Becoming a Landlord: My Experiences

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itstoomuch
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Re: Becoming a Landlord: My Experiences

Post by itstoomuch » Sun Oct 01, 2017 10:31 am

InvestoGuy wrote:
Fri Sep 29, 2017 4:29 pm
Excellent post. I am considering owning some rental property, however, I always wonder what the returns are compared to putting it in a simple index fund. How has your investment done, till today right from inception, compared to a simple index fund during the exact same time period?
Seattle condo, almost 2 years of ownership. Purchased $ from inheritance. About 5-6% net ROI, 30-50% unrealized appreciation, to be held long-term and to be passed to heirs just as we received inheritance, ~ 15,000 depreciation for taxes, 2 Allowable visitations to consult with PM (son who is also on the condo board and in related occupation) and to visit property. Relatively inflation and deflation proof. Asset diversication.
YpropertyMV
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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Sandtrap
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Re: Becoming a Landlord: My Experiences

Post by Sandtrap » Sun Oct 01, 2017 12:51 pm

InvestoGuy wrote:
Sat Sep 30, 2017 3:48 pm
Sec3inMD wrote:
Thu Sep 07, 2017 4:06 pm
Very good post and comments denovo.

About 10 years ago, my wife inherited two small rental condos in Honolulu (not vacation rentals). I wanted to sell them to not deal with being a landlord. But they are my wife's connection to her hometown, so we are landlords. Fortunately, there was no debt with either of the units. We toured the properties with the property manager and I was impressed. And in ten years, we have had only one change of tenant in each unit and reasonable maintenance and repair costs. One former tenant lost his job and we ended up losing a months rent and a good tenant. Otherwise no tenant has missed a payment. The property manager handles tenants and repairs. They also pay state and local taxes and insurance out of rental collections along with their 7.5 percent management fee. Every month net rents are posted to our checking account. Owning property in Hawaii also has some minor benefits like qualifying for "kamaaina" rates (discounts for locals) and writing off reasonable airfare and hotels. All-in-all, however, we could make a better return in a diversified, low-cost mutual fund. But I'm not complaining.
Sec3inMD, you write you could have made better return in a diversified low cost index fund, I always wondered about that. If you don't mind sharing, since you had the property how much rate of return have you gotten so far on an annualized basis and if you were to sell the property today, what would your annualized rate of return be, after including the appreciation?
Given the right locations, most locations, the annual appreciative value of many types of property in Honolulu (also Kailua, Hawaii Kai, Kahala, Lanikai, etc) will often outpace the net annual rate of return from rental income, especially given the high costs of ownership.
Not a financial expert - just a retired businessman hacking out of a sand trap -- again.

beezquimby
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Re: Becoming a Landlord: My Experiences

Post by beezquimby » Sun Oct 01, 2017 3:21 pm

Sorry that's just mumbo-jumbo to me. I'll stick to stocks, others can worry about fixing toilets and AC units etc.
Bogle826 wrote:
Tue Sep 26, 2017 3:50 pm
beezquimby wrote:
Sun Sep 03, 2017 4:38 pm
And the reason anyone would want to do this is??

I'll stick to my two mouse button clicks to give mr Dow jones my money.
although it's more arduous to be a landlord but there is more upside as well as downside when you individually select an asset.

looks like there is a good understanding of the downside, but here are some upside/benefit scenarios as a landlord.

1) you can leverage your capital - generally speaking, you can acquire $1MM of assets for every $250k you put down. if asset is cash-flow positive, the tenants are basically paying for your asset.
2) tax benefits thru cash interest / depreciation
3) home run plays - over the long term, the city may rezone and all of a sudden, the land that you bought sitting on 2-family is now able to build 8 stories high in a booming commercial location.
4) 1031 exchange to defer capital gains
5) cash-out refi to pull out original capital and have tenants pay for the asset (simple example: $250k down, $750k loan; $1mm property. 5 years later, your loan balance is $650k thru scheduled amort and your building value is $1.2mm; now you can refi the debt to $900k and take that 900k to pay down the $650k and pocket the rest. Your asset is now on the hook for a $900k loan and you just stripped out your initial cash equity of $250k.

runner540
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Re: Becoming a Landlord: My Experiences

Post by runner540 » Sun Oct 01, 2017 4:12 pm

itstoomuch wrote:
Sun Oct 01, 2017 10:31 am
InvestoGuy wrote:
Fri Sep 29, 2017 4:29 pm
Excellent post. I am considering owning some rental property, however, I always wonder what the returns are compared to putting it in a simple index fund. How has your investment done, till today right from inception, compared to a simple index fund during the exact same time period?
Seattle condo, almost 2 years of ownership. Purchased $ from inheritance. About 5-6% net ROI, 30-50% unrealized appreciation, to be held long-term and to be passed to heirs just as we received inheritance, ~ 15,000 depreciation for taxes, 2 Allowable visitations to consult with PM (son who is also on the condo board and in related occupation) and to visit property. Relatively inflation and deflation proof. Asset diversication.
YpropertyMV
Thanks for sharing your experience. As you note, "mileage WILL vary": you picked the hottest market in the country. 10%+ annual appreciation in an otherwise low inflation environment is not sustainable in a healthy economy: it means prices are doubling every 7 years, and rent/housig expenses choke off spending and investment in other categories.

For InvestoGuy, real estate has done well the last 8 years since the recession, but the S&P 500 has returned 33% (dividends reinvested) in the last 2 years, with a lot more diversification and no work on your part.

https://dqydj.com/sp-500-return-calculator/

itstoomuch
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Re: Becoming a Landlord: My Experiences

Post by itstoomuch » Sun Oct 01, 2017 9:33 pm

^If we were to buy today, Seattle, we wouldn't get the rent to support the purchase. Our timing was good but a year earlier would have been better.
YMMV is very important
.
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

travellight
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Re: Becoming a Landlord: My Experiences

Post by travellight » Sun Oct 01, 2017 10:15 pm

InvestoGuy wrote:
Fri Sep 29, 2017 4:29 pm
Excellent post. I am considering owning some rental property, however, I always wonder what the returns are compared to putting it in a simple index fund. How has your investment done, till today right from inception, compared to a simple index fund during the exact same time period?
Here is some math I did in 2014 when I was trying to analyze this. I had bought properties from 2007 to 2011.

Rentals net worth in 2014-2,755,936,
net total lifetime additional costs (repairs etc.) as of 2/11/14 is: 41,800, all properties;
net rentals worth is 2,708,136, (subtract net costs from net worth)
subtract 1,846,000 (purchase prices) = 862,136 true net gain.
divide it by assumed 20% down of 369,200,
= 233%, as of 2014, (about 33%/year); 3 years after last acquisition, 7 years after first acquisition.

net cap rate is 7.7%: net annual income divided by net purchase price, 142,000/ 1,846,000.
If one were to divide net annual income by net money down though, it would be about 38%
401K equities: 601,283K, 2/7/14, net in is 371,682. gain is 229,601, 38% but this is over 22 years. 1.72%/yr over 22 yrs.

I think I was somewhat lucky with market timing but I really felt like things were unlikely to be much better for buying properties with historic low mortgage rates and low prices.

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abuss368
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Re: Becoming a Landlord: My Experiences

Post by abuss368 » Wed Oct 04, 2017 9:15 pm

travellight wrote:
Sun Oct 01, 2017 10:15 pm
InvestoGuy wrote:
Fri Sep 29, 2017 4:29 pm
Excellent post. I am considering owning some rental property, however, I always wonder what the returns are compared to putting it in a simple index fund. How has your investment done, till today right from inception, compared to a simple index fund during the exact same time period?
Here is some math I did in 2014 when I was trying to analyze this. I had bought properties from 2007 to 2011.

Rentals net worth in 2014-2,755,936,
net total lifetime additional costs (repairs etc.) as of 2/11/14 is: 41,800, all properties;
net rentals worth is 2,708,136, (subtract net costs from net worth)
subtract 1,846,000 (purchase prices) = 862,136 true net gain.
divide it by assumed 20% down of 369,200,
= 233%, as of 2014, (about 33%/year); 3 years after last acquisition, 7 years after first acquisition.

net cap rate is 7.7%: net annual income divided by net purchase price, 142,000/ 1,846,000.
If one were to divide net annual income by net money down though, it would be about 38%
401K equities: 601,283K, 2/7/14, net in is 371,682. gain is 229,601, 38% but this is over 22 years. 1.72%/yr over 22 yrs.

I think I was somewhat lucky with market timing but I really felt like things were unlikely to be much better for buying properties with historic low mortgage rates and low prices.
Do you plan to stay invested with the properties? Are you intending to purchase additional investment properties?
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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Sandtrap
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Re: Becoming a Landlord: My Experiences

Post by Sandtrap » Wed Oct 04, 2017 9:27 pm

Bogle826 wrote:
Tue Sep 26, 2017 3:50 pm
beezquimby wrote:
Sun Sep 03, 2017 4:38 pm
And the reason anyone would want to do this is??

I'll stick to my two mouse button clicks to give mr Dow jones my money.
although it's more arduous to be a landlord but there is more upside as well as downside when you individually select an asset.

looks like there is a good understanding of the downside, but here are some upside/benefit scenarios as a landlord.

1) you can leverage your capital - generally speaking, you can acquire $1MM of assets for every $250k you put down. if asset is cash-flow positive, the tenants are basically paying for your asset.
2) tax benefits thru cash interest / depreciation
3) home run plays - over the long term, the city may rezone and all of a sudden, the land that you bought sitting on 2-family is now able to build 8 stories high in a booming commercial location.
4) 1031 exchange to defer capital gains
5) cash-out refi to pull out original capital and have tenants pay for the asset (simple example: $250k down, $750k loan; $1mm property. 5 years later, your loan balance is $650k thru scheduled amort and your building value is $1.2mm; now you can refi the debt to $900k and take that 900k to pay down the $650k and pocket the rest. Your asset is now on the hook for a $900k loan and you just stripped out your initial cash equity of $250k.
Absolutely true.
As a full-time business career and a profession, one can indeed get those "home runs" in R/E development. Not looking for the "easy money" or "quick returns" but playing the R/E game over decades and decades.
As for rezoning, a developer can apply for rezoning and also predict with some accuracy the zoning changes ahead of time due to demographic and regional shifts in land use. IE: new planned public transport transfer stations, light rail, industrial zoning shifting to high end residential (repurpose), etc.
But, as others have reiterated, hands-on R/E and landlording is not for everyone.
Not a financial expert - just a retired businessman hacking out of a sand trap -- again.

travellight
Posts: 2646
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Re: Becoming a Landlord: My Experiences

Post by travellight » Thu Oct 05, 2017 10:08 am

abuss368 wrote:
Wed Oct 04, 2017 9:15 pm
travellight wrote:
Sun Oct 01, 2017 10:15 pm
InvestoGuy wrote:
Fri Sep 29, 2017 4:29 pm
Excellent post. I am considering owning some rental property, however, I always wonder what the returns are compared to putting it in a simple index fund. How has your investment done, till today right from inception, compared to a simple index fund during the exact same time period?
Here is some math I did in 2014 when I was trying to analyze this. I had bought properties from 2007 to 2011.

Rentals net worth in 2014-2,755,936,
net total lifetime additional costs (repairs etc.) as of 2/11/14 is: 41,800, all properties;
net rentals worth is 2,708,136, (subtract net costs from net worth)
subtract 1,846,000 (purchase prices) = 862,136 true net gain.
divide it by assumed 20% down of 369,200,
= 233%, as of 2014, (about 33%/year); 3 years after last acquisition, 7 years after first acquisition.

net cap rate is 7.7%: net annual income divided by net purchase price, 142,000/ 1,846,000.
If one were to divide net annual income by net money down though, it would be about 38%
401K equities: 601,283K, 2/7/14, net in is 371,682. gain is 229,601, 38% but this is over 22 years. 1.72%/yr over 22 yrs.

I think I was somewhat lucky with market timing but I really felt like things were unlikely to be much better for buying properties with historic low mortgage rates and low prices.
Do you plan to stay invested with the properties? Are you intending to purchase additional investment properties?
I do plan to stay invested in real estate. I don't plan to buy any more because my net worth is very heavily in real estate, about 2/3. I don't plan to lessen the net amount because I don't want to pay depreciation recapture; I want my heir to inherit with stepped up basis. There are markets I am attracted to investing in if I wanted to grow my net worth more but I have to contain myself. What I have is enough.

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