Passive income = the best

[Sojourner]

Residential rental real estate is not what I'd consider passive, either.

As a former member here demonstrated, the best returns on the above come from doing all the work yourself (demo, roughing in plumbing/electrical, screening tenants & collecting payments, etc.)

Paying a management company usually cuts into the returns enough that you might as well just put the money in a stock/bond portfolio instead.

+1

I sat down a few years ago with some friends who were renting out a townhouse they owned, and we went though all the financials trying to decide if they should sell the property and put the proceeds into the market or continue to rent. It turned out to be very close to a wash... with the rental option generating just slightly more income. Considering all the hassles they told me that they've had to deal with over the years, I can't imagine choosing that over simply investing the money in the markets.

Clearly, some prefer the rental income approach, and it seems to works for many folks and make them happy. But I prefer my truly passive income from diversified investments in the equity & debt markets, especially considering I'm not handy enough to do most of the maintenance and repair work myself on any rental properties I'd be trying to maximize profit from.

 

[Huston55]

And so we hear from the Jordan Belfort of real estate.
When's the book coming out?

Right after he stays next door to Tommy Chong in an Asian hotel.

And then...The Movie!
Entitled: “The Bathroom” or “The Fox of Fix-Up Alley”

 

[audreyh1]

Lucrative yes.... passive... not so much.

+1

Income from investments with no active trading - now that’s passive!

 

[daylatedollarshort]

Our own house takes a fair bit of work so personally I can't really see how a second house would be passive income. Every year we do at least one big project like the plumbing or roof. Even with hiring contractors we have to research contractors, get quotes, review the contract, etc. and it all takes time. Then there are all the odds and ends issues like clogged toilets or broken light switches. Electricians are in high demand in our area right now so it took many calls for a recent minor repair as most of them were booked up months in advance and only taking on bigger jobs.

We know a couple who had a murder suicide in their rental. They found out from watching the nightly news, seeing crime scene tape around a house and realizing it was theirs. Other people we know have had issues like being sued by a tenant or had issue with non-payment.

Good work to those of you who have rentals and don't spend a lot of time managing them. The returns seem to be pretty amazing with good tenants and the right properties.

 

[audreyh1]

Passive is doing next to nothing... not spending time on the phone fielding call about problems from tenants and co-ordinating repair work with contractors.... not as passive a stocks and bonds using index funds... rebalancing once a year (or even less) so an hour a year... it doesn't get more passive than that... no tenants or failed sewer pipes or frozen pipes to deal with.

Gosh - so passive you don’t even have to talk to any property management company!

 

[travelover]

Another my investments are better than your investments thread.

 

[pjigar]

No pain, no gain. But IMHO the pain is worth the gain when it comes to rental. There is no free lunch but getting double digit (as in over 20%) return by spending handful of hours/days a year is not a bad deal. But then again, the bad press of rental is what keeps the lucrative asset class to the chosen ones!

 

[97guns]

I see from your sig that you retired with $300,000 which is $100,000 more than we did.

I do active investing to produce ~$45,000 to $80,000 a year from our $200,000 nest egg. It has worked for the past three years which doesn't prove much but we have withdrawn and spent more than what we started with.

I spend maybe 2 to 3 hours a day on it, which isn't really passive I guess. But I don't have to unclog toilets.

My rents generate $68k a year, the gains on equity alone has turned $300k into around $1.2 mil in 8 years, there’s few things that I love better than traveling and one is money.

 

[Sojourner]

This thread reminds me a bit of the one where the precise definition of "retired" was being debated. It seems to me that if you've outsourced all the work and effort of keeping your rental properties rented and maintained and serviced, and you're simply receiving income from it passively, then that would certainly qualify as retired. But if you're spending several hours per week doing things like screening tenants, working with A/C or plumbing contractors or electricians, and a myriad of other things involved with keeping the rental properties in good shape and keeping the money flowing in, then that's not what I'd call retired. You are a landlord, and that's how you're earning money on which to live. If you don't need that rental income, and it's just gravy on top that amounts to some nice extra spending money, then you have a hobby that happens to pay you fairly well. I know for myself that it would feel like a job.

 

[BreathFree]

Another my investments are better than your investments thread.

+1
Ignore the labels and follow your plan, whatever that may be.

 

[Winemaker]

Again the never ending conversation about rental investments vs. stock/bond/cash investments. I am diversified into all, but I have control of my rental business and income.

It is not for everyone; and I don't say that it is. Real estate has been very profitable for me over the past 19 years, and I expect it to continue. I did my own maintenance in the past to save costs; I was able to teach my DS the ins and outs, and he has a rental property now, too. I can afford to pay someone now to do my repairs, if needed. I have been insulted on this forum for my freedom of choice.

We see threads all the time about moving income around to be able to qualify for ACA freebie subsidies. DW and I will never qualify for ACA subsidies, but rental income property allows me to control my income for tax purposes legally.

As far as a 2 o'clock call about a plugged commode, it has never happened to me. If the commode was working when you moved in, then your lease says, you put something in the commode that plugged it, your dime to correct. As far as cutting grass at my units, well, I enjoy gardening and yard w*rk.

Again, in order to use the benefits of the tax laws, property owners are required by law to be involved in the operation of the rental property.

 

[Another Reader]

My rents generate $68k a year, the gains on equity alone has turned $300k into around $1.2 mil in 8 years, there’s few things that I love better than traveling and one is money.

Where are your rentals located?

I don't love money. I love the security and peace of mind money brings.

Leverage is great when you time it properly or just get very lucky. You did well by buying low and leveraging when you did. However, $68k in rent does not net a lot after expenses and mortgage payments. How do you intend to grow your income?

 

[pjigar]

Where are your rentals located?

I don't love money. I love the security and peace of mind money brings.

Leverage is great when you time it properly or just get very lucky. You did well by buying low and leveraging when you did. However, $68k in rent does not net a lot after expenses and mortgage payments. How do you intend to grow your income?

My guess is that 68K is net.

 

[neihn]

You mean Ca Phe right? It is good. I prefer the bia.

+1 for ca phe and bia in Vietnam. No worries about 16k, you could drown with $1k

 

[kgtest]

In any discussion of landlording, tenants and clogged toilets inevitably appear in the same sentence. Funnily enough, the one problem we never actually had, in 25 years of landlording, was a clogged toilet.

Clogged toilets would have been a snap, compared with what we did deal with...

when I owned my six plex, I swear I replaced all six toilets. Buy new and hold, don't buy old and hold lol. in all fairness a few towhomes with HOA haven't been touched in years. Rents just keep showing up direct deposit into checking.

 

[Luck_Club]

Again the never ending conversation about rental investments vs. stock/bond/cash investments. I am diversified into all, but I have control of my rental business and income.

It is not for everyone; and I don't say that it is. Real estate has been very profitable for me over the past 19 years, and I expect it to continue. I did my own maintenance in the past to save costs; I was able to teach my DS the ins and outs, and he has a rental property now, too. I can afford to pay someone now to do my repairs, if needed. I have been insulted on this forum for my freedom of choice.

We see threads all the time about moving income around to be able to qualify for ACA freebie subsidies. DW and I will never qualify for ACA subsidies, but rental income property allows me to control my income for tax purposes legally.

As far as a 2 o'clock call about a plugged commode, it has never happened to me. If the commode was working when you moved in, then your lease says, you put something in the commode that plugged it, your dime to correct. As far as cutting grass at my units, well, I enjoy gardening and yard w*rk.

Again, in order to use the benefits of the tax laws, property owners are required by law to be involved in the operation of the rental property.

+1

 

[pb4uski]

No pain, no gain. But IMHO the pain is worth the gain when it comes to rental. There is no free lunch but getting double digit (as in over 20%) return by spending handful of hours/days a year is not a bad deal. But then again, the bad press of rental is what keeps the lucrative asset class to the chosen ones!

My rents generate $68k a year, the gains on equity alone has turned $300k into around $1.2 mil in 8 years, there’s few things that I love better than traveling and one is money.

No one is disputing that real estate can be lucrative... we're just disputing a claim that it is passive. It requires effort on the part of the owner.... some properties more than others... I manage a commercial property for my mother so I'm well aware of the effort required (and that is a low maintenance property... long-time corporate tenant).

 

[Freedom56]

There is something to be said about the health benefits of rental properties during retirement. I look at my 83 year old FIL who has 47 doors to manage. Notwithstanding the tremendous wealth he has accumulated over 55 years and the income stream his properties generate, I see a very active man, slim, fit, and mentally alert and extremely strong. He enjoys what he does and likes the social interaction. In the 27+ years I have known him, I don't ever recall him addressing a clogged toilet. Things happen, but he deals with them and seems to enjoy it. When we visit him every year, we help him out. His father who did the same, was fit and active until the age of 98 when he died after injuries he sustained in a car accident. I thought genetics had a lot to do with it. However, his 4 brothers and 2 sisters (some are older and some younger) who live off "passive income" only are in terrible shape. They are overweight, some borderline senile, some walk with walkers and have limited mobility. Most of his friends are rotting away in senior homes or have passed away. So rental properties may not be for everybody, but don't discount the financial security and health benefits of managing them into retirement.

 

[corn18]

Which would you rather have?

1. $2.2M 60/40 portfolio that you withdraw 3% from each year ($68,000)

2. $68,000 of rents from $1.7M of real estate property

I pick #1 and that's my plan.

 

[pb4uski]

There is something to be said about the health benefits of rental properties during retirement. I look at my 83 year old FIL who has 47 doors to manage. Notwithstanding the tremendous wealth he has accumulated over 55 years and the income stream his properties generate, I see a very active man, slim, fit, and mentally alert and extremely strong. He enjoys what he does and likes the social interaction. In the 27+ years I have known him, I don't ever recall him addressing a clogged toilet. Things happen, but he deals with them and seems to enjoy it. When we visit him every year, we help him out. His father who did the same, was fit and active until the age of 98 when he died after injuries he sustained in a car accident. I thought genetics had a lot to do with it. However, his 4 brothers and 2 sisters (some are older and some younger) who live off "passive income" only are in terrible shape. They are overweight, some borderline senile, some walk with walkers and have limited mobility. Most of his friends are rotting away in senior homes or have passed away. So rental properties may not be for everybody, but don't discount the financial security and health benefits of managing them into retirement.

Valid point... my uncle is similar... but a bit older and still going strong. But... the topic of this thread was a claim that real estate is passive income and from what you wrote I suspect that you would agree that it is NOT passive income.... if it was passive it wouldn't be so health for your FIL.

 

[scrabbler1]

+1

Income from investments with no active trading - now that’s passive!

One of my favorite lines from "Seinfeld" pertains to compound interest and its effects on people, mainly George Costanza.

George: "Interest" - it's an amazing thing, you make money by doing nothing.
Jerry: I have some friends who base their lives on that very principal.
George: Really? Who?
Jerry: No one you know.


My life for the last 10 years is based on this type of truly passive income, income derived from doing nothing, the same way George described in the Seinfeld "Junior Mint" episode. Every month, and 4 more times per year (quarterly), I earn "paychecks" from the dividends from my stock and bond mutual funds. I do nothing and "presto!" the money appears in my bank account the same way my former paychecks used to appear there every 2 weeks.

 

[RobbieB]

I like the passive income too. When in growth mode I reinvested dividends and interest. Now my broker shoots the cash over to my checking account at the end of each month just like social security.

 

[ERD50]

.. I do active investing to produce ~$45,000 to $80,000 a year from our $200,000 nest egg. It has worked for the past three years which doesn't prove much but we have withdrawn and spent more than what we started with.

I spend maybe 2 to 3 hours a day on it, which isn't really passive I guess. But I don't have to unclog toilets.

So you work from home, part-time and earn 45-80 grand a year. Not a bad job.

I'll ask again that gstillson start a new thread on this - intro section would work. From another post, he's at a 17,5% WR. Interesting.

"It has worked for the past three years which doesn't prove much" I'd be concerned about what it doesn't 'prove' - like how would it do in a down market? Last 3 years have been good, market up ~ 40% overall.

-ERD50

 

[Freedom56]

Valid point... my uncle is similar... but a bit older and still going strong. But... the topic of this thread was a claim that real estate is passive income and from what you wrote I suspect that you would agree that it is NOT passive income.... if it was passive it wouldn't be so health for your FIL.

No I consider it passive income. We rented a home for 8 years and sold it back in 2003. We never had to deal with clogged toilets in the 8 years. Our tenants were corporate people on temporary assignment who wanted a home. We included maid service (twice monthly) and lawn maintenance in the rent. That kept the place in good shape. It was a fairly new home at the time. It was great income through the 90's but after the 2000 bubble burst, our last tenant left in 2002, we did not find suitable tenants (i.e. real income to pay rent). It's very difficult to evict deadbeats and I did not want to deal with it. Some real estate agents were making noise about us discriminating so we decided to sell. If we didn't have to deal with some of the rental laws in our state, we would have continued to rent and frankly with the price appreciation since 2003, we would have been better if we kept it. I don't think many of you understand that you can depreciate your property (building only not land) and carry this depreciation expense against all your income.

 

[corn18]

I don't think many of you understand that you can depreciate your property (building only not land) and carry this depreciation expense against all your income.

Unless you keep it until you die, you are only deferring payment of those taxes.