Today I retired [should I invest in rental properties?]

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peacelove
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Today I retired [should I invest in rental properties?]

Post by peacelove » Fri Aug 17, 2018 5:15 pm

What do we think about putting a portion of our nest egg into rental properties? I'm looking for an alternative to the stock/bond market for at least 1/3 of my portfolio.

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David Jay
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Re: Today I retired [should I invest in rental properties?]

Post by David Jay » Fri Aug 17, 2018 6:04 pm

So you WANT a job? That’s what you get when you own rentals. Been there. Done that. Got the t-shirt.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

delamer
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Re: Today I retired [should I invest in rental properties?]

Post by delamer » Fri Aug 17, 2018 6:53 pm

How large is your portfolio? How much do you need from it to cover expenses (net after Social Security and pensions)?

Wricha
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Re: Today I retired [should I invest in rental properties?]

Post by Wricha » Fri Aug 17, 2018 6:56 pm

delamer wrote:
Fri Aug 17, 2018 6:53 pm
How large is your portfolio? How much do you need from it to cover expenses (net after Social Security and pensions)?
Right questions

J295
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Re: Today I retired [should I invest in rental properties?]

Post by J295 » Fri Aug 17, 2018 7:21 pm

Why?.

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Toons
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Re: Today I retired [should I invest in rental properties?]

Post by Toons » Fri Aug 17, 2018 7:32 pm

If you enjoy headaches ,then
Yes
:mrgreen:
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

randomguy
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Re: Today I retired [should I invest in rental properties?]

Post by randomguy » Fri Aug 17, 2018 7:53 pm

Wricha wrote:
Fri Aug 17, 2018 6:56 pm
delamer wrote:
Fri Aug 17, 2018 6:53 pm
How large is your portfolio? How much do you need from it to cover expenses (net after Social Security and pensions)?
Right questions
There are a lot more questions like why rentals now? If you were interested in them why haven't you had them for say the past 20 years? I think rentals are a decent way of going but I am not sure I would want to start learning the ropes at retirement age when you can't really afford to lose money.

At a high level I would go to bigger pockets and ask what type of recommendations they have for some with x amount of money to invest in rentals. They are definitely baised (about the same as the antirental sentiment on bogleheads ;))

jebmke
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Re: Today I retired [should I invest in rental properties?]

Post by jebmke » Fri Aug 17, 2018 8:11 pm

One of my happiest days was the day we closed on the sale of our rental condo.
When you discover that you are riding a dead horse, the best strategy is to dismount.

retiredjg
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Re: Today I retired [should I invest in rental properties?]

Post by retiredjg » Fri Aug 17, 2018 8:13 pm

peacelove wrote:
Fri Aug 17, 2018 5:15 pm
What do we think about putting a portion of our nest egg into rental properties? I'm looking for an alternative to the stock/bond market for at least 1/3 of my portfolio.
I think it is a very bad idea unless you already have experience in the area and have a huge passion for doing more of it.

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Watty
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Re: Today I retired [should I invest in rental properties?]

Post by Watty » Fri Aug 17, 2018 8:17 pm

One thing to ask yourself is how that will work when you are older and less capable or if one of you survives the other and has to manage rental property alone when they are elderly. I can't picture myself or my wife managing rental property when we are 80.

Even with a property manager you will need to supervise them and occasionally interview and replace them and that might be hard to do as you age or if you are in a nursing home.

If you plan on doing anything like traveling you will also need to have to backup to cover the rental property while you are out of town.

Unless you have a very large portfolio you might only be able to buy a limited number properties with your funds so that would not be diversified. It is rare but occasionally there can be a bad renter that can cause all sorts of problems. In some areas the laws are unfavorable towards landlords and some tenants know how to game they system and it is not unheard of for it to take the better part of a year to evict a tenant.

That said having rental properties works for some people. If you want to try it then the way to start would be to buy one rental property with maybe 5 to 10 percent of your portfolio so see how being a landlord works for you and to learn more of the skills you would need to make it work.

Here are some old threads that you should read.

viewtopic.php?t=226980

viewtopic.php?f=2&t=191039

Be sure to read all of the second thread.

I would not recommend it but if you wanted a higher real estate asset allocation buying REITs is an attractive alternative to buying rental property.
Last edited by Watty on Fri Aug 17, 2018 8:22 pm, edited 1 time in total.

aqan
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Re: Today I retired [should I invest in rental properties?]

Post by aqan » Fri Aug 17, 2018 8:19 pm

Managing rentals by yourself can be pain in the behind.
If you can find a profitable one in a professionally managed apartment complex then go for it.

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6miths
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Re: Today I retired [should I invest in rental properties?]

Post by 6miths » Fri Aug 17, 2018 8:21 pm

David Jay wrote:
Fri Aug 17, 2018 6:04 pm
So you WANT a job? That’s what you get when you own rentals. Been there. Done that. Got the t-shirt.
+1

Exactly what I was thinking. Never had the disposition for this and in my mind not far off my idea of hell on earth even though I am incredibly handy and can fix just about anything.
'It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so!' Mark Twain

visualguy
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Re: Today I retired [should I invest in rental properties?]

Post by visualguy » Fri Aug 17, 2018 8:23 pm

peacelove wrote:
Fri Aug 17, 2018 5:15 pm
What do we think about putting a portion of our nest egg into rental properties? I'm looking for an alternative to the stock/bond market for at least 1/3 of my portfolio.
The devil is in the details, but in principle it's a good approach. Gives you good diversification, and more inflation protection. It's good to have some real assets, and not just paper assets... Also, the tax aspect is appealing.

gusan
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Re: Today I retired [should I invest in rental properties?]

Post by gusan » Fri Aug 17, 2018 8:31 pm

Why not if the numbers pencil out. Also if you are okay paying for comprehensive insurance to cover all appliances, plumbing, heating, cooling etc. so that if an issue comes up you have to call the insurance company and just pay a flat rate for a visit, I think it can work.

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arcticpineapplecorp.
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Re: Today I retired [should I invest in rental properties?]

Post by arcticpineapplecorp. » Fri Aug 17, 2018 8:37 pm

There's nothing wrong with real estate in and of itself per se. However you should realize there's a big difference between real estate investing (and all investing really) that is:

Active
or
Passive

Do you invest passively (in index mutual funds for instance? Don't know really, you haven't said how your retirement money is invested) or do you invest in actively managed mutual funds?

If you understand the difference and invest in passive/index funds with your money, then why do you all of sudden want to invest in active management (through being a landlord)?

Being diversifed doesn't mean having both passive and actively managed investments.

It means:
1. holding lots of a type of asset (so lots of stocks, rather than fewer for instance)
2. holding lots of different types of assets (stocks, bonds, cash, real estate for instance)

How many real estate properties do you think you'll actually invest in?
In other words, how diversified do you really think your real estate holdings will be, especially considering it's only "a portion" of your nest egg.

Even if your nest egg (and that "portion") is large and you have several properties...is it really diversified? I.E., do you plan to own both muti-unit and single unit homes? Do you plan to have properties in different states or just the state you live in (think about the impact of a recession on a local community that may not affect other communities elsewhere the same). Do you plan to own just residential real estate but not commercial real estate? Why?

Do you understand the typical rates of return on real estate historically? Is it in line with what you "need" your investments to earn? Have you factored in the time you'll spend getting properties rented, repaired, evicting, etc? You're time is worth something, right? You really need to factor that in and reduce it from your investment gains, because costs reduce your gains.

Have you considered investing in real estate through a REIT index fund with Vanguard?

https://investor.vanguard.com/mutual-fu ... file/VGSIX

A Reit index fund behaves more like a stock and is often said by bogleheads to be considered a part of your allocation to stocks, but it may offer some diversification in that it's not 100% correlated with the stock market. So perhaps it will give you some diversifcation you're looking for as well as some real estate exposure.

It contains 186 companies that deal in real estate. It invests in different types of real estate (hotels, hospitals, office, industrial, residential, retail, etc). It's low cost. It's geographically diversified. It tracks a Real Estate benchmark. It's been around since 5/13/1996. It's publicly traded unlike many non-publicly traded REITs sold to investors. It's highly liquid, unlike many other REITs sold to investors.

It is a sector play, so be aware, you're tilting your portfolio away from the total market. The total market contains around 3% real estate. You'd be holding more real estate than the market. Many already have enough real estate exposure in their portfolio if you own a home, you should consider the equity part of your overall net worth. A renter could invest more in a REIT than a homeowner because of the renter's lack of equity.

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Taylor Larimore
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Re: Today I retired [should I invest in rental properties?]

Post by Taylor Larimore » Fri Aug 17, 2018 8:41 pm

peacelove wrote:
Fri Aug 17, 2018 5:15 pm
What do we think about putting a portion of our nest egg into rental properties? I'm looking for an alternative to the stock/bond market for at least 1/3 of my portfolio.
peacelove:

Welcome to the Bogleheads Forum!

We have owned several rental properties including an 8 unit apartment building. I can't imagine trying to manage and maintain them in my retirement years.

Another problem is that the net worth of rental properties is useless for a retiree because the net worth goes to heirs.

If you must own rental properties, use REITs (although the market value of US REITs is in Total Stock Market). I no longer bother with real-estate except for the net worth in my own home.

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

Amy2017
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Re: Today I retired [should I invest in rental properties?]

Post by Amy2017 » Fri Aug 17, 2018 10:09 pm

We self manage quite a few rentals. So I am definitely not against investing in rental properties. My question is why now? The real estate price have been skyrocketed in almost everywhere. If you really want to investing in rental properties, you could wait until the market calms down a little. I don't think current real estate market is sustainable. So it may not take very long.

Culbretd
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Re: Today I retired [should I invest in rental properties?]

Post by Culbretd » Sat Aug 18, 2018 9:11 am

Prior to coming upon this site and diving head first into the Boglehead world I was all about real estate and rentals. My dad has several rental properties that we’ve bought as dumps and remodeled so I myself took the plunge right after college and bought several properties and remodeled and now have rentals. My line of thinking was that one day I will inherit the ones that my dad currently owns and by then I would have accumulated quite a few by then. Fast forward 15 years and now that I have several properties myself and my dad has continued to buy new ones I can attest that they are a huge headache. Having one, two, or three isn’t too bad but once you accumulate a good number of them you will always being getting phone calls about something being wrong.

I’m just gonna be honest here too. Most renters will not take adequate care of your property. What do they care, they don’t own it’s not their problem. I’m having a problem now with a 3 townhome building that the middle tenants stacked up trash in the back (despite me providing trash service) and attracted mice. Instead of calling when they saw the first mouse they continued to stack up trash and gather more mice and the mice eventually found their way inside. From the buildings middle tenant the mice have no spread to the unit on the left and right of them. Now I have small wholes chewed through walls so that the mice can run freely between the 3 townhomes. I only found out about this when the tenant on the end finally called.
If you don’t know about mice they can be extremely hard to get rid of unless you find the nest.

While rental properties do provide great extra monthly income they can be a headache. Sometimes you have to be hard on people and evict them which can mess with you. I have one property where a disabled man has lived for 8 years and because he is disabled and lives off of Disabilitily he is on a fixed income. My taxes on that house have gone up over the 8 years but I don’t have the heart to charge this guy anymore on rent because I know he can’t afford it. Yes I still turn a slight profit on that unit but for how much longer will it take for the taxes and insurance and maintenance issues to surpass the rental income on this property? This tenant has always paid on time and takes good care of this particular property.

I do not see myself adding anymore rental properties. I have enough that they produce a really good income stream but I know when I get ready to retire I will be most likely selling them all. While I love remodeling housing and fixing things up, when you know you put sweat and blood into a property making it nice and only to have someone come destroy it... you get a lil perturbed.

All the rental income I get now on a monthly basis gets invested in the market. I used to save it and when I had enough I would buy another property. It is so much easier to just invest the money passively. The only advantage I see that real estate has over investing is if the market drops 40% again you have to ride it out while with rental property you will get the monthly check no matter what the market does. In 2008 when things were bad I think we (my dad and I) had to evict one person for not being able to pay. All the other properties stay rented.

skeptical1
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Re: Today I retired [should I invest in rental properties?]

Post by skeptical1 » Sat Aug 18, 2018 1:38 pm

Put me down as one who's been there and done that...once, but no more. I had rental properties (single family residences) for about 30 years. As I approached retirement I decided I didn't want the hassle anymore. I hate being "on call" (whether I had a property manager or not), and realistically, I'm getting less capable of handling things on my own as I age. It complicated my record keeping and taxes. There were a few unplanned surprises over the years. Finally, my reading led me to believe that real estate offered me no great advantage over a well diversified market portfolio. I celebrated my freedom when I divested myself of the last rental.

grok87
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Re: Today I retired [should I invest in rental properties?]

Post by grok87 » Sat Aug 18, 2018 3:19 pm

Just chiming in to mention the tiara real estate annuity.
Keep calm and Boglehead on. KCBO.

Cody
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Re: Today I retired [should I invest in rental properties?]

Post by Cody » Sat Aug 18, 2018 3:23 pm

Stay away from Private Riets (use public) if you go that route.

Best,
Cody

Call_Me_Op
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Re: Today I retired [should I invest in rental properties?]

Post by Call_Me_Op » Sat Aug 18, 2018 4:35 pm

retiredjg wrote:
Fri Aug 17, 2018 8:13 pm
peacelove wrote:
Fri Aug 17, 2018 5:15 pm
What do we think about putting a portion of our nest egg into rental properties? I'm looking for an alternative to the stock/bond market for at least 1/3 of my portfolio.
I think it is a very bad idea unless you already have experience in the area and have a huge passion for doing more of it.
Fully agree. At least your mutual funds won't call you at 3 AM because of a plumbing leak.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

Nissanzx1
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Re: Today I retired [should I invest in rental properties?]

Post by Nissanzx1 » Sat Aug 18, 2018 5:19 pm

We have 1 rental. Have had it two years. She pays on time and not many problems. $35K investment, rents $650/mo.

I can't tell you not to do it. Start with 1 and see if it's right for you.

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Sasquatch
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Re: Today I retired [should I invest in rental properties?]

Post by Sasquatch » Sat Aug 18, 2018 8:19 pm

Nissanzx1 wrote:
Sat Aug 18, 2018 5:19 pm
I can't tell you not to do it. Start with 1 and see if it's right for you.
+1

Don’t know where you plan on buying but in my area rentals no longer pencil. I have only been in the rental business 12 years. When houses pencil again to fit my desired parameters I would consider buying 2 more than I am done. I am presently 51. When I am 60 I hope to liquidate if market conditions are favorable.

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arcticpineapplecorp.
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Re: Today I retired [should I invest in rental properties?]

Post by arcticpineapplecorp. » Sat Aug 18, 2018 9:07 pm

read more here (recent excellent thread similar to this, but lenghtier, better in my opinion):

viewtopic.php?f=10&t=256777
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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Geneyus
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Re: Today I retired [should I invest in rental properties?]

Post by Geneyus » Sun Aug 19, 2018 3:31 pm

My dad buys cheap duplexes (around $50k) and rents them out to mostly older people in a low income area. It seems to work pretty well for him because even if one side is vacant, the other side brings in enough to make the loan payments. If he has both sides rented, he's making a pretty good profit. Being in a lower-income area, the tenants don't expect much, but they also don't improve the home any.

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