Can i rely on rental property?

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Topic Author
Neus
Posts: 117
Joined: Fri Sep 22, 2017 2:12 am

Re: Can i rely on rental property?

Post by Neus » Thu Mar 14, 2019 9:47 am

renue74 wrote:
Thu Mar 14, 2019 8:07 am
Neus wrote:
Wed Mar 13, 2019 9:33 pm
renue74 wrote:
Wed Mar 13, 2019 1:11 pm
Here's the deal....nobody says it, but it needs to be said:

People are inherently dirty. Tenants even more so. If you buy a rental property, you ensure the systems are working properly (plumbing, HVAC, electrical)...and leave it alone. If you make it nice, it won't be nice in 5 years.

I live in an area where I can be $50K rental houses...but they look like $50K rental houses. But, gentrification is occurring and over the next 10 years, I would expect those rental houses would be $100K or more. Lack of inventory and these types of homes work well for first time home buyers in the south.

So my plans are to let it ride for rentals for 8 years or so....spend some time completely rehabbing them and then selling them to owner occupants.

Does that sound like investing? Not really...it's not. It's a business and it sucks up your time. For me...I love learning and doing building trades. But I don't love doing them for people who don't respect it...and that's what tenants do. (6 year landlord...give me another 8 and I'm cashing out)
Thank you for your insight

Is there any particular reason for "8" years?
My personal plan....

I'm 45. I plan to retire when I'm 55. Holding rental property for 8 years more years. Then slowly getting rid of tenants, fix & flip to sell off properties over 2 years....that get's me to 55. I have friends how have been in rentals for 10-20 years. Eventually you get tired of it and want out. When they try to sell their portfolio of homes (10-15 homes each), it has taken them about 2-3 years to fully liquidate all their properties.
I see

Yes, totally in the same boat

Thank you for the explanation

cheezit
Posts: 255
Joined: Sat Jul 14, 2018 7:28 pm

Re: Can i rely on rental property?

Post by cheezit » Fri Mar 15, 2019 10:28 am

For someone on the other side of this equation, thank you all the landlords (current and former) here for the insight you have provided. I'm morbidly curious what region people own properties in where the prevailing rent increases by 9.1% annually, and I also am glad that I just renewed my 2-year lease for another two years.

Thankfully, nobody has yet suggested the sort of tenant screening procedures that some landlords were trying the last time my wife and I were in the market, namely the "identity theft starter kit" where in addition to submitting the normal references and income verification and submitting to the quasi-normal credit check they also want the prospective tenant to give them comprehensive information on assets including institutions, account numbers (plus routing numbers where applicable), balances etc. Obviously in those situations we politely smiled and nodded before dropping the application in the circular file on our way out the door, and good luck with the tenants who cooperate with such a process.

dbr
Posts: 30616
Joined: Sun Mar 04, 2007 9:50 am

Re: Can i rely on rental property?

Post by dbr » Fri Mar 15, 2019 11:44 am

cheezit wrote:
Fri Mar 15, 2019 10:28 am
For someone on the other side of this equation, thank you all the landlords (current and former) here for the insight you have provided. I'm morbidly curious what region people own properties in where the prevailing rent increases by 9.1% annually, and I also am glad that I just renewed my 2-year lease for another two years.

Thankfully, nobody has yet suggested the sort of tenant screening procedures that some landlords were trying the last time my wife and I were in the market, namely the "identity theft starter kit" where in addition to submitting the normal references and income verification and submitting to the quasi-normal credit check they also want the prospective tenant to give them comprehensive information on assets including institutions, account numbers (plus routing numbers where applicable), balances etc. Obviously in those situations we politely smiled and nodded before dropping the application in the circular file on our way out the door, and good luck with the tenants who cooperate with such a process.
Of course anyone you write a check to has the institution, account name, account number, and routing number of your account. In the same way anytime you use a credit card online or otherwise the merchant has your institution, name, account number, address and phone number, and CCV code.

I agree asking for a dossier of all your accounts is over the top, but these data items are not exactly confidential.

Streptococcus
Posts: 307
Joined: Thu Jan 03, 2013 12:17 am

Re: Can i rely on rental property?

Post by Streptococcus » Fri Mar 15, 2019 12:24 pm

Neus wrote:
Mon Mar 11, 2019 11:58 pm
So i wonder how rental property fares in term of income reliability in case my etf stock holding jitters

So far the issue is:
1) I find it difficult to raise rent even to match inflation rate
2) The return hasn’t consider the depreciation of the building
3) I’m not sure how long the building will last before need to rebuild

But selling all rentals and went all paper (stock and bond) also doesn’t feel right

Any thoughts?
I consider myself a boglehead and a heavy real estate investor. By the time I retire in a few years, I'll probably own between 30-50 single family rentals. And my plan as of now is to NEVER sell them. There is a huge tax benefit to your descendants when you die while owing rentals.
My 2 cents:
1. Don't listen to those who tell you that real estate is a lot of work. They probably don't own rentals. All of my properties are professionally managed. I do nothing.

2. The only real estate job that I do is seeking new properties, buying them. From there, I have a team that does the rest: that includes a contractor, a designer, a property manager, my bank, a lawyer and a CPA. My job is to oversee everything. After 2-3 properties, everything runs smooth and it's not a lot of work. Once the property is rented, I only hear about it once every 3-6 months. It is pretty passive.

3. People dont understand the difference between managing your own properties (that's a job) and buying properties that are managed professionally (that's an investment). If you self manage, your ROI will increase, sometimes significantly at the expense of your time and effort.

4. You should ALWAYS RAISE RENT EVERY YEAR. 3-5% increase. That's usually 40-50$ increase. if you don't you don't know what you're doing. I tell you by experience that if you do it right, your tenants will be fine with it. The problem occurs if you increase by 10%+

5. 5% ROI is too low. If I had that kind of return I would stick to stocks. For me, 12% is the minimum

6. Real estate is a great diversifyer. It is a steady income. If you rent houses that are above starter houses but not too luxurious, and you do it right, you will never run out of tenants. When the economy will go deep south, previously well off families that are suffering from the economy, who lost their homes, will rent your homes. When the economy is thriving, middle class families will rent your homes. 3BR 2BA are the sweet spot. A lot of my tenants are newly divorced individuals who used to live if way better homes and will need a few years to recover economically. Thats how life is. People fall and rise again. And my homes are the perfect spots for them.

7. I always use the depreciation tax deduction.
8. I advise to visit Biggerpockets.com

Topic Author
Neus
Posts: 117
Joined: Fri Sep 22, 2017 2:12 am

Re: Can i rely on rental property?

Post by Neus » Sat Mar 16, 2019 4:49 am

Streptococcus wrote:
Fri Mar 15, 2019 12:24 pm
Neus wrote:
Mon Mar 11, 2019 11:58 pm
So i wonder how rental property fares in term of income reliability in case my etf stock holding jitters

So far the issue is:
1) I find it difficult to raise rent even to match inflation rate
2) The return hasn’t consider the depreciation of the building
3) I’m not sure how long the building will last before need to rebuild

But selling all rentals and went all paper (stock and bond) also doesn’t feel right

Any thoughts?
I consider myself a boglehead and a heavy real estate investor. By the time I retire in a few years, I'll probably own between 30-50 single family rentals. And my plan as of now is to NEVER sell them. There is a huge tax benefit to your descendants when you die while owing rentals.
My 2 cents:
1. Don't listen to those who tell you that real estate is a lot of work. They probably don't own rentals. All of my properties are professionally managed. I do nothing.

2. The only real estate job that I do is seeking new properties, buying them. From there, I have a team that does the rest: that includes a contractor, a designer, a property manager, my bank, a lawyer and a CPA. My job is to oversee everything. After 2-3 properties, everything runs smooth and it's not a lot of work. Once the property is rented, I only hear about it once every 3-6 months. It is pretty passive.

3. People dont understand the difference between managing your own properties (that's a job) and buying properties that are managed professionally (that's an investment). If you self manage, your ROI will increase, sometimes significantly at the expense of your time and effort.

4. You should ALWAYS RAISE RENT EVERY YEAR. 3-5% increase. That's usually 40-50$ increase. if you don't you don't know what you're doing. I tell you by experience that if you do it right, your tenants will be fine with it. The problem occurs if you increase by 10%+

5. 5% ROI is too low. If I had that kind of return I would stick to stocks. For me, 12% is the minimum

6. Real estate is a great diversifyer. It is a steady income. If you rent houses that are above starter houses but not too luxurious, and you do it right, you will never run out of tenants. When the economy will go deep south, previously well off families that are suffering from the economy, who lost their homes, will rent your homes. When the economy is thriving, middle class families will rent your homes. 3BR 2BA are the sweet spot. A lot of my tenants are newly divorced individuals who used to live if way better homes and will need a few years to recover economically. Thats how life is. People fall and rise again. And my homes are the perfect spots for them.

7. I always use the depreciation tax deduction.
8. I advise to visit Biggerpockets.com
Thank you very much for your experienced view

I’ll check biggerpocket.com, i think i have listen to the audiobook before

Thank you for your insight on starter houses

Regarding your return, did u calculate by current market value or acquiring value? My 5% return is on current market value. And does your rental is landed houses or apartment unit? As there will be different return on land appreciation

I can actually raise rent following inflation but the vacancy rate will drop

My i ask how is your total asset allocation on stock, bond, and real estate?

On holding for a long long time, isn’t the building need to be rebuild every 20-30 years? Which means more capital reinvestment

petulant
Posts: 737
Joined: Thu Sep 22, 2016 1:09 pm

Re: Can i rely on rental property?

Post by petulant » Sat Mar 16, 2019 6:58 am

dbr wrote:
Tue Mar 12, 2019 9:15 am
Thesaints wrote:
Tue Mar 12, 2019 1:38 am
Yes, income from (and appreciation of) rentals is not a sure thing. The one thing that is sure, though, is that they will require work on your part, as opposed as a Total Stock Market ETF, which will require virtually none.
For sure. Rental property is a perfectly reasonable investment and holding of assets. As suggested above it is also really a business that you have to run. There is risk to both the value of the assets and your ability to obtain income.

Probably the only use of money that is structured as reliable income would be a single premium immediate annuity which also is an insurance product that pools longevity risk. But that is a topic for a different conversation. There are pluses and minuses to annuities of this type. Social Security is an example of an annuity you may already eventually have.

Stocks and bonds have their own risks and their own assessment of how reliable the income that can be taken will be.

It might be good to do some reading in the Wiki and in some of the books available on the general subject.
Surprisingly, there is no Bogleheads wiki article on direct real estate ownership--at least not one I could find. Maybe some people should get together to start one.

petulant
Posts: 737
Joined: Thu Sep 22, 2016 1:09 pm

Re: Can i rely on rental property?

Post by petulant » Sat Mar 16, 2019 7:00 am

Neus wrote:
Sat Mar 16, 2019 4:49 am
Thank you very much for your experienced view

I’ll check biggerpocket.com, i think i have listen to the audiobook before

Thank you for your insight on starter houses

Regarding your return, did u calculate by current market value or acquiring value? My 5% return is on current market value. And does your rental is landed houses or apartment unit? As there will be different return on land appreciation

I can actually raise rent following inflation but the vacancy rate will drop

My i ask how is your total asset allocation on stock, bond, and real estate?

On holding for a long long time, isn’t the building need to be rebuild every 20-30 years? Which means more capital reinvestment
You absolutely don't need to rebuild a single family home every 20-30 years. Most SFHs should be able to last decades and decades. That said, you should be prepared to remodel various parts of the home as they become dated/damaged and you believe the investment would improve rents/tenant quality. People often share capital/maintenance budgets in the range of 1-2% of market value to cover these things.

dbr
Posts: 30616
Joined: Sun Mar 04, 2007 9:50 am

Re: Can i rely on rental property?

Post by dbr » Sat Mar 16, 2019 8:34 am

petulant wrote:
Sat Mar 16, 2019 6:58 am
dbr wrote:
Tue Mar 12, 2019 9:15 am
Thesaints wrote:
Tue Mar 12, 2019 1:38 am
Yes, income from (and appreciation of) rentals is not a sure thing. The one thing that is sure, though, is that they will require work on your part, as opposed as a Total Stock Market ETF, which will require virtually none.
For sure. Rental property is a perfectly reasonable investment and holding of assets. As suggested above it is also really a business that you have to run. There is risk to both the value of the assets and your ability to obtain income.

Probably the only use of money that is structured as reliable income would be a single premium immediate annuity which also is an insurance product that pools longevity risk. But that is a topic for a different conversation. There are pluses and minuses to annuities of this type. Social Security is an example of an annuity you may already eventually have.

Stocks and bonds have their own risks and their own assessment of how reliable the income that can be taken will be.

It might be good to do some reading in the Wiki and in some of the books available on the general subject.
Surprisingly, there is no Bogleheads wiki article on direct real estate ownership--at least not one I could find. Maybe some people should get together to start one.
Might be a good idea, but the forum has been designed around the investing ideas of Mr. Bogle and that is all about index funds of stocks and bonds, so it isn't surprising. Still we talk about CDs, annuities, tax topics as well and there is a consumer section on the forum which is blatantly off topic as far as that goes.

petulant
Posts: 737
Joined: Thu Sep 22, 2016 1:09 pm

Re: Can i rely on rental property?

Post by petulant » Sat Mar 16, 2019 12:35 pm

dbr wrote:
Sat Mar 16, 2019 8:34 am
petulant wrote:
Sat Mar 16, 2019 6:58 am
dbr wrote:
Tue Mar 12, 2019 9:15 am
Thesaints wrote:
Tue Mar 12, 2019 1:38 am
Yes, income from (and appreciation of) rentals is not a sure thing. The one thing that is sure, though, is that they will require work on your part, as opposed as a Total Stock Market ETF, which will require virtually none.
For sure. Rental property is a perfectly reasonable investment and holding of assets. As suggested above it is also really a business that you have to run. There is risk to both the value of the assets and your ability to obtain income.

Probably the only use of money that is structured as reliable income would be a single premium immediate annuity which also is an insurance product that pools longevity risk. But that is a topic for a different conversation. There are pluses and minuses to annuities of this type. Social Security is an example of an annuity you may already eventually have.

Stocks and bonds have their own risks and their own assessment of how reliable the income that can be taken will be.

It might be good to do some reading in the Wiki and in some of the books available on the general subject.
Surprisingly, there is no Bogleheads wiki article on direct real estate ownership--at least not one I could find. Maybe some people should get together to start one.
Might be a good idea, but the forum has been designed around the investing ideas of Mr. Bogle and that is all about index funds of stocks and bonds, so it isn't surprising. Still we talk about CDs, annuities, tax topics as well and there is a consumer section on the forum which is blatantly off topic as far as that goes.
My thought would be, it could have a summary of the arguments for/against (as replicated in dozens of threads) doing rental properties, a brief summary of how to evaluate rental property investments, and then a caveat that much more specificity is outside the scope of BH.

dbr
Posts: 30616
Joined: Sun Mar 04, 2007 9:50 am

Re: Can i rely on rental property?

Post by dbr » Sat Mar 16, 2019 12:39 pm

petulant wrote:
Sat Mar 16, 2019 12:35 pm
dbr wrote:
Sat Mar 16, 2019 8:34 am
petulant wrote:
Sat Mar 16, 2019 6:58 am
dbr wrote:
Tue Mar 12, 2019 9:15 am
Thesaints wrote:
Tue Mar 12, 2019 1:38 am
Yes, income from (and appreciation of) rentals is not a sure thing. The one thing that is sure, though, is that they will require work on your part, as opposed as a Total Stock Market ETF, which will require virtually none.
For sure. Rental property is a perfectly reasonable investment and holding of assets. As suggested above it is also really a business that you have to run. There is risk to both the value of the assets and your ability to obtain income.

Probably the only use of money that is structured as reliable income would be a single premium immediate annuity which also is an insurance product that pools longevity risk. But that is a topic for a different conversation. There are pluses and minuses to annuities of this type. Social Security is an example of an annuity you may already eventually have.

Stocks and bonds have their own risks and their own assessment of how reliable the income that can be taken will be.

It might be good to do some reading in the Wiki and in some of the books available on the general subject.
Surprisingly, there is no Bogleheads wiki article on direct real estate ownership--at least not one I could find. Maybe some people should get together to start one.
Might be a good idea, but the forum has been designed around the investing ideas of Mr. Bogle and that is all about index funds of stocks and bonds, so it isn't surprising. Still we talk about CDs, annuities, tax topics as well and there is a consumer section on the forum which is blatantly off topic as far as that goes.
My thought would be, it could have a summary of the arguments for/against (as replicated in dozens of threads) doing rental properties, a brief summary of how to evaluate rental property investments, and then a caveat that much more specificity is outside the scope of BH.
Regarding the Wiki, it is open to everyone to create articles there. It is just a question of who would want to volunteer the effort. I personally don't own real estate, am not opposed to it as somehow being a bad idea, but would hardly qualify to present an article on it.

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Abe
Posts: 1999
Joined: Fri Sep 18, 2009 5:24 pm
Location: Earth in the Milky Way Galaxy

Re: Can i rely on rental property?

Post by Abe » Sat Mar 16, 2019 12:53 pm

I have rental properties (single family houses mostly), and my experience has been that the income has been pretty reliable. That is I have been able to increase rents over the years that I have owned the properties, and they have appreciated as well. Having said that, I don't 100% rely on anything. That's why I have other types of investments. It's called diversification.
Slow and steady wins the race.

Streptococcus
Posts: 307
Joined: Thu Jan 03, 2013 12:17 am

Re: Can i rely on rental property?

Post by Streptococcus » Sat Mar 16, 2019 4:17 pm

Neus wrote:
Sat Mar 16, 2019 4:49 am
Streptococcus wrote:
Fri Mar 15, 2019 12:24 pm
Neus wrote:
Mon Mar 11, 2019 11:58 pm
So i wonder how rental property fares in term of income reliability in case my etf stock holding jitters

So far the issue is:
1) I find it difficult to raise rent even to match inflation rate
2) The return hasn’t consider the depreciation of the building
3) I’m not sure how long the building will last before need to rebuild

But selling all rentals and went all paper (stock and bond) also doesn’t feel right

Any thoughts?
I consider myself a boglehead and a heavy real estate investor. By the time I retire in a few years, I'll probably own between 30-50 single family rentals. And my plan as of now is to NEVER sell them. There is a huge tax benefit to your descendants when you die while owing rentals.
My 2 cents:
1. Don't listen to those who tell you that real estate is a lot of work. They probably don't own rentals. All of my properties are professionally managed. I do nothing.

2. The only real estate job that I do is seeking new properties, buying them. From there, I have a team that does the rest: that includes a contractor, a designer, a property manager, my bank, a lawyer and a CPA. My job is to oversee everything. After 2-3 properties, everything runs smooth and it's not a lot of work. Once the property is rented, I only hear about it once every 3-6 months. It is pretty passive.

3. People dont understand the difference between managing your own properties (that's a job) and buying properties that are managed professionally (that's an investment). If you self manage, your ROI will increase, sometimes significantly at the expense of your time and effort.

4. You should ALWAYS RAISE RENT EVERY YEAR. 3-5% increase. That's usually 40-50$ increase. if you don't you don't know what you're doing. I tell you by experience that if you do it right, your tenants will be fine with it. The problem occurs if you increase by 10%+

5. 5% ROI is too low. If I had that kind of return I would stick to stocks. For me, 12% is the minimum

6. Real estate is a great diversifyer. It is a steady income. If you rent houses that are above starter houses but not too luxurious, and you do it right, you will never run out of tenants. When the economy will go deep south, previously well off families that are suffering from the economy, who lost their homes, will rent your homes. When the economy is thriving, middle class families will rent your homes. 3BR 2BA are the sweet spot. A lot of my tenants are newly divorced individuals who used to live if way better homes and will need a few years to recover economically. Thats how life is. People fall and rise again. And my homes are the perfect spots for them.

7. I always use the depreciation tax deduction.
8. I advise to visit Biggerpockets.com
Thank you very much for your experienced view

I’ll check biggerpocket.com, i think i have listen to the audiobook before

Thank you for your insight on starter houses

Regarding your return, did u calculate by current market value or acquiring value? My 5% return is on current market value. And does your rental is landed houses or apartment unit? As there will be different return on land appreciation

I can actually raise rent following inflation but the vacancy rate will drop

My i ask how is your total asset allocation on stock, bond, and real estate?

On holding for a long long time, isn’t the building need to be rebuild every 20-30 years? Which means more capital reinvestment
1. All of my rentals are “landed” single family homes. My area lacks great rental houses. There are plenty of apartments but a lot of people want to live in a home and not hear a neighbor breathing next door.

2. You ask how i calculate ROI and that suggests to me that you have trouble with that concept. First, most real estate investors rely on cash on cash return (CoC) which is annual cash flow/cash invested. But even CoC return does not give you a full picture of your investment performance as it does not take into account property appreciation, passive or forced, tax saving strategies, mortgage payments, etc.

Me for instance, I only buy distressed houses that I rehab and rent. By the time I rent it 3-4 months after buying, the property is worth 60-70K more than what i paid for. My rehab costs are usually 10-20K. Then There are tax saving strategies on rehab costs, etc. So you have to consider the total return during the whole life of the investment, until you sell.
Its no different than stocks. The sp500 can rise 1000% in a month and your portfolio hit 7 figure. That is irrelevant to you if you dont sell or rebalance into bonds as it may go down 2000% the following month.

3. My stock/bond allocation is 70/30. I separate it from real estate. I’m still way more heavily invested in stocks

4. All of my tenants are notified upon signing the first lease that the rent increases yearly by 5%, that is 50$ per month. A rent of 1250 becomes 1300. Its never been a big deal. If you get weird about it your tenants will get even weirder. It is pretty common practice and in my experience the only rentals that dont increase their rents are poorly managed properties and ugly properties, where you would not live.

Topic Author
Neus
Posts: 117
Joined: Fri Sep 22, 2017 2:12 am

Re: Can i rely on rental property?

Post by Neus » Sat Mar 16, 2019 9:50 pm

Streptococcus wrote:
Sat Mar 16, 2019 4:17 pm
Neus wrote:
Sat Mar 16, 2019 4:49 am
Streptococcus wrote:
Fri Mar 15, 2019 12:24 pm
Neus wrote:
Mon Mar 11, 2019 11:58 pm
So i wonder how rental property fares in term of income reliability in case my etf stock holding jitters

So far the issue is:
1) I find it difficult to raise rent even to match inflation rate
2) The return hasn’t consider the depreciation of the building
3) I’m not sure how long the building will last before need to rebuild

But selling all rentals and went all paper (stock and bond) also doesn’t feel right

Any thoughts?
I consider myself a boglehead and a heavy real estate investor. By the time I retire in a few years, I'll probably own between 30-50 single family rentals. And my plan as of now is to NEVER sell them. There is a huge tax benefit to your descendants when you die while owing rentals.
My 2 cents:
1. Don't listen to those who tell you that real estate is a lot of work. They probably don't own rentals. All of my properties are professionally managed. I do nothing.

2. The only real estate job that I do is seeking new properties, buying them. From there, I have a team that does the rest: that includes a contractor, a designer, a property manager, my bank, a lawyer and a CPA. My job is to oversee everything. After 2-3 properties, everything runs smooth and it's not a lot of work. Once the property is rented, I only hear about it once every 3-6 months. It is pretty passive.

3. People dont understand the difference between managing your own properties (that's a job) and buying properties that are managed professionally (that's an investment). If you self manage, your ROI will increase, sometimes significantly at the expense of your time and effort.

4. You should ALWAYS RAISE RENT EVERY YEAR. 3-5% increase. That's usually 40-50$ increase. if you don't you don't know what you're doing. I tell you by experience that if you do it right, your tenants will be fine with it. The problem occurs if you increase by 10%+

5. 5% ROI is too low. If I had that kind of return I would stick to stocks. For me, 12% is the minimum

6. Real estate is a great diversifyer. It is a steady income. If you rent houses that are above starter houses but not too luxurious, and you do it right, you will never run out of tenants. When the economy will go deep south, previously well off families that are suffering from the economy, who lost their homes, will rent your homes. When the economy is thriving, middle class families will rent your homes. 3BR 2BA are the sweet spot. A lot of my tenants are newly divorced individuals who used to live if way better homes and will need a few years to recover economically. Thats how life is. People fall and rise again. And my homes are the perfect spots for them.

7. I always use the depreciation tax deduction.
8. I advise to visit Biggerpockets.com
Thank you very much for your experienced view

I’ll check biggerpocket.com, i think i have listen to the audiobook before

Thank you for your insight on starter houses

Regarding your return, did u calculate by current market value or acquiring value? My 5% return is on current market value. And does your rental is landed houses or apartment unit? As there will be different return on land appreciation

I can actually raise rent following inflation but the vacancy rate will drop

My i ask how is your total asset allocation on stock, bond, and real estate?

On holding for a long long time, isn’t the building need to be rebuild every 20-30 years? Which means more capital reinvestment
1. All of my rentals are “landed” single family homes. My area lacks great rental houses. There are plenty of apartments but a lot of people want to live in a home and not hear a neighbor breathing next door.

2. You ask how i calculate ROI and that suggests to me that you have trouble with that concept. First, most real estate investors rely on cash on cash return (CoC) which is annual cash flow/cash invested. But even CoC return does not give you a full picture of your investment performance as it does not take into account property appreciation, passive or forced, tax saving strategies, mortgage payments, etc.

Me for instance, I only buy distressed houses that I rehab and rent. By the time I rent it 3-4 months after buying, the property is worth 60-70K more than what i paid for. My rehab costs are usually 10-20K. Then There are tax saving strategies on rehab costs, etc. So you have to consider the total return during the whole life of the investment, until you sell.
Its no different than stocks. The sp500 can rise 1000% in a month and your portfolio hit 7 figure. That is irrelevant to you if you dont sell or rebalance into bonds as it may go down 2000% the following month.

3. My stock/bond allocation is 70/30. I separate it from real estate. I’m still way more heavily invested in stocks

4. All of my tenants are notified upon signing the first lease that the rent increases yearly by 5%, that is 50$ per month. A rent of 1250 becomes 1300. Its never been a big deal. If you get weird about it your tenants will get even weirder. It is pretty common practice and in my experience the only rentals that dont increase their rents are poorly managed properties and ugly properties, where you would not live.
4. Good idea on putting on the lease, i will try it

3. I see

2. Apologies if i offend you, i just want to make sure we're comparing the same measure ROI, because i use return on current market value (which is 5%), instead of COC you mention (which in my case became 10% in the 5% case before building depreciation, not calculating land appreciation), some of my rental only returns 2% on market value basis, but on COC it's 6-7%

1. I see

Streptococcus
Posts: 307
Joined: Thu Jan 03, 2013 12:17 am

Re: Can i rely on rental property?

Post by Streptococcus » Sun Mar 17, 2019 12:07 am

Neus wrote:
Sat Mar 16, 2019 9:50 pm
Streptococcus wrote:
Sat Mar 16, 2019 4:17 pm
Neus wrote:
Sat Mar 16, 2019 4:49 am
Streptococcus wrote:
Fri Mar 15, 2019 12:24 pm
Neus wrote:
Mon Mar 11, 2019 11:58 pm
So i wonder how rental property fares in term of income reliability in case my etf stock holding jitters

So far the issue is:
1) I find it difficult to raise rent even to match inflation rate
2) The return hasn’t consider the depreciation of the building
3) I’m not sure how long the building will last before need to rebuild

But selling all rentals and went all paper (stock and bond) also doesn’t feel right

Any thoughts?
I consider myself a boglehead and a heavy real estate investor. By the time I retire in a few years, I'll probably own between 30-50 single family rentals. And my plan as of now is to NEVER sell them. There is a huge tax benefit to your descendants when you die while owing rentals.
My 2 cents:
1. Don't listen to those who tell you that real estate is a lot of work. They probably don't own rentals. All of my properties are professionally managed. I do nothing.

2. The only real estate job that I do is seeking new properties, buying them. From there, I have a team that does the rest: that includes a contractor, a designer, a property manager, my bank, a lawyer and a CPA. My job is to oversee everything. After 2-3 properties, everything runs smooth and it's not a lot of work. Once the property is rented, I only hear about it once every 3-6 months. It is pretty passive.

3. People dont understand the difference between managing your own properties (that's a job) and buying properties that are managed professionally (that's an investment). If you self manage, your ROI will increase, sometimes significantly at the expense of your time and effort.

4. You should ALWAYS RAISE RENT EVERY YEAR. 3-5% increase. That's usually 40-50$ increase. if you don't you don't know what you're doing. I tell you by experience that if you do it right, your tenants will be fine with it. The problem occurs if you increase by 10%+

5. 5% ROI is too low. If I had that kind of return I would stick to stocks. For me, 12% is the minimum

6. Real estate is a great diversifyer. It is a steady income. If you rent houses that are above starter houses but not too luxurious, and you do it right, you will never run out of tenants. When the economy will go deep south, previously well off families that are suffering from the economy, who lost their homes, will rent your homes. When the economy is thriving, middle class families will rent your homes. 3BR 2BA are the sweet spot. A lot of my tenants are newly divorced individuals who used to live if way better homes and will need a few years to recover economically. Thats how life is. People fall and rise again. And my homes are the perfect spots for them.

7. I always use the depreciation tax deduction.
8. I advise to visit Biggerpockets.com
Thank you very much for your experienced view

I’ll check biggerpocket.com, i think i have listen to the audiobook before

Thank you for your insight on starter houses

Regarding your return, did u calculate by current market value or acquiring value? My 5% return is on current market value. And does your rental is landed houses or apartment unit? As there will be different return on land appreciation

I can actually raise rent following inflation but the vacancy rate will drop

My i ask how is your total asset allocation on stock, bond, and real estate?

On holding for a long long time, isn’t the building need to be rebuild every 20-30 years? Which means more capital reinvestment
1. All of my rentals are “landed” single family homes. My area lacks great rental houses. There are plenty of apartments but a lot of people want to live in a home and not hear a neighbor breathing next door.

2. You ask how i calculate ROI and that suggests to me that you have trouble with that concept. First, most real estate investors rely on cash on cash return (CoC) which is annual cash flow/cash invested. But even CoC return does not give you a full picture of your investment performance as it does not take into account property appreciation, passive or forced, tax saving strategies, mortgage payments, etc.

Me for instance, I only buy distressed houses that I rehab and rent. By the time I rent it 3-4 months after buying, the property is worth 60-70K more than what i paid for. My rehab costs are usually 10-20K. Then There are tax saving strategies on rehab costs, etc. So you have to consider the total return during the whole life of the investment, until you sell.
Its no different than stocks. The sp500 can rise 1000% in a month and your portfolio hit 7 figure. That is irrelevant to you if you dont sell or rebalance into bonds as it may go down 2000% the following month.

3. My stock/bond allocation is 70/30. I separate it from real estate. I’m still way more heavily invested in stocks

4. All of my tenants are notified upon signing the first lease that the rent increases yearly by 5%, that is 50$ per month. A rent of 1250 becomes 1300. Its never been a big deal. If you get weird about it your tenants will get even weirder. It is pretty common practice and in my experience the only rentals that dont increase their rents are poorly managed properties and ugly properties, where you would not live.
4. Good idea on putting on the lease, i will try it

3. I see

2. Apologies if i offend you, i just want to make sure we're comparing the same measure ROI, because i use return on current market value (which is 5%), instead of COC you mention (which in my case became 10% in the 5% case before building depreciation, not calculating land appreciation), some of my rental only returns 2% on market value basis, but on COC it's 6-7%
Got it. Of course you did not offend me :happy I think 6-7% CoC is pretty low imo but maybe that performance fits with your personal goals.

Topic Author
Neus
Posts: 117
Joined: Fri Sep 22, 2017 2:12 am

Re: Can i rely on rental property?

Post by Neus » Sun Mar 17, 2019 9:11 am

Streptococcus wrote:
Sun Mar 17, 2019 12:07 am
Neus wrote:
Sat Mar 16, 2019 9:50 pm
Streptococcus wrote:
Sat Mar 16, 2019 4:17 pm
Neus wrote:
Sat Mar 16, 2019 4:49 am
Streptococcus wrote:
Fri Mar 15, 2019 12:24 pm


I consider myself a boglehead and a heavy real estate investor. By the time I retire in a few years, I'll probably own between 30-50 single family rentals. And my plan as of now is to NEVER sell them. There is a huge tax benefit to your descendants when you die while owing rentals.
My 2 cents:
1. Don't listen to those who tell you that real estate is a lot of work. They probably don't own rentals. All of my properties are professionally managed. I do nothing.

2. The only real estate job that I do is seeking new properties, buying them. From there, I have a team that does the rest: that includes a contractor, a designer, a property manager, my bank, a lawyer and a CPA. My job is to oversee everything. After 2-3 properties, everything runs smooth and it's not a lot of work. Once the property is rented, I only hear about it once every 3-6 months. It is pretty passive.

3. People dont understand the difference between managing your own properties (that's a job) and buying properties that are managed professionally (that's an investment). If you self manage, your ROI will increase, sometimes significantly at the expense of your time and effort.

4. You should ALWAYS RAISE RENT EVERY YEAR. 3-5% increase. That's usually 40-50$ increase. if you don't you don't know what you're doing. I tell you by experience that if you do it right, your tenants will be fine with it. The problem occurs if you increase by 10%+

5. 5% ROI is too low. If I had that kind of return I would stick to stocks. For me, 12% is the minimum

6. Real estate is a great diversifyer. It is a steady income. If you rent houses that are above starter houses but not too luxurious, and you do it right, you will never run out of tenants. When the economy will go deep south, previously well off families that are suffering from the economy, who lost their homes, will rent your homes. When the economy is thriving, middle class families will rent your homes. 3BR 2BA are the sweet spot. A lot of my tenants are newly divorced individuals who used to live if way better homes and will need a few years to recover economically. Thats how life is. People fall and rise again. And my homes are the perfect spots for them.

7. I always use the depreciation tax deduction.
8. I advise to visit Biggerpockets.com
Thank you very much for your experienced view

I’ll check biggerpocket.com, i think i have listen to the audiobook before

Thank you for your insight on starter houses

Regarding your return, did u calculate by current market value or acquiring value? My 5% return is on current market value. And does your rental is landed houses or apartment unit? As there will be different return on land appreciation

I can actually raise rent following inflation but the vacancy rate will drop

My i ask how is your total asset allocation on stock, bond, and real estate?

On holding for a long long time, isn’t the building need to be rebuild every 20-30 years? Which means more capital reinvestment
1. All of my rentals are “landed” single family homes. My area lacks great rental houses. There are plenty of apartments but a lot of people want to live in a home and not hear a neighbor breathing next door.

2. You ask how i calculate ROI and that suggests to me that you have trouble with that concept. First, most real estate investors rely on cash on cash return (CoC) which is annual cash flow/cash invested. But even CoC return does not give you a full picture of your investment performance as it does not take into account property appreciation, passive or forced, tax saving strategies, mortgage payments, etc.

Me for instance, I only buy distressed houses that I rehab and rent. By the time I rent it 3-4 months after buying, the property is worth 60-70K more than what i paid for. My rehab costs are usually 10-20K. Then There are tax saving strategies on rehab costs, etc. So you have to consider the total return during the whole life of the investment, until you sell.
Its no different than stocks. The sp500 can rise 1000% in a month and your portfolio hit 7 figure. That is irrelevant to you if you dont sell or rebalance into bonds as it may go down 2000% the following month.

3. My stock/bond allocation is 70/30. I separate it from real estate. I’m still way more heavily invested in stocks

4. All of my tenants are notified upon signing the first lease that the rent increases yearly by 5%, that is 50$ per month. A rent of 1250 becomes 1300. Its never been a big deal. If you get weird about it your tenants will get even weirder. It is pretty common practice and in my experience the only rentals that dont increase their rents are poorly managed properties and ugly properties, where you would not live.
4. Good idea on putting on the lease, i will try it

3. I see

2. Apologies if i offend you, i just want to make sure we're comparing the same measure ROI, because i use return on current market value (which is 5%), instead of COC you mention (which in my case became 10% in the 5% case before building depreciation, not calculating land appreciation), some of my rental only returns 2% on market value basis, but on COC it's 6-7%
Got it. Of course you did not offend me :happy I think 6-7% CoC is pretty low imo but maybe that performance fits with your personal goals.
Yes it's quite low indeed, but it's quite good for me (for now) as it's supposed for income, treated like income bond, yield higher than bond plus some value appreciation

Currently decide to sell most of it and keep the 10% COC one, but might change my mind because liquidate holding will take time too :)

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