Intro and Fired up for Fire

[ghh101]

Yes I follow his blog. I was looking at starting a blog myself pertaining to my situation and FIRE.

 

[Another Reader]

Yes I follow his blog. I was looking at starting a blog myself pertaining to my situation and FIRE.

Be interesting to read if you do. Let us know.

 

[pb4uski]

Rental real estate on the OP's scale is a business. not an asset class. All businesses have business risks. I would not want to be in any small, retail customer-oriented business in Detroit or Flint. The demographics are not in my favor.

Most real estate investors are astute enough to see a trend of deterioration in a market before the press does. They can sell or exchange out of the next Detroit before it's too late.

Whether one characterizes it as a business or an asset class, the risks are the same.... bad things can happen and you take a big hit. If someone posted here that they had a high proportion of the assets that they were counting on to fund their retirement in a small business that was not real estate or in employer stock or a single stock the risks would be the same... if that specific area or stock takes a hit then you take a big hit.

While a real estate investor might be able to react quick enough to mitigate losses by selling out... they might not... many of these things can happen real quick and it takes time to prep a property for sale and sell it.

OP has almost 30% of their net worth (excluding home and vacation property and 529s) in real estate... if someone had 30% of their NW in a single company stock or employer stock or a small business what would we be telling them?

 

[ghh101]

Man I am loving these discussions. This is exactly why I wanted to post my story. It helps me see things that I might not see.

 

[Another Reader]

The paper asset markets have only been around for maybe 150 years. Individuals have only participated in any numbers for the last 50 years or so. Not a really long track record. As an individual investor, I can't control what the companies issuing the stocks and bonds do, so the answer is to diversify away the risk of company bad behavior or failure. My results are average and subject to market whims. Finally, we may be overestimating future economic growth and future returns because we may be past the growth spurt. We could be taking on too much risk for the actual return.

I would be very nervous having 100 percent of my net worth in and most of my income from paper asset classes. Skill as a paper asset investor is hard to come by and obtaining out-sized returns nearly impossible. That's not been a problem in the past, but might be in the future if returns decline. Skill applied to real estate investing has a much better chance of producing above average returns.

As a percentage of total net worth, I'm probably too concentrated in real estate at this point. That's because a combination of buying decent properties, not making too many really bad mistakes, leverage, and government incentives grew that portion of the net worth faster. Given the nosebleed territory of market multiples, I'm not inclined to "fix" the allocation today. I would rather take the guaranteed return of paying off mortgages.

 

[FI_by_2023]

Interesting perspectives on concentration of risks...individuals will live off of one income and need 90%+ of that...which all comes from one employer (company). A side real estate business that is properly managed and properly levered can position a person well for the long-term by building wealth on borrowed capital, creating another income stream and further developing their overall financial acumen. If one cannot manage, it's a disaster. I think the OP has done a great job and has positioned themselves well.

 

[Luck_Club]

The paper asset markets have only been around for maybe 150 years. Individuals have only participated in any numbers for the last 50 years or so. Not a really long track record. As an individual investor, I can't control what the companies issuing the stocks and bonds do, so the answer is to diversify away the risk of company bad behavior or failure. My results are average and subject to market whims. Finally, we may be overestimating future economic growth and future returns because we may be past the growth spurt. We could be taking on too much risk for the actual return.

I would be very nervous having 100 percent of my net worth in and most of my income from paper asset classes. Skill as a paper asset investor is hard to come by and obtaining out-sized returns nearly impossible. That's not been a problem in the past, but might be in the future if returns decline. Skill applied to real estate investing has a much better chance of producing above average returns.

As a percentage of total net worth, I'm probably too concentrated in real estate at this point. That's because a combination of buying decent properties, not making too many really bad mistakes, leverage, and government incentives grew that portion of the net worth faster. Given the nosebleed territory of market multiples, I'm not inclined to "fix" the allocation today. I would rather take the guaranteed return of paying off mortgages.

+1000

Couldn't agree more. I've said it before, and those in the know will agree, real estate returns on an all cash basis are usually flowing better than 10%. When you add in depreciation and leverage the returns can be much higher. If I could find those type returns in marketable securities I'd be shouting from the roof tops how good they were.

Yes it requires some "work", but if it wasn't for cashing rent checks once a month I wouldn't have an excuse about being busy.

 

[Luck_Club]

As an aside. For almost 15 years I've been telling my friends to buy rentals, even offered to help them find, and repair. Non of them listened. Fast forward, and I'm the only one looking to retire early in the next couple of years. They see themselves always working because they really "like" it too much to ever get out.