Looking into Hands Off Commercial Real Estate

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Rajsx
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Looking into Hands Off Commercial Real Estate

Post by Rajsx » Wed Feb 21, 2018 9:04 pm

I need some discussion/suggestions/pointers as how to invest the proceeds from our Medical Office Building Sale,

Some background info –

I am 61, DW is 56, retired on disability few years back, both kids are launched & out of the nest, we have a comfortable lifestyle with my private disability payments payable till age 65, and have had no need to withdraw from our all index fund Vanguard Portfolio (45% Stocks /55% Bonds ) yet & live in our downsized empty nester paid off house. No debt.

Our (DW) only experience with real estate was to manage the adjacent unit rental while using one unit for our office for 20 years. Since 3 years in retirement we managed the building ourselves.

We will be getting about $600k after the selling costs & taxes (unless we do the 1031 Exchange to defer the taxes), and these proceeds are around 10% of our net worth ( Apart from present home ), our investment period is about 10-15 years.

The ONLY reason we are looking into Real Estate is for some Diversification with our stock & bond funds, Vanguard Real Estate Mutual Fund (REIT) does not cut it for various reasons & Total Stock Market Fund has about 3% invested in Real Estate.

I have been reading up on

– ALTERNATIVE Real Estate INVESTMENTS (Not Publicly traded)

1) Join other investors to buy commercial Real Estate & have people manage the property in the form of Delaware Statutory Trust DST /Tenants in Common (TIC) – They talk about Fees fees fees, management & investor issues but funds are illiquid once invested for 5-10 yrs if found not suitable. Investors get regular hands off income ,

2) Buy a few apartments & hire property management – Lot more control to buy/sell, deal with vacancies & not much yield

3) CrowdFunding – Research them, invest in no income tax states, keep tax filing manageable.


– Publicly Traded Mutual Fund – Search for a non Vanguard actively managed Real Estate Mutual Fund with a better yield & lower correlation with Stock/Bonds & invest with the after tax proceeds from the sale.



Any thoughts/opinions are appreciated.
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abuss368
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Re: Looking into Hands Off Commercial Real Estate

Post by abuss368 » Wed Feb 21, 2018 9:09 pm

Rajsx wrote:
Wed Feb 21, 2018 9:04 pm

The ONLY reason we are looking into Real Estate is for some Diversification with our stock & bond funds, Vanguard Real Estate Mutual Fund (REIT) does not cut it for various reasons & Total Stock Market Fund has about 3% invested in Real Estate.
Hi Rajsx -

I am curious why the low cost, diversified, and high dividends from Vanguard Real Estate Index Fund does not "cut it"?

Can you elaborate?

Best.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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abuss368
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Re: Looking into Hands Off Commercial Real Estate

Post by abuss368 » Wed Feb 21, 2018 9:10 pm

In my opinion, I would strive for simplicity and not complexity. Additional complexity almost involves higher costs.

Jack Bogle always states (and for good measure) "simplicity is the master key to financial success"!
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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unclescrooge
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Re: Looking into Hands Off Commercial Real Estate

Post by unclescrooge » Wed Feb 21, 2018 9:20 pm

Rajsx wrote:
Wed Feb 21, 2018 9:04 pm
I need some discussion/suggestions/pointers as how to invest the proceeds from our Medical Office Building Sale,

Some background info –

I am 61, DW is 56, retired on disability few years back, both kids are launched & out of the nest, we have a comfortable lifestyle with my private disability payments payable till age 65, and have had no need to withdraw from our all index fund Vanguard Portfolio (45% Stocks /55% Bonds ) yet & live in our downsized empty nester paid off house. No debt.

Our (DW) only experience with real estate was to manage the adjacent unit rental while using one unit for our office for 20 years. Since 3 years in retirement we managed the building ourselves.

We will be getting about $600k after the selling costs & taxes (unless we do the 1031 Exchange to defer the taxes), and these proceeds are around 10% of our net worth ( Apart from present home ), our investment period is about 10-15 years.

The ONLY reason we are looking into Real Estate is for some Diversification with our stock & bond funds, Vanguard Real Estate Mutual Fund (REIT) does not cut it for various reasons & Total Stock Market Fund has about 3% invested in Real Estate.

I have been reading up on

– ALTERNATIVE Real Estate INVESTMENTS (Not Publicly traded)

1) Join other investors to buy commercial Real Estate & have people manage the property in the form of Delaware Statutory Trust DST /Tenants in Common (TIC) – They talk about Fees fees fees, management & investor issues but funds are illiquid once invested for 5-10 yrs if found not suitable. Investors get regular hands off income ,

2) Buy a few apartments & hire property management – Lot more control to buy/sell, deal with vacancies & not much yield

3) CrowdFunding – Research them, invest in no income tax states, keep tax filing manageable.


– Publicly Traded Mutual Fund – Search for a non Vanguard actively managed Real Estate Mutual Fund with a better yield & lower correlation with Stock/Bonds & invest with the after tax proceeds from the sale.



Any thoughts/opinions are appreciated.
What exactly about VNQ makes it inferior to private real estate holdings? Is is the 4.5% yield not high enough? Does it prevent you from having interesting cocktail conversions? :mrgreen:

You could invest in Crowdfunding, but from my personal experience, lack of liquidity and control rarely work in the investors favor. I can take one, but not both.

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randomizer
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Re: Looking into Hands Off Commercial Real Estate

Post by randomizer » Wed Feb 21, 2018 9:23 pm

You have won the game. I would keep it simple.
75:25 AA / Expected retirement: 2097

staythecourse
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Re: Looking into Hands Off Commercial Real Estate

Post by staythecourse » Wed Feb 21, 2018 9:50 pm

At 6 million I would say the BEST answer is to keep in simple and easily liquid. No reason to make more of an effort. If you want real estate just do a REIT and be done with it.

This reminds me of when I first started investing and couldn't wait to get to 1 million so I could start diversifying into timber REITS and farmland. When I got there I quickly realized the great diversification benefits were far exceeded by: Opacity, illiquidity, high fees, more DD, and manager risk. Wasn't worth it. The more I have the more I keep in just in capital assets. If that system ever fails then it will be the end of U.S. economic system so don't need more diversification then that.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

GibsonL6s
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Re: Looking into Hands Off Commercial Real Estate

Post by GibsonL6s » Wed Feb 21, 2018 11:11 pm

I have posted this before. I would never be a passive investor in a real estate deal. Control in real estate is everything. You don’t need the headaches of other parties not funding their share of capital or others not agreeing when things need to get done like refinancing management decisions and capital decisisons. If you can’t find a deal you want to own yourself I would just go the reit route. Good luck.

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abuss368
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Re: Looking into Hands Off Commercial Real Estate

Post by abuss368 » Wed Feb 21, 2018 11:51 pm

One of our fellow Bogleheads, “Dave55” has posted many valuable stories about his experience with real estate investing. I have learned a lot. Hopefully he will see this thread and post here.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

rj49
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Re: Looking into Hands Off Commercial Real Estate

Post by rj49 » Thu Feb 22, 2018 1:41 am

One option for hands-off investing is Fundrise, which I invest in since I want real estate income with minimal hassles. It invests in apartment complexes and new housing construction, with a focus in steady-growth areas like the DC and LA areas, but with diversification across the US. What I like about it is that it doesn't invest in office buildings and malls and other things that might have high recession risks, and it keeps its underlying eREITS at a steady price for the most part, so you don't get the price gyrations of REIT funds (especially worrisome since rising interest rates hurt REIT prices mostly). They allow you to pick pre-set portfolios, depending on your growth or income goals, and unlike other crowdsourcing sites, you don't need to be an accredited investor to invest with them.

Another option is Groundfloor, where you invest in real estate loans, mostly to house flippers, with the real estate supporting the underlying loan. I haven't invested in them yet, but they've been around for a while and could add some diversification to a crowdsourcing portfolio.

A third option I invest in, although not directly real estate, is Streetshares, which offers veterans bonds for direct investment in small businesses started by veterans, including businesses that get government contracts. The bonds pay a set 5%, and they usually offer a tiered investment bonus, so I'm getting 6% for the first year.

Of course all of these carry their own risks, including many risks that publicly traded REITs and REIT funds don't have, but if you have a big amount to invest, it's one way to invest limited amounts of money for both diversification and steady income streams of 5-10% that don't suffer from stock and bond market gyrations. At the same time, they aren't as tax-efficient as stocks can be.

msk
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Re: Looking into Hands Off Commercial Real Estate

Post by msk » Thu Feb 22, 2018 5:17 am

Methinks that the only people who should invest in RE are those who are willing to put 100% of their NW into it (actually more like 300 to 500%, after gearing) and have both the time and the temperament to do so. Young and ambitious, whether full time or part. Been there part time between my late 20s and late 50s. Ended up with 30 rental units fully paid for. At 50+ I just gradually changed over to 100% stocks and watched my NW increase by 11.5% p.a. during my 18 years of retirement. Could not have done that with pussyfooting in RE. Could I have done better if I had continued with full vigor and 300% gearing in RE? Possibly, but why continue with avoidable anxieties?

Rajsx
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Re: Looking into Hands Off Commercial Real Estate

Post by Rajsx » Thu Feb 22, 2018 8:30 am

I appreciate your input,

It does not make sense to complicate the investments & our lives at this stage when we are retired.

I may end up going REIT/Total Stock Market Fund route which initially was the intended plan, before I started investigating to reinvest in Real Estate & then I was introduced to 1031 Exchange which puts its own spin (speeds up things causing stress).

I know Vanguard well, as I have been doing this almost all of my investing life, no need to jump into something which is new to me.

This is our time to take it easy & enjoy what we have already, rather than going after real estate.

Thanks, I appreciate the collective wisdom in this forum, go bogleheads !!
Last edited by Rajsx on Thu Feb 22, 2018 8:39 am, edited 1 time in total.
We do not stop laughing because we grow old, we grow old because we stop laughing !!

Jack FFR1846
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Re: Looking into Hands Off Commercial Real Estate

Post by Jack FFR1846 » Thu Feb 22, 2018 8:36 am

Let me spray this gray powder in the room so everyone can see the elephant.

If you want to be in real estate management, then don't sell the building that you currently own. You know it, understand it and obviously can manage it. Going with one of these other options you mention introduces huge risk. Why would you do that? If you're bored, take up sky diving. It's probably safer.
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3CT_Paddler
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Re: Looking into Hands Off Commercial Real Estate

Post by 3CT_Paddler » Thu Feb 22, 2018 8:48 am

In general this board is more conservative towards real estate for a host of reasons. It's not passive, and its relatively undiversified.

I don't see anything wrong with putting some portion of your assets in commercial real estate, but the approaches you mentioned are not the direction I would recommend. As another poster mentioned, not having full control if you are actually purchasing properties is a big mistake. Either go fully passive with a REIT or have full ownership of a property.

Real estate investments should also be local. It will require time and effort to manage the properties and screen candidates. If it's something you do end up doing, I would find other people in your area who have made investments in commercial properties locally and talk to them about returns and expenses. In general this is a bad time to be looking for real estate deals, and a good time to be owning real estate (the asset is expensive, but people are paying their bills). In some parts of the country, it doesn't make sense to go into commercial real estate because the capitalization rate is so low.

In your circumstances - not having prior experience owning rental real estate and ready to retire - I would suggest the optimal path is keeping it simple and avoiding purchasing commercial real estate.

ncbill
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Re: Looking into Hands Off Commercial Real Estate

Post by ncbill » Thu Feb 22, 2018 5:34 pm

Avoid non-traded REITs

I got sold those a few years ago and they've only gone down in value.

Yields have also dropped (one went from 6% to 4% to 2%)

Late 2017 one was converted to publicly-traded...losing 30% of the initial investment in the process.

Rajsx
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Re: Looking into Hands Off Commercial Real Estate

Post by Rajsx » Thu Feb 22, 2018 7:18 pm

You guys are right !!

I am back in the familiar territory, no sharks to vet, no anxiety & no stress. Every fund is open to see, its expense ratio is clear to check out & what you see is what you get with Vanguard

I am very familiar with the territory here & had Reits in my portfolio & traded out of them many years back time, I do not remember why.
Maybe to just be with & track the Total Stock Market Index, as I already had the office to cover the real estate, which is being sold now.

My plan is to bank the proceeds first & gradually start moving into the portfolio with the present asset Allocation or maybe increase Stocks to 50%, we will see.

Thanks again to each of you.

In some ways it was a valid reason for me to investigate another investment as it was about 10% of the Portfolio, not a small sum by any means.

I am back
We do not stop laughing because we grow old, we grow old because we stop laughing !!

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