Real estate as part of overall investment plan

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renegade06
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Real estate as part of overall investment plan

Post by renegade06 » Sat Jan 12, 2019 3:09 pm

I was wondering how many of you have real estate investments outside of stock investing? I am reading up on the basics of real estate investing and I feel that this could be a good way to diversify my overall portfolio and create a passive income stream. I'm a little concerned about making a "mistake" so I'm taking it slow and reading as much as I can. I'm not looking for any high risk flips, but rather plan to focus on single family 3br/2ba homes. I live in the Washington DC area (expensive housing) so I am debating about "long distance" real estate in growth cities with cheaper homes. Do you all have any favorite books/websites on real estate investing? Any tips that you could share with a newbie? Thanks!

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Sandtrap
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Re: Real estate as part of overall investment plan

Post by Sandtrap » Sat Jan 12, 2019 3:43 pm

renegade06 wrote:
Sat Jan 12, 2019 3:09 pm
I was wondering how many of you have real estate investments outside of stock investing? I am reading up on the basics of real estate investing and I feel that this could be a good way to diversify my overall portfolio and create a passive income stream. I'm a little concerned about making a "mistake" so I'm taking it slow and reading as much as I can. I'm not looking for any high risk flips, but rather plan to focus on single family 3br/2ba homes. I live in the Washington DC area (expensive housing) so I am debating about "long distance" real estate in growth cities with cheaper homes. Do you all have any favorite books/websites on real estate investing? Any tips that you could share with a newbie? Thanks!
Here is a recent thread about this:
viewtopic.php?f=2&t=269299&p=4312660#p4312660

Search the forum archives (upper right) for "real estate investing", "income property", etc. Lot's there.
j

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renegade06
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Re: Real estate as part of overall investment plan

Post by renegade06 » Sat Jan 12, 2019 4:21 pm

Thanks!

Wricha
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Re: Real estate as part of overall investment plan

Post by Wricha » Sat Jan 12, 2019 5:24 pm

Real estate is not for everyone and on this site it’s not for anyone. I own commercial real estate (people tend to take care of their property when their business is dependent on it). Current allocation is 36% real estate (not including residents) 34% stocks and 28% bonds 2% cash. That’s the allocation based on value. Cash Flow from these assets 60% from real estate 16% from dividends 17% from bonds 7% other. Even though commercial real estate is only 36% of my net worth it represents 60% of my cash flow. Having 60% of my cash flow in one asset is probably my limit. I would guess that folks that are really into real estate would think my allocation conservative.

dbr
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Re: Real estate as part of overall investment plan

Post by dbr » Sat Jan 12, 2019 6:23 pm

Wricha wrote:
Sat Jan 12, 2019 5:24 pm
Real estate is not for everyone and on this site it’s not for anyone. I own commercial real estate (people tend to take care of their property when their business is dependent on it). Current allocation is 36% real estate (not including residents) 34% stocks and 28% bonds 2% cash. That’s the allocation based on value. Cash Flow from these assets 60% from real estate 16% from dividends 17% from bonds 7% other. Even though commercial real estate is only 36% of my net worth it represents 60% of my cash flow. Having 60% of my cash flow in one asset is probably my limit. I would guess that folks that are really into real estate would think my allocation conservative.
Real estate is certainly an option for those who are willing and have the ability to pursue it. This may fall somewhat into the category that if you have to ask then you should think twice about it. There are resources someone may be able to recommend for those contemplating the possibility. The best might be personal advice from people already there. Real estate tends to be very specific to type of investment, location, and timing.

I tend to think that when a person starts talking about cash flow that that is a business rather than investing. That would actually be the point in owning real estate in many cases.

I have no opinion regarding the balance between owning real estate and owning other things.

staythecourse
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Re: Real estate as part of overall investment plan

Post by staythecourse » Sat Jan 12, 2019 6:31 pm

I would LOVE to add direct real estate to my investments, but...

I have no clue on how to manage it.
I don't like the illiquidity
I don't like the lack of diversification
I don't like the single company risk (myself)
I don't want to ADD another job to my daily life on top of my profession, husband, and father
I would love to be the money guy to someone who does it for a living, but don't trust anyone and don't want to add manager risk and nontransparency to the equation.

If I have learned anything about investing is that EVERYTHING has risks/ downsides. Rental real estate is no difference. Just different then stocks which is different then bonds. It all depends if one wants to trade liquidity and lack of diversification with stock volatility for example.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

Wricha
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Re: Real estate as part of overall investment plan

Post by Wricha » Sat Jan 12, 2019 8:48 pm

dbr wrote:
Sat Jan 12, 2019 6:23 pm
Wricha wrote:
Sat Jan 12, 2019 5:24 pm
Real estate is not for everyone and on this site it’s not for anyone. I own commercial real estate (people tend to take care of their property when their business is dependent on it). Current allocation is 36% real estate (not including residents) 34% stocks and 28% bonds 2% cash. That’s the allocation based on value. Cash Flow from these assets 60% from real estate 16% from dividends 17% from bonds 7% other. Even though commercial real estate is only 36% of my net worth it represents 60% of my cash flow. Having 60% of my cash flow in one asset is probably my limit. I would guess that folks that are really into real estate would think my allocation conservative.
Real estate is certainly an option for those who are willing and have the ability to pursue it. This may fall somewhat into the category that if you have to ask then you should think twice about it. There are resources someone may be able to recommend for those contemplating the possibility. The best might be personal advice from people already there. Real estate tends to be very specific to type of investment, location, and timing.

I tend to think that when a person starts talking about cash flow that that is a business rather than investing. That would actually be the point in owning real estate in many cases.

I have no opinion regarding the balance between owning real estate and owning other things.
DBR,
When I was in my 40’s I got to know a very wealthy person. We got talking about personal finances, investing etc. and I asked him about net worth. He said he didn’t know what his net worth was (which I found hard to believe at the time). He told me he was much more interested in cash flow and could give me that number. I drank the kool aid, understanding and focusing on my cash flow has provided me with more security and a better night’s sleep than the optimal AA . With the wide swings in the market lately I can honestly say I don’t know what my net worth is but my cash flow has remained the same this year. If my cash flow remains positive in retirement I don’t have to think so much about safe withdrawal rates either. All this to say I think there is value in using cash flow as a metric in personal finance ( for me very important).

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Watty
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Re: Real estate as part of overall investment plan

Post by Watty » Sat Jan 12, 2019 9:10 pm

renegade06 wrote:
Sat Jan 12, 2019 3:09 pm
....and create a passive income stream......

I am debating about "long distance" real estate in growth cities with cheaper homes.
Real estate can work well for some people but it is really running a business so you need a good long term business plan including several possible exit strategies.

One thing to consider is if you are going to use property management companies in other cities then in effect you are creating your own personal REIT. There are some advantages of owning individual properties but it would be good to consider carefully if buying a publicly traded REIT might not be a better choice.

Even with property managers you still need to manage them and occasionally hire a different property manager. Consider how that will work when you are 85 and in assisted living, or if you have a spouse that has to manage your finances some day when they are elderly.

You should also consider how having multiple properties will impact settling your estate. Your heirs could have to do a lot of work to sell the properties and it could take several years to settle your estate and there could be a lot of legal fees. If you are in a situation where you have two heirs, like two kids, then settling your estate could cause a lot of conflicts between them since they will have to agree on every step of selling the property. There is a very good chance that one of them will end up having to do almost all the work and might resent that.

There is also a risk that the real estate market could be real bad when it is inherited and the people that inherit your estate would have to sell the property at a distressed sale price to get rid of it.

Wricha
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Re: Real estate as part of overall investment plan

Post by Wricha » Sat Jan 12, 2019 9:10 pm

staythecourse wrote:
Sat Jan 12, 2019 6:31 pm
I would LOVE to add direct real estate to my investments, but...

I have no clue on how to manage it.
I don't like the illiquidity
I don't like the lack of diversification
I don't like the single company risk (myself)
I don't want to ADD another job to my daily life on top of my profession, husband, and father
I would love to be the money guy to someone who does it for a living, but don't trust anyone and don't want to add manager risk and nontransparency to the equation.

If I have learned anything about investing is that EVERYTHING has risks/ downsides. Rental real estate is no difference. Just different then stocks which is different then bonds. It all depends if one wants to trade liquidity and lack of diversification with stock volatility for example.
Stay the course
I think Real estate may have a fair amount of diversity (locations, land,apartments, malls, farmland, commercial, lumber, healthcare, residential and more). Lack of liquidity can be mitigated somewhat through refinancing, leverage and cash flow. I agree you need to invest time into it but when your young you have the energy to take it on.

Nissanzx1
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Re: Real estate as part of overall investment plan

Post by Nissanzx1 » Sat Jan 12, 2019 9:18 pm

We have one rental and are shopping another right now. It's pretty hard to go wrong if you 1) get a deal and 2) pay cash. If you can't do both of those things, I personally wouldn't do it.

crazycatman
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Re: Real estate as part of overall investment plan

Post by crazycatman » Sun Jan 13, 2019 12:28 am

Nissanzx1 wrote:
Sat Jan 12, 2019 9:18 pm
We have one rental and are shopping another right now. It's pretty hard to go wrong if you 1) get a deal and 2) pay cash. If you can't do both of those things, I personally wouldn't do it.
Boomsauce. This is the philosophy I’m living by.

crazycatman
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Re: Real estate as part of overall investment plan

Post by crazycatman » Sun Jan 13, 2019 12:38 am

renegade06 wrote:
Sat Jan 12, 2019 3:09 pm
I was wondering how many of you have real estate investments outside of stock investing? I am reading up on the basics of real estate investing and I feel that this could be a good way to diversify my overall portfolio and create a passive income stream. I'm a little concerned about making a "mistake" so I'm taking it slow and reading as much as I can. I'm not looking for any high risk flips, but rather plan to focus on single family 3br/2ba homes. I live in the Washington DC area (expensive housing) so I am debating about "long distance" real estate in growth cities with cheaper homes. Do you all have any favorite books/websites on real estate investing? Any tips that you could share with a newbie? Thanks!
My wife and I are in the process of renovating (and by we I mean a contractor) our first rental property. Our plan is to average 4-5 purchases a year and rent them out for long term investments. Not only will this give us cash flow and replace our current income, giving us full financial freedom, but by the time we’re done purchasing, we’ll have >1m in real estate.

So far, the only thing we can count on is being really really conservative with our numbers. We don’t want to earn less than 10% on any property, so we crunch the numbers to where even if you don’t have a stellar year, barring things like replacing a roof or HVAC, we’re still putting that 10% in our pocket. We’re learning that great deals ARE out there, but you’ve got to be patient.

We’re also using a property manager, which eats 10% of our profit but it allows us to be really hands off, as I don’t know my way around a hammer and I definitely don’t want to deal with chasing rent.

We’re also buying all of this with cash.

If I were you, I’d look into those other markets. Check out Morris Invest if you haven’t already. They offer turnkey properties between 40-60k/each and handle everything for you. I’m sure there are other companies out there like that, but I think you’ll get a better return on your money buying outside of DC.

Regardless, I 100% believe that real estate should be a good portion of someone’s portfolio.

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Watty
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Re: Real estate as part of overall investment plan

Post by Watty » Sun Jan 13, 2019 12:42 am

Nissanzx1 wrote:
Sat Jan 12, 2019 9:18 pm
We have one rental and are shopping another right now. It's pretty hard to go wrong if you 1) get a deal and 2) pay cash. If you can't do both of those things, I personally wouldn't do it.
Not really.

See this thread as an example.

viewtopic.php?t=191039

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LittleGreenSoldiers
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Re: Real estate as part of overall investment plan

Post by LittleGreenSoldiers » Sun Jan 13, 2019 1:09 am

my personal take.
Best quote I ever heard in real estate. "You don't make money selling house. You make money buying houses."

We have 2 rentals. Low, loan to value on first with very favorable mortgage and paid cash for second. They are decent diversification component to our portfolio. We've had them for 4 and 2 years. Someone will argue that there is a cost of opportunity lost by not having them in the market over these years. While our IPS and AA may be different than there's. For us they have served us well and hopefully will continue to do so. Just like any other market. No one can predict the real estate and/or rental market.

My rental investment are weighted against my equity holdings. The way I see it they have a capital gains component in appreciation as well as an income or dividend component in rental income every year. Not to mention some of the tax benefits of holding investment real estate.

My two rental properties also happen to be in the same county and school district that I live in. I could always move into one of them as an option if I had to or chose to for tax purposes. I'm till waiting for someone to tell me how I could move into my VTSAX holing if I needed too. ;-)

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4nursebee
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Re: Real estate as part of overall investment plan

Post by 4nursebee » Sun Jan 13, 2019 3:46 am

My returns are improved through the use of leverage, perhaps double.
4nursebee

Nissanzx1
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Re: Real estate as part of overall investment plan

Post by Nissanzx1 » Sun Jan 13, 2019 5:34 am

Watty wrote:
Sun Jan 13, 2019 12:42 am
Nissanzx1 wrote:
Sat Jan 12, 2019 9:18 pm
We have one rental and are shopping another right now. It's pretty hard to go wrong if you 1) get a deal and 2) pay cash. If you can't do both of those things, I personally wouldn't do it.
Not really.

See this thread as an example.

viewtopic.php?t=191039
My spouse is an attorney and we would rather let our property sit than rent to someone with less than perfect credit. Of course, things can/will happen but we have so far had a great experience. We probably showed the first home to ten people before picking our current tenant. One applicant had a current eviction case in our county lol...

staythecourse
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Re: Real estate as part of overall investment plan

Post by staythecourse » Sun Jan 13, 2019 9:06 am

Nissanzx1 wrote:
Sat Jan 12, 2019 9:18 pm
We have one rental and are shopping another right now. It's pretty hard to go wrong if you 1) get a deal and 2) pay cash. If you can't do both of those things, I personally wouldn't do it.
I'm sorry that comes off as pretty naive. If you can't go wrong with it and all you need is cash then why are there any available?. PE has A LOT more then you. Construction guys have A LOT more then you. Many investors have A LOT more then you. There are folks paid to just walk around and contact the owners to see if they will sell BEFORE they even come on the market. So what makes you think you are getting the best deal.

I think RE is a GREAT option, but think it is "pretty hard to go wrong" seems like a line from someone who has not seen the risk show up. No different then someone who is 100% stocks only during a run op then 2008 happens AND gets fired. EVERYTHING in life has risk even jaywalking so RE is not any different. It is about accepting those risks and moving forward and not thinking it is some magical black box.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

staythecourse
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Re: Real estate as part of overall investment plan

Post by staythecourse » Sun Jan 13, 2019 9:12 am

Wricha wrote:
Sat Jan 12, 2019 9:10 pm
staythecourse wrote:
Sat Jan 12, 2019 6:31 pm
I would LOVE to add direct real estate to my investments, but...

I have no clue on how to manage it.
I don't like the illiquidity
I don't like the lack of diversification
I don't like the single company risk (myself)
I don't want to ADD another job to my daily life on top of my profession, husband, and father
I would love to be the money guy to someone who does it for a living, but don't trust anyone and don't want to add manager risk and nontransparency to the equation.

If I have learned anything about investing is that EVERYTHING has risks/ downsides. Rental real estate is no difference. Just different then stocks which is different then bonds. It all depends if one wants to trade liquidity and lack of diversification with stock volatility for example.
Stay the course
I think Real estate may have a fair amount of diversity (locations, land,apartments, malls, farmland, commercial, lumber, healthcare, residential and more). Lack of liquidity can be mitigated somewhat through refinancing, leverage and cash flow. I agree you need to invest time into it but when your young you have the energy to take it on.
Not to be a jerk, but don't understand how you will have all this money to plow into all the different types of real estate. Do you know any common Joe who does this, i.e. own a shopping mall, apartments, timber, and farmland then of course all in different geographical locations?

Also how does leverage help with liquidity? IF you want your money back you have to go through selling. Not quick to do even with a cash buyer. Can't rebalance it. If you sell it to free up money and is financed you have to pay the bank all the money owed so unless it is a profit you OWE money in the transaction.

I do agree and always have RE is a GREAT option. But think folks are just choosing to ignore the obvious (at least to me) risks vs. accepting those risks.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

StealthRabbit
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Re: Real estate as part of overall investment plan

Post by StealthRabbit » Sun Jan 13, 2019 10:28 am

Wricha wrote:
Sat Jan 12, 2019 5:24 pm
Real estate is not for everyone and on this site it’s not for anyone. I own commercial real estate (people tend to take care of their property when their business is dependent on it). Current allocation is 36% real estate (not including residents) 34% stocks and 28% bonds 2% cash. That’s the allocation based on value. Cash Flow from these assets 60% from real estate 16% from dividends 17% from bonds 7% other. Even though commercial real estate is only 36% of my net worth it represents 60% of my cash flow. Having 60% of my cash flow in one asset is probably my limit. I would guess that folks that are really into real estate would think my allocation conservative.
Similar in my case. (very close to same allocations)... i MUCH prefer Commercial, at the moment have too much residential to suit me (that will change with some 1031's). Commercial has it's own set if issues, but I prefer this issues!

RE is a tool, use it as you see fit and are capable. (Not the best fit for everyone)
I find this article a good explanation.
http://fifighter.com/finance/real-estat ... o-oranges/

Similar to the cash flows above, RE has contributed 60% to my 'wealth building', compared to other investments. (Granted my appreciated stock mostly went to my DAF, so I didn't directly reap the gains as direct wealth building.)

I do a pretty wide variety of RE investing. (since age 19... + 40 yrs) - building, flipping, rezoning commercial props, View property acquisitions, distress buying, remodeling, land swaps, soft lending... Would like to get into Land Leases!

Seasoned Mentors have really helped me (non-agency private RE investors).

Nissanzx1
Posts: 398
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Re: Real estate as part of overall investment plan

Post by Nissanzx1 » Sun Jan 13, 2019 11:10 am

staythecourse wrote:
Sun Jan 13, 2019 9:06 am
Nissanzx1 wrote:
Sat Jan 12, 2019 9:18 pm
We have one rental and are shopping another right now. It's pretty hard to go wrong if you 1) get a deal and 2) pay cash. If you can't do both of those things, I personally wouldn't do it.
I'm sorry that comes off as pretty naive. If you can't go wrong with it and all you need is cash then why are there any available?. PE has A LOT more then you. Construction guys have A LOT more then you. Many investors have A LOT more then you. There are folks paid to just walk around and contact the owners to see if they will sell BEFORE they even come on the market. So what makes you think you are getting the best deal.

I think RE is a GREAT option, but think it is "pretty hard to go wrong" seems like a line from someone who has not seen the risk show up. No different then someone who is 100% stocks only during a run op then 2008 happens AND gets fired. EVERYTHING in life has risk even jaywalking so RE is not any different. It is about accepting those risks and moving forward and not thinking it is some magical black box.

Good luck.
No reason to be sorry. I know I'm a small fry and that's ok. We can and will get a great deal on our next property (looking at two today).

The first house we closed for 68% of asking. The owner purchased the home for an internet boyfriend and realized after the breakup that she didn't want to own a home 1000 miles from her home. It needed paint and was on the market for months.

We accept that there will be risks. At some point it's possible that someone will get one over on us. That's ok- we will get through it. Since there is no debt to service, the risks are reduced.

Cash is a powerful tool with RE especially if you know who is selling. Homework is necessary. You must get the backstory and buy properties that "retail" buyers might not flock to.

ASK
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Re: Real estate as part of overall investment plan

Post by ASK » Sun Jan 13, 2019 11:49 am

Hello,
This is my first post. I am in the DC area too.

I got into RE in my 20's. I was living in a property and instead of selling when it was time to upgrade i took out the value i had accumulated and with cash and a loan i bought my next place. I did that two more times quite successfully here in Alexandria VA.

Then in Blacksburg VA, (home to Virginia Tech) about 4 hours away, i bought an investment property. My big score was buying a building of 12 units in the complex in foreclosure. The bank gave me great financing, and a good price.

So, in 20 years i have cobbled together 15 units. I have good cash flow, my mortgages are getting paid and the properties are appreciating. This is not my only profession so its not my only income but its good to have.

I do believe this field is not for all personalities. You have to be laid back, have extra time on your hands (if you want to manage it yourself). You do not need to do all the work, I have lots of trades and a handyman. But i still like to do some of the dirty work because i enjoy it.

Big picture-wise RE is about 55% of my Net Worth. My 45% is mostly in stocks with some bonds.

To get started i think you want something close to you, a market you have some knowledge of, a property that has a good price, and the ability to wait 3-5 years for any income from the property. RE gives you great leverage, and, in DC area, capital appreciation. I am conservative in all my financial endeavors and I think RE requires it.

Wricha
Posts: 349
Joined: Sun Mar 25, 2012 10:33 am

Re: Real estate as part of overall investment plan

Post by Wricha » Sun Jan 13, 2019 3:00 pm

StealthRabbit wrote:
Sun Jan 13, 2019 10:28 am
Wricha wrote:
Sat Jan 12, 2019 5:24 pm
Real estate is not for everyone and on this site it’s not for anyone. I own commercial real estate (people tend to take care of their property when their business is dependent on it). Current allocation is 36% real estate (not including residents) 34% stocks and 28% bonds 2% cash. That’s the allocation based on value. Cash Flow from these assets 60% from real estate 16% from dividends 17% from bonds 7% other. Even though commercial real estate is only 36% of my net worth it represents 60% of my cash flow. Having 60% of my cash flow in one asset is probably my limit. I would guess that folks that are really into real estate would think my allocation conservative.
Similar in my case. (very close to same allocations)... i MUCH prefer Commercial, at the moment have too much residential to suit me (that will change with some 1031's). Commercial has it's own set if issues, but I prefer this issues!

RE is a tool, use it as you see fit and are capable. (Not the best fit for everyone)
I find this article a good explanation.
http://fifighter.com/finance/real-estat ... o-oranges/

Similar to the cash flows above, RE has contributed 60% to my 'wealth building', compared to other investments. (Granted my appreciated stock mostly went to my DAF, so I didn't directly reap the gains as direct wealth building.)

I do a pretty wide variety of RE investing. (since age 19... + 40 yrs) - building, flipping, rezoning commercial props, View property acquisitions, distress buying, remodeling, land swaps, soft lending... Would like to get into Land Leases!

Seasoned Mentors have really helped me (non-agency private RE investors).
Thanks good article. Also pulling money out through refinancing is a good option for real estate owners. Maybe an option for you on your commercial real estate conversion.

Wricha
Posts: 349
Joined: Sun Mar 25, 2012 10:33 am

Re: Real estate as part of overall investment plan

Post by Wricha » Sun Jan 13, 2019 3:20 pm

staythecourse wrote:
Sun Jan 13, 2019 9:12 am
Wricha wrote:
Sat Jan 12, 2019 9:10 pm
staythecourse wrote:
Sat Jan 12, 2019 6:31 pm
I would LOVE to add direct real estate to my investments, but...

I have no clue on how to manage it.
I don't like the illiquidity
I don't like the lack of diversification
I don't like the single company risk (myself)
I don't want to ADD another job to my daily life on top of my profession, husband, and father
I would love to be the money guy to someone who does it for a living, but don't trust anyone and don't want to add manager risk and nontransparency to the equation.

If I have learned anything about investing is that EVERYTHING has risks/ downsides. Rental real estate is no difference. Just different then stocks which is different then bonds. It all depends if one wants to trade liquidity and lack of diversification with stock volatility for example.
Stay the course
I think Real estate may have a fair amount of diversity (locations, land,apartments, malls, farmland, commercial, lumber, healthcare, residential and more). Lack of liquidity can be mitigated somewhat through refinancing, leverage and cash flow. I agree you need to invest time into it but when your young you have the energy to take it on.
Not to be a jerk, but don't understand how you will have all this money to plow into all the different types of real estate. Do you know any common Joe who does this, i.e. own a shopping mall, apartments, timber, and farmland then of course all in different geographical locations?

Also how does leverage help with liquidity? IF you want your money back you have to go through selling. Not quick to do even with a cash buyer. Can't rebalance it. If you sell it to free up money and is financed you have to pay the bank all the money owed so unless it is a profit you OWE money in the transaction.

I do agree and always have RE is a GREAT option. But think folks are just choosing to ignore the obvious (at least to me) risks vs. accepting those risks.

Good luck.
Your not being a jerk at all. People tend to believe there is only residential options (plumber at 3 am) available. My point there are so many types of real estate and the learning curve may not be so great if you pick real estate options that you already know something about it. For example. Doc owning a medical office building. Lawyer in a professional office space etc. Seems to me people who shy away from real estate are the ones who are not diversified. REIT’s are an option and I honestly don’t know how they work or don’t work. They do cause me to pause because watching how a project comes together, all the big money may be gone before the first rent check is paid if you not involved in the initial steps. You point about owning all types is correct and probable not available expect through a REIT option.

tomtoms
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Re: Real estate as part of overall investment plan

Post by tomtoms » Sun Jan 13, 2019 3:40 pm

You have to take things you read on this forum with a grain of salt when it comes to real estate investing (no disrespect). I say this because most people here (1) are older and too conservative, (2) don't have the money, (3) don't have the skills (and balls).

Buying a good property takes some skills and obviously it takes time. However, it can make you a lot more money than investing in the stock market because of leverage. What bank is going to lend you $250 k to buy stocks? But that doesn't mean banks would lend you money to buy a rental property. You need to have high income to debt ratio and need to have assets.

You have to ask yourself...what advantage do you have when you are buying stocks? Easy access to information changed everything. Anything you know, the stock market already knows. This is why indexing makes sense. But with real estate, you can beat your competitors when you have the money and experience.

This is what I suggest and have done:

- look at > 100 homes before buying
- find a good, upcoming neighborhood
- make sure the numbers make sense (need positive cash flow)
- need to buy below market value (yes, this takes skill and you probably need to have better financials than your competitors)
- be ready to walk away (no emotional buying)
- keep on making offers
- hire a property manager
- play the long game (10+ years)

Timing is also a huge factor but I think if you play the long game, timing is less important. Obviously you can make money in the stock market but there is a big difference between having $1M when you are 70 vs. $1M when you are 35. You can only make that kind of money at 35 by starting a successful business or real estate investing.

bltn
Posts: 260
Joined: Mon Feb 20, 2017 9:32 pm

Re: Real estate as part of overall investment plan

Post by bltn » Sun Jan 13, 2019 3:44 pm

staythecourse wrote:
Sat Jan 12, 2019 6:31 pm
I would LOVE to add direct real estate to my investments, but...

I have no clue on how to manage it.
I don't like the illiquidity
I don't like the lack of diversification
I don't like the single company risk (myself)
I don't want to ADD another job to my daily life on top of my profession, husband, and father
I would love to be the money guy to someone who does it for a living, but don't trust anyone and don't want to add manager risk and nontransparency to the equation.

If I have learned anything about investing is that EVERYTHING has risks/ downsides. Rental real estate is no difference. Just different then stocks which is different then bonds. It all depends if one wants to trade liquidity and lack of diversification with stock volatility for example.

I agree particularly with points 1,2, and 5.
Good luck.

crazycatman
Posts: 40
Joined: Wed Feb 14, 2018 11:23 pm

Re: Real estate as part of overall investment plan

Post by crazycatman » Sun Jan 13, 2019 4:07 pm

tomtoms wrote:
Sun Jan 13, 2019 3:40 pm
You have to take things you read on this forum with a grain of salt when it comes to real estate investing (no disrespect). I say this because most people here (1) are older and too conservative, (2) don't have the money, (3) don't have the skills (and balls).

Buying a good property takes some skills and obviously it takes time. However, it can make you a lot more money than investing in the stock market because of leverage. What bank is going to lend you $250 k to buy stocks? But that doesn't mean banks would lend you money to buy a rental property. You need to have high income to debt ratio and need to have assets.

You have to ask yourself...what advantage do you have when you are buying stocks? Easy access to information changed everything. Anything you know, the stock market already knows. This is why indexing makes sense. But with real estate, you can beat your competitors when you have the money and experience.

This is what I suggest and have done:

- look at > 100 homes before buying
- find a good, upcoming neighborhood
- make sure the numbers make sense (need positive cash flow)
- need to buy below market value (yes, this takes skill and you probably need to have better financials than your competitors)
- be ready to walk away (no emotional buying)
- keep on making offers
- hire a property manager
- play the long game (10+ years)

Timing is also a huge factor but I think if you play the long game, timing is less important. Obviously you can make money in the stock market but there is a big difference between having $1M when you are 70 vs. $1M when you are 35. You can only make that kind of money at 35 by starting a successful business or real estate investing.
Yep, yep, and yep.

travellight
Posts: 2792
Joined: Tue Aug 12, 2008 5:52 pm
Location: San Diego

Re: Real estate as part of overall investment plan

Post by travellight » Sun Jan 13, 2019 4:14 pm

tomtoms wrote:
Sun Jan 13, 2019 3:40 pm
You have to take things you read on this forum with a grain of salt when it comes to real estate investing (no disrespect). I say this because most people here (1) are older and too conservative, (2) don't have the money, (3) don't have the skills (and balls).

Buying a good property takes some skills and obviously it takes time. However, it can make you a lot more money than investing in the stock market because of leverage. What bank is going to lend you $250 k to buy stocks? But that doesn't mean banks would lend you money to buy a rental property. You need to have high income to debt ratio and need to have assets.

You have to ask yourself...what advantage do you have when you are buying stocks? Easy access to information changed everything. Anything you know, the stock market already knows. This is why indexing makes sense. But with real estate, you can beat your competitors when you have the money and experience.

This is what I suggest and have done:

- look at > 100 homes before buying
- find a good, upcoming neighborhood
- make sure the numbers make sense (need positive cash flow)
- need to buy below market value (yes, this takes skill and you probably need to have better financials than your competitors)
- be ready to walk away (no emotional buying)
- keep on making offers
- hire a property manager
- play the long game (10+ years)

Timing is also a huge factor but I think if you play the long game, timing is less important. Obviously you can make money in the stock market but there is a big difference between having $1M when you are 70 vs. $1M when you are 35. You can only make that kind of money at 35 by starting a successful business or real estate investing.
I agree with most of what you said, but why hire a property manager? I feel like there is a 10% likelihood that you will hire the right one that will more than make up for their cost by increasing rents and a 90% likelihood that they will just cost you 8-10%.

tomtoms
Posts: 85
Joined: Wed Mar 06, 2013 11:56 pm

Re: Real estate as part of overall investment plan

Post by tomtoms » Sun Jan 13, 2019 5:11 pm

^^ Hiring a good property manager is like dating. You need to find the right one.

This is how and why I would rather have one:

- reduce liability (I don’t know all the laws)
- find better tenants (they have more experience with screening tenants)
- tenants would rather work with a property manager than some random stranger (would you let a stranger run your credit report?)
- tenants are less likely to screw over an experienced property manager than a novice investor
- cost of a property manager is a business expense and therefore, it is a tax write off
- I don’t have time to manage multiple properties

- find a real estate investor with multiple properties in the same area and use the same property manager
- if that real estate investor is a close friend or relative, then ask the property manager for the same rate (most likely he/she is already getting discounted rate)
- property manager is less likely to screw you over if he/she has a lot of business with you and your relative/friend

BrooklynInvest
Posts: 148
Joined: Sun Jul 28, 2013 9:23 am

Re: Real estate as part of overall investment plan

Post by BrooklynInvest » Sun Jan 13, 2019 6:36 pm

Guess I'm a small scale RE investor - have a 2-family house in HCOL area. Overall it's been great and worked out as an investment.

Pros -
Cash flow is about a fifth of total income
Allowed me to buy the space I wanted in the location I wanted
My tenants are below me

Cons -
It's double the household hassles
Takes perpetual, but typically small expenditures along the way
My tenants are below me

Even on a small scale it's an extra part time job but, thus far, a part time job that's paid well. When the mortgage is paid off in 3 years it'll be a significant, and somewhat inflation-indexed contributor to early retirement. Good luck!

22twain
Posts: 1653
Joined: Thu May 10, 2012 5:42 pm

Re: Real estate as part of overall investment plan

Post by 22twain » Sun Jan 13, 2019 11:11 pm

tomtoms wrote:
Sun Jan 13, 2019 3:40 pm
You have to take things you read on this forum with a grain of salt when it comes to real estate investing (no disrespect). I say this because most people here (1) are older and too conservative, (2) don't have the money, (3) don't have the skills (and balls).
(4) too lazy (that includes me :beer )
My investing princiPLEs do not include absolutely preserving princiPAL.

pennywise
Posts: 535
Joined: Sat May 31, 2014 6:22 am

Re: Real estate as part of overall investment plan

Post by pennywise » Mon Jan 14, 2019 7:34 am

tomtoms wrote:
Sun Jan 13, 2019 5:11 pm
^^ Hiring a good property manager is like dating. You need to find the right one.

This is how and why I would rather have one:

- reduce liability (I don’t know all the laws)
- find better tenants (they have more experience with screening tenants)
- tenants would rather work with a property manager than some random stranger (would you let a stranger run your credit report?)
- tenants are less likely to screw over an experienced property manager than a novice investor
- cost of a property manager is a business expense and therefore, it is a tax write off
- I don’t have time to manage multiple properties
All but the last 'advantage' can be handled by a realtor. A good realtor knows the laws, finds tenants, runs the credit check etc.

I think the value of a property manager is solely the last point; if you are a busy person and truly do not have time to deal with rentals and/or amass enough of a rental portfolio that it does become overwhelming a manager may indeed make good financial sense.

However, as a small time (2 single family homes) landlord, I have experienced that it's more of a part time job albeit one that has completely unpredictable contact/problem points. So there are months that go by with nothing other than a rent payment rolling in. And then there is the 9 pm tantrum about allowing worker access the next day because the repair has to be done and the permit is expiring. Or the Sunday 2 pm panic call that there's a leak which means a catastrophic water damage event. Or the Wednesday 1 pm text that there are roaches everywhere.....and so on.

Topic Author
renegade06
Posts: 4
Joined: Sat Jan 12, 2019 3:00 pm

Re: Real estate as part of overall investment plan

Post by renegade06 » Mon Jan 14, 2019 9:37 am

Many thanks to everyone for your thoughtful replies!

Bob B.
Posts: 4
Joined: Mon Oct 08, 2018 5:11 pm

Re: Real estate as part of overall investment plan

Post by Bob B. » Mon Jan 14, 2019 10:36 am

Although my wife owns a rental property (and is successful with it), I don't believe the average person should own individual pieces of real estate as a part of their portfolio. I have a real estate fund in my 401K. I also own the Vanguard ETF real estate fund, thereby giving me global real estate exposure. I prefer to have professionals choosing which real estate to buy and to sell. Real estate funds are an excellent diversity from stocks and bonds, plus they give you a stream of income. As part of the diversity, funds give you exposure to apartment buildings, shopping and retailing, office buildings, hotels, land, etc. Buying up individual houses as a part of a portfolio doesn't do that.

ny_rn
Posts: 427
Joined: Sun May 11, 2014 7:09 am

Re: Real estate as part of overall investment plan

Post by ny_rn » Mon Jan 14, 2019 11:19 am

crazycatman wrote:
Sun Jan 13, 2019 12:38 am
renegade06 wrote:
Sat Jan 12, 2019 3:09 pm
I was wondering how many of you have real estate investments outside of stock investing? I am reading up on the basics of real estate investing and I feel that this could be a good way to diversify my overall portfolio and create a passive income stream. I'm a little concerned about making a "mistake" so I'm taking it slow and reading as much as I can. I'm not looking for any high risk flips, but rather plan to focus on single family 3br/2ba homes. I live in the Washington DC area (expensive housing) so I am debating about "long distance" real estate in growth cities with cheaper homes. Do you all have any favorite books/websites on real estate investing? Any tips that you could share with a newbie? Thanks!


If I were you, I’d look into those other markets. Check out Morris Invest if you haven’t already. They offer turnkey properties between 40-60k/each and handle everything for you. I’m sure there are other companies out there like that, but I think you’ll get a better return on your money buying outside of DC.

Be very careful with Morris Invest. Do extensive due diligence on the turnkey company.

Morris Invest reviews/lawsuits: https://www.biggerpockets.com/search?ut ... ris+invest

tomtoms
Posts: 85
Joined: Wed Mar 06, 2013 11:56 pm

Re: Real estate as part of overall investment plan

Post by tomtoms » Mon Jan 14, 2019 11:53 am

Bob B. wrote:
Mon Jan 14, 2019 10:36 am
Although my wife owns a rental property (and is successful with it), I don't believe the average person should own individual pieces of real estate as a part of their portfolio. I have a real estate fund in my 401K. I also own the Vanguard ETF real estate fund, thereby giving me global real estate exposure. I prefer to have professionals choosing which real estate to buy and to sell. Real estate funds are an excellent diversity from stocks and bonds, plus they give you a stream of income. As part of the diversity, funds give you exposure to apartment buildings, shopping and retailing, office buildings, hotels, land, etc. Buying up individual houses as a part of a portfolio doesn't do that.
Yes, you can buy RE ETF but that is like buying S&P 500. There is no leverage. Leverage is what makes RE investing special but of course leverage is great on the way up but painful on the way down so you have to know what you are doing.

Here are two scenarios (I am simplifying it to make a point on leverage):

(1) Put $80 k in RE ETF. Let’s assume you make 8% per year (after fees). After 9 years, your money would double to $160 k and after 18 years, your money would double again to $320 k.

(2) Put $80 k (20% down payment) on $400 k house. Lets assume a modest 4% appreciation per year and your tenants pay for all expenses (mortgage, property tax, fixes, property manager, etc). After 18 years, the house would double to $800 k.

So $800 k vs. $320 k. That is a big difference! Of course there is nothing wrong with putting money into RE ETF earning 8% per year and cash out when you are 65 like everybody else. But, if you want to be wealthy at a young age, you have to start a business or buy rental properties. For me...I am doing both. I am not trying to impress you but just to let you know where I am coming from. I also have a high paying job so I am flushed with cash. I am using money from my job, business to buy more rental properties. I have stopped buying stocks besides maxing out my 401 k, SEP-IRA, HSA which is already a lot.

I am not saying your average joe can do real estate investing. But, I think if you have the money (high income, low debt) and you are street smart, you can make a lot money in real estate.
Last edited by tomtoms on Mon Jan 14, 2019 8:04 pm, edited 1 time in total.

StealthRabbit
Posts: 146
Joined: Sat Jun 13, 2009 1:25 am

Re: Real estate as part of overall investment plan

Post by StealthRabbit » Mon Jan 14, 2019 12:03 pm

Any tips that you could share with a newbie? Thanks!
If you decide to pursue:
1) Never over pay. (I have only bought TWO of 34 properties through an agent... better to find your OWN deals, and VERY ez with internet and GIS)
2) Buy ONLY what is resellable (tomorrow for 10% more = break even)
3. You make your money on the purchase / not on the sale.
4. Gonna rent? better be able to get 10% of capital cost (total price) as monthly income (Gross)
5. Location is very important (for rentals and resale)
6. You better be willing to live there... (some day you may HAVE too!)
7. for my commercial side... NEVER buy / rent something with a bedroom!

OregonDucksFan
Posts: 37
Joined: Wed Apr 25, 2018 12:29 pm
Location: Earth

Re: Real estate as part of overall investment plan

Post by OregonDucksFan » Mon Jan 14, 2019 12:16 pm

I would only buy real estate if it's a house I would live in or at least in the neighborhood I would live in. Then, I am more likely to get tenants who have similar standards of upkeep. They may still not take care of it as much as I the owner do, but more likely better upkeep than average. I have never had problems with people not paying on time or people who trash the place. The disadvantages of buying in a better neighborhood is your cash flow may not be positive right away (the cost is higher but the rent is not higher by the same proportion), and potentially higher turnover (I don't get tenants who rent for 10 years -- more like 3 years -- as these tenants are more likely to be able to afford their own homes).

crazycatman
Posts: 40
Joined: Wed Feb 14, 2018 11:23 pm

Re: Real estate as part of overall investment plan

Post by crazycatman » Mon Jan 14, 2019 2:57 pm

ny_rn wrote:
Mon Jan 14, 2019 11:19 am
crazycatman wrote:
Sun Jan 13, 2019 12:38 am
renegade06 wrote:
Sat Jan 12, 2019 3:09 pm
I was wondering how many of you have real estate investments outside of stock investing? I am reading up on the basics of real estate investing and I feel that this could be a good way to diversify my overall portfolio and create a passive income stream. I'm a little concerned about making a "mistake" so I'm taking it slow and reading as much as I can. I'm not looking for any high risk flips, but rather plan to focus on single family 3br/2ba homes. I live in the Washington DC area (expensive housing) so I am debating about "long distance" real estate in growth cities with cheaper homes. Do you all have any favorite books/websites on real estate investing? Any tips that you could share with a newbie? Thanks!


If I were you, I’d look into those other markets. Check out Morris Invest if you haven’t already. They offer turnkey properties between 40-60k/each and handle everything for you. I’m sure there are other companies out there like that, but I think you’ll get a better return on your money buying outside of DC.

Be very careful with Morris Invest. Do extensive due diligence on the turnkey company.

Morris Invest reviews/lawsuits: https://www.biggerpockets.com/search?ut ... ris+invest
Yikes. Yeah, no to Morris.

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