Vague question, looking for wide array of opinions

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
ryanbohle
Posts: 169
Joined: Tue Oct 29, 2019 9:20 pm

Vague question, looking for wide array of opinions

Post by ryanbohle »

Lets talk about real estate. I am an accredited investor. Net worth around 1.8 million, about 250K in debt (mortgage on primary residence). Is there value in diversifying outside of stocks and bonds? If so, when? and how? I have considered buying a rental property, I have considered just buying a lake house for me and my family to enjoy (not really for income). I have considered Crowdfunding real estate deals, private REITs ets. Please, drop some wisdom on me? Thank you in advance.
User avatar
retired@50
Posts: 13703
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Vague question, looking for wide array of opinions

Post by retired@50 »

ryanbohle wrote: Mon Jun 10, 2024 10:41 am Lets talk about real estate. I am an accredited investor. Net worth around 1.8 million, about 250K in debt (mortgage on primary residence). Is there value in diversifying outside of stocks and bonds? If so, when? and how? I have considered buying a rental property, I have considered just buying a lake house for me and my family to enjoy (not really for income). I have considered Crowdfunding real estate deals, private REITs ets. Please, drop some wisdom on me? Thank you in advance.
The long term average appreciation of real estate isn't any better (and is probably worse) than the stock market. Of course there can be specific exceptions to this general rule, but I certainly wouldn't expect out-performance in the real estate sector.

As for a rental property, to my eye, this depends on 1.) where you live, and 2.) whether or not you want to be a landlord and 3.) are capable enough to handle repairs on your own. For people who want to do this sort of work, and are capable of handling simple repairs, and don't live in a jurisdiction that favors tenants over landlords, then go ahead and buy a rental house within 20 minutes of where you currently live. If you can't make the numbers work to actually be cash flow positive from day one, then skip it.

As for crowdfunding and/or private REITs, I'd skip those. Too opaque. Too hard to get your money back.

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
bombcar
Posts: 1793
Joined: Sun Aug 12, 2007 6:41 pm

Re: Vague question, looking for wide array of opinions

Post by bombcar »

The biggest advantage to a rental property is that it allows you insane leverage on a (hopefully) appreciating asset.

Done early enough where total destruction and bankruptcy (if not in a no-recourse state) won't really hurt, it can be a step up on the pile for sure!

But you, you're already half way to winning so why gamble? If you really want the lake house and can afford it, I'd do that over a rental. No tenants to bother with, and hopefully fun.

The other option would be to sell your current house and buy much more expensive if you wanted more exposure to real estate. I wouldn't buy bigger, but in a VHCOL area instead of a HCOL for example. Again, this is leveraging you and has serious downsides.

Real estate is way overblown by all the get-rich-quick scam artists and popular media. If you really need to, you could dabble in some REITs and avoid most of the downsides except perhaps pitiful returns.

Read. Read a lot. Read more. The book "Landlording" is a good insight into all the fun you never even expected you could have. Read these results: https://www.google.com/search?q=bogleheads+eviction

These books are all good: https://johntreed.com/collections/real- ... investment but the moral of the story is summed up in "If I did it again, I'd not buy rentals and instead just keep upgrading my primary dwelling".
livesoft
Posts: 86736
Joined: Thu Mar 01, 2007 7:00 pm

Re: Vague question, looking for wide array of opinions

Post by livesoft »

We enjoy lake houses and beach houses and other houses simply by using VRBO or airbnb, so there is no need for us to buy real estate for enjoyment purposes. However, if you like headaches, then by all means go ahead and purchase additional real estate.
Wiki This signature message sponsored by sscritic: Learn to fish.
SubPar
Posts: 501
Joined: Mon Apr 27, 2020 11:48 am

Re: Vague question, looking for wide array of opinions

Post by SubPar »

bombcar wrote: Mon Jun 10, 2024 10:59 am Real estate is way overblown by all the get-rich-quick scam artists and popular media.
[Emphasis mine] This is very, very true.

There's a lot of different types of commercial real estate, so it's tough to paint with a wide brush. Generally speaking, I like it (though I'm bias).

Knowing what to look for in a prospective deal is important. Being able to vet a sponsor if you're going the syndication route is also important. The low rate environment turned a lot of people into "real estate experts". Those people are actively getting weeded out right now.
Dave55
Posts: 2043
Joined: Tue Sep 03, 2013 2:51 pm

Re: Vague question, looking for wide array of opinions

Post by Dave55 »

I invested in RE Syndications and Private REIT's for over 20 years when I was younger. I also had a 2nd career in Private Equity Real Estate as an acquisitions manager. My advice would be stick to public markets where you benefit from liquidity, transparency and low fees. Syndications and private REIT's have high fees, little or no liquidity, lock up periods, and you are betting on the jockey, that is, the REIT Manager/Executives or the General Partner of the syndication and their ability to perform. You can PM me for more details.

Dave
"The big money is not in the buying and selling, but in the waiting.” Charlie Munger
User avatar
Rocinante Rider
Posts: 569
Joined: Fri Aug 19, 2022 12:52 pm

Re: Vague question, looking for wide array of opinions

Post by Rocinante Rider »

ryanbohle wrote: Mon Jun 10, 2024 10:41 am I am an accredited investor...I have considered buying a rental property...a lake house for me and my family to enjoy...Crowdfunding real estate deals, private REITs ets. Please, drop some wisdom on me?
Just because you can (accredited investor), doesn't mean you should. Retired@50 offered good advice. A lake house to enjoy - go for it if you'll use it. The rest sounds like complications and headaches to me. A simple 3 fund (or similar) portfolio at an AA the you can stick with regardless of what happens in the markets is good enough for me. Some BH investors tilt toward REIT index funds, or scv, or whatever, but with total US and international funds, you already own these sectors according to their market weights. Tilts create uncompensated risk in a search for greater returns. Tilt and tinker if you like and can stay that course, but after forty+ years investing, simple and no regrets works for me.
Topic Author
ryanbohle
Posts: 169
Joined: Tue Oct 29, 2019 9:20 pm

Re: Vague question, looking for wide array of opinions

Post by ryanbohle »

Rocinante Rider wrote: Mon Jun 10, 2024 11:13 am
ryanbohle wrote: Mon Jun 10, 2024 10:41 am I am an accredited investor...I have considered buying a rental property...a lake house for me and my family to enjoy...Crowdfunding real estate deals, private REITs ets. Please, drop some wisdom on me?
Just because you can (accredited investor), doesn't mean you should. Retired@50 offered good advice. A lake house to enjoy - go for it if you'll use it. The rest sounds like complications and headaches to me. A simple 3 fund (or similar) portfolio at an AA the you can stick with regardless of what happens in the markets is good enough for me. Some BH investors tilt toward REIT index funds, or scv, or whatever, but with total US and international funds, you already own these sectors according to their market weights. Tilts create uncompensated risk in a search for greater returns. Tilt and tinker if you like and can stay that course, but after forty+ years investing, simple and no regrets works for me.
I only added the accredited investor part because I posted a question like this somewhere else a few months back and it seemed like every response was “you have to be an accredited investor to do that….” 😂
chassis
Posts: 2344
Joined: Tue Mar 24, 2020 4:28 pm

Re: Vague question, looking for wide array of opinions

Post by chassis »

ryanbohle wrote: Mon Jun 10, 2024 10:41 am Lets talk about real estate. I am an accredited investor. Net worth around 1.8 million, about 250K in debt (mortgage on primary residence). Is there value in diversifying outside of stocks and bonds? If so, when? and how? I have considered buying a rental property, I have considered just buying a lake house for me and my family to enjoy (not really for income). I have considered Crowdfunding real estate deals, private REITs ets. Please, drop some wisdom on me? Thank you in advance.
Lynch calls it deworseification. The label works for me.

Setting the discretionary purchase of vacation real estate aside, do you want to be a landlord? Have you ever been a landlord? If you paid a management company to manage the rental would the resulting total financial return meet your requirements?
VoiceOfReason
Posts: 422
Joined: Sat Jan 02, 2016 5:54 pm

Re: Vague question, looking for wide array of opinions

Post by VoiceOfReason »

My first thought is to know your audience. This board is inherently predispositioned to not suggest real estate investments. If you asked the same question on other boards, you'd get an entirely different answer.

My opinion about real estate investing is generally that any truly great investment property will never get to your eyes. They are purchased off market or immediately by realtors or other investors before they even get to be seen by you. You need to ask yourself if this is such a great investment opportunity why hasn't the realtor or someone from his brokerage purchased the property before it even got to you? So the pool you have to choose from has been skimmed, that's not to say you can't find a winner, you just have things working against you.

Putting some investment money in REITS or other similar securities is fine if you want that diversity.

I think there are generally 2 ways to effectively build wealth in this country that anyone can do regardless of education. 1) Live below your means and invest in the stock market early and long term. This is what 90% of the people on this board do and it works. 2) To invest in real estate from the earliest moment possible. Become a landlord, learn how to manage buildings, renters, fix stuff, etc. Every year or two buy a new property as property values increase, your knowledge and expertise improves until after 20-30 years you have acquired 15+ properties. Then you can liquidate the entire portfolio and retire with the proceeds. This approach is also a proven approach, but requires a lot of specific skills and this is a full time job.

I never saw the value of the half hearted pick-up a rental property approach as a good one. I found that many people that did it don't actually make a lot of money on it. They simply liked being able to tell their peers that they have a rental property. It is a socially acceptable way to brag about finances.
User avatar
Meg77
Posts: 2891
Joined: Fri May 22, 2009 1:09 pm
Location: Dallas, TX

Re: Vague question, looking for wide array of opinions

Post by Meg77 »

My target AA has always been 50% stocks and 50% real estate (not including my primary residence). I'm only 40 and have never held bonds, but in my mind RE was a good alternative to bonds for "fixed income." I bought several duplexes in my 20s and then in my 30s began investing in several real estate syndications each year, creating a bit of a real estate ladder with ose.

My preference for real estate over bonds for diversification was colored by the fact that through my investing life bonds have not paid any compelling yield until recently. And those same market dynamics - the cost of money basically being free after taking low inflation into account - spurred values in real estate, along with housing supply in general of course.

However, that is no longer the case. Interest rates have surged which not only makes financing real estate less compelling (very view rentals can actually cash flow when financed at today's prices and mortgage rates), but it makes simple easy bond investing much more compelling. Settling for a single digit ROE on my rentals was fine when bonds and savings rates were effectively zero. But I sold a rental last spring when I realized that the value had increased to the point that the ROE was about what I could earn on cash. At that point you're just banking on appreciation, and owning RE, even with property managers, is too much hassle and risk at that point compared to just dumping money into index funds.

So my plan is to gradually reduce my RE exposure and replace it with fixed income. I'm letting my remaining RE syndications mostly roll off without reinvesting in new projects unless something super compelling pops up. I'll keep my remaining 3 duplexes for now but may start selling them off one by one in early retirement if the ROEs sink much further (which is inevitable eventually as they are paid off and prices rise faster than rents).
"An investment in knowledge pays the best interest." - Benjamin Franklin
Post Reply