Can you please share your high level analysis on REI vs Index Funds over long term ?
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.
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.
"Check ID" is my actual signature.