Is Real Estate Really The Best Investment?

investment-basics
The conventional wisdom is that real estate is the best way to multiply your money, but the conventional wisdom also says that Adam Sandler is funny, so yeah.  No one knows anything.  Has anyone actually even done a comparison?  To answer that question, I thought I would compare the appreciation on the Shaw rowhouse I lived in for a decade (I didn’t own it, but it makes a good example) to the appreciation on the other investments I’ve made.  Keep in mind that I’m poor and eccentric, so my “investment portfolio” is a bit, uh, unconventional.

bitcoin

BITCOIN

You probably know what a bitcoin is from the approximately five hundred thousand news stories about them from last year;  basically, it’s a crypto-currency that’s traded online by everyone from obese basement hackers to Goldman Sachs bankers, and presents a realistic alternative to taxable, traceable “real” currency.  Bitcoin are based on math, kind of, (the details are boring, trust me), so there are a finite number of them, meaning that the value can only go up.  For years, bitcoins were worth basically nothing.  There’s a now-infamous experiment a programmer tried, back in 2010 when bitcoins were worth pennies apiece, to see if he could get real world goods for virtual currency.  After much online haggling, he negotiated a payment of 10,000 bitcoins – then worth $25, total – for two Papa John’s pizzas delivered to his doorstep.  Hard to believe, but just four years later, those ten thousand bitcoins were worth over $11 million.  Now that’s some expensive pizza!  (Sorry, couldn’t resist.)

I bought four bitcoins back in 2013, when they’d risen to about $40 per coin.  I bought them by sending a postal money order to a bitcoin exchange in South Carolina, who converted the cash into bitcoins and put them into my account.  I bought them because at the time, bitcoin – untraceable, remember – was the only currency accepted on Silk Road, the “deep web” Ebay where you could buy literally anything, from hitmen to heroin.  I was under crushing deadlines at the time and I needed Adderall to pull some all-night-and-day-ers;  when I went to my doc to renew my legit prescription, the receptionist just pointed at the handwritten sign on the front door reading “WE NO LONGER PRESCRIBE ADHD DRUGS, DON’T EVEN ASK!”  Apparently the deluge of overworked white-collar desperadoes had been crowding the actually sick people out of the waiting room.  So yeah, deep web.

Problem was, before I could buy my “study aids,” the online drug market got shut down by the FBI, who as it turns out, frowns on things like sending bath salts and automatic weapons through the mail.  I forgot all about my bitcoins until a year later, when stories about how they’d skyrocketed to over $1000 apiece hit the media.  A few keystrokes later, my $160 investment had been converted to a Paypal deposit of over four grand.  My excitement lasted right up until I read online how other early adopters were buying luxury condos with their virtual stashes, at which point I was overtaken with utter despair, not only that I’d missed out on a once-in-a-lifetime opportunity, but one that was seemingly custom-made for weirdos who spend too much time on the internet, i.e. me.  Still, not a bad payout.

RETURN ON INVESTMENT:  
$3900, or 2500% profit over one year

X-Men_Vol_2_1_Variant_C
X-MEN #1

Ohhhhh man, if you weren’t a teenage male in the late Nineties, you have no idea how heated the speculative comic book market got.  It was like the stock market circa 1927, it was like real estate in 2005, it was like crack cocaine in 1982.  People were waiting 12 hours in line to buy fifty copies of “Spawn #1” and then flipping them the very next day for five times the cover price.  The bubble got so out of control that the big companies, Marvel and DC, went into near-bankruptcy after years of overextending themselves to put out wacky cash-grab gimmick comics (hologram covers, raised metallic embossments).

This particular issue came out at the height of the comics craze, when I was 14.  I literally camped out on the sidewalk overnight like a hobo for the privilege of purchasing this (in retrospect) piece of steaming garbage.  I bought ten copies (the maximum number allowed) for $1.50 each and anticipated selling them for at least a hundred apiece by the end of the week.  Of course, what I didn’t know is that if everyone is buying them, they’re not rare anymore, and thus the value doesn’t go up.  Weeks later, I couldn’t even sell them for the cover price so I could get a measly buck-fifty’s worth of glue to huff.

Luckily, my next-door neighbor and I had a brainstorm;  we bought a metallic paint pen, and “signed” all our copies with the name of the artist who’d drawn the comic, and sold each “autographed” copy for embarrassingly large sums.  I remember one gray-haired adult man who was so moved by getting his hands on a rare signed copy of “X-Men #1” that he almost burst into tears.  The lesson:  if you can’t recover your money fairly, then recover it unfairly.

RETURN ON INVESTMENT:
$1485 ($100 per “signed copy” minus $1.50 cover price, times ten), or 10,000% profit over a month’s time.

shaw_rowhouses_500

A SHAW ROWHOUSE

For a little less than a decade, I lived in a rowhouse at 6th and Q, in Shaw;  when I moved in around 2005, it was worth about $400K (online sources peg it closer to half a million, but trust me, it was in TERRIBLE shape);  when I moved out, last year, it sold for $650K.  Of course, I didn’t own it, I rented;  but my landlord continually tried to sell me the place, since he was living a life of luxury in the tropics, with multiple wives and a full-time staff, all paid for with the rent from his DC properties.  With the money from this house, he’d be able to live for decades like a south-of-the-equator Tony Montana.

Let’s say, for argument’s sake, that I’d bought the place back in 2005 for the “friends and family” price of $400K.  Ten percent down, let’s say a mortgage payment of $1800 a month;  over ten years, add that up, and I would’ve sunk about $255,000 into the house.  So if I sold for $650K ten years later, I’d make about half a million, right?   Taking closing costs, interest, annual taxes, repairs, etc. into account probably takes that down a big chunk, but still – I probably clear between $300,000 and $400,000 profit.  Not bad – but not great, either.  Spread out over the ten years when I was chained to that house like a dog chained to a tree, having to continually and ceaselessly earn a salary sufficient to keep up my mortgage payments, or (shudder) deal with renting out half the place to tenants – basically I made thirty or forty grand a year to be miserable.  I can make thirty or forty grand a year managing an Orange Julius at the mall.

The lesson?  Real estate can indeed make you big money, but it requires a big investment, and not just a financial one.  It may not be the best investment, but it’s certainly the safest one;  if you keep your nose to the grindstone and make those mortgage payments, you’ll come out ahead in the end.  In the scheme of things, as an investment vehicle, I’d put it above comic books, but below bitcoin.  (Or whatever the next bitcoin is.)  (Oh, and if you figure it out what that is, please email me!)

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