If you look at it as an investment and profits, it's not 6% anymore, but a much larger percentage of your profits.

I buy a house for 100,000, incur about 5k in government, administrative fees. Sell it for 125k, netting 20k - less if you consider insurance and property taxes. So let's say 18k. But I've paid the realtor 6% on 125k. That's 7.5k. That's a whopping 41.67% of profits

Most people seem to just ignore the costs of transacting a house. They'll say they bought a a 100,000 house and sold it for 125,000 and say they made 25,000 in profits.

Neglecting the fees, commissions, insurance, loan points, repairs, time, taxes, the cost of the house sitting there vacant, etc.

Houses are historically lousy investments.

  > Houses are historically lousy investments.

Yes, but land is an historically safe investment. However very often in well-developed areas, it is difficult to acquire one without the other.

Yes, but most people aren't speculating on real estate, they're just occasionally buying a new place to live.

What you are missing is that a home purchase is typically leveraged. You buy the house for 100K and put 20K down. The house increases to 125K and you more than doubled your money. Now take out those fees and etc. Problem is you still need a place to live and those houses have gone up in value too, so you need all of that profit for the new down payment.

Not saying this makes houses good investments, but it is something to consider. I think that this is the cheapest leverage a typically person in the US could obtain.

There's nothing special about borrowing money to invest in things. The ROI is based on the amount invested, including borrowed money.

I think the only special thing, here, is that home purchases are the most common thing bought on leverage that can almost be seen as an investment? Only other leveraged loan that most people will do is a vehicle, and those laughably lose half their value as soon as you close the loan.

At least the US government heavily subsidizes leverage for real estate investment specifically, with institutions such as Fannie Mae for example. Absent that, no bank would offer a middle class individual a 30 year fixed rate loan for 80 - 95% of the value of a home. A loan to buy stocks on the other hand will typically be floating rate and the brokerage will retain the ability to liquidate your position AND require additional margin if your investments don't perform.

Fannie Mae has a short history page here for those interested: https://www.fanniemae.com/about-us/who-we-are/history

First, I want to be clear that I'm not saying you are wrong. I don't know. I personally doubt the fees enter most people's speculations, though.

Specifically, my intuition is that most people don't speculate in housing because they don't have the capital to do so. More, most of the people I have known that had the capital to do so, did, in fact, speculate in real estate. Similarly, most people I know that have purchased homes could only do so on highly leveraged loans. Again, they didn't have the capital to do speculation. They still stretched for as large of a loan as they could, at large. Which is its own form of speculation.

I'd be curious to know how much the fee for day trading can be. I know it isn't directly comparable, due to volume differences, but I'm assuming you weren't thinking real estate would get to day trader levels of speculation?

I am not disagreeing with you either on most people not speculating.

Every transaction has overheads. But I'm just talking about house flipping, or even when upgrading from one house to another, 41% of any money I, as an individual could use towards the new house, kids education or whatever, going as a transaction overhead is simply crazy, and almost extortionist given how monopolistic this is in the US

Re: Day trading - That would be REIT and related instruments.

> I'm just talking about house flipping

Realtor here - if you are house flipping, you are in a unique category and not really a member of the general public. You should either get your real estate license (if you believe you are able and willing to market property yourself) or you should find a dedicated agent partner with whom you have a negotiated rate. But also consider that as an agent, my out of pocket costs to market your example property could easily be $1000, plus my brokerage (assuming I'm affiliated and it isn't my own brokerage) also is taking their 40%+ cut of my commission, so I'm not making nearly as much as you think -- which is why especially on a house priced at the lower end of the spectrum I need to keep my commission % higher.

Commissions are fine, they are transaction overheads. This doesn't still justify taking a 40% cut on any upside I have when I upgrade my house. This is not necessarily targeting an individual broker, but the system as it is set up right now, with no real innovations happening.

As my sibling post says, if you are house flipping, you almost certainly work out a way to not have a full realtor fee. Either by being said realtor, or otherwise working out a deal. I've known several people that would do this. And I'm still fairly confident in my claim that you would really only do this if you had the capital otherwise.

Upgrading a house is another odd one. Most of the upgrades you would do that go with "get a new house" are all size and location related. You might give some pause to the fees involved, but probably not much.

My point on day trading is that transaction fees don't seem to stop people with excess cash to go off and speculate in the market. They won't be as high as realtor fees, of course, but the overall stakes are also not nearly as high.

That said HELOC and similar tools also really highlight just how bad most people's financial considerations are with home values. Refinancing to get a lower rate is a laughable idea when you consider the fees that went into that effort. And that doesn't stop many people at all from doing it. (Not to mention the ones that reset their timelines...)

All of that is to say, I still have my doubts that any of the myriad of fees involved in the process are what stops speculation.