Why are you NOT buying rental properties?

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tomtoms
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Why are you NOT buying rental properties?

Post by tomtoms » Wed Jan 16, 2019 2:28 pm

I am only starting this thread because I was turned off to buying rental properties when I first started to read this forum. I now own several rental properties. Not only it is easier than I had
expected, but I am also making a lot more money. I have a property manager who has been taking good care of the properties. So, I have to ask..if you are willing to hustle and you have the money, why are you not buying rental properties?

Yes, you can buy RE ETF but that is like buying S&P 500. There is no leverage. Leverage is what makes RE investing special but of course leverage is great on the way up but painful on the way down so you have to know what you are doing.

Here are two scenarios (I am simplifying them to make a point on leverage):

(1) Put $80 k in RE ETF. Let’s assume you make 8% per year (after fees). After 9 years, your money would double to $160 k and after 18 years, your money would double again to $320 k.

(2) Put $80 k (20% down payment) on $400 k house. Lets assume a modest 4% appreciation per year and your tenants pay for all expenses (mortgage, property tax, fixes, property manager, etc). After 18 years, the house would double to $800 k.

So $800 k vs. $320 k. That is a big difference! Of course there is nothing wrong with putting money into RE ETF earning 8% per year and cash out when you are 65 like everybody else. But, if you want to be wealthy at a young age, you have to start a business or buy rental properties. For me...I am doing both. I am not trying to impress you but just to let you know where I am coming from. I also have a high paying job so I am flushed with cash. I am using money from my job, business to buy more rental properties. I have stopped buying stocks besides maxing out my 401 k, SEP-IRA, HSA which is already a lot.

I am not saying your average joe can do real estate investing. But, I think if you have the money (high income, low debt) and you are street smart, you can make a lot money in real estate.
Last edited by tomtoms on Wed Jan 16, 2019 7:21 pm, edited 2 times in total.

mak1277
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Re: Why are your NOT buying rental properties?

Post by mak1277 » Wed Jan 16, 2019 2:31 pm

tomtoms wrote:
Wed Jan 16, 2019 2:28 pm
So, I have to ask..if you are willing to hustle and you have the money, why are you not buying rental properties?
I would say I'm not interested in hustling. I love the BH philosophy because it encourages apathy towards investing ($$ goes into 3-funds, then don't do anything else). I have no desire to run around chasing tenants, fixing stuff, dealing with liability insurance, finding and paying a management company...just writing that sentence was more energy than I care to spend dealing with investing.

bloom2708
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Re: Why are your NOT buying rental properties?

Post by bloom2708 » Wed Jan 16, 2019 2:34 pm

I am not because I don't want a second job.

The time left in the day after work, eating, sleeping, going to and from work and keeping our house clean and maintained leaves 1.8 hours per day left for leisure.

Your numbers are very (very) optimistic and make a bunch of assumptions.

Real estate is very dependent on your exact location, time and effort you want to put in. You assume the happy path for both REIT and Rental Properties. It is not that likely you will follow the happy path.

My friend with 20 units was repairing a gunshot hole in a property door a few weeks back. Another had the siding catch fire after the renter dropped a cigarette butt out the window and it stuck in the siding, started a fire.

My sister had a "friend" tenant that moved in. Promptly made 0 payments and moved out after 11 months. Just a few examples of the non-happy path.
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

onourway
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Re: Why are your NOT buying rental properties?

Post by onourway » Wed Jan 16, 2019 2:37 pm

When I read between the lines on the subject of small-scale real estate investing, I'm pretty confident I can generally pick out the people speaking from lengthy experience offering a balanced point of view as opposed to those who are either pushing something or simply so new to RE investing that the tail risks haven't yet bit them. Those people speaking from experience pretty much universally agree that the overall return, short of getting lucky or doing most of the management/maintenance work yourself (and not adequately accounting for that cost) is pretty similar to the returns one gets from other types of investing.

While the RE market is still not as efficient as the stock and bond markets, it's still efficient enough that if the overall returns were as large as the RE zealots claim, money would pour into RE in droves from those lower returning investments. Given that these flows are generally near an equilibrium, my impression is those people speaking from decades of experience are more correct than not.
Last edited by onourway on Wed Jan 16, 2019 2:37 pm, edited 1 time in total.

BeanCity
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Re: Why are your NOT buying rental properties?

Post by BeanCity » Wed Jan 16, 2019 2:37 pm

Rather than posting an example, can you give real figures of what you actually did/doing? I'm of the impression "good deals" are much harder to come by than what most people suggest.

What did you pay? Financing? Cashflow? What do you estimate your overall annual rate of return is? If its close to 7-10% annual, REITS make a lot of sense.

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tomtoms
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Re: Why are your NOT buying rental properties?

Post by tomtoms » Wed Jan 16, 2019 2:38 pm

mak1277 wrote:
Wed Jan 16, 2019 2:31 pm
tomtoms wrote:
Wed Jan 16, 2019 2:28 pm
So, I have to ask..if you are willing to hustle and you have the money, why are you not buying rental properties?
I would say I'm not interested in hustling. I love the BH philosophy because it encourages apathy towards investing ($$ goes into 3-funds, then don't do anything else). I have no desire to run around chasing tenants, fixing stuff, dealing with liability insurance, finding and paying a management company...just writing that sentence was more energy than I care to spend dealing with investing.
Why not hire a good property manager. Yeah, it will take time and there are plenty of good and honest property managers out there.

I get the hustling part but my coworkers hustle at work all of the time. Just recently my coworker told me he made $40 k in overtime last year. I made that much from just one property last year and I don’t have to pay 50% tax!

renue74
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Re: Why are your NOT buying rental properties?

Post by renue74 » Wed Jan 16, 2019 2:40 pm

Your "time in" is too short. I own 4 rentals and a full time airbnb. Wait until you've held properties for years and gone through tenant cycles.

I have a few landlord friends and it appears after about 10 years for them both, they hated their rentals. Detested them. Both had approximately 15 properties each. Over the last 4 years, they both have sold their rentals to other landlords at nice rates because the real estate market is so hot...even for crappy rental houses.

It's not passive income. It's a side job and you make money from side jobs.

My plan is to hold rentals for cash flow for the next 10-12 years and then sell the properties and retire. When I retire, I don't want to be a landlord. I want to drink Mai Tai's and travel like the other Bogleheads.

stocknoob4111
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Re: Why are your NOT buying rental properties?

Post by stocknoob4111 » Wed Jan 16, 2019 2:42 pm

youtube is full of videos with people bragging about how much money they made on Real Estate investments. Example:

How We Made $400,000 in Real Estate Profit - See Our Properties & Numbers

https://www.youtube.com/watch?v=uue_8I_94Z8

However, this is probably a best case scenario. From the surface it just seems like this is easy but I seriously doubt this performance can be replicated all the time. I don't know much about real estate investing so perhaps others well versed on it can comment on the above video. That is a ton of profit in a short time with what seems to be a marginal amount of risk and just average effort compared to investing in the stock market.

chessknt
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Re: Why are your NOT buying rental properties?

Post by chessknt » Wed Jan 16, 2019 2:48 pm

tomtoms wrote:
Wed Jan 16, 2019 2:38 pm
mak1277 wrote:
Wed Jan 16, 2019 2:31 pm
tomtoms wrote:
Wed Jan 16, 2019 2:28 pm
So, I have to ask..if you are willing to hustle and you have the money, why are you not buying rental properties?
I would say I'm not interested in hustling. I love the BH philosophy because it encourages apathy towards investing ($$ goes into 3-funds, then don't do anything else). I have no desire to run around chasing tenants, fixing stuff, dealing with liability insurance, finding and paying a management company...just writing that sentence was more energy than I care to spend dealing with investing.
Why not hire a good property manager. Yeah, it will take time and there are plenty of good and honest property managers out there.

I get the hustling part but my coworkers hustle at work all of the time. Just recently my coworker told me he made $40 k in overtime last year. I made that much from just one property last year and I don’t have to pay 50% tax!
If your returns are that great (40k positive cash flow from a single property unless it is a multi family unit or an apartment building is insane) and it is so easy you should have no problem exponentially expanding your real estate holdings. Why would you even bother with a career if it's so easy with such a great return? Have you ever had a negative experience with landlording or does the property manager handle everything and just send you the check for 4k every month?

stoptothink
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Re: Why are your NOT buying rental properties?

Post by stoptothink » Wed Jan 16, 2019 2:48 pm

Because I lost almost my entire life savings in real estate development during '07-'09 and of the 4 rental situations I have intimate details of (two brothers, a co-worker, and a neighbor), all have been a nightmare. My neighbor just sold, the other three wish they could sell but would likely all lose money. I know rentals can be great, but I don't have the expertise and don't want to spend the time necessary to limit risk to an acceptable level for me.

The only way I'd consider it is if we bought a multi-unit property and lived in one of the units or had a separate basement apartment (which me might do at some point).

runner540
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Re: Why are your NOT buying rental properties?

Post by runner540 » Wed Jan 16, 2019 2:50 pm

tomtoms wrote:
Wed Jan 16, 2019 2:28 pm
I am only starting this thread because I turned off to buying rental properties when I first started to read this forum. I now own several rental properties. Not only it is easier than I had
expected, but I am also making a lot more money. I have a property manager who has been taking good care of the properties. So, I have to ask..if you are willing to hustle and you have the money, why are you not buying rental properties?

Yes, you can buy RE ETF but that is like buying S&P 500. There is no leverage. Leverage is what makes RE investing special but of course leverage is great on the way up but painful on the way down so you have to know what you are doing.

Here are two scenarios (I am simplifying them to make a point on leverage):

(1) Put $80 k in RE ETF. Let’s assume you make 8% per year (after fees). After 9 years, your money would double to $160 k and after 18 years, your money would double again to $320 k.

(2) Put $80 k (20% down payment) on $400 k house. Lets assume a modest 4% appreciation per year and your tenants pay for all expenses (mortgage, property tax, fixes, property manager, etc). After 18 years, the house would double to $800 k.

So $800 k vs. $320 k. That is a big difference! Of course there is nothing wrong with putting money into RE ETF earning 8% per year and cash out when you are 65 like everybody else. But, if you want to be wealthy at a young age, you have to start a business or buy rental properties. For me...I am doing both. I am not trying to impress you but just to let you know where I am coming from. I also have a high paying job so I am flushed with cash. I am using money from my job, business to buy more rental properties. I have stopped buying stocks besides maxing out my 401 k, SEP-IRA, HSA which is already a lot.

I am not saying your average joe can do real estate investing. But, I think if you have the money (high income, low debt) and you are street smart, you can make a lot money in real estate.
I discount that return for concentration risk and illiquidity.

In my city, market rents are barely enough to cover taxes, insurance and maintenance. Would be cash flow negative with a mortgage on it. And 4% appreciation is optimistic for 18 years. It's happened in some markets but can't bank on it.

Regressor
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Re: Why are your NOT buying rental properties?

Post by Regressor » Wed Jan 16, 2019 2:51 pm

tomtoms wrote:
Wed Jan 16, 2019 2:28 pm
Here are two scenarios (I am simplifying them to make a point on leverage):

(1) Put $80 k in RE ETF. Let’s assume you make 8% per year (after fees). After 9 years, your money would double to $160 k and after 18 years, your money would double again to $320 k.

(2) Put $80 k (20% down payment) on $400 k house. Lets assume a modest 4% appreciation per year and your tenants pay for all expenses (mortgage, property tax, fixes, property manager, etc). After 18 years, the house would double to $800 k.

So $800 k vs. $320 k. That is a big difference!
Why would you compare only these two scenarios? You're comparing apples and oranges. Where's the scenario where you put $80k in a margin account and buy REITs using leverage?

If you compare treasury bills and stocks, you'll get to a conclusion that safer assets (bills) grow less than the riskier one. Risk adjusted return is what matters.

mak1277
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Re: Why are your NOT buying rental properties?

Post by mak1277 » Wed Jan 16, 2019 2:53 pm

tomtoms wrote:
Wed Jan 16, 2019 2:38 pm
mak1277 wrote:
Wed Jan 16, 2019 2:31 pm
tomtoms wrote:
Wed Jan 16, 2019 2:28 pm
So, I have to ask..if you are willing to hustle and you have the money, why are you not buying rental properties?
I would say I'm not interested in hustling. I love the BH philosophy because it encourages apathy towards investing ($$ goes into 3-funds, then don't do anything else). I have no desire to run around chasing tenants, fixing stuff, dealing with liability insurance, finding and paying a management company...just writing that sentence was more energy than I care to spend dealing with investing.
Why not hire a good property manager. Yeah, it will take time and there are plenty of good and honest property managers out there.

I get the hustling part but my coworkers hustle at work all of the time. Just recently my coworker told me he made $40 k in overtime last year. I made that much from just one property last year and I don’t have to pay 50% tax!
I have no desire to spend even one minute working once I leave my job for the day. I'll happily take a smaller theoretical return from my stock/bond investments and in return have the benefit of it costing me zero time to invest that way.

jebmke
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Re: Why are your NOT buying rental properties?

Post by jebmke » Wed Jan 16, 2019 2:54 pm

mak1277 wrote:
Wed Jan 16, 2019 2:31 pm
I would say I'm not interested in hustling.
Exactly. No matter how good a property manager is, there is still a time sink. We had some rental property for a few years. The happiest day of that period was when we sold it.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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Re: Why are your NOT buying rental properties?

Post by RickBoglehead » Wed Jan 16, 2019 2:54 pm

I want nothing to do with rental properties. In fact, we currently own 2 homes (1 inherited), and will dispose of that within 2 years at most.

Being a landlord is not a fun task. If you had owned these properties in the housing crash, you'd be singing a different toon.

I don't own REITs either. Nor do I view myself as a "hustler".
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munemaker
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Re: Why are your NOT buying rental properties?

Post by munemaker » Wed Jan 16, 2019 2:56 pm

I don't want to do any work or deal with people.

I prefer passive income from investments where I don't have to do anything.
Last edited by munemaker on Wed Jan 16, 2019 2:57 pm, edited 1 time in total.

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Will do good
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Re: Why are your NOT buying rental properties?

Post by Will do good » Wed Jan 16, 2019 2:57 pm

We used to own 3 apartment buildings, but after 20+ years we hardly made much money.
Like they say it's "location, location, location" and back 20 years ago we chose safe locations, but didn't know they would not be hot locations.

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Re: Why are your NOT buying rental properties?

Post by nisiprius » Wed Jan 16, 2019 2:57 pm

tomtoms wrote:
Wed Jan 16, 2019 2:28 pm
...So, I have to ask... if you are willing to hustle and you have the money, why are you not buying rental properties?

Yes, you can buy RE ETF but that is like buying S&P 500. There is no leverage. Leverage is what makes RE investing special but of course leverage is great on the way up but painful on the way down so you have to know what you are doing....

I am not saying your average joe can do real estate investing. But, I think if you have the money (high income, low debt) and you are street smart, you can make a lot money in real estate.
I am not buying rental properties because
  • I'm not willing to hustle,
  • I don't know what I'm doing with leverage, and
  • I'm not street smart.
And I try to resist flattery.

Because if I were induced by flattery to compete in a field I'm not equipped for, I am pretty sure I would lose to hustlers who are more street smart than me.

I haven't got what it takes to get rich buying rental properties. I do have what it takes to match market returns in the securities markets (to within a few basis points).
Last edited by nisiprius on Wed Jan 16, 2019 3:00 pm, edited 2 times in total.
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GibsonL6s
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Re: Why are your NOT buying rental properties?

Post by GibsonL6s » Wed Jan 16, 2019 2:58 pm

Because my day job is institutional real estate, so I already get 40 plus hours of RE a week. :happy

SchruteB&B
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Re: Why are your NOT buying rental properties?

Post by SchruteB&B » Wed Jan 16, 2019 3:00 pm

Every single person I know who has been a landlord on the side has experienced a nightmare tenant who damaged the property extensively and also had to be evicted which was a long,drawn out, expensive and exhausting legal process.

Some real estate appreciates at 4% per year. My house was probably appreciating at that rate...until 2008....when it began to decline steadily. Now, 20 years after buying it, it’s down by about 20% from its original purchase price.

UpperNwGuy
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Re: Why are your NOT buying rental properties?

Post by UpperNwGuy » Wed Jan 16, 2019 3:05 pm

I am not willing to hustle. I am a terrible negotiator and always end up paying too much for houses and cars. I am helpless when faced with simple plumbing, electrical, mechanical, and other home maintenance tasks. In summary, I am ill-suited to own rental properties.

Jmh04j
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Re: Why are your NOT buying rental properties?

Post by Jmh04j » Wed Jan 16, 2019 3:06 pm

GibsonL6s wrote:
Wed Jan 16, 2019 2:58 pm
Because my day job is institutional real estate, so I already get 40 plus hours of RE a week. :happy
+1 for me too.

I addition to the reasons mentioned above real estate is a capital intensive business, especially for a large portfolio. Roofs eventually need replacing etc. etc. A smaller investor has a hard time scaling vs. simply investing in an index fund.

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Re: Why are your NOT buying rental properties?

Post by deltaneutral83 » Wed Jan 16, 2019 3:07 pm

R/E needs to provide higher returns than index funds, it's not passive returns, regardless of how it's classified by the IRS. The "putting 20% down and move on to the next one" scenario will get steamrolled at some point over 20-30 years. I can get slapped around by the S&P (or in my case TSM and Tot Intl) all day long for 1/3/5/10 years but they've never gone to zero and I've never had to lock in a loss by factors outside my control. Many smart folks have gone broke in real estate and much fewer investing in the S&P would be my guess. It's also a personality thing to manage R/E. Not so much with index funds. I have a deep respect for people that crush it in rental real estate for 20+ years of experience though. The stories they have are very interesting to me.

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Re: Why are your NOT buying rental properties?

Post by Gnirk » Wed Jan 16, 2019 3:09 pm

Because I don't want to be a landlord.

SmallSaver
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Re: Why are your NOT buying rental properties?

Post by SmallSaver » Wed Jan 16, 2019 3:09 pm

Why not buy your RE ETF with 5x leverage?

miles monroe
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Re: Why are your NOT buying rental properties?

Post by miles monroe » Wed Jan 16, 2019 3:12 pm

(1) i don't want a second job (not enough hours in the day as it is), and (2) i'm not handy so any repairs i'd have to pay someone to handle.

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Re: Why are your NOT buying rental properties?

Post by corysold » Wed Jan 16, 2019 3:12 pm

SchruteB&B wrote:
Wed Jan 16, 2019 3:00 pm
Every single person I know who has been a landlord on the side has experienced a nightmare tenant who damaged the property extensively and also had to be evicted which was a long,drawn out, expensive and exhausting legal process.

Some real estate appreciates at 4% per year. My house was probably appreciating at that rate...until 2008....when it began to decline steadily. Now, 20 years after buying it, it’s down by about 20% from its original purchase price.
And you don't even know me!

We tried to keep two townhomes for rentals and they turned out to be a disaster. Major damage, tenants leaving, ended up losing both homes as the market crashed at the same time.

Real Estate is great when it's great, but it can get bad really fast too. All that leverage is great until it isn't anymore.

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5th_Dimension
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Re: Why are your NOT buying rental properties?

Post by 5th_Dimension » Wed Jan 16, 2019 3:13 pm

Three real world examples.

I rented a house on a property with two houses on it. A tenant in the other house had to be evicted. It took months. In the mean time the tenant destroyed the house. It took months for the owner to get the property back into shape to rent. The next tenant had to be evicted as well. It took months. One day in the midst of all this I was talking to the owner and his young daughter said "Why do all the bad people live in the other house"

I lived in a townhouse complex. The unit across from us the tenants had to be evicted. It took months. They also destroyed the unit. It took months to get the unit livable. Not long after the owner had a heart attack from the stress, turned the properties over to a property management company, and began selling the complex.

I have a friend who owns many rental houses. He told me the only way it is profitable is that he does all the management himself. He practically begged me to rent one of his houses because he knows I pay my bills.

I hope you find success buying rental properties. After my experiences I swore I would never do it.
Last edited by 5th_Dimension on Wed Jan 16, 2019 3:18 pm, edited 1 time in total.
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Re: Why are your NOT buying rental properties?

Post by boglewill34 » Wed Jan 16, 2019 3:13 pm

Definitely not willing to hustle. Had a duplex once, then concurrently had a real fixer-upper in the country. Made great money on the fixer and bought the current house. The current house has appreciated MAYBE 3-5% in the 14 years(!) we've owned it, and it is in a great suburban neighborhood very close to a metro/capitol area-we wouldn't even make back the transaction cost if we sold. We made some money on the duplex, we made nothing on the rental, but it was an ok way to bootstrap into home ownership.

My current thought is that if you put the struggle of owning rental properties (time, worry, financial) into owning equities, you'd be further ahead. IE, the time currency and money spent on plumbing fixes/upgrades, lawn care, transaction costs, extra admin, etc, all add up. If I had put the odd $100 for a bathroom faucet or a lawn mower when it was needed into equities, the return would have been greater. Multiply by all those things and you have a very nice portfolio of equities.

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Re: Why are your NOT buying rental properties?

Post by ThatGuy » Wed Jan 16, 2019 3:14 pm

tomtoms wrote:
Wed Jan 16, 2019 2:28 pm
Why are your NOT buying rental properties?
I make enough at my first job to not need a second job.
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ddurrett896
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Re: Why are your NOT buying rental properties?

Post by ddurrett896 » Wed Jan 16, 2019 3:15 pm

tomtoms wrote:
Wed Jan 16, 2019 2:28 pm
So $800 k vs. $320 k. That is a big difference!
Average house appreciate is 3.7% - so bring the sale price to $770,000.
Average cost to sell a house is 6%, so now you are at $725,000
Depreciation over 18 years needs to be recaptured. The original purchase price decreased from $400k to $213, making the profit from the sale $590k. 20% capital gains cost $118,000, so now you are at $607,000.

Over 18 years, I'm sure you will replace HVAC, water heater, every appliance and a roof which represents call it $30k, so now you are at $577,000.

The money it's all profit because you had to pay your property manager 10% of the rent. For the sake of simplicity, let's just knock the 10% off of the sale price of $800,000. So now you are at 497,000

The REIT fund should return around 9%, making the $80,000 investment worth about $380,000.

Is $497,000 more than $380,000? Yes, but not without some work. Keep in mind this doesn't take into account any wear and tear like floors, etc. that will get replaced in 18 years.

Lastly, IF that 3.7% which in my humble opinion is high drops to 3%, the final number would be around $440,000. Not a huge difference.

PS: I'm a landlord and can't wait to tell so I can buy a pool!
Last edited by ddurrett896 on Wed Jan 16, 2019 3:28 pm, edited 6 times in total.

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djpeteski
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Re: Why are your NOT buying rental properties?

Post by djpeteski » Wed Jan 16, 2019 3:16 pm

tomtoms wrote:
Wed Jan 16, 2019 2:28 pm
So, I have to ask..if you are willing to hustle and you have the money, why are you not buying rental properties?
I am glad that things are working for you now and hopes it continues to do so. Where were you in the 2006 time frame? You may want to remind/study about that so would know the disaster that was the housing crisis that lead many to lose homes, and many thousands of dollars.
There is no leverage.
Leverage works both ways. When prices increase it multiplies your ROI, however, when you lose money your loses are also multiplied. Its kind of like a game of musical chairs. As long as the music is playing everything is fine, once it stops there are losers.

Without leverage, the return on rental investments are rather anemic. I try to make the numbers work, but I always come in around a 3-5% ROI when buying a house with cash. Sorry, not interested.
Lets assume a modest 4% appreciation per year and your tenants pay for all expenses (mortgage, property tax, fixes, property manager, etc).
Those are not modest assumptions, I would classify them as "pie in the sky". Those kind of numbers have almost zero chance of playing out that way after 10 years let alone 18. Can you handle the down swings?

There are plenty of reasons not to own rental real estate. They might not apply to you, but understanding why they might apply to others would serve you well. For example, what if you live in a state with very unfavorable laws for landlords? Does it still make sense? Maybe, maybe not.

There are many paths to sufficient wealth. While real estate is one of them, there are many others. Keep in mind, that if you invest only what a pack a day smoker spends on cigarettes in an S&P 500 fund, and have no other assets, you would be considered wealthy if you did so from age 20-65.

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Re: Why are your NOT buying rental properties?

Post by Jack FFR1846 » Wed Jan 16, 2019 3:16 pm

ThatGuy wrote:
Wed Jan 16, 2019 3:14 pm
tomtoms wrote:
Wed Jan 16, 2019 2:28 pm
Why are your NOT buying rental properties?
I make enough at my first job to not need a second job.
^ This

Been there, done it, not interested. Vanguard never calls me to tell me that someone clogged the toilet and now the hardwood floor is all curling up because it happened back in June.
Bogle: Smart Beta is stupid

Ed_Sandwich
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Re: Why are your NOT buying rental properties?

Post by Ed_Sandwich » Wed Jan 16, 2019 3:17 pm

SmallSaver wrote:
Wed Jan 16, 2019 3:09 pm
Why not buy your RE ETF with 5x leverage?
+1, this is the only true comparison.

Broken Man 1999
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Re: Why are your NOT buying rental properties?

Post by Broken Man 1999 » Wed Jan 16, 2019 3:27 pm

munemaker wrote:
Wed Jan 16, 2019 2:56 pm
I don't want to do any work or deal with people.

I prefer passive income from investments where I don't have to do anything.
This!

Rental units would significantly complicate our retirement portfolio. I want our portfolio to be more simple, not more complex.

Now if I had enough $$$$ to be able to start such an adventure by having so many units I could hire a full-time property manager, one who would handle all the work, and all I had to do was deposit rent checks, I might feel differently. That clearly isn't the case for me, though.

I once had Vanguard REIT fund/ETF, but sold to have a more simple portfolio.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

mark1623
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Re: Why are your NOT buying rental properties?

Post by mark1623 » Wed Jan 16, 2019 3:28 pm

I prefer to call my landlord when [stuff - moderator oldcomputerguy] breaks rather than being the one answering that call.

And I've seen too many people go months without a renter and have their cash eaten alive.

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alpine_boglehead
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Re: Why are your NOT buying rental properties?

Post by alpine_boglehead » Wed Jan 16, 2019 3:30 pm

Because it's a side job. Like nisiprius, I lack the street-smartness for dealing with this stuff.

And then there's JL Collins' very long list of reasons why a house (I generalize that to individual real estate investments) is a terrible investment.

A small excerpt (the original is more fun to read):
It should be illiquid.
It should be expensive to buy and sell.
It should be complex to buy or sell.
It should be leveraged!
It should be immobile.
It should be subject to the fortunes of one country, one state, one city, one town…No! One neighborhood!

bgf
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Re: Why are your NOT buying rental properties?

Post by bgf » Wed Jan 16, 2019 3:32 pm

i already have a job. i am not interested in taking on another job. if anything, i want to retire from the one i have.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

KlangFool
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Re: Why are your NOT buying rental properties?

Post by KlangFool » Wed Jan 16, 2019 3:35 pm

tomtoms wrote:
Wed Jan 16, 2019 2:28 pm

(2) Put $80 k (20% down payment) on $400 k house. Lets assume a modest 4% appreciation per year and your tenants pay for all expenses (mortgage, property tax, fixes, property manager, etc). After 18 years, the house would double to $800 k.
tomtoms,

It is very simple.

As per your example, it is a lousy deal. I would not buy my own house under this condition. It is not cash flow positive. It is a "buy and pray" deal.

KlangFool

Thegame14
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Re: Why are your NOT buying rental properties?

Post by Thegame14 » Wed Jan 16, 2019 3:37 pm

and what about repairs? Months where tenants are not renting it and you have to float the costs, what about tenant doing damage to house and then disappearing, yeah you may have a $1,500 deposit, but when they do $10,000 in damage, then what? How about someone getting hurt and a lawsuit.... how about housing prices going down....

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Re: Why are your NOT buying rental properties?

Post by KyleAAA » Wed Jan 16, 2019 3:39 pm

Rental Real estate is an objectively mediocre business (at best). The only thing that makes it somewhat attractive is that it is easy to leverage on attractive terms. While I do own real estate, I prefer to spend my entrepreneurial energies on more lucrative and more interesting pursuits. But if you don’t have other skills and don’t mind hustling, real estate is fine as an investment. You can leverage up to 20% annual returns without an unreasonable amount of risk (but still more risk than a passive index fund). Not bad, if a bit unspectacular.
Last edited by KyleAAA on Wed Jan 16, 2019 3:59 pm, edited 3 times in total.

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IlikeJackB
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Re: Why are your NOT buying rental properties?

Post by IlikeJackB » Wed Jan 16, 2019 3:40 pm

onourway wrote:
Wed Jan 16, 2019 2:37 pm
When I read between the lines on the subject of small-scale real estate investing, I'm pretty confident I can generally pick out the people speaking from lengthy experience offering a balanced point of view as opposed to those who are either pushing something or simply so new to RE investing that the tail risks haven't yet bit them. Those people speaking from experience pretty much universally agree that the overall return, short of getting lucky or doing most of the management/maintenance work yourself (and not adequately accounting for that cost) is pretty similar to the returns one gets from other types of investing.

While the RE market is still not as efficient as the stock and bond markets, it's still efficient enough that if the overall returns were as large as the RE zealots claim, money would pour into RE in droves from those lower returning investments. Given that these flows are generally near an equilibrium, my impression is those people speaking from decades of experience are more correct than not.
Well said - I agree 100%. :beer
"Do what you will, the capital is at hazard." Justice Samuel Putnam, Harvard College vs Amory, 1830. The "Prudent Man Rule."

aristotelian
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Re: Why are your NOT buying rental properties?

Post by aristotelian » Wed Jan 16, 2019 3:42 pm

runner540 wrote:
Wed Jan 16, 2019 2:50 pm
I discount that return for concentration risk and illiquidity.

In my city, market rents are barely enough to cover taxes, insurance and maintenance. Would be cash flow negative with a mortgage on it. And 4% appreciation is optimistic for 18 years. It's happened in some markets but can't bank on it.
Risk is key. RE looks great when you leverage a bunch of mortgages and the properties are all cash flow positive. Then you leverage more and more. If the market turns south, all of a sudden you have 15 properties that are cash flow negative, and if you want to get out of any, you will need to sell at a loss. That doesn't sound fun to me.

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HomerJ
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Re: Why are your NOT buying rental properties?

Post by HomerJ » Wed Jan 16, 2019 3:46 pm

tomtoms wrote:
Wed Jan 16, 2019 2:38 pm
I get the hustling part but my coworkers hustle at work all of the time. Just recently my coworker told me he made $40 k in overtime last year. I made that much from just one property last year and I don’t have to pay 50% tax!
You CLEARED, net profit, $3300 a month, from one property, with a property manager and a mortgage?

What kind of rental properties do you own? How much is the mortgage, how much did you put down, how much is the rent, how much are the taxes, how much is the property manager, how much are you putting aside for a new air-conditioner, roof, furnace, etc.?
Last edited by HomerJ on Wed Jan 16, 2019 3:59 pm, edited 1 time in total.
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Shallowpockets
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Re: Why are your NOT buying rental properties?

Post by Shallowpockets » Wed Jan 16, 2019 3:47 pm

mak1277 wrote:
Wed Jan 16, 2019 2:31 pm
tomtoms wrote:
Wed Jan 16, 2019 2:28 pm
So, I have to ask..if you are willing to hustle and you have the money, why are you not buying rental properties?
I would say I'm not interested in hustling. I love the BH philosophy because it encourages apathy towards investing ($$ goes into 3-funds, then don't do anything else). I have no desire to run around chasing tenants, fixing stuff, dealing with liability insurance, finding and paying a management company...just writing that sentence was more energy than I care to spend dealing with investing.

Well said there. I've for better things to do than hustling on rentals. I let my money work for me, without me.
All the assumptions of the OP are just that. Assumptions. Especially wih appreciation of real estate.

quantAndHold
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Re: Why are your NOT buying rental properties?

Post by quantAndHold » Wed Jan 16, 2019 3:48 pm

tomtoms wrote:
Wed Jan 16, 2019 2:38 pm
Why not hire a good property manager. Yeah, it will take time and there are plenty of good and honest property managers out there.
Been there, done that. Property managers charge 10%, which will suck the lifeblood out of any investment. And the one I had stole from me. She was the one that everyone recommended as being the "only honest one in town." Are you sure yours isn't stealing from you? How closely do you check all the receipts? That turned out to be a job in itself.

Regardless, if you're comparing, you need to compare using equal amounts of leverage, or it isn't a useful comparison.

Seriously, if it were such a crazy good investment, money would be pouring out of the stock market and into rental properties. Most of the people who post here about what a great investment their rental properties are either benefited from the real estate bull market of the past 20 years (which already happened, and for a number of economic reasons, isn't likely to continue at the same rate), or aren't very good at business math.

Calico
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Re: Why are your NOT buying rental properties?

Post by Calico » Wed Jan 16, 2019 3:52 pm

Well, frankly I don't have the money or time to do a rental, but even if I did, I woudn't do it. My parents were landlords for a short time and it was awful for them. Two tenants trashed the house (I used to go with them to fix it up). One of those tenants moved out in the middle of the night without paying rent. I think they had one "good tenant family" in all that time but they moved when they bought a house. I have no idea if they made or lost money on it, but it didn't last long and they never did it again.

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Re: Why are your NOT buying rental properties?

Post by stoptothink » Wed Jan 16, 2019 3:54 pm

quantAndHold wrote:
Wed Jan 16, 2019 3:48 pm
tomtoms wrote:
Wed Jan 16, 2019 2:38 pm
Why not hire a good property manager. Yeah, it will take time and there are plenty of good and honest property managers out there.
Been there, done that. Property managers charge 10%, which will suck the lifeblood out of any investment. And the one I had stole from me. She was the one that everyone recommended as being the "only honest one in town." Are you sure yours isn't stealing from you? How closely do you check all the receipts? That turned out to be a job in itself.
I should get my brother on here to share his horror stories with property managers. He's been through 4 in ~6yrs, and he has had to evict 3 separate tenants during that period. This is in a very high end home (~$700k home in Rock Springs, Wyoming) which he is renting at a cash flow loss each month (he's underwater). He should sell his story to be made into a movie.

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Re: Why are your NOT buying rental properties?

Post by catdude » Wed Jan 16, 2019 4:04 pm

stoptothink wrote:
Wed Jan 16, 2019 3:54 pm
I should get my brother on here to share his horror stories with property managers. He's been through 4 in ~6yrs, and he has had to evict 3 separate tenants during that period. This is in a very high end home (~$700k home in Rock Springs, Wyoming) which he is renting at a cash flow loss each month (he's underwater). He should sell his story to be made into a movie.
My brother could probably tell some stories too. He was always complaining about his idiot property manager...
catdude | | "Only in America." (Yogi Berra, after being told that the mayor of Catholic Dublin was Jewish)

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HomerJ
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Re: Why are your NOT buying rental properties?

Post by HomerJ » Wed Jan 16, 2019 4:10 pm

My co-worker owns 4 rentals, and he has had to switch property managers a few times, because they don't care about the costs.

If a plumber needs to be sent out, they will pay whatever is asked, and pass the bill on to my co-worker, because it's NOT THEIR MONEY.
The J stands for Jay

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