Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
real estate vs. stocks
Old 02-01-2005, 01:50 PM   #1
 
Posts: n/a
real estate vs. stocks

I'm mostly interested in multi-tenant
investment properties as a source for retirement
income. I've noticed most of the discussion in ER
mentions stock/bonds/cash, but not much in
terms of investment real estate.

I was just wondering how you folks feel
about rental property vs. stock as a retirement
income source. I'd think the cash flow would
be more stable, in addition to the property (land value?)
ability to keep up with inflation. What are some
of the things to look for? Is properly value loss
a major issue (mostly due to building age)?
Anyone living out of income from rental property?
How is that likely to play out long term, e.g. 30-50 years
later?

Thanks,

Joe
__________________
  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!

Re: real estate vs. stocks
Old 02-01-2005, 05:39 PM   #2
 
Posts: n/a
Re: real estate vs. stocks

Rental property = Job = Work = Not retired

You might make more money with the rental property than stocks, but you should because lets face it - it's a job!
__________________
  Reply With Quote
Re: real estate vs. stocks
Old 02-01-2005, 06:49 PM   #3
Dryer sheet wannabe
 
Join Date: Jan 2005
Posts: 14
Re: real estate vs. stocks

Quote:
Rental property = Job = Work = Not retired

You might make more money with the rental property than stocks, but you should because lets face it - it's a job!
I agree with Cut-Throat. I will inherit a small house one day from my aunt that is close to a college and thought about the prospect of renting to students. Then I thought about all the maintance calls I would get. No thanks......I will just sell it and put the proceeds in a REIT if I feel like I have to have something property related.
__________________
MSDOGS1976 is offline   Reply With Quote
Re: real estate vs. stocks
Old 02-01-2005, 07:06 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,380
Re: real estate vs. stocks

Quote:

I agree with Cut-Throat. I will inherit a small house one day from my aunt that is close to a college and thought about the prospect of renting to students. Then I thought about all the maintance calls I would get. No thanks......I will just sell it and put the proceeds in a REIT if I feel like I have to have something property related.
My parents owned an apartment building full of students. What a trip that can be!

Mikey
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Re: real estate vs. stocks
Old 02-01-2005, 09:51 PM   #5
Recycles dryer sheets
 
Join Date: Nov 2002
Posts: 373
Re: real estate vs. stocks

Quote:
Rental property = Job = Work = Not retired

You might make more money with the rental property than stocks, but you should because lets face it - it's a job!
Not necessarily true. There are companies that do the work for you, and all professional investors in rental properties employ such management companies (or are themselves one). For individuals, it is split: some do the management work themselves, and others hire a management company. The "work" then is being sure that the management company is doing their job.

In my case, the jury on the economics is still out. I believe it is a good path and have made money in the past. Both major purchases have followed the same timeline - manage it myself for 2 years, then hire a management company. For the second purchase, I just contracted the company last month. I couldn't find good help, and it was too much like a job. Managing it myself held expenses down while I replaced the appliances, but did take some time. Then I got tired of it, just on schedule, and hired the work out.

Wayne
__________________
wzd is offline   Reply With Quote
Re: real estate vs. stocks
Old 02-01-2005, 09:55 PM   #6
Recycles dryer sheets
 
Join Date: Nov 2002
Posts: 373
Re: real estate vs. stocks

re-reading your post, I wonder if you mean commercial or residential? I know people who have done well with both, and the headaches are fewer with commercial, but more major when they come up. I don't think that I personally would place as significant a portion of my assets in a commercial property as I would a residential property, and would not place >20% in either.

Of my non-indexed investments, I have a multifamily building, and 2% of a shopping center.
__________________
wzd is offline   Reply With Quote
Re: real estate vs. stocks
Old 02-02-2005, 04:37 AM   #7
 
Posts: n/a
Re: real estate vs. stocks

I have done well in real estate and have owned about every type you can buy. Currently we still have 50%
of our net worth in directly owned real estate.

Re. commercial property; I once owned a very large building
which was used as a manufacturing/distribution
point. I managed to find a new tenant who
(as part of the lease) agreed to put on a new roof
within the first 6 months of occupancy. The roof had been shot for years and I had just patched and patched
after I saw what a new roof would cost. Anyway, they
did the roof and moved out 2 months later, breaking the
lease. I chased them for the lost rent and settled for 50%, but truly I was pretty happy with just having the roof. I sold it soon after and it wouldn't have been
so easy with puddles on the floor and water marks on the walls. Got lucky again. As someone pointed out,
commercial can be easier than residential, but the
problems tend to be bigger.

JG
__________________
  Reply With Quote
Re: real estate vs. stocks
Old 02-02-2005, 06:24 AM   #8
Moderator Emeritus
Martha's Avatar
 
Join Date: Feb 2004
Location: minnesota
Posts: 13,212
Re: real estate vs. stocks

Real estate brought my husband to FI and ER. He didn't consider himself retired until he sold his rental property. Here is a recent thread on real estate as an investment:

http://early-retirement.org/cgi-bin/...890450;start=5
__________________
.


No more lawyer stuff, no more political stuff, so no more CYA

Martha is offline   Reply With Quote
Re: real estate vs. stocks
Old 02-02-2005, 07:58 AM   #9
Dryer sheet wannabe
 
Join Date: Feb 2005
Posts: 17
Re: real estate vs. stocks

Quote:
re-reading your post, I wonder if you mean commercial or residential? I know people who have done well with both, and the headaches are fewer with commercial, but more major when they come up.
....

Of my non-indexed investments, I have a multifamily building, and 2% of a shopping center.
I meant residential (multi-tenant) on my original post.

However, I have also considered commercial, specially
NNN type of properties which I thought would
minimize - if not eliminate - most of the management
headaches. Has anyone had any experience with
NNN properties that confirm this?

Also, to offer a low-entry point, I've seen a lot
of companies offering Tenants-In-Common
where you own usually parts of large properties.
In the residential space, there are offerings
for large apartment complex, while
for commercial, shopping malls or office spaces
(often with a NNN set up) are also available.
Lots of these offerings come as part of 1031-exchanges
to avoid capital gains. Since these are professionally
managed, including have a management budget
allocated (for repairs, etc.), it seems it would eliminate
most of the management work. The downsides
are the high upfront fees (up to 15% of the
purchase price) the companies offering
these charge, and the loss of flexibility as all
tenants need to agree on what to do, including when
or whether to sell. How do you folks feel about
these set ups? Has anyone had any experience (good
and bad) to share with us?

Thanks for all the reponses, btw. I'm new here and
am really enjoying learning from all of you.

Joe
__________________
zakenjanei is offline   Reply With Quote
Re: real estate vs. stocks
Old 02-02-2005, 08:09 AM   #10
Moderator Emeritus
Martha's Avatar
 
Join Date: Feb 2004
Location: minnesota
Posts: 13,212
Re: real estate vs. stocks

I am squeemish about the tenant in common (TIC) arrangements because of the potential for unlimited liability and the difficulty of exiting the investment. If you did invest in one, I would recommend forming a LLC to be the owner so the liability is limited to the assets of the LLC. Get good insurance. Investigate securities issues. See if your interest is freely transferable.

I also don't like the provision that all have to agree to sell, but there really isn't a good way around it. Generally if there is a dispute about a sale, any one of the owners can ask the court to partition the property, which generally means a court ordered sale.

I wouldn't do it myself. We have invested in a number of real estate limited partnerships and LLCs and I prefer those vehicles.
__________________
.


No more lawyer stuff, no more political stuff, so no more CYA

Martha is offline   Reply With Quote
Re: real estate vs. stocks
Old 02-02-2005, 09:08 AM   #11
Dryer sheet wannabe
 
Join Date: Feb 2005
Posts: 17
Re: real estate vs. stocks

Quote:
I am squeemish about the tenant in common (TIC) arrangements because of the potential for unlimited liability and the difficulty of exiting the investment. If you did invest in one, I would recommend forming a LLC to be the owner so the liability is limited to the assets of the LLC. Get good insurance. Investigate securities issues. See if your interest is freely transferable.
....

I wouldn't do it myself. We have invested in a number of real estate limited partnerships and LLCs and I prefer those vehicles.
Thanks. I really appreciate the advice.

Which sorta raises the question of how owning
a real estate LP/LLC, or a REIT, compares to
actually owning a property directly. What would some
of the tradeoffs be? Do you find more volatility
in owning a LP/LLC/REIT, or would think they directly
correlate to real estate prices?

I recall back in the late 90's when interest rates where
much higher, you could find REITs/LPs with
pretty good cashflows - around low 10's%,
But now, most are yielding only around 5-8% so
I wonder as interest rates rise, whether their prices would
fall to adjust for the spread to lower risk bonds, eg.
treasury. What is on take on their outlook?

Thanks,

Joe
--
__________________
zakenjanei is offline   Reply With Quote
Re: real estate vs. stocks
Old 02-02-2005, 09:50 AM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: real estate vs. stocks

I'm curious. How do you find RE LPs or LLCs to invest in?
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: real estate vs. stocks
Old 02-02-2005, 09:52 AM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: real estate vs. stocks

VERY dependent on your local real estate market.

Around here, you cant make the cash flow work.

We're in the process of selling my wifes old house rather than rent it. We can get $240-250 for the house outright, or rent it for roughly 1100-1200 a month. After our expenses, we'd clear about $800 a month. Just investing the sales proceeds in a 5 year 5% cd would give us more than that with zero effort or liability.

On the other hand, seven years ago I got in the mood to buy some rental homes. A 3/2 of reasonable size, new construction on a small lot could be had for $140-150 and rented out for $1000 a month. The numbers worked. I made an offer on one that was accepted, but the elderly woman selling it backed out about a week before closing. I was a little annoyed at the massive waste of time so I shelved the idea for a while. Real estate prices shot up and shortly the numbers no longer worked.

But had I gone through with the plan and bought six of those, I'd be in fat city. Those homes are selling for $350-390 a pop right now.

I'll probably drop the money into a CD for now and wait for REIT or stock prices to improve. Maybe split it between CD's and vanguards HY bond fund. We wouldnt even have a use for the extra income. Probably turn into the kids college money at some point.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: real estate vs. stocks
Old 02-02-2005, 10:15 AM   #14
Moderator Emeritus
Martha's Avatar
 
Join Date: Feb 2004
Location: minnesota
Posts: 13,212
Re: real estate vs. stocks

Quote:
I'm curious. How do you find RE LPs or LLCs to invest in?
One of our former lawyers at heart was really a doer of deals. His first deal was some property Resolution Trust was getting rid of in the S & L failure days. He scrapped up money from friends, clients and relatives and bought an office building and an apartment building. He flipped them a few years later. Eventually, DH and I became investors in some of his deals and hold LP/LLC interests in some apartment buildings in Arizona and Florida, as well as in some land held for investement. Has done well, but nothing new has come along for about a year---he says everything he is looking at now is overpriced.

He is one of those guys who will do deals until the day they die, no matter how many millions they accumulate. Very intense. I wouldn't want to be married to him.

__________________
.


No more lawyer stuff, no more political stuff, so no more CYA

Martha is offline   Reply With Quote
Re: real estate vs. stocks
Old 02-02-2005, 05:56 PM   #15
Recycles dryer sheets
 
Join Date: Aug 2004
Posts: 218
Re: real estate vs. stocks

I think the NNN properties are the way to go if you really want to be retired. I have individual rentals, and they made me a lot of money but they were also a lot of work. I have a friend currently looking to invest a 2.1mil 1031 into a NNN property. He is finding that they sell almost as quick as they come on the market, especially the ones with cap rates approaching 8%.
__________________
Life is good.
Beachbumz is offline   Reply With Quote
Re: real estate vs. stocks
Old 02-02-2005, 11:55 PM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,380
Re: real estate vs. stocks

Quote:
I think the NNN properties are the way to go if you really want to be retired. I have individual rentals, and they made me a lot of money but they were also a lot of work. I have a friend currently looking to invest a 2.1mil 1031 into a NNN property. He is finding that they sell almost as quick as they come on the market, especially the ones with cap rates approaching 8%.
Beachbum, do leases on this type of property usually contain rent escalation clauses of some sort? Ie, CPI, PPI, or some kind of property index?

Thanks, Mikey
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Re: real estate vs. stocks
Old 02-03-2005, 09:23 AM   #17
Dryer sheet wannabe
 
Join Date: Feb 2005
Posts: 17
Re: real estate vs. stocks

Quote:

Beachbum, do leases on this type of property usually contain rent escalation clauses of some sort? Ie, CPI, PPI, or some kind of property index?

Thanks, Mikey
From what I've seen, most NNN leases do have
escalation clauses which trigger over the years.
The one thing about NNN properties is that they
are usually fairly expensive - from around 1.5M up
for small ones, e.g. Burger King, to 3-5M for
a Walgreens, to 50M for a large shopping center.

Wouldn't it be nice to have about 30-50M to buy
a large shopping center on a prime location
with absolute NNN terms yielding 8% cashflow?..;-)

Joe
-

__________________
zakenjanei is offline   Reply With Quote
Re: real estate vs. stocks
Old 02-05-2005, 05:17 AM   #18
Thinks s/he gets paid by the post
Spanky's Avatar
 
Join Date: Dec 2004
Location: Minneapolis
Posts: 4,046
Re: real estate vs. stocks

Quote:
I'll probably drop the money into a CD for now and wait for REIT or stock prices to improve. Maybe split it between CD's and vanguards HY bond fund. We wouldnt even have a use for the extra income. Probably turn into the kids college money at some point.
What if you already own REITS? The YTD is -5.7%. Should you sell? Let's suppose REIT represents 10% of your portfolio.

Spanky
__________________
May we live in peace and harmony and be free from all human sufferings.
Spanky is offline   Reply With Quote
Re: real estate vs. stocks
Old 02-05-2005, 08:29 AM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: real estate vs. stocks

Good hypothetical question since REITS compose about 10% of my port right now.

At the end of last year, I felt they were really over done. I was going to sell some off and rebalance. After a few hours of consideration, I couldnt find anything I liked a lot better to balance into. Then we had a baby. Then the price was down ~6%. Then I decided they werent as overpriced as they had been (still over, but less) and to do nothing.

Apparently the multiple confluences of life have conspired to turn me from a dirty market timer into a boring investor that will probably do better as a result
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: real estate vs. stocks
Old 02-05-2005, 10:50 AM   #20
Recycles dryer sheets
 
Join Date: Aug 2004
Posts: 218
Re: real estate vs. stocks

Mikey,
Yes it appears that most have some clause for rent increases, but they all seem to vary quite a bit. For instance, one property my friend has been looking at has an increase every 5th year at 2xCPI, but capped at 10%, others are annually, some, like Walgreens, have 25 year terms with NO rent increases.

They do tend to be pretty expensive like Zak mentioned, Applebees, Arbys, Johnny Carinos and Tire Kingdom are all about 2 million or so, but have cap rates of 7.3 to 8.25% with rent increases. You can get loans on these, but usually would be 15 year terms which would cut into the cash flow pretty bad. I also heard there were some medical properties in the 350K range with 8% cap rate, but I know nothing about them.

Also, you need to be sure that you are looking at "absolute NNN" properties. Some properties have clauses that require you to maintain the roof and parking lot; I wouldn't want any part of that!

How 'bout a few early retirees, forming an LLC to purchase a couple of properties, basically having your own REIT with a return of about 7.5% less expenses.

The Beachbumz
__________________

__________________
Life is good.
Beachbumz 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
Prediction: California Real Estate Sam Other topics 136 01-15-2009 11:44 PM
Real estate as an investment wzd FIRE and Money 46 09-30-2008 12:04 PM
Best way to unload Real Estate? Mach1 FIRE and Money 6 10-20-2006 03:27 PM
Frugality (and real estate) scores another win wabmester FIRE and Money 18 10-24-2005 08:15 PM
leveraged real estate investments vic FIRE and Money 9 10-07-2005 09:27 PM

 

 
All times are GMT -6. The time now is 07:47 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.