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Thomas Veatch's avatar

Klement, Tell me you aren’t ashamed of yourself. Real estate as an asset class is “normally” valued based on the buy/sell ratio normalized by years held. Excluding income and as the other commenter said, excluding leverage. Whereas the point of real estate is that it pays for itself. It pays its mortgage down to zero thus ultimately its cost was only the down payment, which itself can be zero (e.g., 20% seller financed). And it pays the owner continuously, so you can go buy more properties, or retire early. Plus it reduces your taxes potentially to below zero with depreciation. Selling it on the last day is not necessarily the entire value of the whole proposition. An investor buying a retirement income might reasonably not care at all about the selling price, so long as the thing keeps paying income forever during life. An indexing argument, TomVeatch.com/re, suggests 85% of wealth should be held in the form of real estate. The indexing argument has come to thoroughly dominate the stock market but is curiously (self-servingly) ignored in discussing the relative investment value of stocks and real estate. The stock flogging consultancy industry represents falsely and repeatedly (as you have done in this posting) that real estate as an investment is inferior to stocks. Which it is, only if you take out the income and the leverage and the depreciation. Which is stupid, or misleading, or criminally fraudulent. So please acknowledge that in this posting, which amounts to a one sided and false polemic against real estate, you have removed its important benefits from the argument, and misled your audience from seeing the important generalization, the truth itself: that which would direct their lifetime of effort and saving to their own greatest long term benefit, rather than to the benefit of the stock selling financial industry.

Or tell me why I am wrong. I’ve stated it strongly but I’d be happy to be wrong — I’d like to know it!

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André Jacobi's avatar

Thanks for sharing that study. Your article is as educating as usual.

One more thought/question: I agree that investment advisors should focus their efforts on (generally speaking) getting the most for the client. What is the right way, when I really educated my client correctly and he or she is still not convinced? Is it the duty of the advisor to fullfill the ‚mistaken‘ plan, knowing up front that it’s probably not going to work out? Should we argue further at the risk of losing the client?

I am of the opinion that after having advised the client our duty is done. If she decides not to listen, that‘s on her. But often I feel very alone with this view (in opposition to some/many advisors giving the client whatever she wants to hear…).

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