28 year old from NH

[nwtractor]

Hi, my name is Nate and I am 28 years old. I currently have a good paying job that pays between 100k-150k dependent on overtime and have saved about 500k . Roughly 140k in a Roth 401k/IRA, 75K in the stock market, 300k in savings account. I do have a mortgage 175K and no other debt.

Using some of the FI calculators if I was to just invest the money in index funds with average returns 6-7% I could be FI in 5-10 years.

200K out of the 300K I would like to invest. I have been actively looking for a rental property but not sure if I would want to go down that avenue. I would love to hear from anyone in the rental business and hear what they have to say and what your minimum rate of return is for investing in real estate. Or if I am better off investing in an index fund.



Thank you for reading and your thoughts!

[pb4uski]

Are you expecting different answers from the last thread you started on this topic a week ago?

We may be old but our memories still work.

Quote:

Originally Posted by nwtractor Hi, my name is Nate and I am 28 years old. I currently have a great paying job that pays between 100k-150k dependent on overtime and have saved about 500k . Roughly 200k in a Roth 401k/IRA and 300k in savings account. I do have a mortgage 175K and no other debt. Right now I am actively looking to purchase a multifamily or commercial investment property for passive income. It has been tough looking for the right property that fits my needs but am willing to wait for the right property. Using some of the FI calculators if I was to just invest the money in the stock market with average returns 6-7% I could be FI in 5-10 years. Should I keep waiting for the right property or put my money to work right now and just let it ride in an index fund. Thank you for reading and your thoughts!

[marko]

Quote:

Originally Posted by pb4uski Are you expecting different answers from the last thread you started on this topic a week ago? We may be old but our memories still work.

Maybe his memory isn't working.

DW will ask me the same question 5 times some days until she gets the right answer.

Not saying Nate is trolling, but I'm wondering if it would help if, as a requirement to open a thread, one had to 1) start with the "Hi, I am" thread and then 2) wait 3-4 days before one's first thread opening.

[joeea]

Quote:

Originally Posted by nwtractor Using some of the FI calculators if I was to just invest the money in index funds with average returns 6-7% I could be FI in 5-10 years.

Is that your goal?

[nwtractor]

Quote:

Originally Posted by pb4uski Are you expecting different answers from the last thread you started on this topic a week ago? We may be old but our memories still work.

No I wasnt sure if I posted the thread in the right section and i was hoping to hear from more people who have rentals what their requirements are for investing in real estate.

Also would you recommend investing in an index fund right now with 200k or wait for a better opportunity.

Sorry for any confusion.

[nwtractor]

Quote:

Originally Posted by marko Maybe his memory isn't working. DW will ask me the same question 5 times some days until she gets the right answer. Not saying Nate is trolling, but I'm wondering if it would help if, as a requirement to open a thread, one had to 1) start with the "Hi, I am" thread and then 2) wait 3-4 days before one's first thread opening.

Sorry I am new to the forum. I will make sure I do that next time.

[nwtractor]

Quote:

Originally Posted by joeea Is that your goal?

I am not sure, but it would be nice to have the opportunity. In 5-10 years I will be 33-38 and would still need to stay busy doing something productive or a side business.

[KenZ71]

Congrats & kudos to you for being where you are.

I've thought of doing the rental property thing but dont as I am a sucker for sob stories that would have my tenants skipping rent payments.

Not to say all tenants will try but just don't want to put myself in that position.

I would consider maxing 401k Contributions and if necessary drawdown the savings for living expenses that way more funds are tax sheltered & protected under retirement account rules. But also curious what others say on the topic.

[cnocmmz]

Recommend continue working at least until 40 years of age... Very young plenty of time. You are on the right track with the saving. Good job!

[pb4uski]

Quote:

Originally Posted by nwtractor ...Also would you recommend investing in an index fund right now with 200k or wait for a better opportunity. ....

Many studies have shown that it is best to dump it in all at once, but I will concede that with market indices near all-time highs that I would be tentative about doing that.

Another alternative would be to put in $10k, after a month add enough to increase the market value to $20k (so add $21k if the balance has declined to $9k or $9k if the balance has increased to $11k).... rinse and repeat adding enough to bring the balance to $30k, $40k, etc. until your whole $200k is invested.

Its called value averaging... you invest more when values are relatively low and less when values are relatively high.

[HI Bill]

Quote:

Originally Posted by nwtractor ...i was hoping to hear from more people who have rentals what their requirements are for investing in real estate.

I've only owned a rental once, for about a year. Here are some guidelines/lessons learned.

1) It's all about cash flow. For a rental to be worthwhile, you'll need to have positive cash flow.

2) Take the purchase price, subtract the down payment, then calculate your mortgage payment. Look at the mortgage calculator table that shows how much you're paying to principal, and how much to interest. Add in PMI if you have to pay this.

3) Add in maintenance costs, property taxes, repairs. Add in costs for advertising, and carrying costs that you'll have to pay regardless of whether it's rented. Add in association fees if it's a condo.

4) Determine your total cash flow (rental income, less all the expenses listed above). That's how much is subject to your income taxes, generally speaking. After income tax, how positive is the number?

5) Are you experienced in owning and maintaining your own home?

6) Do you have repair experience, or will you have to hire subcontractors for repairs.

7) How stable is the real estate market where you're buying? Is there a real risk that the property value will go down in the future? With real estate, in certain areas, at certain times, you can easily lose more than the 20% you put down.

8) Do you have enough saved up to cover 3 to 6 months of carrying expenses in the event your renter leaves, you can't rent it, or worse yet, your renter stops paying rent, but fails to leave?

9) How are the landlord vs. tenant rules in your state? Do they favor landlords or renters? I have a friend who rented a house in CA to a couple. They stopped paying rent, and after 18 months, he was finally able to get the courts to kick them out, with a Police escort. This cost him more than $60K in legal fees, plus lost rent.

10) Look at the overall rate of return on your investment. Would you have been better off making an investment in the total stock market? At least there, you can only lose your principal, not 5X that.

Anyway, there are lots of folks who make tons of money in real estate, especially over the long run. Appreciation, and eventually paying off the loan, and having an asset to sell are also positives. But then you'll have a big tax bill on the appreciated price.

Best of luck. For my first and only rental condo, my cash flow was neutral. I was hoping to sell at a profit. After my renter lost his job, I had to kick him out, use his deposit to cover the last month's missed rent, and I ended up covering the repair bills. I almost had to take money out of my 401(k) to cover expenses, and shortly after I sold, the price of the property plummeted by more than $100K. Being a landlord is not for the faint of heart.

If you can find inexpensive real estate in an area with high rental demand, that is probably your best best.

[thumbs]

Quote:

Originally Posted by HNL Bill I've only owned a rental once, for about a year. Here are some guidelines/lessons learned. 1) It's all about cash flow. For a rental to be worthwhile, you'll need to have positive cash flow. 2) Take the purchase price, subtract the down payment, then calculate your mortgage payment. Look at the mortgage calculator table that shows how much you're paying to principal, and how much to interest. Add in PMI if you have to pay this. 3) Add in maintenance costs, property taxes, repairs. Add in costs for advertising, and carrying costs that you'll have to pay regardless of whether it's rented. Add in association fees if it's a condo. 4) Determine your total cash flow (rental income, less all the expenses listed above). That's how much is subject to your income taxes, generally speaking. After income tax, how positive is the number? 5) Are you experienced in owning and maintaining your own home? 6) Do you have repair experience, or will you have to hire subcontractors for repairs. 7) How stable is the real estate market where you're buying? Is there a real risk that the property value will go down in the future? With real estate, in certain areas, at certain times, you can easily lose more than the 20% you put down. 8) Do you have enough saved up to cover 3 to 6 months of carrying expenses in the event your renter leaves, you can't rent it, or worse yet, your renter stops paying rent, but fails to leave? 9) How are the landlord vs. tenant rules in your state? Do they favor landlords or renters? I have a friend who rented a house in CA to a couple. They stopped paying rent, and after 18 months, he was finally able to get the courts to kick them out, with a Police escort. This cost him more than $60K in legal fees, plus lost rent. 10) Look at the overall rate of return on your investment. Would you have been better off making an investment in the total stock market? At least there, you can only lose your principal, not 5X that. Anyway, there are lots of folks who make tons of money in real estate, especially over the long run. Appreciation, and eventually paying off the loan, and having an asset to sell are also positives. But then you'll have a big tax bill on the appreciated price. Best of luck. For my first and only rental condo, my cash flow was neutral. I was hoping to sell at a profit. After my renter lost his job, I had to kick him out, use his deposit to cover the last month's missed rent, and I ended up covering the repair bills. I almost had to take money out of my 401(k) to cover expenses, and shortly after I sold, the price of the property plummeted by more than $100K. Being a landlord is not for the faint of heart. If you can find inexpensive real estate in an area with high rental demand, that is probably your best best.

Great advice here.

I have been actively buying rental real estate since 2010 and really enjoy it. I think the thing you need to figure out is if it suits your personality. Don't just chase returns. Finding, negotiating, and financing a property gets me excited. I have not taken the time to calculate if I would be further ahead had I invested in say, index funds instead of real estate. My guess is that I am further ahead now, but truthfully it doesn't really matter to me, as this suits my personality better.

You won't often find much love for rental properties on this forum. I am sure there are other ones that are more focused on rental properties than this site... however this is a great place to get inspired and get advice from people who really care on a million different topics, financial freedom being just one of them.