Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
become a landlord or more index funds?
Old 11-14-2016, 07:58 PM   #1
Recycles dryer sheets
 
Join Date: Oct 2016
Posts: 52
become a landlord or more index funds?

Hi. I am selling a property that a family member lived in. It didn't cash flow because I was helping her out, and it still won't cash flow now anyway due to the high purchase price & current rents. Here are the numbers:

Purchased for 250k
Selling for 315k
Cap gains to be incurred: appx 63k (after closing costs, fees, etc)

I've been considering finding a cash-flowing turn-key property or two out of state (I live in CA), but I'm not convinced its a good idea. A 1031 exchange will save me about 13k in taxes, but is it worth the headache of becoming a landlord all over again? I wasn't thrilled first time around, so I'd definitely put the properties under management...

For the record I'm 49 and another 2-3 years away from FI.

What are your experiences & thoughts? Many thanks!
__________________

tmitchell is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 11-14-2016, 08:44 PM   #2
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
There is a lot of risk in being a landlord, hence the big rewards. Having said that it brings me ~$180K+ a year if I do a bit of work, and much of it is sheltered by a depreciation deduction.

If you can buy a property in a self directed ROTH Ira, it would be the best.
__________________

__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is offline   Reply With Quote
Old 11-14-2016, 08:55 PM   #3
Thinks s/he gets paid by the post
Souschef's Avatar
 
Join Date: Dec 2015
Location: Santa Paula
Posts: 2,641
Quote:
Originally Posted by Senator View Post
There is a lot of risk in being a landlord, hence the big rewards. Having said that it brings me ~$180K+ a year if I do a bit of work, and much of it is sheltered by a depreciation deduction.

If you can buy a property in a self directed ROTH Ira, it would be the best.
I agree with Senator, but in my experience as a landlord, even with it management company, it can be a PITA.
The other downside is when you sell the property, you have to recapture the depreciation.
The theory is that you can deduct the depreciation against your income, but recapture it as a cost basis when you sell the property as capital gains.
__________________
Retired Jan 2009 Have not looked back.
AA 50/45/5 considering SS and pensions a SP annuity
WR 2% SI 2SS & 2 Pensions
Souschef is online now   Reply With Quote
Old 11-14-2016, 09:24 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
calmloki's Avatar
 
Join Date: Jan 2007
Location: Independence
Posts: 6,148
As a landlord for 30+ years I vote no. Especially if you plan on having a management company - and outa state? you gotta have a management company..
calmloki is offline   Reply With Quote
Old 11-14-2016, 09:40 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 26,192
Landlording is work! I have never been a landlord, and never want to be one, certainly not in retirement. I'd just buy stocks or bonds and live off whatever they throw off as income.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is online now   Reply With Quote
Old 11-14-2016, 10:12 PM   #6
Moderator
samclem's Avatar
 
Join Date: May 2004
Location: SW Ohio
Posts: 14,371
If you weren't close to FI, wanted a sideline gig to make some extra money for a decade or so, and wanted to buy some rental properties in your own town to manage yourself in a neighborhood you knew well, that would sound like a good idea. But everything about your situation sounds exactly the opposite of that, which increases your risk and decreases your chance of making money.
samclem is online now   Reply With Quote
Old 11-15-2016, 06:28 AM   #7
Thinks s/he gets paid by the post
DrRoy's Avatar
 
Join Date: Dec 2015
Location: Michigan
Posts: 2,868
I have read a lot about this on both sides. One bad tenant can ruin the investment. It's just a gamble, but so is much else.
__________________
"The mountains are calling, and I must go." John Muir
DrRoy is offline   Reply With Quote
Old 11-15-2016, 06:42 AM   #8
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,859
I vote yes for being a landlord, but it depends how you do it.

I've been a landlord for 20 years and rent out a one bedroom apartment in the house I live in. The mortgage is paid off and I get $1600/month in rent. There's a bit of work involved, but not much. It's a nice diversifier and produced income and capital appreciation.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 11-15-2016, 07:14 AM   #9
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
Quote:
Originally Posted by DrRoy View Post
I have read a lot about this on both sides. One bad tenant can ruin the investment. It's just a gamble, but so is much else.
Exactly. At least in the landlord game you can mitigate your risk by knowing how to screen tenants. You get most of the control.

With the S&P or similar index, you have no control over it.

As with anything, diversify. I have about 50% in real estate and 50% in equities.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is offline   Reply With Quote
Old 11-15-2016, 04:10 PM   #10
Full time employment: Posting here.
 
Join Date: Apr 2011
Location: Castro Valley
Posts: 576
I don't know about out of state properties, but having an easy time at being a landlord is highly dependent on the property and the area. For example, a near new condo in a strong rental market can be a pretty easy job.
jkern is offline   Reply With Quote
Old 11-15-2016, 04:20 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
HFWR's Avatar
 
Join Date: May 2005
Location: Lawn chair in Texas
Posts: 14,139
My index funds have never set my rental ablaze cooking meth...
__________________
Have Funds, Will Retire

...not doing anything of true substance...
HFWR is online now   Reply With Quote
Old 11-15-2016, 04:44 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
calmloki's Avatar
 
Join Date: Jan 2007
Location: Independence
Posts: 6,148
We stood at attention on the deck as GM went banko with our money. Ditto following Bank of America all the way down. No fire, no meth, the money just vanished.
calmloki is offline   Reply With Quote
Old 11-15-2016, 04:53 PM   #13
Thinks s/he gets paid by the post
euro's Avatar
 
Join Date: Oct 2015
Posts: 1,285
Quote:
Originally Posted by calmloki View Post
We stood at attention on the deck as GM went banko with our money. Ditto following Bank of America all the way down. No fire, no meth, the money just vanished.
Yes, as Senator pointed out, everything has its risks and can go South. Diversification is important - true for real estate as well.

That said, I too rode a perceived "bluechip" all the way to zero (MCI-Worldcom) back in the days..... even worse, I decided to double down about halfway in!
euro is offline   Reply With Quote
Old 11-15-2016, 05:34 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
ls99's Avatar
 
Join Date: May 2008
Posts: 5,250
Owning real property for most of us involves w*rk. Rentals, a LOT more w*rk.

In my younger years I w*rked in a real estate office part time as a licensed real estate agent. Renting and selling.

The expereince convinced me never to own rental property. YMMV
__________________
There must be moderation in everything, including moderation.
ls99 is offline   Reply With Quote
Old 11-15-2016, 06:47 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 6,799
Management companies are a crapshoot and reduce your return. If you cannot manage your property, stay away.

I view RE as a small business. Absentee landlording sounds like a lot of risk to me.
Lsbcal is offline   Reply With Quote
Old 11-15-2016, 07:05 PM   #16
Recycles dryer sheets
 
Join Date: Jan 2016
Location: Central Illinois
Posts: 169
I'd vote NO, run Forrest run. We had three rental houses for 20 years. Never again.
calico1597 is offline   Reply With Quote
Old 11-15-2016, 11:32 PM   #17
Full time employment: Posting here.
 
Join Date: Jul 2013
Posts: 762
1031 the property into some farmland recently enrolled in CRP. Should be able to lock in a 6% ROI (5% after accounting for property taxes, insurance, and occasional maintenance). 8 year to 13 year contract. Income initially subject to self employment tax, but that goes away if you start drawing social security. At your age, you need to include the SE taxes (15%), so that would also drop the ROI.

Possibility of appreciation in value (also possibility of land prices going down...). Other than change in value, all of the numbers are known up front.
Clone is online now   Reply With Quote
Old 11-16-2016, 06:28 AM   #18
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
Quote:
Originally Posted by Clone View Post
1031 the property into some farmland recently enrolled in CRP. Should be able to lock in a 6% ROI (5% after accounting for property taxes, insurance, and occasional maintenance). 8 year to 13 year contract. Income initially subject to self employment tax, but that goes away if you start drawing social security. At your age, you need to include the SE taxes (15%), so that would also drop the ROI.

Possibility of appreciation in value (also possibility of land prices going down...). Other than change in value, all of the numbers are known up front.
Why would renting land be subject to SE taxes? It is still passive income. Renting a home or apartment is not subject to SE taxes. If you are thinking it should be paid because he is young, but not required, he may be better off just putting it in an index fund. I am not sure you can just pay SE taxes unless you have active income.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is offline   Reply With Quote
Old 11-16-2016, 07:29 AM   #19
Dryer sheet wannabe
 
Join Date: Nov 2016
Posts: 14
Owning property has worked out well for us and has provided some nice diversification.

I think there are four key areas that you need to be good at in order to succeed.

1 - Good with numbers? Can you determine and establish what a good - ROI, CoC, Cap Rate, Vac. Rate is for your area or more importantly you? If you buy high to begin with you are already sunk in realizing a good return.

2 - Can you be firm but fair? Non paying tenants or those that destroy your investment need to be dealt with swiftly. If you give them 'one more chance' or 'I'll have the money next week' go on and on you are not only hurting yourself financially but enabling the tenant. Hold firm to your late fees and collect or evict.

3 - Location. I've never had any luck with distant properties, tried once and it was not for me. I believe that if you are looking to invest in this type of asset you need to put in the face time at least a couple times a month. My property is located the next town over so I just plan on swinging by the building during my errands to check on it, mow the grass, collect laundry money, etc.. Most tenants appreciate to know I am around and I think develop pride in living there - pick up trash, raked leaves on their own.. You have the added plus of knowing the location and economy.

4- Handy / Homework. Do you know how to screw in a light bulb? Can you shovel snow? Do you know the difference between fuses and a circuit breaker? I think having a basic understanding of home maintenance can go a long way when dealing with issues that develop and help you spot a fraud when you need to actually call in a pro to fix something. It may sound crazy but I actually had a friend who had a property that did not want to deal with the most minor items - like replacing dead light bulbs - and hired out these items.

Good luck.
zekeboz is offline   Reply With Quote
Old 11-16-2016, 09:39 AM   #20
Recycles dryer sheets
 
Join Date: May 2013
Location: Toronto
Posts: 218
Quote:
Originally Posted by zekeboz View Post
It may sound crazy but I actually had a friend who had a property that did not want to deal with the most minor items - like replacing dead light bulbs - and hired out these items.
Off topic, but is that really the landlord's responsibility? That seems crazy!
__________________

Spudd is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Index mutual funds vs index collective investment trusts growerVon FIRE and Money 8 10-12-2015 01:02 PM
Index funds and Index ETF offroad Stock Picking and Market Strategy 19 06-18-2015 12:46 PM
Need LTC $ for Mom: Become a Landlord? LitGal Life after FIRE 11 01-15-2014 04:05 PM
Analyze my desire to become a Chicago landlord younginvestor2013 FIRE and Money 6 10-15-2013 05:46 PM

» Quick Links

 
All times are GMT -6. The time now is 08:07 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2020, vBulletin Solutions, Inc.
×