Critique this Real Estate investment idea

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Topic Author
get_g0ing
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Critique this Real Estate investment idea

Post by get_g0ing » Thu Feb 07, 2019 11:23 am

Hello,

Please help me understand if I'm on the right track with this thinking or if there are major flaws.

I want to live as an ex-pat starting 2 or 3 years from now.
I want to make a $60K down payment for a $275-300K home in Round Rock or Pflugerville (Texas) with the following reasoning:

While I live as an ex-pat, this 60K will keep working for me in slowly buying the house (i.e. building an asset).
I can ask a management company to take care of renting, maintenance, etc.
In 30 years time (close to retirement age), I'll have a paid off home that I can either: live in or sell.
The value could be around $728,000 (assuming 3% appreciation per year).

I am making these assumptions:
Other than the 60K down payment (+ initial costs), I won't need to pay any more out of pocket.
I can use the rent to pay for: mortgage, taxes, repairs, management company fees.

Questions:
Is this doable (or a decent idea) or wishful thinking?
What are the flaws or what am I not considering?

Is there a better use of $60K as a growth investment?
(Assuming 8% average S&P 500 return over 30 years, this would be about $600,000K)

Thank you

balbrec2
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Re: Critique this Real Estate investment idea

Post by balbrec2 » Thu Feb 07, 2019 11:35 am

Your idea is based on some optimistic assumptions. Please provide more
info regarding your current age and financial assets and liabilities.
help us help you.

bloom2708
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Re: Critique this Real Estate investment idea

Post by bloom2708 » Thu Feb 07, 2019 11:45 am

What if the renter doesn't pay?
What if the unit is not rented for 2 or 3 months?
What if the renter wrecks the carpet or puts holes in the walls?
What if the AC unit goes out mid-summer?
What if the roof needs to be replaced?
When do you raise rates? How much?
What if property taxes continue to go up at a fast pace?

Who will find/screen renters? How will you clean and fix the unit between renters? Who will manage plumbing issues?

These things are tough when you are within driving distance. If you pay a property manager, that will eat into your slim profit.

Rental real estate is a second/part-time job. It should be thought of as a small business that requires work/checking/fixing/attention.

Your numbers are very "happy path". Find a great renter. They stay for 10 years and care for the house like they own it and make all payments on time. It might happen.

Stock investments are passive. 8% is much too high of an expected return.
"A Stoic believes they don’t control the world around them, only how they respond--and that they must always respond with courage, temperance, wisdom, and justice." --Daily Stoic

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cheese_breath
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Re: Critique this Real Estate investment idea

Post by cheese_breath » Thu Feb 07, 2019 11:46 am

balbrec2 wrote:
Thu Feb 07, 2019 11:35 am
Your idea is based on some optimistic assumptions....
A couple that immediately come to mind...
... 3% appreciation per year... A lot can happen to a neighborhood in 30 years that can affect home values.
... You'll always be able to find renters to pay your expenses.
The surest way to know the future is when it becomes the past.

onourway
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Re: Critique this Real Estate investment idea

Post by onourway » Thu Feb 07, 2019 11:55 am

Agreed that your outlook appears overly optimistic.

- The fact that you are buying a home that you can eventually live in should not be part of this calculation. A lot will change over 30 years. You probably will not want to live in a 30-year old rental, for one thing.

- Your management company will take a sizable portion of your profits. They have no incentive to take care of maintenance issues cheaply because you are paying the bills. All the more so because you live overseas.

- There is no guarantee that you will make your $60k down payment and not have any further costs out of pocket. What happens if within the first year or two you have a few months of vacancies, renters do some damage, and you end up needing a new roof or central AC? You'll cover that out of pocket.

- 3% appreciation is speculation. A lot can happen in 30 years. You could do better than that and end up thinking this was your best investment ever. Or the local market could tank and you'd be under-water for years, with a property draining cash monthly due to lower rents that you eventually sell at a loss.

While the 8% you assume in 30-year returns for stocks is also optimistic, without some other mitigating factor, it's hard to see how this is a better option than an investment you can truly ignore for 30 years.

ETadvisor
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Re: Critique this Real Estate investment idea

Post by ETadvisor » Thu Feb 07, 2019 11:58 am

get_g0ing wrote:
Thu Feb 07, 2019 11:23 am
The value could be around $728,000 (assuming 3% appreciation per year).

I am making these assumptions:
Other than the 60K down payment (+ initial costs), I won't need to pay any more out of pocket.
I can use the rent to pay for: mortgage, taxes, repairs, management company fees.

Questions:

What are the flaws or what am I not considering?


Thank you
The house can also depreciate.

The rent may equal the PITI. What happens when AC breaks or need to replace roof? What happens if you get a problem renter. You will need to pay more out of pocket expenses.

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Wiggums
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Re: Critique this Real Estate investment idea

Post by Wiggums » Thu Feb 07, 2019 12:14 pm

In a thirty year period, you will need to spend money on big ticket items such as roof, furnace, air conditioning, kitchen appliances to mention a few. You will paying a higher rate to insure the house because it is not your primary residence. Should the renter do an abnormal amount of damage to the house, I don’t think the management company will oversee this type of issue for their basic management fee. In addition, they just call their preferred vendors and you pay the bill. Being an an absent owner is not something I would do.

Good luck to you.

JoeRetire
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Re: Critique this Real Estate investment idea

Post by JoeRetire » Thu Feb 07, 2019 12:34 pm

get_g0ing wrote:
Thu Feb 07, 2019 11:23 am
I am making these assumptions:
Other than the 60K down payment (+ initial costs), I won't need to pay any more out of pocket.
I can use the rent to pay for: mortgage, taxes, repairs, management company fees.

assuming 3% appreciation per year

Assuming 8% average S&P 500 return over 30 years
What have you done to test the validity of these assumptions?

What assumption are you making about inflation over the next 30 years?

Jimmie
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Re: Critique this Real Estate investment idea

Post by Jimmie » Thu Feb 07, 2019 12:41 pm

Wiggums wrote:
Thu Feb 07, 2019 12:14 pm
In a thirty year period, you will need to spend money on big ticket items such as roof, furnace, air conditioning, kitchen appliances to mention a few.
+1

And many of these more than once in a 30 year period. You may get 30 years out of a new roof, but all the others may need replacement at least twice. I typically get only 7 to 10 years out of a hot water heater, so you might need that 3 or 4 times.

The longevity will also be diminished because a renter is more likely to abuse the appliances over time, i.e. overload the washer, not change air filters regularly, etc.

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Blueskies123
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Re: Critique this Real Estate investment idea

Post by Blueskies123 » Thu Feb 07, 2019 1:00 pm

I can speak to this a little because I lived in England for three years while keeping my house in Florida. I rented the house because I wanted to come back to something.

1) While I was gone a major hurricane came through and while my house only had minor damage my tenants lost their businesses and stopped paying the rent.
2) Booting people out and renting to people I never met was not what I anticipated.
3) When I moved back I wanted to move to another area so we quickly sold the house and moved.

I would not keep a house as an expat for 30 years unless I had a family member that I knew would take care of everything but then who knows what will happen in 30 years.

An alternative might be a diversified stock portfolio. Are you really sure you are leaving for 30 years? Have you ever lived overseas for any period of time? Are you going to lose out on social security? Medical? What if you get sick?

yogithor
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Re: Critique this Real Estate investment idea

Post by yogithor » Thu Feb 07, 2019 1:43 pm

Look for 2 houses in the 150K range, put 20K down on each, do 10K worth of improvements designed to reduce maintenance costs over the next few years, then rent them both. Get a good property manager. It'll likely cost you 10% but it's worth it, especially if you are not local. You're close to Austin and more hurricanes will be coming for Houston with an ever increasing number of climate migrants heading your way over the next decade.If you buy smart, you will have a solid plan. You can always sell them both later down the road and buy the house you want, although, once you get used to the "mailbox money" (predicated on buying smart and managing well), you'll be happy to keep them.

ahnathan
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Re: Critique this Real Estate investment idea

Post by ahnathan » Thu Feb 07, 2019 2:36 pm

This is also better answered with knowledge about what other assets you have.

If this is the bulk of your savings it’s a terrible and very undiversified plan. Like 1000 things can go wrong.

If it represents a much smaller % of your current savings/investments it has more legs.

Topic Author
get_g0ing
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Re: Critique this Real Estate investment idea

Post by get_g0ing » Fri Feb 08, 2019 1:05 am

bloom2708 wrote:
Thu Feb 07, 2019 11:45 am
What if the renter doesn't pay?
What if the unit is not rented for 2 or 3 months?
What if the renter wrecks the carpet or puts holes in the walls?
What if the AC unit goes out mid-summer?
What if the roof needs to be replaced?
When do you raise rates? How much?
What if property taxes continue to go up at a fast pace?

Who will find/screen renters? How will you clean and fix the unit between renters? Who will manage plumbing issues?

These things are tough when you are within driving distance. If you pay a property manager, that will eat into your slim profit.

Rental real estate is a second/part-time job. It should be thought of as a small business that requires work/checking/fixing/attention.

Your numbers are very "happy path". Find a great renter. They stay for 10 years and care for the house like they own it and make all payments on time. It might happen.

Stock investments are passive. 8% is much too high of an expected return.
Good questions. Thanks for showing me my blind spots.

My idea is to hire a management company to take care of most of what you mentioned.

Your questions now make me want to figure out how much I would need to pay out of pocket per year - realistically. Of course, many things *could* happen and even the best plans could fail (i.e. some black swan type situation). So I want to focus on what is usual/common to happen in the scenario I laid out.

Thoughts?

Topic Author
get_g0ing
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Re: Critique this Real Estate investment idea

Post by get_g0ing » Fri Feb 08, 2019 1:14 am

cheese_breath wrote:
Thu Feb 07, 2019 11:46 am
balbrec2 wrote:
Thu Feb 07, 2019 11:35 am
Your idea is based on some optimistic assumptions....
A couple that immediately come to mind...
... 3% appreciation per year... A lot can happen to a neighborhood in 30 years that can affect home values.
Is the 3% appreciate inflated?

I agree anything *can* happen and that it might be useful to keep this in the back of your mind, but in any investment decision we have to make some sort of assumption. So I'm looking to see what's the likely outcome, or even a range of realistic outcomes.
... You'll always be able to find renters to pay your expenses.
Fair point. So people who do what I'm considering, is there a rule-of-thumb amount to keep as backup for situations like this?

Topic Author
get_g0ing
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Re: Critique this Real Estate investment idea

Post by get_g0ing » Fri Feb 08, 2019 1:34 am

onourway wrote:
Thu Feb 07, 2019 11:55 am
Agreed that your outlook appears overly optimistic.

- The fact that you are buying a home that you can eventually live in should not be part of this calculation. A lot will change over 30 years. You probably will not want to live in a 30-year old rental, for one thing.
Hi, thanks for comments. Can you please explain the above a little more.
onourway wrote:
Thu Feb 07, 2019 11:55 am
- There is no guarantee that you will make your $60k down payment and not have any further costs out of pocket. What happens if within the first year or two you have a few months of vacancies, renters do some damage, and you end up needing a new roof or central AC? You'll cover that out of pocket.
Fair point. So people who already do what I'm considering, is there a rule-of-thumb amount to keep as backup for situations like this?
- 3% appreciation is speculation. A lot can happen in 30 years. You could do better than that and end up thinking this was your best investment ever. Or the local market could tank and you'd be under-water for years, with a property draining cash monthly due to lower rents that you eventually sell at a loss.

While the 8% you assume in 30-year returns for stocks is also optimistic, without some other mitigating factor, it's hard to see how this is a better option than an investment you can truly ignore for 30 years.
I did some googling on this. Sounds like a more reasonable 30-year stock market return would be 6%. Would you agree?
That would take 60K to about 345K.
For home appreciation in Pflugerville or Round Rock region, if I use even 1% appreciation, that makes a 300K home worth about 404K. Still more than stock market. Sounds like about 60K buffer before both are equal.

Am I making a glaring error in these calculations?

Topic Author
get_g0ing
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Re: Critique this Real Estate investment idea

Post by get_g0ing » Fri Feb 08, 2019 1:58 am

ETadvisor wrote:
Thu Feb 07, 2019 11:58 am
get_g0ing wrote:
Thu Feb 07, 2019 11:23 am
The value could be around $728,000 (assuming 3% appreciation per year).

I am making these assumptions:
Other than the 60K down payment (+ initial costs), I won't need to pay any more out of pocket.
I can use the rent to pay for: mortgage, taxes, repairs, management company fees.

Questions:

What are the flaws or what am I not considering?


Thank you
The house can also depreciate.
By depreciate you mean, a 300K house today would be worth less than 300K after 30 years?
Asking to clarify for my own understanding because I'm new to some of the terms and concepts.

If so, I'm assuming that this while possible, would be unlikely, so I won't worry about that. If most folks claim that this is actually likely, then I would consider this possibility.

It's the same with stocks. All the while saying that no one knows the future, we still invest in the market, because (as I understand) we expect a decent return. Like maybe 6%. Of course the return *could* be zero or negative (we have no guarantee that it can't), but we don't consider that very likely. Should the same apply to buying a home?

Am I very wrong/fallacious in thinking like I stated above?

The rent may equal the PITI.
I suppose you mean "rent may *not equal the PITI"?
I just googled that term, so now I know what it means.

I guess this would be a question for rental home owners:
Is it likely or common that the PITI + management fee (my case) exceeds the rental income?
And, over the year or years, is your net cash flow usually negative? i.e. are you having to spend out of pocket?

Topic Author
get_g0ing
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Re: Critique this Real Estate investment idea

Post by get_g0ing » Fri Feb 08, 2019 2:08 am

JoeRetire wrote:
Thu Feb 07, 2019 12:34 pm
get_g0ing wrote:
Thu Feb 07, 2019 11:23 am
I am making these assumptions:
Other than the 60K down payment (+ initial costs), I won't need to pay any more out of pocket.
I can use the rent to pay for: mortgage, taxes, repairs, management company fees.

assuming 3% appreciation per year

Assuming 8% average S&P 500 return over 30 years
What have you done to test the validity of these assumptions?

What assumption are you making about inflation over the next 30 years?
I'm getting feedback from my trustworthy BHs on the validity of the assumptions. Do you have other ideas on what else to do, to make an educated (not perfect) decision and inform myself. I am wary of random google searches and blogs, that I might fill myself with disknowledge or misinformation (misleading/unrealistic advice), while thinking that I am making myself informed.

On your second question:
I am ignoring inflation, because it would be the same whether I buy a rental home or do something else.
Am I mistaken in doing so?

jminv
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Re: Critique this Real Estate investment idea

Post by jminv » Fri Feb 08, 2019 5:31 am

As an expat, I would not do this. It would complicate your life and shows me that you are focused on property investments (your 'build an asset remark'), rather than your liquid investments. It would be better for you in the long run to get in the habit of investing in liquid assets (monthly) and get used to the idea of having marked to market investments. This will help you make the plunge and then continue it through your paycheck each month. I've seen a lot of expats that save a lot of money but it's all in cash or, if not cash, property. Very few with stocks or bonds. It seemed to me to be an issue of not knowing what to do with their money. The few that did, did so because it was something they did before.

Another issue is that you haven't started in your new career yet. If you buy the house in the expectation of working abroad and then that job doesn't materialize, will this affect your ability to cover the mortgage payments if it's vacant? Or, if you go abroad and the job doesn't work out.

onourway
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Re: Critique this Real Estate investment idea

Post by onourway » Fri Feb 08, 2019 8:43 am

get_g0ing wrote:
Fri Feb 08, 2019 1:34 am
onourway wrote:
Thu Feb 07, 2019 11:55 am
Agreed that your outlook appears overly optimistic.

- The fact that you are buying a home that you can eventually live in should not be part of this calculation. A lot will change over 30 years. You probably will not want to live in a 30-year old rental, for one thing.
Hi, thanks for comments. Can you please explain the above a little more.
onourway wrote:
Thu Feb 07, 2019 11:55 am
- There is no guarantee that you will make your $60k down payment and not have any further costs out of pocket. What happens if within the first year or two you have a few months of vacancies, renters do some damage, and you end up needing a new roof or central AC? You'll cover that out of pocket.
Fair point. So people who already do what I'm considering, is there a rule-of-thumb amount to keep as backup for situations like this?
- 3% appreciation is speculation. A lot can happen in 30 years. You could do better than that and end up thinking this was your best investment ever. Or the local market could tank and you'd be under-water for years, with a property draining cash monthly due to lower rents that you eventually sell at a loss.

While the 8% you assume in 30-year returns for stocks is also optimistic, without some other mitigating factor, it's hard to see how this is a better option than an investment you can truly ignore for 30 years.
I did some googling on this. Sounds like a more reasonable 30-year stock market return would be 6%. Would you agree?
That would take 60K to about 345K.
For home appreciation in Pflugerville or Round Rock region, if I use even 1% appreciation, that makes a 300K home worth about 404K. Still more than stock market. Sounds like about 60K buffer before both are equal.

Am I making a glaring error in these calculations?
For the first point I simply mean that your focus should not be on buying a property now because you think you might want to live in it 30 years from now - your focus should be on making the investment that is best for your situation. In 30 years you can then use the proceeds from that investment to buy the property you want then.

6% for the stock market is perfectly reasonable. We don't know what would be reasonable for property appreciation on the local scale - but we do know that on the national scale, over long time periods, property values essentially increase with the inflation rate. Given that, it's certainly possible that your 1% appreciation rate is too optimistic in Real (that is, inflation adjusted, numbers). Many people here use ~3% as a Real long term appreciation rate for stocks, even though in the US it has historically been better than that.

onourway
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Re: Critique this Real Estate investment idea

Post by onourway » Fri Feb 08, 2019 8:49 am

get_g0ing wrote:
Fri Feb 08, 2019 1:58 am
Is it likely or common that the PITI + management fee (my case) exceeds the rental income?
And, over the year or years, is your net cash flow usually negative? i.e. are you having to spend out of pocket?
It entirely depends on how good a deal you get on the property, how much you pay for management, and how lucky you are with tenants/major repairs. People who are serious and realistic about property ownership will tell you that it's all about what you pay for the property, and in much of the country, there are few good deals to be had at the moment. They will also tell you that property management fees tend to eat up a significant portion of the positive cash-flow - and with you as an over-seas owner, with just a single property, this gets all the more complicated. You will be charged an arm and a leg considering the management company will have to do everything for you. If you talk to people who have owned rental properties, especially single family homes, it is not at all uncommon to hear they have negative cash flow.

I would split your decision into two parts. 1) Is owning a rental property while you reside overseas a good investment idea? Most here will probably say no, due to the hassle factor and risk alone. 2) If you decide it is an option you'd like to pursue, you need to start shopping for properties where you can start running some real numbers by the experienced real estate folks here.

Good luck!

Rus In Urbe
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Re: Critique this Real Estate investment idea

Post by Rus In Urbe » Fri Feb 08, 2019 9:23 am

+1

IMHO you will pay an arm and a leg.
My idea is to hire a management company to take care of most of what you mentioned.
This strikes me as overly optimistic. As others have pointed out, your plan to hold real estate as a kind of anchor is extremely risky and so much can go wrong. I agree with others that you would be far safer and better diversified with liquidity and with equity/bond investments.

After reading through this thread and your responses, I hope you don't mind if I suggest that you ask yourself if there is not some other reason for needing to hold a piece of real estate while you are living the ex-pat life? Every one of us has vulnerabilities that can lead us to make financial moves that appear unwise in the strictest sense. After reading so many BHs pointing out all kinds of practical difficulties with this idea, I would be asking myself why I might be so attracted to keeping ahold of (and paying for) a house to eventually live in. It strikes me that a house (home) can be a powerful symbol providing a sense of security, particularly if living abroad, even if it may not be a wise move in purely rational or financial terms. If a kind of emotional attachment is an X factor in all this, it is best to be aware and account for it. Sometimes an X factor takes precedent, but you should go into such a calculation with eyes wide open. I could be completely wrong about all this of course, but it's just something to perhaps consider . . .
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Jack FFR1846
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Re: Critique this Real Estate investment idea

Post by Jack FFR1846 » Fri Feb 08, 2019 9:33 am

Sorry, as I see it you will continually lose money until you've had it, then you'll sell at a loss.

If you put the money into the S & P 500, you will make money, it won't put holes in your walls and steal all the light bulbs on the way out the door and won't fail to pay dividends periodically.
Bogle: Smart Beta is stupid

renue74
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Re: Critique this Real Estate investment idea

Post by renue74 » Fri Feb 08, 2019 9:34 am

I'm a landlord. Been one for 5 years. I'm handy and fix things myself on my 5 houses.

I can tell you this:

• Absentee landlording will suck. If you don't find a good property manager, you will have problems.
• Abesentee landlords always be premium prices for work completed. It's hard to shop around.
• If you're keeping a house for 30 years, you have to budget for CapEx expenditures. Capital Expenditures such as HVAC, Roof, etc.

People are innately dirty. They just are. It seems like most tenants I have had over my 5 year period are dirty and you have to end up paying people to clean out properties or do it yourself.

You won't make as much money as an absentee landlord.

If you're buying a $275K house, according to the 1% benchmark (rough estimate), you should get $2750/month in rent. That's a pretty high bar to set in most areas of the country. Higher rents will have higher vacancy percentages. (One should account for 8% vacancy per year...which is about 1 month. So if you have a tenant who leaves, it's going to take you at least a month to reset the home and find a tenant.)

I wouldn't be an absentee landlord ever. My plan is to have rentals until 3 years out from retirement and then slowly sell them off. I might have a few in retirement, but that depends on our travel plans.

WhyNotUs
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Re: Critique this Real Estate investment idea

Post by WhyNotUs » Fri Feb 08, 2019 9:35 am

Too many blanks in your picture to have an opinion. You have more work to do.

Knowns:
You have a downpayment of $60k
You have a price range of $275-300k
You have a geographic area identified for the investment
You will have a property manager (let's assume 8% of income, hey wait a minute they are earning more than you on this deal :-))

Unknowns- or at least you did not share them
Interest rate in three years
Rents for similar properties
Net Operating Income
Reasonable reserve
Tax implications for non-resident (maybe you have researched already)

Unknowables- uncontrollable
Appreciation- 3% does not seem like an unrealistic rate
Future taxation policies
Bad renters
Changes to tenant law
Hazards
I own the next hot stock- VTSAX

123
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Re: Critique this Real Estate investment idea

Post by 123 » Fri Feb 08, 2019 10:47 am

get_g0ing wrote:
Fri Feb 08, 2019 1:05 am
...My idea is to hire a management company to take care of most of what you mentioned...
The quality of these kind of hired services are very dependent on the actual person that gets assigned to your account. Turnover (new hires, retirements, departures) in the management company will impact the service (if any) you receive. The management company itself may go out of business or be acquired during your absence. How will you monitor the performance of the management company you select and what mechanisms will you have to select and vet a replacement management company while you are overseas?
The closest helping hand is at the end of your own arm.

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mhadden1
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Re: Critique this Real Estate investment idea

Post by mhadden1 » Fri Feb 08, 2019 11:33 am

I fear that this idea has not been sufficiently savaged. Honestly, it is so terrible that it boggles the mind. Dozens of people have carefully explained why, already, so I will not bother, except for this one small pile-on.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

zeal
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Re: Critique this Real Estate investment idea

Post by zeal » Fri Feb 08, 2019 4:22 pm

+1 "Sounds like a headache, don't do it."

I've never heard of anyone recommending buying rental property in a country you don't live in.

Maybe if you are wealthy & it's a tiny blip on your net worth, but it doesn't seem like that's the case here. You're taking on much higher risk for slightly higher return (this is if I'm using your numbers--numbers that others on this topic have called questionable). I'd rather take the moderate return, moderate risk, and peace of mind. Stay the course.

AerialWombat
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Re: Critique this Real Estate investment idea

Post by AerialWombat » Fri Feb 08, 2019 4:40 pm

I spent three years abroad in my mid-30’s. I currently own multiple rental properties. I would not do what you are proposing. Stick the money in a good index fund, get on a plane, and go have a ball.

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4nursebee
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Re: Critique this Real Estate investment idea

Post by 4nursebee » Fri Feb 08, 2019 5:03 pm

Sniff sniff
Fail
4nursebee

are_cynic
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Re: Critique this Real Estate investment idea

Post by are_cynic » Fri Feb 08, 2019 5:13 pm

This is a balanced look at doing something like you are suggesting. Keep in mind the author has a decade of experience. https://www.coachcarson.com/landlording-101/

One thing you are missing is taxes. $728k in real estate sold does not get taxed the same as $600k in S&P. You don’t just sell the house and have the proceeds free and clear; also, as has been pointed out, depreciation taken over the next 30 years will lower the cost basis of the house and give you an even larger tax bill.

An option, as you pointed out, is to live in the house, which would not entail selling. I will pose a question to which I do not know the answer- if you move back after 30 years, live in the house for two years, and then sell, would this be taxed under the much friendlier circumstances of the sale of a personal residence?
"Invert, always invert" ~Carl Jacobi

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Davinci
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Re: Critique this Real Estate investment idea

Post by Davinci » Fri Feb 08, 2019 8:15 pm

I can ask a management company to take care of renting, maintenance, etc.
Be aware that this will take a big hit on your returns, most people make money on RE when they manage their own properties as handy man/women, realtors, even RE law.
" Simplicity is the ultimate sophistication" Leonardo Da Vinci.

JoeRetire
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Re: Critique this Real Estate investment idea

Post by JoeRetire » Sun Feb 10, 2019 6:26 pm

get_g0ing wrote:
Fri Feb 08, 2019 2:08 am
JoeRetire wrote:
Thu Feb 07, 2019 12:34 pm
get_g0ing wrote:
Thu Feb 07, 2019 11:23 am
I am making these assumptions:
Other than the 60K down payment (+ initial costs), I won't need to pay any more out of pocket.
I can use the rent to pay for: mortgage, taxes, repairs, management company fees.

assuming 3% appreciation per year

Assuming 8% average S&P 500 return over 30 years
What have you done to test the validity of these assumptions?

What assumption are you making about inflation over the next 30 years?
I'm getting feedback from my trustworthy BHs on the validity of the assumptions. Do you have other ideas on what else to do, to make an educated (not perfect) decision and inform myself. I am wary of random google searches and blogs, that I might fill myself with disknowledge or misinformation (misleading/unrealistic advice), while thinking that I am making myself informed.

On your second question:
I am ignoring inflation, because it would be the same whether I buy a rental home or do something else.
Am I mistaken in doing so?
I think you are making a lot of guesses. And over a 30 year period I'm guessing that not all of your assumptions would hold.

In general home appreciation tends to approximate inflation. But real estate is hyper-local. And rentals are as well.

Good luck.

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