Do you invest in Real Estate ? Why ?

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confusedinvestor
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Do you invest in Real Estate ? Why ?

Post by confusedinvestor » Sun Apr 01, 2018 1:06 pm

Folks,
1. Do you invest in Real Estate ?
2. If yes, Why do you invest ? Cash Flow vs 3-Fund-Portfolio ?
3. If not, Why not ?
I'll appreciate if you please share any real experiences; My Financial Advisor advised me to consider Real Estate investments for Cash Flow diversification.

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oldcomputerguy
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Re: Do you invest in Real Estate ? Why ?

Post by oldcomputerguy » Sun Apr 01, 2018 1:11 pm

I have a paid-for house as my primary residence. Outside of that, the only RE I have any investment in is whatever is in Total Stock Market index funds. I see no need for anything else.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

chevca
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Re: Do you invest in Real Estate ? Why ?

Post by chevca » Sun Apr 01, 2018 1:13 pm

Nope, I have no interest in being a landlord and worrying about another house besides my own.

I was an accidental landlord from 2010 to 2015. It obviously wasn't a good cash flow deal since I accidentally had a rental when I moved and couldn't sell because I owed more than I could get for it. It actually worked out okay since I had good renters and the housing market there eventually recovered nicely. But, even with a property manager mostly running the show it was still a worry in the back of my mind to have a bad renter, or a big repair come due, or who knows. It was not for me.

There's money to be made there though and some folks love it. As long as the cash is there to get in a good position from the start, I think it's more of a personality thing to take that on.

chevca
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Re: Do you invest in Real Estate ? Why ?

Post by chevca » Sun Apr 01, 2018 1:15 pm

Also, remember where you're asking this question. There are some RE folks here, but not a lot. If you asked this on the biggerpockets site, you would get a way different set of answers.

bling
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Re: Do you invest in Real Estate ? Why ?

Post by bling » Sun Apr 01, 2018 1:24 pm

apples and oranges.

index funds are completely passive. real estate is active management.

thx1138
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Re: Do you invest in Real Estate ? Why ?

Post by thx1138 » Sun Apr 01, 2018 2:18 pm

I don’t because of the high idiosyncratic risk and the cost and effort of maintaining the investment. Prefer passive investments with no effort to maintain as I presently can make far more money in my day job than dealing with a rental.

That said I know people who do invest in real estate (rentals) and find good return and cash flow for their investment. These folks tend to be types who like to work around their house and don’t mind maintaining the rentals themselves. That is of course not strictly necessary as many people outsource everything and still do well if they choose their properties well.

I don’t think there is a “right” answer really. More personal preference.

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Pajamas
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Re: Do you invest in Real Estate ? Why ?

Post by Pajamas » Sun Apr 01, 2018 2:23 pm

No, I'm retired and don't want to work or accept the concentrated risk. Choosing between passive investing in REITs or REIT funds vs. the work involved in owning and operating a real estate business is a no-brainer for me. If I were young and enjoyed renovating houses and lived in certain places where it presented a good opportunity for a business, I might dabble in it.

There seems to be a real estate mania in this country, especially as an "investment". That doesn't always work out well in normal times, much less in periods of financial and housing market volatility. Plenty of money has been made in real estate, but plenty has been lost as well. Those who did well seem to talk about it more frequently than those who did not.

The biggest problem I see is that there are so many people with no experience or knowledge becoming landlords when they would not start another type of business such as a restaurant with no experience or knowledge. There is a huge failure rate with new business start-ups and so many of those people don't even see it as as business. This is something I don't understand.

Jack FFR1846
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Re: Do you invest in Real Estate ? Why ?

Post by Jack FFR1846 » Sun Apr 01, 2018 2:29 pm

1. Do you invest in Real Estate ?
Nope
2. If yes, Why do you invest ? Cash Flow vs 3-Fund-Portfolio ?
n/a
3. If not, Why not ?
When I went away for grad school, we rented out our house rather than selling. Hired a manager. First renters were great. Second had extra people in the house undisclosed, destroyed a brand new hardwood floor and used up all of the heating oil saying that the previous tenants "gave it to them". :annoyed It was my oil...I filled the tank before renting to the first tenants. Oh, and like lots of tenants pull, they told the manager to use the security deposit for the last months rent and then left. Having the manager didn't spare me from getting calls about repairs or that the tenant assumed that the lawn mower in the garage came with the rental (it was owned by the previous tenant) and deducted lawn mowing from their rent and at one point, the manager went all crazy and basically fired us.

This was all for just a year and a half. Zero interest in doing that again ever. My mutual funds and ETFs amazingly never call us, never have a repair, don't have tax and insurance increases, don't call when the septic tank needs to be pumped out. They just pay us money.
Bogle: Smart Beta is stupid

BrooklynInvest
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Re: Do you invest in Real Estate ? Why ?

Post by BrooklynInvest » Sun Apr 01, 2018 2:29 pm

I've owned a two family house for 10 years so that's a yes.

The gain is irrelevant I guess 'cause I aint selling but the rise in rental income is significant to me and will be about half of my retirement income once I've paid off the mortgage in 4 more years.

My view - it's a part time job and can be difficult at times but it's been worth it financially. Past performance no guarantee of future results . . .

letsgobobby
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Re: Do you invest in Real Estate ? Why ?

Post by letsgobobby » Sun Apr 01, 2018 2:51 pm

We've had a good experience with the SFH we've rented out. We had other reasons for getting into it but the appreciation and rental income (tax free net of expenses and depreciation) has been nice. We hired out a manager who calls us maybe twice a year. It's very low maintenance.

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unclescrooge
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Re: Do you invest in Real Estate ? Why ?

Post by unclescrooge » Sun Apr 01, 2018 2:53 pm

Yes.
Diversification of assets.

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abuss368
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Re: Do you invest in Real Estate ? Why ?

Post by abuss368 » Sun Apr 01, 2018 4:43 pm

We have never owned rental property but have thought about it. We have invested in the Vanguard U.S. REIT Index fund and the Vanguard International REIT/RE Index funds.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Portfolio7
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Re: Do you invest in Real Estate ? Why ?

Post by Portfolio7 » Sun Apr 01, 2018 5:08 pm

Not really. We have our residence, and then we also own a house in another state that my FIL lives in.

We've considered investing in certain situations where we know there is high demand, but typically the cash flow risk has been daunting. I doubt we'll ever do so. When my FIL is done with the other home we own, we'll sell it asap and pay down debt... there are risks associated with it's location re: vulnerability to natural disasters (it already survived one with modest damage, and luckily we have some friends who are contractors and helped us get it live-able again really fast.

I invest for
* Retirement
* Legacy for a disabled child (we've decided to use a life insurance policy to fund this, so this will no longer be a reason to invest)
* Education for another child.
I'm not going to try to prioritize, except to say that while our education funds are far short of where we hoped to be when we opened them 15 years ago, my normally developing child is fully capable of paying back education loans. I expect we'll cover most of his costs, but it's good for him to have skin in the game.

I have no desire to be a landlord; I don't have time to deal with a rental unit. Mutual fund investments are very simple to manage.
An investment in knowledge pays the best interest.

GibsonL6s
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Re: Do you invest in Real Estate ? Why ?

Post by GibsonL6s » Sun Apr 01, 2018 5:24 pm

I do not. My day job is institutional real estate. My income including incentives is tied directly to the US RE market. Plus after doing it all week, the last thing I want to do on the weekends is manage more real estate. :D

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TinyElvis
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Re: Do you invest in Real Estate ? Why ?

Post by TinyElvis » Sun Apr 01, 2018 5:35 pm

confusedinvestor wrote:
Sun Apr 01, 2018 1:06 pm
Folks,
1. Do you invest in Real Estate ?
2. If yes, Why do you invest ? Cash Flow vs 3-Fund-Portfolio ?
3. If not, Why not ?
I'll appreciate if you please share any real experiences; My Financial Advisor advised me to consider Real Estate investments for Cash Flow diversification.
1. Yes. I own single-family rental homes and notes on single family homes.
2. Cash-flow, diversification, and I enjoy owning real estate.

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stemikger
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Re: Do you invest in Real Estate ? Why ?

Post by stemikger » Sun Apr 01, 2018 5:41 pm

No, I have no desire to be a landlord. If someone fell on hard times, I wouldn't have the heart to tell them to leave, therefore, i would make a terrible landlord and it will become a losing business proposition. I also am not handy and would have to rely on others to fix things that break. I would probably get ripped off left and right and I just thinking of what could go wrong would keep me up at nights. Real Estate would be a horrible fit for someone like me. Thank God for index funds!
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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zaboomafoozarg
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Re: Do you invest in Real Estate ? Why ?

Post by zaboomafoozarg » Sun Apr 01, 2018 8:19 pm

I know a few people (some in real life, some on this and other forums) who say real estate is the only thing people should be investing in, and that stocks and bonds are pointless and suboptimal.

I'm too lazy and risk-averse to do it though, so the only real estate investing I do is a 10% tilt to REITs.

Iliketoridemybike
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Re: Do you invest in Real Estate ? Why ?

Post by Iliketoridemybike » Sun Apr 01, 2018 8:35 pm

I have a commercial building. I paid $150,000 down in 2011 for a $1,375,000 purchase on a bank owned property. The tenants fund all the maintenance, taxes and the mortgage with their rents. Today the building is worth $2,200,000. The mortgage will be paid off in 2027. So then I will have a paid up building throwing off $20,000/month in rent in today’s dollars or I can sell it outright. That’s why I invested in real estate.

tmcc
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Re: Do you invest in Real Estate ? Why ?

Post by tmcc » Sun Apr 01, 2018 8:46 pm

Iliketoridemybike wrote:
Sun Apr 01, 2018 8:35 pm
I have a commercial building. I paid $150,000 down in 2011 for a $1,375,000 purchase on a bank owned property. The tenants fund all the maintenance, taxes and the mortgage with their rents. Today the building is worth $2,200,000. The mortgage will be paid off in 2027. So then I will have a paid up building throwing off $20,000/month in rent in today’s dollars or I can sell it outright. That’s why I invested in real estate.
yes but what is your exposure if you have no tenants suddenly. commercial real estate does not have sales turn around times like residential. not trying to diminish your investment, just pointing out risks.

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Cycle
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Re: Do you invest in Real Estate ? Why ?

Post by Cycle » Sun Apr 01, 2018 8:49 pm

Yes, owner occupy a paid for duplex.

Why? Low cost of living. The rent from the other unit pays for all living expenses and then some, I could even hire out the lawn and snow removal if I wanted. Rent is paid online thru rentalutions.

Would I buy another property? Maybe if next door. It's not passive investing. Id rather do engineering endevours on the side.

Iliketoridemybike
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Re: Do you invest in Real Estate ? Why ?

Post by Iliketoridemybike » Sun Apr 01, 2018 8:59 pm

tmcc wrote:
Sun Apr 01, 2018 8:46 pm
Iliketoridemybike wrote:
Sun Apr 01, 2018 8:35 pm
I have a commercial building. I paid $150,000 down in 2011 for a $1,375,000 purchase on a bank owned property. The tenants fund all the maintenance, taxes and the mortgage with their rents. Today the building is worth $2,200,000. The mortgage will be paid off in 2027. So then I will have a paid up building throwing off $20,000/month in rent in today’s dollars or I can sell it outright. That’s why I invested in real estate.
yes but what is your exposure if you have no tenants suddenly. commercial real estate does not have sales turn around times like residential. not trying to diminish your investment, just pointing out risks.
Reward = risk. I have long term leases. No guarantee, but lowers risk. I knew what I was getting into. 2nd best investment I’ve ever made.

EasilyConfused
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Re: Do you invest in Real Estate ? Why ?

Post by EasilyConfused » Sun Apr 01, 2018 9:06 pm

Yes, because I have the following advantages:

1. A ton of family in the building trades who can either fix things for me or make sure I'm not getting ripped off on repairs
2. A good personality to be a landlord -- the eye to screen potential tenants, persistence to chase down rent, and detachment to say "no" to people.
3. Enough cash cushion to absorb major repairs.
4. I really enjoy scouring the market to find deals. I don't consider that part work.

Without a comparable list of advantages, I wouldn't even consider investing in real estate. It's like starting a small business.

I invest for cash flow -- appreciation is a bonus. And in the past few years, It's been nearly impossible to find anything that meets my cash flow standards -- only one deal since 2014, despite having the cash & credit available to do more. In general, I think now is a terrible time to get into real estate. Sooner or later the market will crash again, and then I'll be buying.

Pelerus
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Re: Do you invest in Real Estate ? Why ?

Post by Pelerus » Sun Apr 01, 2018 9:35 pm

Yes, 10% of portfolio in first lien senior debt secured by residential and commercial properties, diversified among about 75 properties. APR is 7-12%.

No real estate equity at the moment, including primary residence, as I am a renter.

longleaf
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Re: Do you invest in Real Estate ? Why ?

Post by longleaf » Sun Apr 01, 2018 9:39 pm

Investments in real estate exist where very little active management is required - NNN Leases. When the market undergoes volatility, an investment like that with defined income throughout is comfortable. These are not cheap - seven figure deals here.

Think about McDonalds, Starbucks, Lowes, etc. The companies want to free up capital so they will lease the building from a buyer and still cover repairs/utilities/taxes. There is very low risk as far as real estate goes due to the nature of the tenant.

Looking to buy :D
Frugality, indexing, time.

rayson
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Re: Do you invest in Real Estate ? Why ?

Post by rayson » Sun Apr 01, 2018 9:42 pm

confusedinvestor wrote:
Sun Apr 01, 2018 1:06 pm
Folks,
1. Do you invest in Real Estate ?
2. If yes, Why do you invest ? Cash Flow vs 3-Fund-Portfolio ?
3. If not, Why not ?
I'll appreciate if you please share any real experiences; My Financial Advisor advised me to consider Real Estate investments for Cash Flow diversification.
Yes, for diversification and cash flow.

TLB
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Re: Do you invest in Real Estate ? Why ?

Post by TLB » Sun Apr 01, 2018 9:49 pm

Yes, I bought my first home when I was 19. I have been in the construction business for the last 42 years and it's been easy for me to build my last three homes and I also built three commercial buildings that I run my business out of. I now have 6 SFH for rentals and 4 commercial buildings with nnn leases for five years. I worked the last two years to pay off all my real estate loans so now I could go into retirement debt free.

I might sell the SFH later on, right now they are not that big of a pain.

Cash flow from real estate is 3 x my expenses.
Last edited by TLB on Thu Jun 28, 2018 10:12 am, edited 1 time in total.

Tico_75
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Re: Do you invest in Real Estate ? Why ?

Post by Tico_75 » Thu Jun 21, 2018 8:08 am

confusedinvestor wrote:
Sun Apr 01, 2018 1:06 pm
Folks,
1. Do you invest in Real Estate ?
2. If yes, Why do you invest ? Cash Flow vs 3-Fund-Portfolio ?
3. If not, Why not ?
I'll appreciate if you please share any real experiences; My Financial Advisor advised me to consider Real Estate investments for Cash Flow diversification.
1. Yes, six units. We love it and will buy when I find another fairly priced property.
2. We invest in RE for cash flow, amortization, tax shelter, and maybe appreciation. We hold most of our assets in index funds, however, after comparing the long term returns,we are seriously considering transitioning to use the index funds as the "backup strategy", not the main holder. Now, there is so much you can do with REI and if you set up proper systems or management, you can truly eliminate the myths about landlord unclogging toilets. You and your partner must be in the same page for REI; it has a very steep learning curve. You should learn about tenant management, law, investment analysis, tax strategies, record keeping, etc. Then, the hardest part is to find a property that makes sense for you. Someone mentioned biggerpockets, that's a great source of info, However, always keep in mind that "Rich Dad Poor Dad" is complete baloney aimed for gullible minds and go for there.
"Check ID" is my actual signature.

sschoe2
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Re: Do you invest in Real Estate ? Why ?

Post by sschoe2 » Thu Jun 21, 2018 8:12 am

I have some REITs in my small cap and total stock market fund plus looks like I'll be buying a house soon so that is plenty of exposure. I don't believe in picking stocks nor sectors.

bighatnohorse
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Re: Do you invest in Real Estate ? Why ?

Post by bighatnohorse » Thu Jun 21, 2018 8:26 am

Rents are pretty stable. When the stock market twists and turns, the rents keep coming in. It's a good diversification tool whether you own and manage or own through a reit vehicle.

Broken Man 1999
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Re: Do you invest in Real Estate ? Why ?

Post by Broken Man 1999 » Thu Jun 21, 2018 8:57 am

Yes.

We own our home, and I have some shares of Vanguard's REIT ETF, VNQ.

IF I had much more money, and IF I could have enough holdings to make a property manager worthwhile, I would certainly consider real estate as a holding, via rental units.

Otherwise, not interested in RE, other than what forms I hold today.

Broken Man 1999
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alfaspider
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Re: Do you invest in Real Estate ? Why ?

Post by alfaspider » Thu Jun 21, 2018 9:07 am

No. 'Aint nobody got time for 'dat :)

But seriously, other than my own house (which is maintenance headache enough), I simply don't want to devote the time to managing a real estate portfolio. I also don't like the idea concentrating real estate holding in a single city, which to me is similar to only owning stocks in one industry. But it's not really possible to manage out-of town rental properties yourself, and a hiring professional manager would seriously eat into returns.

I don't consider REITs to really be real estate, as you are really just buying stock in a company that just happens to be in the real estate business. Even if the underlying holdings do well, you may not get good returns if the company is poorly managed.

That being said, I could see owning some real estate If I retired from my day job. I'd probably do commercial instead of residential, as I'm too much of a softie to evict a family from their home.

dbr
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Re: Do you invest in Real Estate ? Why ?

Post by dbr » Thu Jun 21, 2018 9:20 am

No I don't want to be bothered with it and there is no purpose to be served by doing it. I do own the house we live in. That is not the same thing as you mean, I am sure.

I also don't tilt to factors because I don't need to and I don't want to.

mervinj7
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Re: Do you invest in Real Estate ? Why ?

Post by mervinj7 » Thu Jun 21, 2018 11:16 am

1. Yes. We own a duplex. We live in the larger unit and rent out the smaller unit.
2. We are accidental landlords in some way. We were looking for housing in the Bay Area and found this opportunity. We don't treat it as an investment per se but more as a way to offset the ridiculous pricing of housing here.

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Smorgasbord
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Re: Do you invest in Real Estate ? Why ?

Post by Smorgasbord » Thu Jun 21, 2018 11:22 am

I own a single family rental. I do so because A) I generally enjoy being a landlord in my small niche, and B) it provides an bit of investment diversification.

Hulu
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Re: Do you invest in Real Estate ? Why ?

Post by Hulu » Thu Jun 21, 2018 11:26 am

I invest in real estate mostly because that's become almost exclusively my source of income. It fits my values to provide efficient housing to people. And to maintain buildings that could otherwise become dilapidated and require more destruction to rebuild.

The initial reason was accidental when I moved out of my house. Then it become an investment/lifestyle choice after the crash. Then even more so after I had a child and made enough $ to support leaving my first career.

Now housing/environment is more of a passion. I love finding a good deal, property manager or tenant. And improving my mindset and process to operate. Any tips to improve are most welcome!

Swarm Trap
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Re: Do you invest in Real Estate ? Why ?

Post by Swarm Trap » Thu Jun 21, 2018 11:41 am

Do I.. Yes, Would I... No

I own a small renter occupied SFH, but not by choice. When I got married, my wife and I both had houses. I was underwater when the market popped, so I rented until the market rebounded. It's back to break even now, but I am still holding it.

The reasons that I haven't dumped it yet:

1. I have a great long term tenant
2. It's a small manageable property
3. I have construction background and perform %75 of the maintenance myself
4. I make a few bucks above holding costs

I don't consider it an investment. The initial goal was to minimize loss. I have no plans of buying RE as an investment in the future.

2015
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Re: Do you invest in Real Estate ? Why ?

Post by 2015 » Thu Jun 21, 2018 12:14 pm

Real estate investing is not for beginners, as has been pointed out it involves active investing. Like any arena of active investing, it attracts some very smart people. I don't know why, as it's something I would never do, but I seem to know lots of people who have done very well investing in various types of real estate in and around Los Angeles and in other states as well. I guess I just don't have the temperament for it.

clutchied
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Re: Do you invest in Real Estate ? Why ?

Post by clutchied » Thu Jun 21, 2018 12:21 pm

confusedinvestor wrote:
Sun Apr 01, 2018 1:06 pm
Folks,
1. Do you invest in Real Estate ?
2. If yes, Why do you invest ? Cash Flow vs 3-Fund-Portfolio ?
3. If not, Why not ?
I'll appreciate if you please share any real experiences; My Financial Advisor advised me to consider Real Estate investments for Cash Flow diversification.
1. Yes!
2. Accidental landlord(1st home), partial inheritance and then I bought a 4-plex that I stumbled on.
3. N/A

I like landlording. I'm relatively handy and it's fun to do projects. Sometimes it is a hassle and often I feel it's not worth it but it's a leveraged return so the margins can be high.

Does my wife like it? No, but she also has no interest in money either just that it is there and she can buy things.

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knpstr
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Re: Do you invest in Real Estate ? Why ?

Post by knpstr » Thu Jun 21, 2018 12:31 pm

1. Yes
2. Leveraged returns

I combine my real estate holdings with a 1-Fund portfolio (Total Market).
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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abuss368
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Re: Do you invest in Real Estate ? Why ?

Post by abuss368 » Thu Jun 21, 2018 1:52 pm

stemikger wrote:
Sun Apr 01, 2018 5:41 pm
No, I have no desire to be a landlord. If someone fell on hard times, I wouldn't have the heart to tell them to leave, therefore, i would make a terrible landlord and it will become a losing business proposition. I also am not handy and would have to rely on others to fix things that break. I would probably get ripped off left and right and I just thinking of what could go wrong would keep me up at nights. Real Estate would be a horrible fit for someone like me. Thank God for index funds!
Well said.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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unclescrooge
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Re: Do you invest in Real Estate ? Why ?

Post by unclescrooge » Thu Jun 21, 2018 1:56 pm

longleaf wrote:
Sun Apr 01, 2018 9:39 pm
Investments in real estate exist where very little active management is required - NNN Leases. When the market undergoes volatility, an investment like that with defined income throughout is comfortable. These are not cheap - seven figure deals here.

Think about McDonalds, Starbucks, Lowes, etc. The companies want to free up capital so they will lease the building from a buyer and still cover repairs/utilities/taxes. There is very low risk as far as real estate goes due to the nature of the tenant.

Looking to buy :D
With companies like McD and Starbucks, you're looking at a 4% CAP rate. Sounds like a good place to park money, but not necessarily growth it.

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Sasquatch
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Re: Do you invest in Real Estate ? Why ?

Post by Sasquatch » Thu Jun 21, 2018 3:48 pm

Yes, 1 residential. Its been great since I bought the property 13yrs ago. I have it professionally managed. The property has doubled in value since I purchased it and I have pulled probably $200k in rents out of it in that time as well. The ROI isnt the strongest in my portfolio but I like the diversification.

I had a commercial office building with mod gross lease. It was all roses until they wanted a new building and we lost the bid. Trying to get a 10,000 sf building leased is hard. Very narrow demographic. The carrying costs while vacant were significant as it always had to be "showing ready".

I also had a industrial building NNN that I wont ever do again. A lot of small businesses rented but when the 2008 debacle hit a lot of those small business were hurt.

I got hurt on my principal on the commercial buildings when I sold them but continued to be 100% occupied through the financial debacle on the residential side.

I'm sticking to residential. Everybody needs a place to live even in the worst of times.

Mjar
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Re: Do you invest in Real Estate ? Why ?

Post by Mjar » Thu Jun 21, 2018 4:12 pm

confusedinvestor wrote:
Sun Apr 01, 2018 1:06 pm
Folks,
1. Do you invest in Real Estate ?
2. If yes, Why do you invest ? Cash Flow vs 3-Fund-Portfolio ?
3. If not, Why not ?
I'll appreciate if you please share any real experiences; My Financial Advisor advised me to consider Real Estate investments for Cash Flow diversification.
1. Yes, but not primary driver of my investments.
2. Silent partner with a Flipper on two homes, I will be stopping this once i get my principal profit to move into other financial moves that are more important to me in the short term. After that i will be saving up for buying a second home to rent out.
3. See #2.

nasrullah
Posts: 152
Joined: Fri Feb 10, 2017 11:40 am

Re: Do you invest in Real Estate ? Why ?

Post by nasrullah » Thu Jun 21, 2018 5:25 pm

confusedinvestor wrote:
Sun Apr 01, 2018 1:06 pm
1. Do you invest in Real Estate ?
2. If yes, Why do you invest ? Cash Flow vs 3-Fund-Portfolio ?
3. If not, Why not ?
I just sold a property so I can give you some very recent perspective.

First of all, real estate isn't a magic investment and there are plenty of pitfalls. On top of the mortgage you have insurance, potential HOA fees, repairs, marketing costs, vacancy costs, etc... on top of that you get into the scary things like nightmare tenants you have to evict (several months long process) that can damage your property in the process. Similar when you sell the property - repairs, improvements, marketing, vacancy and of course the brokers and misc transaction fees. That alone will cost you 5-6% off the top.

When everything was said and done for me, my annual appreciation calculates out to about 6.5%. When you compare that with the stock market for the same decade+ period I held this property it doesn't make a lot of sense.

So why do it?

Leverage

Even though you borrowed the money from the bank, the mortgage increases your starting point for appreciation. Figure out how to borrow $1 million in a mortgage and your year one bonus is $60k in appreciation. Done property you even get other people pay your mortgage, cover your costs and maybe even have some profit left over. Oh and let's not forget the holy grail that is gentrification - roll the dice and get lucky and you can be looking at double digit appreciation year over year.

Just don't forget that it's risky. It's like buying a single stock. You are hyper exposed to a single block. If the local economy tanks, industry fails, gangs move in, etc... you are in a world of hurt.

I was fortunate that when I moved into a new house I was able to keep my old. This started me down this path. There's been a learning curve and a lot of work and involvement on my part required. If I wasn't already in the game, I wouldn't start now.
"We have a lot to do, and very little time, so we must work slowly." Liviu Ciulei | | Thanks vineviz (https://www.bogleheads.org/forum/memberlist.php?mode=viewprofile&u=134698) for the quote.

Oddball
Posts: 36
Joined: Thu May 03, 2018 9:35 am

Re: Do you invest in Real Estate ? Why ?

Post by Oddball » Thu Jun 21, 2018 5:34 pm

Yes, my wife and I own 3 units + our primary residence. Hope to get another 3-4 units in the next couple of years, I don't think we will ever have more than 10 units. Do it as another saving vehicle, another bucket to fill. When we retire in about 20 years we should have:

1) Solid funds in Roth IRA accounts
2) Solid funds in 401k/IRA accounts
3) Solid equity in the rental properties
4) Solid cash-flow from rental properties.

What will that give us when we retire? Options. :beer

Edit: BTW BiggerPockets is how I found Bogleheads
Last edited by Oddball on Thu Jun 21, 2018 6:33 pm, edited 1 time in total.

WanderingDoc
Posts: 1153
Joined: Sat Aug 05, 2017 8:21 pm

Re: Do you invest in Real Estate ? Why ?

Post by WanderingDoc » Thu Jun 21, 2018 6:09 pm

EDIT: Thanks for the PMs guys. I'm glad to help.

I do. It's been the best performing asset class for me by a mile.

My portfolio is typically 80% real estate, 10% equities, 10% cash.

I have reached financial independence in my early 30s, due to income-producing real estate. My small portfolio produces $4600/mo. in monthly income, and I legally pay zero tax on it. That is more than my living expenses. I did this casually without ever having a plan to reach financial independence.

My favorite aspects is the control, being able to leverage which shuttles the risk to the bank, inflation hedging/profiting, the banks and tenants paying your expenses, increased in property value (and therefore capital appreciation and total return) being irrelevant to the amount of equity you have in the property, best tax treatment out of any asset I know, and being able to receive income NOW not when I am 65.

I have a couple properties that produce monthly cash flow in perpetuity, and I have $0 of my own money in the deal. That's a return of infinity/undefined.
confusedinvestor wrote:
Sun Apr 01, 2018 1:06 pm
Folks,
1. Do you invest in Real Estate ?
2. If yes, Why do you invest ? Cash Flow vs 3-Fund-Portfolio ?
3. If not, Why not ?
I'll appreciate if you please share any real experiences; My Financial Advisor advised me to consider Real Estate investments for Cash Flow diversification.
Last edited by WanderingDoc on Thu Jun 21, 2018 10:02 pm, edited 1 time in total.
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

financeguy88
Posts: 56
Joined: Thu Feb 23, 2017 3:58 pm

Re: Do you invest in Real Estate ? Why ?

Post by financeguy88 » Thu Jun 21, 2018 6:49 pm

Yes, I own 3 properties all in the same mountain town. I invested because I was bullish on the market for various reasons, because rent my primary residence and so had no direct real estate exposure, and because I like the town a lot personally and like to vacation there. Each was an opportunistic purchase and I waited for the deals to come up and watch the market closely.

It has only been 3 years since my first purchase and we haven't been through an economic cycle yet, so too early to say definitely if its been a good investment. However rents have increased well above the national averages which has been nice to see. I hired a manager and for the most part it’s been hands off with the occasional hassle that sucks up a hour or two...but this seems to only happen once every 3 to 6 months.

Since I’m investing for big long term appreciation / not relying on the cash flow and it’s not a huge amount of my portfolio I don’t sweat over the small stuff like random bills. I only had one bad tenant out of 6 or 7 so far and I had no problem kicking her out even though it meant missing a couple months of rent. I leave the rent a little below market so the tenants feel like they are getting a good deal and take care of the place. I think it would be a much different game and much more stress if I was focused on maximizing cash flow.

Overall I would recommend it only if you know a market very well / have a positive long term view on the market, and have the patience to wait for a good pitch to swing at.

LeftCoast
Posts: 22
Joined: Mon Jan 01, 2018 12:19 pm

Re: Do you invest in Real Estate ? Why ?

Post by LeftCoast » Thu Jun 21, 2018 7:05 pm

Yes, for diversification and cash flow.

Owning apartments takes a fair amount of time and effort. I've learned a lot about tenant screening, plumbing, electrical, painting, etc. Now that I'm retired, I actually enjoy the work. The effort has paid off in large increases in rents and very large increases in the value of the properties.

UpperNwGuy
Posts: 1133
Joined: Sun Oct 08, 2017 7:16 pm

Re: Do you invest in Real Estate ? Why ?

Post by UpperNwGuy » Thu Jun 21, 2018 7:10 pm

confusedinvestor wrote:
Sun Apr 01, 2018 1:06 pm
Folks,
1. Do you invest in Real Estate ?
2. If yes, Why do you invest ? Cash Flow vs 3-Fund-Portfolio ?
3. If not, Why not ?
I'll appreciate if you please share any real experiences; My Financial Advisor advised me to consider Real Estate investments for Cash Flow diversification.
1. I do not invest in real estate. In fact, after several decades of home ownership, I now no longer own my home. I rent an apartment in an urban high-rise.
2. Not applicable.
3. I find owning and maintaining real estate to be too much work, and it's a type of work that I don't enjoy.

User avatar
Pajamas
Posts: 6015
Joined: Sun Jun 03, 2012 6:32 pm

Re: Do you invest in Real Estate ? Why ?

Post by Pajamas » Thu Jun 21, 2018 7:43 pm

No, don't want to mess with the expense, trouble, illiquidity, and risk of owning and running a business and so I much prefer investing in equities over real estate. It's not clear to me why so many people want to run a real estate business but don't want to run other types of businesses. In general, I think it's a good idea to let professionals manage real estate businesses, just as with other types of businesses. They have greater ability to scale the business, access capital, evaluate deals, etc. and much more experience, knowledge, and patience, etc. than I do.

I do own REITs to benefit from ownership of real estate just as I own other equities to benefit from ownership of other types of businesses.

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