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Old 11-27-2017, 10:29 AM
 
69 posts, read 38,454 times
Reputation: 57

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Hi forum,

If anyone would care to share, I am considering in the near future either buying a rental outright with no mortgage or investing in the stock market. I'm looking at condos ranging from 100,000 to 150,000 in the Phoenix, AZ area where I live that would rent between 750 and 1000. My other option would be to continuing investing my returns have been between 7 and 10 percent, I manage my own funds so there are no investor fees. I do have a 401a, so the real estate money would not be withdrawn from that, this would be more to diversify and because I want to have a regular relatively maintenance free (thus condo over house) income to supplement my medical insurance. I know with that type of cash I could buy more than one rental with mortgages but I have an extremely low risk tolerance.

So what is your relative profit?

Any mistakes you made that you would have done differently?

How do taxes affect your profit?

The only other experience I have with real estate is my own house, I had roommates and religiously used their rent to pay off the house early. I'm relatively handy with plumbing, concrete, wood work, but know almost nothing on electric, and AC which I know can be big expenses.

Thanks as always to anyone who replies.
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Old 11-27-2017, 10:42 AM
 
Location: Phoenix, AZ
584 posts, read 164,939 times
Reputation: 1343
Quote:
Originally Posted by JoeJude View Post
I have an extremely low risk tolerance.
Then the last thing you want to be is a landlord.


I had 3 rentals in Phoenix for 20 years. I was also handy and did a lot of the work. I also did a lot of the legal stuff. If you don't know the legal stuff you will spend a fortune on lawyers.


I had good tenants and bad tenants. The houses got trashed on occasions and cost me a lot of money. I had judgments against tenants that were uncollectible.


I sold the houses 20 years ago and never looked back. I used the equity to buy my current house for cash so things turned out OK moneywise.


But if I had it to do over, knowing what I know now, I would have stayed the hell away from rentals and my money would have grown just as nicely in 20 years without all the grief.


Another thing, if you buy condos to rent out, you'll have the HOAs to deal with as well as owners who don't like tenant occupied neighbors and will complain to the HOA all the time and you'll end up getting fined for something you might not have any control over. Further, cheap condos appeal to cheap tenants (Phoenix is full of them) who often turn out to be low life no matter how you try to screen them.


My advice: If you are any good at investing in the stock market, keep at it and stay the hell away from rentals.
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Old 11-27-2017, 10:45 AM
 
69 posts, read 38,454 times
Reputation: 57
Jack thanks for the post, I got a few good laughs and in my 20 or so years of stocks I definitely have not had any of the stocks yell at me, trash my house, or take me to court... good food for thought. Thanks again!
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Old 11-27-2017, 11:14 AM
 
Location: North Idaho
18,712 posts, read 21,732,124 times
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You sound like you could learn to be a landlord. At least you have some of the job skills.

I will not have a condo as a rental. It's hard enough getting a tenant to follow the landlord rules without getting them to follow the HOA rules. The landIord generally gets stuck with HOA fines. If the tenant won't work with the HOA, the landlord is stuck because he can't get the tenant out until the end of the lease.
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Old 11-27-2017, 07:43 PM
 
3,840 posts, read 8,200,267 times
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If you can get quality renters I like the idea of having a rental to make the portfolio more well rounded. The (mostly) guaranteed monthly cash flow is something that stocks can’t provide.

I would just make sure you are buying in a quality neighborhood and at least two bedrooms. One bedrooms get a lot of turnover. Screen tenants and use your best judgement.
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Old 11-27-2017, 08:40 PM
 
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Well it depends to where you would you want to do. If you have the budget in acquiring it outright, but won't affect your everyday budget, then that would be good. If not, you might try to purchase it incrementally and then try to invest or diversify your money in different fields.
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Old 11-29-2017, 08:09 AM
 
Location: Miami-Jax
4,873 posts, read 5,433,839 times
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How much would the condo fees be? Honestly it doesn't sound like great return, unless you get in the lower range of purchase price (100k) and upper range of rent (1k). Condos will have lower insurance costs and lower ongoing maintenance, but it's that fee that can get outrageous plus any assessments that you can't control.

What are the cheapest 2 bedroom rentals in your area? I would definitely want to be a good step up in price from that so you're at least filtering out folks who can only afford the lowest rent.

Before you buy definitely research your market overall. Maybe talk to some folks at biggerpockets.com I am sure there are tons of active members who live/invest in Phoenix.
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Old 11-29-2017, 10:37 AM
 
607 posts, read 505,475 times
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Quote:
Originally Posted by JoeJude View Post
I want to have a regular relatively maintenance free (thus condo over house) income to supplement my medical insurance. I know with that type of cash I could buy more than one rental with mortgages but I have an extremely low risk tolerance.
Trust me, even a condo is not "maintenance free." You are usually (always?) responsible at least for everything within the walls. That means appliances, flooring, paint, window coverings, water heater ---. You will probably have to at least repaint and maybe recarpet each time you change tenants, and the unit will not bring you income while it is vacant. The tax hassle can be huge: you will need to figure depreciation and pay income tax on your net income; then when you sell it, you will need to recapture the depreciation and figure out the capital gain or loss. I've done my own taxes for years but needed to hire a CPA to do the taxes on my rental.

If you are risk-averse and want to diversity your portfolio, maybe invest in a REIT index fund (I use Vanguard's). I've had money tied up in both a rental and a REIT. I sleep a whole lot better with the REIT, and I can tell whether I have a profit or loss instantly.
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Old 12-05-2017, 01:25 PM
 
27,669 posts, read 63,537,245 times
Reputation: 17071
The long term returns on residential real estate are SIGNIFICANTLY below that of the an unmanaged broad mix of "index" stocks. A big part of the reason for this are the major differences in not just maintenance, which is huge, but also the tax treatment of real estate revenue stream.

It is further a fact that even the best performing Real Estate Investment Trusts (or REITs) that target either commercial tenants (like offices and retail stores) or those that target residential tenants have returns BELOW the long term stock market gains. BUT WHY WOULD REITs exist? Well the biggest thing is that the structure of REITs force them to pay out dividends that are generally a very large percentage of their operating income. That makes them an attractive alternative to bonds for folks who need cash flow (of course the investors / recipients typically have to pay taxes on that dividend income which opens up a huge can of worms for the investors as well as the many tax advisory firms that help investors structure deals to lessen taxes, which is a non-productive but lucrative part of the REIT scene...).

If the OP or anyone else is concerned with the "diversity of their holdings" there are lots of researchers who've shown that most financial firms oversell diversification and the majority of investors misunderstand what "risk adjusted returns" really mean - https://www.forbes.com/sites/janetno.../#14eff910395d
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Old 12-05-2017, 01:31 PM
 
1,260 posts, read 773,164 times
Reputation: 1015
Quote:
Originally Posted by adjusterjack View Post
Then the last thing you want to be is a landlord.


I had 3 rentals in Phoenix for 20 years. I was also handy and did a lot of the work. I also did a lot of the legal stuff. If you don't know the legal stuff you will spend a fortune on lawyers.


I had good tenants and bad tenants. The houses got trashed on occasions and cost me a lot of money. I had judgments against tenants that were uncollectible.


I sold the houses 20 years ago and never looked back. I used the equity to buy my current house for cash so things turned out OK moneywise.


But if I had it to do over, knowing what I know now, I would have stayed the hell away from rentals and my money would have grown just as nicely in 20 years without all the grief.


Another thing, if you buy condos to rent out, you'll have the HOAs to deal with as well as owners who don't like tenant occupied neighbors and will complain to the HOA all the time and you'll end up getting fined for something you might not have any control over. Further, cheap condos appeal to cheap tenants (Phoenix is full of them) who often turn out to be low life no matter how you try to screen them.


My advice: If you are any good at investing in the stock market, keep at it and stay the hell away from rentals.
Very good advice there.
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