Do you invest in Real Estate ? Why ?

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WanderingDoc
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Re: Do you invest in Real Estate ? Why ?

Post by WanderingDoc » Thu Jun 21, 2018 10:08 pm

Pajamas wrote:
Thu Jun 21, 2018 7:43 pm
No, don't want to mess with the expense, trouble, illiquidity, and risk of owning and running a business and so I much prefer investing in equities over real estate. It's not clear to me why so many people want to run a real estate business but don't want to run other types of businesses. In general, I think it's a good idea to let professionals manage real estate businesses, just as with other types of businesses. They have greater ability to scale the business, access capital, evaluate deals, etc. and much more experience, knowledge, and patience, etc. than I do.

I do own REITs to benefit from ownership of real estate just as I own other equities to benefit from ownership of other types of businesses.
The illiquidity is a beneficial feature of real estate. Its forces one to not make any impulsive and rash decisions, and to invest for the long term.

People want to run real estate business because a bank will lend you 70-90% of the capital for the business, AND your tenants pay back the loan, not you! That is the secret sauce here. Tax treatment is second to none as well. Also, it can be done (very) part time, many businesses can't if you want to be truly successful. Plenty of reasons.
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

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Pajamas
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Re: Do you invest in Real Estate ? Why ?

Post by Pajamas » Thu Jun 21, 2018 10:45 pm

WanderingDoc wrote:
Thu Jun 21, 2018 10:08 pm
The illiquidity is a beneficial feature of real estate. Its forces one to not make any impulsive and rash decisions, and to invest for the long term.

People want to run real estate business because a bank will lend you 70-90% of the capital for the business, AND your tenants pay back the loan, not you! That is the secret sauce here. Tax treatment is second to none as well. Also, it can be done (very) part time, many businesses can't if you want to be truly successful. Plenty of reasons.
Yes, I've seen your infomercial about the five ways real estate pays you several times before. :(

WanderingDoc
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Re: Do you invest in Real Estate ? Why ?

Post by WanderingDoc » Thu Jun 21, 2018 10:47 pm

Pajamas wrote:
Thu Jun 21, 2018 10:45 pm
WanderingDoc wrote:
Thu Jun 21, 2018 10:08 pm
The illiquidity is a beneficial feature of real estate. Its forces one to not make any impulsive and rash decisions, and to invest for the long term.

People want to run real estate business because a bank will lend you 70-90% of the capital for the business, AND your tenants pay back the loan, not you! That is the secret sauce here. Tax treatment is second to none as well. Also, it can be done (very) part time, many businesses can't if you want to be truly successful. Plenty of reasons.
Yes, I've seen your infomercial about the five ways real estate pays you several times before. :(
Good, you've been paying attention. All smiles from this side of the table :D
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

jonbkray
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Re: Do you invest in Real Estate ? Why ?

Post by jonbkray » Fri Jun 22, 2018 6:47 am

oldcomputerguy wrote:
Sun Apr 01, 2018 1:11 pm
I have a paid-for house as my primary residence. Outside of that, the only RE I have any investment in is whatever is in Total Stock Market index funds. I see no need for anything else.
What about bonds? Why only stock?

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oldcomputerguy
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Re: Do you invest in Real Estate ? Why ?

Post by oldcomputerguy » Fri Jun 22, 2018 6:59 am

jonbkray wrote:
Fri Jun 22, 2018 6:47 am
oldcomputerguy wrote:
Sun Apr 01, 2018 1:11 pm
I have a paid-for house as my primary residence. Outside of that, the only RE I have any investment in is whatever is in Total Stock Market index funds. I see no need for anything else.
What about bonds? Why only stock?
I do have bonds, as a matter of fact I'm 50/50. I meant that the only portion of my total portfolio that is invested in real estate is whatever real estate holdings happen to be included in total stock market funds. I do not hold any real estate tilt.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

Oddball
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Re: Do you invest in Real Estate ? Why ?

Post by Oddball » Fri Jun 22, 2018 7:20 am

Pajamas wrote:
Thu Jun 21, 2018 7:43 pm
No, don't want to mess with the expense, trouble, illiquidity, and risk of owning and running a business and so I much prefer investing in equities over real estate. It's not clear to me why so many people want to run a real estate business but don't want to run other types of businesses. In general, I think it's a good idea to let professionals manage real estate businesses, just as with other types of businesses. They have greater ability to scale the business, access capital, evaluate deals, etc. and much more experience, knowledge, and patience, etc. than I do.

I do own REITs to benefit from ownership of real estate just as I own other equities to benefit from ownership of other types of businesses.
What other types of businesses do you have in mind besides real estate? I was (still kinda am) interested in other businesses and have been since ever reading 4 Hour Work Week many years ago. But that seems like a much greater risk than Real Estate.

I will say that out of the 3 units we own, 2 of them were "accidental". I bought a house in the town I went to college in and was a live-in landlord (lived in one room, rented out the others) and when I finished up school I did try to sell the house but didn't get any offers I liked and I have been renting it out ever since. My wife bought a condo about 10 years before we met and once we got engaged we moved in together but not into her condo, we have been renting that out for the past 5 or so years. The 3rd is a unit in a 2-flat with us living in the other unit. They tenants cover about 75% of the mortgage even while they live in a smaller unit. We effectively live in unit that would rent for $2000 a month for about $500 a month out of pocket, all while getting the tax benefits.

The "illiquidity" doesn't bother me at all for a couple of reasons. 1) I view the equity in the houses the same as my stock/bond investments as in I don't plan to touch either for 20+ years (I just turned 40). 2) I could always take out a HELOC out if I needed cash

People need food to eat and a place to sleep. I am helping cover a basic need. Rents are fairly isolated from changes in the economy/market (I live in a large urban center). I feel like being a landlord is a perfect orthogonal investment to go along with investing in stocks/bonds. I am handy and don't mind most of the work that goes along with being a landlord, but we keep our places very up-to-date with no deferred maintenance so problems are few and far between.

confusedinvestor
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Re: Do you invest in Real Estate ? Why ?

Post by confusedinvestor » Fri Jun 22, 2018 9:33 pm

Can you please share your high level analysis on REI vs Index Funds over long term ? How is REI offer alpha over indexing over long run ? Is it b/c your renters pay for your mortgage ?

I dont understand
Tico_75 wrote:
Thu Jun 21, 2018 8:08 am
We hold most of our assets in index funds, however, after comparing the long term returns,we are seriously considering transitioning to use the index funds as the "backup strategy", not the main holder.

WanderingDoc
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Re: Do you invest in Real Estate ? Why ?

Post by WanderingDoc » Fri Jun 22, 2018 10:18 pm

confusedinvestor wrote:
Fri Jun 22, 2018 9:33 pm
Can you please share your high level analysis on REI vs Index Funds over long term ? How is REI offer alpha over indexing over long run ? Is it b/c your renters pay for your mortgage ?

I dont understand
Tico_75 wrote:
Thu Jun 21, 2018 8:08 am
We hold most of our assets in index funds, however, after comparing the long term returns,we are seriously considering transitioning to use the index funds as the "backup strategy", not the main holder.
Real estate pays you in at least 5 ways, index funds only one, maybe 1 and a half. I have written about this in gory detail more than a few times on here :)
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

confusedinvestor
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Re: Do you invest in Real Estate ? Why ?

Post by confusedinvestor » Fri Jun 22, 2018 10:21 pm

Ok thanks, this helps, I'll keep my 3 Fund which will work for me during my sleep and give me 2% div when I am dreaming ....RE, sounds like too much work for such return/cash-flow.
nasrullah wrote:
Thu Jun 21, 2018 5:25 pm
- roll the dice and get lucky and you can be looking at double digit appreciation year over year.
If I wasn't already in the game, I wouldn't start now.

confusedinvestor
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Re: Do you invest in Real Estate ? Why ?

Post by confusedinvestor » Fri Jun 22, 2018 11:10 pm

Here - ? where ? on this thread ? or somewhere else in this forum ?

I'm looking for some 'benchmark' analysis like your REI (mortgage - cash-flow/rent - insurance - broker fees, mgmt fees, prop tax - 5% buy+sell etc etc) vs 3 Fund (80:20 ) over 30 yrs ?

I do understand you own 75% REI, 15% index, 10% cash.
WanderingDoc wrote:
Fri Jun 22, 2018 10:18 pm
confusedinvestor wrote:
Fri Jun 22, 2018 9:33 pm
Can you please share your high level analysis on REI vs Index Funds over long term ? How is REI offer alpha over indexing over long run ? Is it b/c your renters pay for your mortgage ?

I dont understand
Tico_75 wrote:
Thu Jun 21, 2018 8:08 am
We hold most of our assets in index funds, however, after comparing the long term returns,we are seriously considering transitioning to use the index funds as the "backup strategy", not the main holder.
Real estate pays you in at least 5 ways, index funds only one, maybe 1 and a half. I have written about this in gory detail more than a few times on here :)

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Sandtrap
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Re: Do you invest in Real Estate ? Why ?

Post by Sandtrap » Fri Jun 22, 2018 11:19 pm

confusedinvestor wrote:
Sun Apr 01, 2018 1:06 pm
Folks,
1. Do you invest in Real Estate ?
2. If yes, Why do you invest ? Cash Flow vs 3-Fund-Portfolio ?
3. If not, Why not ?
I'll appreciate if you please share any real experiences; My Financial Advisor advised me to consider Real Estate investments for Cash Flow diversification.
1. Used to.
2. It was my primary business. R/E multi-unit housing. Own. Operate. Physically. (Like "Coke". . . It's the Real Thing)

Physical. . . R/E investment should be looked at as a "business" and as a "businessman" for primary or alternate income streams, tax benefits, tax deferred appreciative value, etc.
vs
3 Fund Portfolio and R/E (non physical) investments (ie: funds, REITs, etc) are a different thing.

Apples and Watermelons.

j

WanderingDoc
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Re: Do you invest in Real Estate ? Why ?

Post by WanderingDoc » Fri Jun 22, 2018 11:36 pm

viewtopic.php?f=10&t=251790&p=3981904#p3981904

About 1/3 of the way down the page.
confusedinvestor wrote:
Fri Jun 22, 2018 11:10 pm
Here - ? where ? on this thread ? or somewhere else in this forum ?

I'm looking for some 'benchmark' analysis like your REI (mortgage - cash-flow/rent - insurance - broker fees, mgmt fees, prop tax - 5% buy+sell etc etc) vs 3 Fund (80:20 ) over 30 yrs ?

I do understand you own 75% REI, 15% index, 10% cash.
WanderingDoc wrote:
Fri Jun 22, 2018 10:18 pm
confusedinvestor wrote:
Fri Jun 22, 2018 9:33 pm
Can you please share your high level analysis on REI vs Index Funds over long term ? How is REI offer alpha over indexing over long run ? Is it b/c your renters pay for your mortgage ?

I dont understand
Tico_75 wrote:
Thu Jun 21, 2018 8:08 am
We hold most of our assets in index funds, however, after comparing the long term returns,we are seriously considering transitioning to use the index funds as the "backup strategy", not the main holder.
Real estate pays you in at least 5 ways, index funds only one, maybe 1 and a half. I have written about this in gory detail more than a few times on here :)
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

MrPotatoHead
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Re: Do you invest in Real Estate ? Why ?

Post by MrPotatoHead » Sat Jun 23, 2018 1:22 pm

confusedinvestor wrote:
Sun Apr 01, 2018 1:06 pm
Folks,
1. Do you invest in Real Estate ?
2. If yes, Why do you invest ? Cash Flow vs 3-Fund-Portfolio ?
3. If not, Why not ?
I'll appreciate if you please share any real experiences; My Financial Advisor advised me to consider Real Estate investments for Cash Flow diversification.
1. Yes
2. Because it is the most direct way I know where I can trade my human capital for income and not have to ever pay any direct income taxes on it. It is as simple as that.
3. N/A

Johnsson
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Re: Do you invest in Real Estate ? Why ?

Post by Johnsson » Sat Jun 23, 2018 1:35 pm

Yes.

Diversification, cash flow.

Note: Have someone else manage them now because I never liked those midnight phone calls.

rnitz
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Re: Do you invest in Real Estate ? Why ?

Post by rnitz » Sat Jun 23, 2018 8:08 pm

No. Because my stock and bond portfolios at Vanguard have never called me at a crucial time at work and said "water is poring down through my ceiling from your unit above me. What are you going to do about it?"*

*- Which actually happened to me when we had rental units. As well as neighbors complaining about tenants drinking in their driveway. As well as fights about damage to a unit. As well as...

Hubris
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Re: Do you invest in Real Estate ? Why ?

Post by Hubris » Sat Jun 23, 2018 9:58 pm

1. Yes
2. Got into it from my business and needing to build a specialized commercial building, which led me into some creating & executing some Friend & Family investment groups, and then a variety of things such as development (micro in scale), multi-family apt building ownership, 1031 transactions, etc. Why... probably like my signature, hubris. Some great returns, some bad (not horrible) returns; all of which are made worse by me not having taken adequate compensation. It has been fun and I have a lot of pride in making properties better, delivering good returns to investors, have helped to deliver some nice projects and was even able to start/give a property mgmnt business to a friend but it has been stressful at times; including untangling during a divorce while trying to not derail the business objectives. Sometimes it has taken focus from my primary work but other times the knowledge gained has been put to use in my primary work, and increased my value to others.

Due to the complexity, have been unwinding things and/or shifting to simpler structures (investing in development projects vs being the developer; and doing so personally vs. through LLC’s, etc)

And, there have been a few times that I’ve been glad to have more liquidity tied up in illiquid assets, during a stock market downturn for example; not for purposes of diversification but more to protect myself from bad decisions based on emotion (sell high) since I knew the money was illiquid/unavailable.

Tico_75
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Re: Do you invest in Real Estate ? Why ?

Post by Tico_75 » Thu Jun 28, 2018 8:21 am

confusedinvestor wrote:
Fri Jun 22, 2018 9:33 pm
Can you please share your high level analysis on REI vs Index Funds over long term ? How is REI offer alpha over indexing over long run ? Is it b/c your renters pay for your mortgage ?

I dont understand
Tico_75 wrote:
Thu Jun 21, 2018 8:08 am
We hold most of our assets in index funds, however, after comparing the long term returns,we are seriously considering transitioning to use the index funds as the "backup strategy", not the main holder.
Can you please share your high level analysis on REI vs Index Funds over long term ?


I did not say I have a high level analysis, I don't trust myself that much, anyway. REI is called "dumb investing" for a reason: it's simple. If the numbers make sense, buy it, if not, don't buy it. Here is one example of a recent cash purchase, 120K purchase, 10K repairs, 150K ARV leveraged to 30 years at 75 LTV, +- 20K cash on the deal, income 2,5K/month, 30K year. Then, deduct 50% for CaPEx, management, taxes, gremlins, etc. It's very difficult in my market to find a deal like this, btw. You can play with those numbers all day. How about a 20 year mortgage, or 15? What if you only pull 135K? What if the cost is 150K or 180K and rents stay the same? What if you don't pay for 8% management or have less than 5% vacancy rates? So, it goes.

It took me three years of very hard work to structure this system. I studied taxes (depreciation, deductions, repairs vs. improvements, etc.), negotiation skills, market analysis, tenant management, and relevant law. REI is a business while index funds is a truly passive investment, both are great options. We are very fortunate to have index funds in our country. Can you see the difference between being the business owner vs. the investor?

I think the main components that are defying my personal investment strategy tilt towards REI are amortization and cash flow. Amortization, when others pay for your annuity. Cash flow is tax (free? deferred? sheltered?) income that you can invest in index funds or high APY checkings, savings, prepaid cards, etc., if you please. REI does not have the compounding power of Index funds. One can lose a lot of money on REI, it's leveraged investment. Toss opportunity loss and illiquidity for an argument. Sure.

This is not for everyone, you have to have a passion for it. More importantly, you have to have patience to "filter all the noise out there" - sounds familiar? Like any other investment, it takes a long time to reach financial independence. Then, the more you make, the less appealing REI gets vs. index funds. However, some of us enjoy it.

I hope I was able to contribute with my personal experience.

Best wishes,
"Check ID" is my actual signature.

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Hawaiishrimp
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Re: Do you invest in Real Estate ? Why ?

Post by Hawaiishrimp » Sat Jun 30, 2018 12:19 pm

Yes, rental property making 10% fixed return. Why? It's good investment.
I save and invest my money, so money can make money for me, so I don't have to make money eventually.

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mrspock
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Re: Do you invest in Real Estate ? Why ?

Post by mrspock » Sat Jun 30, 2018 3:18 pm

Yes, diversification, modestly leveraged returns and optionality (I can sell one house to raise capital or pay off the other or rent one for more cash flow etc).

I’ve (expensively) solved the tenant problem by living in both properties, the after tax rent returns where I live don’t make the hassle of renting worth it and the values are rising at a sufficient rate where the rent would pale in comparison to the capital gain.

Strange setup, I know....but it works for me.

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Re: Do you invest in Real Estate ? Why ?

Post by abuss368 » Sat Jun 30, 2018 3:20 pm

I recall reading an interview where Jack Bogle mentioned that 99% of his wealth was invested in Vanguard funds and his son's active small cap fund. It is my understanding that Mr. Bogle has never invested directly in real estate.
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

Pelerus
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Re: Do you invest in Real Estate ? Why ?

Post by Pelerus » Sun Jul 01, 2018 1:36 pm

Real estate investing does not have to be equity. I invest in real estate debt through senior loans on non-owner occupied properties. Let others take the market and concentration risk. I’ll take the 8% returns, 60% LTV, and diversification across 100+ properties in multiple regions.

Nate79
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Re: Do you invest in Real Estate ? Why ?

Post by Nate79 » Sun Jul 01, 2018 6:09 pm

Yes, I've started to put about 10% of my monthly investments into Fundrise.

lessismore22
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Re: Do you invest in Real Estate ? Why ?

Post by lessismore22 » Sun Jul 01, 2018 8:09 pm

No.

My work life connects me with many RE investors. After seeing what they go through it's obvious I don't have the stomach for it. Illiquid investments that require a lot of time. One of my best friends manages 700+ units. Makes great money, but his cell phone never stops ringing.

I like my index funds.

darrvao777
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Re: Do you invest in Real Estate ? Why ?

Post by darrvao777 » Mon Jul 02, 2018 12:53 pm

No we are still trying to get a lawsuit resolved from our last rental property

As I’ve repeatedly lectured my spouse, we make too much money at our primary jobs, spend too much time at our primary jobs, and save too much money from our primary jobs to take on any more work (which is what real estate investment feels like to me)

The benefits do not outweigh the risks for our financial situation.

bironology
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Re: Do you invest in Real Estate ? Why ?

Post by bironology » Thu Sep 13, 2018 6:00 pm

I love my home and I love being involved in the work to maintain and improve it to suit my family's fancy, build a chicken coop if I feel like it, mow my lawn on a beautiful summer day, build garden boxes for my wife to plant vegetables, and indulge in that satisfaction of the homestead.

That's my home.

Owning investment real estate is a job. It can be a good job, even a great job. I don't view it as a personal investment, but as a business.

I already have a great job, and if I was looking for a different one or side hustle business, there are other interests and passions I'd pursue well before real estate investing, and where I could put my unique skills to work. That said, I can see the allure and satisfaction others get from it. But deciding to do that is much, much, much different than deciding to invest in an index fund.

There's only so much physical, intellectual, and psychic energy we have to spend. Choose wisely.

kaeltor
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Re: Do you invest in Real Estate ? Why ?

Post by kaeltor » Fri Sep 14, 2018 12:22 pm

Oddball wrote:
Thu Jun 21, 2018 5:34 pm
Yes, my wife and I own 3 units + our primary residence. Hope to get another 3-4 units in the next couple of years, I don't think we will ever have more than 10 units. Do it as another saving vehicle, another bucket to fill. When we retire in about 20 years we should have:

1) Solid funds in Roth IRA accounts
2) Solid funds in 401k/IRA accounts
3) Solid equity in the rental properties
4) Solid cash-flow from rental properties.

What will that give us when we retire? Options. :beer

Edit: BTW BiggerPockets is how I found Bogleheads

This is great and what I would ideally like to do in the future... how did you get started?

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