Ben Felix

• Can’t compare rent to mortgage payments
• Can compare unrecoverable costs: a cost you pay w/ no associated residual value
  • Rent: the rent
  • Buy: not mortgage payment, property taxes, maintenance cost, and cost of capital
• Property taxes ~ 1%; generally higher in states w/o income taxes (like 2%)
• Maintenance costs ~ 1% of the home’s value
• Cost of capital
  • Cost of debt: interest costs ~ 3% (add with pt, mc = 5% rule)
  • Cost of equity capital: you put down 20% on real estate instead of an alternative asset.
    • Globally real estate returned 1.3% from 1900 – 2017; stocks returned 5.2% after 1.7% inflation. So a nominal return of 3% for real estate; 6.9% for stocks. Round it to 3% cost of equity capital in real estate.
• 5% rule: take value of the home you are considering, multiply by 5%, and divide by 12. If you can rent for less than that, renting is sensible.
  • $500,000K home would have $25,000 in unrecoverable costs or $2,083 per month
  • Can go the other way. Rental of $3k, multiply by 12, and divide by 5 is $720k. SO renting for 3K is financially equivalent to buying a $720k home.
• 5% rule becomes 4% if you are holding a less aggressive stock portfolio, if you are taxed harshly on those investments, etc.
• Housing best investment ever?
  • Real estate return = net rental income + price increase in the home
  • If you live in the house, you don’t get the rental income
  • So really, if you are living in the house, you already aren’t the subject of most claims about real estate’s great returns
  • 1870-2015 for GLOBAL housing 7.05% compared to 6.89% for stocks
    • but that means that you had to invest in housing in ALL countries
    • plus, housing, unlike stock, is not homogenous
    • and if you could buy housing across the world, you still have to manage all the properties
    • investing in any one asset is not a compensated risk. uncompensated risks can usually be diversified away by investing in a whole asset class, but that is hard with real estate.
  • If your monthly housing cost is higher than what you could rent it for, that loss will decline over time assuming your mortgage is fixed and there exists some level of rent inflation
  • Missing a single month of rent per year crushes returns
  • You basically have to be perfect to match the stock market
  • And if you buy in a single locality, you are in a similar situation to buying a single stock: the idiosyncrasies of the locality profoundly affect you
• Why rent instead of buy?
  • Less risk: Short-term (<10 yrs) price fluctuations can crush a buyer who has to move. Not to mention the risk of taking on debt.
  • Predictable cost: maintenance costs for homes that can be random
  • No investment illusion: homeowners will spend heavily on a variety of things under the guise of increasing the price of the home even though there is no such guarantee that such efforts will pay off
    • Buildings can never go up in value. Ever. Period. Only land can go up in value.
• Homeowners also pay “rent”
  • Renting services from the city in the form of property taxes
  • Unrecoverable maintenance costs just to keep their house inhabitable
  • Renting money from the bank while they have a mortgage
• What about once the mortgage is paid off?
  • $500k home. Could sell and keep $475. Could invest that money at 6% while the long-term expected return on real estate is only 3%. That difference is op cost or $14k per year. Plus you still have maintenance and taxes post-mortgage.
• People think their homes are better investments than they actually were. Big numbers. Failing to understand compound returns and the costs along the way.  Not to mention inflation.

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that have enabled so many elder athletes to continue excelling past their expected primes. Perhaps, instead, it’s the coddling of younger generations that’s produced a bevy of mentally weak challengers. It’s not like health improvements have made 35-year-old athletes more physically fit than their 20-year-old counterparts. And it’s not like experience was irrelevant in previous generations. Which leaves the way kids used to be mentally cultivated versus how they are today (and there is absolutely a difference – we once widely beat our kids) as the explanatory factor.

If you can sharpen your media criticism from “untrustworthy” to “untrustworthy for x,y,z reasons and on a,b,c topics,” you’ll be in a powerful position to sort the news appropriately while also enhancing your critical thinking skills.

1. You should hear the best one-sided argument for the untrustworthy matters
2. You should be able to spot the angles intentionally not being pursued
3. You can think of the questions that should have been asked
4. You can try to form on-the-fly counter-arguments
5. You can assume information based on omission

Your truth is true but not necessarily TRUE.

Let’s accept that this one number from this one study is accurate: 6.25% of e-commerce transactions are attempted (or successful) fraud.

Now imagine we have three internet consumers:

• Buyer #1 has completed 100 transactions and 6 of them were fraudulent.
• Buyer #2 has completed 25 transactions and 3 of them were fraudulent.
• Buyer #3 has never completed 500 transactions and 0 of them were fraudulent.

Each buyer has a truth about e-commerce. Each of those truths is based on real experiences and real feelings. But only Buyer #1 is likely to have his truth correctly map onto TRUTH. Buyer #2, on the other hand, is likely to have overlearned the lesson that fraud is possible due to his unlucky set of outcomes; if he transacted 1000 more times we would confidently expect his 12% fraud rate to drop by 50%. Sadly, those 1000 transactions may never occur since Buyer #2’s truth blinds him from TRUTH. We can dub him too skeptical, which protects his downside at the expense of his upside. Buyer #3 suffers the opposite fate. After a remarkable string of good luck, Buyer #3 is too trusting, which exposes him to all upside and downside.

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Your truth is true but not necessarily TRUE.

If you had a particularly unlucky run of events, you “overlearned” about risk and probably hold a personal truth that limits downside at the expense of upside. Think of an online shopper who bought five straight fraudulent products and declares he’ll never shop online again.

On the other hand, if you had an extremely lucky run, you have “underleaned” about risk and probably hold a personal truth that maximizes upside by being completely exposed to downside. Think of a person who has never been ripped off or robbed and so stops locking his doors.

One should want his truth to correctly map onto TRUTH. Determining if you are remotely close to the meeting this standard is the challenge of a lifetime.

I mean, my music isn’t just music – it’s medicine. I want my song to touch people, to give them what they need. Every time I make an album I’m trying to cure cancer, musically. That stesses me out!

• Kanye West

Pride or fear or kindness will motivate you. But so does money, and because responding with urgency is usually expensive, money makes it easier to indulge your kindness.

• Russ Roberts

To fail to forigive is to grasp some hot coal of suffering which you can actually release.

• Sam Harris

Score points.

• Chip Kelly

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Damn near everyone is cracking. Smart and dumb, black and white, religious and atheistic, rich and poor: there seems no discernible pattern to the great moral failing of our time. Before cracking, though, they were all convinced they never would, that their own moral rectitude would allow them to correctly determine right from wrong when the screws were tightened.

In even the best-designed system, there will be incentives to cheat, lie, and steal. When it comes to areas where the legal system has no say, society must hope that members have been imbued with some form of Kant’s categorical imperative: Act only according to that maxim whereby you can, at the same time, will that it should become a universal law. If you merely follow that directive, systemic weakness can remain unexploited. Which sounds so simple and seems so obvious during 2:30AM dorm-room trolley-problem debates but becomes quite another thing entirely when one must actually choose his community over self-interest. This is why your alignment between stated ethics and practiced ethics is so commendable.

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You think Bob is terrible. This is so incandescently obvious that you can’t help but view disagreers as delusional.

What is most confusing is people who agree with your reasons for hating Bob – he never shows up on time, he fails to pay off debts, he cheated on five girlfriends – and yet who still support Bob. That is, they aren’t so far gone to deny the reality of Bob’s transgressions, but rather they reach a different conclusion from the same set of facts.

The notion of a “same set of facts” can still be true when we consider the matter of Bob’s positives. Everyone – yes, everyone – has positives. The same goes for news sources, politicians, public intellectuals, corporations, etc. To be disqualified, the bad has to so outweigh the good. And in the case of Bob, you’ve run the numbers and there should be no debate. Yet there is. How?

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Why you like art is never solely about the art but also about what is happening in your life during its consumption. Read a book in a certain mood, in a certain life phase and it does nothing. Read it again in a different mood, in a different life phase and it profoundly moves you.

So it is that your card hit me at just the right time that I woke up today and the idea appeared to respond with a hilariously not-normal 2020 review. By not-normal, I mean that reviews of any sort between friends who see each other infrequently rarely touch the most interesting parts of human experience. Usually, you spend all the time retelling all things you’ve been up to, happenings your friend genuinely wants to hear and that you genuinely want to tell, that the clock runs out before emotion, philosophy, and messiness is revealed.

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Oh my God did you see … is a phrase that’s carving out ever more conversational real estate. And yea, there are some crazy, disturbing things happening at the moment. So, paying attention and “getting educated” seems like a noble use of time. But however well-intentioned this enterprise may be, and even however productive it may be, its hamartia is obvious: what we are mostly doing is feeling good about ourselves by complaining about things we do not control and which have so very little actual effect on our day-to-day experiences. The flip side being that in a world that is infinitely vast and filled with nonsense, there remains much that we – specs of sand and soon to be forgotten – can still do to actually improve our lived experiences not in some far-off time, but today. And no, this is not about turning hyper-selfish per se; this is about a real appreciation that the “culture” you exist within is almost entirely not some thing out there controlled by the idiots in Oh my God did you see, but rather a tangible ethos that you are tasked with managing.

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