Question for you high net worth individuals... [real estate investments]

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forevernaive
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Re: Question for you high net worth individuals...

Postby forevernaive » Fri May 19, 2017 9:22 am

jdbee wrote:Been a landlord for 30+ years. About 20% of NWorth is southern Cal residential income property. All free and clear/cash flowing now but still have times where you have to drop everything and fix something or deal with a tenant. If you have someone else manage it I don't think you will make much, if any, $ until you get below 50% LTV. I would look at it as a diversification and eventual cash flow instrument. If apartments = pure cashflow, little appreciation, particularly if cap rates go back to historical norms. If condo/home, you also have a shot at appreciation as a "for sale home". Best time to buy is when the market is getting creamed and you can afford to feed it/keep a tenant in it for a few years, cost basis is key. If you want to get technical, read Case-Shiller's study on housing appreciation from about late 1800's to about 2005 (or thereabouts); the takeaway is national housing has appreciated at about the rate of inflation, so I guess you could look at it as an inflation hedge as well. Compared to historical returns of the stock market I think you will make more $ with less tenant hassle factor (especially with California's pro-tenant laws). There are many former landlords and former passive landlords for a reason.


This. Owning rental real estate is a part time business that sometimes turns into a full-time job. It's easier to do if you have a flexible schedule or already run your own business, and if you are handy with tools and enjoy that kind of work.

I just fell into being a landlord by my wife and I having well-paying careers that meant whenever we moved we didn't need to sell our previous homes. We're also lucky to live in a booming metropolitan region with rising rents, and specifically in a university town with a restricted housing supply and young, easy to manage tenants. I only buy RE investment properties when the market is down, and rarely sell as I see them as long-term investments with high transaction costs. The capital appreciation has been ok, but stable and rising rents mattered more. RE is now a significant part of our NW and throws off a nice income stream.

It's a very different business in other locales. Most of important though, owning rental real estate is a business. Expect more work than index funds (though I don't agree that learning to invest is all that easy either--it might be as easy as watching paint dry once you have mastered the discipline, but there's still a learning curve...).

Vanguard Fan 1367
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Re: Question for you high net worth individuals...

Postby Vanguard Fan 1367 » Fri May 19, 2017 4:22 pm

forevernaive wrote:
jdbee wrote:Been a landlord for 30+ years. About 20% of NWorth is southern Cal residential income property. All free and clear/cash flowing now but still have times where you have to drop everything and fix something or deal with a tenant. If you have someone else manage it I don't think you will make much, if any, $ until you get below 50% LTV. I would look at it as a diversification and eventual cash flow instrument. If apartments = pure cashflow, little appreciation, particularly if cap rates go back to historical norms. If condo/home, you also have a shot at appreciation as a "for sale home". Best time to buy is when the market is getting creamed and you can afford to feed it/keep a tenant in it for a few years, cost basis is key. If you want to get technical, read Case-Shiller's study on housing appreciation from about late 1800's to about 2005 (or thereabouts); the takeaway is national housing has appreciated at about the rate of inflation, so I guess you could look at it as an inflation hedge as well. Compared to historical returns of the stock market I think you will make more $ with less tenant hassle factor (especially with California's pro-tenant laws). There are many former landlords and former passive landlords for a reason.


This. Owning rental real estate is a part time business that sometimes turns into a full-time job. It's easier to do if you have a flexible schedule or already run your own business, and if you are handy with tools and enjoy that kind of work.

I just fell into being a landlord by my wife and I having well-paying careers that meant whenever we moved we didn't need to sell our previous homes. We're also lucky to live in a booming metropolitan region with rising rents, and specifically in a university town with a restricted housing supply and young, easy to manage tenants. I only buy RE investment properties when the market is down, and rarely sell as I see them as long-term investments with high transaction costs. The capital appreciation has been ok, but stable and rising rents mattered more. RE is now a significant part of our NW and throws off a nice income stream.

It's a very different business in other locales. Most of important though, owning rental real estate is a business. Expect more work than index funds (though I don't agree that learning to invest is all that easy either--it might be as easy as watching paint dry once you have mastered the discipline, but there's still a learning curve...).



Great advice!! I recommend that you Bogleheads take it. I bought when the market was up, not down (big buy right before the 2008 debacle) so I am still down maybe 50 percent from what I had invested in 2008 in my investment property.

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JDCarpenter
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Re: Question for you high net worth individuals...

Postby JDCarpenter » Fri May 19, 2017 4:31 pm

Sandtrap wrote:100%
R/E


We are negative in R.E., but have only purchased our own primary residences.

BUT, there is a big difference between a professional (like Sandtrap, from his other posts), and dabblers. Our landlords for the first 18 months when we moved to the present town are in mid-40s, both with R.E. licenses, and by their mid-30s had multiple multi-tenant buildings and SFHs. They also flipped SFHs. They should be in your target net worth by now; some of our clients have also gone far beyond your proposed net worth range with R.E. investments.

OTOH, DW and I both work 60 hour weeks outside of R.E. The odds of us succeeding in that game, which is full of full-timers, are not attractive.
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amarone
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Re: Question for you high net worth individuals...

Postby amarone » Fri May 19, 2017 5:16 pm

Another zero here.

I regard one of the factors in achieving the level of net worth I have to be that I always bought homes well within my means. I could then invest more in stocks/bonds as I was not having to shell out as much on property taxes, home insurance & maintenance.

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Artsdoctor
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Re: Question for you high net worth individuals...

Postby Artsdoctor » Fri May 19, 2017 5:33 pm

I've chosen to not invest in real estate just because it doesn't fit my personality. We have several friends who have done extremely well over many years by investing in income-producing properties but they really don't mind assuming the landlord role. They're actually really good at it. However, it's just not me--I need my free time and I don't want to deal with any personality disorders. I'd take a bear market over PITA tenants anyday, but my friends in real estate usually don't have the stomach (or the knowledge) for equity investing.

Kiter
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Re: Question for you high net worth individuals...

Postby Kiter » Fri May 19, 2017 6:15 pm

Quite a bit for me and wife/ in laws . From income about 1+ m . Our RE purchases were for a Biz. location and employee housing as I live in a HCL area and foresaw a need . About 1.25m in increased value in the last 10 years v.conservatively . Not including primary with a increased value of 750k again v.conservatively . 2 more from in laws.About 375k in mortgages total for all 5 properties already deducted from values

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Tycoon
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Re: Question for you high net worth individuals...

Postby Tycoon » Fri May 19, 2017 6:32 pm

Nada.
...I might be just beginning | I might be near the end. Enya | | C'est la vie

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sometimesinvestor
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Re: Question for you high net worth individuals...

Postby sometimesinvestor » Fri May 19, 2017 7:43 pm

I confess I have not read most of the comments so this may be duplicative but it is wrong to invest in real estate unless you are capable of doing a good deal of the maintenance including late night calls to fix the leaking sink/ If you want to make a small investment in REITS go ahead as it won't be time consuming and it might or might not work out.

dad2000
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Re: Question for you high net worth individuals...

Postby dad2000 » Fri May 19, 2017 8:46 pm

Zero.

HIgh paying jobs. Prudent investing.

RAchip
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Re: Question for you high net worth individuals...

Postby RAchip » Fri May 19, 2017 8:56 pm

Zero. I do have a good bit of $ in homes (primary residence plus three vacation beach homes). Realestate taxes, insurance, maintenance etc are high expenses (hundreds of thousands per year). Realestate would have to appreciate at a fantastic rate to offset these expenses. I would never buy realestate to try to make money.

AlohaJoe
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Re: Question for you high net worth individuals...

Postby AlohaJoe » Fri May 19, 2017 9:12 pm

Zero.

I rent; don't even own a house.

But if you asked this question on different forums you might get different answers. This forum is biased towards a certain kind of investor. Ask on biggerpockets and you'll definitely get different answers :twisted:

Stormbringer
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Re: Question for you high net worth individuals...

Postby Stormbringer » Sat May 20, 2017 12:22 pm

jzzmn88 wrote:Hi all,

For you high net worth individuals (talking $3 million+), how much of that was attributed to real estate investing? I always keep reading and hearing from friends that real estate is the way to true wealth. There are a few reasons why I haven't gotten into RE yet:

1. Have no experience in it except for buying my home.
2. Not interested in becoming a landlord. Hear horror stories of crazy tenants.
3. I live in southern California and housing prices are sky high right now. Not that I can't invest in other areas, but being a long distance landlord is tough.

I can't help but think I'm missing the boat by not getting into RE but what say you, fellow Bogleheads? Does one need RE in their overall portfolio to achieve true wealth?

Thanks!


I have 15 rental properties, and about half my NW is in real estate. Real Estate (leveraged real estate, in particular) can be path to wealth, but it is definitely not for everyone. In my experience, active investors do better than absentee landlords. If you are going to be passive, you can probably just buy some REITs.

jackholloway
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Re: Question for you high net worth individuals...

Postby jackholloway » Sat May 20, 2017 8:26 pm

No RE aside from my residence. I do not need a second career or investments that occasionally ring me up.

Go to biggerpockets for the other side. I have many coworkers who do invest in RE and like it.

dvmmph
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Re: Question for you high net worth individuals...

Postby dvmmph » Sat May 20, 2017 10:52 pm

15% in bay area

ww340
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Re: Question for you high net worth individuals...

Postby ww340 » Sun May 21, 2017 12:17 am

We have 2/3 of our net worth in real estate not counting personal real estate. Likewise, 2/3 of our retirement income is from real estate. We have management companies for the residential properties, and the commercial properties are all triple net leases to long term tenets. The hassle factor is very low for us.

We are both retired, and my husband owned his own business until he shut it down in 2008,which is how we became commercial landlords. He had several commercial properties that he used for his business. He sold one for a lot of money, and we have kept the rest and lease them out.

I have always dabbled in real estate and had my own commercial real estate company years ago, so we had some expertise going into it. We have had some really good luck along the way, and we have had some bad luck.

We have one rental on the river that just flooded for the 5 th time in in the last 9 years. We took it as a total loss after the flood in Dec. 2015,last year and are not rebuilding it. Another commercial property sat vacant for 3 years, because it was on a corner and the city had the corner tied up with construction for 3 years. But then we had some properties that were sitting on gas and the royalties have been very substantial.

Real estate has been fun most of the time, but like anything it has it's frustrations and ups and downs.

CurlyDave
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Re: Question for you high net worth individuals...

Postby CurlyDave » Sun May 21, 2017 2:51 am

NYC_Guy wrote:... In my experience, those that have been successful with generating wealth via real estate do it as an active job, not passive investment. If my real estate holdings require me to do things, like find tenants and fix problems, that's a job. I don't believe passive investment in real estate is a better source of returns, per se. But if you want to make a job of it, and actively manage, then that's a career...and a source of income generation based on your skill and not your capital. Not comparable to other types of passive investment....


Total agreement. I have made money both in stocks and real estate.

Real estate takes active participation to be successful. It is like a second job. To me, that is one of its great virtues. I can't be laid off, or fired for reasons beyond my control. I am much more the master of my own destiny than when I invest in index funds.

As an engineer, I had a choice in my career path. I could put in a lot of extra time at work, hoping for a promotion, or I could develop a profitable sideline and accept limited upward mobility. A real estate sideline was more of a sure thing, and I smiled all the way to the bank. Between RE and my salary I made more than managers 2 levels above my position. And when I retired, I could take the part-time RE job with me through a 1031 exchange.

But if someone does not enjoy the RE sideline, stick to stocks. For me, the return on RE was higher than stocks because I could put in my own time -- sweat equity. Not always possible when working for someone else. Current value of RE is less than stocks, but total investment was much, much less.

And, best of all, buy and hold is forced on me. I can't look up the price every few minutes in the internet, and I can't buy and sell in an instant.

gr7070
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Re: Question for you high net worth individuals...

Postby gr7070 » Sun May 21, 2017 11:07 am

CurlyDave wrote:
NYC_Guy wrote:... In my experience, those that have been successful with generating wealth via real estate do it as an active job, not passive investment.


Total agreement.

Real estate takes active participation to be successful. It is like a second job.


I completely disagree.

It does not require active participation. It certainly does not take anything near a second job.

I have a property manager. They have contractors they're aligned with I almost always use, as well. I'm involved in anything big financially, anything involving the structure itself, anything regarding the contracts, and anything else I want to stick my nose into. None of those things actually take much time. Most take a couple minutes of discussion and a decision from me. Months commonly pass without requiring my involvement.

Having said that, obviously you'll make more with sweat equity in both the maintenance and business aspects. It also changes the numbers on what properties and their financing are viable income properties, but so does your personal preference in what is viable.

It is absolutely not necessary though.

easyliving
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Re: Question for you high net worth individuals...

Postby easyliving » Sun May 21, 2017 11:18 am

I do not have investment property, but have friends who did well unreal estate.

I find that stocks and bonds are easy to buy and sell. Tax preparation is straight forward. Returns have been good, helped by avoiding panic buying and selling.

BC_Doc
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Re: Question for you high net worth individuals...

Postby BC_Doc » Sun May 21, 2017 3:42 pm

Our only RE is our shelter (house) which makes up about 15% of our net worth.

RE here (British Columbia) is in nosebleed territory so no plans to add RE unless prices crashed like Phoenix/Los Vegas circa 2006 and screamed buying opportunity.

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burt
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Re: Question for you high net worth individuals...

Postby burt » Sun May 21, 2017 5:22 pm

greenfire wrote:I think the way you make money on real estate is to hold it for decades. My dad bought his house in 1952 for $22,000 and sold it in 2004 for $1,600,000.


After my uncle and aunt passed away, their son remarked that the house sold for $2500 over the original purchase price in 1953.
This is in a rust belt city.

burt

chabil
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Re: Question for you high net worth individuals...

Postby chabil » Sun May 21, 2017 5:33 pm

zero, not counting the value of our house.
wish there was a poll to know what percentage hold real estate as income.

travellight
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Re: Question for you high net worth individuals...

Postby travellight » Sun May 21, 2017 9:35 pm

gr7070 wrote:
CurlyDave wrote:
NYC_Guy wrote:... In my experience, those that have been successful with generating wealth via real estate do it as an active job, not passive investment.


Total agreement.

Real estate takes active participation to be successful. It is like a second job.


I completely disagree.

It does not require active participation. It certainly does not take anything near a second job.

I have a property manager. They have contractors they're aligned with I almost always use, as well. I'm involved in anything big financially, anything involving the structure itself, anything regarding the contracts, and anything else I want to stick my nose into. None of those things actually take much time. Most take a couple minutes of discussion and a decision from me. Months commonly pass without requiring my involvement.

Having said that, obviously you'll make more with sweat equity in both the maintenance and business aspects. It also changes the numbers on what properties and their financing are viable income properties, but so does your personal preference in what is viable.

It is absolutely not necessary though.


I absolutely agree. I am 83% in RE. I have a high income and made my money slowly first then bought properties with minimal leverage. I manage them myself from out of state.... that doesn't mean I am fixing leaking toilets in the middle of the night however. That might happen once or twice a year and I tell them to shut off the water valve and I get a plumber there the next day. I could get property management but I don't mind the occasional phone calls and it saves me 16k per year. Whatever the problem is, I call the appropriate service person to fix it for me. My gross rental income is about 159k per year and i probably net about 125k per year. (6 SFRs)

Golfalot
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Re: Question for you high net worth individuals...

Postby Golfalot » Mon May 22, 2017 8:14 pm

The very vast majority of our Net Worth was accumulated the old fashioned way....by Saving. We were very fortunate though in the early-mid 2000's to net about $400k on selling our primary residence in the hot Chicago real estate market. Long story short, we sold our condo to buy a foreclosed house real cheap from the bank, fixed it up, lived it in it for a few years and netted a little over $400k when we sold it before the bubble burst. It was a great way to build some wealth quickly as a young professional. It did make me re-think my profession a little bit, but I never did dabble in real estate again (other than owning our primary residence).

PeterWander8
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Re: Question for you high net worth individuals...

Postby PeterWander8 » Mon May 22, 2017 11:16 pm

I think RE wealth are not in the 3+m range, but in the 300+m range. Once you figure out the formula for leverage, you go to town with it. My developer friends are very wealthy, or very broke. They don't really go mid/low range (~3m is low to mid range in the grand scheme of wealth). I have friends who develop one or two SFH per year.. they do get rich.. very slowly though.

basspond
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Re: Question for you high net worth individuals...

Postby basspond » Tue May 23, 2017 12:11 am

Only residential house that makes up less then 5%. Unless you are willing to go all in, I would steer clear. Talk about trying to time the market!

scooterdog
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Re: Question for you high net worth individuals...

Postby scooterdog » Tue May 23, 2017 3:02 am

58%.

30y ago bought in a very HCOL area (SoCal), 20y ago rented it out.

Only 1 SFH but has appreciated like crazy (and still is), fully paid for, stable tenant, hard to imagine how it could be reproduced today. (Although those who bought in '08 may be saying the same thing in SoCal in 30 years, who knows?)

Rental income is great, hard to calculate any comparison with an index fund over that same timeframe with taxes and depreciation and repairs etc. taken into account.

As we live in another part of the country we may live back there after retirement, no not - who knows.

Not for everyone but for us it worked out very, very well.

Archimedes
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Re: Question for you high net worth individuals...

Postby Archimedes » Tue May 23, 2017 3:55 am

Long term buy and hold prime residential rental properties make up about 4.4M of my net worth. The properties I bought are low maintenance, I only rent to successful, responsible tenants, and I enjoy interacting with nice people. In my experience, the appreciation is safely leveraged with prime residential properties (3% yearly appreciation when leveraged with a 25% down payment equals 12% growth on the cash down payment invested) plus the rental income is like owning tax free bonds. The depreciation tax deductions shelter the rental income and make it tax free.

The returns on residential properties come in 4 ways:

Positive cash flow from rental income. (I would never buy real estate that is not cash flow positive.)
Tax sheltering of net rental income from paper depreciation deductions.
Property that appreciates at the inflation rate, say 3% per year is leveraged so it will yield 12 to 15% on the actual cash invested.
Rent payments pay the mortgage, so the tenant is paying to build my equity.

When I calculate my total returns over decades on my various properties, they are consistently in the teens. And the amount of work I put in most months is about 15 minutes. In a busy month it might be a few hours. The negative is that some of these properties are mostly depreciated, worth millions, and to sell I would have to pay heavy capital gains tax to access the equity. So I simply keep collecting the monthly rent to cover anything I want or need.

dave_k
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Re: Question for you high net worth individuals...

Postby dave_k » Tue May 23, 2017 1:31 pm

Summary: some RE, but mostly saving and investing in stocks.

My wife and I have done some passive private placement commercial real estate investing that represents about 5% of our net worth (10% of investable assets) and 2% of our current income. Over the last several years I would have made somewhat more in the stock market (based on the income and estimated value), but it was quite a long bull market and the RE was partly for diversification.

We also have a second home (beach house) which is a vacation rental most of the time, represents about 20% of our net worth, and generates a small positive cash flow. That will be (one of) our retirement homes in several years. I don't really count it as an investment since it wasn't intended to generate money and we plan to live there eventually, but it could serve that purpose if we decide to sell it and downsize at some point. If it does better in that regard that the stock market, it's because we got such a good deal on it, buying it from family at market bottom prices a few years ago. It has not been passive - we've done a lot of work on our "vacations" renovating and doing repairs, and I get calls now and then for various problems, but it's been worth it.

I have also done some real estate investing with family years ago (SFH). We ultimately made money but weren't careful about who was involved, so that caused some problems. It was relatively passive for me, but not always for my uncle who managed it. I would likely have done better in the stock market on that one, but I have no regrets. It was a good learning experience.

Most of our net worth (which just barely qualifies as high by the OPs standards) is from high earning and LBYM, saving and investing, mostly in stocks. Also some business assets, since co-founding a startup in 2000. The business assets may never be "realized" in terms of a sale, but should continue to provide "dividends" in terms of much higher income than I would otherwise have (it's my full time job - not passive), hopefully carrying us through to (early) retirement.


Interesting side note: A few years ago my wife and I almost bought a 4-plex that was a good deal but needed a lot of work and had bad tenants. We backed out when we were about to make a final bid against another buyer and the seller disclosed that there had just been a heroin bust in one of the units! We probably would have made OK money on it, but it would have been too much work and stress on top of our full time jobs, plus living in one of the units like we planned would not have been nearly as nice as the lake house we bought instead.

SQRT
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Re: Question for you high net worth individuals...

Postby SQRT » Tue May 23, 2017 1:44 pm

We have lots of real estate (maybe 20% of net worth) but it was purchased after we were HNW and is all personal use. Our high net worth was the result of a very high paying job and particularly the incentive comp(mostly options) that went along with it.

If you live in rapidly appreciating real estate cities like San Fran, Vancouver, or Toronto it might have been the ticket. But these places saw appreciating real estate prices because of the rapidly appreciating earnings of their residents to a large degree. Seems unlikely to be a good idea at this time I suspect. But what do I know?
Last edited by SQRT on Fri May 26, 2017 12:21 pm, edited 1 time in total.

travellight
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Re: Question for you high net worth individuals...

Postby travellight » Thu May 25, 2017 8:52 pm

Archimedes wrote:Long term buy and hold prime residential rental properties make up about 4.4M of my net worth. The properties I bought are low maintenance, I only rent to successful, responsible tenants, and I enjoy interacting with nice people. In my experience, the appreciation is safely leveraged with prime residential properties (3% yearly appreciation when leveraged with a 25% down payment equals 12% growth on the cash down payment invested) plus the rental income is like owning tax free bonds. The depreciation tax deductions shelter the rental income and make it tax free.

The returns on residential properties come in 4 ways:

Positive cash flow from rental income. (I would never buy real estate that is not cash flow positive.)
Tax sheltering of net rental income from paper depreciation deductions.
Property that appreciates at the inflation rate, say 3% per year is leveraged so it will yield 12 to 15% on the actual cash invested.
Rent payments pay the mortgage, so the tenant is paying to build my equity.

When I calculate my total returns over decades on my various properties, they are consistently in the teens. And the amount of work I put in most months is about 15 minutes. In a busy month it might be a few hours. The negative is that some of these properties are mostly depreciated, worth millions, and to sell I would have to pay heavy capital gains tax to access the equity. So I simply keep collecting the monthly rent to cover anything I want or need.


Ditto.... real estate was my substitute 529 plan. Rental income will be paying my kid's 70k+ per year college costs.

LarryAllen
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Re: Question for you high net worth individuals... [real estate investments]

Postby LarryAllen » Thu May 25, 2017 9:02 pm

We have had good luck with real estate. Our assets are currently about 50% real estate and 50% cash/equities/bonds.

It's hard to say what percentage of our net worth is from real estate but if I were to track it, which I don't, I would imagine we have had better total returns with the real estate.

I personally sleep better with real estate but everybody is different.

I really like diversification in whatever you do.

slyboots
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Re: Question for you high net worth individuals... [real estate investments]

Postby slyboots » Thu May 25, 2017 9:14 pm

About 1/3 of our household NW comes from real estate in some way. This is despite us being long-term renters! How?

Me: I have invested in a series of real estate limited partnerships for about 12 years. Friends from college are real estate developers and I have been a limited partner in many of their projects since day one. They've done well and so have I. About a 15% IRR in those projects.

Wife: had a sweet apartment in Manhattan that she sold at the peak of the market in 2008. That was a significant contributor to her net worth.

I am not sure if either of these experiences is really replicable. In addition to REITS, you may want to explore RealtyMogul, Fundrise, and other similar services.

justus
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Re: Question for you high net worth individuals... [real estate investments]

Postby justus » Fri May 26, 2017 2:02 pm

I'm not HNW (I'm relatively low income), but I do actively manage residential rental investments. Over the past decade, my equity has grown by about 20% year over year. It'll be a big part of my overall retirement portfolio.


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