residential real estate as an investment,

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larryswedroe
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residential real estate as an investment,

Post by larryswedroe » Wed Feb 01, 2012 12:37 pm

Thought this would be of interest


http://www.cbsnews.com/8301-505123_162- ... ColumnArea
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Larry

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Re: residential real estate as an investment,

Post by sscritic » Wed Feb 01, 2012 12:49 pm

Too slow. One of your fans beat you to it.

http://www.bogleheads.org/forum/viewtop ... =2&t=89905

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GregLee
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Re: residential real estate as an investment,

Post by GregLee » Wed Feb 01, 2012 1:07 pm

The return on investment for a homeowner should also consider the imputed rental income (meaning the money you save by owning instead of renting), net of all costs. A study covering the period 1952-2005 found that when costs and imputed rental income were included, the real return to homeowners was 6.9 percent, comparable to the 7.3 percent real return for the S&P 500.
When you make this comparison, home owning is reckoned "net of all costs", so I suppose, to be fair, the return on stocks should also be calculated net of all costs. Is it? Including taxes? And I see from the abstract of the article you cite for the 6.9 percent figure, that the conclusion there is that an optimal portfolio "contains a bit larger amount of housing than stocks," which you could perhaps have mentioned.
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Re: residential real estate as an investment,

Post by bungalow10 » Wed Feb 01, 2012 1:18 pm

GregLee wrote:
The return on investment for a homeowner should also consider the imputed rental income (meaning the money you save by owning instead of renting), net of all costs. A study covering the period 1952-2005 found that when costs and imputed rental income were included, the real return to homeowners was 6.9 percent, comparable to the 7.3 percent real return for the S&P 500.
When you make this comparison, home owning is reckoned "net of all costs", so I suppose, to be fair, the return on stocks should also be calculated net of all costs. Is it? Including taxes? And I see from the abstract of the article you cite for the 6.9 percent figure, that the conclusion there is that an optimal portfolio "contains a bit larger amount of housing than stocks," which you could perhaps have mentioned.
This doesn't make me feel good about owning rental property either.

I'll have to read the article carefully and do some more analysis.
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Re: residential real estate as an investment,

Post by Honobob » Wed Feb 01, 2012 6:37 pm

Are you really trying to come to a conclusion that stock investing is better than real estate investing by comparing results from Case-Shiller and the S&P 500? Why not include ALL stocks. Also you do realize the limitations of Case-Shiller reporting? They don't include the area I invest in as a MSA or even the type of residentiial properties I buy. Not very inclusive. At best you can come to the conclusion that some people made a lot of money in residential real estate and some people didn't.
It's slowly dawned on me that we won the real estate lottery!

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Re: residential real estate as an investment,

Post by maxfax » Thu Feb 02, 2012 11:56 am

"The REAL return to homeowners was 6.9 percent " Not where I live.
Historically the operating return - NOT adjusted for inflation - was about 4%. Now it is about 3.5%

I can only conclude that the data was weighted to the lower-cost centers, that it includes the returns from leveraging with a mortgage, and that it includes capital gains. Even so, I distrust it.

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Re: residential real estate as an investment,

Post by Liquid » Thu Feb 02, 2012 1:00 pm

Interesting and useful article, thanks for sharing. Purchasing a property based solely on anticipated appreciation is speculation (though this can be an educated guess based on local factors, etc).

This is not accurate though: "There are things you can do with investments -- like rebalance and tax-manage (or "harvest") losses -- that you simply can't do with a home."

Tax --> 1031 Exchange, mortgage deduction, depreciation, etc.

Rebalance --> This is a question of scale... you are free to own more property.

Cheers,
Liquid

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Re: residential real estate as an investment,

Post by Call_Me_Op » Thu Feb 02, 2012 7:27 pm

I do not see the advantage of leverage mentioned. If I could put 20% down on an asset that appreciates at the inflation rate + 1%, that is an annual return of about 20% real on my original investment. Not too shabby.
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Re: residential real estate as an investment,

Post by madbrain » Thu Feb 02, 2012 9:55 pm

Call_Me_Op wrote:I do not see the advantage of leverage mentioned. If I could put 20% down on an asset that appreciates at the inflation rate + 1%, that is an annual return of about 20% real on my original investment. Not too shabby.
You can even put 3% down on some rental properties if you like.
http://www.homepath.com/financing.html

However the interest on the 97% balance might still be higher than 1%+inflation.

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Re: residential real estate as an investment,

Post by Valuethinker » Fri Feb 03, 2012 6:27 am

Call_Me_Op wrote:I do not see the advantage of leverage mentioned. If I could put 20% down on an asset that appreciates at the inflation rate + 1%, that is an annual return of about 20% real on my original investment. Not too shabby.
It's not at all obvious from the data that houses appreciate by 1% real pa. there are many countries and locations where they have not. (Neil Monnery '7 Centuries of Housing Prices' a book published in the UK but not, yet, in the USA-- you can find it on amazon.co.uk).

Buffalo NY of course comes to mind (adjusted for inflation, house prices have probably barely kept up with inflation in the last 40 years, I think).

Turn it round though. My parents have probably had something like 4% real housing price inflation since they bought their home over 40 years ago.

*however* a modernized home on the same street would sell for 20-30% more. In other words, c. 1% of price appreciation (real) in that time is simply improvements to structure (their house is fully maintained, but not substantially modernized). On top of that one would have maintenance.

It's not at all clear, from the data series that we have, that real housing prices even rise with real GDP per capita. It seems that some houses, in some locations, handily beat that. But in general? No.

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Re: residential real estate as an investment,

Post by Valuethinker » Fri Feb 03, 2012 6:44 am

bungalow10 wrote: This doesn't make me feel good about owning rental property either.

I'll have to read the article carefully and do some more analysis.
There is a reason why many immigrant families build up portfolios of rental property. Each time they buy a new home, they keep the old one and rent it out.

It's a great way to get rich slowly, because you are using 'other peoples' money' (OPM).

However it is a *business* NOT *an investment* per se.

Businesses require hard work, phonecalls in the middle of the night, eviction of tenants, maintenance problems, occasionally threats of violence (to you) or court action.

By all means pursue rental residential real estate as a *business*. Familiarize yourself with it, perhaps work for someone who is already a rental landlord on the sharp ie grotty end. With 10 years of hard work, you could be in a very good position in 10 years time.

As an investment it lacks all of the desirably attributes of investing: looks after itself, etc.

You'd be amazed how even nice middle class people can mistreat a rental property. People really do live like pigs, sometimes (a slur on pigs, who are fastidious animals in fact).

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Re: residential real estate as an investment,

Post by JTcheek » Fri Feb 03, 2012 6:45 am

Larry,
Thanks for the post. I have always felt that residential real estate was a poor investment, especially considering the asset illiquidity and associated selling costs. However, I feel an incredible urge to borrow as much money as possible now, to take advantage of today's historically low interest rates. It amazes me that someone is willing to loan me money on a 30 year fixed rate loan for 4% or so. If interest rates rise even moderately ove that period, lenders are going to take significant losses, and borrowers stand to profit.

BTW, I still don't understand how lenders make a profit offering 30 year fixed rate loans. This is unique to banks in the U.S., from my experience.

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Re: residential real estate as an investment,

Post by Valuethinker » Fri Feb 03, 2012 8:03 am

JTcheek wrote:Larry,
Thanks for the post. I have always felt that residential real estate was a poor investment, especially considering the asset illiquidity and associated selling costs. However, I feel an incredible urge to borrow as much money as possible now, to take advantage of today's historically low interest rates. It amazes me that someone is willing to loan me money on a 30 year fixed rate loan for 4% or so. If interest rates rise even moderately ove that period, lenders are going to take significant losses, and borrowers stand to profit.

BTW, I still don't understand how lenders make a profit offering 30 year fixed rate loans. This is unique to banks in the U.S., from my experience.
It's called Securitization and the US market the 'Agency' market (Freddie, Fannie, GNMA etc.) of Mortgage Backed Securities (MBS) is the largest in the world-- around $8 trillion of bonds outstanding (there were another $2 trn or so of 'private label' but I believe that market has more or less collapsed with the CDO crisis).

So the lenders don't hold the mortgages on their balance sheets usually, but shift the interest rate risk to long term investors who are capable of bearing that risk.

In Europe you do have 'covered bonds' which are securitized mortgages BUT final recourse lies on the bank balance sheet. I don't know, typically, how long German home mortgages are fixed for (the bonds are called Pfandbriefe) or Spanish (Cedulos) or Danish (can't remember the word). In the UK, 80% of mortgages are floating rate after the first 2 years, typically.

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Re: residential real estate as an investment,

Post by Valuethinker » Fri Feb 03, 2012 8:03 am

JTcheek wrote:Larry,
Thanks for the post. I have always felt that residential real estate was a poor investment, especially considering the asset illiquidity and associated selling costs. However, I feel an incredible urge to borrow as much money as possible now, to take advantage of today's historically low interest rates. It amazes me that someone is willing to loan me money on a 30 year fixed rate loan for 4% or so. If interest rates rise even moderately ove that period, lenders are going to take significant losses, and borrowers stand to profit.

BTW, I still don't understand how lenders make a profit offering 30 year fixed rate loans. This is unique to banks in the U.S., from my experience.
If inflation drops below 1.5% say, or even more so if it goes negative, that 4% is going to feel very painful.

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Re: residential real estate as an investment,

Post by bungalow10 » Fri Feb 03, 2012 8:10 am

Valuethinker wrote:
bungalow10 wrote: This doesn't make me feel good about owning rental property either.

I'll have to read the article carefully and do some more analysis.
There is a reason why many immigrant families build up portfolios of rental property. Each time they buy a new home, they keep the old one and rent it out.

It's a great way to get rich slowly, because you are using 'other peoples' money' (OPM).

However it is a *business* NOT *an investment* per se.

Businesses require hard work, phonecalls in the middle of the night, eviction of tenants, maintenance problems, occasionally threats of violence (to you) or court action.

By all means pursue rental residential real estate as a *business*. Familiarize yourself with it, perhaps work for someone who is already a rental landlord on the sharp ie grotty end. With 10 years of hard work, you could be in a very good position in 10 years time.

As an investment it lacks all of the desirably attributes of investing: looks after itself, etc.

You'd be amazed how even nice middle class people can mistreat a rental property. People really do live like pigs, sometimes (a slur on pigs, who are fastidious animals in fact).
Oh, I know about rental real estate. We have a four-unit apartment building. It is a lot of work, and I would like to sell, but the $1k monthly cashflow and the big check at tax time always make me change my mind.

On the flip side, we have probably lost about $30k of our down payment (we bought in 2007 - really bad timing). I'm still at a point where I'm not willing to accept that as a loss and will hold on for a while longer.
Last edited by bungalow10 on Fri Feb 03, 2012 8:42 am, edited 1 time in total.
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Re: residential real estate as an investment,

Post by 3CT_Paddler » Fri Feb 03, 2012 8:15 am

I think it can be difficult to compare the business of rental property to a truly passive investment like stocks/bonds. Like VT and others said, it can be real work to own a rental property. I do think in places like Atlanta, opportunities are there with a healthy positive cash flow from day 1. If we were not getting ready to switch from two incomes to one, I would seriously consider going after a short sale around here.

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Re: residential real estate as an investment,

Post by Valuethinker » Fri Feb 03, 2012 8:51 am

bungalow10 wrote: Oh, I know about rental real estate. We have a four-unit apartment building. It is a lot of work, and I would like to sell, but the $1k monthly cashflow and the big check at tax time always make me change my mind.

On the flip side, we have probably lost about $30k of our down payment (we bought in 2007 - really bad timing). I'm still at a point where I'm not willing to accept that as a loss and will hold on for a while longer.
your decision is your decision BUT

that line of reasoning is 'sunk cost fallacy'.

It DOES NOT matter about the previous cost of an investment (exception: if you are in negative equity so a sale crystallizes that).

All that matters is the future opportunity to use that money.

So if you think your return from owning rental units (capital appreciation + income less costs and taxes) exceeds other opportunities for that money, then fine.

Otherwise you should sell and reinvest.

The market in your area may 'bounce': US residential prices now are generally well below 'fair value' looking at comparable rents. However you have all the other costs and risks in the meantime.

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Re: residential real estate as an investment,

Post by FinanceFun » Fri Feb 03, 2012 9:05 am

Disclaimer - I did not read EVERY post here.

The one thing I want to mention is the "hedge" against future living expenses that home ownership provides over rental's. If cost of renting increases at 3% per year, and ownership increases at 0.5% (taxes) - then that living expense delta can have a dramatic impact over a long enough timeframe

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Re: residential real estate as an investment,

Post by Valuethinker » Fri Feb 03, 2012 10:04 am

FinanceFun wrote:Disclaimer - I did not read EVERY post here.

The one thing I want to mention is the "hedge" against future living expenses that home ownership provides over rental's. If cost of renting increases at 3% per year, and ownership increases at 0.5% (taxes) - then that living expense delta can have a dramatic impact over a long enough timeframe
Agreed. BUT

- cost of repairs and maintenance tends to increase, probably faster than inflation (because it's basically labour cost)

- property taxes tend to rise at least with inflation

- utilities rise at least with inflation in the long run (depends whether tenants also pay those costs: may be a wash)

It's worth owning, I think, if you have a good chance of staying at least 10 years. But it's not a no brainer.

If inflation picks up, then owning a house is something of an inflation hedge: cost of land and construction tend to rise with inflation.

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Re: residential real estate as an investment,

Post by rec7 » Fri Feb 03, 2012 10:13 am

[quote="JTcheek"]Larry,
Thanks for the post. I have always felt that residential real estate was a poor investment, especially considering the asset illiquidity and associated selling costs. However, I feel an incredible urge to borrow as much money as possible now, to take advantage of today's historically low interest rates. It amazes me that someone is willing to loan me money on a 30 year fixed rate loan for 4% or so. If interest rates rise even moderately ove that period, lenders are going to take significant losses, and borrowers stand to profit.

BTW, I still don't understand how lenders make a profit offering 30 year fixed rate loans. This is unique to banks in the U.S., from my experience.[/quote]

Remember in 1981 banks wrote loans at 18% for 30 years.
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Re: residential real estate as an investment,

Post by Rodc » Fri Feb 03, 2012 11:14 am

rec7 wrote:
JTcheek wrote:Larry,
Thanks for the post. I have always felt that residential real estate was a poor investment, especially considering the asset illiquidity and associated selling costs. However, I feel an incredible urge to borrow as much money as possible now, to take advantage of today's historically low interest rates. It amazes me that someone is willing to loan me money on a 30 year fixed rate loan for 4% or so. If interest rates rise even moderately ove that period, lenders are going to take significant losses, and borrowers stand to profit.

BTW, I still don't understand how lenders make a profit offering 30 year fixed rate loans. This is unique to banks in the U.S., from my experience.
Remember in 1981 banks wrote loans at 18% for 30 years.
On average they will only carry the mortgage for something like 7 years. People refi for many reasons, people move, etc. This at least helps reduce their risk.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Re: residential real estate as an investment,

Post by bungalow10 » Fri Feb 03, 2012 11:22 am

Valuethinker wrote:
bungalow10 wrote: Oh, I know about rental real estate. We have a four-unit apartment building. It is a lot of work, and I would like to sell, but the $1k monthly cashflow and the big check at tax time always make me change my mind.

On the flip side, we have probably lost about $30k of our down payment (we bought in 2007 - really bad timing). I'm still at a point where I'm not willing to accept that as a loss and will hold on for a while longer.
your decision is your decision BUT

that line of reasoning is 'sunk cost fallacy'.

It DOES NOT matter about the previous cost of an investment (exception: if you are in negative equity so a sale crystallizes that).

All that matters is the future opportunity to use that money.

So if you think your return from owning rental units (capital appreciation + income less costs and taxes) exceeds other opportunities for that money, then fine.

Otherwise you should sell and reinvest.

The market in your area may 'bounce': US residential prices now are generally well below 'fair value' looking at comparable rents. However you have all the other costs and risks in the meantime.
I'm very aware of sunk cost fallacy as well. But it isn't just the sunk costs at play, it's the income we have from the investment, the fact that markets like this are typically cyclic, we don't have another tax-efficient investment plan for the money, and the costs/hassle associated with finding a buyer.

To be truthful, finding a buyer right now sounds like a PITA. I think I'll just wait.
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Re: residential real estate as an investment,

Post by DrivingFun » Fri Feb 03, 2012 6:45 pm

While we're on the subject can anyone recommend unbiased reading material on the subject? I've long since considered putting some money into a rental.

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Re: residential real estate as an investment,

Post by madbrain » Fri Feb 03, 2012 7:22 pm

Valuethinker wrote: If inflation drops below 1.5% say, or even more so if it goes negative, that 4% is going to feel very painful.
Wouldn't the interest rates go even lower than they are now, then ? I suppose they can't go below zero.

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Re: residential real estate as an investment,

Post by Valuethinker » Sat Feb 04, 2012 11:51 am

madbrain wrote:
Valuethinker wrote: If inflation drops below 1.5% say, or even more so if it goes negative, that 4% is going to feel very painful.
Wouldn't the interest rates go even lower than they are now, then ? I suppose they can't go below zero.
It's hard to see a world where mortgages go to 2%-- but anything is possible I guess.

My point was more elementary: if you are locked into 30 years at 4% then deflation is really going to hurt.

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Re: residential real estate as an investment,

Post by madbrain » Sat Feb 04, 2012 11:13 pm

Valuethinker wrote: It's hard to see a world where mortgages go to 2%-- but anything is possible I guess.

My point was more elementary: if you are locked into 30 years at 4% then deflation is really going to hurt.
Yes, it would hurt if you were unable to refinance it on better terms.

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Re: residential real estate as an investment,

Post by tc101 » Sun Feb 05, 2012 12:47 am

I think the wisdom of residential real estate as an investment depends on the time and your situation. Today it might be a good idea for some people.

A friend recently bought a foreclosed house for $30K. He spent $10K fixing it up and now is renting it for $1000 a month. Depending on future repairs, taxes, problems with tenants and so on, his return could be as high as 20%. If lots of things go wrong, and he gets sick of managing it himself and hires a management company to do everything, the return still is unlikely to go below 5%. In today's environment that seems like a good deal. I know about all the potential problems with rental housing, the extra work and the possibility of loss. However for a recently retired person in good health with plenty of time who suddenly realizes he may not be able to count on a 4% withdrawal rate, this seems like a reasonable option.
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Re: residential real estate as an investment,

Post by tc101 » Sun Feb 05, 2012 12:53 am

The article says
And it's important to avoid the mistake of recency bias, which leads to buying yesterday's winners (typically at high prices) and selling yesterday's losers (typically at low prices). To avoid that error, you have to know the historical evidence.
Residential real estate is definitely yesterday's loser. Now might be the time to buy.
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Re: residential real estate as an investment,

Post by Kevin M » Sun Feb 05, 2012 1:05 am

Rental real estate can be a business I guess, but it hasn't been that way for me in years. It was more that way when I owned a 9-unit apartment building, but even then, I still held a full time job, managed the rental, and had lots of other time for family and relaxing.

I now own one rental house, and I haven't even been there for over 2 years. Rent check is deposited directly into my credit union account, and other than the property tax and insurance payments, the rest is used to pay bills (no mortgage left).

I spent about a month between current tenants and last tenants working on the property (big lot, so lots of it outside), but I enjoyed it. That's about all I've had to do in the last 6 years or so. Before I retired I would've hired others to do the work I did between tenants, or I just wouldn't have done as much.

I have had bad tenants in the past, and that definitely was stressful. Good tenants make all the difference.

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Re: residential real estate as an investment,

Post by travellight » Sun Feb 05, 2012 10:59 am

I read a generally positive sentiment to rental real estate in the responses here and I agree with them.

Yes, it can be work but I believe it pays off. I loved the poster who described it as using OPM (other people's money) to build your nest egg. Good tenants and buying good properties do make a big difference. I would love to get advice on how to screen for good tenants.

Contrary to one post, my experience has been:
-costs of repairs and labor have NOT gone up. In this economy in fact, it has gone down. I just repainted one house for $18/hour for the painter. I also replaced carpet with hardwood laminate floors for $2.60/sq ft for materials AND labor.
-taxes have not gone up. They SHOULD have gone down but they are tricky and increase the tax rate so that the amount due stays the same.
-I have my tenants generally pay their own utilities so that has not affected me.

I have a long term buy and hold strategy/perspective. I look for properties and markets where rents will cover a 15 year fixed rate mortgage based on zero down. I then have my tenants pay for my "investment" as I manage this business over the next 15 years. I then end up with an asset that I will have paid fairly little for and it is an income stream thereafter for my retirement; or I can sell it at that time if markets have recovered and liquidate.

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Re: residential real estate as an investment,

Post by Liquid » Sun Feb 05, 2012 11:06 am

travellight wrote:I read a generally positive sentiment to rental real estate in the responses here and I agree with them.

Yes, it can be work but I believe it pays off. I loved the poster who described it as using OPM (other people's money) to build your nest egg. Good tenants and buying good properties do make a big difference. I would love to get advice on how to screen for good tenants.

Contrary to one post, my experience has been:
-costs of repairs and labor have NOT gone up. In this economy in fact, it has gone down. I just repainted one house for $18/hour for the painter. I also replaced carpet with hardwood laminate floors for $2.60/sq ft for materials AND labor.
-taxes have not gone up. They SHOULD have gone down but they are tricky and increase the tax rate so that the amount due stays the same.
-I have my tenants generally pay their own utilities so that has not affected me.

I have a long term buy and hold strategy/perspective. I look for properties and markets where rents will cover a 15 year fixed rate mortgage based on zero down. I then have my tenants pay for my "investment" as I manage this business over the next 15 years. I then end up with an asset that I will have paid fairly little for and it is an income stream thereafter for my retirement; or I can sell it at that time if markets have recovered and liquidate.
Sadly 0% down is all but extinct. Welcome your new 20% down overlords.

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Re: residential real estate as an investment,

Post by tibbitts » Sun Feb 05, 2012 12:10 pm

travellight wrote: Contrary to one post, my experience has been:
-costs of repairs and labor have NOT gone up. In this economy in fact, it has gone down. I just repainted one house for $18/hour for the painter. I also replaced carpet with hardwood laminate floors for $2.60/sq ft for materials AND labor.
Question: how are you finding services such that you're getting lower prices? Do you ask for bids, or come up with a price yourself and propose that to dozens/hundreds of vendors? I'm only looking for something that would work for one-time applications, where a repeat business incentive wouldn't be applicable. How do you then screen the contractors that you hire to make sure they aren't just... cheap.

Paul

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Re: residential real estate as an investment,

Post by travellight » Sun Feb 05, 2012 12:13 pm

I fund myself through a giant heloc so I construct that accordingly. Every property has to jump through the hoops of that premise to make it worthy for me. It levels the playing field; if a house cash flows based on the typical 20% down, you have to factor in the opportunity cost of that 20% money elsewhere etc.

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Re: residential real estate as an investment,

Post by travellight » Sun Feb 05, 2012 12:22 pm

Nothing is foolproof and it is live and learn. I have gone through various plumbers, electricians, etc. mostly through Craigslist and I now have my refined list of go to guys who do solid work for me. They jump whenever I call because they know I am a continued revenue stream and I pay reliably.

These latest guys were just the best prices I could find on Craigslist. It is not a high end rental place so I wanted the best budget price. I am not even on site to check on things; I live out of state. They send me pictures and I have someone go and check on the work when done. The work turned out to be very good but it took a little follow up and telling them to go back and clean up more after they were finished. I figure I would rather be disappointed with work I had paid 25 cents on the dollar for than work I had paid 90 cents on the dollar for.

I guess it is the risk/reward ratio. You take a risk when you get very cheap prices but the savings in terms of the reward has been worth it for me. I love my electrician; stumbled upon him during one of my searches for one of my homes. It was during my negotiation process after inspection and I begged him to give me the highest amount it could possibly cost for the total house rewiring and he said he couldn't possibly see charging more than x amount. Sure enough, he got the job done at that price even though he could have charged more. An honest subcontractor; worth his weight in copper, lol.

Honobob
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Re: residential real estate as an investment,

Post by Honobob » Fri Feb 10, 2012 12:43 am

As I predicted. Meantime, condos in Kailua/Waimanalo had the biggest increase in price at just under 60 percent, from $373,000 to $589,000.

http://www.bizjournals.com/pacific/blog ... =e_article

Expect to see more articles like this. Today is a good day to make a smart residential purchase.
It's slowly dawned on me that we won the real estate lottery!

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market timer
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Re: residential real estate as an investment,

Post by market timer » Fri Feb 10, 2012 1:17 am

Honobob wrote:As I predicted. Meantime, condos in Kailua/Waimanalo had the biggest increase in price at just under 60 percent, from $373,000 to $589,000.

http://www.bizjournals.com/pacific/blog ... =e_article

Expect to see more articles like this. Today is a good day to make a smart residential purchase.
"Meantime, condos in Kailua/Waimanalo had the biggest increase in price at just under 60 percent, from $373,000 to $589,000. The number of sales there grew by 50 percent, from four sold to six sold."

With that sample size, this is just noise.

Honobob
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Re: residential real estate as an investment,

Post by Honobob » Fri Feb 10, 2012 1:29 am

market timer wrote:
Honobob wrote:As I predicted. Meantime, condos in Kailua/Waimanalo had the biggest increase in price at just under 60 percent, from $373,000 to $589,000.

http://www.bizjournals.com/pacific/blog ... =e_article

Expect to see more articles like this. Today is a good day to make a smart residential purchase.
"Meantime, condos in Kailua/Waimanalo had the biggest increase in price at just under 60 percent, from $373,000 to $589,000. The number of sales there grew by 50 percent, from four sold to six sold."

With that sample size, this is just noise.
Whhaaaat?
It's slowly dawned on me that we won the real estate lottery!

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market timer
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Re: residential real estate as an investment,

Post by market timer » Fri Feb 10, 2012 1:41 am

Honobob wrote:
market timer wrote:
Honobob wrote:As I predicted. Meantime, condos in Kailua/Waimanalo had the biggest increase in price at just under 60 percent, from $373,000 to $589,000.

http://www.bizjournals.com/pacific/blog ... =e_article

Expect to see more articles like this. Today is a good day to make a smart residential purchase.
"Meantime, condos in Kailua/Waimanalo had the biggest increase in price at just under 60 percent, from $373,000 to $589,000. The number of sales there grew by 50 percent, from four sold to six sold."

With that sample size, this is just noise.
Whhaaaat?
Inferring anything from the median of six prices is like flipping a coin 6 times to determine whether it is biased.

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Clearly_Irrational
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Re: residential real estate as an investment,

Post by Clearly_Irrational » Fri Feb 10, 2012 6:41 pm

Liquid wrote:Sadly 0% down is all but extinct. Welcome your new 20% down overlords.
You can still do 3.5% down through the FHA as long as you're willing to live there the first year.

tibbitts
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Re: residential real estate as an investment,

Post by tibbitts » Fri Feb 10, 2012 8:56 pm

travellight wrote:Nothing is foolproof and it is live and learn. I have gone through various plumbers, electricians, etc. mostly through Craigslist and I now have my refined list of go to guys who do solid work for me. They jump whenever I call because they know I am a continued revenue stream and I pay reliably.

These latest guys were just the best prices I could find on Craigslist. It is not a high end rental place so I wanted the best budget price. I am not even on site to check on things; I live out of state. They send me pictures and I have someone go and check on the work when done. The work turned out to be very good but it took a little follow up and telling them to go back and clean up more after they were finished. I figure I would rather be disappointed with work I had paid 25 cents on the dollar for than work I had paid 90 cents on the dollar for.

I guess it is the risk/reward ratio. You take a risk when you get very cheap prices but the savings in terms of the reward has been worth it for me. I love my electrician; stumbled upon him during one of my searches for one of my homes. It was during my negotiation process after inspection and I begged him to give me the highest amount it could possibly cost for the total house rewiring and he said he couldn't possibly see charging more than x amount. Sure enough, he got the job done at that price even though he could have charged more. An honest subcontractor; worth his weight in copper, lol.
Thanks for that information. However it's difficult for someone just starting out in real estate to duplicate your successful technique, since they should (hopefully) need an electrician or plumber only occasionally.

I know someone who rents house(s) out of state, and I can't imagine how she (or anyone) could accomplish that without an already-trusted person on-scene to supervise work. If you have to find, and pay, both the workers and the supervisors, you have twice the problem.

Paul

onepocket
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Re: residential real estate as an investment,

Post by onepocket » Mon Feb 13, 2012 4:14 pm

ChosenGSR wrote:While we're on the subject can anyone recommend unbiased reading material on the subject? I've long since considered putting some money into a rental.
I'm also interested in the answer to this question. Anyone???

Lumpr
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Re: residential real estate as an investment,

Post by Lumpr » Mon Feb 13, 2012 4:26 pm

onepocket wrote:
ChosenGSR wrote:While we're on the subject can anyone recommend unbiased reading material on the subject? I've long since considered putting some money into a rental.
I'm also interested in the answer to this question. Anyone???
The best I've ever found are the books by John T. Reed (just google John T Reed real estate). Other than that, the only things I've found useful are some finance textbooks and some really old out of print books.

I've been investing in real estate for quite some time and watched my father doing it growing up. I reckon that 99.99999% of the books/tapes/videos/whatever on real estate investing are complete garbage (frankly they are worse than garbage, they are pretty much fraudulent).

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Re: residential real estate as an investment,

Post by Balance » Mon Feb 13, 2012 4:36 pm

ChosenGSR wrote:While we're on the subject can anyone recommend unbiased reading material on the subject? I've long since considered putting some money into a rental.
I have found the book "Investing in Real Estate" by Gary Eldred to be a decent book on the study. He is a successful real estate investor and has done flips and rentals as well as other types of RE investing. The book keeps getting updated as the housing market changes. I think they are on at least the 6th or7th edition by now.

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Re: residential real estate as an investment,

Post by Kevin M » Tue Feb 14, 2012 4:28 pm

ChosenGSR wrote:While we're on the subject can anyone recommend unbiased reading material on the subject? I've long since considered putting some money into a rental.
A book I found useful many years ago as a landlord was "Landlording". It covers the nuts and bolts of managing rental property, which probably is worthwhile to investigate before jumping in. Google it and you'll find it immediately; looks like 2012 is latest edition. Your local library probably has a copy.

Kevin
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travellight
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Re: residential real estate as an investment,

Post by travellight » Sun Nov 24, 2013 1:12 pm

As a follow-up, I just did a financial analysis comparing year to year. About 40% of my net worth growth was from just real estate appreciation:

real estate appreciation: $470,703 (8.6% appreciation, 470k growth divided by net real estate worth)

Granted, these are soft numbers based on estimates of value. What IS notable is that I am riding that wave of appreciation with other people's money.... tenants' rents paying my mortgage, my construct of low down payment. Even conventionally, it would be 20% of my money tied up in down payment.

Comparing real estate to equities is very tricky. I have to compare 8.6% appreciation against 16% growth in my equities in the same time period (I am somewhat conservative), BUT.... that 8.6% growth is with not much of my own money whereas my 16% growth in equities is with all of my own money. It also does not account for the tax benefits with real estate.

I do think market timing which is so taboo here, does play a role for me with real estate. I bought in a downturn which is why I have such appreciation. I think real estate definitely carries risk, and entails work, but can be financially very rewarding if played right. Taking on risk and work SHOULD be rewarding; and if you have a buy and hold strategy with long term rental income as your goal, it at least reduces the short term risk aspect of the plan.

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Re: residential real estate as an investment,

Post by Gilley » Sat Dec 07, 2013 4:53 pm

It's difficult to find value in a company as information is available to all. Not so in the real estate market. Undervalued homes can be found rather easily with experience. Additionally, since most people do not buy homes primarily as an investment, the return on investment figures are useless. If you limited the data to those who purchased homes with investment as a priority the results would be better than reported and if you used ACTUAL investor returns in equities, those results would be worse.

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nedsaid
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Re: residential real estate as an investment,

Post by nedsaid » Sun Dec 08, 2013 1:41 pm

With residential real estate as an investment, it boils down to a couple things. First, buying in at a good price. Secondly, having a positive cash flow. And having a positive cash flow means doing it all yourself (sweat equity) in the early stages. One cannot afford to hire very much out in the beginning.

Rental residential real estate can be pretty lucrative. It is hard work. You have to be willing to do what the vast majority of the population won't do and that is deal with renters. You have to know the landlord/tenant law and be assertive with renters.

I would rather not deal with the headaches and own REITs instead.

If your real estate ownership is your own home, think of the home as a place to live. Whatever price appreciation you get is a bonus. Home ownership should not be the ATM machine many people thought it was from 2000-2007. Home prices can go down.
A fool and his money are good for business.

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Re: residential real estate as an investment,

Post by Dxbinvestor » Tue Dec 10, 2013 1:28 pm

100% sure residential real estate gets you better return than market under these conditions:

* you buy 20% under market after all rehab costs
* 20% leverage with fixed rate loan
* 2-3% positive spread between net rent and mortgage interest, including management fee allowance and capital reserve allowance
* you buy in a growing city

All of these things are absolutely doable fairly easily.

If you do the opposite.. Pay retail, pay cash, declining city, you are better buying market.

I have large real estate portfolio and have analyzed numbers over and over.

Main thing that makes real estate better is stable leverage for fixed rate residential loans. If you could buy stocks on margin and not have to worry about mark to market margin call risk, then stocks would definitely be better.

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Clearly_Irrational
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Re: residential real estate as an investment,

Post by Clearly_Irrational » Tue Dec 10, 2013 3:22 pm

Dxbinvestor wrote:Main thing that makes real estate better is stable leverage for fixed rate residential loans. If you could buy stocks on margin and not have to worry about mark to market margin call risk, then stocks would definitely be better.
That's been my analysis as well. An all cash purchase of real estate is easily beat by market returns, but a leveraged purchase crushes market returns. I don't think that's a free lunch, it's just adequate payment for additional risk.

travellight
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Re: residential real estate as an investment,

Post by travellight » Tue Dec 10, 2013 9:21 pm

but a leveraged purchase crushes market returns
It seems to me the majority here would disagree with that (I am not one of them). I have seen it stated that real estate in general and over time does not do as well as the market. Can you prove your position?

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