American Roulette Odds Calculator

TL:DR

• This is Part 1 of my two part deep dive on DraftKings (Ticker: DKNG, I will refer to the company as “DK”)
• This first part introduces you to (1) me, (2) the company, (3) my thesis on the company, and (4) digs into how they make money.
• The second part (already released, you can read it here - but get through part 1 first :) ) will go in depth to explore the question “Can we 10x from here?”
• DK is an exciting, disruptive company working to change how we experience watching sports and make it better.
• I am not a financial advisor and this is not investment advice. These are just my opinions to help facilitate learning and discussion.

Hello, welcome to my first deep dive write up.
My name’s Mark and I’m an accountant with a passion for investing. About two years ago, I used to work as an auditor at a public accounting firm and have been behind the scenes at many different publicly traded and privately held companies in the U.S. My goal is to bring my unique perspective from that past experience, my current experience working in a new role at a large corporation, and my understanding of accounting to help break down some of the most exciting growth stocks on the market today.
I’m a long-term investor. I am focused on finding great companies and holding them for a long time. I’m willing to endure volatility, crazy price drops, and everything that comes with this approach as long as the facts that led me to originally invest and believe in that company have not changed. If you want to learn more about this approach. I recommend reading the book “100 Baggers” by Chris Mayer.
Introduction
I think it’s fitting that my first stock pick has to do with sports. Sports has been a part of my life since I could walk at the age of 2. First with baseball and soccer, and then later in my childhood with golf. I’ve always played American football and basketball for fun as well and have always been an avid fan of all the major sports in the US.
I started playing fantasy sports (mostly just fantasy football) about 6 years ago and have always enjoyed it. Traditionally, with fantasy football you draft a team at the beginning of the year and those are your players for the rest of the season. If you have a bad draft, oh well. You can try to improve your team with trades and free agent additions but it is tough. Leagues usually consist of 10-14 teams (each managed by an individual) and there’s obviously only one winner at the end of the season (about 4 months after the draft). This can lead to the managers of the lower performing teams losing interest as the season wanes on. I believe DraftKings’ (DK) founders saw this issue and saw an opportunity. Enter, daily fantasy sports. Now, with the DK platform you can draft a new team every week. Or if you want, every day. This allows fans of fantasy sports to engage at whichever point of the season they want and at varying financial stakes.
The Thesis Statement
For every stock pick I make, I want to provide a quick thesis statement that can serve as a reminder for why I’m buying and holding that stock for the long term. I’ll always aim to make it just a few sentences long so it can easily be remembered and internalized. This helps during times when the price may sporadically drop and you need to remember why you’re holding this position.
The thesis statement I have come up with for DK is as follows:
“DraftKings: The leader in allowing fans to engage financially with their favorite sports, teams, and players. Having money at stake makes the game a lot more interesting to watch. The era of daily fantasy sports games, online sports betting, and online betting (outside of sports), is just getting started and DK is as well positioned (or better positioned) than anyone to capitalize off of this trend.”
Notice how I said “allowing fans to engage financially” as the first sentence and not necessarily “allowing fans to gamble”. There’s a reason for that. According to US Federal Law, Daily Fantasy Sports (DFS) contests have specifically been exempted from the prohibitions of the Unlawful Internet Gambling Enforcement Act (UIGEA). DK has always been, and I believe will continue to be DFS contests 1st, sports betting 2nd, and other forms of gambling/entertainment 3rd. It is noteworthy that states at an individual level can still deem DFS contests illegal if they so wish, but as of this writing (11/26/20), 43 of the 50 US States allow DFS contests and DK, accordingly, is offering DFS contests in all 43 of those US States.
I’ll try to clarify the difference between DFS contests and sports betting real quick:
DFS Contest – Pay a pre-set entry fee to enter a contest. All entry fees go towards “The Pot”. “Draft” 9 players to be on your “Team” for 1 week. Enter your “Roster” into a contest with other players (could range from 1 other person to 1,000s of people, the DK user can choose). Whichever “Roster” amasses the most points for that week out of all contestants wins. The winner will get the highest payout, and depending on the nature of the contest, other top finishers will receive smaller payouts as well.
Sports Gambling – Team A is considered a 10 point favorite to defeat Team B. This means that Team A is expected, by the professional gambling line setters, to outscore Team B by 10 points. This is known as a point spread. You can bet on the underdog or the favorite. If you bet on the favorite, they have to win by more than 10 points for you to win the bet. If you bet on the underdog, you will win the bet as long as the underdog keeps the game within less than a 10 point defeat.
These are just a couple simple examples to help you see the difference. Sports Gambling (the 2nd priority of DK) is a very lucrative market just as the DFS contests are. However, in the US, Federal Laws and regulations are a lot stricter on Sports Gambling than they are on DFS. As of this writing (11/27/20), 22 states (including the District of Columbia) out of 51 possible allow sports gambling.
DK is still in the infancy stages of getting their sports gambling business going. In the 22 states where they could potentially operate, they currently have a sports gambling offering in 11 of those states. The sports gambling business model for DK can be broken into two main offerings – mobile sports betting, and retail sports betting. Mobile sports betting means you can place a sports bet online from the comfort of your own home, while retail sports betting means you must go to a casino and place a bet with the sportsbook in person. I personally believe mobile sports betting is the real potential cash cow for DK out of the two types of sports betting offerings due to the convenience and ease of access. DK is currently working on and encouraging customers to lobby their state lawmakers to legalize sports gambling in more states.
How DK makes money
At the very least, before you invest in a company, you better understand how they make money. In Chris Mayers’ excellent book, 100 Baggers, that I mentioned above, he continually references top line revenue growth as one of the main common indicators of a possible 100 Bagger. This isn’t to tell you that any stock I pick will be a 100 Bagger just because it has great top line revenue growth, but if I am looking at a growth stock to hold for the long term, revenue growth is one of the first things I look at.
For DK, their means of making money is quite simple. I already went into detail above about DFS Contests and Sports Gambling. In DK’s latest 10-Q filing with the SEC (filed 11/13/20), revenue is broken out into two main streams: Online Gaming and Gaming Software.
Online Gaming (82% of Total Revenue for 9 months ended 9/30/20):
Online gaming is the true core business of DK and includes the aforementioned DFS Contests, Sports Gambling and additional gambling (non-sports) opportunities. DK refers to their additional gambling (non-sports) as “iGaming” or “online casino”.
For the 9 months ended 9/30/20, Online Gaming revenue totaled $239M, up 30% YoY from $184M in the same prior year period. Keep in mind, that this is an increase that happened during a COVID-19 global pandemic that delayed and shortened many professional sports seasons.
Online gaming revenue is earned in a few ways that are slightly different, but very similar overall. In order to enter a DFS contest, a customer must pay an entry fee. DFS revenue is generated from these entry fees collected, net of prize payouts and customer incentives awarded to users. In order to place a sports bet (sports gambling), a customer places a wager with a DK Sportsbook. The DK Sportsbook sets odds for each wager that builds in a theoretical margin allowing DK to profit. Sports gambling revenue is generated from wagers collected from customers, net of payouts and incentives awarded to winning customers. The last form of online gaming revenue is earned in similar fashion to a land-based casino, offering online versions of casino games such as blackjack, roulette, and slot machines.
Gaming Software (18% of Total Revenue for 9 months ended 9/30/20):
While the Online Gaming revenue stream mentioned above is a Business to Consumer (B2C) model, the Gaming Software revenue stream is a Business to Business (B2B) model. The Gaming Software side of the business was born out of the acquisition of SBTech, a company from the Isle of Man (near the UK) founded in 2007 that has 12+ years of experience providing online sports betting platforms to clients all over the world. The acquisition occurred as part of the SPAC driven IPO in April of 2020 that combined “the old DK company” with SBTech so that they now are “the new DK company” listed as DKNG on the NASDAQ. SBTech is a far more important part of the story than just being 18% of today’s revenue. The reason for this is because DK will eventually (planned mid-late 2021) be migrating all of their DFS and gambling offerings onto SBTech’s online platforms. Currently, for DFS, DK uses their own proprietary platform but that will move to SBTech with the migration. Currently, for online gambling, DK uses Kambi, the same online gambling platform that services Penn Gaming (PENN), a DK rival. But that’s enough about the software migration for now, back to the Gaming Software revenue.
The Gaming Software revenue stream for DK is essentially a continuation of SBTechs’ B2B business model. DK contracts with business customers to provide sports and casino betting software solutions. DK typically enters two different type of arrangements with B2B customers when selling the gaming software:

1. Direct Customer Contract Revenue: In this type of transaction, the software is sold directly to a business (casino for example) that wants to use the software for their own gambling operations. This revenue is generally calculated as a percentage of the wagering revenue generated by the business customer using DK’s software and is recognized in the periods in which those wagering and related activities conclude.
2. Reseller Arrangement Revenue: In this type of transaction, DK provides distributors with the right to resell DK’s software-as-a-service offering to their clients, using their own infrastructure. In reseller arrangements, revenue is generally calculated via a fixed monthly fee and an additional monthly fee which varies based on the number of gaming operators to whom each reseller sub-licenses DK’s software.

As mentioned above, SBTech was an international company based in the Isle of Man before being acquired by DK. Thus, the majority of their business in their first 12 years of operating independently has always been international and outside of the United States. This has helped DK, which has historically been US focused, expand it’s international reach.
A perfect example of expanding this international reach occurred recently during October (technically Q4) in which DK’s B2B technology (powered by SBTech) helped enable the launch of “PalaceBet”, a new mobile and online sportsbook offering from Peermont, a South Africa based resort and casino company. The deal was headed by DK’s new Chief International Officer, Shay Berka, who previously spent 10 years working for SBTech as CFO and General Manager. Mr. Berka took on the role of DK’s Chief International Officer upon the merger in April earlier this year. I think this deal shows that DK has integrated SBTech and it’s business very well into the larger business as a whole. They are not wasting any time using their newly acquired resources to expand their reach and bring in new sources of revenue.
This is the end of my first article about DK. My goal is to drop Part 2 later this week. The focus of Part 2 will be an in depth answer of the question – “Can we 10x from here?”
Disclosure: I am/we are long DKNG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

TL:DR

• This is Part 1 of my two part deep dive on DraftKings (Ticker: DKNG, I will refer to the company as “DK”)
• This first part introduces you to (1) me, (2) the company, (3) my thesis on the company, and (4) digs into how they make money.
• The second part (to be released later this week) will go in depth to explore the question “Can we 10x from here?”
• DK is an exciting, disruptive company working to change how we experience watching sports and make it better.
• I am not a financial advisor and this is not investment advice. These are just my opinions to help facilitate learning and discussion.

Hello, welcome to my first deep dive write up.
My name’s Mark and I’m an accountant with a passion for investing. About two years ago, I used to work as an auditor at a public accounting firm and have been behind the scenes at many different publicly traded and privately held companies in the U.S. My goal is to bring my unique perspective from that past experience, my current experience working in a new role at a large corporation, and my understanding of accounting to help break down some of the most exciting growth stocks on the market today.
I’m a long-term investor. I am focused on finding great companies and holding them for a long time. I’m willing to endure volatility, crazy price drops, and everything that comes with this approach as long as the facts that led me to originally invest and believe in that company have not changed. If you want to learn more about this approach. I recommend reading the book “100 Baggers” by Chris Mayer.
Introduction
I think it’s fitting that my first stock pick has to do with sports. Sports has been a part of my life since I could walk at the age of 2. First with baseball and soccer, and then later in my childhood with golf. I’ve always played American football and basketball for fun as well and have always been an avid fan of all the major sports in the US.
I started playing fantasy sports (mostly just fantasy football) about 6 years ago and have always enjoyed it. Traditionally, with fantasy football you draft a team at the beginning of the year and those are your players for the rest of the season. If you have a bad draft, oh well. You can try to improve your team with trades and free agent additions but it is tough. Leagues usually consist of 10-14 teams (each managed by an individual) and there’s obviously only one winner at the end of the season (about 4 months after the draft). This can lead to the managers of the lower performing teams losing interest as the season wanes on. I believe DraftKings’ (DK) founders saw this issue and saw an opportunity. Enter, daily fantasy sports. Now, with the DK platform you can draft a new team every week. Or if you want, every day. This allows fans of fantasy sports to engage at whichever point of the season they want and at varying financial stakes.
The Thesis Statement
For every stock pick I make, I want to provide a quick thesis statement that can serve as a reminder for why I’m buying and holding that stock for the long term. I’ll always aim to make it just a few sentences long so it can easily be remembered and internalized. This helps during times when the price may sporadically drop and you need to remember why you’re holding this position.
The thesis statement I have come up with for DK is as follows:
“DraftKings: The leader in allowing fans to engage financially with their favorite sports, teams, and players. Having money at stake makes the game a lot more interesting to watch. The era of daily fantasy sports games, online sports betting, and online betting (outside of sports), is just getting started and DK is as well positioned (or better positioned) than anyone to capitalize off of this trend.”
Notice how I said “allowing fans to engage financially” as the first sentence and not necessarily “allowing fans to gamble”. There’s a reason for that. According to US Federal Law, Daily Fantasy Sports (DFS) contests have specifically been exempted from the prohibitions of the Unlawful Internet Gambling Enforcement Act (UIGEA). DK has always been, and I believe will continue to be DFS contests 1st, sports betting 2nd, and other forms of gambling/entertainment 3rd. It is noteworthy that states at an individual level can still deem DFS contests illegal if they so wish, but as of this writing (11/26/20), 43 of the 50 US States allow DFS contests and DK, accordingly, is offering DFS contests in all 43 of those US States.
I’ll try to clarify the difference between DFS contests and sports betting real quick:
DFS Contest – Pay a pre-set entry fee to enter a contest. All entry fees go towards “The Pot”. “Draft” 9 players to be on your “Team” for 1 week. Enter your “Roster” into a contest with other players (could range from 1 other person to 1,000s of people, the DK user can choose). Whichever “Roster” amasses the most points for that week out of all contestants wins. The winner will get the highest payout, and depending on the nature of the contest, other top finishers will receive smaller payouts as well.
Sports Gambling – Team A is considered a 10 point favorite to defeat Team B. This means that Team A is expected, by the professional gambling line setters, to outscore Team B by 10 points. This is known as a point spread. You can bet on the underdog or the favorite. If you bet on the favorite, they have to win by more than 10 points for you to win the bet. If you bet on the underdog, you will win the bet as long as the underdog keeps the game within less than a 10 point defeat.
These are just a couple simple examples to help you see the difference. Sports Gambling (the 2nd priority of DK) is a very lucrative market just as the DFS contests are. However, in the US, Federal Laws and regulations are a lot stricter on Sports Gambling than they are on DFS. As of this writing (11/27/20), 22 states (including the District of Columbia) out of 51 possible allow sports gambling.
DK is still in the infancy stages of getting their sports gambling business going. In the 22 states where they could potentially operate, they currently have a sports gambling offering in 11 of those states. The sports gambling business model for DK can be broken into two main offerings – mobile sports betting, and retail sports betting. Mobile sports betting means you can place a sports bet online from the comfort of your own home, while retail sports betting means you must go to a casino and place a bet with the sportsbook in person. I personally believe mobile sports betting is the real potential cash cow for DK out of the two types of sports betting offerings due to the convenience and ease of access. DK is currently working on and encouraging customers to lobby their state lawmakers to legalize sports gambling in more states.
How DK makes money
At the very least, before you invest in a company, you better understand how they make money. In Chris Mayers’ excellent book, 100 Baggers, that I mentioned above, he continually references top line revenue growth as one of the main common indicators of a possible 100 Bagger. This isn’t to tell you that any stock I pick will be a 100 Bagger just because it has great top line revenue growth, but if I am looking at a growth stock to hold for the long term, revenue growth is one of the first things I look at.
For DK, their means of making money is quite simple. I already went into detail above about DFS Contests and Sports Gambling. In DK’s latest 10-Q filing with the SEC (filed 11/13/20), revenue is broken out into two main streams: Online Gaming and Gaming Software.
Online Gaming (82% of Total Revenue for 9 months ended 9/30/20):
Online gaming is the true core business of DK and includes the aforementioned DFS Contests, Sports Gambling and additional gambling (non-sports) opportunities. DK refers to their additional gambling (non-sports) as “iGaming” or “online casino”.
For the 9 months ended 9/30/20, Online Gaming revenue totaled $239M, up 30% YoY from $184M in the same prior year period. Keep in mind, that this is an increase that happened during a COVID-19 global pandemic that delayed and shortened many professional sports seasons.
Online gaming revenue is earned in a few ways that are slightly different, but very similar overall. In order to enter a DFS contest, a customer must pay an entry fee. DFS revenue is generated from these entry fees collected, net of prize payouts and customer incentives awarded to users. In order to place a sports bet (sports gambling), a customer places a wager with a DK Sportsbook. The DK Sportsbook sets odds for each wager that builds in a theoretical margin allowing DK to profit. Sports gambling revenue is generated from wagers collected from customers, net of payouts and incentives awarded to winning customers. The last form of online gaming revenue is earned in similar fashion to a land-based casino, offering online versions of casino games such as blackjack, roulette, and slot machines.
Gaming Software (18% of Total Revenue for 9 months ended 9/30/20):
While the Online Gaming revenue stream mentioned above is a Business to Consumer (B2C) model, the Gaming Software revenue stream is a Business to Business (B2B) model. The Gaming Software side of the business was born out of the acquisition of SBTech, a company from the Isle of Man (near the UK) founded in 2007 that has 12+ years of experience providing online sports betting platforms to clients all over the world. The acquisition occurred as part of the SPAC driven IPO in April of 2020 that combined “the old DK company” with SBTech so that they now are “the new DK company” listed as DKNG on the NASDAQ. SBTech is a far more important part of the story than just being 18% of today’s revenue. The reason for this is because DK will eventually (planned mid-late 2021) be migrating all of their DFS and gambling offerings onto SBTech’s online platforms. Currently, for DFS, DK uses their own proprietary platform but that will move to SBTech with the migration. Currently, for online gambling, DK uses Kambi, the same online gambling platform that services Penn Gaming (PENN), a DK rival. But that’s enough about the software migration for now, back to the Gaming Software revenue.
The Gaming Software revenue stream for DK is essentially a continuation of SBTechs’ B2B business model. DK contracts with business customers to provide sports and casino betting software solutions. DK typically enters two different type of arrangements with B2B customers when selling the gaming software:
​

1. Direct Customer Contract Revenue: In this type of transaction, the software is sold directly to a business (casino for example) that wants to use the software for their own gambling operations. This revenue is generally calculated as a percentage of the wagering revenue generated by the business customer using DK’s software and is recognized in the periods in which those wagering and related activities conclude.
2. Reseller Arrangement Revenue: In this type of transaction, DK provides distributors with the right to resell DK’s software-as-a-service offering to their clients, using their own infrastructure. In reseller arrangements, revenue is generally calculated via a fixed monthly fee and an additional monthly fee which varies based on the number of gaming operators to whom each reseller sub-licenses DK’s software.

As mentioned above, SBTech was an international company based in the Isle of Man before being acquired by DK. Thus, the majority of their business in their first 12 years of operating independently has always been international and outside of the United States. This has helped DK, which has historically been US focused, expand it’s international reach.
A perfect example of expanding this international reach occurred recently during October (technically Q4) in which DK’s B2B technology (powered by SBTech) helped enable the launch of “PalaceBet”, a new mobile and online sportsbook offering from Peermont, a South Africa based resort and casino company. The deal was headed by DK’s new Chief International Officer, Shay Berka, who previously spent 10 years working for SBTech as CFO and General Manager. Mr. Berka took on the role of DK’s Chief International Officer upon the merger in April earlier this year. I think this deal shows that DK has integrated SBTech and it’s business very well into the larger business as a whole. They are not wasting any time using their newly acquired resources to expand their reach and bring in new sources of revenue.
This is the end of my first article about DK. My goal is to drop Part 2 later this week. The focus of Part 2 will be an in depth answer of the question – “Can we 10x from here?”
Disclosure: I am/we are long DKNG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Hi All,
First of all, I’m a data scientist by profession but a history major by training. So I’ve tried to cite all relevant data points with a () tag. This allows us to separate debating the data vs. the analysis. I’m also a complete newbie to real estate investing. One of the main goals in fact of this post is to organize my thoughts so far and solicit feedback from more knowledgable individuals.
As part of a balanced portfolio, I've invested passively in real estate for several years (both public REITs and a small amount in a private platform). As my assets have grown and I'm entering the age to buy a primary residence, I've been trying to educate myself on the housing real estate market. After all, even if you don't own any investment properties the purchase of a home is the largest single financial transaction you'll likely ever make. In fact, if you look at the chart linked below (1, see Sources below) you'll see housing is the single largest asset for households with net worth below 1 million dollars, i.e. ~90% of Americans (2). In fact, even in 2010 (in the midst of the Great Financial Crisis): "The primary residence represented 62% of the median homeowner’s total assets and 42% of the median home owner’s wealth" (3). In fact, reading the Economist recently (obviously in my slippers) I was surprised to discover housing is the world's largest asset class. This HSBC report (avoiding the Economist paywall) cites housing as a $226 trillion (!) asset class at the end of 2016 (4) out of a total net worth in 2018 of ~$360 trillion according to Credit Suisse.
 
Even with my casual research, it's clear that real estate is divided into multiple segments including residential, commercial, industrial, farm land, etc. Even the subsector of residential is divided into single family, multi-family, commercial, mobile homes, etc. These segments are further divided across geographies with wildly different tax, capital, and regulatory regimes. So far I’ve limited my research to the US residential sector: single family homes, multifamily, and small commercial apartment buildings. Therefore moving forward when I say real estate I will limit the scope to the above US residential housing market, i.e. acquiring individual or personal portfolio of US housing properties.
 
More formally, the purpose of my analysis below is:

• Understand my options as it pertains to real estate. E.g. is it better to consider “house hacking”, i.e. buying a primary residence and several investment units as part of a duplex, triplex, etc.
• Avoid making obvious mistakes in the purchase of my primary home
  
• To summarize what I’ve learned and start to develop opinion about real estate investing more broadly as a complement to public equities investing
  
• Broaden my knowledge professionally (my clients include large real estate companies)
  
• Learn from the community!
  

Note: I considered posting this in /realestateinvesting, but ultimately my goal is to evaluate real estate vs. other asset classes. Obviously some people will simply prefer real estate for a variety of reasons, but personally my goal is to achieve the greatest return for the least risk and work. I should stress that I love my career (data scientist) and have no intention of quitting, so the last point is particularly important.
 
Analysis
 
One thing that immediately strikes me as an investor accustomed to public securities, e.g. bonds / stocks, is how odd the real estate market (in particular housing) is in comparison. Having a margin account from a broker, i.e. getting leverage, is often a difficult process reserved for “advanced” investors. In residential real estate, it’s considered “conservative” for an individual to have leverage of 4-5 to 1 (FHA loans, for example, only require 3.5% down in some cases!) . What’s even crazier is that the loan is often issued at only 2-4% over the 10 year US treasury rate. For example today, April 26th, the 10 year treasure is 0.606% while NerdWallet has a rate of 3.3% for a prime credit score, single family home, primary residence 30 year loan.
 
Perhaps because real estate is the only avenue available for newer investors to take on large amounts leverage immediately, I've seen extreme and, in my opinion, irrational positions on the subject. Even a cursory glance at BiggerPockets, /realestateinvesting, etc. uncovers multiple posts along the lines of either "real estate investing is the best investment ever!" vs. "the real estate market is a massive bubble and will crash soon". I've summarized a few of the common tropes I've seen below with my analysis.
 

Real estate is a huge bubble, and is going to collapse any day!

As noted above, real estate / housing has numerous segments that are further divided across geographies with wildly different tax, capital, and regulatory regimes. Saying that "real estate" will crash is like saying the “food industry” will crash. What segment and where? US soybean growers? Fast Food? Argentinian ranchers? McDonalds in particular?
Limiting our discussion to US housing: the Case-Shiller national price index (7) shows that home prices dropped ~27% from peak to trough in the Great Financial Crisis over a period of almost 6 years (Mid 2006 to early 2012). The reason this was such a catastrophic event is that housing had never decreased nationally in a significant way before in the modern era (see Case Schiller home price index). Of course, it’s worth noting that housing had rarely increased rapidly against inflation before.
Let’s assume we had an equivalent event occur. The Jan 2020 index was at 212, so home prices would decrease by 27% to ~155 (mid 2008 levels). Crucially though, this price drop would be expected to play out for years! During that time vested interests (more on that later) would lobby governments extensively for support, foreign and US investors could form funds to take advantage of the situation, etc. As a reference point there is ~$1.5 trillion available in US private equity funds alone as of January 2020.
However, it is worth pointing out that this is at the national level. Local real estate markets, particularly those dependent on select industries or foreign investors, could easily see more dramatic price movements. The US census has a really cool chart (22) that shows the inflation adjusted (as of year 2000) median home values every decade by state from 1940 to 2000. We see that Minnesota home values actually dropped from $105,000 in 1980 to $94,500 in 1990, a fall of more than 10%.
 

Everyone needs a place to live, therefore housing can never go down

Everyone needs a place to eat, but restaurants and grocery stores are famously low margin businesses (5). Farms supply an even more basic need, but many go bankrupt (6). The question isn’t whether housing will go down or not, but whether it will return an attractive rate of return compared to alternative investments.
It’s also worth pointing out that for most “retail” US housing real estate investors, they are investing in a narrow geographic area. Migration and births/ deaths can play a huge role in the need for housing in a given area. Case in point, NYC may have actually begun losing population to migration in 2017 / 2018 (23). Even more interesting, NYC has experienced a substantial loss due to domestic migration which is almost balanced by foreign immigration / new births (24). If foreign immigration decreases in the post-COVID we would expect NYC’s population to decline more rapidly given current trends.
It is entirely possible for national housing prices to modestly increase while expensive coastal markets decline significantly, for example.
 

It's supply and demand. There's a nationwide housing shortage so prices can only go up!

This one has some factual basis. Freddie Mac put out a study in Feb 2020 (18) which indicated that there is a shortage of housing units between 2.5 - 3.3 million units. Some interesting notes about this study is that they consider the “missing” household formation and extrapolate interstate migration trends. As noted below, the US builds ~1.3 million housing units a year, so this reflects ~2 years of housing construction. It’s also worth noting the geographic variation, with “high growth” states like Massachusetts, California, Colorado, etc. seeing ~5% housing deficits vs. states like Ohio, Pennsylvania, etc. seeing housing surpluses of ~2-4%.
However, a Zillow analysis on our aging population (11) points to a slightly different conclusion. Based on their analysis, an additional ~190,000 home will be released by seniors between 2017-2027 compared to 2007-2017. That number increases by another 250,000 homes annually between 2027-2037. Combined, this is about ~50% of the average annual homes constructed in the US between 2000-2009 at ~900,000.
Given these slightly conflicting reports, let’s get back to basics. First, let's separate housing into single family homes, multi-family units, and large apartment buildings. Single family homes, particularly near dense and economically vibrant metros, are far more supply constrained. In contrast, multi family units / apartment towers are, barring regulatory issues (see California), less constrained by available land. See Hudson Yards in NYC, the Seaport area in Boston, the Wharf in DC, etc. It's worth noting that due to costs / market demand most of these developments cater to the entry level luxury category and above, but they are new supply.
I actually wound up looking at US Census projections to get a sense of the long term outlook. By 2030 the Census estimates the population will grow from 334.5 million to 359.4, for a total increase of 24.9 million or an annual increase of 2.49 million (8). In 2019 the Census estimated 888,000 private single family units and 403,000 units in buildings w/ 2+ units were constructed for a grand total of 1,291,000 units (9). The average number of people per US household is 2.52 (10). Some simple math suggests that if we assume each new single family home contains the average number of Americans and each apartment conservatively contains only a single person we get 888,000 * 2.52 + 403,000 = ~2.64 million.
Now, talking about averages in a national real estate market reminds me of a joke about Mars: on average it's a balmy 72 degrees. But the point still stands that at a high level, theoretical sense there is sufficient "housing" for the US population. The question, as always, is at what price and location?
 

Real estate is a safer investment than the stock market!

This one honestly irritates me. While there are many advantages to real estate I can see, safety is not one of them. It is a highly leveraged, illiquid, extremely concentrated asset when bought individually (i.e not in a REIT). Let’s use an example here. Is there a financial advisoy in the world who would recommend you put your entire investment portfolio in Berkshire Hathaway? Of course not, diversification is the bedrock of modern personal finance. And yet Berkshire Hathaway is an extremely diversified asset manager with well run and capitalized companies ranging from Geico to Berkshire Homes to Berkshire Energy. Oh, and it also has $130 billion (with a B) in cash equivalents.
I honestly think this impression stems from 3 factors:

• Almost all asset prices have gone up (barring a few 1-2 month downturns) for 10+ years. There was also a shortage of skilled labor, capital, etc. that dramatically reduced the new supply of housing
• Survivorship bias. The people who fail in real estate tend to limp away quietly. The ones who survive and succeed tout their success loudly.

 

You won’t build your wealth in the stock market

One common theme I’m already noticing listening to podcasts, reading blogs, etc. is that many people started investing in the aftermath of the Great Financial Crisis (2009 - 2011). And, in retrospect, it was clearly a great time to buy property! But it was also a great time it turns out to buy almost every investment.
I plugged in the average annual return of the S&P 500 from December 2009 to December 2019 with dividends reinvested (and ignoring the 15-20% long term tax on dividends) (12). It was 13.3%. If you managed to buy at the market bottom of Feb 2009 it was 15.8%!
The long term annual average of the S&P 500 from 1926 - 2018 is ~10-11% (with dividends reinvested). (13). The S&P has never lost money in a 30 year period with dividends reinvested, see the fantastic book Stocks for the Long Run (14). In fact, if you’re investing before 30 the worst 35 year period (i.e. when you would turn 65) is 6.1% (15).
Housing, in general, has tracked at or slightly above inflation ( 16). Even a click bait CNBC article (17) about “skyrocketing” home prices states that homes are rising 2x as fast as inflation (i.e. ~4%). If you look at the CNBC chart for inflation adjusted prices, you’ll see a compound annual growth rate (CAGR) of 2.3% from 1940 to 2000. Let’s do this same exercise again with the Average Sales Price of Homes from Fred (i.e. Fed economic data) (18). In Q1 1963 the average sales price of a house was $19,300. In Q4 2019 it was $382,300. That is a CAGR of ~5.38% over ~57 years.
Another thing to keep in mind is that while real estate does have some tax advantages, there are also property taxes, maintenance, etc.
But it’s harder than that. Because real estate is an illiquid asset. In general, illiquid assets require higher returns than the equivalent liquid asset because of the inconvenience / risk of not having the ability to transact frequently.
 
Case study of real estate purchase:
I’d like to focus the rest of my analysis on an area that many members of BiggerPockets, /realestateinvesting, etc. seem to gloss over: credit. I was surprised to see that for first time home buyers, 72% made a down payment of 6% or less according in Dec 2018 according to (27). This would imply prices only have to decrease 6% to put these new homebuyers underwater, i.e. owe more after a sale than their mortgage. But this fails to take into account costs associated with buying a property, which are substantial at 2-5% for closing according to Zillow (28). Costs for selling a property are even more substantial, ranging from 8-10% according to Zillow (29). This means that sellers only putting down 6% could be underwater (in the sense that they couldn’t sell without providing cash during the sale) with even modest price decreases when taking into account these transactional costs.
 
Obviously there are ways to reduce these costs, so let’s walk through a hypothetical example of the median valued home of ~$200,000.
 
A young, first time home-buyer puts down 10%, or $20k, and takes out a mortgage for $180,000. They also pay (optimistically) closing costs of 2% for $4000. Luckily, they bought in a hot housing market and prices increased 5% (real) over the next 5 years. Their house is now worth ~$255,000. They sell their house and again, optimistically, closing costs are only 4%. This means they pay $10,200. Consequently, after netting out costs we calculate naively that they would make $255k - $10k - $4k - $200k (original purchase price of home) = $41k. Given they only invested $20k of their own money, this is a compound annual growth rate (CAGR) of ~15.4%, which is handily above the S&P 500’s average. This is the naive calculation I first made, but as we’ll see it is deeply flawed. First, let’s look at costs.
 
WalletHub has a really nice chart that shows (conveniently) property taxes on a $205,000 home across all 50 states (30). The average American household spends $2375 on property taxes, so let’s assume a little less and go for $1500. So 5 years x $1500 = $7500.
 
For home maintenance, the consensus seems to be ~1% annually for home maintenance with wide variation. We’ll assume that’s $2000 off the base price, so $2000 * 5 = $10,000. (31).
 
For homeowner’s insurance, Bankrate (32) provides a nice graph that shows the average annual cost for a $300,000 dwelling across all states and then a separate chart for costs based on dwelling coverage. For a $200,000 dwelling coverage we have a figure of $1806 per year, so over 5 years we have $1800 * 5 = $9000.
 
Finally we need to calculate the interest on the debt. One thing that I didn’t realize until I looked at an amortization table how front-loaded the interest payments are. Case in point, I plugged in the $180,000 loan into the amortization calculator (34) using a 3.5% interest rate and saw that we pay on average ~$6000 each year in interest vs. only ~$3800 to principal.
 
So lets’s run the new numbers.
You sell your home still for $255,000. After 5 years, your mortgage is now ~$160000 (i.e. you paid off 20,000 over 5 years, or ~$4k per year). So after the sale you are left with ~$95,000. The buying and selling costs remain the same as before, so we subtract the $14k for $81,000. We also then subtract $7500 (property taxes), $10,000 (home maintenance), $9000 (homeowners insurance) which gives us $54,500.
 
We paid ~$9,700 each year in mortgage interest + principle (~6000 interest and $3700 principal). So 5 * 9700 = $48,500.
 
So, net of everything we get $255,000 - $160,000 (remaining mortgage) - $48,500 (mortgage payments over 5 years) - $14k (buying / selling costs) - $7500 (property taxes) - $10,000 (home maintenance) - $9000 (home insurance) = $6000. And we put down $20,000 as a downpayment, for a net compound annual growth rate (CAGR) of negative $21.4%.
 
That is truly an astounding result. We had 10x leverage on an asset that went up 5% each year for 5 years and we somehow lost money on our “investment” of a down payment? Keep in mind we also used fairly optimistic numbers (particularly home price appreciation) and didn’t factor in PMI, etc. On the flip side, this home provided shelter, i.e. you didn’t pay rent. That’s a massive “avoided” cost and I don’t mean to minimize it. But the point here is that many homebuyers I’ve spoken to fail to account for the substantial costs of home ownership and expect their primary resident to generate a substantial return.
 
Now, of course, for real estate investing you would likely either a) hold the property for less time and attempt to flip it via forced appreciation or b) have tenants in the property. Let’s focus on b) because frankly that’s more of my interest. From what little research I’ve done flipping houses requires much more time that’s incompatible with my day job.
 
I went ahead and used the rental price calculator I found online at (36) to calculate the return. I used a rent of $1300 monthly, a bit lower than the average national rent of $1476 (35) because our home price was also lower than the national average. I assumed a low vacancy rate of 5%, and no other expenses beyond the ones cited above (i.e. I didn’t assume property management, higher loan interest rate, higher property taxes).
 
The calculator spit back a 5 year internal rate of return (a metric in this case useful to compare against the securities markets) of 27.79% return, i.e. a profit of $63k on an initial investment of $20k. The IRR as I understand it captures the time value of money, basically accounting for when you made various returns (37). E.g if an investment over 30 years pays nothing then gives you a lump sum payment at the end that’s very different than if it pays 1/30th of that lump sum every year. It’s useful in this case for comparing against the stock market because the IRR takes all future cash flows back to a net present value of 0, i.e. as if we invested all the money immediately.
 
&Now let’s do some scenario modeling (originally we had 10% down, 3.5% interest rate for an IRR of ~28%):

• Let’s assume we have to put down 20%: now we have a 19% IRR
• 20% down payment and a 5.5% (instead of 3.5%) interest rate: 14.7% IRR
• Home price appreciation of only 3% per year instead of 5% with 10% down payment: 20%
• Home price appreciation of only 3% per year with 20% down payment: 12.65%
• Home price appreciation of 0% per year with 10% down payment: 4.26%
• Home price appreciation of 0% per year with 20% down payment: -1.28%

This scenario for me demonstrated a number of interesting properties.
 

• Owning a home for even a moderate amount of time (~5 years) will likely not build substantial wealth unless there is truly massive home appreciation. The transactional costs are too high, the ongoing costs are substantial, etc. And of course I’ve neglected to include all the remodeling, furniture, etc. that every home owner I’ve met has spent money on
• With regards to real estate investing, home price appreciation covers up a magnitude of sins, particularly if coupled with a low cost of debt. Changing nothing but the home price appreciation changes the investment from incredible (28% IRR) to about 1/2 the expected return of the S&P 500 (4.26%)
• Real estate, whether investing or owning a primary residence, has limited to negative cash flow initially. The loan is amortized so that all early payments go to interest, maintenance is expensive, etc.
• To sanity check these figures, I went and looked at the SEC filings of Invitation Homes which owns 80,000 single family homes in the US. In 2019, Invitation Homes made ~$1.764 billion on rent + other property income while spending a combine ~$730 million on property maintenance + management.(49) . That’s about ~41% of the total property income, which aligns with the rental calculator above (rent payments fo 1300 vs ~$570 for maintenance, taxes, insurance, vacancy, etc.). That honestly makes me nervous however, as Invitation Homes theoretically has the scale to centralize and minimize maintenance costs. While I could certainly substitute “sweat equity” for some repairs, it strikes me that it would be foolish to assume my costs would be lower than Invitation Homes’

 
401k analysis
As I mentioned above, one of the big questions around real estate investing that I rarely see asked is “is it an appreciably better investment than the alternatives”? For W2 workers, which is ~50% of private sector workers, this question becomes even more pertinent because 401ks have massive tax benefits. In fact, only 33% of US households own taxable accounts outside of a 401k, which means the vast bulk of US households either have no accounts, 38%, or own only a retirement account like a 401k, 29%, according to (39). Let’s assume we have a middle to upper middle class worker making ~70k (this puts them roughly at the 75% percentile). They want to invest, and see two options:

• Invest $20,000 post-tax in a downpayment on a $200,000 investment property just like in the above analysis (we’ll assume closing costs just get baked into the final net gain)
• Invest the equivalent amount of post-tax dollars into their 401k. You can probably see where I’m going with this by the use of “post-tax”.

 
At a salary of $70k and assuming you took the $12k standard deduction, you would still see much of your income fall into the 22% tax bracket. While certain states charge no income tax, they generally make it up in much higher sales / property taxes, so let’s also assume a 3% state income tax (40). This means that if you invest $19,500 in a 401k (the maximum in 2020) that’s equivalent to only $14,625 post-tax (because the $19,500 would be taxed ~25% before it got to you). That leaves almost $6000 when compared with the down payment figure above, which is coincidentally the exact IRA contribution limit for 2020! The math for deductions for the IRA gets painful, but we can assume a deduction of ~$1500 (i.e. 25% of 6000). Now, if your work offers an HSA it gets even better, because those contributions are tax-free even from social security (which is typically a 6.2% tax) + medicaid (1.45%). This means that if you contribute the $3500 limit, that’s equivalent to only $2300 post-tax.
 
This is getting rather long, so for the sake of simplicity we can basically say that in lieu of putting down a $20,000 post-tax downpayment on an investment property you could instead invest $19500 + $6000 + $3500 = $29000 into the stock market. What’s more, fees for well managed 401ks through Vanguard, Schwab are often ~0.25% (i.e. $72 annually on the $29k above).
 
If we assume the average S&P 500 index returns of 10% (we’ll ignore the $72 annually in expenses and of course there are no taxes), we would see $29k compounded over 5 years = $47,809. Since we’re investing the money all immediately, this is (I believe) more or less equivalent to the IRR rate.
 
So, what do we need to achieve to beat that return with our investment property? Well, we previously assumed a blistering 5% real home price appreciation. With inflation at ~2%, that’s a nominal 7% home price appreciation. According to both Zillow and Core logic, Idaho is the state with the fastest home appreciation values pre-COVID at ~9%. We’re essentially predicting close to this level for 5 years, which is quite rare. In August 2019, US home prices nationally were gaining ~2.6% according to (41).
Let’s plug those numbers into our rental property calculator from above. At a 10% down payment, 3.5% interest rate, and 2.6% home price appreciation we see an IRR of 18% per year. Game, set, match, real estate, right?
 
Well, sort of. Right now we are assuming optimistic projections about maintenance (1%), closing costs (2%), and selling costs (4%). What if we bump those up to the averages cited by Zillow (3% and 8%)? Uh-oh, now we’re down to 12.38%. Okay, but what if we assume rent goes up by the same amount, ~2%? Great! Now we’re back up to 14% IRR. But if we assume all the other expenses like home insurance and maintenance go up 2% a year as well, we’re back down to 11%.
 
We could go on forever, but the point is that real estate (particularly for rental properties) are extremely sensitive to assumptions you make on a number of factors. Given the risk, illiquidity, and work involved with a real estate property I would want to see a substantially higher return than the tax advantaged, hands off 10% my 401k gives me. I didn’t even include the typical 3% match for the 401k, which would have added $2100 to the initial investment amount and increased the 5 year return to $51,272.
 
The bottom line in my mind is that for most W2 workers who have access to pre-tax investments, they should max them out first. If you’re lucky enough to be able to max out all of the above pre-tax accounts + get a 3% match (i.e. $31k total) every year, after 15 years at a 10% return you’ll have $1.2 million. In 30 years you’ll have $6.8 million. And again, keep in mind that maxing out your pre-tax accounts only “costs” you ~$20k, because that’s what you would get after taxes. And you’ll have “made” those millions without spending a single hour outside of your day job working.
 
Based on the above analysis and calculations, here’s what I’ve come away with as a newbie to real estate investing:

• Real estate investing involves significant risk. Achieving high returns relies upon either significant home appreciation or accurately calculating several key inputs (rental rates, maintenance costs, etc.). The past decades strong home appreciation has likely saved some investors from faulty assumptions, simply because their highly leveraged investment increased in value
• Given the significant transaction, maintenance, tax, and other costs simply buying and living in a single family home is not guaranteed to build substantial wealth in the short term (i.e. < 10 years) even with significant price appreciation.
• The story of real estate investing is really the story of credit availability. Low interest rates, widespread credit, etc. allow investors to take on significant leverage and potentially achieve high returns. On the flip side, if credit tightens we could see substantial movements in real estate as valuations adjust to the more expensive or less available leverage
• Personally, I would want to see at least 12+% returns annually before I invested in real estate directly vs. a diversified stock portfolio. Potentially having a cash flow negative, illiquid, highly leveraged asset is a risk that I want to be compensated for by a higher return. Obviously there are many advantages to real estate I’ve not yet learned in depth about (e.g. taxes), so perhaps this premium will change slightly in my mind in the future
• If you’re a younger, W2 wage earning in the US with the access and ability to contribute to a 401k, IRA, and HSA you should do that first before even considering real estate investing. The tax advantages are immense, the time investment is essentially nothing, and historically you are guaranteed, at the absolute worst, a 6.5% annualized return if you wait for 35 years. Plus a well diversified 401k fund, like a Vanguard target retirement fund, may very well include REITs
• The exception here of course is doing something like house hacking, etc. where you are combining your primary residence with an investment. I’m not sophisticated enough yet to run the numbers there, but it seems reasonable on the surface

 
Some thoughts on the future:
Forecasting is always risky, but at the same time we all have to form an opinion on where the future is headed. My general thoughts are that crisis tend to accelerate existing trends rather than create new ones. There were already recession concerns in late 2019, and US GDP growth expectations had been downgraded to ~2.0% by the OECD even before COVID (45), albeit with slight optimism around the Phase 1 trade deal with China. Geopolitical tension and capital controls in China had led to mainland Chinese investors slowing their investments in US real estate and increasing dispositions (47).

• While there is certainly a housing shortage, even in high growth states we see housing “deficits” according to Fannie Mae of ~5%. While this is clearly substantial, shifting migration patterns, regulatory changes, household preferences (e.g. telecommuting) could easily shift the balance. It’s far from certain in my mind that housing will remain supply constrained in the medium term (i.e. > 3 years)
• In December 2019, Zillow was already forecasting slowing home price and rental appreciation to modest 2.8% & 2.3% respectively (42)
• As of March 31 2020, Zillow now forecasts home price appreciation at -1.5% nationally.
• We are seeing tightening mortgage credit, particularly for jumbo loans that are essentially for high priced real estate markets (44). Mortgage services, i.e. non-bank companies like Quicken, have been hit hard by the mortgage forbearance regulations (although relief measures have been enacted)
• The CBO is currently forecasting the unemployment rate to remain >10% until 2021 (48). Even if that proves wildly pessimistic, it’s highly probably that the tepid wage gains of the last few years will slow further or even reverse
• Ultimately with slowing wage gains and reduced credit in the short term it is hard to see how consumers retain their purchasing power to drive rents / real estate prices substantially higher.
• On the flip side, central banks globally have injected trillions of dollars of liquidity into the global economy. This has driven down yields in traditional safe havens, e.g. investment grade corporate and sovereign bonds. The question becomes, where does this money go? Does it favor real estate over stocks? Does it lead to inflation, deflation, stagflation?
• Local & state governments are facing massive budget shortfalls due to dramatically lower revenues (e.g. sales taxes) and higher costs (unemployment insurance, healthcare, etc.). If the federal government does not backstop these revenues, will we see higher state / local taxes or cutbacks in services?
• As mentioned previously, the tax law changes of 2017 dramatically affected how individuals / households approach their federal taxes. In particular, it is now far less advantageous to itemize property taxes, state taxes, mortgage interest, etc. Mark Zandi (50) of Moody’s analytics provided some interesting analysis that suggested the tax law changes had already impacted higher cost markets. It will be interesting to see if these trends continue, accelerate, or reverse post COVID.
• The question now becomes how investors, particularly those who entered late in the cycle and lack substantial equity buffers, will deal with conditions. A V shaped recovery would likely see minimal disruption as investors are able to cope with disrupted cash flows for several months. A longer recession would see over-leveraged investors forced to short-sell properties
• I’m particularly struck by the fact that according to at least one source (27) ~72% of first time home buyers put down 6% or less. These recent buyers lack the equity buffer to deal with any material decline in housing prices, while the modest down payment suggests they may also lack substantial cash reserves to deal with an economic shock.
• There also seems to me a disconnect between commercial and residential real estate I don’t fully understand. Take a well capitalized and diversified REIT like Brookfield Property Partners. This REIT is currently offering a 14%+ yield. Of course many of their properties like urban office / retail space are getting hammered by COVID. But if we’re assuming that centrally located, urban commercial office & retail spaces are substantially less valuable than pre-COVID, what does that say more broadly about dense urban real estate? After all, if people work from home and don’t go out to commercial real estate spaces, why bother paying a premium in living expenses?

From my point of view, I’m interested in seeing how the market reacts over the next 3-6 months. Do sellers react by rapidly putting properties on the market before it’s “too late”? Are there enough prime buyers given the tightening credit, particularly for expensive coastal markets, to absorb a spike in listings? As Warren Buffett once said: “"At rare and unpredictable intervals...credit vanishes and debt becomes financially fatal. A Russian-roulette equation--usually win, occasionally die--may make financial sense for someone who gets a piece of a company's upside but does not share in its downside.” We shall see.
Sources:

• (1) Asset allocation by net worth: https://www.getrichslowly.org/assets-vs-net-worth/
• (2) Net Worth: https://dqydj.com/net-worth-brackets-wealth-brackets-one-percent/
• (3) Housing Net Worth 2010: https://www.nahbclassic.org/fileUpload_details.aspx?contentTypeID=3&contentID=215073&subContentID=533787&channelID=311
• (4) https://internationalservices.hsbc.com/content/dam/hsbcis/pdf/HSBC_Global_Real_Estate_Report_July2017.pdf
• (5) https://pos.toasttab.com/blog/average-restaurant-profit-margin
• (6) https://www.forbes.com/sites/niallmccarthy/2020/02/10/us-farm-bankruptcies-reach-eight-year-high-infographic/#3ec789b77de0
• (7) https://fred.stlouisfed.org/series/CSUSHPINSA
• (8) https://www.census.gov/content/dam/Census/library/publications/2015/demo/p25-1143.pdf
• (9) https://www.census.gov/construction/nrc/pdf/quarterly_starts_completions.pdf
• (10) https://www.statista.com/statistics/183648/average-size-of-households-in-the-us/
• (11) https://www.zillow.com/research/silver-tsunami-inventory-boomers-24933/
• (12) https://dqydj.com/sp-500-return-calculato
• (13) https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp
• (14) https://www.riosmauricio.com/wp-content/uploads/2013/05/Siegel_Stocks-For-The-Long-Run.pdf
• (15) http://observationsandnotes.blogspot.com/2010/05/best-worst-35-years-in-stock-market.html
• (16) https://www.supermoney.com/inflation-adjusted-home-prices/
• (17) https://www.cnbc.com/2017/06/23/how-much-housing-prices-have-risen-since-1940.html
• (18) http://www.freddiemac.com/research/insight/20200227-the-housing-supply-shortage.page
• (19) https://www.nerdwallet.com/mortgages/refinance-rates/30-year-fixed
• (20) https://www.cnbc.com/2016/08/22/the-sp-500s-new-sector-could-be-a-really-big-deal.html
• (21) https://www.cnbc.com/2020/01/03/private-equitys-record-cash-pile-comes-with-a-new-set-of-challenges.html
• (22) https://www.census.gov/hhes/www/housing/census/historic/values.html
• (23) https://www.wsj.com/articles/new-york-citys-population-dips-for-first-time-in-over-a-decade-11555560060
• (24) https://www.nytimes.com/2019/04/18/nyregion/new-york-city-population.html
• (25) https://dqydj.com/net-worth-brackets-wealth-brackets-one-percent/
• (26) https://www.visualcapitalist.com/composition-of-wealth/
• (27) https://smartasset.com/mortgage/what-is-the-typical-down-payment-on-a-home-purchase
• (28) https://www.zillow.com/mortgage-learning/closing-costs/
• (29) https://www.zillow.com/sellers-guide/closing-costs-for-sellers/
• (30) https://wallethub.com/edu/states-with-the-highest-and-lowest-property-taxes/11585/
• (31) https://www.forbes.com/sites/juliadellitt/2018/06/20/why-you-need-to-adjust-your-monthly-budget-for-home-maintenance/#629567534a05
• (32) https://www.bankrate.com/insurance/homeowners-insurance/homeowners-insurance-cost/
• (33) https://taxfoundation.org/standard-deduction-itemized-deductions-current-law-2019/
• (34) https://www.amortization-calc.com/mortgage-calculato
• (35) https://www.rentcafe.com/blog/category/rental-market/apartment-rent-report/
• (36) https://www.calculator.net/rental-property-calculator.html
• (37) https://fundrise.com/education/blog-posts/the-limitations-of-internal-rate-of-return-irr-for-predicting-investment-su
• (38) https://www.cnbc.com/2018/03/12/how-many-americans-dont-have-access-to-a-401k.html
• (39) https://www.finrafoundation.org/sites/finrafoundation/files/A-Snapshot-of-Investor-Households-in-America_0_0_0.pdf
• (40) https://www.thebalance.com/state-income-tax-rates-3193320
• (41) https://www.corelogic.com/blog/2019/10/lower-priced-homes-had-the-highest-annual-appreciation-in-august-but-also-the-largest-slowdown-in-appreciation.aspx
• (42) https://www.zillow.com/research/2020-predictions-26100/
• (43) https://www.zillow.com/home-values/
• (44) https://www.washingtonpost.com/business/on-small-business/wealthy-mortgage-borrowers-face-cold-shoulder-from-lenders/2020/04/21/eb5a23bc-83e7-11ea-81a3-9690c9881111_story.html
• (45) https://www.oecd.org/economy/economic-outlook-weak-trade-and-investment-threaten-long-term-growth.htm
• (46) https://www.ft.com/content/3c5d0292-8c50-11e9-a1c1-51bf8f989972
• (47) https://dailyhive.com/vancouvemainland-china-real-estate-investment-forecast-2020
• (48) https://www.cbo.gov/publication/56335
• (49) http://www.snl.com/Cache/IRCache/cb52653b7-0b66-b946-8eed-1641a4c7cbd3.html
• (50) https://knowledge.wharton.upenn.edu/article/tax-changes-hurting-housing-market/

Since the Diamond Casino update, I have seen a large number of 12-year-olds posting Blackjack memes on this sub. As a parent, this has me very worried.
On top of that, I have seen some of the most trustworthy GTA Youtubers giving flawed gambling advice, which can have damaging impact on their gullible audiences.
So that's why I decided to write this up, to educate everyone on the subject, so there will be no more misunderstandings.
(2020 Update down at the bottom.)
If you're one of those Youtubers that wants to use this information in a video, feel free to do so. The more people (especially kids) that become educated about gambling, the better.
But then also please go back and review your own work, and delete or edit the videos that are giving out the wrong advice, like where you're saying you have "a good strategy for making money with roulette", or some other nonsense that I've heard this week. Delete that please.
Before I get into the individual games, I need to discuss a few concepts first, that will make understanding the rest a lot easier.
​
Expected return and variance
A game like Roulette or Slots has a fixed expected return on your bets. This is a percentage that you have no way of influencing. Say you are flipping a coin against a friend, and you both put up $1. The winner gets the pot. Since the odds are even at 50%, in the long run, you will expect to break even. Your expected return is 100% of your bet.
But imagine if you would play this coin flipping game in a casino against the house. On the "house rules" listed at the table they would probably say that you would only get 95 cents back for every win, while you are forfeiting a dollar on every loss. Would you still play?
Sounds stupid to do so, but still, everybody does it. Every bet they place on Roulette, every coin they put into a Slot machine, is based on the same concept.
Those few cents they take on every bet are their profit margin, and has paid for all the Vegas lights, the Mirage volcanoes, and the Bellagio fountains. Make no mistake - casino gambling games are not designed to make you lose, because sure, you can get lucky on a single night, but they are designed to make them win. That's the beauty of it. They can both exist at the same time.
Too many people that don't see how this works, are just destined for disaster. Just because you went on a lucky streak and won 8 games out of 10, does not mean that flipping coins is a profitable game, or that choosing tails is a winning strategy. Always be aware of the house edge, your true chances of winning, and just realize that you got lucky. There is no such thing as a strategy in flipping a coin that will give you a higher expected return, so it's just pure gambling, just like Slots and Roulette.
Most casino games are made in such a way, that your expected return is a little under 100%. This means that from every dollar bet at the tables, the casino expects to keep a few cents. For individual players, results may vary. Some will win, most will lose. But for the house, it doesn't matter. They take millions of bets each day, so for them, the expected average works out a lot sooner. In short: the house always wins.
When looking at the house edge, we're talking about the expected long-term result, based on the game's house rules. But for a player, it can take literally tens of thousands of hands or spins before you also reach this average number. Until that time, you can experience huge upswings and downswings, that are the result of nothing but short-term luck, which is called variance.
Some games and some bets have a much higher variance than others, which means your actual results will differ enormously from what you're expected to be at.
Take for example betting on red/black at the Roulette table. This is a low-variance proposition, because it has a high percentage chance of occurring, and a low payout.
Contrast this with betting single numbers in Roulette, which only win once every 38 spins on average. This bet has a much higher variance, meaning you can easily hit a dry spell, and not hit anything for 200 bets in a row, or you can see a single number hit three times in five consecutive spins. This is not a freak occurrence in high-variance bets.
Even though the expected return in both these bets is exactly the same, there's a huge difference in variance, causing massive differences in short-term results, which can go both ways. You need to be aware of this, before you decide what types of bets you are comfortable with placing.
​
Gamblers' Fallacy
Another thing to realize, is that each individual game, hand, or spin, is completely independent from the one(s) before it, and after it.
Gamblers tend to believe, that the chance of a certain outcome is increased, based on previous results.
The most famous example comes from the Casino de Monte Carlo, where the Roulette wheel managed to land on black 26 times in a row. Gamblers lost many millions during that streak, all frantically betting on red, believing that the odds were in favor of the wheel coming out on red, after producing so many blacks. This is not true. Each round is completely independent, and the odds are exactly the same.
You will hear people say things like a Blackjack table being "hot" or "cold", which is completely superstitious, and should be ignored. The exception was when Blackjack was being dealt from a shoe. It made card counting possible. But with the introduction of shuffle machines, and continuous shuffling like is being used in GTA, this no longer exists.
This is also why "chasing your losses" is a very bad idea. After being on a losing streak for some time, many gamblers believe that now it's their turn to start winning. So they will often increase their bet size, believing that when their predicted winning streak comes around, they will win back their losses, and more.
The reality of it, more often than not, is that people will indeed start playing higher and higher limits, until they are completely broke. Nobody is ever "due for a win". There is never a guarantee that you're about to start winning. In fact, the opposite is more likely to be true. You are, after all, in a casino.
​
Betting systems
Some people like to think that they have a fool-proof betting system, like the Martingale system. Simply increase or even double your bet when you lose, and keep doing that until you win. In theory, this system will always win. So that's why table limits were introduced, and where the system fails.
If you start at the Roulette table, playing red/black, with a small 750 chip wager, and just double your bet every time you lose, you only have to lose 6 times in a row, before you will be betting the table limit of 48,000, just to get that 750 chip profit.
Sure, you can go on all evening without this happening, winning 750 chips each time, but this losing streak only has to happen once, and you're bust. Any betting system like this is ill-advised, because you are hugely increasing your so-called "risk of ruin", and that's what we were trying to avoid.
And even if your starting bet is only 100 chips, after only nine straight losses, and nine doubled bets, you are betting the table limit at 50,000 chips. If you lose that bet, you're 100,000 chips in the hole, with no way to recover that with your 100 chip base wager.
So don't believe anyone that says this is the perfect system to always win in the casino. Sooner or later they will understand why they were wrong, when they're asking you for a loan.
​
Set your limits BEFORE you start playing
One final point before we get into the games, a general tip for people that head out to play: money management.
Just like in real life, before you go to the casino, decide on a maximum amount that you are WILLING TO LOSE.
Bet small enough, so that amount can last you through the entire evening, and you will not be tempted to run to the ATM to continue playing.
Considering GTA money, some people will be comfortable losing 1% of their GTA bank balance, some people will be comfortable with gambling away 5% of their total GTA savings. It's up to you what you can handle. Decide for yourself where it will start to hurt, and don't cross that line.
But whatever number you decide on, as soon as you lost that amount, get up and walk away. Don't chase your losses, stick to your limits, and accept that this has not been your day. There is always another game tomorrow. Always agree with yourself on a simple stop-loss rule, how much you would want to lose at most, and simply stop playing when you get there.
Same goes for winning. You can decide on a number, how much profit you would like to take away from the casino. You can go on a hot streak and be up half a million in a short period of time, but if you would continue to play longer, looking for more, chances are that you're going to lose it all back.
Most people are happy with doubling their daily casino budget, for example. Others are looking for 10 bets profit in Blackjack. Whatever you choose, when you hit that number, you can stop playing and bank your profits, or you can continue playing if you're still enjoying the games, but then only just play minimum bet sizes. Then you're just playing for fun, not for money. You've already made your profit, so simply keep it in your pocket, and don't risk losing it again.
Either way, decide on what your money management strategy will be, and STICK TO IT.
​
Casino games in GTA Online
Now, I'm going to dive into the games that you can find at the Diamond casino, ordered from worst to best.
​
6) Slots
Generally the rule is this: the less strategy a game has, the worse it is for the player. And with slots, this is definitely the case.
The only influence you have, is choosing what type of machine you're going to play. Basically, there are two types of slot machines:
-high frequency, low payout slots
-low frequency, high payout slots
In the first type, there is no huge (progressive) jackpot on offer, just your average selection of prizes that don't go up to crazy amounts.
This will result in a player having many more spins resulting in a win. The amounts that you win on the bigger prizes, will be smaller, but they do come around more often. This type of slot machine has a lower variance, which means that your money should last you longer, winning many smaller prizes along the way to keep you going.
The second type of slot machine lures you in with the temptation of a huge jackpot prize. Even though the long-term expected return on these machines is the same as the previous type, the prize distribution is hugely different. The large jackpot prize weighs heavily on the scale of expected return, but the chance of it hitting is extremely small. This results in a much higher variance on this type of machine. Usually your money will go down very fast, because the smaller prizes are less rewarding than on the other type of machine.
At the Diamond, the info screen says the player return at slots is set at 98.7%. This means that, on average, for every maximum bet of 2,500 chips, you expect to lose 32.5 chips.
This might not seem like a lot, but the danger of slots is that the game is extremely fast. You can spin about once every 6 seconds, which would result in an expected LOSS of about 20,000 chips per hour of playing.
But again, in this long-term expected number, the large jackpot awards are also factored in, and as long as you don't hit those big prizes, you'll see your money go down a lot faster.
In any case, thank heavens the max bet is only set at 2,500, or else we would see more players go bankrupt at alarming rates.
Optimal strategy for slots:
There is none. Because after betting, you have no more influence over the outcome. The only choices you have, is what type of machine you want to play at, and how much money you are going to risk. And those are all personal preference. As long as you stick to your loss limits, as discussed above, there's no harm in having a go every once in a while, hoping to get a lucky hit. Just realize that you don't have a high chance of scoring a big win, so as soon as you do, get up and walk away.
​
5) Roulette
Roulette is also a game where you have no influence over the outcome. There is zero skill involved. You place your bet, and that's it.
In traditional French roulette, a table has only the single-zero, but of course, for American casinos that wasn't enough of a house edge, so they simply doubled their profits by adding a second zero. The house edge was increased from 1/37 to 1/19, which is huge.
This makes playing on a double-zero roulette table by definition a sucker's play.
The payouts scale evenly, which means that a bet on a single number, and a bet on half of the numbers, and everything in between, yields the same expected return. The only difference, again, being the variance that you are willing to subject yourself to.
The player return for double-zero Roulette for all bets is 94.74%.
Except for the 5-number bet, which can only be made by placing a bet on the two top rows that contain 0, 00, 1, 2 and 3. The expected return on this bet is lower: 92.1%. This is because it only pays out 6-1. Why? Well, the number 36 isn't divisible by 5, so the greedy people that came up with double-zero Roulette had to round it off someway, and as expected, it wasn't going to be in the players' favor.Just remember that that 5-number bet is the worst bet at the table, and should be avoided. All other possible bets have the same expected return.
So it really doesn't matter how you spread your bets, if you bet only one chip, or if you litter the entire table with a bucketload of chips. Each chip you put out there, has the same expected return, so there is no strategy that will improve your long-term results.
Assuming that you're betting the maximum table amount of 50,000 chips, you will be looking at an expected loss of about 2,630 chips per spin. Considering that a round takes about 45 seconds to complete, your expected LOSS at the GTA Roulette tables will be around 200,000 chips per hour of playing.
Optimal strategy for double-zero roulette:
Stay away. Stay far away.
​
4) Three Card Poker
With Three Card Poker, we come across the first game where there is actually some strategy involved. You get to look at your cards, and then decide if you want to fold, and surrender your ante, or double your bet.
Additionally, you can choose to place a side bet on "Pair Plus", which offers progressive payouts.
There are some websites out there that ran all the numbers with computer simulations, and even though I would like to quote the source here, these websites are understandably littered to the max with online casino ads, so that's why I have decided against doing that.
Optimal strategy for Three Card Poker:
For this game you only have to remember one strategy rule: Always bet on any high card queen-six-four or better, and fold any high card queen-six-three or lower. That's it. Just don't forget to double check if you're not folding a straight or a flush, and you'll be fine.
This strategy will result in an expected return of 96.63%.
The Pair Plus sidebet, with the payout table that is used at the Diamond casino, gives you an expected return of 97.68%, which is actually a bit better than the main ante bet.
So by playing both wagers, you're reducing your expected losses per bet, but since you're betting more, you're also increasing your expected loss per hour.
My advice would obviously be to not play this game at all, but if you do, put as much of your bet as possible on the Pair Plus, while making our Ante bet as small as you can.
To be able to compare it to the other games at the Diamond, let's stay on that 50,000 maximum wager, meaning making your ante bet 35,000, and your pair plus bet 15,000, if the table would allow it.
This results in an expected loss of about 1,525 chips per hand, and with a round taking about 45 seconds, this adds up to an expected LOSS of around 120,000 chips per hour of playing. In comparison, if you would only play the ante bet for 50,000 per hand, you expect to lose 1,685 chips per hand, which means an expected LOSS of about 135,000 chips per hour. So the more out of that 50,000 wager you can put on the "Pair Plus" sidebet, the better.
Even though it may be fun to try out this game for a bit, since there's only one simple strategy rule to follow, you'll soon find yourself robotically grinding down your bankroll until it has vaporized. You're not missing out on anything if you skip these tables, there is no real challenge.
Just like with Roulette and Slots, if you want to try it out nonetheless, you can just bet the minimum amounts and only play for fun, so it won't matter if you win or lose.
​
3) Blackjack
Blackjack is the most complicated game by far. Simply because the player has to make a series of decisions, which will largely decide the outcome. Luckily, there is such a thing as an optimal strategy, which will be outlined below.
However, the strategy is also dependent on the house rules. These not only affect your expected return, but in some places also your decisions.
Here are the house rules at the Diamond casino:
-The game uses 4 standard decks, and a continuous shuffle.
-Blackjack pays 3 to 2, dealer checks for early blackjack.
-No insurance offered, no surrender.
-Dealer stands on soft 17.
-Double down on any two cards.
-Player can split only once, but doubling after split is allowed.
-Seven-Card Charlie.
Under these rules, and following the "basic strategy" chart, your expected return at Blackjack is a shade under 99.6%, which is extremely good for a casino game, that's why Blackjack should be your table game of choice.
But it comes at a price: you are going to have to memorize the relatively complicated strategy chart, or at least stick it to your monitor until you have it in your head. But in case you ever stumble into a real-life casino, you won't regret having this table memorized, so I would definitely advise you to work on that.
The strategy chart might look complicated at first, but you will be able to notice certain patterns. Your decisions are mainly based on the dealer's upcard, which is basically divided into a weak card (2 to 6), and a strong card (7 to ace).
When a dealer shows a strong card, you will be hitting more often with the risk of going bust, but when a dealer shows a weak card, you're not taking that risk, and you will be standing more, but also doubling and splitting more. You want to increase your bets when the odds are in your favor, and get out cheap when they're not.
But it also helps to take some time to think about why a certain advice is given. For example, why does it say that you always have to split two eights, even against an ace. Well, that's because two eights equals 16, which is the worst total you can have. It's better to split them up, and give yourself a chance of finding a 17, 18 or 19 with the next card. Once you see the logic in that, you'll have one less thing to memorize.
The playing advice in the basic strategy chart is a result of computer simulations that ran all possible outcomes against each other, and produced the most profitable decision for each situation. So you can't go wrong following it.
Optimal strategy for Blackjack with Seven-Card Charlie
The added house rule of Seven-Card Charlie, adds a small advantage for the player, and it does influence a few strategy decisions. For example, you might have a 14 with 6 cards, against the dealer's 5 upcard.
Normally this would be an automatic stand, but if you're only one card away from the Seven-Card Charlie, meaning an instant win for the player, regardless of the dealer's hand, it turns it into a hit.
Here's the most optimal strategy chart to follow for the Diamond Casino house rules: https://prnt.sc/olct6g
You'll see that two fives are missing from the chart, and that's because you never split them. You treat them as a regular 10. You also never split tens. Just stand on 20.
If you follow this strategy religiously, even with a maximum wager of 50,000 chips, you only expect to lose about 215 chips per hand, and with rounds taking about 30 seconds, that amounts to an expected LOSS of 26,000 chips per hour, which is only half a bet. A small price to pay for an hour of entertainment.
But since the expected return is so extremely close to 100%, you will see more positive short-term results than with other games. But obviously it can also swing the other way. Again, this is supposed to be the game where your money lasts you the longest, but always set your loss and win limits before you sit down. That rule simply always applies.
​
Still, even with optimal strategies applied, all these games are expected to lose you money in the long run. So betting any kind of large amounts is not advised. If you simply want to enjoy playing these games, there's nothing wrong with betting a minimal amount. Playing these games for a longer period of time will already cost you money anyway, since your daily property fees will still be charged while you're playing in the GTA casino. As long as you can play for fun, there's nothing wrong, but when you see yourself betting insane chunks of your entire bank balance to try to recoup some unfortunate losses, you're doing it wrong.
As the commercials in Britain all correctly say: when the fun stops, stop.
​
2) Virtual Horse Racing
Now onto the good stuff. I ran some numbers, and I believe Rockstar has made a mistake with the horse racing game. Because as it stands, and if I read the numbers correctly, this game is actually profitable for the player. You can actually make money with this, at least, until Rockstar figures out their mistake and patches it.
If anyone wants to jump into the math and double check this to make sure, please do so. I will add any corrections to this post. This is one of those "to good to be true" things, so I keep thinking that I might have overlooked something. So please verify it if you can.
The setup is this. There is a pool of 100 horses, each with their own attached payout. These are divided into 3 groups, ranked by their odds. From each group, 2 horses are randomly selected to provide a pool of six runners for you to bet on.
Now it's not an actual race you're looking at. You are looking at a raffle. This is important to realize.
Each horse gets awarded a certain number of raffle tickets. The favorites get awarded more tickets than the underdogs, and therefore, have a higher chance of winning.
If this distribution works like it does in the real-life casinos, then the raffle tickets are awarded according to the betting odds.
Example 1: imagine a race with 3 runners, all have 2/1 odds, representing a 33.3% chance of winning. (Because 2/1 means 2 AGAINST 1, so 3 total.) In this case, each horse gets one third of the raffle tickets, giving them an equal chance to win.
Example 2: imagine a race with 3 runners, one has 1/1 odds (or EVENS), representing a 50% chance of winning, and the other two horses are marked up as 3/1, with a 25% chance of winning. The favorite gets half the tickets, the other two get a quarter of the tickets each.
A ticket is drawn, and you'll have a winner.
It doesn't matter in this game which horse you bet on, because the expected return is always the same: 100% or break-even, for the above examples.
Now, what happens if the percentages don't exactly add up to 100%?
They must add up to 100%, because there will always be a winner. And only one winner.
So when this is the case, the actual winning chances of the horses are adjusted to meet the 100% requirement, using their payout odds to determine the scale.
So, if the represented percentages add up to more than 100%, the actual winning chances of the runners will be DECREASED, resulting in all bets becoming losing propositions for the players.
Example: In a 6-horse race, all runners are listed at 4/1, representing a 20% chance. Only with six runners that amounts to 120%. So all chances are scaled down by 1/6th, to end up at 100%.
This means your horse's chances are reduced from 20% to 16.67%, turning it into a losing bet: 5 times you will lose your bet, and 1 time you will win, but only get 4 bets back in this instance, instead of 5. A losing bet in the long run.
This is the type of odds that you find in regular casinos, with fields as large as 15 runners to bet on, where the assumed winning chances always add up to more than 100%, therefore are decreased for all runners, resulting in a house edge.
​
But in GTA Online's Inside Track, there are other scenarios, because of the small field, and the way that they are put together.
In some cases, the represented percentages when added up, are LESS than 100%, meaning that the actual winning chances of all runners, are INCREASED.
This creates profitable bets for the players, because in the long run, you're expecting to win more money than you lose. This is a gambler's dream, pure and simple.
So, according to the in-game information, the three groups of horses are divided as follows:
-Favorites: EVENS to 5-1
-Outsiders: 6-1 to 15-1
-Underdogs: 16-1 to 30-1
​
Let's take the two most extreme examples to show what's happening.
The worst possible field to bet on: two runners at EVENS, two runners at 6-1, and two runners at 16-1.
EVENS represents a 50% chance, 6-1 is 14.29%, and 16-1 is 5.88%. Add those up and you land on a total of 140.34%.
This means that the actual winning chances of the horses are decreased by 28.75% (to get that 140% down to 100%), which makes betting on this field extremely unwise.
A horse at EVENS will only come in as a winner 35.63% of the time, instead of 50%,
a horse at 6-1 will only win 10.18% of the time,
and an underdog at 16-1 will only win 4.19% of the time.
​
The expected return on a bet on any of the horses in this field is only 71.26%, so a maximum bet of 10,000 chips on any of these horses holds an expected LOSS of 2,875 chips.
These returns are the same, because the winning chances are scaled equally, according to the payout numbers. So it really doesn't matter which horse you bet on, in the long run, you expect the same results.
But as explained before, it does influence variance, and therefore your short-term result, which can swing both ways.
​
But now, the best possible field to bet on: two runners at 5-1, two runners at 15-1, and two runners at 30-1.
Odds at 5-1 represents a winning chance of 16.67%, 15-1 odds means 6.25% chance, and 30-1 odds means a 3.23% chance of winning. Add these six horses together, and you only get 52.285%.
This means that, to get from 52% to 100%, the actual winning chances of these horses will be almost doubled! Multiplied by 1.91 to be exact.
So the 5-1 favorites will now win 31.88% of the time, instead of 16.67%,
the 15-1 runners will win 11.95% of the time,
and the underdogs at 30-1 odds will still win 6.17% of the time.
When betting on this field, the expected return on your bet is 191.25%!
This means that a max bet of 10,000 chips will result in an expected PROFIT of 9,125 chips.
This is printing money, if there ever was such a thing.
Optimal strategy for Virtual Horse racing
So all you have to do, is only bet high on the games where you have an expected positive return, and bet the absolute minimum on the games where your expected return is negative. Or back out of the racing game to refresh the field.
If you don't have a way to quickly add up all the percentages, and until somebody shows up here with a neatly formatted table, just use a few general rules of thumb:
-Always bet the maximum on a race with favorites at 2/1 and 3/1 or higher in it.
-Simply skip all races with two favorites at EVENS in it, and at EVENS and 2/1. Or bet the minimum, if you can't skip or refresh the field.
-To decide if you should play races with other favorite combinations EVENS and 3/1, EVENS and 4/1, EVENS and 5/1, or two favorites at 2/1, the payouts on the other four runners determine whether or not it's profitable to play them. The results of betting on these fields vary from an expected 1,330 chip loss (worst-case) to an expected 1,680 chip win (best-case), with a max bet of 10,000 chips.
But if you're not looking for another strategy chart, you might just want to skip these borderline cases, and just cherry pick the best ones, which are easy to recognize, and with which you can never go wrong.
It's difficult to put a number on an expected win-rate, because it all depends on which fields you get presented with, but it's not unreasonable to state that you can maintain a steady win-rate of around 200,000 chips per hour, with about 50 seconds per race.
Remember, you're not trying to win every race. You're trying to win the most money per hour. So don't sweat it when you bet on a 4/1 favorite, and lose a couple of races in a row. It will still be more profitable in the long run. You have the math on your side.
To reduce negative variance, always bet on the favorite, when betting on profitable fields. We're not gambling anymore, we're grinding out a steady profit. We want to keep the swings to a minimum.
I contacted Rockstar support to verify if this is indeed how it works, but the only reply I got after 6 weeks is that they were "looking into it".
User u/Garsant made a useful Excel-worksheet, available for you to download, where you can quickly type in the payouts on the horses, to see if it produces a profitable bet or not. You can find it in his post here: https://www.reddit.com/gtaonline/comments/ekp8na/gta_online_inside_track_odd_calculato
​
1) Wheel of Fortune
The number one profitable casino game in GTA Online is obviously the Wheel of Fortune, because it costs you nothing to play.
Unfortunately, you only get one free spin per day, but it holds great value, so make sure you do it.
With a chance to win a super car, vehicle discounts, expensive mystery prizes (which also can be vehicles), and a lot of cash and chips, the expected return on a single spin is around $100,000 in value.
So don't forget your daily spin, it's definitely worth your time.
​
2020 Update:
As of the Diamond Casino Heist update, the Inside Track horse racing is confirmed to still be as profitable as outlined above.The only thing that seems to be changed, is that you can't refresh the field anymore by backing out of the screen. This does affect your hourly rate in a negative way, but does not change the fact that this game has a huge positive expected return, and should be your go-to when you're trying to take money from the house, without having Lester's nagging voice in your ear. That should also be worth something.
​
And with that, I conclude my 5,000 word essay on gambling in GTA. Questions, comments, feel free to add your input to this guide.
​
Cliffs:
-Gambling games should only be played for fun, not for big money. You should expect to lose in the long run. The house always wins.
-A casino game doesn't have a memory, and betting systems don't work.
-Set your limits before you start, how much you are willing to lose or win, and then walk away when you get there.
-Don't play slots, roulette, or three card poker.
-Only play blackjack following a basic strategy chart (https://prnt.sc/olct6g).
-Inside Track betting can be played profitably, if you only bet on fields WITHOUT a heavy favorite.
-Wheel of Fortune is always your best bet, because it's a free bet.

This is not mine, the creator of this is u/enderpiet
​
Since the Diamond Casino update, I have seen a large number of 12-year-olds posting Blackjack memes on this sub. As a parent, this has me very worried.
On top of that, I have seen some of the most trustworthy GTA Youtubers giving flawed gambling advice, which can have damaging impact on their gullible audiences.
So that's why I decided to write this up, to educate everyone on the subject, so there will be no more misunderstandings.
(2020 Update down at the bottom.)
If you're one of those Youtubers that wants to use this information in a video, feel free to do so. The more people (especially kids) that become educated about gambling, the better.
But then also please go back and review your own work, and delete or edit the videos that are giving out the wrong advice, like where you're saying you have "a good strategy for making money with roulette", or some other nonsense that I've heard this week. Delete that please.
Before I get into the individual games, I need to discuss a few concepts first, that will make understanding the rest a lot easier.
Expected return and variance
A game like Roulette or Slots has a fixed expected return on your bets. This is a percentage that you have no way of influencing. Say you are flipping a coin against a friend, and you both put up $1. The winner gets the pot. Since the odds are even at 50%, in the long run, you will expect to break even. Your expected return is 100% of your bet.
But imagine if you would play this coin flipping game in a casino against the house. On the "house rules" listed at the table they would probably say that you would only get 95 cents back for every win, while you are forfeiting a dollar on every loss. Would you still play?
Sounds stupid to do so, but still, everybody does it. Every bet they place on Roulette, every coin they put into a Slot machine, is based on the same concept.
Those few cents they take on every bet are their profit margin, and has paid for all the Vegas lights, the Mirage volcanoes, and the Bellagio fountains. Make no mistake - casino gambling games are not designed to make you lose, because sure, you can get lucky on a single night, but they are designed to make them win. That's the beauty of it. They can both exist at the same time.
Too many people that don't see how this works, are just destined for disaster. Just because you went on a lucky streak and won 8 games out of 10, does not mean that flipping coins is a profitable game, or that choosing tails is a winning strategy. Always be aware of the house edge, your true chances of winning, and just realize that you got lucky. There is no such thing as a strategy in flipping a coin that will give you a higher expected return, so it's just pure gambling, just like Slots and Roulette.
Most casino games are made in such a way, that your expected return is a little under 100%. This means that from every dollar bet at the tables, the casino expects to keep a few cents. For individual players, results may vary. Some will win, most will lose. But for the house, it doesn't matter. They take millions of bets each day, so for them, the expected average works out a lot sooner. In short: the house always wins.
When looking at the house edge, we're talking about the expected long-term result, based on the game's house rules. But for a player, it can take literally tens of thousands of hands or spins before you also reach this average number. Until that time, you can experience huge upswings and downswings, that are the result of nothing but short-term luck, which is called variance.
Some games and some bets have a much higher variance than others, which means your actual results will differ enormously from what you're expected to be at.
Take for example betting on red/black at the Roulette table. This is a low-variance proposition, because it has a high percentage chance of occurring, and a low payout.
Contrast this with betting single numbers in Roulette, which only win once every 38 spins on average. This bet has a much higher variance, meaning you can easily hit a dry spell, and not hit anything for 200 bets in a row, or you can see a single number hit three times in five consecutive spins. This is not a freak occurrence in high-variance bets.
Even though the expected return in both these bets is exactly the same, there's a huge difference in variance, causing massive differences in short-term results, which can go both ways. You need to be aware of this, before you decide what types of bets you are comfortable with placing.
Gamblers' Fallacy
Another thing to realize, is that each individual game, hand, or spin, is completely independent from the one(s) before it, and after it.
Gamblers tend to believe, that the chance of a certain outcome is increased, based on previous results.
The most famous example comes from the Casino de Monte Carlo, where the Roulette wheel managed to land on black 26 times in a row. Gamblers lost many millions during that streak, all frantically betting on red, believing that the odds were in favor of the wheel coming out on red, after producing so many blacks. This is not true. Each round is completely independent, and the odds are exactly the same.
You will hear people say things like a Blackjack table being "hot" or "cold", which is completely superstitious, and should be ignored. The exception was when Blackjack was being dealt from a shoe. It made card counting possible. But with the introduction of shuffle machines, and continuous shuffling like is being used in GTA, this no longer exists.
This is also why "chasing your losses" is a very bad idea. After being on a losing streak for some time, many gamblers believe that now it's their turn to start winning. So they will often increase their bet size, believing that when their predicted winning streak comes around, they will win back their losses, and more.
The reality of it, more often than not, is that people will indeed start playing higher and higher limits, until they are completely broke. Nobody is ever "due for a win". There is never a guarantee that you're about to start winning. In fact, the opposite is more likely to be true. You are, after all, in a casino.
Betting systems
Some people like to think that they have a fool-proof betting system, like the Martingale system. Simply increase or even double your bet when you lose, and keep doing that until you win. In theory, this system will always win. So that's why table limits were introduced, and where the system fails.
If you start at the Roulette table, playing red/black, with a small 750 chip wager, and just double your bet every time you lose, you only have to lose 6 times in a row, before you will be betting the table limit of 48,000, just to get that 750 chip profit.
Sure, you can go on all evening without this happening, winning 750 chips each time, but this losing streak only has to happen once, and you're bust. Any betting system like this is ill-advised, because you are hugely increasing your so-called "risk of ruin", and that's what we were trying to avoid.
And even if your starting bet is only 100 chips, after only nine straight losses, and nine doubled bets, you are betting the table limit at 50,000 chips. If you lose that bet, you're 100,000 chips in the hole, with no way to recover that with your 100 chip base wager.
So don't believe anyone that says this is the perfect system to always win in the casino. Sooner or later they will understand why they were wrong, when they're asking you for a loan.
Set your limits BEFORE you start playing
One final point before we get into the games, a general tip for people that head out to play: money management.
Just like in real life, before you go to the casino, decide on a maximum amount that you are WILLING TO LOSE.
Bet small enough, so that amount can last you through the entire evening, and you will not be tempted to run to the ATM to continue playing.
Considering GTA money, some people will be comfortable losing 1% of their GTA bank balance, some people will be comfortable with gambling away 5% of their total GTA savings. It's up to you what you can handle. Decide for yourself where it will start to hurt, and don't cross that line.
But whatever number you decide on, as soon as you lost that amount, get up and walk away. Don't chase your losses, stick to your limits, and accept that this has not been your day. There is always another game tomorrow. Always agree with yourself on a simple stop-loss rule, how much you would want to lose at most, and simply stop playing when you get there.
Same goes for winning. You can decide on a number, how much profit you would like to take away from the casino. You can go on a hot streak and be up half a million in a short period of time, but if you would continue to play longer, looking for more, chances are that you're going to lose it all back.
Most people are happy with doubling their daily casino budget, for example. Others are looking for 10 bets profit in Blackjack. Whatever you choose, when you hit that number, you can stop playing and bank your profits, or you can continue playing if you're still enjoying the games, but then only just play minimum bet sizes. Then you're just playing for fun, not for money. You've already made your profit, so simply keep it in your pocket, and don't risk losing it again.
Either way, decide on what your money management strategy will be, and STICK TO IT.
Casino games in GTA Online
Now, I'm going to dive into the games that you can find at the Diamond casino, ordered from worst to best.
6) Slots
Generally the rule is this: the less strategy a game has, the worse it is for the player. And with slots, this is definitely the case.
The only influence you have, is choosing what type of machine you're going to play. Basically, there are two types of slot machines:
-high frequency, low payout slots
-low frequency, high payout slots
In the first type, there is no huge (progressive) jackpot on offer, just your average selection of prizes that don't go up to crazy amounts.
This will result in a player having many more spins resulting in a win. The amounts that you win on the bigger prizes, will be smaller, but they do come around more often. This type of slot machine has a lower variance, which means that your money should last you longer, winning many smaller prizes along the way to keep you going.
The second type of slot machine lures you in with the temptation of a huge jackpot prize. Even though the long-term expected return on these machines is the same as the previous type, the prize distribution is hugely different. The large jackpot prize weighs heavily on the scale of expected return, but the chance of it hitting is extremely small. This results in a much higher variance on this type of machine. Usually your money will go down very fast, because the smaller prizes are less rewarding than on the other type of machine.
At the Diamond, the info screen says the player return at slots is set at 98.7%. This means that, on average, for every maximum bet of 2,500 chips, you expect to lose 32.5 chips.
This might not seem like a lot, but the danger of slots is that the game is extremely fast. You can spin about once every 6 seconds, which would result in an expected LOSS of about 20,000 chips per hour of playing.
But again, in this long-term expected number, the large jackpot awards are also factored in, and as long as you don't hit those big prizes, you'll see your money go down a lot faster.
In any case, thank heavens the max bet is only set at 2,500, or else we would see more players go bankrupt at alarming rates.
Optimal strategy for slots:
There is none. Because after betting, you have no more influence over the outcome. The only choices you have, is what type of machine you want to play at, and how much money you are going to risk. And those are all personal preference. As long as you stick to your loss limits, as discussed above, there's no harm in having a go every once in a while, hoping to get a lucky hit. Just realize that you don't have a high chance of scoring a big win, so as soon as you do, get up and walk away.
5) Roulette
Roulette is also a game where you have no influence over the outcome. There is zero skill involved. You place your bet, and that's it.
In traditional French roulette, a table has only the single-zero, but of course, for American casinos that wasn't enough of a house edge, so they simply doubled their profits by adding a second zero. The house edge was increased from 1/37 to 1/19, which is huge.
This makes playing on a double-zero roulette table by definition a sucker's play.
The payouts scale evenly, which means that a bet on a single number, and a bet on half of the numbers, and everything in between, yields the same expected return. The only difference, again, being the variance that you are willing to subject yourself to.
The player return for double-zero Roulette for all bets is 94.74%.
Except for the 5-number bet, which can only be made by placing a bet on the two top rows that contain 0, 00, 1, 2 and 3. The expected return on this bet is lower: 92.1%. This is because it only pays out 6-1. Why? Well, the number 36 isn't divisible by 5, so the greedy people that came up with double-zero Roulette had to round it off someway, and as expected, it wasn't going to be in the players' favor.Just remember that that 5-number bet is the worst bet at the table, and should be avoided. All other possible bets have the same expected return.
So it really doesn't matter how you spread your bets, if you bet only one chip, or if you litter the entire table with a bucketload of chips. Each chip you put out there, has the same expected return, so there is no strategy that will improve your long-term results.
Assuming that you're betting the maximum table amount of 50,000 chips, you will be looking at an expected loss of about 2,630 chips per spin. Considering that a round takes about 45 seconds to complete, your expected LOSS at the GTA Roulette tables will be around 200,000 chips per hour of playing.
Optimal strategy for double-zero roulette:
Stay away. Stay far away.
4) Three Card Poker
With Three Card Poker, we come across the first game where there is actually some strategy involved. You get to look at your cards, and then decide if you want to fold, and surrender your ante, or double your bet.
Additionally, you can choose to place a side bet on "Pair Plus", which offers progressive payouts.
There are some websites out there that ran all the numbers with computer simulations, and even though I would like to quote the source here, these websites are understandably littered to the max with online casino ads, so that's why I have decided against doing that.
Optimal strategy for Three Card Poker:
For this game you only have to remember one strategy rule: Always bet on any high card queen-six-four or better, and fold any high card queen-six-three or lower. That's it. Just don't forget to double check if you're not folding a straight or a flush, and you'll be fine.
This strategy will result in an expected return of 96.63%.
The Pair Plus sidebet, with the payout table that is used at the Diamond casino, gives you an expected return of 97.68%, which is actually a bit better than the main ante bet.
So by playing both wagers, you're reducing your expected losses per bet, but since you're betting more, you're also increasing your expected loss per hour.
My advice would obviously be to not play this game at all, but if you do, put as much of your bet as possible on the Pair Plus, while making our Ante bet as small as you can.
To be able to compare it to the other games at the Diamond, let's stay on that 50,000 maximum wager, meaning making your ante bet 35,000, and your pair plus bet 15,000, if the table would allow it.
This results in an expected loss of about 1,525 chips per hand, and with a round taking about 45 seconds, this adds up to an expected LOSS of around 120,000 chips per hour of playing. In comparison, if you would only play the ante bet for 50,000 per hand, you expect to lose 1,685 chips per hand, which means an expected LOSS of about 135,000 chips per hour. So the more out of that 50,000 wager you can put on the "Pair Plus" sidebet, the better.
Even though it may be fun to try out this game for a bit, since there's only one simple strategy rule to follow, you'll soon find yourself robotically grinding down your bankroll until it has vaporized. You're not missing out on anything if you skip these tables, there is no real challenge.
Just like with Roulette and Slots, if you want to try it out nonetheless, you can just bet the minimum amounts and only play for fun, so it won't matter if you win or lose.
3) Blackjack
Blackjack is the most complicated game by far. Simply because the player has to make a series of decisions, which will largely decide the outcome. Luckily, there is such a thing as an optimal strategy, which will be outlined below.
However, the strategy is also dependent on the house rules. These not only affect your expected return, but in some places also your decisions.
Here are the house rules at the Diamond casino:
-The game uses 4 standard decks, and a continuous shuffle.
-Blackjack pays 3 to 2, dealer checks for early blackjack.
-No insurance offered, no surrender.
-Dealer stands on soft 17.
-Double down on any two cards.
-Player can split only once, but doubling after split is allowed.
-Seven-Card Charlie.
Under these rules, and following the "basic strategy" chart, your expected return at Blackjack is a shade under 99.6%, which is extremely good for a casino game, that's why Blackjack should be your table game of choice.
But it comes at a price: you are going to have to memorize the relatively complicated strategy chart, or at least stick it to your monitor until you have it in your head. But in case you ever stumble into a real-life casino, you won't regret having this table memorized, so I would definitely advise you to work on that.
The strategy chart might look complicated at first, but you will be able to notice certain patterns. Your decisions are mainly based on the dealer's upcard, which is basically divided into a weak card (2 to 6), and a strong card (7 to ace).
When a dealer shows a strong card, you will be hitting more often with the risk of going bust, but when a dealer shows a weak card, you're not taking that risk, and you will be standing more, but also doubling and splitting more. You want to increase your bets when the odds are in your favor, and get out cheap when they're not.
But it also helps to take some time to think about why a certain advice is given. For example, why does it say that you always have to split two eights, even against an ace. Well, that's because two eights equals 16, which is the worst total you can have. It's better to split them up, and give yourself a chance of finding a 17, 18 or 19 with the next card. Once you see the logic in that, you'll have one less thing to memorize.
The playing advice in the basic strategy chart is a result of computer simulations that ran all possible outcomes against each other, and produced the most profitable decision for each situation. So you can't go wrong following it.
Optimal strategy for Blackjack with Seven-Card Charlie
The added house rule of Seven-Card Charlie, adds a small advantage for the player, and it does influence a few strategy decisions. For example, you might have a 14 with 6 cards, against the dealer's 5 upcard.
Normally this would be an automatic stand, but if you're only one card away from the Seven-Card Charlie, meaning an instant win for the player, regardless of the dealer's hand, it turns it into a hit.
Here's the most optimal strategy chart to follow for the Diamond Casino house rules:https://prnt.sc/olct6g
You'll see that two fives are missing from the chart, and that's because you never split them. You treat them as a regular 10. You also never split tens. Just stand on 20.
If you follow this strategy religiously, even with a maximum wager of 50,000 chips, you only expect to lose about 215 chips per hand, and with rounds taking about 30 seconds, that amounts to an expected LOSS of 26,000 chips per hour, which is only half a bet. A small price to pay for an hour of entertainment.
But since the expected return is so extremely close to 100%, you will see more positive short-term results than with other games. But obviously it can also swing the other way. Again, this is supposed to be the game where your money lasts you the longest, but always set your loss and win limits before you sit down. That rule simply always applies.
Still, even with optimal strategies applied, all these games are expected to lose you money in the long run. So betting any kind of large amounts is not advised. If you simply want to enjoy playing these games, there's nothing wrong with betting a minimal amount. Playing these games for a longer period of time will already cost you money anyway, since your daily property fees will still be charged while you're playing in the GTA casino. As long as you can play for fun, there's nothing wrong, but when you see yourself betting insane chunks of your entire bank balance to try to recoup some unfortunate losses, you're doing it wrong.
As the commercials in Britain all correctly say: when the fun stops, stop.
2) Virtual Horse Racing
Now onto the good stuff. I ran some numbers, and I believe Rockstar has made a mistake with the horse racing game. Because as it stands, and if I read the numbers correctly, this game is actually profitable for the player. You can actually make money with this, at least, until Rockstar figures out their mistake and patches it.
If anyone wants to jump into the math and double check this to make sure, please do so. I will add any corrections to this post. This is one of those "to good to be true" things, so I keep thinking that I might have overlooked something. So please verify it if you can.
The setup is this. There is a pool of 100 horses, each with their own attached payout. These are divided into 3 groups, ranked by their odds. From each group, 2 horses are randomly selected to provide a pool of six runners for you to bet on.
Now it's not an actual race you're looking at. You are looking at a raffle. This is important to realize.
Each horse gets awarded a certain number of raffle tickets. The favorites get awarded more tickets than the underdogs, and therefore, have a higher chance of winning.
If this distribution works like it does in the real-life casinos, then the raffle tickets are awarded according to the betting odds.
Example 1: imagine a race with 3 runners, all have 2/1 odds, representing a 33.3% chance of winning. (Because 2/1 means 2 AGAINST 1, so 3 total.) In this case, each horse gets one third of the raffle tickets, giving them an equal chance to win.
Example 2: imagine a race with 3 runners, one has 1/1 odds (or EVENS), representing a 50% chance of winning, and the other two horses are marked up as 3/1, with a 25% chance of winning. The favorite gets half the tickets, the other two get a quarter of the tickets each.
A ticket is drawn, and you'll have a winner.
It doesn't matter in this game which horse you bet on, because the expected return is always the same: 100% or break-even, for the above examples.
Now, what happens if the percentages don't exactly add up to 100%?
They must add up to 100%, because there will always be a winner. And only one winner.
So when this is the case, the actual winning chances of the horses are adjusted to meet the 100% requirement, using their payout odds to determine the scale.
So, if the represented percentages add up to more than 100%, the actual winning chances of the runners will be DECREASED, resulting in all bets becoming losing propositions for the players.
Example: In a 6-horse race, all runners are listed at 4/1, representing a 20% chance. Only with six runners that amounts to 120%. So all chances are scaled down by 1/6th, to end up at 100%.
This means your horse's chances are reduced from 20% to 16.67%, turning it into a losing bet: 5 times you will lose your bet, and 1 time you will win, but only get 4 bets back in this instance, instead of 5. A losing bet in the long run.
This is the type of odds that you find in regular casinos, with fields as large as 15 runners to bet on, where the assumed winning chances always add up to more than 100%, therefore are decreased for all runners, resulting in a house edge.
But in GTA Online's Inside Track, there are other scenarios, because of the small field, and the way that they are put together.
In some cases, the represented percentages when added up, are LESS than 100%, meaning that the actual winning chances of all runners, are INCREASED.
This creates profitable bets for the players, because in the long run, you're expecting to win more money than you lose. This is a gambler's dream, pure and simple.
So, according to the in-game information, the three groups of horses are divided as follows:
-Favorites: EVENS to 5-1
-Outsiders: 6-1 to 15-1
-Underdogs: 16-1 to 30-1
Let's take the two most extreme examples to show what's happening.
The worst possible field to bet on: two runners at EVENS, two runners at 6-1, and two runners at 16-1.
EVENS represents a 50% chance, 6-1 is 14.29%, and 16-1 is 5.88%. Add those up and you land on a total of 140.34%.
This means that the actual winning chances of the horses are decreased by 28.75% (to get that 140% down to 100%), which makes betting on this field extremely unwise.
A horse at EVENS will only come in as a winner 35.63% of the time, instead of 50%,
a horse at 6-1 will only win 10.18% of the time,
and an underdog at 16-1 will only win 4.19% of the time.
The expected return on a bet on any of the horses in this field is only 71.26%, so a maximum bet of 10,000 chips on any of these horses holds an expected LOSS of 2,875 chips.
These returns are the same, because the winning chances are scaled equally, according to the payout numbers. So it really doesn't matter which horse you bet on, in the long run, you expect the same results.
But as explained before, it does influence variance, and therefore your short-term result, which can swing both ways.
But now, the best possible field to bet on: two runners at 5-1, two runners at 15-1, and two runners at 30-1.
Odds at 5-1 represents a winning chance of 16.67%, 15-1 odds means 6.25% chance, and 30-1 odds means a 3.23% chance of winning. Add these six horses together, and you only get 52.285%.
This means that, to get from 52% to 100%, the actual winning chances of these horses will be almost doubled! Multiplied by 1.91 to be exact.
So the 5-1 favorites will now win 31.88% of the time, instead of 16.67%,
the 15-1 runners will win 11.95% of the time,
and the underdogs at 30-1 odds will still win 6.17% of the time.
When betting on this field, the expected return on your bet is 191.25%!
This means that a max bet of 10,000 chips will result in an expected PROFIT of 9,125 chips.
This is printing money, if there ever was such a thing.
Optimal strategy for Virtual Horse racing
So all you have to do, is only bet high on the games where you have an expected positive return, and bet the absolute minimum on the games where your expected return is negative. Or back out of the racing game to refresh the field.
If you don't have a way to quickly add up all the percentages, and until somebody shows up here with a neatly formatted table, just use a few general rules of thumb:
-Always bet the maximum on a race with favorites at 2/1 and 3/1 or higher in it.
-Simply skip all races with two favorites at EVENS in it, and at EVENS and 2/1. Or bet the minimum, if you can't skip or refresh the field.
-To decide if you should play races with other favorite combinations EVENS and 3/1, EVENS and 4/1, EVENS and 5/1, or two favorites at 2/1, the payouts on the other four runners determine whether or not it's profitable to play them. The results of betting on these fields vary from an expected 1,330 chip loss (worst-case) to an expected 1,680 chip win (best-case), with a max bet of 10,000 chips.
But if you're not looking for another strategy chart, you might just want to skip these borderline cases, and just cherry pick the best ones, which are easy to recognize, and with which you can never go wrong.
It's difficult to put a number on an expected win-rate, because it all depends on which fields you get presented with, but it's not unreasonable to state that you can maintain a steady win-rate of around 200,000 chips per hour, with about 50 seconds per race.
Remember, you're not trying to win every race. You're trying to win the most money per hour. So don't sweat it when you bet on a 4/1 favorite, and lose a couple of races in a row. It will still be more profitable in the long run. You have the math on your side.
To reduce negative variance, always bet on the favorite, when betting on profitable fields. We're not gambling anymore, we're grinding out a steady profit. We want to keep the swings to a minimum.
I contacted Rockstar support to verify if this is indeed how it works, but the only reply I got after 6 weeks is that they were "looking into it".
User u/Garsant made a useful Excel-worksheet, available for you to download, where you can quickly type in the payouts on the horses, to see if it produces a profitable bet or not. You can find it in his post here: https://www.reddit.com/gtaonline/comments/ekp8na/gta_online_inside_track_odd_calculato
1) Wheel of Fortune
The number one profitable casino game in GTA Online is obviously the Wheel of Fortune, because it costs you nothing to play.
Unfortunately, you only get one free spin per day, but it holds great value, so make sure you do it.
With a chance to win a super car, vehicle discounts, expensive mystery prizes (which also can be vehicles), and a lot of cash and chips, the expected return on a single spin is around $100,000 in value.
So don't forget your daily spin, it's definitely worth your time.
2020 Update:
As of the Diamond Casino Heist update, the Inside Track horse racing is confirmed to still be as profitable as outlined above.The only thing that seems to be changed, is that you can't refresh the field anymore by backing out of the screen. This does affect your hourly rate in a negative way, but does not change the fact that this game has a huge positive expected return, and should be your go-to when you're trying to take money from the house, without having Lester's nagging voice in your ear. That should also be worth something.
And with that, I conclude my 5,000 word essay on gambling in GTA. Questions, comments, feel free to add your input to this guide.
Cliffs:
-Gambling games should only be played for fun, not for big money. You should expect to lose in the long run. The house always wins.
-A casino game doesn't have a memory, and betting systems don't work.
-Set your limits before you start, how much you are willing to lose or win, and then walk away when you get there.
-Don't play slots, roulette, or three card poker.
-Only play blackjack following a basic strategy chart (https://prnt.sc/olct6g).
-Inside Track betting can be played profitably, if you only bet on fields WITHOUT a heavy favorite.
-Wheel of Fortune is always your best bet, because it's a free bet.

USUALLY FADED'S FIRE SALE!!!
 
Hello everyone and welcome to the sale of the century!! Okay not really, but it took me a really fucking long time to make this post look pretty, so that's something. Prices are NOT FIRM! .... Let's here that one more time barry, NOT FIRM! thanks barry. These are key only transactions, unless you've got a sister - then maybe we can works something out. Browse around, make yourself a nice little package, then feel the discount as your trousers grow. Lowball me like the uneducated American I am. (Each purchase will come with a custom limerick about you.) ADD ME ON STEAM http://steamcommunity.com/profiles/76561198199664859/
 
ANTENNAS

Antenna	CERT/PAINT	PRICE (KEYS)
Arochnotenna		?
Dandellon Seed		?
Disco Ball		?
Easter Egg		?
Flower - Tulip		?
Holiday Gift		?
Holiday Stocking		?
Koinobori		?
Parot		?
Peppermint		?
Seastar		?
Shadow Witch		?
TOTAL		1- 2 keys?

 
BODIES

BODY	CERT/PAINT	PRICE (KEYS)
Breakout	Saffron	1
Breakout Type-S		.5
Centio v17		.5
Dominus GT		.5
Octane	Burnt Sienna	3
Takumi RX-T		.5
Samurai	Burnt Sienna	1.5
TOTAL		7 keys

 
CRATES

CRATE	AMOUNT	PRICE (KEYS)
Accelerator	24	1
Halloween	8	free w/ purchase
Nitro	27	1.5
Overdrive	20	1
PCC	8	1
Turbo	23	.5
Secret Santa	11	free w/ purchase
Velocity	13	.5
Victory	3	free w/ purchase
Spring Fever	12	free w/ purchase
TOTAL	149	5 keys

 
DECALS

CAR BODY	DECAL (CERT/PAINT)	PRICE FOR ALL (KEYS)
Animus GP	Odd fish (x3), Rose King	.5
Breakout	BOO, Chainsaw (Aviator), Dot Matrix, Falchion, Heiwa, Heiwa (Acrobat), RLCS (x3), RLCS (Lime), Shibuya, Snakeskin, Vice (Goalkeeper), Froggy (x2), Froggy (Striker)	2
Breakout Type-S	Funny Book (Juggler), Mobo, RLCS (x2), Smore'd (x2)	1
Centio v17	Gigapede	free w/ purchase
Dominus	Arcana, Polo Calliente, RLCS (x2), Snakeskin, Suji (Juggler) Fantasmo, Fantasmo (Acrobat), Fantasmo (Lime), Funny Book, Holiday Deco,	2
Dominus GT	Distortion (Guardian), Spatter, Unmasked, NNTR (x3)	1
Endo	Spatter, Mummified (x2), Mummified (Striker), Mummified (SweepeCobalt), Polar Force	1
Imperator DT5	Mosher (Turtle), Mosher (Cobalt), Mosher (Forest Green)	1
Jager 619 RS	Mister Monsoon (Burnt Sienna), Snakeskin	.5
Mantis	Critters (x2), Hammerhead	.5
Merc	RoadHog, Athena, Flower Power, Warlock	.5
Octane	Dragon Lord, Dot Rush (Goalkeeper), Dune Racer (Purple), Griffon, MG-88, RLCS (Show-Off), Roadkill, Shisa, Slimline	3
Octane ZSR	Distortion (Paragon), Funny Book (Sweeper), Tribal, Ripped Comic, RLCS (Sky Blue)	1
Road Hog	Wildfire (Guardian), Wilfire, , Carbonated	.5
Takumi	Distortion, Vector	.5
Takumi RXT	Distortion (Scorer), Super RXT (Pink)	.5
Venom	Nine Lives	free w/ purchase
X-Devil MK2	Cobra, Maximon	free w/ purchase
Universal	Twisted Tree, Cold Sweater (x2), Swirls	1
TOTAL		15 keys or whatever you offer

 
PAINT FINISHES

PAINT	PRICE (KEYS)
Anodized	.5
Burlap	.25
Circuit Board	.25
Furry	.25
Glossy Block	.25
Metallic Pearl	.25
Pearlescent (Matte)	.25
Zebra	meh
TOTAL	1.5ish keys

 
PLAYER BANNERS

BANNER	PRICE (KEYS)
Calculated	.5
Cold Sweater (x2)	.25
Dead Serious (Saffron)	.25
Howler	free w/ pruchase
Lift-Off	.5
RL Esports	.5
Salty	.5
Shooting Star	meh
Soccer Splash	meh
Tagged	.25
WWE Monday Night	.25
WWE Smackdown	.25
TOTAL	3ish keys

 
TRAILS

TRAIL	PRICE (KEYS)
Blazer	.25
EKG-OMG	.5
EQ	1
Friction	.25
Hallowtide	meh
Hot Rocks	.5
Lightning	.5
Luminous (x2)	1/both
Rainbow	free w/ purchase
Zigzag	.5
TOTAL	4ish?

 
TOPPERS

TOPPER	CERT/PAINT	PRICE (KEYS)
Angel Wings		free w/ purchase
Beret	Grey	.25
Birthday Cake (x3)	Forest Green, Orange, Purple	1ish for all?
Brodie Helmet (x5)	Standard (x2), Forest Green, Orange, Purple	1/all
Bunny Ears		free
Bycocket	SB	cheap
Chainsaw	Crimson	.25
Chef's Hat	Pink	.5
Cromulon (x2)	Orange, Purple	.5/both
Derby (x4)	Black, Orange, Pink, saffron	1/all
Devil Horns (x2)	Sky Blue, Lime	.5/both
Drink Helmet	Purple	.25
Easter Basket		free
Fallen Tree		free
Fez	Lime	.25
Fire Helmet (x2)	Forest Green, Sky Blue	.5/both
Fruit Hat	Pink	.25
Gargoyle		free
GG The Clown		free
Grave Robber		free
Halo (x4)	standard, orange, BS, Crimson	3/all
Hard Hat (x6)	TW, Pink, Lime, Cobalt, Purple	1/all!
Hawaiian Lei (x2)	standar, grey	.25
Hustle Brows (x2)	(1x) Aviator	1/both
Jack-in-the-Box	StrikeFG	.25
Little Bow (x2)	Forest Green, Titanium White	1/both
Mariachi Hat (x2)	Forest Green, Grey	.5/both
Pirates Hat	Lime (x2)	.25
Scarecrow Jack		free
Surfboard	Orange	.25
Stegosaur	Grey	.25
Traffic Cone	Grey	.25
Trucker Hat (x2)	Forest Green, Purple	.5
Undying Love		free
Unicorn	Orange, Pink	1/both
Visor	Crimson	.5
Wildcat Eats	Forest Green	.25
Witches Hat	Grey, FG, Orange	1/all
TOTAL		14ish for all?

 
BOOSTS

BOOST	CERT/PAINT	PRICE (KEYS)
Blast Ray	Cobalt/Gaurdian	1
Comet	Victor	.5
Dark Matter		.25
DataStream	Black, Grey	1.5
Flamethrower	Purple, BS	1.5
Helios		.5
Hexaphase		.5
Hypernova		.25
Lightning	Crimson/Scorer	3
Magic Missile		.5
Neo-Thermal		.5
Plasma	Pink (Paragon), Crimson (Sniper), Black, Cobalt, Forest Green, Lime, Orange, Saffron, Sky Blue, Titanium White	9/all?
Polygonal	Juggler	.25
Power-Shot	Victor	.5
Proton		.25
Tachyon	Goalkeeper	.5
Taco		.5
Trinity	Aacrobat	.25
Xenosplash		.25
TOTAL		19 for all?

 
WHEELS

WHEEL	CERT/PAINT	PRICE (KEYS)
Alchemist	Cobalt, Pink	1/both
ARA-51		.25
Asterias	Black, Forest Green	.5/both
Chakram		.25
Dieci (FULL SET ONLY)	Black, Burnt Sienna, Cobalt, Crimson, Forest Green, Grey, Lime, Orange, Pink, Purple, Saffron, Sky Blue, Titanium White	40
FGSP	Acrobat	so fucking ugly
Invader	Saffron, Titanium White	1/both
Kalos		.25
Lobo		.25
Lowrider	Cobalt, Crimson	.5/both
Neptune	Burnt Sienna	.25
Ninja (x3)		2/all
Nipper (x4)	Standard, Scorer, Pink/Turtle, Purple	2.5/all
Octavian	Lime	.25
OEM (x3)	BS, Purple, Saffron	1/all
Photon (x2)	(1x Black)	3/both
Pulses	Guardian	.25
Rat Rod	Lime, Orange	.5/both
Razzle	Turtle	.5
Roulette		.25
Saptarishi		.52
Septum		.25
SLK (x2)	(x1 Lime Tactician)	1/both
Spiralis		.25
Spyder	Titanium White	.5
Stern	Burnt Sienna	.25
Trahere	Orange	.25
Triplex		.25
Troika (x2)	(x1)Pink	.5
Turbine		.5
Veloce	Forest Green	.25
Zeta	Grey	.25
Zomba (x2)		1/both
ZT-17		1
TOTAL		75 for all

130 keys for everything and it will come with a nice suckie suckie from yours truly.