Do you invest in Real Estate ? Why ?

[Cycle]

With how hot REITs have been, I have officially made a horrible investment DIY landlording. So not worth it for the returns.

I burned an entire weekend fixing this and that for a Tennant that just moved in. I hired cleaners, but they neglected to clean the oven and a few other things that led to hours of me cleaning.

I get $38k/yr for a $300k investment minus expenses (~8k). Property is valued at ~ $380k. REITs would have returned 100k in the last year alone.

In the long run (10+ yrs), REITs seem to return about 10%. Since I don't leverage my real estate, with my duplex I get that plus many many hours of super non-passive work.

[manuvns]

you get better return on investment proprty due to tax breaks , appreciation and rent increase .

With how hot REITs have been, I have officially made a horrible investment DIY landlording. So not worth it for the returns.

I burned an entire weekend fixing this and that for a Tennant that just moved in. I hired cleaners, but they neglected to clean the oven and a few other things that led to hours of me cleaning.

I get $38k/yr for a $300k investment minus expenses (~8k). Property is valued at ~ $380k. REITs would have returned 100k in the last year alone.

In the long run (10+ yrs), REITs seem to return about 10%. Since I don't leverage my real estate, with my duplex I get that plus many many hours of super non-passive work.

[unclescrooge]

you get better return on investment proprty due to tax breaks , appreciation and rent increase .

With how hot REITs have been, I have officially made a horrible investment DIY landlording. So not worth it for the returns.

I burned an entire weekend fixing this and that for a Tennant that just moved in. I hired cleaners, but they neglected to clean the oven and a few other things that led to hours of me cleaning.

I get $38k/yr for a $300k investment minus expenses (~8k). Property is valued at ~ $380k. REITs would have returned 100k in the last year alone.

In the long run (10+ yrs), REITs seem to return about 10%. Since I don't leverage my real estate, with my duplex I get that plus many many hours of super non-passive work.

Tax breaks disappear once you hit 150k in household income.

Unless you are a full time time real estate investor, in which case the 150k cap doesn't apply.

This puts high income W2 employees at a disadvantage, both tax wise and because their free time is worth so much more.

So basically the more the make, the less interesting direct real estate investing becomes.

Private REITs are still good, so long as you know the pitfalls and are capable of due diligence.

[Schlabba]

With how hot REITs have been, I have officially made a horrible investment DIY landlording. So not worth it for the returns.

I burned an entire weekend fixing this and that for a Tennant that just moved in. I hired cleaners, but they neglected to clean the oven and a few other things that led to hours of me cleaning.

I get $38k/yr for a $300k investment minus expenses (~8k). Property is valued at ~ $380k. REITs would have returned 100k in the last year alone.

In the long run (10+ yrs), REITs seem to return about 10%. Since I don't leverage my real estate, with my duplex I get that plus many many hours of super non-passive work.

I own a rental. I am always amazed by the numbers other people post on this forum. I am from the Netherlands and on my 300k€ appartment the rent is only 16200€ a year. After management fee, mortgage interest, taxes and HOA cost, it leaves me with a 4.5% ROI on the rent part. Houses have been appreciating here with roughly 5% a year for the last 20 years so I am hoping I can add between 2% and 5% appreciation. Because I have some mortgage remaining I have some leverage on it so I am expecting (and hoping) the total return to be at 7% to 11%.
But I realize: "That which cannot go on forever has to stop sometime". Wage growth isn't 5% so whether it is next year or in a decade from now, the appreciation has to stop.

To answer the OP: I will hold my rental as long as my expected return is higher than 6 to 7% because I am hoping to get 5 to 7% from my index funds. I ended up with my rental because I bought it to live there about 7 years ago. When I moved up in house I didn't sell it but rented it out instead.

Edit: All percentages are before inflation.

[manuvns]

I forgot to add the leverage available to landlords along with depreciation benefits .

you get better return on investment proprty due to tax breaks , appreciation and rent increase .

With how hot REITs have been, I have officially made a horrible investment DIY landlording. So not worth it for the returns.

I burned an entire weekend fixing this and that for a Tennant that just moved in. I hired cleaners, but they neglected to clean the oven and a few other things that led to hours of me cleaning.

I get $38k/yr for a $300k investment minus expenses (~8k). Property is valued at ~ $380k. REITs would have returned 100k in the last year alone.

In the long run (10+ yrs), REITs seem to return about 10%. Since I don't leverage my real estate, with my duplex I get that plus many many hours of super non-passive work.

Tax breaks disappear once you hit 150k in household income.

Unless you are a full time time real estate investor, in which case the 150k cap doesn't apply.

This puts high income W2 employees at a disadvantage, both tax wise and because their free time is worth so much more.

So basically the more the make, the less interesting direct real estate investing becomes.

Private REITs are still good, so long as you know the pitfalls and are capable of due diligence.

[Cycle]

I'm just not that interested in leveraging. I don't need to take out loans, so I don't (or I've paid them off anyways). I should probably not be in investment real estate. Leverage is the name of the game

[Cycle]

Spring broke on the mortise lock. One hour of me fiddling followed by two hours running to lock shop and the issue was resolved.

[unclescrooge]

I forgot to add the leverage available to landlords along with depreciation benefits .

Depreciation is recaptured when you sell. Usually at a higher rate than what you were able to claim.

Unless you can complete a 1031x, which is another hassle in itself.

Leverage works both ways.

I've seen first hand how multi-millionaires become paupers in 2008.

I also saw a real estate billionaire, renege on his promise to cosign a $20,000 student loan for his nephew in 2008 because he thought he was on the verge of bankruptcy.

How many years have you been investing in real estate?

[gougou]

you get better return on investment proprty due to tax breaks , appreciation and rent increase .

With how hot REITs have been, I have officially made a horrible investment DIY landlording. So not worth it for the returns.

I burned an entire weekend fixing this and that for a Tennant that just moved in. I hired cleaners, but they neglected to clean the oven and a few other things that led to hours of me cleaning.

I get $38k/yr for a $300k investment minus expenses (~8k). Property is valued at ~ $380k. REITs would have returned 100k in the last year alone.

In the long run (10+ yrs), REITs seem to return about 10%. Since I don't leverage my real estate, with my duplex I get that plus many many hours of super non-passive work.

Tax breaks disappear once you hit 150k in household income.

Unless you are a full time time real estate investor, in which case the 150k cap doesn't apply.

This puts high income W2 employees at a disadvantage, both tax wise and because their free time is worth so much more.

So basically the more the make, the less interesting direct real estate investing becomes.

Private REITs are still good, so long as you know the pitfalls and are capable of due diligence.

High income W2 employees love rental properties. Most of your rental income is tax free today because of depreciation. Compare that with dividend income or a side hustle that earns 1099 income, rental income is tax deferred until you sell.

1. Yes I invest in RE.
2. High and stable return and cashflow. Tax treatment.

[FIby45]

Tax breaks disappear once you hit 150k in household income.

Unless you are a full time time real estate investor, in which case the 150k cap doesn't apply.

This puts high income W2 employees at a disadvantage, both tax wise and because their free time is worth so much more.

So basically the more the make, the less interesting direct real estate investing becomes.

Private REITs are still good, so long as you know the pitfalls and are capable of due diligence.

This would be the opposite of my experience. Can you elaborate?

[unclescrooge]

Tax breaks disappear once you hit 150k in household income.

Unless you are a full time time real estate investor, in which case the 150k cap doesn't apply.

This puts high income W2 employees at a disadvantage, both tax wise and because their free time is worth so much more.

So basically the more the make, the less interesting direct real estate investing becomes.

Private REITs are still good, so long as you know the pitfalls and are capable of due diligence.

This would be the opposite of my experience. Can you elaborate?

I don't know what part you're disagreeing with so I'm not sure what to elaborate on.

[unclescrooge]

you get better return on investment proprty due to tax breaks , appreciation and rent increase .

With how hot REITs have been, I have officially made a horrible investment DIY landlording. So not worth it for the returns.

I burned an entire weekend fixing this and that for a Tennant that just moved in. I hired cleaners, but they neglected to clean the oven and a few other things that led to hours of me cleaning.

I get $38k/yr for a $300k investment minus expenses (~8k). Property is valued at ~ $380k. REITs would have returned 100k in the last year alone.

In the long run (10+ yrs), REITs seem to return about 10%. Since I don't leverage my real estate, with my duplex I get that plus many many hours of super non-passive work.

Tax breaks disappear once you hit 150k in household income.

Unless you are a full time time real estate investor, in which case the 150k cap doesn't apply.

This puts high income W2 employees at a disadvantage, both tax wise and because their free time is worth so much more.

So basically the more the make, the less interesting direct real estate investing becomes.

Private REITs are still good, so long as you know the pitfalls and are capable of due diligence.

High income W2 employees love rental properties. Most of your rental income is tax free today because of depreciation. Compare that with dividend income or a side hustle that earns 1099 income, rental income is tax deferred until you sell.

1. Yes I invest in RE.
2. High and stable return and cashflow. Tax treatment.

When I say high income, I was thinking over $250k in HHI.

Once you depreciate all the property the income on rentals is taxed at ordinary income rates.

Dividends are taxed at much lower rates.

I've owned rentals for 16 years. They were fine when I was younger. Now they didn't have the same appeal...especially this late in the business cycle.

[oldmotos]

We have owned rental properties for over 40 years and have mostly enjoyed it. Currently we have approx. 45% of our investments in commercial real estate and 55% in stocks/bonds. I would guess that the stocks/bonds have out performed the real estate over time but not by much. We live in a rural LCOL area with a steady economy and without large fluctuations in property values. We take advantage of travel write offs by combining trips to buy materials with eating out and other fun activities. Although we live close to most of our properties we also own a rental in a recreational area 4 hours away we enjoy and another in Florida. We are able to write off travel to these areas and the IRS rules allow some personal use of the property as well.
All of this is definitely more work than investing in equities but we enjoy working on interesting projects. Three of our buildings are over 100 years old and it has been rewarding to see them transformed and improve the town.

[manuvns]

I forgot to add the leverage available to landlords along with depreciation benefits .

Depreciation is recaptured when you sell. Usually at a higher rate than what you were able to claim.

Unless you can complete a 1031x, which is another hassle in itself.

Leverage works both ways.

I've seen first hand how multi-millionaires become paupers in 2008.

I also saw a real estate billionaire, renege on his promise to cosign a $20,000 student loan for his nephew in 2008 because he thought he was on the verge of bankruptcy.

How many years have you been investing in real estate?

I see what you are saying , you have to look at location . I am in a location where property rent for 1-1.5% of purchase price (REO/ auction real estate). Some times i am coming out with extra cash after cash our refinance .

[WildCat48]

We have owned rental properties for over 40 years and have mostly enjoyed it. Currently we have approx. 45% of our investments in commercial real estate and 55% in stocks/bonds. I would guess that the stocks/bonds have out performed the real estate over time but not by much. We live in a rural LCOL area with a steady economy and without large fluctuations in property values. We take advantage of travel write offs by combining trips to buy materials with eating out and other fun activities. Although we live close to most of our properties we also own a rental in a recreational area 4 hours away we enjoy and another in Florida. We are able to write off travel to these areas and the IRS rules allow some personal use of the property as well.
All of this is definitely more work than investing in equities but we enjoy working on interesting projects. Three of our buildings are over 100 years old and it has been rewarding to see them transformed and improve the town.

I have about the same mix, but I am located in LA. I believe that my RE Portfolio has outperformed my Stock/Bond holdings over the last 35-years.

[unclescrooge]

I forgot to add the leverage available to landlords along with depreciation benefits .

Depreciation is recaptured when you sell. Usually at a higher rate than what you were able to claim.

Unless you can complete a 1031x, which is another hassle in itself.

Leverage works both ways.

I've seen first hand how multi-millionaires become paupers in 2008.

I also saw a real estate billionaire, renege on his promise to cosign a $20,000 student loan for his nephew in 2008 because he thought he was on the verge of bankruptcy.

How many years have you been investing in real estate?

I see what you are saying , you have to look at location . I am in a location where property rent for 1-1.5% of purchase price (REO/ auction real estate). Some times i am coming out with extra cash after cash our refinance .

I'm sure you are doing a great job.

But nothing you do will compare to the ridiculousness of the 2004-2006 time frame.

I put down a $1,000 down payment in a pre-construction project. Nine months later, I closed on the property with a cash out refi and walked away with a check for $20k

It was rented for a year, and then I sold it to the renter and walked away with another $20k.

All of this was done remotely, property bought and sold sight unseen, and I used property managers.

That was a great time to be a real estate investor.

I

[gr7070]

Depreciation is recaptured when you sell. Usually at a higher rate than what you were able to claim.

Depreciation is recaptured at the capital gains tax rate, 15%.

Depreciation is tax deferral. It's the same mechanism we love about 401Ks. The deferral is realized at your highest tax rate, 22 or 24% commonly.

So one gets to hang onto that money for decades and invest in 401k or anywhere else chosen, and then when one does sell they have to pay that money back at a 35% lower rate. And there's no risk for whether that money is still there, because it's based upon the value of the house at time of sale - assuming you didn't cash out, which isn't inherent of rental property itself.

Depreciation is a very nice benefit of rental property!

I've seen first hand how multi-millionaires become paupers in 2008.

I've seen multi-$M lose, essentially, everything due to the dot bomb crashes, as well. The fear soliciting anecdotes aren't all that worthwhile or relevant to those who invest reasonably in real estate or the financial markets.

[mc2]

Small amount of REIT index.

Why? diversification.

I'm not able/no desire to own a property. Small kids (happily) occupy my time, I have a home already and am plenty busy with projects, also not impartial enough to deal with other people's problems with money. I'm closing on on FI with my current setup and hopefully will reach that within a few years while incurring somewhat nominal risk (60/40). I don't see that I'd shift a sizable investment from stocks to hard real estate at this point.

Listening to audiobook "Evicted" as we speak reinforces the difficulties with renters.

FWIW-my single, handy brother has flipped 3 houses and made out fairly nicely. He did spend a lot of his time on those projects.

[unclescrooge]

Depreciation is recaptured when you sell. Usually at a higher rate than what you were able to claim.

Depreciation is recaptured at the capital gains tax rate, 15%.

Depreciation is tax deferral. It's the same mechanism we love about 401Ks. The deferral is realized at your highest tax rate, 22 or 24% commonly.

So one gets to hang onto that money for decades and invest in 401k or anywhere else chosen, and then when one does sell they have to pay that money back at a 35% lower rate. And there's no risk for whether that money is still there, because it's based upon the value of the house at time of sale - assuming you didn't cash out, which isn't inherent of rental property itself.

Depreciation is a very nice benefit of rental property!

I've seen first hand how multi-millionaires become paupers in 2008.

I've seen multi-$M lose, essentially, everything due to the dot bomb crashes, as well. The fear soliciting anecdotes aren't all that worthwhile or relevant to those who invest reasonably in real estate or the financial markets.

Nope. Depreciation is recaptured at 25%.

The deferral is lower for everyone except full time real estate investors.

If you're going to promote investing in real estate at least get your facts right.

[gr7070]

Depreciation is recaptured when you sell. Usually at a higher rate than what you were able to claim.

Depreciation is recaptured at the capital gains tax rate, 15%.

Depreciation is tax deferral. It's the same mechanism we love about 401Ks. The deferral is realized at your highest tax rate, 22 or 24% commonly.

So one gets to hang onto that money for decades and invest in 401k or anywhere else chosen, and then when one does sell they have to pay that money back at a 35% lower rate. And there's no risk for whether that money is still there, because it's based upon the value of the house at time of sale - assuming you didn't cash out, which isn't inherent of rental property itself.

Depreciation is a very nice benefit of rental property!

I've seen first hand how multi-millionaires become paupers in 2008.

I've seen multi-$M lose, essentially, everything due to the dot bomb crashes, as well. The fear soliciting anecdotes aren't all that worthwhile or relevant to those who invest reasonably in real estate or the financial markets.

Nope. Depreciation is recaptured at 25%.

The deferral is lower for everyone except full time real estate investors.

If you're going to promote investing in real estate at least get your facts right.

Even at a 1 or 3% greater tax rate is that not still a big benefit to defer that amount and invest for decades?

[gougou]

When I say high income, I was thinking over $250k in HHI.

Once you depreciate all the property the income on rentals is taxed at ordinary income rates.

Dividends are taxed at much lower rates.

I've owned rentals for 16 years. They were fine when I was younger. Now they didn't have the same appeal...especially this late in the business cycle.

It takes 27.5 years to depreciate the property completely. At that time I'm probably retired and make much less money than today.

Rental income is taxed at 80% of the marginal tax rate which is higher than dividend tax rate but not much higher.

[PQ12$]

Yes we do. We own our primary home outright, and have a second home that we rent to my son/his wife at a below market rate. They are fixing it up and after 5 years we will sell and split any profits we make on the house as that is my age 60-65 money.

At my age (57) I think this decision is really about how much money you have, how much you'll need, and asset allocation.

For me, it got to a place where I was only comfortable with a certain percentage of my net worth in the stock market -- now in index funds/bonds at about 60/40. Based on what happened in 2009, and my age today buying this house was closely tied to the oft cited "what's it gonna take for you to be able to sleep at night."

Having some money in "investment" real estate, which I know isn't as liquid as other asset classes (but my bet is I can still get at it if I need it) helps me sleep better. It is a solid house in a solid market. Frankly it feels safer and more secure to me than my Vanguard bonds do.Maybe it isn't, but I like having money in both asset classes.

That's why I'm in real estate.

[unclescrooge]

When I say high income, I was thinking over $250k in HHI.

Once you depreciate all the property the income on rentals is taxed at ordinary income rates.

Dividends are taxed at much lower rates.

I've owned rentals for 16 years. They were fine when I was younger. Now they didn't have the same appeal...especially this late in the business cycle.

It takes 27.5 years to depreciate the property completely. At that time I'm probably retired and make much less money than today.

Rental income is taxed at 80% of the marginal tax rate which is higher than dividend tax rate but not much higher.

Either you're in a very low tax bracket or you're doing your tax math wrong.

[manuvns]

When I say high income, I was thinking over $250k in HHI.

Once you depreciate all the property the income on rentals is taxed at ordinary income rates.

Dividends are taxed at much lower rates.

I've owned rentals for 16 years. They were fine when I was younger. Now they didn't have the same appeal...especially this late in the business cycle.

It takes 27.5 years to depreciate the property completely. At that time I'm probably retired and make much less money than today.

Rental income is taxed at 80% of the marginal tax rate which is higher than dividend tax rate but not much higher.

It's just not about numbers , most people miss the human aspect of real estate and money and if you have good relation and contractr with your renters they can make you $$

[abuss368]

With how hot REITs have been, I have officially made a horrible investment DIY landlording. So not worth it for the returns.

I burned an entire weekend fixing this and that for a Tennant that just moved in. I hired cleaners, but they neglected to clean the oven and a few other things that led to hours of me cleaning.

I get $38k/yr for a $300k investment minus expenses (~8k). Property is valued at ~ $380k. REITs would have returned 100k in the last year alone.

In the long run (10+ yrs), REITs seem to return about 10%. Since I don't leverage my real estate, with my duplex I get that plus many many hours of super non-passive work.

I have invested in REITs for a long time both individually many years ago and now simply the Vanguard US REIT and Vanguard International REIT index funds. In my opinion REITs are a good investment over long periods of time.

[gougou]

When I say high income, I was thinking over $250k in HHI.

Once you depreciate all the property the income on rentals is taxed at ordinary income rates.

Dividends are taxed at much lower rates.

I've owned rentals for 16 years. They were fine when I was younger. Now they didn't have the same appeal...especially this late in the business cycle.

It takes 27.5 years to depreciate the property completely. At that time I'm probably retired and make much less money than today.

Rental income is taxed at 80% of the marginal tax rate which is higher than dividend tax rate but not much higher.

Either you're in a very low tax bracket or you're doing your tax math wrong.

Look up 199A deduction. Your statement about "income on rentals is taxed at ordinary income rates" is definitely wrong.

My rentals have appreciated and they generate cashflow, but show accounting losses on my tax return, so I am not paying any income tax on them today. It'll take 27.5 years to depreciate them completely so I'm going to defer significant income taxes over these years.

[abuss368]

REITs are also receiving the IRC Section 199A deduction. This is reported on the Form 1009-DIV.

[protagonist]

Nope.
1. My equity in the value of my home already makes up about 1/5 of my entire portfolio. IMHO that is enough. If I invest in more RE I will likely be overweighted in RE (I assume commercial and private RE is highly correlated). For many investors their home equity represents most of their assets.
2. Owning specific properties is very non-diversified, relatively illiquid, very volatile, and an awful lot of work and potential agita for questionably competitive returns.
3. REITs are also quite volatile and , in combination with my home equity, would have me overweighted in RE as per #1. If my memory serves me well, REITs suffered more than stocks in the 2008 crash (I could be wrong about that).

[unclescrooge]

When I say high income, I was thinking over $250k in HHI.

Once you depreciate all the property the income on rentals is taxed at ordinary income rates.

Dividends are taxed at much lower rates.

I've owned rentals for 16 years. They were fine when I was younger. Now they didn't have the same appeal...especially this late in the business cycle.

It takes 27.5 years to depreciate the property completely. At that time I'm probably retired and make much less money than today.

Rental income is taxed at 80% of the marginal tax rate which is higher than dividend tax rate but not much higher.

Either you're in a very low tax bracket or you're doing your tax math wrong.

Look up 199A deduction. Your statement about "income on rentals is taxed at ordinary income rates" is definitely wrong.

My rentals have appreciated and they generate cashflow, but show accounting losses on my tax return, so I am not paying any income tax on them today. It'll take 27.5 years to depreciate them completely so I'm going to defer significant income taxes over these years.

Look up 199A deduction phase outs.
https://www.forbes.com/sites/jamiehopki ... gulations/

I started my discussion many posts ago saying that direct real estate investment gets less attractive if you are a high income W2 earner.

I stand by my tax analysis.
Maybe it works for your particular situation (and good job for making it work for you!) but most of the tax advantage is the deferral of taxes. And unless you plan to die with your real estate, the taxes paid later on can often be higher than the depreciation claimed over the years.

I'm not saying real estate is bad. I'm just saying all the investors claiming that real estate is better than stocks haven't thought through all the circumstances where it most definitely isn't.

[unclescrooge]

3. REITs are also quite volatile and , in combination with my home equity, would have me overweighted in RE as per #1. If my memory serves me well, REITs suffered more than stocks in the 2008 crash (I could be wrong about that).

I'm pretty sure your memory is correct. Which is ironic since many residential landlords were able to increase rents between 2009 and 2011 thereby increasing the value of their properties.

[gougou]

When I say high income, I was thinking over $250k in HHI.

Once you depreciate all the property the income on rentals is taxed at ordinary income rates.

Dividends are taxed at much lower rates.

I've owned rentals for 16 years. They were fine when I was younger. Now they didn't have the same appeal...especially this late in the business cycle.

It takes 27.5 years to depreciate the property completely. At that time I'm probably retired and make much less money than today.

Rental income is taxed at 80% of the marginal tax rate which is higher than dividend tax rate but not much higher.

Either you're in a very low tax bracket or you're doing your tax math wrong.

Look up 199A deduction. Your statement about "income on rentals is taxed at ordinary income rates" is definitely wrong.

My rentals have appreciated and they generate cashflow, but show accounting losses on my tax return, so I am not paying any income tax on them today. It'll take 27.5 years to depreciate them completely so I'm going to defer significant income taxes over these years.

Look up 199A deduction phase outs.
https://www.forbes.com/sites/jamiehopki ... gulations/

I started my discussion many posts ago saying that direct real estate investment gets less attractive if you are a high income W2 earner.

I stand by my tax analysis.
Maybe it works for your particular situation (and good job for making it work for you!) but most of the tax advantage is the deferral of taxes. And unless you plan to die with your real estate, the taxes paid later on can often be higher than the depreciation claimed over the years.

I'm not saying real estate is bad. I'm just saying all the investors claiming that real estate is better than stocks haven't thought through all the circumstances where it most definitely isn't.

The phaseout mainly applies to SSTB such as doctors/lawyers who own their businesses and earn their profit as a result of their labor. If you are a passive RE investor you can definitely get tax deductions no matter how much W2 salary you earn.

If you've owned properties for 16 years you should have already dealt with 199A rules last year. Even if you just own REITs you could get benefits from 199A. You simply get 20% deduction on all your rental profits.

[unclescrooge]

It takes 27.5 years to depreciate the property completely. At that time I'm probably retired and make much less money than today.

Rental income is taxed at 80% of the marginal tax rate which is higher than dividend tax rate but not much higher.

Either you're in a very low tax bracket or you're doing your tax math wrong.

Look up 199A deduction. Your statement about "income on rentals is taxed at ordinary income rates" is definitely wrong.

My rentals have appreciated and they generate cashflow, but show accounting losses on my tax return, so I am not paying any income tax on them today. It'll take 27.5 years to depreciate them completely so I'm going to defer significant income taxes over these years.

Look up 199A deduction phase outs.
https://www.forbes.com/sites/jamiehopki ... gulations/

I started my discussion many posts ago saying that direct real estate investment gets less attractive if you are a high income W2 earner.

I stand by my tax analysis.
Maybe it works for your particular situation (and good job for making it work for you!) but most of the tax advantage is the deferral of taxes. And unless you plan to die with your real estate, the taxes paid later on can often be higher than the depreciation claimed over the years.

I'm not saying real estate is bad. I'm just saying all the investors claiming that real estate is better than stocks haven't thought through all the circumstances where it most definitely isn't.

The phaseout mainly applies to SSTB such as doctors/lawyers who own their businesses and earn their profit as a result of their labor. If you are a passive RE investor you can definitely get tax deductions no matter how much W2 salary you earn.

If you've owned properties for 16 years you should have already dealt with 199A rules last year. Even if you just own REITs you could get benefits from 199A. You simply get 20% deduction on all your rental profits.

Because of my income, the deduction is capped at 25% of w2 income paid my the business (which is zero) plus 2.5% of original purchase price which is abysmally low since I got such a great deal on the property when I bought it.

So basically, compared to my overall income, the 20% deduction (while welcome), is still sort of meaningless.

Yeah, I know first world problems.

On the other hand, my s-corp pays me $8500/ to rent out my home office. Now I deduct 12% of my property tax, cleaning costs, utilities, and depreciation which comes out to $6600, giving me a net income of $1900. This is a really investment in my book!

[Scuttlebutt]

I had 2 properties for long term cash flow to support my wife if I passed. Was looking at a few more so she'd have a stable income.

Scared her to death. It was rational to me because I worked for other owners fixing their rentals and I saw how well they were doing at their full time jobs.

I'm out of it now because my priorities have changed and I'm no longer in construction. I still look for deals and would do a flip of I could find one.

You asked for honest numbers? I'm not good at math and figuring out ROI and all that but here's my returns:
I Asked a woman who owns houses that I've known for years to loan me $30k to buy a house for $22,500. She wrote a check and charged me 15% interest. I happily paid it because no one in their right mind would've ever loaned me that much money and my rental was cash flow positive. Six months later she loaned me $20k to buy a house for $16k. Again, cash flow positive. That house was an impulse buy because I walked into an abandoned short sale but it was outside of my parameters I'd set for owning real estate so I sold it after 16 months. Made about $10k between rent and the check I walked away with. Just recently sold the original property after 5 1/2 years. Made ~$3-$4k per year in rent. Got a check during a refi after 2 years for $3500. Then got a check for $52,500 when I sold it.
I know these numbers may seem small to most here but they're decent for me.
So: for putting in about 3 months of work total in a job I already did every day anyway and
$0 of my own money, I walked away with ~$85k after 5 1/2 years. Not sure what I would've gotten in the market during that time but I now only put the money I do have in a target date fund.

I think direct ownership of rentals should be left to those who have experience in real estate and have the time to treat it as the business that it is.
And for those who just desire some excitement in their lives.

[RevFran]

Probably 1/3 of my retirement savings are in RE. I basically have done this for stability (all properties are in a university town), and counter-inflationary-ness. I regret paying off 4 out of 5, but I don’t regret owning these houses.

[Scuttlebutt]

I regret paying off 4 out of 5, but I don’t regret owning these houses.

But now that you paid them off, that just means you can put mortgages on them again and invest the money somewhere.

[ThreeBears]

I have been an accidental landlord for 12 years. I bought a Condo 2005 and moved out around 2008.

In the nearly 15 years (as I lived in it for about 3 years), the property's FMV is roughly equal to what I purchased it for.

I have always been cash flow positive, but overall it's been a very long haul. My renters have all been good. I've had very limited maintenance.

I think i make about $4,000 a year, but half of that is in payment of principal.

So, while I don't mind having one rental, I don't generally recommend it.

[manuvns]

With how hot REITs have been, I have officially made a horrible investment DIY landlording. So not worth it for the returns.

I burned an entire weekend fixing this and that for a Tennant that just moved in. I hired cleaners, but they neglected to clean the oven and a few other things that led to hours of me cleaning.

I get $38k/yr for a $300k investment minus expenses (~8k). Property is valued at ~ $380k. REITs would have returned 100k in the last year alone.

In the long run (10+ yrs), REITs seem to return about 10%. Since I don't leverage my real estate, with my duplex I get that plus many many hours of super non-passive work.

story about how REIT investors can blow up some time .

https://www.bloomberg.com/graphics/2019 ... velopment/

[rascott]

I'm just not that interested in leveraging. I don't need to take out loans, so I don't (or I've paid them off anyways). I should probably not be in investment real estate. Leverage is the name of the game

There's little reason to do direct real estate investment without leverage, IMO.

[flaccidsteele]

1. Do you invest in Real Estate ?

Yes

Easy to manage

I'm Canadian and I purchased US property starting in 2009. My wife and I were in our mid-30s

I purchased B class property in B class locations in cities with over 1 million in population, that sold for $40 psf and annual rent made up over 20% of purchase price

I paid in cash

No leverage

These properties were selling for below replacement value. And nobody wanted them. Cheap, nice neighbourhood homes for as far as the eye could see. Nobody bid against me. Everybody returned my calls IMMEDIATELY (property managers, realtors, plumbers, maintenance personnel, inspectors, etc.)

Except banks. Banks were flooded with short sales and foreclosures. I would throw rock-bottom short sale bids into the bank and forget about it. They would approve my purchase 6 months later

An investor could buy as many as they wanted (Blackstone did)

Back then I had a low 6 figure income and was able to completely replace my earned income 2x over with passive rental income

Back in 2009, US$ = C$. Today US$ = 1.33 C$

Rents have increased 100% (doubled)

The rental properties have increased in price 5x

Today I get realtors and private investors contacting me regularly to purchase them

2. If yes, Why do you invest ? Cash Flow vs 3-Fund-Portfolio ?

Fantastic cash flow + 1 low-fee S&P500 index + Berkshire Hathaway

Before 2009 my investments consisted primarily of a low-fee S&P500 index and Berkshire Hathaway

2009 was my opportunity to replace my salary with passive income

I took it

I was too conservative

I should have bought 10x more rentals

It was the easiest money I ever made

[Cycle]

I'm just not that interested in leveraging. I don't need to take out loans, so I don't (or I've paid them off anyways). I should probably not be in investment real estate. Leverage is the name of the game

There's little reason to do direct real estate investment without leverage, IMO.

IMO too, yet here I am... Landlording away. I have met big time landlords tho that buy up cheap properties with cash and have limited loans. If u don't leverage too much, you'll never lose your shirt. But zero leverage doesn't make sense

[flaccidsteele]

In 2009 I met an older fellow from Minnesota. Said runs a auto-repair shop back home. Or something like that

I was in my mid-30s. He was probably mid-50s. Maybe even 60s. I couldn't tell

I bought individual homes in 2009 because I was new to the game

We shopped together

On one hand, he thought it was cool that I was buying property during the Great Recession in my 30s. On the other hand, he said I should go bigger. Forget the individual homes

In one fell swoop he purchased a 50 unit apartment building for $35k a door

$1.75m

Cash

It had 10 vacancies. 40 units spat out $750/door/mo

$30k/mo gross, 20% gross yield

Insane

In 2019 I asked him how the building is going. He says rents are $1500/door/mo and no vacancies. $75k/mo gross. But yield has been crushed as private investors are offering him $6m+ for his building ($120k/door). He might 1031 or he might just keep it. He hasn't decided yet. $10m and he'll outright sell it

He still says that I shoulda went bigger

I don't disagree

[abuss368]

1. Do you invest in Real Estate ?

Yes

Easy to manage

I'm Canadian and I purchased US property starting in 2009. My wife and I were in our mid-30s

I purchased B class property in B class locations in cities with over 1 million in population, that sold for $40 psf and annual rent made up over 20% of purchase price

I paid in cash

No leverage

These properties were selling for below replacement value. And nobody wanted them. Cheap, nice neighbourhood homes for as far as the eye could see. Nobody bid against me. Everybody returned my calls IMMEDIATELY (property managers, realtors, plumbers, maintenance personnel, inspectors, etc.)

Except banks. Banks were flooded with short sales and foreclosures. I would throw rock-bottom short sale bids into the bank and forget about it. They would approve my purchase 6 months later

An investor could buy as many as they wanted (Blackstone did)

Back then I had a low 6 figure income and was able to completely replace my earned income 2x over with passive rental income

Back in 2009, US$ = C$. Today US$ = 1.33 C$

Rents have increased 100% (doubled)

The rental properties have increased in price 5x

Today I get realtors and private investors contacting me regularly to purchase them

2. If yes, Why do you invest ? Cash Flow vs 3-Fund-Portfolio ?

Fantastic cash flow + 1 low-fee S&P500 index + Berkshire Hathaway

Before 2009 my investments consisted primarily of a low-fee S&P500 index and Berkshire Hathaway

2009 was my opportunity to replace my salary with passive income

I took it

I was too conservative

I should have bought 10x more rentals

It was the easiest money I ever made

Enjoyed your post. I also appreciated how you invest in one index fund: S&P 500 index.

Jack Bogle & Warren Buffett have recommended this one fund.

[LilyFleur]

Yes.

I see alot of comments about not wanting to manage. Just because you invest in real estate doesn't mean you manage it.

I invest in syndicated deals. Big apartment complexes where I may own 1% or less. I don't manage anything. Accelerated depreciation gives tax free cash flow for a bit which is nice in my bracket. Once ramping most deals are supposed to spin off over 10% year- plus you get the upside when it sells. Time will tell. Irr over 10 years is something like 16%.

Eventually I want to have 100% passive income so it helps. Also- your money is illiquid- which can be nice! No price fluctuations you actually see and no decisions to be made.

I would not buy and manage because I want to be fully hands off.

By the way, I rent my personal residence for the same reason that other people say they don't invest -I don't want to have to manage it.

Good point. I have invested in a condo (that I live in) in a VHCOL area. And I manage it. Just had my contractor out this morning to repair something. I certainly don't want to manage any additional properties, and my home is 25% of my net worth, so I really don't want any more of my asset allocation tied up in real estate.

[abuss368]

Good point. I have invested in a condo (that I live in) in a VHCOL area. And I manage it. Just had my contractor out this morning to repair something. I certainly don't want to manage any additional properties, and my home is 25% of my net worth, so I really don't want any more of my asset allocation tied up in real estate.

Keep investing simple and low cost!

[rascott]

In 2009 I met an older fellow from Minnesota. Said runs a auto-repair shop back home. Or something like that

I was in my mid-30s. He was probably mid-50s. Maybe even 60s. I couldn't tell

I bought individual homes in 2009 because I was new to the game

We shopped together

On one hand, he thought it was cool that I was buying property during the Great Recession in my 30s. On the other hand, he said I should go bigger. Forget the individual homes

In one fell swoop he purchased a 50 unit apartment building for $35k a door

$1.75m

Cash

It had 10 vacancies. 40 units spat out $750/door/mo

$30k/mo gross, 20% gross yield

Insane

In 2019 I asked him how the building is going. He says rents are $1500/door/mo and no vacancies. $75k/mo gross. But yield has been crushed as private investors are offering him $6m+ for his building ($120k/door). He might 1031 or he might just keep it. He hasn't decided yet. $10m and he'll outright sell it

He still says that I shoulda went bigger

I don't disagree

I feel the same way. I was already in the biz a bit.... but wasn't near aggressive enough. Main issue I was too young and I would have to leveraged to fairly extreme levels. I know some that did just that, and they came out looking very, very good.... but I wasn't really willing/ able.

Sadly I think it was a once in a lifetime opportunity. They'll be other recessions and bear markets but will be very surprised if I ever see any kind of value that existed for several years from 08-11 or so. It could have been life altering very quickly, but instead was just a real nice bump.

[politely]

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 have a home, REITs and interests in commercial properties.
2. I plan on keeping the home and REITs, but am looking forward to selling the commercial properties.
3. RE properties require work, attention and the willingness to deal with litigation - it doesn't come up very often, but the anxiety level is always high for the duration, particularly if you live in a tenant-friendly jurisdiction.

RE has been good to me, but as I get closer to retirement, I really don't want the work or stress involved with owning real property - even with a property manager. I totally understand the temptation of owning property, particularly a nice property, but it takes a lot of work, education and attention to invest and manage properly and profitably.