Understanding the Risks of Real Estate Versus Diversified Investments

Dr. Eli Beracha has recently been recognized by The Journal of Real Estate Literature as the world’s third best in research productivity, and today, we are honoured to be joined by this top industry expert to bring more clarity to the renting versus buying debate. We use Dr. Beracha’s ‘Lessons from Over 30 Years of Buy Versus Rent Decisions: Is the American Dream Always Wise?’ and ‘Housing Ownership Decision-Making in the Framework of Household Portfolio Choice’ papers as the basis for most of today’s conversation, beginning with why owning a home is deeply rooted in the perception of the American dream. Then, we discover how to measure the true price of home ownership, how the American dream and other psychological factors influence one’s decision-making, how hard assets perform compared to stocks and bonds, and why renting comes out ahead of buying nine times out of ten. We also learn why owning is for the inherently wealthy, the ins and outs of Dr. Beracha’s rent versus buy index, the rate of property appreciation versus stock appreciation, and how renting influences saving habits compared to owning a home. To end, we dive deeper into the risk-adjusted wealth accumulation of home ownership versus renting, and Dr. Beracha compares the efficiency of the real estate market to the stock market while detailing everything to take into account to be fully-equipped to make your decision to rent or buy.

Key Points From This Episode:

(0:00:00) Why Dr. Eli Beracha is one of the world’s best to discuss renting vs buying a home. 

(0:05:32) Understanding why owning a home is deeply entrenched in the American dream.

(0:06:10) The various aspects to consider when measuring the price of home ownership. 

(0:07:57) Weather Dr. Beracha agrees with the adage “renting is throwing money away.”

(0:09:36) What the price of a home should represent, and how psychology influences decisions. 

(0:16:48) Unpacking Dr. Beracha’s 2012 paper subtitled, ‘Is the American Dream Always Wise?’ 

(0:19:51) Hard assets versus stocks and bonds, and why renting pips buying most of the time. 

(0:26:00) Why many still choose to own a home despite long-term financial discrepancies.  

(0:30:53) The ins and outs of Dr. Beracha’s rent versus buy index. 

(0:39:46) Why homeowners are usually wealthier than renters even though renting is “cheaper.”

(0:42:03) Property appreciation, stock appreciation, and the renter’s savings rate.

(0:47:41) How home ownership influences saving habits compared to renting. 

(0:49:46) The risk-adjusted wealth accumulation of home ownership versus renting.

(0:58:40) Dr. Beracha compares the efficiency of the real estate market to the stock market. 

(1:03:22) Everything you need to take into account to make your decision to rent or buy.

Links From Today’s Episode:

Meet with PWL Capital — https://calendly.com/d/3vm-t2j-h3p

Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder Website — https://rationalreminder.ca/ 

Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/

Rational Reminder on X — https://x.com/RationalRemindRational Reminder on TikTok — www.tiktok.com/@rationalreminder

Rational Reminder on YouTube — https://www.youtube.com/channel/

Rational Reminder Email — info@rationalreminder.caBenjamin Felix — https://pwlcapital.com/our-team/

Benjamin on X — https://x.com/benjaminwfelix

Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/

Dan Bortolotti on LinkedIn — https://www.linkedin.com/in/dan-bortolotti-8a482310/ 

Episode 325: Addressing 200+ Comments on Renting vs. Owning a Home — https://rationalreminder.ca/podcast/325  

Episode 196: Sebastien Betermier: Hedging, Sentiment, and the Cross-Section of Equity Premia — https://rationalreminder.ca/podcast/196 

Dr. Eli Beracha — https://www.theberachateam.com/ 

Dr. Eli Beracha on LinkedIn — https://www.linkedin.com/in/eli-beracha-b8082250/ 

Dr. Eli Beracha on Instagram — https://www.instagram.com/dreliberacha/ 

Tibor and Sheila Hollo School of Real Estate | FIU — https://business.fiu.edu/academics/departments/real-estate/  

KBIS Capital — https://kbiscapital.com/ 

Journal of Real Estate Literature — https://www.tandfonline.com/journals/rjel20 

Papers From Today’s Episode: 

‘Lessons from Over 30 Years of Buy Versus Rent Decisions: Is the American Dream Always Wise?’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1814227 

‘Housing Ownership Decision-Making in the Framework of Household Portfolio Choice’ — https://www.tandfonline.com/doi/abs/10.1080/10835547.2017.12091472 

‘Findings from a Cross-Sectional Housing Risk-Factor Model’ — https://www.researchgate.net/publication/236023682_Findings_from_a_Cross-Sectional_Housing_Risk-Factor_Model