Considering residential real estate investment

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unclescrooge
Posts: 2698
Joined: Thu Jun 07, 2012 7:00 pm

Re: Considering residential real estate investment

Post by unclescrooge » Wed Dec 05, 2018 10:17 am

Sandtrap wrote:
Wed Dec 05, 2018 10:12 am
Duffydog1 wrote:
Wed Dec 05, 2018 9:20 am
I am a real estate consultant and have practiced for over 40 years. My simple advice is to stay away from real estate investments unless you are very sophisticated. Purchasing individual units either ,multiple family or single family is not desirable unless you have a lot of cash to dispose of and you wont evened the money. You can always play with the number and make them work or not work. Leave real estate to the pros unless you desire to live there.
Good points also.

Not sure. Is a real estate "consultant" a Realtor or Broker?
:?:
Or maybe some one who analyzes economic trends and provides fancy reports to builders?

WanderingDoc
Posts: 1284
Joined: Sat Aug 05, 2017 8:21 pm

Re: Considering residential real estate investment

Post by WanderingDoc » Wed Dec 05, 2018 2:38 pm

michaeljc70 wrote:
Wed Dec 05, 2018 10:02 am
WanderingDoc wrote:
Tue Dec 04, 2018 10:13 pm

I never said you should rent a place far away from where you live. (see my signature!)

The above example is a turn key property, fully rehabbed and fully managed by the firm for you. Very little work on your part. In my personal portfolio my returns are much better than that since I usually do a cash-out refinance pulling out most or all of my down payment, where the returns are infinity/non-defined since I have none of my money in the deal anymore.

To do a cash-out refinance you would either have to buy below market value or wait for the property to appreciate, usually both if you want to do it in a couple of years or less. I'm not even accounting for finding great deals, financing tricks, or building relationships with other investors or brokers, which will yield even higher returns. I'm talking about a run-of-the-mill property in Middle America to demonstrate the five profit centers of Real Estate.

The above property is actually one of my own (near identical numbers) where I bought a turnkey property as an experiment to see how it would turn out. What you see is the worst performing property in my portfolio but I just used it as an example.
WanderingDoc wrote:
Tue Dec 04, 2018 10:13 pm
2. No one forces you to buy only in your backyard. This is the 21st century.
Do you know the difference between renting a house and buying a house? Again, see my sig.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

Bacchus01
Posts: 2101
Joined: Mon Dec 24, 2012 9:35 pm

Re: Considering residential real estate investment

Post by Bacchus01 » Wed Dec 05, 2018 3:05 pm

Without arguing whether RE is good or bad, the deal the OP posted just doesn’t look very good. Sorry.

But the 1% rule is one that is very common on bigger pockets. In fact, many live by the 2% rule. Most of those places are, frankly, slum lords. When you have to have a concealed carry license to collect your rent - no thanks.

GibsonL6s
Posts: 259
Joined: Tue Aug 29, 2017 12:17 pm

Re: Considering residential real estate investment

Post by GibsonL6s » Wed Dec 05, 2018 3:13 pm

rj49 wrote:
Tue Dec 04, 2018 6:37 pm
You could also consider ownership in a crowdfunding sort of REIT, which I do in Fundrise. They participate in building apartments and other housing in various parts of the country, as well as some house flipping, particularly in high-demand areas like LA and DC, and you can invest according to your needs, whether it's income or growth or a combination of both. It's not as liquid as a traditional REIT, but then the shares aren't traded on a market, so they tend to stay around $10, and pay out usually 7-10% in dividends, as well as sharing in gains when the properties are eventually sold. The combination of diversification and leaving all the worries/time demands is worth the risks to me.
I would not recommend investing passively in other people's deals. Real estate is about control and these vehicles provide none. Additionally, you bear the fraud risk that these groups disappear with your money.

riverguy
Posts: 447
Joined: Sun May 23, 2010 10:33 pm

Re: Considering residential real estate investment

Post by riverguy » Wed Dec 05, 2018 3:32 pm

GibsonL6s wrote:
Wed Dec 05, 2018 3:13 pm
rj49 wrote:
Tue Dec 04, 2018 6:37 pm
You could also consider ownership in a crowdfunding sort of REIT, which I do in Fundrise. They participate in building apartments and other housing in various parts of the country, as well as some house flipping, particularly in high-demand areas like LA and DC, and you can invest according to your needs, whether it's income or growth or a combination of both. It's not as liquid as a traditional REIT, but then the shares aren't traded on a market, so they tend to stay around $10, and pay out usually 7-10% in dividends, as well as sharing in gains when the properties are eventually sold. The combination of diversification and leaving all the worries/time demands is worth the risks to me.
I would not recommend investing passively in other people's deals. Real estate is about control and these vehicles provide none. Additionally, you bear the fraud risk that these groups disappear with your money.
Clearly you have to pick good people to invest with, but to say not to invest passively is just straight up ignorant/wrong.

GibsonL6s
Posts: 259
Joined: Tue Aug 29, 2017 12:17 pm

Re: Considering residential real estate investment

Post by GibsonL6s » Wed Dec 05, 2018 4:11 pm

Delete
Last edited by GibsonL6s on Wed Dec 05, 2018 4:25 pm, edited 1 time in total.

GibsonL6s
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Re: Considering residential real estate investment

Post by GibsonL6s » Wed Dec 05, 2018 4:22 pm

Delete
Last edited by GibsonL6s on Wed Dec 05, 2018 4:24 pm, edited 1 time in total.

GibsonL6s
Posts: 259
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Re: Considering residential real estate investment

Post by GibsonL6s » Wed Dec 05, 2018 4:23 pm

I have been in institutional real estate for 30 plus years and have seen lots of money lost in "private" deals. My recommendation for "retail" investors is to stay away. Please research the history of TICs, private REITs and syndications and decide if the risks are worth it.

Others may have differing opinions that is ok. :happy

PaleoWorx
Posts: 24
Joined: Sat Nov 10, 2018 2:48 pm

Re: Considering residential real estate investment

Post by PaleoWorx » Wed Dec 05, 2018 4:43 pm

managing teenage tenants is a pain. yeah, their folks will foot the bill, but their kids will ruin the property
connect with real landlords (not know-it-alls on this board) at your local REIA (real estate investment association) and get feedback from peoplew ho do it.

michaeljc70
Posts: 3914
Joined: Thu Oct 15, 2015 3:53 pm

Re: Considering residential real estate investment

Post by michaeljc70 » Wed Dec 05, 2018 7:44 pm

WanderingDoc wrote:
Wed Dec 05, 2018 2:38 pm
michaeljc70 wrote:
Wed Dec 05, 2018 10:02 am
WanderingDoc wrote:
Tue Dec 04, 2018 10:13 pm

I never said you should rent a place far away from where you live. (see my signature!)

The above example is a turn key property, fully rehabbed and fully managed by the firm for you. Very little work on your part. In my personal portfolio my returns are much better than that since I usually do a cash-out refinance pulling out most or all of my down payment, where the returns are infinity/non-defined since I have none of my money in the deal anymore.

To do a cash-out refinance you would either have to buy below market value or wait for the property to appreciate, usually both if you want to do it in a couple of years or less. I'm not even accounting for finding great deals, financing tricks, or building relationships with other investors or brokers, which will yield even higher returns. I'm talking about a run-of-the-mill property in Middle America to demonstrate the five profit centers of Real Estate.

The above property is actually one of my own (near identical numbers) where I bought a turnkey property as an experiment to see how it would turn out. What you see is the worst performing property in my portfolio but I just used it as an example.
WanderingDoc wrote:
Tue Dec 04, 2018 10:13 pm
2. No one forces you to buy only in your backyard. This is the 21st century.
Do you know the difference between renting a house and buying a house? Again, see my sig.
You're not renting out your rental property?

WanderingDoc
Posts: 1284
Joined: Sat Aug 05, 2017 8:21 pm

Re: Considering residential real estate investment

Post by WanderingDoc » Thu Dec 06, 2018 1:32 am

michaeljc70 wrote:
Wed Dec 05, 2018 7:44 pm
WanderingDoc wrote:
Wed Dec 05, 2018 2:38 pm
michaeljc70 wrote:
Wed Dec 05, 2018 10:02 am
WanderingDoc wrote:
Tue Dec 04, 2018 10:13 pm

I never said you should rent a place far away from where you live. (see my signature!)

The above example is a turn key property, fully rehabbed and fully managed by the firm for you. Very little work on your part. In my personal portfolio my returns are much better than that since I usually do a cash-out refinance pulling out most or all of my down payment, where the returns are infinity/non-defined since I have none of my money in the deal anymore.

To do a cash-out refinance you would either have to buy below market value or wait for the property to appreciate, usually both if you want to do it in a couple of years or less. I'm not even accounting for finding great deals, financing tricks, or building relationships with other investors or brokers, which will yield even higher returns. I'm talking about a run-of-the-mill property in Middle America to demonstrate the five profit centers of Real Estate.

The above property is actually one of my own (near identical numbers) where I bought a turnkey property as an experiment to see how it would turn out. What you see is the worst performing property in my portfolio but I just used it as an example.
WanderingDoc wrote:
Tue Dec 04, 2018 10:13 pm
2. No one forces you to buy only in your backyard. This is the 21st century.
Do you know the difference between renting a house and buying a house? Again, see my sig.
You're not renting out your rental property?
Why did you quote two of my posts and put them together. Were you trying to make a point? Because you didn't say anything, merely just quoted me.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

michaeljc70
Posts: 3914
Joined: Thu Oct 15, 2015 3:53 pm

Re: Considering residential real estate investment

Post by michaeljc70 » Thu Dec 06, 2018 6:29 am

WanderingDoc wrote:
Thu Dec 06, 2018 1:32 am
michaeljc70 wrote:
Wed Dec 05, 2018 7:44 pm
WanderingDoc wrote:
Wed Dec 05, 2018 2:38 pm
michaeljc70 wrote:
Wed Dec 05, 2018 10:02 am
WanderingDoc wrote:
Tue Dec 04, 2018 10:13 pm

I never said you should rent a place far away from where you live. (see my signature!)

The above example is a turn key property, fully rehabbed and fully managed by the firm for you. Very little work on your part. In my personal portfolio my returns are much better than that since I usually do a cash-out refinance pulling out most or all of my down payment, where the returns are infinity/non-defined since I have none of my money in the deal anymore.

To do a cash-out refinance you would either have to buy below market value or wait for the property to appreciate, usually both if you want to do it in a couple of years or less. I'm not even accounting for finding great deals, financing tricks, or building relationships with other investors or brokers, which will yield even higher returns. I'm talking about a run-of-the-mill property in Middle America to demonstrate the five profit centers of Real Estate.

The above property is actually one of my own (near identical numbers) where I bought a turnkey property as an experiment to see how it would turn out. What you see is the worst performing property in my portfolio but I just used it as an example.
WanderingDoc wrote:
Tue Dec 04, 2018 10:13 pm
2. No one forces you to buy only in your backyard. This is the 21st century.
Do you know the difference between renting a house and buying a house? Again, see my sig.
You're not renting out your rental property?
Why did you quote two of my posts and put them together. Were you trying to make a point? Because you didn't say anything, merely just quoted me.
I said there aren't the same deals on real estate everywhere. You said you don't have to buy in your area. Then you said you never said to buy something far away.
Last edited by michaeljc70 on Thu Dec 06, 2018 7:52 am, edited 1 time in total.

pennywise
Posts: 513
Joined: Sat May 31, 2014 6:22 am

Re: Considering residential real estate investment

Post by pennywise » Thu Dec 06, 2018 7:42 am

WanderingDoc wrote:
Sat Dec 01, 2018 4:42 pm

I have properties that I manage and others with a PM - to date I have not received a call about a leaky toilet in the middle of the night.
If I can do this during residency in a competitive specialty or while 3 weeks in Japan with limited cell service, so can anyone :twisted:
However please realize that as an owner of a rental property you are literally one phone call away from huge problems that can cause tremendous aggravation and expense.

I've written elsewhere on this forum about a situation I'm dealing with now: we own a SFH rental and got a call a few months ago on a Sunday afternoon from the tenant. She had been gone overnight and a valve on a toilet failed, resulting in water gushing uncontrollably into the house for 18 hours. By the time we got the water shut off the entire house was several inches deep in standing water.

It's now mid December. The tenants moved out since the house is uninhabitable so I've lost rent for October, November and this month. Damages are in the mid-5 figures and repairs have not yet begun as I have worked through the insurance claim process. That administrative nightmare has taken enormous amounts of time, energy and patience. This week with the payment imminent I finally got started with my contractor on the repairs for what will be another test of enormous amounts of time, energy and patience. Then I have to get the realtor working to put it back on the market, then deal with evaluating tenants etc. And I'm very fortunate that my homeowner's/landlord policy covers not only the damages but the cost of the remediation (almost $10K) and loss of rental use. Still if I was charging for my time and administrative efforts I'd probably be in negative territory overall--and I have to do it while employed FT at my day job :oops:

My point is that rental property was a great and easy investment for the period in which my tenants sent me a Venmo payment each month and that was the only contact we had. But it took one phone call to tip the balance on landlording into 'omygod this is more stress than I need for the rest of my life' territory. Just a cautionary tale, these kinds of disasters may not be typical but they aren't unheard of either.

Also my experience has been that to be a landlord you have to be fair but firm, and you WILL be dealing with people in ways that are irritating and frustrating. I have to stay calm and tell people no they can't do x or that they have to do Y. I've gotten complaints from the neighbors that the tenants aren't keeping the property clean. I've had a tenant call me because she locked herself out of the house. I've had a tenant complain that the color of the sod laid to replace septic tank work doesn't match the rest of the yard. I've had to repeatedly remind tenants to pay the rent on time--and I'm lucky, I've not yet had a tenant who simply does not pay! As noted above it is not an easy way to invest simply because you become the person who is managing other people's homes, albeit their temporary homes.

On the positive side, the cash flow is great for us as the house has no mortgage. We've used the rent to offset the cost of a mortgage on a dream vacation home. The house is in a neighborhood that is solidly valued and home prices are increasing steadily. So when we sell, we will reap the benefits of that as well as the cash flow we've taken out of the property. On a normal basis, the tenants and I dealt with each other almost never; once a month that Venmo account got replenished and otherwise it was smooth sailing.

For anyone considering residential real estate as an investment, be aware you are getting into a commitment that is or can be far more involved than investing in financial instruments ever will.

CurlyDave
Posts: 755
Joined: Thu Jul 28, 2016 11:37 am

Re: Considering residential real estate investment

Post by CurlyDave » Thu Dec 06, 2018 10:49 am

pennywise wrote:
Thu Dec 06, 2018 7:42 am
...The tenants moved out since the house is uninhabitable so I've lost rent for October, November and this month...I'm very fortunate that my homeowner's/landlord policy covers not only the damages but the cost of the remediation (almost $10K) and loss of rental use.
While I have no doubt that this is a very challenging situation, I don't think that the claim you have lost rent for 3 months is valid when you have loss of use insurance.

The upside to this is that your insurance company is now paying for a substantial upgrade and modernization of your property since a lot of things are ruined and must be replaced with new.

WanderingDoc
Posts: 1284
Joined: Sat Aug 05, 2017 8:21 pm

Re: Considering residential real estate investment

Post by WanderingDoc » Thu Dec 06, 2018 12:53 pm

michaeljc70 wrote:
Thu Dec 06, 2018 6:29 am
WanderingDoc wrote:
Thu Dec 06, 2018 1:32 am
michaeljc70 wrote:
Wed Dec 05, 2018 7:44 pm
WanderingDoc wrote:
Wed Dec 05, 2018 2:38 pm
michaeljc70 wrote:
Wed Dec 05, 2018 10:02 am


Do you know the difference between renting a house and buying a house? Again, see my sig.
You're not renting out your rental property?
Why did you quote two of my posts and put them together. Were you trying to make a point? Because you didn't say anything, merely just quoted me.
I said there aren't the same deals on real estate everywhere. You said you don't have to buy in your area. Then you said you never said to buy something far away.
Read what I said again. I haven't said anything contradictory.

No one forces you to buy only in your backyard. This is the 21st century.

Slowly. Read. That. Also, make the distinction between renting and buying.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

WanderingDoc
Posts: 1284
Joined: Sat Aug 05, 2017 8:21 pm

Re: Considering residential real estate investment

Post by WanderingDoc » Thu Dec 06, 2018 12:56 pm

pennywise wrote:
Thu Dec 06, 2018 7:42 am
WanderingDoc wrote:
Sat Dec 01, 2018 4:42 pm

I have properties that I manage and others with a PM - to date I have not received a call about a leaky toilet in the middle of the night.
If I can do this during residency in a competitive specialty or while 3 weeks in Japan with limited cell service, so can anyone :twisted:
However please realize that as an owner of a rental property you are literally one phone call away from huge problems that can cause tremendous aggravation and expense.

I've written elsewhere on this forum about a situation I'm dealing with now: we own a SFH rental and got a call a few months ago on a Sunday afternoon from the tenant. She had been gone overnight and a valve on a toilet failed, resulting in water gushing uncontrollably into the house for 18 hours. By the time we got the water shut off the entire house was several inches deep in standing water.

It's now mid December. The tenants moved out since the house is uninhabitable so I've lost rent for October, November and this month. Damages are in the mid-5 figures and repairs have not yet begun as I have worked through the insurance claim process. That administrative nightmare has taken enormous amounts of time, energy and patience. This week with the payment imminent I finally got started with my contractor on the repairs for what will be another test of enormous amounts of time, energy and patience. Then I have to get the realtor working to put it back on the market, then deal with evaluating tenants etc. And I'm very fortunate that my homeowner's/landlord policy covers not only the damages but the cost of the remediation (almost $10K) and loss of rental use. Still if I was charging for my time and administrative efforts I'd probably be in negative territory overall--and I have to do it while employed FT at my day job :oops:

My point is that rental property was a great and easy investment for the period in which my tenants sent me a Venmo payment each month and that was the only contact we had. But it took one phone call to tip the balance on landlording into 'omygod this is more stress than I need for the rest of my life' territory. Just a cautionary tale, these kinds of disasters may not be typical but they aren't unheard of either.

Also my experience has been that to be a landlord you have to be fair but firm, and you WILL be dealing with people in ways that are irritating and frustrating. I have to stay calm and tell people no they can't do x or that they have to do Y. I've gotten complaints from the neighbors that the tenants aren't keeping the property clean. I've had a tenant call me because she locked herself out of the house. I've had a tenant complain that the color of the sod laid to replace septic tank work doesn't match the rest of the yard. I've had to repeatedly remind tenants to pay the rent on time--and I'm lucky, I've not yet had a tenant who simply does not pay! As noted above it is not an easy way to invest simply because you become the person who is managing other people's homes, albeit their temporary homes.

On the positive side, the cash flow is great for us as the house has no mortgage. We've used the rent to offset the cost of a mortgage on a dream vacation home. The house is in a neighborhood that is solidly valued and home prices are increasing steadily. So when we sell, we will reap the benefits of that as well as the cash flow we've taken out of the property. On a normal basis, the tenants and I dealt with each other almost never; once a month that Venmo account got replenished and otherwise it was smooth sailing.

For anyone considering residential real estate as an investment, be aware you are getting into a commitment that is or can be far more involved than investing in financial instruments ever will.
Maybe I suggest - get a PM so you can scale your portfolio. One disaster like that won't be stressful to you if you have 9 other cash-flowing properties. I would never self-manage a SFH, a condo is easy to do so since there is no roof, heaters, or other CapEx to worry about.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

michaeljc70
Posts: 3914
Joined: Thu Oct 15, 2015 3:53 pm

Re: Considering residential real estate investment

Post by michaeljc70 » Thu Dec 06, 2018 12:59 pm

WanderingDoc wrote:
Thu Dec 06, 2018 12:53 pm
michaeljc70 wrote:
Thu Dec 06, 2018 6:29 am
WanderingDoc wrote:
Thu Dec 06, 2018 1:32 am
michaeljc70 wrote:
Wed Dec 05, 2018 7:44 pm
WanderingDoc wrote:
Wed Dec 05, 2018 2:38 pm


Do you know the difference between renting a house and buying a house? Again, see my sig.
You're not renting out your rental property?
Why did you quote two of my posts and put them together. Were you trying to make a point? Because you didn't say anything, merely just quoted me.
I said there aren't the same deals on real estate everywhere. You said you don't have to buy in your area. Then you said you never said to buy something far away.
Read what I said again. I haven't said anything contradictory.

No one forces you to buy only in your backyard. This is the 21st century.

Slowly. Read. That. Also, make the distinction between renting and buying.
You need to buy a place to then rent it out. We are talking about rental properties. Not homes to live in. I think everyone knows your stance on rental properties even if they cannot follow your logic.

User avatar
corn18
Posts: 1075
Joined: Fri May 22, 2015 6:24 am

Re: Considering residential real estate investment

Post by corn18 » Thu Dec 06, 2018 1:02 pm

WanderingDoc wrote:
Thu Dec 06, 2018 12:56 pm
Maybe I suggest - get a PM so you can scale your portfolio. One disaster like that won't be stressful to you if you have 9 other cash-flowing properties. I would never self-manage a SFH, a condo is easy to do so since there is no roof, heaters, or other CapEx to worry about.
Huh? What difference does it make if you are self managing a SFH or using a PM? If the a/c goes out, you still have to pay to have it fixed. Or am I missing your point? It's hard to follow your logic sometimes.

WanderingDoc
Posts: 1284
Joined: Sat Aug 05, 2017 8:21 pm

Re: Considering residential real estate investment

Post by WanderingDoc » Thu Dec 06, 2018 1:04 pm

michaeljc70 wrote:
Thu Dec 06, 2018 12:59 pm
WanderingDoc wrote:
Thu Dec 06, 2018 12:53 pm
michaeljc70 wrote:
Thu Dec 06, 2018 6:29 am
WanderingDoc wrote:
Thu Dec 06, 2018 1:32 am
michaeljc70 wrote:
Wed Dec 05, 2018 7:44 pm


You're not renting out your rental property?
Why did you quote two of my posts and put them together. Were you trying to make a point? Because you didn't say anything, merely just quoted me.
I said there aren't the same deals on real estate everywhere. You said you don't have to buy in your area. Then you said you never said to buy something far away.
Read what I said again. I haven't said anything contradictory.

No one forces you to buy only in your backyard. This is the 21st century.

Slowly. Read. That. Also, make the distinction between renting and buying.
You need to buy a place to then rent it out. We are talking about rental properties. Not homes to live in. I think everyone knows your stance on rental properties even if they cannot follow your logic.
When I say renting, I am referring to "renting", ie. renting to live in a place. As opposed to buying a place to live in. See my sig. Its obvious that if you buy a place away from home, its going to be a investment.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

WanderingDoc
Posts: 1284
Joined: Sat Aug 05, 2017 8:21 pm

Re: Considering residential real estate investment

Post by WanderingDoc » Thu Dec 06, 2018 1:06 pm

corn18 wrote:
Thu Dec 06, 2018 1:02 pm
WanderingDoc wrote:
Thu Dec 06, 2018 12:56 pm
Maybe I suggest - get a PM so you can scale your portfolio. One disaster like that won't be stressful to you if you have 9 other cash-flowing properties. I would never self-manage a SFH, a condo is easy to do so since there is no roof, heaters, or other CapEx to worry about.
Huh? What difference does it make if you are self managing a SFH or using a PM? If the a/c goes out, you still have to pay to have it fixed. Or am I missing your point? It's hard to follow your logic sometimes.
You still have to pay, but you don't have to spend your time fielding phone calls, findings and paying contractors, and filling vacancies. That is why I suggested it for them. To scale you need a PM anyway. A 5% or 10% of gross rents for maintenance/repairs and 5% for CapEx should be allocated when you are evaluating your deal. Your tenants are paying your expenses with part of the rent. This is never a surprise. That is why I think its important to distinguish between an investor and an accidental landlord.

As a little more advanced point, CapEx expenses are 0% for condos since your maintenance fees cover 100% of them. Maintenance and repairs I allocate 5%, although its been ~3% across my portfolio.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

User avatar
corn18
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Re: Considering residential real estate investment

Post by corn18 » Thu Dec 06, 2018 1:18 pm

Gotcha. Makes sense.

I am also considering REI. Just started to look into it because of this thread and others. So I logged into BiggerPockets and started reading and downloaded Brandon's book on REI. It was a good read, but I am stuck on the page that asks what my goals are. I wrote them down:

Invest $400k to generate $40,000 / year of rental income in 3 years. Not some hocus pocus appreciation or ROI, but $40,000/yr of net cash flow.

I think it would help to understand why I wrote that. I am 52 and plan to retire @ 55. I can retire @ 55 without changing anything. I may retire @ 55, but I still want to keep doing something. Maybe REI would be it. I wouldn't mind getting into REI as a diversifier and it just looks interesting to me. After all, the zealots make it sound so easy.

So, my actionable question: would it be reasonable to expect to start from zero and have an REI portfolio generating $40k / year in 3 years?

GibsonL6s
Posts: 259
Joined: Tue Aug 29, 2017 12:17 pm

Re: Considering residential real estate investment

Post by GibsonL6s » Thu Dec 06, 2018 4:24 pm

The only way to get close to a 10% ROI is to use leverage and find a value add opportunity, ie rehab, vacant building, significantly below market leases etc. Cap rates on MF properties are between 4 to 7% now, so the numbers today do not allow for this without heavy lifting and leverage.

RE has like stocks occasionally dropped by 30% plus.

If this 400K represents a large portion of your net worth please make sure you are comfortable with this.

michaeljc70
Posts: 3914
Joined: Thu Oct 15, 2015 3:53 pm

Re: Considering residential real estate investment

Post by michaeljc70 » Thu Dec 06, 2018 4:39 pm

GibsonL6s wrote:
Thu Dec 06, 2018 4:24 pm
The only way to get close to a 10% ROI is to use leverage and find a value add opportunity, ie rehab, vacant building, significantly below market leases etc. Cap rates on MF properties are between 4 to 7% now, so the numbers today do not allow for this without heavy lifting and leverage.

RE has like stocks occasionally dropped by 30% plus.

If this 400K represents a large portion of your net worth please make sure you are comfortable with this.
I'll add that where I live, in a big city, there are thousands of people that have brokers/realtors licenses and do this (investment properties) full time. They pay cash undermining most other non-cash offers. Some even have teams of tradespeople to remodel dumpy properties cheaper than I ever could. Getting something below market value is next to impossible. I'm sure there are places where the market is a lot less efficient.

megabad
Posts: 828
Joined: Fri Jun 01, 2018 4:00 pm

Re: Considering residential real estate investment

Post by megabad » Thu Dec 06, 2018 4:55 pm

jeam3131 wrote:
Sat Dec 01, 2018 1:14 pm
I'm considering purchasing a condominium with cash in a college town (professional area, not college kids) that costs $200,000 (including cost for renovations). The property would be valued around $230,000 after renovations. I would like to then rent the property for a steady source of income. I am currently in the 37% federal tax bracket and the state tax is 4.25%.

The following numbers I was thinking are below:
Rent: $1650/month
Property Tax: $375/month
HOA Fee: $200/month
Home insurance: $70/month
Maintenance Cost: $20/month

I would have no plans of selling the property over the next 30 years.

Any thoughts if this is a reasonable idea?
I don't think it is reasonable the way you have framed it. Without leverage, you would be paying >40% marginal tax on income and you won't have a mortgage payment to eat some of that up on Sched E. Equity investing would be far more tax efficient. I would put your cash on cash returns (after increased maintenance and vacancies) at something like 4%. As above, risk free return is over 3% now. You would be counting on outsized real estate appreciation to reward you for the risk which is not something I do. Before I would invest, I would expect such a home to rent for closer to $2.3k per month (I am a fan of 1% rule above in simple rough terms). I like real estate investing but it is a tiny part of my portfolio, I use leverage, and I only invest when the cash return is way higher than 4% (like double or triple that to compensate me for the risk I am taking).

blindsquirrel
Posts: 2
Joined: Sun Apr 22, 2018 12:23 pm

Re: Considering residential real estate investment

Post by blindsquirrel » Thu Dec 06, 2018 7:09 pm

Eh, would pass on that one. College students are vermin as tenants. Do all of your calculations based on 100% financing is a good place to start. If that does not work and you can't get a good premium over risk free returns, do not do it. Leverage is a great tool for real estate. However, it goes both ways. It does magnify your returns but it also greatly increases your risk. See GFC and RE meltdown for examples, the highly leveraged folks were toast.


The following numbers I was thinking are below:
Rent: $1650/month 8% vacancy =$1518
Property Tax: $375/month
HOA Fee: $200/month
Home insurance: $70/month
Maintenance Cost: $20/month Okay what planet is this on? 240 a year for maintenance? Fridge/stove, HW heater, HVAC all never fail? Paint and flooring made of indestructible alloys? No CAPEX ever?
A more reasonable calculation is 1-3% of value of property. Say 1% to be stunningly on the low side or 2000 a year. (not every year but 1 crappy tenant will be waaayyyy more than that. Leaves you at $167 a month.
1650x0.92=1518-375-200-70-167=706 a month. 706*12=100*8472/200000 =4.2% Yes depreciation will offset this and appreciation may make it much better. That is not a good RE investment as you would pay 10.1x gross. I would try my best not to pay more than 5-6x gross unless you are in a very rapidly appreciating market. Not a wizard but we do own and rent out 33 units.

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