How to assess risk on rental RE vs. 60/40 AA?

[sunsnow]

We use rental real estate to fund our basic expenses (about 50% of our investment portfolio). The properties are all under professional management, and even so there is a bit to think about and deal with (maybe 5 hours per week). This has been going on for four years now, and our cap rate looks to be 7-8%. We chose B properties in A neighborhoods. Our typical renters are young single professionals. The viability of rentals varies greatly according to the building and location. I never buy a property I wouldn't live in myself, and have generally found high quality tenants. Anyway, no regrets so far. Good luck to you!

[WestLake]

I've bought almost a dozen SFH (and one duplex) over the past 30 years. I've now paid them all off and have been maxing the 401K and Roth (same full-time j*b for 26 years). Would I be FI (assets about $3 million) without the real estate?

Hell no.

[knucklehead 61]

i like rental real estate & am currently trying to buy a few more. i have 13 currently, many with no mortgages. most are making better than 10% cash on cash returns.
i plan to fire with about 60 to 70% of my income stream coming in from the rentals, the rest of my 125k gross income will need to come from my taxable equity accounts. should be able to pull the rip cord in 3 years at 50.

[eta2020]

Quote:

Originally Posted by Onward Just one word, FIGuy. Mold. O wait. Another. Litigation. And while we're at it ... Vacancy. That is all. Not quite. Tenants' rights.

+1

maybe some lawsuit

[arebelspy]

One thing not discussed very much in this thread: the question in the title. That is, how do you assess the risk?

You can get an 8% cash on cash return net of all expenses, management, etc.? Okay.

That's an average, and doesn't take into account some years will be good, some will be much worse (as multiple repairs, vacancies, etc. hit at the same time), i.e. variance.

How about geographic risk? If all of your properties are in the same geographic area, what happens if that area declines? Your rents decline even while inflation is increasing your expenses.

There are other things to consider beyond "I can get 8%, so I can retire on 375k of real estate to get 30k annually for life."

This thread seemed to split into replies that consist of "I don't do real estate for reasons X, Y, and Z" or "I do real estate, it's part of my FIRE plan," but with not much discussion of the nuances - just simple yes or nos.

Hopefully some will chime in with other considerations not yet brought up.

(Disclaimer: real estate is the vast majority of my portfolio, and I anticipate 100% of my FIRE income to come from rents, with my equity holdings to just sit and compound.)

[LandlordInvestor]

Yeah.. the risk is what he is asking about.

I see several areas of risk:

Neighborhood shift. There could be a significant shift in the class of the neighborhood over the years. I have seen this occur and it can affect your tenant class, rents you can pull, vacancy rates, property condition, etc..

Property condition. The condition of the properties can certainly drop off over time. I have several built in the 50's. These are 60 years old today and I am anticipating they last another 30 at least. For me, I don't see any issues. These are well built, brick homes, pier and beam foundations - they built them good back then. If you maintain them properly, you should not have an issue. I have a Fox and Jacobs slab built in the late 70s that I am more concerned about than my old stuff.

Self managment vs property manager. I see this as a bigger risk for me. Today we self manage our properties, but I dont think I can do this in my mid 70's or 80's. Even 10 years from now -- I could be saying I want OUT. It's not our current plan to turn they keys over to a PM, but it could happen. In my retirement calculators I assume we will turn over they keys at 65 and I even put in that we will "sell the turd" a few times in the timeline. i.e. we will sell a property that may turn south on us every ten years or so. I don't see it now, but I plan conservatively.

Liability. Always an issue for a landlord. I am umbrella'd up currently and might even hit the LLC button in a few years. This will shift some of it, but its always out there with rentals.

I think these are the biggest risk. The returns are great.. for me its a matter of can I run the marathon and keep them going or will I wear down and lose the passion of managing rentals at some point? I think rentals still give you plenty of options even in this scenario....