Is it a bet on price fluctuations and against the house?
The answer depends on the specific instrument to which you are referring. It is possible to make straight bets that are cash-settled and in which the underlying commodity or instrument will never be bought or sold.  It is also possible to have such a contract be settled in the underlying (if the cash value is appropriate, then the cash settlement can be used to purchase the underlying directly, if necessary).  Physical delivery was predominant until the last few decades.  Most traders, as opposed to hedgers or strategics, are going to prefer cash-settled contracts as opposed to physical delivery. It is possible to make trades with a brokerage firm such that the firm pays if the trader wins the bet.  The firm will typically find parties on the other side to even out this bet and leave itself neutral as to the outcome (plus a small premium it charges each side for the cost of making the market).  The cost charged to one contracting party should be set by the dealer in relation to prices being charged to parties making the opposite, matching bet (in this way, brokers are following market price, while traders are setting it). Financially, options and contracts can be settled for cash or for the underlying, and they can be made directly with the opposite bettor or with a neutral dealer.
"In theory, investing is not gambling because the expected outcome is not random; people are expecting positive returns, on average, with some relationship to risk undertaken and economic reality. (More risk = more returns.) Historically this is true on average, that assets have positive returns, and riskier assets have higher returns. Also it's true that stock market gains roughly track economic growth. Valuation (current price level relative to ""fundamentals"") matters - reversion to the mean does exist over a long enough time. Given a 7-10 year horizon, a lot of the variance in ending price level can be explained by valuation at the start of the period. On average over time, business profits have to vary around a curve that's related to the overall economy, and equity prices should reflect business profits. The shorter the horizon, the more random noise. Even 1 year is pretty short in this respect. Bubbles do exist, as do irrational panics, and milder forms of each. Investing is not like a coin flip because the current total number of heads and tails (current valuation) does affect the probability of future outcomes. That said, it's pretty hard to predict the timing, or the specific stocks that will do well, etc. Rebalancing gives you an objective, automated, unemotional way to take advantage of all the noise around the long-term trend. Rather than trying to use judgment to identify when to get in and out, with rebalancing (and dollar cost averaging) you guarantee getting in a bit more when things are lower, and getting out a bit more when things are higher. You can make money from prices bouncing around even if they end up going nowhere and even if you can't predict the bouncing. Here are a couple old posts from my blog that talk about this a little more:" Nah, this is a fluff piece designed to get people excited about real estate.  A good rule of thumb is that if a piece has a National Association of Realtors quote in it, it's good odds that that it's trying to promote buying and/or selling real estate and trying to get people excited about real estate.  If there's actually a shortage of supply relative to demand, which is what matters, I'd expect to see Case-Schiller housing price index increases (not just median sales price increases, which I see quoted a bit, as those are affected by what type of house is selling in larger numbers).  Let's go back and look at [YOY Case-Schiller for Los Angeles](http://www.standardandpoors.com/indices/sp-case-shiller-home-price-indices/en/us/?indexId=spusa-cashpidff--p-us----).  Yup, looks like Los Angeles has seen a 4.8% drop over the course of the last year in the index.  Not exactly the sign of a booming housing market. "In gambling, the house also takes a cut, so the total money in the game is shrinking by 2-10 percent.  So if you gain $100, it's because other people lost $105, and you do this for dozens of plays, so it stacks up.  The market owns companies who are trying to create economic value - take nothing and make it something. They usually succeed, and this adds to the total pot and makes all players richer regardless of trades.   Gambling is transactional, there's a ""pull"" or a ""roll"" or a ""hand"", and when it's over you must do new transactions to continue playing.   Investing parks your money indefinitely, you can be 30 years in a stock and that's one transaction. And given the long time, virtually all your gains will be new economic value created, at no one else's expense, i.e. Nobody loses.  Now it's possible to trade in and out of stocks very rapidly, causing them  to be transactional like gambling: the extreme example is day-trading.  When you're not in a stock long enough for the company to create any value (paid in dividends or the market appreciating the value), then yes, for someone to gain, someone else must lose. And the house takes a cut (e.g. Etrade's $10 trading fee in and out).  In that case both players are trying to win, and one just had better info on average.   Another case is when the market drops. For instance right after Brexit I dumped half my domestic stocks and bought Euro index funds. I gambled Euro stocks would rebound better than US stocks would continue to perform.  Obviously, others were counterbetting that American stocks will still grow more than Euro will rebound.  Who won that gamble?  Certainly we will all do better long-term, but some of us will do better-er. And that's what it's all about." If you feel the house will appreciate, I'd say go for it.  I'm not familiar with the Denver market but real estate can be a great way to build wealth.   Besides, it seems like at this point you would lose your earnest money deposit if you back out. I do agree with people here though about the potential risk.  The only way to make money is if the property appreciates. In Seattle, properties have appreciated like crazy in the past 5 years.  Some have even gone up by 3x or 4x of what it was before.   If you are right about appreciation in your market, this could be a gold mine. With all investments, there is risk involved. If you do plan to move forward, here are some suggestions: Best of luck! according to me it's the news about a particular stock which makes people to buy or sell it mostly thus creates a fluctuation in price . It also dependents on the major stock holder. Of course, I know nothing about real estate or owning a home. I would love to hear people's thoughts on why this would or would not be a good idea. Are there any costs I am neglecting? I want the house to be primarily an investment. Is there any reason that it would be a poor investment?  I live and work in a college town, but not your college town. You, like many students convinced to buy, are missing a great many costs. There are benefits of course. There's a healthy supply of renters, and you get to live right next to campus. But the stuff next to campus tends to be the oldest, and therefore most repair prone, property around, which is where the 'bad neighborhood' vibe comes from. Futhermore, a lot of the value of your property would be riding on government policy. Defunding unis could involve drastic cuts to their size in the near future, and student loan reform could backfire and become even less available. Even city politics comes into play: when property developers lobby city council to rezone your neighborhood for apartments, you could end up either surrounded with cheaper units or possibly eminent domain'd. I've seen both happen in my college town. If you refuse to sell you could find yourself facing an oddly high number of rental inspections, for example. So on to the general advice: Firstly, real estate in general doesn't reliably increase in value, at best it tends to track inflation. Most of the 'flipping' and such you saw over the past decade was a prolonged bubble, which is slowly and reliably tanking.   Beyond that, property taxes, insurance, PMI and repairs need to be factored in, as well as income tax from your renters. And, if you leave the home and continue to rent it out, it's not a owner-occupied property anymore, which is part of the agreement you sign and determines your interest rate. There's also risks. If one of your buddies loses their job, wrecks their car, or loses financial aid, you may find yourself having to eat the loss or evict a good friend. Or if they injure themselves (just for an example: alcohol poisoning), it could land on your homeowners insurance. Or maybe the plumbing breaks and you're out an expensive repair. Finally, there are significant costs to transacting in real estate. You can expect to pay like 5-6 percent of the price of the home to the agents, and various fees to inspections. It will be exceedingly difficult to recoup the cost of that transaction before you graduate. You'll also be anchored into managing this asset when you could be pursuing career opportunities elsewhere in the nation. Take a quick look at three houses you would consider buying and see how long they've been on the market. That's months of your life dealing with this house in a bad neighborhood. Its all about speculation. Like stocks, real estate fluctuates and is sometimes volatile. Educate yourself on the house you are buying and the area it is in. I wouldn't spend over 20% of current net worth on a house. Its all a gamble. And you have to think realistically whether or not you can AFFORD losing all the value of it. "Chris, this is an arbitrage question with a twist: you cannot treat the location you want to live objectively. For example, why not SoCal instead of Texas? Yes, SoCal's expensive but what if you account for the weather? This question is very interesting for me personally: something I am going to focus on myself, soon, as well. To the question at hand: it's very hard to get a close estimate of the price from a single source, say, a website. The cost of a house is always negotiable and there's no sticker price, and there begins your problems. However, there are some publicly available information which websites aggregate, see: http://www.city-data.com/ Also, some heuristics might help: Rent is at-least as expensive as the monthly mortgage, (property) taxes, HOA fees, etc. Smart people have told me this, and this also makes sense to me as the landlord is in this business to make some money after all. However, there are also other hidden costs of home ownership that I am not aware of in details (and which I craftily sidestepped in my ""etc"" above) that could put a rental to be ""cheaper"". One example that comes to mind is you as a tenant get to complain if the washer-dryer misbehaves and demand the landlord get you a new one (see how you wouldn't make a sound were you to own it however) Such a website to gauge rentals: http://www.rentometer.com/ Houses cost more where the median income is more. Again, you cannot be objective about this because smart people like to live around smart people (and pay for the privilege). Turn again to http://www.city-data.com/ to get this information Better weather is more expensive than not so good weather. In the article you linked, notice the ratio of homes in California. Yes, I know of people who sold off their family ranches in Vancouver and Seattle to buy homes in Orange Country. In short, there is a lot of information you would have to gather from multiple sources, and even then never be sure that you did your best! This also includes arbitrage, as you would like to ""come out ahead"" and while you are doing your research (and paying your rent), you want to invest your ""savings"" in instruments where you earn more than what you would have saved in a mortgage, etc. I would very much like to be refuted on every point and my answer be edited and ""made better"" as I need the same answers as you do :-D Feel free to comment, edit your question etc and I will act on feedback and help both of us (and future readers) out!" If you have a lump sum, you could put it into a low risk investment (which should also have low fluctuations) right away to avoid the risk of buying at a down point.  Then move it into a higher risk investment over a period of time.  That way you'll buy more units when the price is lower than when it's higher. Usually I hear dollar cost averaging applied to the practice of purchasing a fixed dollar amount of an investment every week or month right out of your salary.  The effect is pretty minimal though, except on the highest growth portfolios, and is generally just used as a sales tool by investment councilors (in my opinion). No. Such companies don't exist. Derivative instruments have evolved over a period and there is a market place, stock exchange with members / broker with obligations etc clearly laid out and enforceable. If I understand correctly say the house is at 300 K. You would like a option to sell it to someone for 300 K after 6 months. Lets say you are ready to pay a premium of 10K for this option. After 6 months, if the market price is 400 K you would not exercise the option and if the market price of your house is 200 K you would exercise the option and ask the option writer to buy your house for 300 K. There are quite a few challenges, i.e. who will moderate this transaction. How do we arrive that house is valued at 300K. There could be actions taken by you to damage the property and hence its reduction in value, etc. i.e. A stock exchange like market place for house is not there and it may or may not develop in future. What you are seeing is the effects of inflation. As money becomes less valuable it takes more of it to buy physical things, be they commodities, shares in a company's stock, and peoples time (salaries).  Just about the only thing that doesn't track inflation to some degree is cash itself or money in an account since that is itself what is being devalued.  So the point of all this is, buying anything (a house, gold, stocks) that doesn't depreciate (a car) is something of a hedge against inflation. However, don't be tricked (as many are) into thinking that house just made you a tidy sum just because it went up in value so much over x years. Remember 1) All the other houses and things you'd spend the money on are a lot more expensive now too; and 2) You put a lot more money into a house than the mortgage payment (taxes, insurance, maintenance, etc.) I'm with the others though. Don't get caught up in the gold bubble. Doing so now is just speculation and has a lot of risk associated with it. Your reasoning is backwards. As others have pointed out, you cannot just decide how much you charge irrespective of the market. Let me paraphrase a little economics 101 to underline why you also should not think like this: You can see a rental property like your house (the same reasoning is usually explained with the example of hotel rooms) as a series of perishable goods. Your house represents the potential sale of the January rent (which perishes once January is over), plus the February rent etc. Your approach was to compute the total costs (all fixed and variable costs of owning that house as well as costs associated to renting specifically) and average them over the time period so that you know how much to ask at least. Assuming that you are only looking to rent it out, not sell it or let a family member live there, you can't think like this. Most of those costs that you averaged are what economists call sunk costs. You have already incurred the mortgage costs and they are not affected by your decision to rent or not to rent. These costs are irrelevant to your decision making process. You only need to think about marginal costs: those additional costs that you have when you rent but not when you don't. Look at the market prices for renting similar properties in that region and compare them with your marginal costs. As long as they are higher than your marginal costs, rent it out. This does not mean that you are sure to make profits, but it means that you are sure to make less losses than in your only alternative of not renting. "Bob should treat both positions as incomplete, and explore a viewpoint which does a better job of separating value from volatility. So we should start by recognizing that what Bob is really doing is trading pieces of paper (say Stocks from Fund #1 or Bonds from Fund #2, to pick historically volatile and non-volatile instruments.*) for pieces of paper (Greenbacks).  In the end, this is a trade, and should always be thought of as such.  Does Bob value his stocks more than his bonds?  Then he should probably draw from Fund #2.  If he values his bonds more, he should probably draw from Fund #1. However, both Bob and his financial adviser demonstrate an assumption: that an instrument, whether stock bond or dollar bill, has some intrinsic value (which may raise over time).  The issue is whether its perceived value is a good measure of its actual value or not. From this perspective, we can see the stock (Fund #1) as having an actual value that grows quickly (6.5% - 1.85% = 4.65%), and the bond (Fund #2) as having an actual value that grows slower (4.5% - 1.15$ = 3.35$).  Now the perceived value of the stocks is highly volatile.  The Chairman of the Fed sneezes and a high velocity trader drives a stock up or down at a rate that would give you whiplash. This perspective aligns with the broker's opinion.  If the stocks are low, it means their perceived value is artificially low, and selling it would be a mistake because the market is perceiving those pieces of paper as being worth less than they actually are.  In this case, Bob wins by keeping the stocks, and selling bonds, because the stocks are perceived as undervalued, and thus are worth keeping until perceptions change. On the other hand, consider the assumption we carefully slid into the argument without any fanfare: the assumption that the actual value of the stock aligns with its historical value.  ""Past performance does not predict future results.""  Its entirely possible that the actual value of the stocks is actually much lower than the historical value, and that it was the perceived value that was artificially higher.  It may be continuing to do so... who knows how overvalued the perceived value actually was!  In this case, Bob wins by keeping the bonds.  In this case, the stocks may have ""underperformed"" to drive perceptions towards their actual value, and Bob has a great chance to get out from under this market. The reality is somewhere between them.  The actual values are moving, and the perceived values are moving, and the world mixes them up enough to make Scratchers lottery tickets look like a decent investment instrument.  So what can we do? Bob's broker has a smart idea, he's just not fully explaining it because it is unprofessional to do so.  Historically speaking, Bobs who lost a bunch of money in the stock market are poor judges of where the stock market is going next (arguably, you should be talking to the Joes who made a bunch of money. They might have more of a clue.).  Humans are emotional beings, and we have an emotional instinct to cut ties when things start to go south.  The market preys on emotional thinkers, happily giving them what they want in exchange for taking some of their money.  Bob's broker is quoting a well recognized phrase that is a polite way of saying ""you are being emotional in your judgement, and here is a phrasing to suggest you should temper that judgement."" Of course the broker may also not know what they're doing!  (I've seen arguments that they don't!)  Plenty of people listened to their brokers all the way to the great crash of 2008.  Brokers are human too, they just put their emotions in different places.  So now Bob has no clear voice to listen to.  Sounds like a trap! However, there is a solution.  Bob should think about more than just simple dollars.  Bob should think about the rest of his life, and where he would like the risk to appear.  If Bob draws from Fund #1 (liquidating stocks), then Bob has made a choice to realize any losses or gains early... specifically now.  He may win, he may lose.  However, no matter what, he will have a less volatile portfolio, and thus he can rely on it more in the long run. If Bob draws from Fund #2 (liquidating bonds) instead, then Bob has made a choice not to realize any losses or gains right away.  He may win, he may lose.  However, whether he wins or loses will not be clear, perhaps until retirement when he needs to draw on that money, and finds Fund #1 is still under-performing, so he has to work a few more years before retirement.  There is a magical assumption that the stock market will always continue rewarding risk takers, but no one has quite been able to prove it! Once Bob includes his life perspective in the mix, and doesn't look just at the cold hard dollars on the table, Bob can make a more educated decision.  Just to throw more options on the table, Bob might rationally choose to do any one of a number of other options which are not extremes, in order to find a happy medium that best fits Bob's life needs: * I intentionally chose to label Fund #1 as stocks and Fund #2 as bonds, even though this is a terribly crude assumption, because I feel those words have an emotional attachment associated to them which #1 and #2 simply do not.  Given that part of the argument is that emotions play a part, it seemed reasonable to dig into underlying emotional biases as part of my wording.  Feel free to replace words as you see fit to remove this bias if desired." It sounds like you plan to sell sooner or later. If your opinion is that there is still room for the housing market to grow, make your bet and sell later. The real estate market is much less liquid than other markets you might be invested in, so if you do end up seeing trouble (another housing crash) you may be stuck with your investment for longer than you hoped. I see more risk renting the house out, but I don't see significantly more reward. If you are comfortable with the risk, by all means proceed with your plan to rent.  My opinion is contrary to many others here who think real estate investments are more desirable because the returns are less abstract (you can collect the rent directly from your tenants) but all investments are fraught with their own risks. If you like putting in a little sweat equity (doing your own repairs when things break at your rental) renting may be a good match for you. I prefer investments that don't require as much attention, and index funds certainly fit that bill for me. In a strictly mathematical sense, no. Or rather, it depends what 'long run' means.  Say today the home average is $200K, and payment is $900/mo. The $900 today happens to be about 20% of the median US monthly income (which is approximately $54,000/yr). Housing rises 4%/yr, income 3%/yr. In 100 years (long enough?) the house costs $10M but incomes are 'only' $1.03M/yr, and the mortgage, even at the same rate is $45K/month, or, to be clear, it rose to 52% of monthly income.  My observation is that, long term, the median home costs what 25% of median income will support, in terms of the mortgage after downpayment. Long term. That means that if you graph this, you'll see trends above and below the long term line. You'll see a 25 year bubble form starting in the late 80's as rates dropped from near 18% to the Sub-4% in the early 00s. But once you normalize it to percent of income to pay the loan, much of the bubble is flattened out. At 18%, $1500/mo bought you a $100K mortgage, but at 3.5%, it bought $335K. This is in absolute dollars, wages also rose during that time. I am just clarifying how rates distort the long term trends and create the short term anomalies.