Housing_FOMO
00:00:00.000 | Hello, everybody. It's Sam from Financial Samurai. And in this episode, I want to talk
00:00:03.840 | about investing FOMO, but specifically housing FOMO, because I think housing FOMO, or the
00:00:10.880 | fear of missing out, might be the most dangerous type of FOMO there is. And I was catching
00:00:16.880 | up with my softball buddy, who has been in Tesla stocks since 2018. It's done well, unfortunately,
00:00:23.840 | 2021 has been terrible for growth and tech. And I just couldn't understand why he wouldn't
00:00:30.760 | take my advice and invest in housing in 2020. Because we were literally at batting practice
00:00:37.000 | every week, we're talking about our investments, we're talking about housing, he had gotten
00:00:41.080 | married a year earlier. And I realized why he's not as enthusiastic. He's not enthusiastic,
00:00:48.200 | one because he doesn't like to pay property taxes, which is definitely a negative for
00:00:52.120 | real estate versus stocks. But he's not as enthusiastic because he doesn't have kids
00:00:57.680 | yet. And it was kind of my aha moment to try to understand why I wasn't able to convince
00:01:03.960 | him to go long housing in 2020. And even in 2021, he's not very enthusiastic either. Whereas
00:01:10.160 | it seems like the whole nation, North America, all around the world, people are. My friend
00:01:15.960 | is 38 years old, his wife, I think is 30 years old. So they have plenty of time to have kids
00:01:22.360 | if they want. The point I'm trying to tell him now is that you should probably go long
00:01:28.000 | before having kids if you want to have kids. Because once you have kids, something happens
00:01:32.640 | to our brains. I mean, correct me if I'm wrong, parents. But there is this intense, intense
00:01:38.320 | desire to nest, to buy property to shelter your most precious asset, which is your baby.
00:01:46.280 | So greed, I think can definitely explain housing FOMO. But I think it's kids having kids is
00:01:53.840 | what really moves the needle and makes people kind of nuts and overbid on properties they
00:01:58.500 | probably shouldn't have. You know, if you're in a bidding war with 10 other people, and
00:02:04.400 | you win, I'm not sure if that's a good idea, because that means only you were willing to
00:02:08.760 | pay that price out of nine other people, right? So in that sense, you are creating new highs
00:02:15.860 | in the market, probably. And you've got to really be comfortable with your job situation,
00:02:21.000 | your investments, and your desire to live in that area for at least probably at least
00:02:26.160 | three years, if not five or 10 years, to be able to make money from your house. Before
00:02:30.920 | I had kids, folks, I didn't really care if the house was within walking distance of a
00:02:36.760 | good elementary school or middle school or high school. Before I had kids, I didn't really
00:02:41.840 | care if my yard wasn't that big or wasn't really on a flat lot. I just wanted something
00:02:47.960 | great to live in that would hopefully go up in value over time because I was trying to
00:02:51.920 | build my wealth and my passive income streams for retirement. And now that I have kids,
00:02:57.560 | the way I look at potential properties to buy is a little bit different now. It might
00:03:01.880 | be a lot different. I still go through the numbers. I try to do a blue sky scenario,
00:03:06.000 | a realistic scenario, and a bear market pessimistic scenario to make sure that I can survive those
00:03:11.840 | bad times. But when I look at a property, I look at the layout. So in the kitchen, if
00:03:18.120 | I'm washing the dishes or whatnot, I can hopefully still see the kids running around in the living
00:03:23.280 | room or the dining room area. So in other words, I'm looking for an open floor plan.
00:03:28.600 | In terms of outdoor space, I'm looking for as much outdoor space as possible, hopefully
00:03:34.200 | on as much flat land as possible. In terms of decks, I love decks, indoor, outdoor living.
00:03:40.120 | It's the Hawaiian way, the lanai's because it's always nice and warm. Well, in San Francisco,
00:03:45.080 | it's not always warm, but it's pretty nice. And I love that indoor, outdoor living. And
00:03:49.600 | I love homes with decks on every single level. However, now that I have kids, you know, decks
00:03:55.880 | might be a little bit dangerous if they're very, very high up from the floor below. And
00:04:01.520 | I also look at the railings. Are they horizontal or vertical? Are they narrow enough so the
00:04:07.280 | kids can fit through? All these little things change once you have kids. But the biggest
00:04:14.440 | thing, the most important thing is that I want property more. I desire property more
00:04:20.160 | because it provides more utility because it is housing more heartbeats, more people. And
00:04:26.040 | given young kids are so helpless, it just feels like you want to have a fort, you want
00:04:31.240 | to have the most expansive house with the tallest walls and the safest environment you
00:04:37.600 | can provide for your family. In conclusion, I would say you should probably buy a house
00:04:44.320 | before having kids if you know you plan to have kids. And if the kids never come, well,
00:04:50.120 | at least you'll have a property that you'll enjoy that will hopefully appreciate and value
00:04:54.160 | if you follow my 3033 rule for home buying and don't overstretch. At the same time, if
00:05:00.000 | you're a real estate investor, it's important to understand demographics. And unfortunately,
00:05:06.080 | during the pandemic, there's been a baby bust, not as many families and couples are having
00:05:10.960 | kids. So maybe in 3040 years, there's also going to be a drop off in housing demand.
00:05:18.040 | We don't know exactly what's going to happen in that far in the future. But that might
00:05:22.880 | happen and might hurt housing. At the same time, I think real estate has become a part
00:05:28.440 | of more and more Americans retirement investing portfolio, right in the past, we would just
00:05:34.560 | buy a primary residence and pay it off after 30 years or hopefully before 30 years. And
00:05:40.320 | you can live very cheaply and very comfortably in your largest asset. But now things are
00:05:46.360 | a little bit different. To go long real estate, people are buying more than the primary residence.
00:05:52.360 | And instead of one person buying one property in the future, it might be one person buying
00:05:56.400 | 1.2 properties in the future 1.5. And that multiplier effect probably will increase,
00:06:03.000 | given its human nature to try to accumulate more assets over time as they get wealthier.
00:06:08.040 | I want to leave you guys with an analogy regarding buying property when the woman is pregnant
00:06:14.160 | or when you've just had a baby. It's exactly like going to the supermarket after not eating
00:06:21.120 | all day, or maybe two days, you're just rabid. And you irrationally start gathering and buying
00:06:28.000 | all these things you think you'll need that you probably don't really need. And you're
00:06:33.040 | more apt to overbid on a property. So for those of you out there looking to buy property,
00:06:38.880 | please stay calm and run the numbers. And for those of you who are long property, I
00:06:43.880 | would just keep on riding this wave. The double digit returns, the price gains aren't going
00:06:49.040 | to last because of the base effect. Surely the price growth is going to decelerate. It
00:06:54.000 | just cannot go at this rate. But I still think we're going to see mid to high single digit
00:06:59.580 | year over year price increase over the next three years. All right, folks, thanks for
00:07:04.880 | listening. I hope you enjoyed this episode. I'm going to try to record more episodes going
00:07:09.800 | forward, but shorter in nature because they're easier to record. More pithy under 10 minutes
00:07:16.240 | that has a key point and something interesting to talk about during the times. If you enjoyed
00:07:21.920 | this episode, I'd appreciate a positive review and a comment. It's a motivating factor, man.
00:07:27.880 | It's been a long pandemic, 14 plus months, folks. I think we're almost there. Let's let's
00:07:33.240 | hang in there. Take care.