Investing in real estate - what is your opinion?

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Pikachu0550
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Investing in real estate - what is your opinion?

Post by Pikachu0550 »

What is your opinion on investing in real estate, not as REITs, but buying actual investment properties. In my case, most likely it means buying out of state turnkeys.

There is a lot of hype around buying real estate - just check the BiggerPockets universe, and many other YouTube channels and books. A lot of smart people say that THATs the way to make money.

Is it a sound financial decision? What are the pros and the cons? What should I look for?
Should I be putting less money in the stock market?
What questions should I be asking myself?

The clear benefits I see are all the various tax deductions, write offs and depreciations, which do not exist with having the money in the stock market. But then there is also a lot of potential headache.

My current situation:
- 43 yo + 2 kids
- Living in Bay Area, CA
- Own a condo here, 300K in equity, 380K in 30-year loan at 3%
- Annual income ~190K (base, bonus, RSUs)
- Taxes 32% federal + 9.3% state
- Great credit score
- My money distribution is as follows:
- 47% (~$300K) home equity
- 13% cash in checking and saving (~$80K reserve money)
- 34% stock market retirement accounts (401k and Roth, FXAIX, FSPSX, FXNAX)
- 6% stock market taxable (all in VTI)

Overall AA between retirement and taxable accounts is - 75% US stock (SP500 / total), 15% international, 10% bonds

My goal is to build wealth and achieve at least some level of financial independence so I could retire asap, or at the very least work less.
Can't move out of the Bay Area.

Is real estate a good avenue to explore?

*Probably this topic was raised on this forum before, in this case I'd appreciate pointers to the threads.

Thank you!
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enclee
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Re: Investing in real estate - what is your opinion?

Post by enclee »

It’s a terrific option for the right person and the right property. There are different avenues to make money in real estate whether it’s commercial or residential.

Individually, you need to decide your approach cash flow, appreciation, flips, wholesale, long term hold.

As for the current market, it’s a great time to sell but I’m not finding anything I would want to buy based off price. There’s too much “dumb money” floating around markets. Low interest rates, proliferation of work from home, a decade of strong economic activity, and mass popularity is enough for keeping me on the sidelines for now.

I will say commercial real estate looks interesting as working from home exploding in popularity. It’s going to lower office demand and hurt the surrounding restaurant economy.
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Re: Investing in real estate - what is your opinion?

Post by tibbitts »

Pikachu0550 wrote: Sat Oct 10, 2020 5:29 pm
*Probably this topic was raised on this forum before, in this case I'd appreciate pointers to the threads.
Umm... did you try entering "real estate" in the search box?
tomtoms
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Re: Investing in real estate - what is your opinion?

Post by tomtoms »

How many properties are you planning to buy? If it is just one property then I don’t think it is worth the hassle.

I recommend:

- see 50-100 properties before buying
- study the neighborhood and know how much rent you are going to get
- find a competent and honest property manager
- I prefer properties that cash flow (rent pays for all expenses including repairs, vacancies, property manager)
- I prefer single family homes with decent schools

Real estate investing is a bit of an exclusive club. A lot of money on the line. You have to know your risk tolerance and more importantly, you need to have a plan in mind for unexpected things.
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Re: Investing in real estate - what is your opinion?

Post by adamthesmythe »

Seems too much like work- additional work beyond a regular job. I stuck with my relatively demanding but interesting professional job in order to build wealth. It worked out fine.
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Re: Investing in real estate - what is your opinion?

Post by Sandtrap »

tibbitts wrote: Sat Oct 10, 2020 5:49 pm
Pikachu0550 wrote: Sat Oct 10, 2020 5:29 pm
*Probably this topic was raised on this forum before, in this case I'd appreciate pointers to the threads.
Umm... did you try entering "real estate" in the search box?
+100000

Try the search box for some extensive discussions on your exact question.

Enter: (keywords) real estate, rental property, real estate investing, REIT vs Real Estate, landlord(s), tenant(s), property management, landlord tenant code, eviction, tenant eviction, rental dispute, etc.
Posters you will find: "tibbitts", "rm", "denovo", "sandtrap", and many others on the forum with R/E and R/E experience.

j :happy
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retire2022
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Re: Investing in real estate - what is your opinion?

Post by retire2022 »

op here is a thread on vacation home: viewtopic.php?f=2&t=324063
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Re: Investing in real estate - what is your opinion?

Post by David Jay »

With no landlord experience, buying your very first rental out-of-state is a recipe for disaster.
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Re: Investing in real estate - what is your opinion?

Post by nydoc »

It’s a great investment. Every back breaking hard work eventually bears fruit.
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Re: Investing in real estate - what is your opinion?

Post by mighty72 »

Investing one or 2 single family homes are bad idea; I spent a lot of time on biggerpockets and talked to a lot of providers. If you can quickly scale to 10 or more then it might work.
Tax benefit is not what is advertised. You can get cash flow without taxes because of depreciation but you need to recapture part of it unless you do a 1031 exchange.
It is a lot of work. You still need to manage the property manager and they care more about the person who gives them more business.
Lastly, I don't think you are there yet. Please wait till you qualify for accredited investor status. It will open a lot of opportunities to invest as limited partner in multi family deals. This route has worked for me.
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Re: Investing in real estate - what is your opinion?

Post by AerialWombat »

Real estate is the perfect wealth-building opportunity for the right person. Definitely do it!

It is also the worst possible idea for the wrong person. Don’t do it, just don’t!

Read through other threads as suggested above. Spend many, many hours reading. Also, buy some books. There are many good ones, but I always suggest people start with “The Millionaire Real Estate Investor” by Gary Keller (of Keller Williams brokerage fame). It’s the best primer I have ever read.
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Re: Investing in real estate - what is your opinion?

Post by Valuethinker »

Pikachu0550 wrote: Sat Oct 10, 2020 5:29 pm What is your opinion on investing in real estate, not as REITs, but buying actual investment properties. In my case, most likely it means buying out of state turnkeys.

There is a lot of hype around buying real estate - just check the BiggerPockets universe, and many other YouTube channels and books. A lot of smart people say that THATs the way to make money.

Is it a sound financial decision? What are the pros and the cons? What should I look for?
Should I be putting less money in the stock market?
What questions should I be asking myself?

The clear benefits I see are all the various tax deductions, write offs and depreciations, which do not exist with having the money in the stock market. But then there is also a lot of potential headache.

My current situation:
- 43 yo + 2 kids
- Living in Bay Area, CA
- Own a condo here, 300K in equity, 380K in 30-year loan at 3%
- Annual income ~190K (base, bonus, RSUs)
- Taxes 32% federal + 9.3% state
- Great credit score
- My money distribution is as follows:
- 47% (~$300K) home equity
- 13% cash in checking and saving (~$80K reserve money)
- 34% stock market retirement accounts (401k and Roth, FXAIX, FSPSX, FXNAX)
- 6% stock market taxable (all in VTI)

Overall AA between retirement and taxable accounts is - 75% US stock (SP500 / total), 15% international, 10% bonds

My goal is to build wealth and achieve at least some level of financial independence so I could retire asap, or at the very least work less.
Can't move out of the Bay Area.

Is real estate a good avenue to explore?

*Probably this topic was raised on this forum before, in this case I'd appreciate pointers to the threads.

Thank you!
Read all the books and the threads here. Wealth of info.

I would say:

- you don't have a lot of savings upon which to retire or relative to your income (depending on when your income reached this level & when you bought your condo)

However I don't wish to state the obvious simply to count coup (I was in a similar position at your age, and we were in the middle of a brutal equity bear market).

To the extent you can gee up your savings rate, then with a fair wind you should be able to have a pretty decent portfolio upon retirement.

Investing in housing is a way of leveraging returns, but also leveraging losses. Besides the worries re a repeat of 2006-10, or of California in the early 1990s, there's the specific risks of individual properties (and the time and hassle of sorting those out). I always say it can be a great way of getting rich slowly. Sometimes very slowly.

Imagine the problems of having to do an eviction out of state. Or major emergency repairs. If you find people to do this sort of thing for you, they will take a big chunk of the excess return (10-20% of gross rental income is not a bad estimate).

Calculated Risk is a good go-to on US economics of housing-- endlessly fascinating reading, especially if you track the blog back to 2006 or so. But note with those Shiller charts re housing prices. I suspect they understate the bottoms of the markets. Because at the bottom, nothing sells. Sellers don't adjust their selling prices (unless Death or Divorce or bankruptcy) and buyers wait for prices to come down further (which they may never do). So what a property is actually "worth" at the bottom of the market is overstated on those charts. Which won't matter if you have a paying tenant and you can hold on. But property price appreciation away from the coastal hot spots of the USA is not generally that great, once you figure out the repair, maintenance costs, property taxes etc.
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Re: Investing in real estate - what is your opinion?

Post by Pikachu0550 »

tibbitts wrote: Sat Oct 10, 2020 5:49 pm Umm... did you try entering "real estate" in the search box?
I did, but at the time I was getting a lot of REITs discussions, rather than actual real estate investing. Not sure why that is, as now I actually see some threads. Will read. Thanks
adamthesmythe wrote: Sat Oct 10, 2020 7:23 pm Seems too much like work- additional work beyond a regular job. I stuck with my relatively demanding but interesting professional job in order to build wealth. It worked out fine.
I hear ya. I would like to leave my very demanding professional job. Like tomorrow, if I could. I am burned out for a long time now, and need a way to accelerate wealth building so I don't have to work till I drop.
David Jay wrote: Sat Oct 10, 2020 8:43 pm With no landlord experience, buying your very first rental out-of-state is a recipe for disaster.
What about turnkeys? I was looking into Rent To Retirement. Anybody worked with them? I read a bunch of great reviews of them on BiggerPockets. However, BiggerPockets is also a hype place for everything real estate related. It makes one feel like everyone and their grandma are buying houses left and right, like anybody can do it. Which maybe its true, I don't know, hence I am asking on here. I trust the balanced minds of Bogleheads more :)
mighty72 wrote: Sat Oct 10, 2020 9:30 pm Lastly, I don't think you are there yet. Please wait till you qualify for accredited investor status. It will open a lot of opportunities to invest as limited partner in multi family deals. This route has worked for me.
What do you mean by that? When does one know they are "there"?
How can I get to an accredited investor status, if I didn't even start buying yet? How does one start?
AerialWombat wrote: Sat Oct 10, 2020 10:06 pm Real estate is the perfect wealth-building opportunity for the right person. Definitely do it!
It is also the worst possible idea for the wrong person. Don’t do it, just don’t!
Absolutely! Thats the exact message I am getting! Thanks for capturing it so perfectly. I keep reading and reading and reading, but at some point one has to start. I am not sure if I am just wasting time not starting or being wise and taking the proper time to learn.
AerialWombat wrote: Sat Oct 10, 2020 10:06 pm Read through other threads as suggested above. Spend many, many hours reading. Also, buy some books. There are many good ones, but I always suggest people start with “The Millionaire Real Estate Investor” by Gary Keller (of Keller Williams brokerage fame). It’s the best primer I have ever read.
Thanks! I will check it out! If you have any other book recommendations - I would love to hear.
Valuethinker wrote: Sun Oct 11, 2020 8:21 am - you don't have a lot of savings upon which to retire or relative to your income (depending on when your income reached this level & when you bought your condo)
I know :( I went through a divorce a few years ago and that was a big money drain. Sadly thats where I have to now start in my 40s...
My savings rate is already pretty high. I have a high paying job in which I am burned out and dreaming of retirement. I have been cranking up my savings in the last few years. I think I pretty much maxed out what I can do with stocks+salary+savings. If I could leave the Bay Area, or California in general, I would do so tomorrow, but I can't.

Real estate investing sounds very attractive to me. But also as 'AerialWombat' has mentioned up there, it can be a terrific or a terrible way to go. So far I've just been reading up information.
----

Thank you so much everyone for your replies :beer ! I will check the resources/threads/links you've mentioned.

PK
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Re: Investing in real estate - what is your opinion?

Post by DesertDiva »

Have you read the Bogleheads wiki? https://www.bogleheads.org/wiki/Getting_started

For your convenience, I pasted The Bogleheads® Philosophy here:

1 Develop a workable plan
2 Invest early and often
3 Never bear too much or too little risk
4 Never try to time the market
5 Use index funds when possible
6 Keep costs low
7 Diversify
8 Minimize taxes
9 Keep it simple
10 Stay the course

Start at the beginning with a plan: https://www.bogleheads.org/wiki/Investm ... _statement

Then consider if/how real estate investment will meet your needs. Don't buy real estate for investment because everyone else seems to be doing it and appears to be successful at it. That's the biggest trap I see in those blogs.
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Re: Investing in real estate - what is your opinion?

Post by retire2022 »

Op

I am a 34 year old government real estate professional, and I can say honestly I make more money in equities, and bonds than compared to real estate.

Equities are more liquid and do not require maintenance, real estate requires work from the owner. That being said I own my own apartment and 89 acres of forest in the Catskills.

My portfolio is 2.1 million and my net worth is 2.8 million, this took me 32 years of investing with $2000 right after the 1987 market crash.

I've sold 500k in one day it took less than 10 minutes, one can't do that with real estate.

Don't do it, go equites, lazy portfolio. I despise tenants and landlords equally.
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Re: Investing in real estate - what is your opinion?

Post by Pikachu0550 »

retire2022 wrote: Thu Oct 15, 2020 1:42 pm Op

I am a 34 year old government real estate professional, and I can say honestly I make more money in equities, and bonds than compared to real estate.
...
My portfolio is 2.1 million and my net worth is 2.8 million, this took me 32 years of investing with $2000 right after the 1987 market crash..
Have you been investing since you were 2 years old? :))
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Re: Investing in real estate - what is your opinion?

Post by TinyElvis »

Turnkey REI is a great idea if you are dealing with a reputable turnkey provider, so vet them thoroughly. That being said, the market is high right now so leveraged cashflow is hard to come by via turnkey provider. I would still recommend researching it and doing what is right for you.

I find it amusing how some easily throw thousands of dollars into a faceless mutual fund but discourage investing in a hard asset that you can touch and feel and that, if it stops performing, you can make the necessary changes to get it performing again. If you don't like the property manager, get another one. If the house has a problem, fix it. You can't fire a mutual fund manager if their mistakes cost you thousands of dollars.
"Give a cat a fish and it will eat for a day. Teach a cat to fish and it will just sit there waiting for you to give it a fish."
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Re: Investing in real estate - what is your opinion?

Post by clemrick »

Pikachu0550 wrote: Sat Oct 10, 2020 5:29 pm The clear benefits I see are all the various tax deductions, write offs and depreciations, which do not exist with having the money in the stock market. But then there is also a lot of potential headache.
While tax planning has a place in determining whether something is right for you, do NOT chase tax deductions. Deductions are only a percentage of actual costs to you. And while depreciation looks good while you are taking it, you do pay for it when you go to sell, unless you hold the real estate until you die.
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Re: Investing in real estate - what is your opinion?

Post by retire2022 »

Pikachu0550 wrote: Thu Oct 15, 2020 2:37 pm
Have you been investing since you were 2 years old? :))
Pikachu, I'm 60 not everyone is your age, don't assume everyone is :)

I started when I was 26, in 1986.

I am a child of single parent, immigrant who made $20 per week or 6K per year, I escaped poverty, and I consider myself a middle class person who is part of the American dream.
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Re: Investing in real estate - what is your opinion?

Post by Carefreeap »

retire2022 wrote: Thu Oct 15, 2020 3:18 pm
Pikachu0550 wrote: Thu Oct 15, 2020 2:37 pm
Have you been investing since you were 2 years old? :))
Pikachu, I'm 60 not everyone is your age, don't assume everyone is :)

I started when I was 26, in 1986.

I am a child of single parent, immigrant who made $20 per week or 6K per year, I escaped poverty, and I consider myself a middle class person who is part of the American dream.
Lol, it's because of this sentence:

"I am a 34 year old government real estate professional,.." I think you meant you're a 34 year government real estate professional"
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Re: Investing in real estate - what is your opinion?

Post by fareastwarriors »

Why not focus on finding a new job to avoid burnout?

Golden handcuffs? It might be harder now to find a new job but I still think that's priority #1.
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Re: Investing in real estate - what is your opinion?

Post by fareastwarriors »

retire2022 wrote: Thu Oct 15, 2020 1:42 pm Op

I am a 34 year old government real estate professional, and I can say honestly I make more money in equities, and bonds than compared to real estate.

Equities are more liquid and do not require maintenance, real estate requires work from the owner. That being said I own my own apartment and 89 acres of forest in the Catskills.

My portfolio is 2.1 million and my net worth is 2.8 million, this took me 32 years of investing with $2000 right after the 1987 market crash.

I've sold 500k in one day it took less than 10 minutes, one can't do that with real estate.

Don't do it, go equites, lazy portfolio. I despise tenants and landlords equally.
Every time I sold equities to buy real estate, I regretted it. :oops:
Now I don't sell equities to buy real estate, I just use margin*. :sharebeer

(*Not the right strategy for everyone.)
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Re: Investing in real estate - what is your opinion?

Post by retire2022 »

Carefreeap wrote: Thu Oct 15, 2020 4:33 pm
retire2022 wrote: Thu Oct 15, 2020 3:18 pm
Pikachu0550 wrote: Thu Oct 15, 2020 2:37 pm
Have you been investing since you were 2 years old? :))
Pikachu, I'm 60 not everyone is your age, don't assume everyone is :)

I started when I was 26, in 1986.

I am a child of single parent, immigrant who made $20 per week or 6K per year, I escaped poverty, and I consider myself a middle class person who is part of the American dream.
Lol, it's because of this sentence:

"I am a 34 year old government real estate professional,.." I think you meant you're a 34 year government real estate professional"
Yes buggs bunny taught me english you are correct.
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Re: Investing in real estate - what is your opinion?

Post by novemberrain »

You can make money in a thousand different ways including real estate

But for a regular w2 wage earner, the most time optimized way to earn higher wages and let top notch American companies compound your investments
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Re: Investing in real estate - what is your opinion?

Post by mighty72 »

Pikachu0550 wrote: Thu Oct 15, 2020 12:39 pm
mighty72 wrote: Sat Oct 10, 2020 9:30 pm Lastly, I don't think you are there yet. Please wait till you qualify for accredited investor status. It will open a lot of opportunities to invest as limited partner in multi family deals. This route has worked for me.
What do you mean by that? When does one know they are "there"?
How can I get to an accredited investor status, if I didn't even start buying yet? How does one start?
PK
This depends on you and your acceptable risk level. For me it was when:
1. I had 6 months of expenses in savings account.
2. My bogleheads investment was 3x my income
3. I never include my primary residence in my NW

At this point I was willing to put 10-15% of my portfolio in real estate.
To be an accredited investor, you don't need to invest anything.
https://www.nerdwallet.com/blog/investi ... -investor/
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Re: Investing in real estate - what is your opinion?

Post by gougou »

Not worth it in the current environment because REITs are selling at significant discounts to NAV. Why would you buy the underlying at full price when you can buy REITs at a discount, and get strong management and diversification for free?
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Re: Investing in real estate - what is your opinion?

Post by Pikachu0550 »

gougou wrote: Thu Oct 15, 2020 7:28 pm Not worth it in the current environment because REITs are selling at significant discounts to NAV. Why would you buy the underlying at full price when you can buy REITs at a discount, and get strong management and diversification for free?
Because REITs are just papers, while RE is actual physical asset. Plus I don't get any tax advantages with REITs, and can't use mortgage as a leverage. Or am I wrong?
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Re: Investing in real estate - what is your opinion?

Post by Pikachu0550 »

fareastwarriors wrote: Thu Oct 15, 2020 5:12 pm Why not focus on finding a new job to avoid burnout?

Golden handcuffs? It might be harder now to find a new job but I still think that's priority #1.
Yeah, I am looking into it as well. I was on a road for a new job search when COVID hit and with all the instability right now, I am a bit hesitant to leave a job where my position is rock solid and the company is doing really well. I need to balance that with my burn out...
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Re: Investing in real estate - what is your opinion?

Post by retire2022 »

Pikachu0550 wrote: Thu Oct 15, 2020 7:56 pm
gougou wrote: Thu Oct 15, 2020 7:28 pm Not worth it in the current environment because REITs are selling at significant discounts to NAV. Why would you buy the underlying at full price when you can buy REITs at a discount, and get strong management and diversification for free?
Because REITs are just papers, while RE is actual physical asset. Plus I don't get any tax advantages with REITs, and can't use mortgage as a leverage. Or am I wrong?
Pickachu

The current tax laws disfavors leverage and HCOL cities where real estate values have gone up.

The State And Local Tax SALT is another fancy way of increase the cost of real estate.

Not really worth it.
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Re: Investing in real estate - what is your opinion?

Post by phxjcc »

Buy what you understand.

If you understand real estate in an area that is not your work place residence, then you are ok.

Otherwise, do not UNDER ANY CIRCUMSTANCES believe ANYTHING the real estate professionals (snort!) tell you.
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Re: Investing in real estate - what is your opinion?

Post by flaccidsteele »

Pikachu0550 wrote: Thu Oct 15, 2020 7:58 pm
fareastwarriors wrote: Thu Oct 15, 2020 5:12 pm Why not focus on finding a new job to avoid burnout?

Golden handcuffs? It might be harder now to find a new job but I still think that's priority #1.
Yeah, I am looking into it as well. I was on a road for a new job search when COVID hit and with all the instability right now, I am a bit hesitant to leave a job where my position is rock solid and the company is doing really well. I need to balance that with my burn out...
Virus crisis has pushed a LOT of people online onto social media

It’s a lot easier to build a following, brand, and business, now more than ever

During this crisis I literally started on social media (was never on Facebook, Twitter, etc) and now have 55k followers who watch my content regularly

Of course to do this, one must have something valuable to say and not be scared to say it. Most people who trade their Life for money at a job tend to prefer to stay “under the radar” because they fear the judgment of fellow employees

Tough call
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: Investing in real estate - what is your opinion?

Post by manuvns »

if you choose to buy investmnt proerty ( which is not for the faint of heart ) i recommended buying it within 1 hour driving distance of your primary home . if something goes wrong you should be able to get there quickly .
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Re: Investing in real estate - what is your opinion?

Post by flaccidsteele »

manuvns wrote: Fri Oct 16, 2020 1:13 am if you choose to buy investmnt proerty ( which is not for the faint of heart ) i recommended buying it within 1 hour driving distance of your primary home . if something goes wrong you should be able to get there quickly .
Disagree. If a rental property can’t sustain itself by paying for management, I wouldn’t buy it

My investments carry me. I’m not looking to carry my investments - that’s called a job
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: Investing in real estate - what is your opinion?

Post by Tal- »

We own several rentals, have acquired them over a decade, and are fairly well educated in both the Bogglehead and Bigger Pockets philosophies. Here's my view:

Real estate is not a silver bullet, and for a reasonable investor, it will never save an otherwise floundering retirement plan. If you're looking for a path to "make your money" I would say that you're looking at rentals the wrong way.

I believe that most people shouldn't own a rental property. I feel that to own a rental property, you should have high excess income from your W2 (at least 30K/year beyond expenses), strong liquidity (around 50K liquid after the purchase and remodel - this would include both personal and real state rainy day funds - yes I believe in comingling these), strong net worth (already on track for a net worth sufficient to justify a reasonable retirement), a long-term time horizon, the correct temperament/skillset, and sufficient time to learn and manage things (even if you use a property manager). And even then, real estate should be an asset in your overall allocation, and not where you put all of your money.

People that don't follow these guidelines can get seriously burned, or become seriously stressed.

With all of that said, let me share some specifics. I believe that a reasonable total aggregate return for money invested in a good rental property purchased today over the next 10 years is between 5% and 20%/year. However, this may include actual returns ranging from -100% to +30%. The math is also super complicated - and don't let someone show you a five item pro forma and think that they are capturing everything - there are hidden costs galore. And while I expect many rentals to outpace stocks/bonds, it is certainty not a silver bullet where anyone can "make their money."

There is also the risk that you're simply too late. My perception is that the real estate market today is nearly saturated with both home buyers and landlords - meaning prices are high to purchase and low to rent.

So, I encourage you to tread lightly here...
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gougou
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Re: Investing in real estate - what is your opinion?

Post by gougou »

Pikachu0550 wrote: Thu Oct 15, 2020 7:56 pm
gougou wrote: Thu Oct 15, 2020 7:28 pm Not worth it in the current environment because REITs are selling at significant discounts to NAV. Why would you buy the underlying at full price when you can buy REITs at a discount, and get strong management and diversification for free?
Because REITs are just papers, while RE is actual physical asset. Plus I don't get any tax advantages with REITs, and can't use mortgage as a leverage. Or am I wrong?
I don't agree with REIT being paper. REITs are corporations that own RE, and when you own the REITs, your partial ownership of the economic interests of the underlying RE is bulletproof. Plus, RE is also technically just a paper deed.

REITs are pretty tax efficient because they don't pay tax at corporate level. They get to claim depreciation and usually pay out the net income that they can't depreciate. You pay tax on the distributions, minors the 20% tax break. Overall tax-wise, owning REITs is the same as owning a rental property directly.

On the leverage part, you could buy some highly levered REITs if you want higher leverage. But I'd recommend you to buy the more conservatively financed REITs which tend to pay sub-3% interest on their loans.
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pondering
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Re: Investing in real estate - what is your opinion?

Post by pondering »

tomtoms wrote: Sat Oct 10, 2020 6:36 pm How many properties are you planning to buy? If it is just one property then I don’t think it is worth the hassle.

I recommend:

- see 50-100 properties before buying
- study the neighborhood and know how much rent you are going to get
- find a competent and honest property manager
- I prefer properties that cash flow (rent pays for all expenses including repairs, vacancies, property manager)
- I prefer single family homes with decent schools

Real estate investing is a bit of an exclusive club. A lot of money on the line. You have to know your risk tolerance and more importantly, you need to have a plan in mind for unexpected things.
Would you consider a 3D tour a reasonable visit?
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pondering
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Re: Investing in real estate - what is your opinion?

Post by pondering »

What questions would you add to this list?

How many properties have you seen in the same market?
What are the important attributes of the neighborhood?
Is there someone who can manage the property?
Does the rent cover the repairs, vacancies and property management costs in addition to the mortgage, taxes and insurance?
How are the schools in the area?
--Robert Sterbal | 412-977-3526 call/text, I find speech easier than writing
BestCoast123
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Re: Investing in real estate - what is your opinion?

Post by BestCoast123 »

Valuethinker wrote: Sun Oct 11, 2020 8:21 am Calculated Risk is a good go-to on US economics of housing-- endlessly fascinating reading, especially if you track the blog back to 2006 or so. But note with those Shiller charts re housing prices. I suspect they understate the bottoms of the markets. Because at the bottom, nothing sells. Sellers don't adjust their selling prices (unless Death or Divorce or bankruptcy) and buyers wait for prices to come down further (which they may never do). So what a property is actually "worth" at the bottom of the market is overstated on those charts. Which won't matter if you have a paying tenant and you can hold on. But property price appreciation away from the coastal hot spots of the USA is not generally that great, once you figure out the repair, maintenance costs, property taxes etc.
They Schiller indices and most real estate indices understate volatility because they use a smoothing rule - I think its based on a 3-yr average - or something like that, which results in understating volatility, lagging the market, and not having the same peaks/troughs.
BestCoast123
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Re: Investing in real estate - what is your opinion?

Post by BestCoast123 »

gougou wrote: Fri Oct 16, 2020 1:05 pm
Pikachu0550 wrote: Thu Oct 15, 2020 7:56 pm
gougou wrote: Thu Oct 15, 2020 7:28 pm Not worth it in the current environment because REITs are selling at significant discounts to NAV. Why would you buy the underlying at full price when you can buy REITs at a discount, and get strong management and diversification for free?
Because REITs are just papers, while RE is actual physical asset. Plus I don't get any tax advantages with REITs, and can't use mortgage as a leverage. Or am I wrong?
I don't agree with REIT being paper. REITs are corporations that own RE, and when you own the REITs, your partial ownership of the economic interests of the underlying RE is bulletproof. Plus, RE is also technically just a paper deed.

REITs are pretty tax efficient because they don't pay tax at corporate level. They get to claim depreciation and usually pay out the net income that they can't depreciate. You pay tax on the distributions, minors the 20% tax break. Overall tax-wise, owning REITs is the same as owning a rental property directly.

On the leverage part, you could buy some highly levered REITs if you want higher leverage. But I'd recommend you to buy the more conservatively financed REITs which tend to pay sub-3% interest on their loans.
Agreed... the good REITs get cheaper leverage than you can get. Also, if you want to leverage up you could slap a little margin on it too. Biggest benefit of investing with reits - or if you're an accredited investor in a syndication - is that you don't have to sign any guarantees. You can only lose your equity... you aren't on the hook for the loan. Also, economics / diversification is significantly better for multi-family than SF.
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Re: Investing in real estate - what is your opinion?

Post by newguy123 »

I am thinking about buying a cheap house nearby to rent out as well as my first rental to get my toes wet. My suggestion is if you do ; then go something small at first in a decent neighborhood that way if it doesn’t work out then it’d be easy to pull out as a 5-10% loss after selling cost on a small amount doesn’t matter much.
Would I rather relax and make money or make money and relax ?
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Re: Investing in real estate - what is your opinion?

Post by Wricha »

My experience (sample size 1) is real estate has been very good to me. I did it as a side business to augment my consulting business. Long story short I invested in commercial real estate (with partners) and the rent more then fully funds a fairly high lifestyle in retirement. My advise is to find good partners with different skill sets to share the risk and have fun with it. Never ever (25 years) been called out in the middle of the night to fix anything.
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Re: Investing in real estate - what is your opinion?

Post by flaccidsteele »

Tal- wrote: Fri Oct 16, 2020 9:52 am There is also the risk that you're simply too late. My perception is that the real estate market today is nearly saturated with both home buyers and landlords - meaning prices are high to purchase and low to rent.

So, I encourage you to tread lightly here...
+1 this
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Pikachu0550
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Re: Investing in real estate - what is your opinion?

Post by Pikachu0550 »

DesertDiva wrote: Thu Oct 15, 2020 12:54 pm Have you read the Bogleheads wiki? https://www.bogleheads.org/wiki/Getting_started

For your convenience, I pasted The Bogleheads® Philosophy here:

1 Develop a workable plan
2 Invest early and often
3 Never bear too much or too little risk
4 Never try to time the market
5 Use index funds when possible
6 Keep costs low
7 Diversify
8 Minimize taxes
9 Keep it simple
10 Stay the course

Start at the beginning with a plan: https://www.bogleheads.org/wiki/Investm ... _statement

Then consider if/how real estate investment will meet your needs. Don't buy real estate for investment because everyone else seems to be doing it and appears to be successful at it. That's the biggest trap I see in those blogs.
Of course I read! I think I have the basics covered - I first put my finances in order. I don't have any debt beside the mortgage. Every $ is accounted for. I am saving as much as I can. I am happy with my AA. Not much I can do with taxes, as a W2 person. I max out my Roth and 401K. I also buy regularly in my taxable account.
I was looking into what I can do to speed this up. I first looked into starting some sort of a business. But the idea of real estate investing appeals to me more. I've been reading and educating myself on it, so thats why this exploration.
retire2022 wrote: Thu Oct 15, 2020 8:29 pm The current tax laws disfavors leverage and HCOL cities where real estate values have gone up.

The State And Local Tax SALT is another fancy way of increase the cost of real estate.

Not really worth it.
Why? I thought the SALT only affected real estate that one owns
manuvns wrote: Fri Oct 16, 2020 1:13 am if you choose to buy investmnt proerty ( which is not for the faint of heart ) i recommended buying it within 1 hour driving distance of your primary home . if something goes wrong you should be able to get there quickly .

I live in Bay Area, CA. The real estate market prices here are insane, so buying locally is not an option.
phxjcc wrote: Thu Oct 15, 2020 11:43 pm Otherwise, do not UNDER ANY CIRCUMSTANCES believe ANYTHING the real estate professionals (snort!) tell you.
So you wouldn't trust any turnkey provider?
flaccidsteele wrote: Fri Oct 16, 2020 12:18 am During this crisis I literally started on social media (was never on Facebook, Twitter, etc) and now have 55k followers who watch my content regularly

Of course to do this, one must have something valuable to say and not be scared to say it. Most people who trade their Life for money at a job tend to prefer to stay “under the radar” because they fear the judgment of fellow employees
Yeah... Good for you! Its not my jam. I wish.
Wricha wrote: Fri Oct 16, 2020 8:03 pm My experience (sample size 1) is real estate has been very good to me. I did it as a side business to augment my consulting business. Long story short I invested in commercial real estate (with partners) and the rent more then fully funds a fairly high lifestyle in retirement. My advise is to find good partners with different skill sets to share the risk and have fun with it. Never ever (25 years) been called out in the middle of the night to fix anything.
Nice!
Tal- wrote: Fri Oct 16, 2020 9:52 am With all of that said, let me share some specifics. I believe that a reasonable total aggregate return for money invested in a good rental property purchased today over the next 10 years is between 5% and 20%/year. However, this may include actual returns ranging from -100% to +30%. The math is also super complicated - and don't let someone show you a five item pro forma and think that they are capturing everything - there are hidden costs galore. And while I expect many rentals to outpace stocks/bonds, it is certainty not a silver bullet where anyone can "make their money."

There is also the risk that you're simply too late. My perception is that the real estate market today is nearly saturated with both home buyers and landlords - meaning prices are high to purchase and low to rent.

So, I encourage you to tread lightly here...
Good points! Thank you. And yeah, I also wonder if its too late to enter this game.

----------
Again, even this thread highlights the complexity of the RE investing - there are so many angles to look at this from. So many variables and unknowns. Can be a success story or a nightmare. Ugh...
-- Late starter, fast learner ---
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unclescrooge
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Re: Investing in real estate - what is your opinion?

Post by unclescrooge »

retire2022 wrote: Thu Oct 15, 2020 8:29 pm
Pikachu0550 wrote: Thu Oct 15, 2020 7:56 pm
gougou wrote: Thu Oct 15, 2020 7:28 pm Not worth it in the current environment because REITs are selling at significant discounts to NAV. Why would you buy the underlying at full price when you can buy REITs at a discount, and get strong management and diversification for free?
Because REITs are just papers, while RE is actual physical asset. Plus I don't get any tax advantages with REITs, and can't use mortgage as a leverage. Or am I wrong?
Pickachu

The current tax laws disfavors leverage and HCOL cities where real estate values have gone up.

The State And Local Tax SALT is another fancy way of increase the cost of real estate.

Not really worth it.
SALT doesn't apply to investment property.

That being said, I agree that REITs are trading at a discount and offer better values.

Last month I put 25% of my emergency fund in some REIT that actually increased it's dividend this year.
barberakb
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Re: Investing in real estate - what is your opinion?

Post by barberakb »

OP, I say go for it. But dont just jump in. Do your homework.
Read lots of blogs, books, youtube etc...
I think real estate has a great place in retirement. I like to have different pools or legs of funds to use in retirement.
For example, SS, pension, real estate, 401k, IRA etc... The more the better IMO
I just bought my 7th property. I plan to retire at 55 with 10 rentals.
Those 10 rentals will provide me on avg 60k cash a year after expenses.
retire2022
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Re: Investing in real estate - what is your opinion?

Post by retire2022 »

Op and others

Regarding SALT I should had clarified yes commercial properties do not involved SALT however how does one go from small residential owner to commercial without large gains?

Yes rental properties involve 1031 exchanges, op need to transition from residential personal ownership to commercial real estate properties.

It does not happen overnight.

One has to walk in order to run a marathon.
bighatnohorse
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Re: Investing in real estate - what is your opinion?

Post by bighatnohorse »

Pikachu0550 wrote: Sat Oct 10, 2020 5:29 pm Is real estate a good avenue to explore?
Yes. And it shouldn't take you long to figure out the potential inherent problems with out-of-state land lording.
It is possible, though. With a big enough down payment you might be able to eek out a positive cash flow.
A friend of mine recently pulled it off - bought a nice four bedroom house in a decent neighborhood - got a good property management company and a very good professional level tenant in the house. I think she said the +cash flow is a few hundred a month.
And I know that the property has increased in risen in value in a short period of time.
If she sold it now it might break even.

In my opinion and experience, rental property can be good for a hands-on younger person starting out at any age up to about 30 with a long term investment horizon. But older, with kids, do you really want a second job?
barberakb
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Re: Investing in real estate - what is your opinion?

Post by barberakb »

bighatnohorse wrote: Sat Oct 17, 2020 10:56 am
Pikachu0550 wrote: Sat Oct 10, 2020 5:29 pm Is real estate a good avenue to explore?
Yes. And it shouldn't take you long to figure out the potential inherent problems with out-of-state land lording.
It is possible, though. With a big enough down payment you might be able to eek out a positive cash flow.
A friend of mine recently pulled it off - bought a nice four bedroom house in a decent neighborhood - got a good property management company and a very good professional level tenant in the house. I think she said the +cash flow is a few hundred a month.
And I know that the property has increased in risen in value in a short period of time.
If she sold it now it might break even.

In my opinion and experience, rental property can be good for a hands-on younger person starting out at any age up to about 30 with a long term investment horizon. But older, with kids, do you really want a second job?
OP, do not get swayed by these second job posts. If I could get paid what I do for my 2nd job for as little as I actually work doing real estate I would have a 3rd and fourth job. I work between 40 and 60 hrs a week for my normal job. My real estate JOB as many call it... is about 1 hour a week. So yes, if you consider 4 hours a month (some months it is 1) just too much for you then maybe real estate is not for you. I am 43 with 2 kids and 6 SFH rentals. Been a landlord since 2005. Just like anything else, there are risks, as well as rewards if you do your due diligence.
tomtoms
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Re: Investing in real estate - what is your opinion?

Post by tomtoms »

People need to define what is considered a second job?

Is working one hour/week a second job? How about communicating with a property manager here and there?

If you buy a bad rental and rent it out to bad tenants, then you are going to have to put in more work but don’t think that is the norm. There are way more good stories than bad. You just don’t hear the good ones as often because frankly, they are pretty boring.
tomtoms
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Re: Investing in real estate - what is your opinion?

Post by tomtoms »

pondering wrote: Fri Oct 16, 2020 1:10 pm
tomtoms wrote: Sat Oct 10, 2020 6:36 pm How many properties are you planning to buy? If it is just one property then I don’t think it is worth the hassle.

I recommend:

- see 50-100 properties before buying
- study the neighborhood and know how much rent you are going to get
- find a competent and honest property manager
- I prefer properties that cash flow (rent pays for all expenses including repairs, vacancies, property manager)
- I prefer single family homes with decent schools

Real estate investing is a bit of an exclusive club. A lot of money on the line. You have to know your risk tolerance and more importantly, you need to have a plan in mind for unexpected things.
Would you consider a 3D tour a reasonable visit?
No, I don’t.

You are talking about investing $50-80 k into one asset. Why wouldn’t you do more homework?

If you buy a bad rental, it doesn’t matter if you have the greatest property manager or the housing market is up 10%. You are going to fail as a landlord.

Real estate investing starts with you. If you do your part (buying a good rental) then everything else is likely to fall into place.
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