Retirees: do you prefer rental property or investing in the stock market as an accumulation strategy? (55, friend)

[aslowdodge]

Originally Posted by golfingduo

if you are talking about your rental income you would need deductions to bring you to that 94k AGI. Do some repair and upgrades to the rental properties. Adopt some kids. Make charitable contributions. These go for W-2 income with the exception of the upgrades and repairs to rental property.

in reply to your response to me. That is fine and I never said it was wrong. I only said it isn't for everyone. I think a balanced approach is a better bet. I know people who have focused on only one of the investment methods. They do okay but it isn't for everyone.

I think people who use rental property as investment and income have their own style. It is something not everyone wants or likes.

Actually I just wanted to understand the taxation on stock market gains.
I think we can agree real estate is not for everyone, based On the replies here it's probably not for very many people at all. I think it is too misunderstood by most people and most people assume it's not worth the effort as too many people report losses and hassles and thus people never look into it. I think if more people heard the whole story for both stock and real estate they might make more of an effort to learn how to do real estate.
For me I didn't have 40 years of life or working years to accumulate enough stock nor did I have job stability that would have allowed me to contribute consistently. I made my moves over a 4 year period with real estate and was able to retire early.

[Submariner]

Originally Posted by aslowdodge

No schedule e.

I know that you do not file a Schedule E.

Do you see why your previous statement

... My Roth IRA holds rental properties in which the net rental income will be just like yours.

Sounds kind of silly?

You cannot file a Schedule E. Your Roth IRA can not provide the benefits that non-passive activities provide.

[FIREin2016]

Originally Posted by newnewyorkers

I see there are many folks in here that have built their wealth via investment property. On the other hand many also have investd in the stock market, etc... as primary means of wealth accumulation for retirement.

Can you let me know what your experience was in this regard? What worked for you? What do you think is a best way to accumulate and protect a nest egg, and be financially independent? I have the impression that those that invested in rental properties were able to retire early (or earlier)... And that those who put their nest eggs primarily in investment vehicles (funds, etfs, etc...) had to wait longer to ensure the nest egg was big enough sustain the 4% or 3% withdrawal rate.

Thanks for your thoughts.

I have 25 tenants. Plus a 7 figure portfolio. Plus a pension. It makes sense to do both RE and stocks, as a diversified method of accumulating wealth. My rentals produce 15%+ returns in money invested. The stocks are much less.

You should have multiple legs of income. Where any of the legs could support you if needed.

[aslowdodge]

Originally Posted by Submariner

I know that you do not file a Schedule E.

Do you see why your previous statement



Sounds kind of silly?

You cannot file a Schedule E. Your Roth IRA can not provide the benefits that non-passive activities provide.

Actually I don't, please explain further. If you knew I didn't file schedule e, why did you ask?

When I made that statement it was in reference to the other poster who said he made some "tasty" gains in his Roth and would not pay taxes when he withdraws. When I said my Roth holds rental properties I made the statement that my withdrawals would be like his in that they too would be tax free. I never said that the real estate in the Roth provides all the benefits that non passive does . I specifically mentioned you cannot depreciate them in one of my posts.

I own rentals in both my Roth and personally.
I retired early off the income of those I own personally and I do receive the benefits of owning them.

The Roth is separate from that and doesn't have all the benefits of the personal but continues to accumulate rental income and purchase more rentals on its own. I will still get 13 to 14% return on its value when the time comes (not yet at the age to make withdrawals on it yet) just like my personal owned rentals , but it will be tax free unlike my personal rentals.

When I said I made 13 to 14% return and retired early, I also specifically said that I did not include the benefits of real estate in that return . I did however write an example of pulling out cash to increase the roi.

[aslowdodge]

Originally Posted by FIREin2016

I have 25 tenants. Plus a 7 figure portfolio. Plus a pension. It makes sense to do both RE and stocks, as a diversified method of accumulating wealth. My rentals produce 15%+ returns in money invested. The stocks are much less.

You should have multiple legs of income. Where any of the legs could support you if needed.

Outstanding job!

[aslowdodge]

Originally Posted by tommy64

You're assuming that the manager will actually do their job and that can't be assumed in the real world.

Property managers commonly take advantage of smaller landlords. They can mismanage a property right out of business and when all is said and done and you're left with an expensive mess they'll just say "Being a landlord is a risk and we can't guarantee anything. Sorry."

Unless you have a huge book of business like 20 units or more, it's not feasible to hire a manager IMO.

I agree. Elsewhere on this forum I advised someone that if they wanted to invest out of their area that more importantly than the supposedly rou is making sure they had a great property manager. I also said they were very hard to fine. I invest in a couple different areas and one property manager is much better than the other one is. One does an OK job and the other one does a far superior job handling the property as if they owned it themselves. If anything, I assume a property Manager won't do their job correctly which is why I vette them very carefully.
I have seen many cases were property managers don't run the business very well and yes many a person has been stuck as an investor. That's why I mentioned that people do need to do their homework and not buy real estate and ignore it Like they can do when they just click the mouse and by neutral funds into retirement account and wait for it to grow for 40 years.

You don't need 20 units or more to hire a property manager, just be smart on how you vette them. When I started out with my property managers they only managed one house for me for two years . The OK property manager only managed two very inexpensive rentals for two years. When I saw how they performed that's what I made my big move and start accumulating more properties rapidly. The property manager that managed just one house did an outstanding job, even though I only had one rental with them. They had no idea that I would ultimately have the manage 17 rentals for me.

[Submariner]

Originally Posted by aslowdodge

Actually I don't, please explain further. If you knew I didn't file schedule e, why did you ask?

Because you were saying how your Roth IRA has the same benefits as a rental Real Estate has.

Clearly it does not. You can not file a schedule E on an IRA to reap rental benefits.

[mathjak107]

our holding company held 10 co-op apartments and a load of commercial lease rights at one point .

we used douglas elliman to manage everything and even though all we have is two apartments left today we still utilize them to keep us out of the daily loop .

i feel the same way about our investment property as i did the home we lived in . i want to devote as little time to chores , maintenance and housing issues as i can , i hate the stuff . but i do like the profits we saw from the real estate so for us it was best to use a professional mgmt company .

[Burkmere]

[quote=aslowdodge;46602542]Congratulations on waiting for 35 to 40 years to be financially self suffucient while my friends waited for five years to be just as self sufficient. You clearly beat them to a pulp on that one. I can't believe the mice are that heavy, but maybe at your older age they are. Did they even have mice when you started investing 40 years ago?

It's funny that you make a lot of assumptions yourself about how much risk they took. It's a lot of risk to you because you know nothing about rental real estate. You keep saying how much work it is, but the fact that I mentioned I use a property manager to do everything is akin to having a broker take care of your stocks. But for those that study it, analyze it, put a system together, it's very little risk.

So my friends started and retired in 5 years, how long did it take you? eh 40 years! Sure it's easier your way working for 40 years of your life, but some of us don't want to wait 40 years like you did. Retiring young and traveling when your young as well as middle age and older is more fun than just traveling when you are older. When you are younger you are physically in better shape to do more things. Plus some of us actually think that doing some work and research now for greater rewards is preferable to waiting for 40 years like you did. Some people take on a second job to get ahead. In their case their second job was rental real estate.

How many people want to work for 40 years waiting to have enough to retire? Many people are worried they won't make it to the 40 years as technology and outsourcing are eliminating their jobs and their ability to "mouse click" funds into retirement. I have friends that won't hit their retirement goals as you did because they a getting laid off and have stopped contributing. I feel bad for younger people as things aren't like they were before where you worked and were loyal to the same company all your life then you had a house paid for and a retirement and health care. Used to be get a degree and get a good job. That American dream and goal is slipping away. many graduates can't get a job, are underemployed, some living at home with mom and dad. I can see where some people would want to secure a nest egg earlier than waiting 40 years just to feel better about their future.

If you think it's easy moving a mouse, then operating a real estate business isn't much harder. Making a phone call, sending an email, or paying vendors and contractors and managers with online banking isn't much harder.
You live in an apartment. If you have a maintenance issue do you call the owner or the manager? If you need a toilet fixed, does the owner come out or is it a handyman or plumber?
Plus waiting 40 years is a risk in itself. If the market doesn't pan you're a lot older and have less time to catchup. You peak earning years are probably behind you.

You might want to reexamine your comments about letting facts get in the way. The saying "You don't know what you don't know." applies to you here. You think you know the answer, but it's obvious you know little about the real estate rental business, so how can you really make a fair comparison? If you did you would know you could have done way better than your little rental that you actively managed.

I understand your point of view-it's all you know an you aren't willing to expand your education. Most people don't want to make any effort.
They buy rentals and expect it is like buying mutual funds. Buy it and forget it. For them your way is the most practical. There is more work than that when you first get started and as you build it up it gets easier. For those that don't trust the system or have the time to wait to see if it pans out like maybe it did for their parents, taking responsibility for their lives and their futures is what they need to do.
It's just a plain good idea to educate yourself in finances and retirement, I don't think anyone can argue that. By the same token if you are going to do real estate, take the time to learn how to do it right. Don't learn about stocks, bonds, 401Ks etc for investing in the market, then not take the time to educate yourself in real estate rentals and poo poo it because you didn't learn how to do it correctly and now you say it can't be done.

BTW if you knew anything you would not tell people to go out and buy apartment complexes, that's what people who don't know about how to make money in rentals would say-even if jokingly. That is a lot bigger jump in at the start. I don't own apartments, I own single family homes. If someone makes $100k a year and puts 15% away each year like you suggest, they could use that 15% to buy a house and rent it out. That can get themselves a $50K house which if bought correctly (no you can't sit on your butt like you did and click and forget) will get them a positive cash flow after all expenses including a manager so they don't have to actively manage like you did. They could buy one house each year and after a while get two a year. In 10 to 15 years they could be totally self sufficient with 12 to 20 houses and retire early if they wanted or know that they are secure financially. They don't have to worry about getting laid off or worse hurt and unable to work. Achieving this in 10 to 15 years is preferable to waiting 40 years for an outcome on how their lives will be.
Tenants pay for the house with rents which when paid off they the person now owns plus they get some extra cash which can in turn be saved to buy another rental. The also pay less taxes as they get mortgage interest write off and depreciation. Thus they keep more of their income which they can use to accelerate their real estate purchases.
Like I said I owned and self managed 5 rentals back in Ca a few years ago. I devoted 35 hours a year or roughly 40 Minutes a week "actively managing" them. I had them dialed in and systemized. If you find that is way to much work, then I can't argue with you.
On the other hand if you spent way more time with your rental to a point where you thought it was too much work, maybe you just didn't know what the heck you were doing and I can see where you would prefer clicking a mouse for 40 years instead.[/QUOTE

Great for you! I recommend to go out and buy a bunch of rentals in the Bay Area now..make sure they are in Palo Alto where they never go down.

And it will only take 40 minutes a week to self-manage them. Of course that includes "everything." Repairs, dealing with tenants, collecting rent, everything....lol... Remember, you said self-manage...no property manager...noone else, just you. And in five years, according to you, you will have million of dollars (enough to retire is what you said your friends did)....what a country!

Then let's check back in five years when because of interest rates rising they are worth 30% less.

Remember, you said five years. A 25 year old starting today can buy properties and in 100% of cases retire in five years. Guaranteed. LOL.

[Burkmere]

Originally Posted by aslowdodge

Congratulations on waiting for 35 to 40 years to be financially self suffucient while my friends waited for five years to be just as self sufficient. You clearly beat them to a pulp on that one. I can't believe the mice are that heavy, but maybe at your older age they are. Did they even have mice when you started investing 40 years ago?

It's funny that you make a lot of assumptions yourself about how much risk they took. It's a lot of risk to you because you know nothing about rental real estate. You keep saying how much work it is, but the fact that I mentioned I use a property manager to do everything is akin to having a broker take care of your stocks. But for those that study it, analyze it, put a system together, it's very little risk.

So my friends started and retired in 5 years, how long did it take you? eh 40 years! Sure it's easier your way working for 40 years of your life, but some of us don't want to wait 40 years like you did. Retiring young and traveling when your young as well as middle age and older is more fun than just traveling when you are older. When you are younger you are physically in better shape to do more things. Plus some of us actually think that doing some work and research now for greater rewards is preferable to waiting for 40 years like you did. Some people take on a second job to get ahead. In their case their second job was rental real estate.

How many people want to work for 40 years waiting to have enough to retire? Many people are worried they won't make it to the 40 years as technology and outsourcing are eliminating their jobs and their ability to "mouse click" funds into retirement. I have friends that won't hit their retirement goals as you did because they a getting laid off and have stopped contributing. I feel bad for younger people as things aren't like they were before where you worked and were loyal to the same company all your life then you had a house paid for and a retirement and health care. Used to be get a degree and get a good job. That American dream and goal is slipping away. many graduates can't get a job, are underemployed, some living at home with mom and dad. I can see where some people would want to secure a nest egg earlier than waiting 40 years just to feel better about their future.

If you think it's easy moving a mouse, then operating a real estate business isn't much harder. Making a phone call, sending an email, or paying vendors and contractors and managers with online banking isn't much harder.
You live in an apartment. If you have a maintenance issue do you call the owner or the manager? If you need a toilet fixed, does the owner come out or is it a handyman or plumber?
Plus waiting 40 years is a risk in itself. If the market doesn't pan you're a lot older and have less time to catchup. You peak earning years are probably behind you.

You might want to reexamine your comments about letting facts get in the way. The saying "You don't know what you don't know." applies to you here. You think you know the answer, but it's obvious you know little about the real estate rental business, so how can you really make a fair comparison? If you did you would know you could have done way better than your little rental that you actively managed.

I understand your point of view-it's all you know an you aren't willing to expand your education. Most people don't want to make any effort.
They buy rentals and expect it is like buying mutual funds. Buy it and forget it. For them your way is the most practical. There is more work than that when you first get started and as you build it up it gets easier. For those that don't trust the system or have the time to wait to see if it pans out like maybe it did for their parents, taking responsibility for their lives and their futures is what they need to do.
It's just a plain good idea to educate yourself in finances and retirement, I don't think anyone can argue that. By the same token if you are going to do real estate, take the time to learn how to do it right. Don't learn about stocks, bonds, 401Ks etc for investing in the market, then not take the time to educate yourself in real estate rentals and poo poo it because you didn't learn how to do it correctly and now you say it can't be done.

BTW if you knew anything you would not tell people to go out and buy apartment complexes, that's what people who don't know about how to make money in rentals would say-even if jokingly. That is a lot bigger jump in at the start. I don't own apartments, I own single family homes. If someone makes $100k a year and puts 15% away each year like you suggest, they could use that 15% to buy a house and rent it out. That can get themselves a $50K house which if bought correctly (no you can't sit on your butt like you did and click and forget) will get them a positive cash flow after all expenses including a manager so they don't have to actively manage like you did. They could buy one house each year and after a while get two a year. In 10 to 15 years they could be totally self sufficient with 12 to 20 houses and retire early if they wanted or know that they are secure financially. They don't have to worry about getting laid off or worse hurt and unable to work. Achieving this in 10 to 15 years is preferable to waiting 40 years for an outcome on how their lives will be.
Tenants pay for the house with rents which when paid off they the person now owns plus they get some extra cash which can in turn be saved to buy another rental. The also pay less taxes as they get mortgage interest write off and depreciation. Thus they keep more of their income which they can use to accelerate their real estate purchases.
Like I said I owned and self managed 5 rentals back in Ca a few years ago. I devoted 35 hours a year or roughly 40 Minutes a week "actively managing" them. I had them dialed in and systemized. If you find that is way to much work, then I can't argue with you.
On the other hand if you spent way more time with your rental to a point where you thought it was too much work, maybe you just didn't know what the heck you were doing and I can see where you would prefer clicking a mouse for 40 years instead.

Actually, you only have to do the mouse click once.

If you think you can buy rental houses now and retire in five years with apparently millions and millions of dollars because that is what it would take to retire..(easy, you say and you can self manage them with zero help from ANYONE) then you been drinking' way too much eggnog...