Buying Real Estate for More Immediate Income Stream

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bog72upCash
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Buying Real Estate for More Immediate Income Stream

Post by bog72upCash »

My parents and I own about $300K between some CDs and money markets. I myself own about $40K in retirement Roth IRA funds.

My parents are elderly and live off of their respective retirements and dividends from a corporation they own with other family members. I will in the future own a portion of the corporation via inheritance. Their real estate share in their share of said corporation is currently estimated at $340K.

I own my own home. However I want to buy my own real estate (a condo perhaps) for investment purposes (hopefully for additional income within the next 5 to 10 years). My parents are willing to allow use of some of the $300K as leverage/down for the property. Should I take the plunge and attempt an investment in real estate on my own with their financial assistance? I fear a 2008 repeat of the real estate market and losing, say, $40K, in the process. Maybe I am being too cautious or pessimistic.
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Googliebear
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Re: Buying Real Estate for More Immediate Income Stream

Post by Googliebear »

bog72upCash wrote: Sat Jan 04, 2020 8:58 pm My parents and I own about $300K between some CDs and money markets. I myself own about $40K in retirement Roth IRA funds.

My parents are elderly and live off of their respective retirements and dividends from a corporation they own with other family members. I will in the future own a portion of the corporation via inheritance. Their real estate share in their share of said corporation is currently estimated at $340K.

I own my own home. However I want to buy my own real estate (a condo perhaps) for investment purposes (hopefully for additional income within the next 5 to 10 years). My parents are willing to allow use of some of the $300K as leverage/down for the property. Should I take the plunge and attempt an investment in real estate on my own with their financial assistance? I fear a 2008 repeat of the real estate market and losing, say, $40K, in the process. Maybe I am being too cautious or pessimistic.
There is no risk free investment. One rule of thumb you'll hear on this forum is to not invest money that you need within the next five to ten years, primarily because the value of your investment may go down within that timeframe.

As for a housing correction, crisis, downturn, etc. You can bet it'll happen again; when and how big, who knows. I'm fairly certain you won't see anything like 2007 - 2008 again for at least a couple of decades as memories of such an event tend to change how people live and how they teach their children. This would be somewhat similar to how the great depression affected two or three generations of people and how they managed their money (without the trust of banks). It'll be a couple of generations before people (and politicians) forget the lessons of the crisis and repeat it.

If you're worried about losing 13.3% from a near term perspective; I wouldn't do it, especially with your parents money. If it was your money, I would reassess your risk tolerance and decide if you're willing to lose money before you risk it.
KATNYC
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Re: Buying Real Estate for More Immediate Income Stream

Post by KATNYC »

Being a landlord is a huge risk. I'd research it further before making a decision, and definitely not with your parents' money.
We were landlords, during the housing crisis, and it was fine initially until tenants started being laid off from their once stable jobs.
We had properties in established middle-income neighborhoods.

Interesting read: https://www.citylab.com/equity/2019/03/ ... ch/585265/
DesertInvestor
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Re: Buying Real Estate for More Immediate Income Stream

Post by DesertInvestor »

My own experience. Went great for two years, then vacancy expenses and taxes just destroyed my two single family homes in Texas. its a nightmare dealing with them. There is zero wrong with sitting on cash and thinking long and hard about it. If you do purchase, make sure its close to home so you can handle any issues. it really takes a large portfolio to make up for vacancy and expense in my opinion. After over two years, I am no longer a fan of direct ownership (at least not for busy people). Even with management company, this is not passive.
delamer
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Re: Buying Real Estate for More Immediate Income Stream

Post by delamer »

Why not invest some portion of the CD money in a stock index fund (which would be maintenance- and tenant-free) rather than go the real estate route?
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FelixTheCat
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Re: Buying Real Estate for More Immediate Income Stream

Post by FelixTheCat »

KATNYC wrote: Sat Jan 04, 2020 11:11 pm Being a landlord is a huge risk. I'd research it further before making a decision, and definitely not with your parents' money.
We were landlords, during the housing crisis, and it was fine initially until tenants started being laid off from their once stable jobs.
We had properties in established middle-income neighborhoods.
I'm curious about your risks.

I've been a landlord for 15+ years. I have a property manager that reviews tenants, collects rents and maintains the property. The longest I've been without a tenant is two weeks because of maintenance. My only issue is one tenant didn't water the back yard and let the lawn die.
Felix is a wonderful, wonderful cat.
TheLaughingCow
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Re: Buying Real Estate for More Immediate Income Stream

Post by TheLaughingCow »

KATNYC wrote: Sat Jan 04, 2020 11:11 pm Being a landlord is a huge risk. I'd research it further before making a decision, and definitely not with your parents' money.
We were landlords, during the housing crisis, and it was fine initially until tenants started being laid off from their once stable jobs.
We had properties in established middle-income neighborhoods.

Interesting read: https://www.citylab.com/equity/2019/03/ ... ch/585265/
The basic premise of that article, that it is wrong for landlords to charge higher margin to low-income tenants, is incorrect in my opinion. Low income tenants are more likely to trash the place or be unable to pay rent. Then when you get a judgement against them there's nothing to collect on, because they have no assets, and no wages to garnish, because they have a low income.

Of course many low income renters pay their rent on time and cause no problems but the higher risk of renting to them demands a higher rate of return.

Though of course this risk is not limited to low-income housing.

https://www.google.com/url?sa=t&source= ... VfqFNMleNg
StealthRabbit
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Re: Buying Real Estate for More Immediate Income Stream

Post by StealthRabbit »

How well do you know your RE market? Do you have a seasoned (and successful) mentor?

RE is a very LT investment, but can work for good returns if in the right market as long as you buy right, and know your market / risks.

I use a very simple formula that if I can't rent it for 1% / month of total price, I will not buy. $300k investment must easily gross $3k / month. Some markets will not support that, so I find a market or property that will. I only do this in income tax free states, as that is where I domicile. I prefer commercial NNN props to residential. ~40% of my invest-able assets are in RE, and I'm whittling that down. (Provides good income for FIRE, but too much hassle for when I am older and retired).

I would not co-mingle parents funds unless it is a short bridge loan with a short-term interest benefit to them. (Above what a bridge loan would cost you at a bank). I would still be leary of doing that for longer than 12 months, so you need a repayment plan up front.
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unclescrooge
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Re: Buying Real Estate for More Immediate Income Stream

Post by unclescrooge »

FelixTheCat wrote: Tue Jan 07, 2020 4:29 pm
KATNYC wrote: Sat Jan 04, 2020 11:11 pm Being a landlord is a huge risk. I'd research it further before making a decision, and definitely not with your parents' money.
We were landlords, during the housing crisis, and it was fine initially until tenants started being laid off from their once stable jobs.
We had properties in established middle-income neighborhoods.
I'm curious about your risks.

I've been a landlord for 15+ years. I have a property manager that reviews tenants, collects rents and maintains the property. The longest I've been without a tenant is two weeks because of maintenance. My only issue is one tenant didn't water the back yard and let the lawn die.
Also a landlord for 16 years.

I've had a tenant who didn't pay rent for 4 months, cost $1k to evict and $7k in damages. Then it took about 6 weeks to fix up the place and then 2 weeks to re-rent.

Lost 14 months worth of rental income on that one.

Also once had a vacancy in November and it took 3 months to re-rent, mainly because of the weather and time of year.
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abuss368
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Re: Buying Real Estate for More Immediate Income Stream

Post by abuss368 »

Before I invested directly I would own the Vanguard US REIT and International REIT funds.
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Topic Author
bog72upCash
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Re: Buying Real Estate for More Immediate Income Stream

Post by bog72upCash »

Well..stupid question of the year..Do I dump PRU now? Or hold it hoping without hope that it'll hit $90/share again.
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abuss368
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Re: Buying Real Estate for More Immediate Income Stream

Post by abuss368 »

bog72upCash wrote: Fri Mar 20, 2020 5:47 pm Well..stupid question of the year..Do I dump PRU now? Or hold it hoping without hope that it'll hit $90/share again.
Nobody knows nuttin!
John C. Bogle: “Simplicity is the master key to financial success."
annu
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Re: Buying Real Estate for More Immediate Income Stream

Post by annu »

bog72upCash wrote: Fri Mar 20, 2020 5:47 pm Well..stupid question of the year..Do I dump PRU now? Or hold it hoping without hope that it'll hit $90/share again.
I own both, not a good idea for someone looking for short term, look at them right now they are both down by double digit %ages.
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