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No, total return only counts at the time that you sell.
Think of it like a house rental. You buy a house for $100k. You rent it out at $1k per month. Your annual return is 12%. In other words, that $100k investment brings you $12k annually.
And if that homes value goes down to $88k your total return is 0%. My most profitable rentals bring me almost zero monthly income.
Location: Was Midvalley Oregon; Now Eastside Seattle area
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Quote:
Originally Posted by RosemaryT
So, it took 18 months but here we are. How much loss can you tolerate? I'm out of the market for now so I am not willing to tolerate much!!
Kinda depends on how your funds/assets are allocated, when you the funds/Income and your ability to take risks and volatility. Then there is the question of a person's age
If you are a BH, where you let the Market take you to your destination and you are always contributing with the expectation to live forever... then you are the Alfred E Neuman type. Everyone else is a worrywort.
And if that homes value goes down to $88k your total return is 0%. My most profitable rentals bring me almost zero monthly income.
My most profitable real estate investments are break even rents . I owned a lot of rent stabilized co-ops in a prestigious building over looking Central Park .
We bought out the leases of tenants who were at breakeven rents and sold the apartments for multiple 7 figures
Last edited by mathjak107; 12-29-2018 at 06:26 PM..
And if that homes value goes down to $88k your total return is 0%. My most profitable rentals bring me almost zero monthly income.
Some people here just don’t get it or want to understand they are deceiving themselves by thinking they are getting these returns when the asset value is sucking part of it out the back door.
But let them believe what they like, as long as others know better
No, total return only counts at the time that you sell.
Think of it like a house rental. You buy a house for $100k. You rent it out at $1k per month. Your annual return is 12%. In other words, that $100k investment brings you $12k annually.
You love that income. It supplements your other investment, pension, and SS income. You have no need or desire to sell that house. Who cares about the price? What you care about is the rental market. Can you increase the rent? Are there sufficient renters out there to keep the house at 100% occupancy.
Only when you want to sell the house do you take a look at the prices of other houses.
Ha ha ha , still calculating things wrong .
That is not how real estate return is calculated and just for the reasons I said . You must account for profits coming in the front door and going out the back door .
A cap rate is a calculation used to determine the profitability of a real estate investment. In essence, the cap rate is the net operating income (NOI) of a property in relation to the property's asset value. ... This calculation will give you a percentage that indicates the annual return on your investment.
...............That is not how real estate return is calculated and just for the reasons I said . You must account for profits coming in the front door and going out the back door .
A cap rate is a calculation used to determine the profitability of a real estate investment. In essence, the cap rate is the net operating income (NOI) of a property in relation to the property's asset value. ... This calculation will give you a percentage that indicates the annual return on your investment.
In 1985 we built 2 townhouses for 40K each. Paid them off in 2000.
We have rented them out steadily for the last 30 years. Currently we get 1600/mo. Of course we gotta figure some repairs and some odd expenses each year.
Now they are worth about 120K each.
Do I really care what the return is? I can see where if I just purchased them I might be concerned, but frankly it doesn't concern me at all.
Fact it, our investment is 0. The tenants paid them off - we didn't. We made a down payment of about $8000 30 years ago, but everything else was not our money.
So do I really care? I don't think so. Seems like we're getting a pretty good return on our 8K; we're netting 13K a year and have been since 2000. If I live another 20 years, I will have drawn 13K/yr X 40 years = $520K And that's without raising anyone's rent.
In 1985 we built 2 townhouses for 40K each. Paid them off in 2000.
We have rented them out steadily for the last 30 years. Currently we get 1600/mo. Of course we gotta figure some repairs and some odd expenses each year.
Now they are worth about 120K each.
Do I really care what the return is? I can see where if I just purchased them I might be concerned, but frankly it doesn't concern me at all.
Fact it, our investment is 0. The tenants paid them off - we didn't. We made a down payment of about $8000 30 years ago, but everything else was not our money.
So do I really care? I don't think so. Seems like we're getting a pretty good return on our 8K; we're netting 13K a year and have been since 2000. If I live another 20 years, I will have drawn 13K/yr X 40 years = $520K And that's without raising anyone's rent.
I should find stocks that do as well!
As someone who is still acquiring assets, knowing my exact returns does matter and is very important when I'm running the numbers for future buys. If I had a property worth $240k and bringing in a net rent of $1,200 a month in rent with little appreciation I'd consider getting rid of it. That's a 6% yield and let's say 2% appreciation, a total of 8%, I would just stick it in an index fund and not have to deal with any tenants.
I get what you're saying though, there will come a point were I won't have the drive to keep exchanging properties for maximum returns. Especially if you're going from RE to another asset class, you will have a big tax bill after owning for so long. Your returns sounds pretty good, but some people are clueless and think they are killing it with a <5% return, yeah no thanks.
My elderly mother's advisor has her invested in a basket of different individual stocks and she gets a monthly deposit from dividends that in conjunction with her SS, provide her with the level of income she needs for living expenses, without having to sell off any stocks. Using the income from dividends makes sense for some people, depending on their age, time horizon, and other factors.
just make sure you understand that as an example , spending a 4 or 5% dividend is identical to a 4 or 5% draw from a portfolio of non div payers .
whatever you spend is your draw rate and if you exceed what is safe for your allocation you put yourself in a bad position .
a 4% safe withdrawal rate assumes if things turn nasty , like those in 1965/1966 saw that at the end of the specified time frame you have a buck left .
there is no such thing when spending down as not touching "principal "
if you aren't or haven't it just means you have not hit any truly bad outcomes yet for an extended period ..
In the years after 1965, the perfect storm of retirement killing conditions took place. Inflation grew rapidly over the following decade, exceeding 10% in several years in the 1970’s and averaging 6% a year from 1965 to 1985. Interest rates rose rapidly, from ~4% in 1965 to ~8% in 1970, up to 15% in 1982, causing bonds prices to plummet. The combo of fast rising high inflation and rising interest rates destroyed bonds.
Stocks also performed horribly. Adjusted for inflation, the stock market hardly budged above its 1965 value until 1984 ,19 years later. Dividends moved sideways over 2 decades
To understand the impact of inflation during this period, I looked at the CPI over the 60 year period before and after 1965. Inflation was largely predictable before 1965 and after the early 80s. However, the transition was painful. Between 1965 and 1982 prices would triple.
it is times like that the safe withdrawal rate research was based on .
Last edited by mathjak107; 12-30-2018 at 02:40 AM..
In 1985 we built 2 townhouses for 40K each. Paid them off in 2000.
We have rented them out steadily for the last 30 years. Currently we get 1600/mo. Of course we gotta figure some repairs and some odd expenses each year.
Now they are worth about 120K each.
Do I really care what the return is? I can see where if I just purchased them I might be concerned, but frankly it doesn't concern me at all.
Fact it, our investment is 0. The tenants paid them off - we didn't. We made a down payment of about $8000 30 years ago, but everything else was not our money.
So do I really care? I don't think so. Seems like we're getting a pretty good return on our 8K; we're netting 13K a year and have been since 2000. If I live another 20 years, I will have drawn 13K/yr X 40 years = $520K And that's without raising anyone's rent.
I should find stocks that do as well!
your investment is never zero ... you took the money you made whether from tenants , a job , etc and put it in the property one way or another.
if i made a lot of money in the markets and bought real estate , the markets paid for the property , but that is still my money tied up in it
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Seems like we're getting a pretty good return on our 8K; we're netting 13K a year and have been since 2000. If I live another 20 years, I will have drawn 13K/yr X 40 years = $520K
And that's without raising anyone's rent.
