I remember that when I was a kid and we went anywhere nice, my parents, probably led by my father, would stop in front of every single real estate agent, wondering how nice it would be to have a pied-à-terre there. It didn’t matter if it was a city, a town, or just a village. Then nothing happened. There was only a small exception: at one point, they rented a flat in a nearly abandoned village—at least, that’s how it felt to me at the time—but after strong-arming us to tag along a few times, they evidently had a rare spark of common sense and let it be. And then they continued looking at prices any time they passed in front of a real estate agent. Not at the time, but now I think of that as property porn.

I myself also stop regularly in front of real estate agents. After living most of my life as a tenant, we bought a house about 7-8 years ago. We had toyed with the idea before, but it was the genuinely horrible landlords we had last that made the decision crystallize. It was not super easy to find a suitable place because we wanted a house with a garden, in an acceptable price range, and located next to good public transportation. Both the price and the location were absolute musts, but the garden was, at least at the time, something much more optional. I saw that it would be good for the cats, and I liked the idea of having some outdoor space, but I didn’t want to have to deal with it at all. I therefore floated the idea of concreting it over and, as a concession to aesthetics, painting it green. The only reaction was a stare, and such a stare that that was it with my plan. Anyway, I am happy that I don’t have to deal with landlords anymore. I am happy that if something is broken and bothers me, I can just call somebody to deal with it. And if it doesn’t, it can stay broken. It makes me happy to know that if I put a nail or drill a hole somewhere, I will not need to deal with landlords when I move out. It makes me happy to know that I can change a fence, or the windows, or whatever. Buying was the right decision, but having bought does not stop me from wasting a fair amount of time with property porn.

Now, my parents were romantics, dreaming of weekends spent in the bucolic landscapes of a semi-abandoned village, or in some sober, medieval, old-fashioned, bourgeois small Castilian town. In contrast, believe it or not, I pride myself on being a much more practically minded human being, and when I indulge in property porn I always have the financial aspect in mind, and not just to decide if I could afford it—or rather, finance it—but also if it would make any sense whatsoever. Let’s see. It seems that 60 euros is a pretty realistic price for two people spending a night in a decent hotel in Burgos, but there is no way you can buy anything decent under 60,000. You could thus spend 1,000 nights in some hotel before recovering the amount you paid for an apartment. Note that 1,000 nights amounts to spending there each weekend of the next 10 or 20 years, depending on whether you stay for a night or two. Now, Burgos is a place where one could actually want to spend some time, but I am working under the hypothesis that my parents didn’t do this kind of calculation very often… But if I am fair, it is clear that they knew they were not looking to buy, that they were just indulging in property porn.

One could also look into buying something as an investment. In fact, I have thought a few times about doing that, but it didn’t make sense to me. First, one can think of buying to sell. I guess that some people buy a place, fix it up, and then sell after not very much time. Now, if you are as useless as I am, there is not that much that you will be able to fix by yourself, so it is going to cost money. Then, when selling and buying, a lot of taxes come into play, meaning that the markup would have to be really big to be worth it. So, buying to fix and sell would not work for me.

On the other hand, you might tell me that one does not need to actually do anything, that the prices of houses always go up. This is what a lot of people used to think in Spain, and I am actually pretty sure that it is what they still think, allowing for some fluctuations. And indeed, the prices of apartments in Spain have grown a lot. For example, since 1985 they quadrupled (adjusted for inflation). Now, that is a happy return of 3.5% per year since 1985. However, since it was created in 1992, the IBEX 35 Total Return index—the main index of the Spanish stock market, reinvesting dividends—has grown by 7.5% per year, again adjusted for inflation. At 7.5% per year, your capital is multiplied by 18 in 40 years. Now, the stock market is risky. Right. And there are long times when the prices crash or go nowhere. Right. But then, in Spain, housing prices have not yet reached the levels of 2005. In fact, it is not clear to me how anyone can really expect that long-term apartment prices are going to grow faster than overall salaries. So, one can evidently get lucky with the timing, but I would rather expect a 1-2% real price increase each year, and it seems reasonable to me to expect more than that from the stock market (over the long run). Also, an advantage of the stock market is that you can sell 5% of what you own, but you can’t really sell 5% of an apartment. Finally, if you invest in the stock market, you can de-risk it a lot by not putting all your eggs in the same basket, but if you invest in real estate, then, unless you have a real lot of money, there is not going to be much diversification.

Now, you might be saying that I am forgetting the most important part, namely that you can rent. Well, the average rent of an 80m² apartment in Barcelona seems to be 1,200 euros/month. That is definitely a decent amount of money to get every month. No doubt about that. However, how much does it cost you to get those 1,200 euros/month? Well, the average price of such an 80m² apartment seems to be 400,000 euros. A straightforward calculation shows that this means that your yearly rental income is 3.6% of the price of the property. Well, that sounds like a decent return. Now let’s do the math. First, all other expenses (taxes, upkeep of common areas, insurance, and so on) seem to be about 2,000 euros per year, meaning that we are already at a 3.1% return per year. But now comes the invisible elephant in the room: the upkeep and regular repairs needed in a property. Now, how much one spends on maintaining an apartment or a house changes from year to year, but one finds pretty extraordinary-sounding, and extraordinarily varied, numbers like 1-3% of the selling value. Now, that sounds extraordinary because most likely the owner of our hypothetical Barcelona apartment didn’t put 4,000-12,000 euros in there last year. However, people change the kitchen, a bathroom, or paint from time to time. The dishwasher, oven, stove, furnace, and so on also last as long as they last. If you live in a house, the roof lasts about 30 years, and if you live in an apartment building, then the elevators have to be changed, or the facade has to be renewed. So, these expenditures come in pretty irregular installments, but when they come, it can be a big number—a roof is on the expensive side, let me tell you. Now, even if one accounts for only a 1% maintenance cost, the return for the landlord is just 2.1% of the value of the property. And well, that assumes that the apartment is rented full time and that the tenant always pays and such.

But there is more because, well, if you inherit that apartment, or if you have that money in cash because you just robbed some French museum or another, then 2.1% might be ok. But if you need to take a loan, that all changes. If one takes a loan-to-value ratio of 70%, a 30-year loan at 3%, then you pay back 1,180 euros/month to the bank. This means that, taking the previous calculations into account, instead of a rent of 1,200 euros, you end up having to pay 360 euros/month to the bank, and that assuming that it all goes well.

Now, if you invest 120,000 euros (your down payment) and add 360 euros a month, and after 30 years, you own something worth 400,000 euros, then you have made a yearly return of 2.1%. If you decide to factor in a 1.5% yearly price increase, then you have a yearly return of 4% on your down payment plus monthly installment. Now, 4% is not bad, but given that in the whole calculation there are a lot of risky approximations, I decided that the stock market looks simpler and less risky than real estate. I guess that, without having any ulterior motives, I will just continue in the best family tradition by watching real estate porn.