Taking a consensus, most of you believe that high inflation will lead to higher rate and which subsequently lead to mortgage unaffordability. Some also suggest that high mandatory costs in life such as food price may lead to avoidance by people to spend on real estate. All these reasons make sense. But they make sense only for the short and mid term, i.e., from 5-7 years. Now, let me go deeper, how about for very long term, >10 years. If high inflation has doubled or tripled the food price, doubled or tripled the educational cost, doubled or triple the utility cost, and gas cost, doubled or tripled the renting cost…, will housing price remain cheap? Is housing asset or land asset so unique that it will be singled out from general inflation rise?

VC, PE, RA together are called private investment.  VC generally invests in early new technology, such as IT, biotech, pharmaceutics, etc.  Currently, clean energy is a pretty hot area.  Since VC invests in really early stage companies or only ideas, it is a very risky business.  An investor could lose all his money or get 10 X return.  Pre tech bubble, VC made gigantic money.  Since then, VC as a group has yet to make a decent return compared with public equity (stock market);  However, it is making its move.

Interest rate (r)

Loan Duration (N)

Home price (P)

Down Payment (D)

Mortgage Amount (M)

Income Tax Bracket (r_IT)

Property Tax Rate (r_PT)

Maintenance (r_M))

Insurance (r_I)

Monthly Real Cost = ((r/(1-(1+r)^(-N))+ r_PT)*(1-r_IT)+ r_M+ r_I)*M/12

Other inputs:

            Inflation Rate (IR)

            Monthly Rent (MR)

            Renting Increasing Rate (RI)

            House Appreciate Rate (H)

            Mortgage Fee (MF)

            Attorney Fee (LF)

            Agent Fee (AF)

Since real estate is a very hot investment sector, I try to figure out if the investment is mathematically viable. Here is the assumption I used in my model:

• Home cost of P dollars ($200,000)
• Yearly interest rate r (6.5%) fixed over N years (30)
• Down pay rate (10%)
• Marginal income tax rate rIT (30%)
• Property tax rate rPT (assumed to be 1.5% of P),
• Yearly maintenance cost rate & insurance rate rM (assumed to be 1.5% of P)

Therefore, the monthly cost of home ownership is approximately ($1,187) by using following formula:

What has been discussed in this forum is mainly residential real estate. However, the concept should be expanded. Public REITS include: office, shopping centers, industrial, storage, hotel, healthcare, regional malls, residential, etc.

Currently, large investors avoid REITS especially residential sector. Actually, a lot of them think US, UK, Aussie are overvalued including REITS money managers. Large institutions have reallocated their assets and they are preparing for a correction for US REITS. In the mean time, people move money to Asia, particularly Japan, Macau, Taiwan, and Hong Kong. They think the price of those places has been depressed long enough.