]

that's the rules of capitalism and chaos. It's working. You win some, you lose some.

[@Augustin54]

Carlos Leon well I’m not a mega company so not likely

[@jdizzle708]

@@Augustin54 it's not socialism for the rich. Socialism isn't bailouts or even social welfare programs. Socialism is when the workers own the means of production. Socialism for the rich is an oxymoron

[@chrisrace744]

This is a great point. Capitalism is like starvation. It keeps populations in check. It is the great equalizer. People forget this.

[@Avjunza]

Housing is Shelter, First and Foremost.

[@pabliux142]

It should be. It has been twisted by greed & debt-addiction into speculation.

[@pabliux142]

roberto R well this... i cant blame you tho... either you are on the winning side or the losing side of this.

[@metametodo]

Landlords do the opposite of providing housing, by buying up more homes than they need they just make housing inaccessible. Housing prices, property taxes go up just as consequence of that. All while the tenants pay for the inflated expenses, with no property. That's no market, just pure abuse.

[@usxnews1834]

@@profribasmat217 This should be illegal

[@the4fibs832]

@@profribasmat217 i hope your tenants go on a (well deserved) year long rent strike. good luck with your debt.

[@ThaYowza]

The fact that you mentioned the value of land several times really helps make for a compelling case for land-value taxes as opposed to property taxes. Edmonton, in Alberta Canada is a great case of this, would love to see a video on land value taxes!

[@Ballaurena13]

I would like to hear more in your perspective but I must say that that disturbs me on a personal level. As a single person and and gardener I find that I need more land and less house to fulfill my psychological needs compared to many others, thus I'm at first put-off by seeking to tax the needs of one person differently from those of another. However, I think this is a case of the little picture (individual diversity of needs) and the bigger picture (the real financial cost of real estate) being in disagreement. It's maybe a tiny bit like the issues that led the U.S. to have a bicameral house.

[@rathelmmc3194]

Your own home is not an investment, it’s a place to live.

[@VeryProPlayerYesSir1122]

it's still an asset lol, when you buy a new home and move there.

[@jf6466work]

Your personal home is a liability (cost money to own and such). Investment properties (rentals, leases etc) are assets. What people fail to realize that buildings depreciate in value unless they are frequently renovated and updated.

[@rathelmmc3194]

@@jf6466work, I say that all the time. It’s the land that appreciates. Homes just lose value and it’s the reason flipping is possible.

[@leifseed]

both if you are intelligent tho

[@patrickreynolds6270]

​@@jf6466work According to accounting standards (GAAP, IFRS, and just about any others) the home is an asset. Look at the balance sheet of any company. Vehicles, house/buildings, tools, machinery, an office chair are all classified as an asset on any balance sheet. Gold, silver, oil, wheat are all assets and technically cost money to own (storage & security costs), yet nobody is going to call a gold bar a liability. The price of oil went negative because oil has storage costs, yet nobody is going to call owning 1 million barrels of oil a liability.

[@quintenplate]

Economics of silver would be a really cool topic!

[@Yora21]

Or gold. People always ignore that the value of gold is as made up as the value of money.

[@Wordsalad69420]

At least housing provides shelter. Silver provides nothing. It is quite useless.

[@vitordelima]

Or stock market speculation (I don't know if this was already discussed).

[@retro8919]

Robert Chitoiu really? Maybe you should look up the industrial uses of silver

[@d.pridge2461]

Robert Chitoiu you couldn’t watch this video without silver as it’s key in most if not all electronic devices. LOL

[@Saratogan]

"Real estate prices are a function of demand." True. However, they are also a function of supply. Real estate prices in some markets are high because of supply constraint often driven by zoning regulations.😃

[@rob3rt86]

'No economy has been built by shoveling around piles of dirt' Australia: Hold my beer

[@atomicmonkey101]

This is a super interesting video! Living in Vancouver, BC, this is a topic I'm pretty passionate about. I've seen rising housing prices and empty homes ruining neighbourhoods all around the Greater Vancouver Area. Perfectly good homes are being ripped down in scores and replaced by absolutely characterless mansions and being put on the market for 2,3, or even 4 times what they were purchased for. The activity is really silly in my opinion, and it turns out that it is not a good investment in many cases because some of these homes will sit on the market for long periods of time, and sometimes they do not sell at all. I don't think that real estate should be viewed as an "investment" for these reasons. It is incredibly disruptive and disrespectful to people who are trying to work or live in neighbourhoods, especially to those who have lived there for their whole lives. Rocketing land value has also priced people out of neighbourhoods, property taxes become unmanageable for many middle class people. The empty home tax in Vancouver has helped, but it is not enough. I hope that in the future there can be more regulation to prevent speculation and stabilize the market. Perhaps implementing restrictions on foreign "investment" could help, as I believe is the case in New Zealand. In any case, it is a very interesting topic that has very real consequences for many people, if not most.

[@Ballaurena13]

Interesting perspective, thank you for sharing. I too have wondered if there might be an appropriate reason and way to favor local investment over that of foreigners. That is one thing I find right about Congress promoting home buying to the detriment of renters (per a different video), since I see national interest issues in not letting our property be snatched up by those of foreign countries.

[@nectarshrub]

Property taxes in Vancouver are the lowest in North America FYI

[@Gabriel_Woo]

make a video on the belts and road initiative

[@internetuser2721]

That would indeed be a good video, provided that EE has not fallen into the CCP propaganda claiming that the belt and road would somehow be good for the participant nations other than China.

[@Inhumane]

Internet User I mean you already have your opinion before the video was even made, not exactly unbiased either 🤔

[@SamuelNoaGreen]

Matt GT Yeah, that is so funny ^^ I think Internet User has a very high opinion of himself and his ability to know and understand economics.

[@reichrunner1]

@@internetuser2721 From what I've read it probably will be good for the participating nations. It'll just be far better for China.

[@comradeofthebalance3147]

reichrunner1 Yeah obviously, they get to satisfy their own citizens with foreign goods while also exporting their own stuff which is a priority for China considering its history is basically export stuff to other markets to earn money.

[@mathebulamkhize876]

During a bear market, the headlines will focus on negative news, whether it's declining economic growth, geopolitical upheaval, cultural and legal turmoil, or some combination of all three. I listened to a podcast of someone that grew his reserve from $120k to almost $460k during this Red season, can you share tips on how to make such aggressive proceeds in short periods?

[@stjepanhauser7595]

Do you mind sharing info on the adviser who assisted you? I'm 39 now and would love to grow my stock portfolio and plan my retirement

[@stjepanhauser7595]

Thank you for sharing. I just Googled his name and his website came up right away. It looks interesting so far. I'm going to book a call with him and let you know how it goes Thanks

[@moneymanfernando1594]

Thank You very much. I like how you distinguish the difference between the house itself which does deteriorate over time and therefore is always in need of repairs and renovation and the land itself which usually appreciates , depending on location of course. A home should not be an investment , it should only be a place to live , to raise a family.

[@immortalsofar5314]

When I got divorced, I had to sell my house. What I lost in the deposit would have covered rent for those 5 years, let alone flushing away the payments. I was also very aware that every month it took to sell cost me another $1200. I spent $6000 on a cheap, crappy RV and well remember the morning 2 years later when I realised that it had just paid for itself in saved rent. So now, I've got a van I converted myself. I can move to where the work is and save money on rent to go towards my own land where I can live full-time, maybe build a small cabin.

[@carlosqlv]

never marry.

[@immortalsofar5314]

@@carlosqlv That was the learning curve that divorce doesn't involve sensible decisions. I realised that pretty quickly and split the non-portable assets. I pointed out afterwards that she could have had all that and more for the asking. Never get attached to what you can't hold on to and that includes real estate.

[@mzs114]

Can we assume that getting married and getting divorced are expensive?

[@Ballaurena13]

I'm glad that worked for you. I know a young family that after losing their home in the sub-prime crash, similarly were able to move-in with her parents until they could pay cash for a home in an area of relatively lower cost. Not everyone has such options, though.

[@gowen9383]

Well, I believe that a common mistake made by many people is that they buy a house without calculating all the monthly costs involved and wind up in positions where they are spending close to half their income or more on their house with the rest of it going to other miscellaneous bills. Leaving them with no savings other than the money they have invested in the house which is illiquid.

[@alwachart]

And what's even the point of this comment? if you spend the same money living in a rental but ultimately it goes to the pockets of the landlord. If you live paying the house at least it's for you/you can make it pretty and rent it for more/yadayada.

[@erinfield1943]

They needed someone to blame. Blaming the consumer for not being able to afford a house only started happening in the 90's when governments stopped investing in housing as infrastructure.

[@maestrovso]

I've enjoyed your every video. You make finance and economics, and understanding our global finances fun. You have great knack of making use of often boring and fake stock footages.

[@123asdzxc7]

You forgot to mention that regulation can also appreciate the value of existing property. For example if I own a property in a area that is heavily regulated and very costly to get planning permission etc then the value of the existing property will go up. This also contributes towards appreciation of housing prices. Silicon Valley is a prime example where people need housing for work, and the ability to build new houses was limited due to regulation. Therefore the existing value of properties shot up.

[@allenjacob9514]

-Respect for your knowledge and understanding of economics. I have been watching your videos for probably years now... very good content. -I have a question for discussion. -What do you feel about investing in markets( in business, equity markets etc.) taking money from countries of low-interest rates to higher interest rates, for example, From UK or Germany to India? - this is assuming the cost to raise the capital is lower where interest rates are lower.

[@OP3Beats]

One thing to remember is that the economists aren’t the ones making money it’s the investors and business owners. Real estate (to be successful) should be run like a business. everyone needs a place to live and that is inherently valuable not sure we need an economist to tell us that. People are super scared of the leverage part but forget that RE has so much flexibility. You can buy and hold in down markets. Sell / Flip if the appreciation is in your favor. You can rent to a single family or rent a SFH by the door ( in expensive markets)

[@jacksonkohls820]

I'm really enjoying your progress with the videos! The editing has become a lot more than just stock photos and it's really nice to see the growth, but still using the tried and tested method!

[@richardrodriguez9020]

What has helped me so far 1. Save 20% downpayment while Researching thoroughly your target market. Look at home value prices for at least 3 months. Look at population increase or decrease. Reasearch how your target market performs in good and bad times, plan accordingly. Screen for effective property management and interview property management thoroughly and interview references for property management. 2. Save cash reserves for 6 months of all expenses (mortgage, insurance, property tax light repairs, poperty management, likely expenses plus a possible eviction cost and then "make rental ready for new renter to move in" expenses in your target market. Reasearch your target market and find out what these expenses are then plan accordingly. Then submit offers on a possible property once all reserves are met. 3. Buy realestate with 20 percent down in a low crime neighborhood with increasing population and below market value that will rent for what you can expect and provide POSITIVE cash flow in a neighborhood that is in demand. 4. Perform "make ready" repairs and Rent to qualified tenant thoroughly screened by property management. 5. Save 6 months of gross rental income from said tenant. 6. Repeat steps 1-6.

[@johncgibson4720]

This episode really nailed it when you said "no great economy was ever built by shuffling around piles of dirt". Really going to give me a good night of sleep knowing I am on the right side of things.

[@jamesgale7429]

Loves these guys. Just wondering was the illiquid nature of the real estate mentioned in this or the high level of transaction costs? I believe both of these are extremely important points when considering real estate versus other asset classes.

[@kennethw6962]

I like what you said "my home is my castle and it's all mine". I think there is something very beautiful about someone who has a completely paid off house. Nothing fancy, but it's shelter with the minimal expense of taxes and insurance. What a beautiful thing that, unfortunately, I think we have forgotten our society. Houses are for shelter 1st and foremost!

[@sabrielluv]

Ok so I’ve looked everywhere but I believe the most interesting economies have not been discussed yet! Can you please do Argentina, Saudi Arabia/ Arabian peninsula and Portugal. All unique bc of different reasons but super interesting. Also can you do an analysis of how the inflation of the dollar will affect different economies? And what that could look like for the USA?

[@Zei33]

Just built my first home. Really worries about this recession. It’s the first time I’ve ever had such a big debt and it’s looking scary.

[@Seatux]

Its been bad the last 1 - 2 years globally already. That disease that shall not be named is just making the inevitable faster. The reopening tomorrow, I feel a sense of dread. That grinding again to get things back to normalish, then to increase wealth....

[@jebeda]

@@ruthrecalde2858 Renting does provide a larger amount of flexibility and decreased risk over home ownership, and from a purely financial point of view, purchasing costs take a few years to be made up for compared to renting. Owning units in a multi-unit building (condominiums) has risks and headaches that are usually greater than renting in the same type of structure. Purchasing is not necessarily worse than renting, but it is not ALWAYS better.

[@carlosqlv]

be proud of your home, unless youre in it for financial reasons in that case youre screwd

[@gtw4546]

Put extra to pay down the principal on your debt if you can (save on interest and be out of debt sooner). You can always rent out a room in your house (vet your potential tenants carefully!) if you need so you can keep making your payments if your income gets reduced in a recession.

[@jeffersoncooper6705]

How are you doing now?

[@petrapatia6395]

I really appreciate how the clips are actually matching the subject in this one, It's much easier to follow along and absorb all the information being conveyed. CUDOS AND BRAVO! :D

[@MattPukas]

Wow, this was incredible! Very insightful for me as a past Real Estate Agent who no longer works in the business and educated myself on markets and economics further. I also live in a very expensive market (Toronto). I always wondered why people go into such debt for a home that doesn't produce anything as a business does. I understand that people need a place to live and I don't want to rent forever but buying something you cannot afford is always a bad idea. And I don't agree with people who say that you have to buy a home otherwise you are paying somebody else's mortgage. If you rent and invest the difference you can actually be more than fine after 20-30 years. If you practice responsible saving and money habits you will be more than fine as a renter.

[@seriousbees]

man this is unsatisfying. especially when I hear that real estate is becoming a large % of Canada's GDP. this feels like an unsolved problem and a ticking timebomb

[@paulsz6194]

Yes, there bud a “certain” group of people who have flooded the market with foreign capital, from money they make being producers of the cheaper goods we demand. Vancouver is the ideal example of what foreign investment can do to the citizens of they city.

[@Adam-en4zm]

@@paulsz6194 Vancouver is soon to be a territory of the CCP.

[@10908070605040302]

"sometimes we are over-rational, cold hearted, economists" , good on you man , you see the balance !

[@cjjuszczak]

17:35 *"in the mean time all we can do is avoid confusing leverage with genius..."* Nice Steve Eisman reference :)

[@kellykerr5225]

Thanks so much for the informative video. I have been a property manager for my entire life and career but you still managed to teach me things.

[@tonmy21]

I loved the way you interpreted the economic sense of the Real estate market and then Simplifying for Dummies as to how to operate in the Gameplay.

[@621Tomcat]

Petition for economics explained ASMR channel with his soothing Aussie accent.

[@EconomicsExplained]

Today we are going to eat a bunnings snaggggg!

[@621Tomcat]

And don’t forget your victoria bitter

[@kaleb982010]

"Don't mistake leverage for genius" -Steve Eisman

[@1x0x]

its a bull market that gives people the false sense of genius

[@romeopeter1922]

Thank you for expounding on this. I’m sure going to watch this over and over again till it fully hits.

[@mmocny]

Small nit: technically a house could appreciate in value even as it ages. For one, it could be of a style or building code that is no longer available and has some desirable affect. Second, while you are correct that buildings depreciate, the relative cost to replace the raw materials and labor contributes to rise. This a specific home with specific sq footage may be worth less per unit than a new home, but still more than it was when it first sold. It's not just the land itself that appreciates. (Wether the house value rises faster than other investments is unlikely, but still non zero)

[@elijahsydney]

I was thinking the same thing. Although the way some of the newer homes are built these days, they might not be worth much in a few decades. Full brick homes are the way to go - ones built around the turn of the last century. They age well.

[@mavissmith3]

Since there’s an inverse relationship between interest rates and housing prices, some are waiting for interest rates to go way up, and buy the home in cash at a lower price.

[@Ballaurena13]

Maybe that is part of why my mom has said that lower interest rates favor the poor and high interest rates favor the rich.

[@NiceCarsLover]

When the big company of the city go bust, the value of the houses plummets like mad and you cannot do anything against this.

[@looinrims]

Okay, sabotage the business and then buy all the destroyed house value and then await the rise

[@leifefrancisco7316]

You’ve done an amazing job explaining this. I really appreciate it.

[@Wonderwall627]

I have watched a lot of your videos in the last month and I think this is the best one. A diamond among gems.

[@SpazzyMcGee1337]

I'm glad I held off being a home owner for a year, preferring to build up a savings first. Prudence wins again!

[@scooter06rb]

Good planning the time to buy will be soon. Keep being patient and look for deals. Don't be afraid to offer below market by 20% for a home or have seller pay all closing costs.

[@Yourlocalfbiagentt]

Same here I was in no rush to do it because I knew there would be some sort of economic down turn. I didn’t know it’s be this bad but I did see something coming. The real estate bubble in my city in Ohio is at bursting levels just waiting for the right time to pull the trigger lol

[@THEBIGGESTSCUMBAG]

Scott Bryan 👑

[@ashleymalamute]

Saving for a home is a terrible idea. For every dollar you save the house is going up by 2 dollars.

[@1x0x]

you would have been in a pretty good situation now..

[@Lohoris]

One extra added value of owning your own home, is that you can do pretty much what you want with that with no artificial restriction mandated by the landlord. You can have pets (in many rented flats you can't). You can change the layout of stuff, remove carpets, etc. (you may or may not be able to do it in a rented flat, but it's not convenient because you do it at your own expense).

[@tonybobay6276]

I work in infill real estate development and investments in a major city so know this subject quite well. I was a bit concerned when I saw this video as I really liked your others and was concerned that I'd realize that I'd been feed poor info on the other subjects that I'm not an expert in. However, you nailed it! Great video! One point that wasn't really addressed that I think could have added to this is that in the time since the great recession is that the minimum Debt Service Coverage Ratios (DSCR) for commercial/investment grade properties generally held steady at 1.35 meaning that cash flow generated from the property must be 35% greater than the cost of the loan, or essentially a 35% cushion. Those rates were much lower before the great recession and were still at those increase rates as of 3 months ago. So essentially, the debt market has been fairly well disciplined over the past 10 years and its led to more cushion in the system. What has really driven the exceptional increases in commercial real estate values has been the decreasing cost of debt, as unusually low interest rates over the past decade as been driving pricing increases as you essentially need less income from the property to generate the same return to the investor. What will likely cause that bubble bursting would be the Fed taking a sudden reversal of their interest rate slashing policies and forcing the prices of assets to readjust for the loss of return potential. Another point is that the productive or useful value of a property is only limited by highly restrictive single use zoning the forces horizontal integrations of uses and doesn't allow the property to become progressively more productive/useful to more people/businesses over time as areas densify. Higher density mixed use zoning that allows property to progressively densify through the addition of more business/homes on the property can evolve to become more productive and valuable to more people over time. The ability to use the property in different ways also serves as a risk hedge in the case where the demand currently existing on the property vanishes and the property is allowed to more easily and rapidly adapt to changing economic circumstances. Current overzealous zoning regulations have a far greater impact on the increase of risk in real estate by eliminating natural risk hedges for real estate such as the evolution of its productivity through densification and static use classification making repositioning to new demand much tougher.

[@chillphil967]

So, if i were looking at buying a property which has "current land use" zoning as single family home, and now the "future land use" is slated to be "commercial", this would be considered a net positive, because it has more options than before?

[@natepicknell8956]

Fantastic video! Your simple explanation of a fairly complex topic was great

[@JeroenPeperkamp]

Years ago a man who was part time professor but mostly involved in running hedge funds told me airlines are very highly leveraged. If this is still the case, the current situation could be very interesting. I also heard someone with seemingly less intimate knowledge of economics say flight attendants make much more than most people, at least where I live now. Could you do a video on "the economics of aviation"?

[@mattja52]

Why do you think, Warren Buffet sold his airline stocks?

[@rjf7023]

12:01 this is technically wrong. I think you can be in a 10:1 leverage position from a risk perspective by taking a long-call position on options where the premium paid is high relative to the strike price. Before the exercise date, you would be in the same risk position having paid the premium as the person in your example putting 10% down on an investment

[@GabrielRodriguez-oe6nz]

I’ve followed this page for a few months and I just came across this video as I was doing research for a project. Its a great one. 10/10. Will recommend. Im currently working on my Econometrics capstone project, and Im doing research on the correlation between property prices and the FEDRATE. You made some great points in the video regarding a few things I would like to include in my research project. Is there any way you can guide me towards the sources used for this video? -An Aspiring Economist

[@weareham3068]

On the topic of real estate: can you please do a video on Georgism? It ties in a lot with the topic of land speculation and economic incentives. Thanks!

[@ben5609]

Incomes=adjusting for inflation (not really going higher) House prices=outpacing inflation huh. broken markets.

[@goliathsteinbeisser3547]

Not really, it is just supply and demand. If every person only ever bought one house in their life, prices would probably rise and fall with overall wage level, but if wealthy people invest in real estate they will drive up prices. Usually the market would react by increasing supply, but space is limited, especially in cities and there is all kinds of additional complexity on top of this.

[@amsd1231]

Cheap loans = none fit market participants driving prices up

[@chrism3933]

It's the Feds magical ability to expand money and credit which has skewed the market place.

[@ben5609]

@@goliathsteinbeisser3547 Sure... that's why many properties are not sold for a long time. You're buying shit with a million $ today vs 50 years ago adjusted for inflation. There's so much wrong with this you can't deny it.

[@saleh.hashmi]

not really u forgot interest rates... which were like 20%. it's cheaper now then it used to be.

[@jeremyyeleyko5636]

10:25 gotta love how you liked your own video

[@RAJAJI_0110]

You are a genius. Explained economics behind RE really well

[@starwords9814]

Very infomative, thank you. As a request, can you do a video on the economics of the Tulip Bubble?

[@michaeledgar5863]

Do you mean to tell me, Katie Scarlett O’Hara, that Tara, that land, doesn’t mean anything to you? Why, land is the only thing in the world worth workin’ for, worth fightin’ for, worth dyin’ for, because it’s the only thing that lasts.”

[@plerpplerp5599]

Eh?😳

[@mrclean8882002]

Mars ... here we come!

[@WhiteRock262]

Lolz! and yet the South lost.

[@AdamBechtol]

A dandy movie.

[@ignaciomarre7398]

would it be fair to say, then, that the reason why we have been accustomed to 'real estate only appreciating over time' is because of the fact that the human population has been increasing since, well, forever?

[@bradsicoli5346]

Great point!

[@heerakathakor6016]

Yes. I believe that the moment human population starts stabilising, or worse yet, reducing, we'll start having a decline in the financial state of the world.

[@kumar01234]

@@heerakathakor6016 I'd say we are starting to see somewhat a stabilization to decline with Millennials and Zoomers. A lot of millennials are opting to not to have kids due to diminishing resources and global warming. Why put kids through that.but some still will have kids due to way of life

[@Johnny-cz2wv]

Debt is ever increasing as well

[@pawelabrams]

@@kumar01234 But still, millenials and zoomers represent a tiny sliver of all 1980+ born humans. They're tied into one of the major cultures of the world, but there are still cultures where people are normally having 2+ kids. Expect major shifts in population densities in many areas far sooner than the population stabilisation on global levels.

[@Mrkarneyro]

This is probably your best video I ever watched. It's really interesting the assertion that houses are actually highly leveraged high risk assets. As you say, no one sufficiently well economically informed would ever suggest you take a 10:1 position in a given asset. Yet most people just assume it to be a common sense good investment, and I should think, most of them have never been presented to the concept of leveraging. That seems to give ground for quite a bit of thinking. It seems there's a lot of interesting questions to be found and discussed here.

[@tylerbrown4483]

The problem with that argument is threefold. 1. No bank will allow you to take a 10:1 leverage position on an investment property. 4:1 is standard and 5:1 is phenomenal. 2. A rental property’s cash production doesn’t change significantly when the value of the underlying asset changes. If you take a 10:1 position on GME and it goes to zero you have no way of paying off your debts with any capital gained from your investment whereas if you take the same position on a house and it goes to zero you’ll still likely have enough rental income to cover the debt expense. See the 2008 crisis. Even dividend-paying stocks base their payout directly on the share price of the stock. If it gets too low, the dividend won’t cover the debt expense. 3. The structure of leverage on a property is more stable than that of financial assets in margin. If you buy $100k of GME on 10:1 leverage and the value of that stock goes below $90k, the lender calls and asks you to pay the difference immediately, often forcing you to sell and realize the loss on some portion of your initial investment just to keep your debt in good standing. If you spend $100k on a house at 10:1 and the value of the house tanks the bank never makes that call. So your exposure is much more controlled in a mortgage agreement than in a margin agreement. Edit: I have to add, this is only true of real estate which is purchased for cash flow. Any property purchased on speculation of price appreciation as the primary source of returns and/or which doesn’t produce enough cash flow to cover operating expenses would be a massive risk at any level of margin. At that point it’s basically stocks with more steps. This sort of position is where Lehman Brothers found themselves in the GFC. Loads of speculative non-income-producing real estate on the books is mostly what sunk them.

[@jedics1]

This is reflected in my city Adelaide, realestate is so expensive that businesses Ive known to be in one spot for 20 years are moving further out away from the city or its surrounds OR just go out of business as is a testament to the many many empty shop fronts. Anyway Ive opted out of the madness and built a lovely mortgage free home in a truck, I live rent free close to the city and if/when this situation ends I will just drive it to the next advantageous arrangement.

[@KleinOfficial]

I think it would be interesting to see a video on the impact of Covid-19 on countries reliant on tourism.

[@Ray-md9nr]

So, Landlords should get a real job and the property rental should be a side-hustle.

[@currypablo]

I am a landlord and I work 9-5.

[@Raitissems]

Before you dedicate your life to working for money, consider making your money work for you! Follow these 3 easy steps and you'll be able to retire at the age of 40!

[@dr.feelgood2358]

believe it or not some landlords actually do all the work on their rentals, and treat it like a job! I do

[@GautamThakur]

@@Raitissems going to saves these lines on my desktop

[@MatthewStinar]

I think it's more accurate to say that landlords shouldn't be highly levered, making their money on the spread between the cap rate and the interest rate. Instead, they should make it their aim to make their profit on owned assets.

[@andrewstrait4379]

Hey EE! I heard you mention the fundamental problem of economics in this video (meeting unlimited desires with limited resources) and it got me thinking. There is a growing number of people that think we are close to post-scarcity as a global community. Whether that's true or not, I'm curious for your analysis on what effect post-scarcity would have on the world economy, since we'd no longer have limited resources.

[@pentoo988]

Great point about the land vs the structure. Housing real estate is a use asset if you live in it and the land is there forever but the house (the use part) may not be. Btw most people buying rentals do so for cash flow, price appreciation is secondary.

[@ricardomrv9409]

I am impressed SimCity taught me half of what he is explaining in this video

[@noegodinez1777]

Cities skyline taught me how the housing crisis happened. 🤣🤣 producing more houses doesn't make you more money

[@archygrey9093]

"Buy land, they ain't making it anymore"

[@paulsz6194]

Archy Grey ha,ha . I quote I’ve heard from a real estate agent before!

[@jimmydyurko]

Whole story, Buy land, it costs money , it might not appreciate, the tax burden never goes away... And here I go to make an offer on my 7th property. Hmmmmmm..... This video would have been more useful 20 years ago...

[@pez4]

the dutch would like to disagree

[@EvarDion]

they are making land all the time because is often cheaper than buying the vacant land that already exists in proximity to major population centers, just look at dubai, hongkong and incheon.

[@elvis4868]

@@EvarDion Yeah the exception is for coastal cities that are densely populated

[@scottluxon2525]

When you say the land is the value, I think overall you mean a combination of the location of where that land is, and how much area of it you have. For this reason, an apartment (which does not come with land) will still often appreciate in value if, amongst other things, it is in a good location and if it has a comparatively large area.

[@fernandoa.iriarte685]

2:40 Miraflores, Lima, Peru. Thanks to show it!!!!!

[@simeonstoyanov5226]

"America doesn't make sense - they just buy each other's houses" - Putin lol

[@betterhomesnc2437]

Russia is a second world country. Putin can talk when he can feed his people.

[@TheUSDebt]

@@betterhomesnc2437 Calling Russia a second world isn’t saying much considering the West invented that term for Russia

[@Pixel5564]

I rather live in Russia then America. After all Russia offers the best standard of living

[@hedgemage5061]

@@Pixel5564 lol, wut? ive been to Russia. It proved to me not all third-world sh*tholes have to be tropical.

[@Pixel5564]

@@hedgemage5061 wrong! Putin literaly said that America only buys each others houses. In russia they built massive blocks of houses. America economy fake and weak. Russia ECONOMY STRONG AND POWERFUL

[@future62]

I think the whole "treat your home like an investment" thing is overblown. Everyone needs a place to live. You can either rent and keep nothing, or buy and eventually get something. Obviously some homes are better financial decisions than others, and renting might even make sense for some people, but the investment aspect is secondary IMO

[@26183]

except that money exists in far larger amounts than there are people to spend. that, and credit to compound the issue. so yes, houses are investment vehicles now.

[@andrewjensen8189]

But in large terms, your home will likely be the biggest investment you will ever make, so why shouldn't you think about it at least partially as an investment? You could spend a life time of stock trading and only make a fraction of the lost potential gains on your much larger investment on a house. You could buy a big $500,000 suburbian home that will be worth $350,000 in 25 years, and then risk alot of your free flowing crash in the stock market and make a whole lot less than $150,000 over those same years. Alternatively you could finance a $1,000,000 urban home that will net you a profit after mortage expenses, and whatever other investing profit you make is not shadowed by your biggest bad investment.

[@mann8098]

Shelter is a basic necessity for survival. If you can afford it, buy. Even if it doesnt appreciate one cent and you sell it for the same price you spent on it, you get your money back at closing. If you rent, the landlord steals your security deposit. 😳😂

[@future62]

@@mann8098 and you had a place to live the whole time. Any equity growth is a bonus

[@FreaKCSGOHacker]

i learn more from you than i did in uni prior to switching course to something else. I feel like donating the equivalent of my taxes which go to higher education so at least i can say that % went to something useful

[@HoangDuong-mi4ow]

That Steve Eisman quote at the end was spot on!

[@vicherd]

Someone's on a video-making roll!

[@ThomasBomb45]

What else you gonna do 🤷‍♂️

[@ultimatestoryteller]

I'm working as an Assistant Manager HR here in India , in a pretty decent organization. We are already set to fire almost 30% of our workforce due to COVID-19. Trust me , the real estate right now is bad and is set to turn worse in the following months.

[@MatthewStinar]

I misread that. At first I thought you were going to set fire to 30% of your workforce. 🔥☠️ That would be more of a Fortune 500 move, if you ask me.

[@daverees6681]

Wow, that was darn Interesting! Now I know a bunch more about real estate, and how it can suck land and dough out of the productive economy! Very cool & Thanks!

[@tigerfishdivisionlancey2725]

This might be your best video m8, fantastic job!

[@xandercorp6175]

No one - not a single person - called out the San Francisco stock footage from the Full House theme? I'm amazed.

[@sabercat2178]

I like this guy because even though he's an economist, he understands money isn't the only thing that matters (even if he does respect its influence)

[@ErikPT]

His videos are feeding my addiction to personal investing.

[@physiocrat7143]

This really is very good - as far as it goes. It has at least made the distinction between land and buildings. It has also, without spelling it out, exposed the primary cause of the boom-bust cycle and other chronic economic problems. Unfortunately, it hasn't mentioned Ricardo's Law of Rent, which is key to understanding of the land market. Consequently, it comes across as rather confused because it does not explain that the primary value of land is its rental, not its price. This video would be really good if the producer re-made it after studying Ricardo and Henry George, who analysed this issue in depth. He would also have come up with the correct solution.

[@kornofilo]

@11:00 seconds - sees Banco General, remembers he has an account there in Panama, chills down the spine with the economic downturn that is coming

[@seto007]

I can't wait for next week's video: "The Economics of Georgism"

[@messitcool]

How do you actually get such detailed information and data about the economy of different countries?

[@demilishing]

I liked the Eisman reference at the end with mistaking leverage for genius. I think you'd enjoy researching retails REIT's, the economics behind them is quite complex. SPG SKT BPY

[@erikt3162]

Good suggestion REITs are also a sound investing but no actual appreciation unless it’s a private REIT or public REIT like Fundrise or other crowdfunding sites

[@demilishing]

@@erikt3162 Yes in general they are slower growers but I've had a couple lucky buys that have turned into more than just dividends due partially to re-pricing of the security as real yields have been sloping in only one direction. The Brookfield lp's managed in Canada by BAM have been tremendous growers, BIP and BEP have been phenomenal long term holds, BPY not so much though! Another is pipelines, physical infrastructure that is very hard to replicate that appreciates over time. Luckily (perhaps) that I've held no banks, but own physical infrastructure that is leveraged, and leveraged gold miners due to fixed costs.

[@jibcot8541]

This was a really good video, precise and to the point.