Direct Real Estate Returns
- AerialWombat
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Re: Direct Real Estate Returns
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Last edited by AerialWombat on Thu Apr 01, 2021 10:36 pm, edited 1 time in total.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
- Blueskies123
- Posts: 736
- Joined: Sat Nov 15, 2014 6:18 pm
- Location: South Florida
Re: Direct Real Estate Returns
So this is another angle worth considering. Buying property in a hot market that has seen a lot of appreciation and then assuming you are going to continue to see appreciation is a risk that is hard to dial into all the calculations I have read so far. In our family we are exiting our local hot market and moving investments into states that have shown little appreciation, like Tennessee.AerialWombat wrote: ↑Sat Jul 21, 2018 10:23 amI lost everything and wound up in chapter 7 bankruptcy and living in my vehicle for almost a year. I was also a full time Realtor at the time, so was double screwed when my local market tanked.
I only started investing again three years ago, using a very different strategy.
If you get too formulaic in your investment search you can miss risk unless you can somehow get near 100% non-recourse debt.
If you find yourself in a hole, stop digging
Re: Direct Real Estate Returns
I started buying real estate, mostly single family houses, back in 1978. Back then you could pay the sellers for their equity and assume their loans. This is what I did on most of the ones I bought. Real estate investing is not full time for me like running a business, but it's not completely passive either. I would say it's somewhere between. In 2001 I paid off all my debt on all my houses simply because I don't particularly like debt and also because I had a lot of cash on hand. I was aware that paying off the debt would reduce my leverage benefit and reduce my return on investment (ROI), but at the same time it increased my cash flow. The area where I live is extremely economically depressed. Some houses have appreciated pretty good, but some have appreciated very little, depending on the location. I would say my return on cash invested (ROI) is about 26%. My CAP rate is about 9%.
Edited to add: I also bought mortgages at a discount. These were owner financed mortgages. I did very well with these. At one time, back when interest rates were high, my average yield on mortgages was 24%. I liked the mortgages because I didn't have to worry about the maintaince, repairs and evictions like I did with rentals. Once they were set up, all I had to do was collect the payments.
Edited to add: I also bought mortgages at a discount. These were owner financed mortgages. I did very well with these. At one time, back when interest rates were high, my average yield on mortgages was 24%. I liked the mortgages because I didn't have to worry about the maintaince, repairs and evictions like I did with rentals. Once they were set up, all I had to do was collect the payments.
Slow and steady wins the race.
Re: Direct Real Estate Returns
REIT’s are mainly the scraps, what is left over, particularly on undeveloped property soon to be developed.The hands in the pot are an understatement I might add they are very big hands indeed. Sales commission, financing, developers fees, preconstruction cost, construction cost and marketing. When you are watching it occur your are amazed there is anything left.WanderingDoc wrote: ↑Fri Jul 20, 2018 10:54 amI can't believe this even has to be explained. A REIT is NOT "investing in real estate". This is obvious to those who directly invest in real estate.There are too many degrees of freedom and 'hands in the pot' between you and those properties in a REIT. You also miss out of most of the tax benefits. It's actually isn't even close, so I'm not surprised the returns are much lower. You are investing in paper, at best. No one would invest in real estate directly if they could just go to Vanguard or RealtyMogul, click a button and sit back and do nothing. This should be common sense.jeffyscott wrote: ↑Fri Jul 20, 2018 10:49 am So with 20% and above returns available as easy pickings in all times and places, why is it that iShares Residential Real Estate ETF (REZ) has a 10 year return of 9.38%?
I know, it's not 100% residential REITs, but then why are the managers of these Residential REITS so dumb that they get returns less than 1/2 that of some posters here?
https://www.morningstar.com/stocks/xnys/eqr/quote.html
https://www.morningstar.com/stocks/xnys/avb/quote.html
https://www.morningstar.com/stocks/xnys/maa/quote.html
https://www.morningstar.com/stocks/xnys/amh/quote.html
Note that M* shows 15 year average return of 11.5% for the category "REIT - Residential"
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Re: Direct Real Estate Returns
It's terrific that your experience has been so positive, but it's one data point. The TIAA real estate fund provides lots of data points for making the same comparison and their return is about 6.5%. Does anyone want to argue that their personal experience provides a better guide for would-be real estate investors?knpstr wrote: ↑Fri Jul 20, 2018 5:01 pmJust showing you unlevered apples to apples return you asked for.Nittany_Lion wrote: ↑Fri Jul 20, 2018 4:04 pmYes, and someone who purchased Apple stock 30 years ago... Lots of things are possible. Average returns, conditional on the same level of leverage, is the best way to compare investments.knpstr wrote: ↑Fri Jul 20, 2018 3:33 pmMy two properties are worth about $290,000 (purchased less than that) if free of debt would cash flow $30K or about 10% cap rate. This is sustainable income.Nittany_Lion wrote: ↑Fri Jul 20, 2018 3:05 pm The issue here is that when comparing to un-leveraged equity returns folks are not pricing in the additional risk associated with 5X leverage on their real estate investments. What matters in the end is risk-adjusted returns; hence my earlier comment about leveraging the S&P 500 5X.
FWIW, it is certainly possible to get close to this using the 2X and 3X funds, and the 3X fund would have an average return of 33%. No one argues that stocks aren't more volatile than real estate, but it's not clear to me that levering real estate 5X isn't riskier than levering equities 3X. Might be, just not obvious to me.
I think what people are most objecting to is the claim that 38% returns are available to everyone everywhere. That is an average based on a highly leveraged investment. If it were a free lunch, hedge funds would be gobbling it up, driving the return down.
Perhaps the best benchmark for thinking about all of this is the TIAA real estate fund, which does directly own real estate, and has had an average annual return of something like 6.5% since its inception. That's the (un-leveraged, apples-to-apples) return one should be comparing to equities.
With the 4% rule, some argue is too aggressive, it would take $750,000 to get that same $30K sustainably.
Both unlevered, same income, $460,000 difference in required investment. Just what is possible
Re: Direct Real Estate Returns
Yeah but you're always taking about real estate on this forum so that doesn't countWanderingDoc wrote: ↑Fri Jul 20, 2018 1:09 pm I've spent an average of 2-3 hours per month on my real estate in totality, I've tracked this for years. I've spent more than 2-3 hours per WEEK on this forum, therefore indexing takes up more of my time than real estate.
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Re: Direct Real Estate Returns
Good point I think its been fruitful though. It warms my heart that a thread on real estate has been the most popular thread over the last 3 days. Also, several folks who have been silently investing in real estate have come out of the woodwork and shared their experiences here.ignition wrote: ↑Sat Jul 21, 2018 1:27 pmYeah but you're always taking about real estate on this forum so that doesn't countWanderingDoc wrote: ↑Fri Jul 20, 2018 1:09 pm I've spent an average of 2-3 hours per month on my real estate in totality, I've tracked this for years. I've spent more than 2-3 hours per WEEK on this forum, therefore indexing takes up more of my time than real estate.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) |
Don't wait to buy real estate. Buy real estate.. and wait.
Re: Direct Real Estate Returns
Right, I'm not some big real estate fund. I also read that the fund you mention can invest in debt securities. Note investing is not the same as direct real estate ownership.Nittany_Lion wrote: ↑Sat Jul 21, 2018 1:14 pmIt's terrific that your experience has been so positive, but it's one data point. The TIAA real estate fund provides lots of data points for making the same comparison and their return is about 6.5%. Does anyone want to argue that their personal experience provides a better guide for would-be real estate investors?knpstr wrote: ↑Fri Jul 20, 2018 5:01 pmJust showing you unlevered apples to apples return you asked for.Nittany_Lion wrote: ↑Fri Jul 20, 2018 4:04 pmYes, and someone who purchased Apple stock 30 years ago... Lots of things are possible. Average returns, conditional on the same level of leverage, is the best way to compare investments.knpstr wrote: ↑Fri Jul 20, 2018 3:33 pmMy two properties are worth about $290,000 (purchased less than that) if free of debt would cash flow $30K or about 10% cap rate. This is sustainable income.Nittany_Lion wrote: ↑Fri Jul 20, 2018 3:05 pm The issue here is that when comparing to un-leveraged equity returns folks are not pricing in the additional risk associated with 5X leverage on their real estate investments. What matters in the end is risk-adjusted returns; hence my earlier comment about leveraging the S&P 500 5X.
FWIW, it is certainly possible to get close to this using the 2X and 3X funds, and the 3X fund would have an average return of 33%. No one argues that stocks aren't more volatile than real estate, but it's not clear to me that levering real estate 5X isn't riskier than levering equities 3X. Might be, just not obvious to me.
I think what people are most objecting to is the claim that 38% returns are available to everyone everywhere. That is an average based on a highly leveraged investment. If it were a free lunch, hedge funds would be gobbling it up, driving the return down.
Perhaps the best benchmark for thinking about all of this is the TIAA real estate fund, which does directly own real estate, and has had an average annual return of something like 6.5% since its inception. That's the (un-leveraged, apples-to-apples) return one should be comparing to equities.
With the 4% rule, some argue is too aggressive, it would take $750,000 to get that same $30K sustainably.
Both unlevered, same income, $460,000 difference in required investment. Just what is possible
Being so small-time I have the flexibility to say hey, this property looks to return about the same as stocks so I'll just invest in VTSAX instead. I also don't invest in 100+ unit apartment complexes, condos, malls, healthcare buildings, assisted living, etc... So your TIAA real estate is really NOTHING like what I do. I'm sure you can understand the economic difference of owning a mall vs a single family home or even a small multi-family home. Not exactly "apples to apples".
To be clear, If I think I could understand and evaluate businesses the same way I think I can understand real estate in my town I would do it. I cannot understand how to value stocks. So I use indexing. I can understand "small-time" real estate so I don't use indexing there. Also it has been 4 years since I bought my last property. I'll sit idly investing in VTSAX until I see another property that catches my eye.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius
Re: Direct Real Estate Returns
If you don't mind me asking, what got you in trouble?AerialWombat wrote: ↑Sat Jul 21, 2018 10:23 am I lost everything and wound up in chapter 7 bankruptcy and living in my vehicle for almost a year. I was also a full time Realtor at the time, so was double screwed when my local market tanked.
I only started investing again three years ago, using a very different strategy.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius
- gmaynardkrebs
- Posts: 2337
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Re: Direct Real Estate Returns
I'll take a guess. Starts with L...knpstr wrote: ↑Sat Jul 21, 2018 5:39 pmIf you don't mind me asking, what got you in trouble?AerialWombat wrote: ↑Sat Jul 21, 2018 10:23 am I lost everything and wound up in chapter 7 bankruptcy and living in my vehicle for almost a year. I was also a full time Realtor at the time, so was double screwed when my local market tanked.
I only started investing again three years ago, using a very different strategy.
- AerialWombat
- Posts: 3102
- Joined: Tue May 29, 2018 1:07 pm
- Location: Cashtown, Cashylvania
Re: Direct Real Estate Returns
.....
Last edited by AerialWombat on Fri Jun 18, 2021 7:10 pm, edited 1 time in total.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
Re: Direct Real Estate Returns
Sure, I was assuming as much, I was hoping for more specifics. Did they buy cash flow negative houses hoping for appreciation? Used loans with balloons and/or variable rates? Etc...
Again, many people don't have their homes paid off and didn't lose them in 08/09. So it is more complex than just saying Debt.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius
Re: Direct Real Estate Returns
See I would guess the failure is starts with C. It is only when the rules changed and the properties were no longer cash flow positive that leverage showed up.knpstr wrote: ↑Sun Jul 22, 2018 8:15 amSure, I was assuming as much, I was hoping for more specifics. Did they buy cash flow negative houses hoping for appreciation? Used loans with balloons and/or variable rates? Etc...
Again, many people don't have their homes paid off and didn't lose them in 08/09. So it is more complex than just saying Debt.
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Re: Direct Real Estate Returns
Exactly. There is a big difference between "dabbling in real estate/accidental landlord/oh let me try this too!" and investing in real estate. Those who bought income-producing assets weathered the storm just fine. The mortgage delinquency rate for for multifamily in particular have been extremely low, even in the worst of times (Great Recession) at ~1% or less. Further still, lending standards / laws are very strict today and polar opposite of how they were in '06-'09.randomguy wrote: ↑Sun Jul 22, 2018 7:41 pmSee I would guess the failure is starts with C. It is only when the rules changed and the properties were no longer cash flow positive that leverage showed up.knpstr wrote: ↑Sun Jul 22, 2018 8:15 amSure, I was assuming as much, I was hoping for more specifics. Did they buy cash flow negative houses hoping for appreciation? Used loans with balloons and/or variable rates? Etc...
Again, many people don't have their homes paid off and didn't lose them in 08/09. So it is more complex than just saying Debt.
http://eyeonhousing.org/2015/06/sf-defa ... nt-belong/
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) |
Don't wait to buy real estate. Buy real estate.. and wait.
- gmaynardkrebs
- Posts: 2337
- Joined: Sun Feb 10, 2008 10:48 am
Re: Direct Real Estate Returns
Many people who purchased positive cash flow properties and did very well were dabblers, who just happened to buy at the right time (probably pre-2004). Many professional investors, who were prudent and careful, were slammed by a dramatic collapse in housing prices and the worst recession in over 70 years. I would also contend that anyone who claims, as you do, to spend no more than two hours a month managing his real estate investments, is a "dabbler."WanderingDoc wrote: ↑Sun Jul 22, 2018 9:05 pmExactly. There is a big difference between "dabbling in real estate/accidental landlord/oh let me try this too!" and investing in real estate. Those who bought income-producing assets weathered the storm just fine. The mortgage delinquency rate for for multifamily in particular have been extremely low, even in the worst of times (Great Recession) at ~1% or less. Further still, lending standards / laws are very strict today and polar opposite of how they were in '06-'09.randomguy wrote: ↑Sun Jul 22, 2018 7:41 pmSee I would guess the failure is starts with C. It is only when the rules changed and the properties were no longer cash flow positive that leverage showed up.knpstr wrote: ↑Sun Jul 22, 2018 8:15 amSure, I was assuming as much, I was hoping for more specifics. Did they buy cash flow negative houses hoping for appreciation? Used loans with balloons and/or variable rates? Etc...
Again, many people don't have their homes paid off and didn't lose them in 08/09. So it is more complex than just saying Debt.
http://eyeonhousing.org/2015/06/sf-defa ... nt-belong/
Re: Direct Real Estate Returns
I don't invest in real estate. I have seen quite a few of Wandering Docs posts as well as others RE owners.
My humble and not particularly educated conclusions:
1. I don't doubt that the quotes higher rates of return are possible, but they don't take into account the time invested. It is an active investment, not passive.
2. Not withstanding WDs claim of 2-3 hours a month, there is a material time investment. That is a cost.
3. It is as much of a business as an investment. Most successful small business owners pay themselves a salary, in addition to their return on investment.
4. Your individual expertise likely has more value in real estate, because you invest in specific properties in specific markets. Obtaining information to give you an advantage is possible, unlike passive investing.
5. Just like there are small business owners who spool up to a point they can sit back a day enjoy the fruits of their efforts, the same is possible for successful real estate investors. Also like small businesses I suspect there are a lot of people who dabble in it and fail (failure including not making enough return to justify the time and effort)
6. There is a lot more variability of outcomes in real estate
7. While you can earn high ROIs on paper in real estate (mostly ignoring the value of your time invested) for the most part you cant reinvest that return to get that sort of return compounded year after year.
My humble and not particularly educated conclusions:
1. I don't doubt that the quotes higher rates of return are possible, but they don't take into account the time invested. It is an active investment, not passive.
2. Not withstanding WDs claim of 2-3 hours a month, there is a material time investment. That is a cost.
3. It is as much of a business as an investment. Most successful small business owners pay themselves a salary, in addition to their return on investment.
4. Your individual expertise likely has more value in real estate, because you invest in specific properties in specific markets. Obtaining information to give you an advantage is possible, unlike passive investing.
5. Just like there are small business owners who spool up to a point they can sit back a day enjoy the fruits of their efforts, the same is possible for successful real estate investors. Also like small businesses I suspect there are a lot of people who dabble in it and fail (failure including not making enough return to justify the time and effort)
6. There is a lot more variability of outcomes in real estate
7. While you can earn high ROIs on paper in real estate (mostly ignoring the value of your time invested) for the most part you cant reinvest that return to get that sort of return compounded year after year.
- gmaynardkrebs
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Re: Direct Real Estate Returns
Add extreme illiquidity.JBTX wrote: ↑Sun Jul 22, 2018 10:54 pm I don't invest in real estate. I have seen quite a few of Wandering Docs posts as well as others RE owners.
My humble and not particularly educated conclusions:
1. I don't doubt that the quotes higher rates of return are possible, but they don't take into account the time invested. It is an active investment, not passive.
2. Not withstanding WDs claim of 2-3 hours a month, there is a material time investment. That is a cost.
3. It is as much of a business as an investment. Most successful small business owners pay themselves a salary, in addition to their return on investment.
4. Your individual expertise likely has more value in real estate, because you invest in specific properties in specific markets. Obtaining information to give you an advantage is possible, unlike passive investing.
5. Just like there are small business owners who spool up to a point they can sit back a day enjoy the fruits of their efforts, the same is possible for successful real estate investors. Also like small businesses I suspect there are a lot of people who dabble in it and fail (failure including not making enough return to justify the time and effort)
6. There is a lot more variability of outcomes in real estate
7. While you can earn high ROIs on paper in real estate (mostly ignoring the value of your time invested) for the most part you cant reinvest that return to get that sort of return compounded year after year.
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Re: Direct Real Estate Returns
That's what we want, illiquidity. Why would I want to sell something that pays me every month and is payed for by the bank and tenants. That's the featuregmaynardkrebs wrote: ↑Sun Jul 22, 2018 11:05 pmAdd extreme illiquidity.JBTX wrote: ↑Sun Jul 22, 2018 10:54 pm I don't invest in real estate. I have seen quite a few of Wandering Docs posts as well as others RE owners.
My humble and not particularly educated conclusions:
1. I don't doubt that the quotes higher rates of return are possible, but they don't take into account the time invested. It is an active investment, not passive.
2. Not withstanding WDs claim of 2-3 hours a month, there is a material time investment. That is a cost.
3. It is as much of a business as an investment. Most successful small business owners pay themselves a salary, in addition to their return on investment.
4. Your individual expertise likely has more value in real estate, because you invest in specific properties in specific markets. Obtaining information to give you an advantage is possible, unlike passive investing.
5. Just like there are small business owners who spool up to a point they can sit back a day enjoy the fruits of their efforts, the same is possible for successful real estate investors. Also like small businesses I suspect there are a lot of people who dabble in it and fail (failure including not making enough return to justify the time and effort)
6. There is a lot more variability of outcomes in real estate
7. While you can earn high ROIs on paper in real estate (mostly ignoring the value of your time invested) for the most part you cant reinvest that return to get that sort of return compounded year after year.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) |
Don't wait to buy real estate. Buy real estate.. and wait.
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Re: Direct Real Estate Returns
Totally agree. Many a millionaire have been made by uneducated (in finances and real estate) folks who just bought real estate, 1 property every 3-4 years and just held. My parents are an example. With poor English and knowledge of zero terms or concepts in real estate or business, have several properties (most fully paid for) that have been cash-flowing for over two decades. I don't think they even noticed a recession. I remember my father expressing his distaste in our native language, after learning the penalities he would have to pay to withdraw from his 401k at age 58!JBTX wrote: ↑Sun Jul 22, 2018 10:54 pm I don't invest in real estate. I have seen quite a few of Wandering Docs posts as well as others RE owners.
My humble and not particularly educated conclusions:
1. I don't doubt that the quotes higher rates of return are possible, but they don't take into account the time invested. It is an active investment, not passive.
2. Not withstanding WDs claim of 2-3 hours a month, there is a material time investment. That is a cost.
3. It is as much of a business as an investment. Most successful small business owners pay themselves a salary, in addition to their return on investment.
4. Your individual expertise likely has more value in real estate, because you invest in specific properties in specific markets. Obtaining information to give you an advantage is possible, unlike passive investing.
5. Just like there are small business owners who spool up to a point they can sit back a day enjoy the fruits of their efforts, the same is possible for successful real estate investors. Also like small businesses I suspect there are a lot of people who dabble in it and fail (failure including not making enough return to justify the time and effort)
6. There is a lot more variability of outcomes in real estate
7. While you can earn high ROIs on paper in real estate (mostly ignoring the value of your time invested) for the most part you cant reinvest that return to get that sort of return compounded year after year.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) |
Don't wait to buy real estate. Buy real estate.. and wait.
Re: Direct Real Estate Returns
1. I suspect your dad became a smart investor, in spite of his lack of education.WanderingDoc wrote: ↑Sun Jul 22, 2018 11:33 pmTotally agree. Many a millionaire have been made by uneducated (in finances and real estate) folks who just bought real estate, 1 property every 3-4 years and just held. My parents are an example. With poor English and knowledge of zero terms or concepts in real estate or business, have several properties (most fully paid for) that have been cash-flowing for over two decades. I don't think they even noticed a recession. I remember my father expressing his distaste in our native language, after learning the penalities he would have to pay to withdraw from his 401k at age 58!JBTX wrote: ↑Sun Jul 22, 2018 10:54 pm I don't invest in real estate. I have seen quite a few of Wandering Docs posts as well as others RE owners.
My humble and not particularly educated conclusions:
1. I don't doubt that the quotes higher rates of return are possible, but they don't take into account the time invested. It is an active investment, not passive.
2. Not withstanding WDs claim of 2-3 hours a month, there is a material time investment. That is a cost.
3. It is as much of a business as an investment. Most successful small business owners pay themselves a salary, in addition to their return on investment.
4. Your individual expertise likely has more value in real estate, because you invest in specific properties in specific markets. Obtaining information to give you an advantage is possible, unlike passive investing.
5. Just like there are small business owners who spool up to a point they can sit back a day enjoy the fruits of their efforts, the same is possible for successful real estate investors. Also like small businesses I suspect there are a lot of people who dabble in it and fail (failure including not making enough return to justify the time and effort)
6. There is a lot more variability of outcomes in real estate
7. While you can earn high ROIs on paper in real estate (mostly ignoring the value of your time invested) for the most part you cant reinvest that return to get that sort of return compounded year after year.
2. The last 40 years have been good for all investment categories. While I can't foretell the future I doubt most people who just stumble into real estate will make similar returns going forward.
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Re: Direct Real Estate Returns
Anyone claiming to easily get consistent 38%+ returns with very little effort deserves a great deal of skepticism, particularly when they don't show their math (i.e. a list of income and expenses). We're deep into late-night TV territory there.
“The greatest shortcoming of the human race is our inability to understand the exponential function.” - Albert Allen Bartlett
- Blueskies123
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Re: Direct Real Estate Returns
So if the OP invested $100K and sat back and earned their 38% return they would have one billion dollars in 29.5 years.
Investment ROI Return for the year
1 $100,000.00 38% 38000
2 $138,000.00 38% $52,440.00
3 $190,440.00 38% $72,367.20
4 $262,807.20 38% $99,866.74
5 $362,673.94 38% $137,816.10
6 $500,490.03 38% $190,186.21
7 $690,676.24 38% $262,456.97
8 $953,133.22 38% $362,190.62
9 $1,315,323.84 38% $499,823.06
10 $1,815,146.90 38% $689,755.82
11 $2,504,902.72 38% $951,863.03
12 $3,456,765.75 38% $1,313,570.99
13 $4,770,336.74 38% $1,812,727.96
14 $6,583,064.70 38% $2,501,564.58
15 $9,084,629.28 38% $3,452,159.13
16 $12,536,788.41 38% $4,763,979.59
17 $17,300,768.00 38% $6,574,291.84
18 $23,875,059.84 38% $9,072,522.74
19 $32,947,582.58 38% $12,520,081.38
20 $45,467,663.97 38% $17,277,712.31
21 $62,745,376.27 38% $23,843,242.98
22 $86,588,619.26 38% $32,903,675.32
23 $119,492,294.57 38% $45,407,071.94
24 $164,899,366.51 38% $62,661,759.27
25 $227,561,125.78 38% $86,473,227.80
26 $314,034,353.58 38% $119,333,054.36
27 $433,367,407.94 38% $164,679,615.02
28 $598,047,022.96 38% $227,257,868.72
29 $825,304,891.69 38% $313,615,858.84
30 $1,138,920,750.53 38% $432,789,885.20
Investment ROI Return for the year
1 $100,000.00 38% 38000
2 $138,000.00 38% $52,440.00
3 $190,440.00 38% $72,367.20
4 $262,807.20 38% $99,866.74
5 $362,673.94 38% $137,816.10
6 $500,490.03 38% $190,186.21
7 $690,676.24 38% $262,456.97
8 $953,133.22 38% $362,190.62
9 $1,315,323.84 38% $499,823.06
10 $1,815,146.90 38% $689,755.82
11 $2,504,902.72 38% $951,863.03
12 $3,456,765.75 38% $1,313,570.99
13 $4,770,336.74 38% $1,812,727.96
14 $6,583,064.70 38% $2,501,564.58
15 $9,084,629.28 38% $3,452,159.13
16 $12,536,788.41 38% $4,763,979.59
17 $17,300,768.00 38% $6,574,291.84
18 $23,875,059.84 38% $9,072,522.74
19 $32,947,582.58 38% $12,520,081.38
20 $45,467,663.97 38% $17,277,712.31
21 $62,745,376.27 38% $23,843,242.98
22 $86,588,619.26 38% $32,903,675.32
23 $119,492,294.57 38% $45,407,071.94
24 $164,899,366.51 38% $62,661,759.27
25 $227,561,125.78 38% $86,473,227.80
26 $314,034,353.58 38% $119,333,054.36
27 $433,367,407.94 38% $164,679,615.02
28 $598,047,022.96 38% $227,257,868.72
29 $825,304,891.69 38% $313,615,858.84
30 $1,138,920,750.53 38% $432,789,885.20
If you find yourself in a hole, stop digging
- gmaynardkrebs
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Re: Direct Real Estate Returns
I believe the 38%+ is IRR, which is highly misleading to most people. Indeed, in one of his books, the always witty Andrew Tobias pointed out that by stocking up on 12 cans of tuna on sale at 10% off instead of buying it weekly at full price, you would generate an IRR of 177% on your initial tuna investment over the next 12 weeks. However, he clearly did not portray IRR as the road to easy riches, as the late night TV RE investment shows and some who post on this thread seem to do.Stormbringer wrote: ↑Mon Jul 23, 2018 12:05 pmAnyone claiming to easily get consistent 38%+ returns with very little effort deserves a great deal of skepticism, particularly when they don't show their math (i.e. a list of income and expenses). We're deep into late-night TV territory there.
Re: Direct Real Estate Returns
A 38% return on net capital invested doesn't seem implausible at all. Again, it fails to take into account personal time and effort invested, and it also mostly can't be fully reinvested.Stormbringer wrote: ↑Mon Jul 23, 2018 12:05 pmAnyone claiming to easily get consistent 38%+ returns with very little effort deserves a great deal of skepticism, particularly when they don't show their math (i.e. a list of income and expenses). We're deep into late-night TV territory there.
Let's say you invest a net of $20000, and then net $10000 a year. That will calculate as a very good rate of return, but for many may not be worth the time, effort, hassle and risk of being a landlord. Plus it isn't likely you plow that $10k into another property every couple of years so it doesn't compound.
Re: Direct Real Estate Returns
JBTX wrote: ↑Mon Jul 23, 2018 1:09 pmA 38% return on net capital invested doesn't seem implausible at all. Again, it fails to take into account personal time and effort invested, and it also mostly can't be fully reinvested.Stormbringer wrote: ↑Mon Jul 23, 2018 12:05 pmAnyone claiming to easily get consistent 38%+ returns with very little effort deserves a great deal of skepticism, particularly when they don't show their math (i.e. a list of income and expenses). We're deep into late-night TV territory there.
Let's say you invest a net of $20000, and then net $10000 a year. That will calculate as a very good rate of return, but for many may not be worth the time, effort, hassle and risk of being a landlord. Plus it isn't likely you plow that $10k into another property every couple of years so it doesn't compound.
Why can't you plow the money in every couple years? If you don't want to manage more properties, just buy more expensive ones:) Heck at 4% appreciation/year leveraged up 5x, don't even rent them out. Just hold them for a couple of years and sell them. Sure you don't get 38% but I think most of us could live with 20%:)
Re: Direct Real Estate Returns
What's the IRR on a job with a salary of $100,000 / year? I put in no capital but I keep getting $3000 in my bank every 2 weeks.
Consistently sets low goals and fails to achieve them.
Re: Direct Real Estate Returns
This would work if appreciation could be reliably predicted and you can manage the holding cost in the mean time. You'll still have PITI you'd have to pay out of pocket. However, this is a HIGHLY speculative way to "invest", even more so with debt. This would be more akin to using leverage in stock investments where one relies more on capital gain than dividend. This how people got in trouble in 08/09 along with "spec home" building (a real estate term). Where people build houses/developments with no buyer in hopes to immediately sell for profit, short for "speculative home"randomguy wrote: ↑Mon Jul 23, 2018 1:35 pmJBTX wrote: ↑Mon Jul 23, 2018 1:09 pmA 38% return on net capital invested doesn't seem implausible at all. Again, it fails to take into account personal time and effort invested, and it also mostly can't be fully reinvested.Stormbringer wrote: ↑Mon Jul 23, 2018 12:05 pmAnyone claiming to easily get consistent 38%+ returns with very little effort deserves a great deal of skepticism, particularly when they don't show their math (i.e. a list of income and expenses). We're deep into late-night TV territory there.
Let's say you invest a net of $20000, and then net $10000 a year. That will calculate as a very good rate of return, but for many may not be worth the time, effort, hassle and risk of being a landlord. Plus it isn't likely you plow that $10k into another property every couple of years so it doesn't compound.
Why can't you plow the money in every couple years? If you don't want to manage more properties, just buy more expensive ones:) Heck at 4% appreciation/year leveraged up 5x, don't even rent them out. Just hold them for a couple of years and sell them. Sure you don't get 38% but I think most of us could live with 20%:)
For me, I don't claim I can consistently reinvest at those very high rates. I think one can do so intermittently.
My REI cash flow goes into VTSAX. So it gets reinvested at the relatively lower rate of ~10%
With hopefully intermittent spurts of much larger rates if I can find new deals and keep my overall return above 10%.
You don't need to hit home runs every day in investment to reach financial independence. 1 every few years is enough. Sort of "punch card" investing Buffett advocates.
Last edited by knpstr on Mon Jul 23, 2018 2:11 pm, edited 1 time in total.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius
Re: Direct Real Estate Returns
Return that includes, in part, compensation for significant time exerted is not really comparable to the types of returns we typically talk about around here.
If you buy a license to be a barber for $20, then make $400 the next week cutting hair, you didn't make a 20x return on your $20, at least, not in the way we typically think about stock and bond returns. (EDIT - I see corn18 beat me to roughly this point, rather succinctly...)
Also, when you're leveraged with recourse loans, you shouldn't be measuring returns only against the amount of capital you put in. You need to think about total exposure, which is likely much larger. It's difficult to compute, but it also shouldn't be ignored.
- gmaynardkrebs
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Re: Direct Real Estate Returns
I certainly think in terms of total exposure (ie, at risk), especially since I have other assets, and could probably not get non-recourse financing. Is the exposure your equity, plus the amount you'd be on the hook for in a deficiency judgment, plus fees?psteinx wrote: ↑Mon Jul 23, 2018 2:10 pmReturn that includes, in part, compensation for significant time exerted is not really comparable to the types of returns we typically talk about around here.
If you buy a license to be a barber for $20, then make $400 the next week cutting hair, you didn't make a 20x return on your $20, at least, not in the way we typically think about stock and bond returns. (EDIT - I see corn18 beat me to roughly this point, rather succinctly...)
Also, when you're leveraged with recourse loans, you shouldn't be measuring returns only against the amount of capital you put in. You need to think about total exposure, which is likely much larger. It's difficult to compute, but it also shouldn't be ignored.
Re: Direct Real Estate Returns
In case it wasn't obvious, it was a bit of humor about how steady appreciation that was assumption doesn't always show up. I am sure there are opportunities where high returns are possible. I was able to buy stocks with very high odds of high returns and almost 0 downside risk. It was great. But I don't go around talking about turning 10k into 30k in 6 months as a reasonable expectation for stock investing. There were limits (only 10% of salary) and repeatability (limited time to do it).knpstr wrote: ↑Mon Jul 23, 2018 2:01 pmThis would work if appreciation could be reliably predicted and you can manage the holding cost in the mean time. You'll still have PITI you'd have to pay out of pocket. However, this is a HIGHLY speculative way to "invest", even more so with debt. This would be more akin to using leverage in stock investments where one relies more on capital gain than dividend. This how people got in trouble in 08/09 along with "spec home" building (a real estate term). Where people build houses/developments with no buyer in hopes to immediately sell for profit, short for "speculative home"randomguy wrote: ↑Mon Jul 23, 2018 1:35 pmJBTX wrote: ↑Mon Jul 23, 2018 1:09 pmA 38% return on net capital invested doesn't seem implausible at all. Again, it fails to take into account personal time and effort invested, and it also mostly can't be fully reinvested.Stormbringer wrote: ↑Mon Jul 23, 2018 12:05 pmAnyone claiming to easily get consistent 38%+ returns with very little effort deserves a great deal of skepticism, particularly when they don't show their math (i.e. a list of income and expenses). We're deep into late-night TV territory there.
Let's say you invest a net of $20000, and then net $10000 a year. That will calculate as a very good rate of return, but for many may not be worth the time, effort, hassle and risk of being a landlord. Plus it isn't likely you plow that $10k into another property every couple of years so it doesn't compound.
Why can't you plow the money in every couple years? If you don't want to manage more properties, just buy more expensive ones:) Heck at 4% appreciation/year leveraged up 5x, don't even rent them out. Just hold them for a couple of years and sell them. Sure you don't get 38% but I think most of us could live with 20%:)
For me, I don't claim I can consistently reinvest at those very high rates. I think one can do so intermittently.
My REI cash flow goes into VTSAX. So it gets reinvested at the relatively lower rate of ~10%
With hopefully intermittent spurts of much larger rates if I can find new deals and keep my overall return above 10%.
You don't need to hit home runs every day in investment to reach financial independence. 1 every few years is enough. Sort of "punch card" investing Buffett advocates.
I don't doubt the OP has made 38% on real estate over x period of time. I am a bit suspect about making that much over 10 years and multiple properties.
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Re: Direct Real Estate Returns
A lot of us do. But you would have to capitalize the portion of returns that come from principal paydown and appreciation, through a sale, cash out refi, and/or 1031 exchange. I do RE part time so I don't follow it this closely and I certainly don't try to maximize every dollar earned by reinvesting it. I might if I did this full time.randomguy wrote: ↑Mon Jul 23, 2018 1:35 pmJBTX wrote: ↑Mon Jul 23, 2018 1:09 pmA 38% return on net capital invested doesn't seem implausible at all. Again, it fails to take into account personal time and effort invested, and it also mostly can't be fully reinvested.Stormbringer wrote: ↑Mon Jul 23, 2018 12:05 pmAnyone claiming to easily get consistent 38%+ returns with very little effort deserves a great deal of skepticism, particularly when they don't show their math (i.e. a list of income and expenses). We're deep into late-night TV territory there.
Let's say you invest a net of $20000, and then net $10000 a year. That will calculate as a very good rate of return, but for many may not be worth the time, effort, hassle and risk of being a landlord. Plus it isn't likely you plow that $10k into another property every couple of years so it doesn't compound.
Why can't you plow the money in every couple years? If you don't want to manage more properties, just buy more expensive ones:) Heck at 4% appreciation/year leveraged up 5x, don't even rent them out. Just hold them for a couple of years and sell them. Sure you don't get 38% but I think most of us could live with 20%:)
Some yes, not all. Personally, I am happy with an investment that pays me in cash I can use today, and is payed for by the banks and tenants, not myself. I am buy and hold through and through. I am very casual and don't spend more than 30 hours per year running my real estate side, this includes accounting and taxes. I enjoy traveling, language learning, and reading books a lot more than extra digits on a screen. I have found that most of what I do every day is either cheap or free
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) |
Don't wait to buy real estate. Buy real estate.. and wait.
Re: Direct Real Estate Returns
This is exactly my point.psteinx wrote: ↑Mon Jul 23, 2018 2:10 pm
Return that includes, in part, compensation for significant time exerted is not really comparable to the types of returns we typically talk about around here.
If you buy a license to be a barber for $20, then make $400 the next week cutting hair, you didn't make a 20x return on your $20, at least, not in the way we typically think about stock and bond returns. (EDIT - I see corn18 beat me to roughly this point, rather succinctly...)
Also, when you're leveraged with recourse loans, you shouldn't be measuring returns only against the amount of capital you put in. You need to think about total exposure, which is likely much larger. It's difficult to compute, but it also shouldn't be ignored.
Re: Direct Real Estate Returns
Flipping houses is a different model. You have potential transactions costs and also significant personal investment of time. Sure it is possible to keep Flipping to higher cost houses but that is a different market altogether.randomguy wrote: ↑Mon Jul 23, 2018 1:35 pmJBTX wrote: ↑Mon Jul 23, 2018 1:09 pmA 38% return on net capital invested doesn't seem implausible at all. Again, it fails to take into account personal time and effort invested, and it also mostly can't be fully reinvested.Stormbringer wrote: ↑Mon Jul 23, 2018 12:05 pmAnyone claiming to easily get consistent 38%+ returns with very little effort deserves a great deal of skepticism, particularly when they don't show their math (i.e. a list of income and expenses). We're deep into late-night TV territory there.
Let's say you invest a net of $20000, and then net $10000 a year. That will calculate as a very good rate of return, but for many may not be worth the time, effort, hassle and risk of being a landlord. Plus it isn't likely you plow that $10k into another property every couple of years so it doesn't compound.
Why can't you plow the money in every couple years? If you don't want to manage more properties, just buy more expensive ones:) Heck at 4% appreciation/year leveraged up 5x, don't even rent them out. Just hold them for a couple of years and sell them. Sure you don't get 38% but I think most of us could live with 20%:)
It is Theoretically possible to keep reinvesting all profits in New rentals but at some point that becomes a substantial investment of time and you may instead choose to contract out certain functions which lowers your profit. Plus you start to take on substantial risk as your portfolio and leverage increases.
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Re: Direct Real Estate Returns
Any websites to search for real estate properties of duplex and multiplex in atlanta area? I am interested in gaining a perspective, no where near to teh range of investing though.
Where I live, there are SFH or Townhomes or Apartments.
Where I live, there are SFH or Townhomes or Apartments.
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Re: Direct Real Estate Returns
Correct. You are right and those people are wrong. If a property you payed for cash returns 8%, with leverage it would have returned 14-16%.gmaynardkrebs wrote: ↑Sat Jul 14, 2018 3:52 pmOk, so now I think I'm getting this. So, let's say I have $140K to invest. I'll make a lot more money if I buy 5 properties with 20% down, instead one property for $140K. So, now I don't get why some people seem to be saying the return isn't better with leverage.WanderingDoc wrote: ↑Sat Jul 14, 2018 3:22 pmNo, your tenants are paying your principal and interest. Not you. Your cash flow is what is left after all expenses. If you put down $20K on a property and you earn $5000 that year after expenses, your return on the capital you put in ($25K) is 20%. That's only 1 profit center of real estate.gmaynardkrebs wrote: ↑Sat Jul 14, 2018 2:59 pmThis where I get confused. Even though I'm only putting in down 20% ($28), don't I have to figure return on the entire $140K, since I'd be paying interest on the remaining 80%?randomguy wrote: ↑Sat Jul 14, 2018 2:50 pmTurning 28k (20% down) into 525k over 30 years is around 9%. Thats pretty good. And of course we haven't talked about rents. You might have been say break even at the start but after 10 or so your years, you have doubled the rent while your expenses have only gone up say 20%. That is a lot of cash flow...gmaynardkrebs wrote: ↑Sat Jul 14, 2018 2:30 pm When we bought our present home 33 years ago, we sold our rather nice 2BR/2B condo. I've often thought that we should have held onto it. I'm pretty sure we could have about broken even as far as the rent covering the all the costs/PITI. We sold it for $140K, and today it is worth about $525K ($330k in 1985 dollars). Now, I'm not so sure. That doesn't seem like an incredible return. And, this is Washington DC, which has been a relatively hot RE market over the years.
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Terminology is difficult when you have an asset which pays you in at least 5 ways. Indexing pays you one way only (capital appreciation), perhaps one and a half ways if you count a 1.8% dividend as anything
I do not fancy to compete with the echo chamber of naysayers high-fiving each other the last few posts. I'd rather know the truth and take the less common road than to do have everyone agree with me and pat me on the back It's worked very well so far.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) |
Don't wait to buy real estate. Buy real estate.. and wait.
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Re: Direct Real Estate Returns
I like redfin.com and realtor.comniceguy7376 wrote: ↑Mon Jul 23, 2018 3:32 pm Any websites to search for real estate properties of duplex and multiplex in atlanta area? I am interested in gaining a perspective, no where near to teh range of investing though.
Where I live, there are SFH or Townhomes or Apartments.
The best deals are typically not on the MLS though
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) |
Don't wait to buy real estate. Buy real estate.. and wait.
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Re: Direct Real Estate Returns
I see you've answered my question from a week ago, which I do appreciate. However, I've learned a lot in following this thread over the last week. While I'd still like to get involved in RE, I don't feel that I am right, that they are wrong, or that you are wrong. What I've learned is the proverbial "it's complicated." I hope to continue to learn, and if I ever do take the plunge into RE, at least now I can say that I'd be doing so with some sense of of the risks and the rewards, the importance of cash flow, leverage, and realistic expectations. I really do think this has been a very educational thread, and I've really benefited from the free and open exchange of views from the many people with real world experience in this area. Very helpful.WanderingDoc wrote: ↑Mon Jul 23, 2018 4:15 pmCorrect. You are right and those people are wrong. If a property you payed for cash returns 8%, with leverage it would have returned 14-16%.gmaynardkrebs wrote: ↑Sat Jul 14, 2018 3:52 pmOk, so now I think I'm getting this. So, let's say I have $140K to invest. I'll make a lot more money if I buy 5 properties with 20% down, instead one property for $140K. So, now I don't get why some people seem to be saying the return isn't better with leverage.WanderingDoc wrote: ↑Sat Jul 14, 2018 3:22 pmNo, your tenants are paying your principal and interest. Not you. Your cash flow is what is left after all expenses. If you put down $20K on a property and you earn $5000 that year after expenses, your return on the capital you put in ($25K) is 20%. That's only 1 profit center of real estate.gmaynardkrebs wrote: ↑Sat Jul 14, 2018 2:59 pmThis where I get confused. Even though I'm only putting in down 20% ($28), don't I have to figure return on the entire $140K, since I'd be paying interest on the remaining 80%?randomguy wrote: ↑Sat Jul 14, 2018 2:50 pm
Turning 28k (20% down) into 525k over 30 years is around 9%. Thats pretty good. And of course we haven't talked about rents. You might have been say break even at the start but after 10 or so your years, you have doubled the rent while your expenses have only gone up say 20%. That is a lot of cash flow...
.
Terminology is difficult when you have an asset which pays you in at least 5 ways. Indexing pays you one way only (capital appreciation), perhaps one and a half ways if you count a 1.8% dividend as anything
I do not fancy to compete with the echo chamber of naysayers high-fiving each other the last few posts. I'd rather know the truth and take the less common road than to do have everyone agree with me and pat me on the back It's worked very well so far.
Re: Direct Real Estate Returns
I wanted to link to another thread here on Bogleheads: viewtopic.php?f=10&t=225784
"Study: The Rate of Return on Everything 1870-2015"
"Study: The Rate of Return on Everything 1870-2015"
Thought I'd add this to this thread for those interested."1) Residential real estate (as rental investment) actually outperformed global stocks since 1870. Housing beat stocks mainly because returns were less than half as volatile (chart below). Thanks to compounding, this created a performance gap of more than 2% per year. Also, net rental income historically accounted for more than half of the total housing returns. The rental income returns were greater than the stock dividend returns, which explained much of housing’s outperformance over the nearly 150 years."
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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Re: Direct Real Estate Returns
No surprise there. Although, they only took into account two profit centers of real estate. There are 5-7 that could be accounted for, depending on the deal.knpstr wrote: ↑Mon Jul 23, 2018 6:38 pm I wanted to link to another thread here on Bogleheads: viewtopic.php?f=10&t=225784
"Study: The Rate of Return on Everything 1870-2015"
Thought I'd add this to this thread for those interested."1) Residential real estate (as rental investment) actually outperformed global stocks since 1870. Housing beat stocks mainly because returns were less than half as volatile (chart below). Thanks to compounding, this created a performance gap of more than 2% per year. Also, net rental income historically accounted for more than half of the total housing returns. The rental income returns were greater than the stock dividend returns, which explained much of housing’s outperformance over the nearly 150 years."
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) |
Don't wait to buy real estate. Buy real estate.. and wait.
Re: Direct Real Estate Returns
Question I have is how can you effectively compound your returns from real estate? You receive a certain cash flow per year, but you cannot just plow this money back into the same house and let it compound?knpstr wrote: ↑Mon Jul 23, 2018 6:38 pm I wanted to link to another thread here on Bogleheads: viewtopic.php?f=10&t=225784
"Study: The Rate of Return on Everything 1870-2015"
Thought I'd add this to this thread for those interested."1) Residential real estate (as rental investment) actually outperformed global stocks since 1870. Housing beat stocks mainly because returns were less than half as volatile (chart below). Thanks to compounding, this created a performance gap of more than 2% per year. Also, net rental income historically accounted for more than half of the total housing returns. The rental income returns were greater than the stock dividend returns, which explained much of housing’s outperformance over the nearly 150 years."
Also according to the Credit Suisse yearbook 2018 equities outperformed housing: https://www.credit-suisse.com/corporate ... 01802.html. Not sure which study I have to believe
Some quotes:
"Equities, not housing, have been the best long-run investment, contrary to recent claims"
"Recent claims that housing provides a large financial reward at lower risk are incorrect. Since 1900, the quality-adjusted real capital gain on worldwide housing is approximately –2% per year." (what is a quality-adjusted capital gain?)
- gmaynardkrebs
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Re: Direct Real Estate Returns
Besides the obvious fact that, unlike the stock market, the residential real estate market of the early 20th century bears little resemblance to that of today, making any such comparisons meaningless, why would they focus only on capital gains? What about rental income? It's like not including dividends for stocks.ignition wrote: ↑Tue Jul 24, 2018 4:02 amQuestion I have is how can you effectively compound your returns from real estate? You receive a certain cash flow per year, but you cannot just plow this money back into the same house and let it compound?knpstr wrote: ↑Mon Jul 23, 2018 6:38 pm I wanted to link to another thread here on Bogleheads: viewtopic.php?f=10&t=225784
"Study: The Rate of Return on Everything 1870-2015"
Thought I'd add this to this thread for those interested."1) Residential real estate (as rental investment) actually outperformed global stocks since 1870. Housing beat stocks mainly because returns were less than half as volatile (chart below). Thanks to compounding, this created a performance gap of more than 2% per year. Also, net rental income historically accounted for more than half of the total housing returns. The rental income returns were greater than the stock dividend returns, which explained much of housing’s outperformance over the nearly 150 years."
Also according to the Credit Suisse yearbook 2018 equities outperformed housing: https://www.credit-suisse.com/corporate ... 01802.html. Not sure which study I have to believe
Some quotes:
"Equities, not housing, have been the best long-run investment, contrary to recent claims"
"Recent claims that housing provides a large financial reward at lower risk are incorrect. Since 1900, the quality-adjusted real capital gain on worldwide housing is approximately –2% per year." (what is a quality-adjusted capital gain?)
Re: Direct Real Estate Returns
It brings up the question of why REITs haven't done better than stocks with their added leverage?ignition wrote: ↑Tue Jul 24, 2018 4:02 amQuestion I have is how can you effectively compound your returns from real estate? You receive a certain cash flow per year, but you cannot just plow this money back into the same house and let it compound?knpstr wrote: ↑Mon Jul 23, 2018 6:38 pm I wanted to link to another thread here on Bogleheads: viewtopic.php?f=10&t=225784
"Study: The Rate of Return on Everything 1870-2015"
Thought I'd add this to this thread for those interested."1) Residential real estate (as rental investment) actually outperformed global stocks since 1870. Housing beat stocks mainly because returns were less than half as volatile (chart below). Thanks to compounding, this created a performance gap of more than 2% per year. Also, net rental income historically accounted for more than half of the total housing returns. The rental income returns were greater than the stock dividend returns, which explained much of housing’s outperformance over the nearly 150 years."
Also according to the Credit Suisse yearbook 2018 equities outperformed housing: https://www.credit-suisse.com/corporate ... 01802.html. Not sure which study I have to believe
Some quotes:
"Equities, not housing, have been the best long-run investment, contrary to recent claims"
"Recent claims that housing provides a large financial reward at lower risk are incorrect. Since 1900, the quality-adjusted real capital gain on worldwide housing is approximately –2% per year." (what is a quality-adjusted capital gain?)
Re: Direct Real Estate Returns
Good question. I have no idea but wager it is something that doesn't need to be considered. Any "quality" or "risk" adjustment is nonsense.
All that matters is money in vs money out. Returns. No need to "adjust" to make low return investments seem more appealing. "I get a low return but it is 'less risky' so it is actually not as bad as it seems".
It's nonsense.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius
Re: Direct Real Estate Returns
If I had to guess, quality-adjustment subtracts the cost of maintenance, remodeling, and additions to a home. Obviously, there's the cost of normal maintenance coming out of the landlord's pocket. Imagine an investor bought a property in 1900. At some point, they had to put in modern electricity, plumbing, and air conditioning, all at significant expense to the landlord. If they had the land, they might have added additional rooms or a garage to the home, which is another capital investment from the landlord.knpstr wrote: ↑Tue Jul 24, 2018 7:53 pmGood question. I have no idea but wager it is something that doesn't need to be considered. Any "quality" or "risk" adjustment is nonsense.
All that matters is money in vs money out. Returns. No need to "adjust" to make low return investments seem more appealing. "I get a low return but it is 'less risky' so it is actually not as bad as it seems".
It's nonsense.
- gmaynardkrebs
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Re: Direct Real Estate Returns
It's a quality adjustment using repeat sales and hedonic models, to reflect changes in the average quality of homes traded over time, or in different markets. In other words, to make sure you are comparing apples to apples.knpstr wrote: ↑Tue Jul 24, 2018 7:53 pmGood question. I have no idea but wager it is something that doesn't need to be considered. Any "quality" or "risk" adjustment is nonsense.
All that matters is money in vs money out. Returns. No need to "adjust" to make low return investments seem more appealing. "I get a low return but it is 'less risky' so it is actually not as bad as it seems".
It's nonsense.
I agree that all that matters is money in and money out, but for really risky investments, the money goes in, but it don't always come out.
Re: Direct Real Estate Returns
Which is already accounted for when looking at past returns.gmaynardkrebs wrote: ↑Tue Jul 24, 2018 9:24 pm I agree that all that matters is money in and money out, but for really risky investments, the money goes in, but it don't always come out.
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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Re: Direct Real Estate Returns
Except you don't know that when you buy. It's an ex ante adjustment, to reflect that. A less risky house that pays 10% is a better investment than the identical house that pays 15%, but happens to be located next to an active volcano with a 50% chance of erupting in any given year. Whether it goes off or not, your risk adjusted return is better for the first house.knpstr wrote: ↑Tue Jul 24, 2018 9:28 pmWhich is already accounted for when looking at past returns.gmaynardkrebs wrote: ↑Tue Jul 24, 2018 9:24 pm I agree that all that matters is money in and money out, but for really risky investments, the money goes in, but it don't always come out.
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Re: Direct Real Estate Returns
Actually, risk-adjusted returns is something people do care about. Many lose their breathe discussing it round here, in fact. The data shows that real estate returns are higher than equities, with a lower volatility. In fact, if all of the profit centers on real estate were actually taken into account in one of those studies, real estate would be so far the winner that writing an article on it would be moot.knpstr wrote: ↑Tue Jul 24, 2018 7:53 pmGood question. I have no idea but wager it is something that doesn't need to be considered. Any "quality" or "risk" adjustment is nonsense.
All that matters is money in vs money out. Returns. No need to "adjust" to make low return investments seem more appealing. "I get a low return but it is 'less risky' so it is actually not as bad as it seems".
It's nonsense.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) |
Don't wait to buy real estate. Buy real estate.. and wait.
Re: Direct Real Estate Returns
No, it doesn't, not un an unlevered basis even including all those "profit centers" as if that's a meaningful term. The data shows real estate and equities are roughly equivalent in terms of risk and return. You can choose to lever either, of course, and there are pros and cons to each. It isn't an either/or choice. Do both.WanderingDoc wrote: ↑Tue Jul 24, 2018 11:20 pmActually, risk-adjusted returns is something people do care about. Many lose their breathe discussing it round here, in fact. The data shows that real estate returns are higher than equities, with a lower volatility. In fact, if all of the profit centers on real estate were actually taken into account in one of those studies, real estate would be so far the winner that writing an article on it would be moot.knpstr wrote: ↑Tue Jul 24, 2018 7:53 pmGood question. I have no idea but wager it is something that doesn't need to be considered. Any "quality" or "risk" adjustment is nonsense.
All that matters is money in vs money out. Returns. No need to "adjust" to make low return investments seem more appealing. "I get a low return but it is 'less risky' so it is actually not as bad as it seems".
It's nonsense.
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- Posts: 1341
- Joined: Sat Aug 05, 2017 8:21 pm
Re: Direct Real Estate Returns
Is it a meaningful term. The quotes don't make sense. Real estate pays you in cash flow, capital appreciation, amortization/principal paydown, force value, inflation hedging/profiting, depreciation, net tax benefit. Equities pays you in capital appreciation and a 1.5-2.5% dividend, which is quite laughable. Also, rental property investors legally don't pay any tax on their INCOME from the property. As an equities investor - at best you will pay 15%, sometimes 30% for short term. Those studies don't account for the fact, either.KyleAAA wrote: ↑Tue Jul 24, 2018 11:25 pmNo, it doesn't, not un an unlevered basis even including all those "profit centers" as if that's a meaningful term. The data shows real estate and equities are roughly equivalent in terms of risk and return. You can choose to lever either, of course, and there are pros and cons to each. It isn't an either/or choice. Do both.WanderingDoc wrote: ↑Tue Jul 24, 2018 11:20 pmActually, risk-adjusted returns is something people do care about. Many lose their breathe discussing it round here, in fact. The data shows that real estate returns are higher than equities, with a lower volatility. In fact, if all of the profit centers on real estate were actually taken into account in one of those studies, real estate would be so far the winner that writing an article on it would be moot.knpstr wrote: ↑Tue Jul 24, 2018 7:53 pmGood question. I have no idea but wager it is something that doesn't need to be considered. Any "quality" or "risk" adjustment is nonsense.
All that matters is money in vs money out. Returns. No need to "adjust" to make low return investments seem more appealing. "I get a low return but it is 'less risky' so it is actually not as bad as it seems".
It's nonsense.
The terms for leverage in real estate do not resemble the terms for leverage for equities. Most of the benefits of investing in real estate derive from leverage. The same cannot be said for equities. I think its interesting that stock market investors assume "its all the same". No, its really not. They aren't the same investment, mathematics-wise. Neither is the leverage.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) |
Don't wait to buy real estate. Buy real estate.. and wait.