Is investing in real estate worth it?

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davebo
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Is investing in real estate worth it?

Post by davebo » Wed Oct 22, 2014 10:52 am

I'm 36, married, with 3 kids. We have managed to save a decent amount for retirement and have a fair amount of surplus income due to a business that we run on the side. We used to tap into that income a bit more because my wife was staying at home with the kids, we took a loss on a previous home, and needed money for a larger downpayment/improvements at our current home. Now we're back in the stage of having all of our day to day needs covered by our day jobs (including retirement savings).

I get all of the upsides of real estate investing, but I question my ability to stomach the bigger downsides like major repairs or long-term tenant vacancies. It seems like you'd learn a lot of lessons on the first one, but then not be willing to do another deal because of all the original problems. I guess a way to mitigate that is to find a trusted partner to do your first deal with?

So a few questions:

1) Is it worth it?
2) How'd you get started?
3) Any good books you recommend?

In theory, I think I' could do it and it would work out fine. But in practice, I think I might get rattled/stressed when I experience my first major issue.

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Re: Is investing in real estate worth it?

Post by technovelist » Wed Oct 22, 2014 11:00 am

I would never invest in real estate other than my own home (and I'm not too keen on that either really).
It is a lot of work and risk for a very uncertain payoff.
In theory, theory and practice are identical. In practice, they often differ.

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Re: Is investing in real estate worth it?

Post by bluejello » Wed Oct 22, 2014 11:28 am

I invest in real estate and have been doing so for 7 years. There have been deals on which I've made money and deals on which I've lost money. Overall it has been profitable for me and I think it can be a great way to invest.

However, from your post, it does not sound like it is for you. "In practice, I think I might get rattled/stressed when I experience my first major issue" —> there will be a LOT of issues and a lot of things to learn. You have to be prepared for this. If you are not comfortable with hassle and risk then do not pass go.

If you do decide to proceed, here are some things I've learned that may help you (listed in no particular order):

  • These are terms you have to know and be very familiar with: net operating income (NOI), debt service coverage ratio (DSCR), internal rate of return (IRR), cap rate, cash flow.
  • Become friends with real estate professionals. Every deal on which I've made money has been sourced through a real estate agent who is a very close friend (I'm talking the kind of close where her kids call me auntie). She is also fantastic at her job as a real estate agent and earns at least $300k+ each year. That is the kind of person you want to have in your corner.
  • One of the major reasons why real estate investing can be profitable is leverage, but this only works in your favor if the cost of borrowing < the rate of return. For example: if a property has an IRR of 10% when calculated on a cash basis and you can get a mortgage rate of 5%, that will only boost your returns. Conversely, the same mortgage for a property returning 4% will decrease your returns.
  • Never ever fall in love with a property. Just because you love the look of a property does not mean your renters or potential buyers will. Evaluate each property's potential for rents and appreciation using data (i.e. comps), not gut feeling or hope.
  • Pay a LOT of attention to transaction costs. They usually run somewhere around 2-3% for buyers and 6%+ for sellers, so you need to clear at least 8-10% on any deal just to break even.
  • In general I've found that it is better to invest in homes that are in good neighborhoods — these homes tend to have a lower rate of return but much less hassle in terms of delinquent rent, damage, etc. If you were to rank neighborhoods in terms of A, B, and C (where A is the nicest and C is the areas you don't want to drive through at night) I've found the most success investing in B properties. However, your mileage may vary.

Gallinelli's "What Every Real Estate Investor Needs to Know About Cash Flow...And 36 Other Key FInancial Measures" is a good book. So is "The Wall Street Journal's Complete Real-Estate Investing Guidebook".

Best of luck!

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Zabar
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Re: Is investing in real estate worth it?

Post by Zabar » Wed Oct 22, 2014 12:28 pm

Consider REIT mutual funds and ETFs, especially in tax-sheltered accounts. Instant diversification. No dealing with tenants. No midnight calls about plumbing leaks.

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Re: Is investing in real estate worth it?

Post by xrw1 » Wed Oct 22, 2014 12:48 pm

Zabar wrote:Consider REIT mutual funds and ETFs, especially in tax-sheltered accounts. Instant diversification. No dealing with tenants. No midnight calls about plumbing leaks.


This maybe a newbie question, but besides the real estate aspect how are investment property you eventually will own related to that of REIT. With a rental property, every month you will get rent and eventually when you own the house you will have a higher profit than that of REIT. Am I missing something?

Thank you

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Clearly_Irrational
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Re: Is investing in real estate worth it?

Post by Clearly_Irrational » Wed Oct 22, 2014 1:05 pm

I advise against speculating (buy and selling) real estate. I happen to like rentals though.

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Re: Is investing in real estate worth it?

Post by Zecht » Wed Oct 22, 2014 3:09 pm

Real estate investing can take several forms. You can use strategies including house flipping, owning and renting, REITs, and others. I would first pick the strategy before pursuing it because the temperament, thought process, and behavioral weaknesses make each of these strategies unique. Working extremely hard to flip a house that you then have to hold onto for several years before it can be sold a la 2008 is a great example of when things go bad with that. Similarly you could always have renters from hell or an REIT that unexpectedly fails; I would suggest doing lots of background on the renters and/or REIT organizations to help ensure that everything is on the up and up.

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Zabar
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Re: Is investing in real estate worth it?

Post by Zabar » Wed Oct 22, 2014 4:25 pm

xrw1 wrote:
Zabar wrote:Consider REIT mutual funds and ETFs, especially in tax-sheltered accounts. Instant diversification. No dealing with tenants. No midnight calls about plumbing leaks.


This maybe a newbie question, but besides the real estate aspect how are investment property you eventually will own related to that of REIT. With a rental property, every month you will get rent and eventually when you own the house you will have a higher profit than that of REIT. Am I missing something?

A REIT mutual fund or ETF is a way of diversifying your investments so that they include real estate ownership (usually but not always commercial real estate) plus management. You own a tiny percentage of a lot of properties, and share in the cash flow and profit from sales as well as the expenses. REITs and REIT mutual funds and ETFs, unlike individual properties, have tax consequences that make them more appropriate for tax-deferred or tax-advantaged accounts than for ownership in regular accounts.

Note that with an individual property, you can make out very well. It can also be a financial disaster, with tenants who don't pay, high expenses, increasing taxes and an upside-down mortgage. You're not guaranteed "a higher profit than that of a REIT." Lots of properties still haven't recovered from 2008-9.

Also, there's a difference between investing in a REIT and investing in a REIT mutual fund or ETF. The latter give you liquidity and greater diversification. A REIT, like an individual property, can be highly illiquid. For example, Vanguard's REIT Index Fund owns shares in 138 different REITs, each of which can own up to several hundred properties.

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Re: Is investing in real estate worth it?

Post by WhyNotUs » Wed Oct 22, 2014 4:44 pm

davebo wrote:So a few questions:

1) Is it worth it?
2) How'd you get started?
3) Any good books you recommend?

In theory, I think I' could do it and it would work out fine. But in practice, I think I might get rattled/stressed when I experience my first major issue.


From your comments I am guessing that you mean investing in sfh or duplex. There are lots of other ways to invest in real estate (apartments, commercial, entitlement, etc.) but my comments assume that is what you meant.

1.) It depends, unless you are in a hot market or are planning to live in one side of a duplex it is probably not going to return more than a three fund portfolio. Any additional gain that you might have would come from a. added leverage (risk) b. your labor (improvements, landlording) c. or an unusual appreciation rate (think SF over the last 5 years)
2.) I got involved because much of my professional life involves thinking, meeting, and computering. I need gardening and improvements to provide work opportunities in which I can see a concrete difference at the end of my days work. My profession gives me opportunities to create or join others in real estate endeavors. I would have more money saved if I had put it all into a 3 fund 70/30 portfolio but I have enjoyed most of it.
3.) NOLO guides to landlording- legal and tax info. Your state's tenant rights law.
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HomerJ
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Re: Is investing in real estate worth it?

Post by HomerJ » Wed Oct 22, 2014 4:53 pm

I think it can be well worth it, but it's going to be a second job for a while.

"Investing in real estate" doesn't sound like much work... more of a "What kind of risks does this asset-class have?"

Another way to phrase it is "Should I work two jobs instead of one to make some more money?"

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Re: Is investing in real estate worth it?

Post by surfstar » Wed Oct 22, 2014 5:05 pm

It would be akin to picking a single stock, but working a second job at that company to ensure a better chance of some profits.

Some do great with RE investments (concentration of risk can pay off big), but it sounds like too much work to me.

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Clearly_Irrational
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Re: Is investing in real estate worth it?

Post by Clearly_Irrational » Wed Oct 22, 2014 5:13 pm

WhyNotUs wrote:1.) It depends, unless you are in a hot market or are planning to live in one side of a duplex it is probably not going to return more than a three fund portfolio. Any additional gain that you might have would come from a. added leverage (risk) b. your labor (improvements, landlording) c. or an unusual appreciation rate (think SF over the last 5 years)


Leverage is a key issue. Stocks come pre-levered, real estate you have to decide that on your own. At 0% leverage real estate trails stocks at 100% leverage rentals tend to trounce stocks. The normal amount of leverage for rentals is 70%-80%. In the vast majority of cases leveraged real estate is going to outperform a stock & bond portfolio however that isn't a free lunch. You're being compensated for concentration risk, lower liquidity and higher annoyance levels.

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Re: Is investing in real estate worth it?

Post by SpaceCommander » Wed Oct 22, 2014 5:21 pm

I've invested in real estate and made a lot of money. A couple observations:

1. It's really is a business and needs to be treated as such. Are you ready for a sideline business?

2. It can be a huge hassle and major time suck in many ways depending on the kind of real estate invested in. Are you up for it?

3. It is extraordinarily risky in numerous ways. Nothing unmanageable, but certainly much more risky than a balanced portfolio of stocks and bonds. Are you willing to accept that risk?

4. In the end, it really isn't necessary. If you can reach your financial goals without real estate investment, then why get into it? Do you NEED to invest in real estate to reach your goals?

FWIW,

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Re: Is investing in real estate worth it?

Post by obgyn65 » Wed Oct 22, 2014 5:29 pm

I would never invest in real estate other than my own home.
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Re: Is investing in real estate worth it?

Post by Bud » Wed Oct 22, 2014 5:35 pm

SpaceCommander wrote:I've invested in real estate and made a lot of money. A couple observations:

1. It's really is a business and needs to be treated as such. Are you ready for a sideline business?

2. It can be a huge hassle and major time suck in many ways depending on the kind of real estate invested in. Are you up for it?

3. It is extraordinarily risky in numerous ways. Nothing unmanageable, but certainly much more risky than a balanced portfolio of stocks and bonds. Are you willing to accept that risk?

4. In the end, it really isn't necessary. If you can reach your financial goals without real estate investment, then why get into it? Do you NEED to invest in real estate to reach your goals?

FWIW,

JC


I second this.

Real estate is a business and just like any business, you need to do your home work or you will fail.

If you can accumulate what you need to by passively investing, why bother.

But, real estate does add an entirely different type of asset and income stream to the mix.

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Clearly_Irrational
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Re: Is investing in real estate worth it?

Post by Clearly_Irrational » Wed Oct 22, 2014 5:41 pm

Bud wrote:But, real estate does add an entirely different type of asset and income stream to the mix.


That's one of the main reasons I like it, I consider it a form of meta-diversification. Oh and real estate is fantastic at throwing off reliable cash flows, much better than a financial portfolio in that respect.

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stemikger
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Re: Is investing in real estate worth it?

Post by stemikger » Wed Oct 22, 2014 5:49 pm

bluejello wrote:I invest in real estate and have been doing so for 7 years. There have been deals on which I've made money and deals on which I've lost money. Overall it has been profitable for me and I think it can be a great way to invest.

However, from your post, it does not sound like it is for you. "In practice, I think I might get rattled/stressed when I experience my first major issue" —> there will be a LOT of issues and a lot of things to learn. You have to be prepared for this. If you are not comfortable with hassle and risk then do not pass go.

If you do decide to proceed, here are some things I've learned that may help you (listed in no particular order):

  • These are terms you have to know and be very familiar with: net operating income (NOI), debt service coverage ratio (DSCR), internal rate of return (IRR), cap rate, cash flow.
  • Become friends with real estate professionals. Every deal on which I've made money has been sourced through a real estate agent who is a very close friend (I'm talking the kind of close where her kids call me auntie). She is also fantastic at her job as a real estate agent and earns at least $300k+ each year. That is the kind of person you want to have in your corner.
  • One of the major reasons why real estate investing can be profitable is leverage, but this only works in your favor if the cost of borrowing < the rate of return. For example: if a property has an IRR of 10% when calculated on a cash basis and you can get a mortgage rate of 5%, that will only boost your returns. Conversely, the same mortgage for a property returning 4% will decrease your returns.
  • Never ever fall in love with a property. Just because you love the look of a property does not mean your renters or potential buyers will. Evaluate each property's potential for rents and appreciation using data (i.e. comps), not gut feeling or hope.
  • Pay a LOT of attention to transaction costs. They usually run somewhere around 2-3% for buyers and 6%+ for sellers, so you need to clear at least 8-10% on any deal just to break even.
  • In general I've found that it is better to invest in homes that are in good neighborhoods — these homes tend to have a lower rate of return but much less hassle in terms of delinquent rent, damage, etc. If you were to rank neighborhoods in terms of A, B, and C (where A is the nicest and C is the areas you don't want to drive through at night) I've found the most success investing in B properties. However, your mileage may vary.

Gallinelli's "What Every Real Estate Investor Needs to Know About Cash Flow...And 36 Other Key FInancial Measures" is a good book. So is "The Wall Street Journal's Complete Real-Estate Investing Guidebook".

Best of luck!


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Re: Is investing in real estate worth it?

Post by DonCamillo » Wed Oct 22, 2014 6:07 pm

I have been in the TIAA Real Estate Fund for 20 years and even with that twenty years experience I don't think I can answer the question; "Is investing in real estate worth it?"

I am only in it for minor diversification--about 7% of my portfolio.
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Re: Is investing in real estate worth it?

Post by 4nursebee » Wed Oct 22, 2014 6:16 pm

1. Yes, but!
2. I bought a house.
3. NOLO
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Re: Is investing in real estate worth it?

Post by SpaceCommander » Wed Oct 22, 2014 7:44 pm

Clearly_Irrational wrote:
Bud wrote:But, real estate does add an entirely different type of asset and income stream to the mix.


That's one of the main reasons I like it, I consider it a form of meta-diversification. Oh and real estate is fantastic at throwing off reliable cash flows, much better than a financial portfolio in that respect.


I got a chuckle out of this. Indeed, real estate is great at throwing off reliable cash flow. Unfortunately, that cash flow is not always positive! Ever heard of NEGATIVE cash flow? Yeah, nobody goes into the real estate business looking forward to that, but it's real; and it happens all the time! Unanticipated expenses have a curious way of sneaking up on you. A couple thousand here, another 10 grand there, and before you know it, there went your expected positive cash flow, and you're dipping into savings to cover your shortfall... :annoyed
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Re: Is investing in real estate worth it?

Post by Busting Myths » Wed Oct 22, 2014 8:39 pm

SpaceCommander wrote:
Clearly_Irrational wrote:
Bud wrote:But, real estate does add an entirely different type of asset and income stream to the mix.


That's one of the main reasons I like it, I consider it a form of meta-diversification. Oh and real estate is fantastic at throwing off reliable cash flows, much better than a financial portfolio in that respect.


I got a chuckle out of this. Indeed, real estate is great at throwing off reliable cash flow. Unfortunately, that cash flow is not always positive! Ever heard of NEGATIVE cash flow? Yeah, nobody goes into the real estate business looking forward to that, but it's real; and it happens all the time! Unanticipated expenses have a curious way of sneaking up on you. A couple thousand here, another 10 grand there, and before you know it, there went your expected positive cash flow, and you're dipping into savings to cover your shortfall... :annoyed

Happens all the time? Do you have actual data to back this claim or just anecdotal stories? negative cash flow is typically due to speculation (betting on price increases) like a lot of mom and investors did during the 2000's. Toward the end of the bubble housing fundamental we're so screwed up you could not make an argument for asking prices based on market rents and reasonable cap rates.

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Re: Is investing in real estate worth it?

Post by davebo » Wed Oct 22, 2014 10:16 pm

Just after reading this I'm already thinking I'm probably not up for it. I already have a side-business that generates significant cash flow so I should probably focus on that. I should build that up for as long as I can since it's probably the best use of my time.

I hear all the time that people make their money in real estate, but all the people I know that do it seem like they are just grinding it out making relatively modest sums with lots of risk. I guess the big payout comes when you sell the properties down the line.

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Re: Is investing in real estate worth it?

Post by SDBoggled » Wed Oct 22, 2014 10:45 pm

1) Is it worth it?
Yes, only if it is a fit for you.
Here is how I think of the math: Yes, if you can purchase and operate real estate at > 8% (long term 60/40 return). Operate includes allocating approximately 40-50% of gross rent for operational expenses excluding financing. This includes reserves!!! (roofs, appliances, paint, flooring, furnaces, water heaters etc all have a usable lifetime) and vacancy allowance, as well as the harder to miss property taxes, insurance, regular maintenance and management costs.

So when calculating your equivalent return only use 50-60% of gross rents.

As others have said leverage and appreciation (+/-) can help or hurt your returns and this must be part of your risk assessment and "skill/judgement".

2009-2012 real estate was much easier. I have been looking locally for well over a year and really, really struggling to buy anything above 8% (this was an off-market, "special" deal which is difficult to replicate) so just lately resigned to taking the long term expected returns of 8%-10% depending on mix of small caps and total stock market (VB and VTI and mebe munis).

2) How'd you get started?
Started a long time ago small with $55k first purchase, sold for $85k. Restarted in 2009.

3) Any good books you recommend?
Biggerpockets.com and local investor meetups and real estate investor groups... I have found, among the LOTs of people trying to sell you stuff, are experienced investors who enjoy real estate and very generously share their knowledge.

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Re: Is investing in real estate worth it?

Post by Clearly_Irrational » Thu Oct 23, 2014 10:26 am

SpaceCommander wrote:I got a chuckle out of this. Indeed, real estate is great at throwing off reliable cash flow. Unfortunately, that cash flow is not always positive! Ever heard of NEGATIVE cash flow? Yeah, nobody goes into the real estate business looking forward to that, but it's real; and it happens all the time! Unanticipated expenses have a curious way of sneaking up on you. A couple thousand here, another 10 grand there, and before you know it, there went your expected positive cash flow, and you're dipping into savings to cover your shortfall... :annoyed


Well, I own rental real estate so I feel like I have some perspective on the issue. Yes, expenses do occur but to say that they're "unanticipated" is a bit disingenuous. Maintaining a sinking fund for these known occurrence events is the right way to handle the problem. Sure, you don't know exactly what the issue is going to be or exactly when it's going to happen, but you can be pretty accurate in the amount you need to budget for a multi-year period for several units. In comparison to a financial portfolio real estate has a larger non-depleting safe withdrawal rate.

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Re: Is investing in real estate worth it?

Post by SpaceCommander » Thu Oct 23, 2014 2:56 pm

Busting Myths wrote:
SpaceCommander wrote:
Clearly_Irrational wrote:
Bud wrote:But, real estate does add an entirely different type of asset and income stream to the mix.


That's one of the main reasons I like it, I consider it a form of meta-diversification. Oh and real estate is fantastic at throwing off reliable cash flows, much better than a financial portfolio in that respect.


I got a chuckle out of this. Indeed, real estate is great at throwing off reliable cash flow. Unfortunately, that cash flow is not always positive! Ever heard of NEGATIVE cash flow? Yeah, nobody goes into the real estate business looking forward to that, but it's real; and it happens all the time! Unanticipated expenses have a curious way of sneaking up on you. A couple thousand here, another 10 grand there, and before you know it, there went your expected positive cash flow, and you're dipping into savings to cover your shortfall... :annoyed

Happens all the time? Do you have actual data to back this claim or just anecdotal stories? negative cash flow is typically due to speculation (betting on price increases) like a lot of mom and investors did during the 2000's. Toward the end of the bubble housing fundamental we're so screwed up you could not make an argument for asking prices based on market rents and reasonable cap rates.


What's with the hostility? Do you have anything to constructive to add other than merely throwing stones? I'm making a point that should be self-evident to anyone who thinks about the subject briefly. When a real estate investment goes bad its usually due to negative cash flow. Otherwise, with positive cash flow the investor can ride out any storm. Real estate investments DO go bad. This is not an uncommon occurrence. Does anyone dispute this? Do you need evidence of this? Data? Are you kidding me?

Usually these investments are pulled off with a great deal of leverage. That leverage can make a good deal great, but it can also amplify the negative consequences of bad decisions. Real estate investors need to anticipate unforeseen expenses. Estimate your expenses and then double them to be sure. Stuff happens. Go into the field with eyes wide open. This is just common sense for the conservative investor. Sorry for trying to pass along a word of advice to a new real estate investor! I've made my money in the field. If one doesn't care for the counsel, then they can learn from their own mistakes. I have nothing else to say on this thread.
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Re: Is investing in real estate worth it?

Post by smackboy1 » Thu Oct 23, 2014 3:56 pm

davebo wrote:I'm 36, married, with 3 kids. We have managed to save a decent amount for retirement and have a fair amount of surplus income due to a business that we run on the side. We used to tap into that income a bit more because my wife was staying at home with the kids, we took a loss on a previous home, and needed money for a larger downpayment/improvements at our current home. Now we're back in the stage of having all of our day to day needs covered by our day jobs (including retirement savings).

I get all of the upsides of real estate investing, but I question my ability to stomach the bigger downsides like major repairs or long-term tenant vacancies. It seems like you'd learn a lot of lessons on the first one, but then not be willing to do another deal because of all the original problems. I guess a way to mitigate that is to find a trusted partner to do your first deal with?

So a few questions:

1) Is it worth it?
2) How'd you get started?
3) Any good books you recommend?

In theory, I think I' could do it and it would work out fine. But in practice, I think I might get rattled/stressed when I experience my first major issue.


Take a look at John T. Reed's materials. They are quite dated, but they do give a non sugar coated view of being in the business of real estate - and it is a business as opposed to just a passive investment.

http://www.johntreed.com/realestate.html

The other thing is, don't underestimate dealing with tenants. They can be completely benign, or become huge problems and cost you lots of time and $.
Disclaimer: nothing written here should be taken as legal advice, but I did stay at a Holiday Inn Express last night.

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Re: Is investing in real estate worth it?

Post by EasilyConfused » Thu Oct 23, 2014 4:03 pm

davebo wrote:

So a few questions:

1) Is it worth it?
2) How'd you get started?
3) Any good books you recommend?

In theory, I think I' could do it and it would work out fine. But in practice, I think I might get rattled/stressed when I experience my first major issue.

I'm a buy-and-hold landlord who invests for cash flow. My answers:

1. For me, yes, but I have family connections to reliable handymen, a lack of sentimentality regarding housing, reasonably good people skills, and the ability to be a total jerk when I have to. If I had different connections or if I were wired differently, it definitely wouldn't be worth it.

2. Bought a dirt-cheap single family home, spent a couple grand to get it rental-ready, rented it out, repeat, repeat, etc. I'm a stickler for good prices and financing terms. Being a landlord is work, so if I'm not going to cash flow a considerably better ROI than the historical return on passive stock investment, I'm not going to bother.

3. Landlording by Leigh Robinson is an excellent primer on property management.

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Re: Is investing in real estate worth it?

Post by jahol000 » Thu Oct 23, 2014 5:09 pm

I've dabbled in RE investing over the years and heartily endorse many of the comments noted so far. One way to consider the opportunity is to ask the question: "where in the process will I "add value"? E.g., Do I have an expertise in selecting properties or closing deals quickly? Do I have a special channel for getting access to below market deals? Do I have access to discounted tradesmen or discounted financing? Am I especially handy and willing to put in sweat equity? Am I gifted in selling at above-market prices? Etc.

Unless you have some unusual/special expertise, you're going to rely on other professionals for the various activities who will largely squeeze any above-market value from the transaction/investment. You then are left with market or, likely, slightly below market returns - which over time may track with inflation, while exposing you to some heart-pounding market cycles. You then have to ask yourself, do I feel lucky?

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Re: Is investing in real estate worth it?

Post by Busting Myths » Thu Oct 23, 2014 5:27 pm

SpaceCommander wrote:
Busting Myths wrote:
SpaceCommander wrote:
Clearly_Irrational wrote:
Bud wrote:But, real estate does add an entirely different type of asset and income stream to the mix.


That's one of the main reasons I like it, I consider it a form of meta-diversification. Oh and real estate is fantastic at throwing off reliable cash flows, much better than a financial portfolio in that respect.


I got a chuckle out of this. Indeed, real estate is great at throwing off reliable cash flow. Unfortunately, that cash flow is not always positive! Ever heard of NEGATIVE cash flow? Yeah, nobody goes into the real estate business looking forward to that, but it's real; and it happens all the time! Unanticipated expenses have a curious way of sneaking up on you. A couple thousand here, another 10 grand there, and before you know it, there went your expected positive cash flow, and you're dipping into savings to cover your shortfall... :annoyed

Happens all the time? Do you have actual data to back this claim or just anecdotal stories? negative cash flow is typically due to speculation (betting on price increases) like a lot of mom and investors did during the 2000's. Toward the end of the bubble housing fundamental we're so screwed up you could not make an argument for asking prices based on market rents and reasonable cap rates.


What's with the hostility? Do you have anything to constructive to add other than merely throwing stones? I'm making a point that should be self-evident to anyone who thinks about the subject briefly. When a real estate investment goes bad its usually due to negative cash flow. Otherwise, with positive cash flow the investor can ride out any storm. Real estate investments DO go bad. This is not an uncommon occurrence. Does anyone dispute this? Do you need evidence of this? Data? Are you kidding me?

Usually these investments are pulled off with a great deal of leverage. That leverage can make a good deal great, but it can also amplify the negative consequences of bad decisions. Real estate investors need to anticipate unforeseen expenses. Estimate your expenses and then double them to be sure. Stuff happens. Go into the field with eyes wide open. This is just common sense for the conservative investor. Sorry for trying to pass along a word of advice to a new real estate investor! I've made my money in the field. If one doesn't care for the counsel, then they can learn from their own mistakes. I have nothing else to say on this thread.


Hostility was not my intent, SpaceCommander. I had an initial issue with your "happens all the time" statement as I interpret it as the typical "everything is dangerous except index funds" mantra that runs along the forum. In fact I enjoyed your detailed follow up response and I agree with you said. :sharebeer

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