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Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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RE is just one of many tools (and not appropriate for all)
It helped me to 'retire' pre-age 50, tho I have several rural view props (rented and owned and spec) thus NOT retired to C-D 'on-a-pension' standards. I just have not HAD to go to a J-O-B to survive since age 35.
I use a RE formula that suits me...
whatever I buy MUST:
1) be able to resell for 110% TOMORROW... (buy right, buy marketable / desirable)
2) Be able to rent for 1% of gross purchase price per month = ~ 10% return
3) Must be something I can live in or with for next 30 yrs (RE is not liquid)
4) Have a high likelihood of 10% annual appreciation
5) Must be unique (view, commercial on a freeway, in the way of progressive zoning, on a park...)
6) Must be affordable, and not disruptive financially WTSHTF
7) Bonus if it can be used for $500k tax free exclusion... Buy a commercial lot, add a tee-pee (RV) and mailbox / voting address (convert Tee-pee to your primary residence), start rezoning process (takes 2 yrs), ... arrange a developer to buy at 24 month period. go 'traveling' for 24 months, collect $500k gain... repeat as necessary
High tech stock fueled my RE investment opportunities, a tool... (I used margin (3-5% interest pre 2008) to pay RE down payments, then refi'd when RE interest rates were favorable. Often bought owner financed RE (was great on commercial props I bought from trusts)
Working night shift for 30 yrs helped my RE success... free everyday to spend at courthouse looking for props, and other days, building houses, adding water and sewer and streets to developable land, clearing view lots of rubbish, mobile homes, over growth... using daylight hours to find more properties. (tough to do in the dark) Google street view and online GIS maps would have been a godsend 30 yrs ago.
Very simple to do this today, but more people are engaged in this activity (as with flip houses).
My preference... NEVER buy for investment, or rent anything with a bedroom.
ideal for me..
Find a beautiful view property with abandoned home / trashed mobile home. Rent a bulldozer, have a weekend of fun. Build a shop with RV hookups and apartment (takes 60 days), rent it out until someone comes alone and MUST buy your lot for their dream home... Let them build it... not me... BTDT. risky, troublesome
antonym of my style... apartments, cafe, or 'cookie-cutter' SFR in suburb. YMMV
- Location, location, location comes second once you have the $$$$ to invest in a property.
- A good property in a good location will attract good tenants.
Of course. And by similar reasoning, a questionable property in a sketchy location will not attract good tenants, even at steep discount on rent.
Quote:
Originally Posted by 1ondoner
No stock can beat getting rental income month after month, year after year. Real estate is REAL wealth.
We can't segregate between capital gains and monthly cash-flow. Both are "income", in the sense of having more money at time t+n, than at time t.
Real estate is “real” in the sense of being immovable property – as opposed to paintings, furniture, collectibles and the like. But it’s no more “real” in terms of being a reliable asset, than any other asset, for ultimately the value of something is only what other people are willing to pay for it. Nothing has an intrinsic value – not even human life itself! – that is not situational, contingent, and dependent on perspective. What’s that rusty coin in my collection worth? Just its scrap-metal value, or thousands of dollar, for the right collector? What about the low-mileage 1970s Japanese compact car? Or a nice wooden piece of acreage in southwest Ohio, serenely tucked away, with lots of road-frontage?
Quote:
Originally Posted by Ultrarunner
Good tenants can go bad... one couple were super stars... they had great jobs and were planning on buying... starting a family....
Disaster can strike anyone, at any time. But my earlier point about problem-tenants, was that no applicants would pass the tenant-qualification process in the first place. It was foreordained that these tenants would be raucous, possibly violent, unstable, unsociable and late with payments. Simply put, the alternatives were (1) let the place go vacant, (2) sell at 70% loss, or (3) rent to a problem-tenant.
Quote:
Originally Posted by Ultrarunner
...I see it as a hedge for the working man/woman if they are willing to jump in and stick with it. ...
Another good point. Real estate appeals in particular to people who have a blue-collar/agricultural background in their family. If the great-grandparents were farmers, and there are grainy photos in albums of great-grandpa standing on the family homestead, well, it's natural to consider reverting to one's roots, and to consider real-estate as supplement to one's regular income.
Quote:
Originally Posted by 22003yo
In that case REITs and most likely other stocks would all be losing money if the US RE market went into a multi decade long decline. Looking at the past 100 years, we should be just fine.
Nowise am I somehow predicting a real-estate apocalypse. The US population will keep rising, especially if we dispense with the recently virulent anti-immigrant biases. New households will form. It’s even possible (though only anecdotal) that Millennials’ aversion to home-ownership will be a boon for landlords and real-estate developers.
The problem, as many have already noted, is the local-nature of real estate. In our market, dwellings are cheap, and it is common for mid-career professionals to buy a house in a “gentrifying” neighborhood for $50K, renting it out for $500/month. This works fine, assuming responsible tenants (a topic already thoroughly thrashed here). But then appliances need to be replaced, roof leak, etc. Given the low rent and low property-costs, these “small” maintenance costs add up. Over the years, our amateur landlords find themselves with a risibly small profit – maybe $100/month, maybe less.
But the above isn’t a problem, if the property price keeps up with inflation, let alone if it outstrips it. In our area, this generally doesn’t happen. That $50K house is still $50K 20 years later, or possibly only $40K, if the “gentrification” of the area petered out. The house is still returning $100/month in profit (maybe), but a major benefit to property-ownership (appreciation) is moot.
Quote:
Originally Posted by StealthRabbit
4) Have a high likelihood of 10% annual appreciation
You've just excluded most of the midsection of the country, outside of the major metro areas, tourist-towns or college towns.
Do you have RE investments or are you making theoretical arguments?
RE has a high barrier to entry, requires a good chunk of capital and one to have good cash-flow. Interest rates will eat into your return and there is not so much capital appreciation. This leaves on at the mercy of finding good tenants.
Stocks are a good way of building capital and thereafter one can transition into real estates. Personally, I don't see this as a stocks vs real estate discussion. I view RE as the next/higher level.
One can borrow to finance RE investment but relying on a 30 yr mortgage to do so does not make financial sense. I've taken out home equity loans or borrowed from my 401K (max $50K) but paid off the loans fast.
It was not to high... a family member by marriage works for Safeway... nice of guy... was 30 at the time and living in a loft at a converted Oakland warehouse... he stocked shelves, bagged and spent a lot of time in the produce isles.
He bought 4 homes in 2005-07... two were brand new homes.
No inherited money... no one to underwrite or back him... single guy working at Safeway steady for 9 years...
The sad part is he willingly walked away from 3 of them... the 4th was his condo in Castro Valley and he did a short sale on that one... 2009-2011.
We spoke at the 4th of July as he had recently bought a double wide mobile home because he was tired of having to move every year or two as the rentals he occupied were sold by their investor owners.
I ran the numbers and he would be sitting pretty right now had he stayed the course... but said he could rent the same condo he was paying on for $900 a month less than his mortgage, taxes and Insurance...
What is serious wealth?
One advantage of buying with cash is having an edge on beating out competitors and getting a property that is a good deal. You also can negotiate a lower price with cash sometimes. You can always refinance afterwards
Even at all cash at 13% return I figure I can double my money in 7-8 years plus any appreciation, so its not that slow.
Over 40% of SF Bay Area single family sales were cash at one time... a huge number.
Buying case means no contingencies if that is how you want to structure the deal.
It has worked very well for me... just like having a large down payment can add flexibility.
No need to wait on appraisal, home inspection, termite inspection, etc... perfect for an As-Is Where-Is sale.
Refi after is a well proven strategy... make a few improvements and get they money out.
My Credit Union even allows for Refi in weeks of purchase which I did not know... it is for those transactions where time is of the essence... in other words get it closed and immediately apply for a mortgage going through the process.
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
34,741 posts, read 58,090,525 times
Reputation: 46221
Quote:
Originally Posted by ohio_peasant
...
You've just excluded most of the midsection of the country, outside of the major metro areas, tourist-towns or college towns.
Perfect!
I do the same with ALL my investments. (consider the returns / liquidity)
I have no problem buying RE in desirable locations (here, there, anywhere...including international)
ALL my INVESTMENT props are in tourist / destination / recreation / college regions. I would not want it any other way (for investment props). (1/2 are in 'flyover' country with VERY high monthly returns (and decent appreciation, tho NOT as great as left coast)
1/2 of mine are managed by Prop management firms (which I do not prefer).
Most my vacancies and expenses / problems / headaches are from managed properties.
I travel 50 - 90% of the time and my props are minimal trouble. (tho all are rural, so require extreme mowing / forest thinning annually)
Average tenancy is 7 - 10 yrs (I am selective)
Another good point. Real estate appeals in particular to people who have a blue-collar/agricultural background in their family. If the great-grandparents were farmers, and there are grainy photos in albums of great-grandpa standing on the family homestead, well, it's natural to consider reverting to one's roots, and to consider real-estate as supplement to one's regular income.
.
Mom's side of the family are Dairy Farmers... the small farm she grew up on has been in the family for generations... even in the Depression when no one had money... they had food, shelter and timber...
As far back as I can remember... I was taught to save my money and get a job so I could buy a home... this is as a small child.
My Grandfather had a few sayings... one was take care of the Land and the Land will take care of you... another was prosperity is earning a dollar and needing 99 cents.
I had my Saturday neighborhood lawn route well established by age 8... by 12 I was working a job and paying into social security... when I bought my first home at 22 I had a ten year work history...
My siblings were similar... all of us had jobs very young one was also age 12 and another at 16 went to work as for the Park and Rec department...
I'm certain a lot had to do with my family's farming roots...
Some will say there are no jobs for kids anymore and I do know way to many 20 somethings that have never held a job...
Here is a local link where 14 years are not only hired but sought after...
This is exactly why not to rely on 30 yr mortgages to buy investment property. One mishap and you're OUT. Investing in RE requires one to have positive cash flow and reserves to see them through any misfortune. You want to be able keep your property empty for a couple of months and not lose sleep over making payments.
IMHO, these are speculators. Few pull through, most don't.
Quote:
Originally Posted by Ultrarunner
It was not to high... a family member by marriage works for Safeway... nice of guy... was 30 at the time and living in a loft at a converted Oakland warehouse... he stocked shelves, bagged and spent a lot of time in the produce isles.
He bought 4 homes in 2005-07... two were brand new homes.
No inherited money... no one to underwrite or back him... single guy working at Safeway steady for 9 years...
The sad part is he willingly walked away from 3 of them... the 4th was his condo in Castro Valley and he did a short sale on that one... 2009-2011.
We spoke at the 4th of July as he had recently bought a double wide mobile home because he was tired of having to move every year or two as the rentals he occupied were sold by their investor owners.
I ran the numbers and he would be sitting pretty right now had he stayed the course... but said he could rent the same condo he was paying on for $900 a month less than his mortgage, taxes and Insurance...
This is exactly why not to rely on 30 yr mortgages to buy investment property. One mishap and you're OUT. Investing in RE requires one to have positive cash flow and reserves to see them through any misfortune. You want to be able keep your property empty for a couple of months and not lose sleep over making payments.
IMHO, these are speculators. Few pull through, most don't.
Yep... he is 40 and starting over... a lost decade.
I urged him to at least keep the condo where he lived... it was affordable and good location.
I've only bought one home with no money down aside from closing... it had a Assumable FHA loan, subject to qualifying, that was 4 months old when the buyer was transferred a 1000 miles away...
They were somewhat distraught because the prospect of paying real estate commission... leaving the home vacant, etc... was going to cost them money.
Since it was a recent FHA... the previous seller had the house in good condition... the current sellers where tickled to have me come in and take over the mortgage because it was the least expensive way for them to sell...
My rental income has been pretty much insipid but I've made nice capital gains even after recapture of depreciation. I bought premium houses in excellent HOAs, and I'll have sold my last house this January, assured of a final, nice net CG. (My houses cost in the $220K-$240K range, 25% down, your money goes a lot further in PHX than in LA area.) And I'll be very happy to retire from the landlord business.
Please note, if you want to be a landlord, pick a landlord friendly state (e.g. AZ) and not a tenant friendly state (NY, CA), and buy houses near you so that you can do some of the maintenance and repairs yourself, to save money. I failed that last one because I live in CA, a tenant friendly state. I had to go out of state so I picked PHX and had to eat the cost of hiring repairmen.
My landlord buddy already owned houses in PHX so I followed his lead, and we continue to exchange data and contacts to this day. He's better at it than I, some people have the knack, some don't, and I'm one who doesn't have it. A man has got to know his limitations, and I found mine.
I do the same with ALL my investments. (consider the returns / liquidity)
I have no problem buying RE in desirable locations (here, there, anywhere...including international)
ALL my INVESTMENT props are in tourist / destination / recreation / college regions. I would not want it any other way (for investment props). (1/2 are in 'flyover' country with VERY high monthly returns (and decent appreciation, tho NOT as great as left coast)
1/2 of mine are managed by Prop management firms (which I do not prefer).
Most my vacancies and expenses / problems / headaches are from managed properties.
I travel 50 - 90% of the time and my props are minimal trouble. (tho all are rural, so require extreme mowing / forest thinning annually)
Average tenancy is 7 - 10 yrs (I am selective)
Truly curious here. My wife and I have been saving for our next property. Everything we own is local here where we have an established supply chain and can jump in a car and see. Plus everything was purchased when the price was approximately 10 years of always rented gross rents. At the current prices, we're more than double that...and while rents have been rising fast, I'm loathe to put more money into the local market.
Personally, I'm liking Pittsburg's housing prospects. They have a growing tech base and have some solid universities nearby. They've been in decline for a long time but could see them pivoting here. However the buildings are older, there's weather conditions to be dealt with....and the average household income isn't 6 figures like it is here.
What's you're strategy in going into a new market? Do you start with a small residential and a PM and try to build a portfolio that eventually makes sense to get your own supply chain? Or do you try for a single tenant building and keep it NNN?
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