Can real estate substitute for bonds in asset allocation?

[Luck_Club]

Back to Bonds

Good primer on buying, monitoring and managing bonds. Do I dare say it sounds like a lot of work.
https://www.fidelity.com/learning-c...d-investment-strategies?ccsource=email_weekly

Sector analysis of investment impacts of the tax reform more talk about impact to bonds.
https://www.fidelity.com/viewpoints/investing-ideas/investing-and-tax-reform

"US corporate bond quality—and rates—may rise
To the extent that tax reform benefits the bottom line of US companies that issue debt, their credit quality may improve. The repatriation of cash from foreign earnings may shift the capital structure of multinational corporations, allowing them to issue less debt to raise US operating cash. The limit on deductibility of debt interest payments will generally hit only the most highly levered companies (those issuing high yield debt), but may increase credit risk at the very lowest end of the credit spectrum.

To the extent that the act stimulates the economy as anticipated, the Fed may be encouraged to raise rates faster, which will influence government, corporate, and municipal rates. However, the Fed’s economic projections have accounted for moderately higher economic growth due to tax cuts, with no change as of yet to their policy rate projections. Actively managed bond funds may be best positioned to take advantage of shifts in the fixed income market as issuance volumes, issuer credit quality, and rates change."

 

[hesperus]

If I am too high on the price, lower quality renters are the only ones I get to inquire or view the apartment. These are ones that are barely qualified, ore ones that think I will waive the rules. Good renters can go anywhere, they know value and will not pay more than a place is worth. Poor quality renters have to take a chance and see and apply for every thing.

That's very interesting, and runs counter to what people might typically believe. But it makes sense, and I wish I had tried this when I had a rental in Virginia from 2006-2011, the worst of the recession. We had a good tenant leave at the end of 2007, and had a terrible slew of tenants following that, the last of which left the home and surrounding yard infested with fleas. I was completely reliant on a property manager there, because we had moved back out west. I never knew how bad it was until it was too late. For a couple of years all I remember was getting my checkbook out whenever the property manager called me. It was a terrible experience. But I digress from the topic...

 

[Texas Proud]

Good primer on buying, monitoring and managing bonds. Do I dare say it sounds like a lot of work.
https://www.fidelity.com/learning-c...d-investment-strategies?ccsource=email_weekly

Sector analysis of investment impacts of the tax reform more talk about impact to bonds.
https://www.fidelity.com/viewpoints/investing-ideas/investing-and-tax-reform

"US corporate bond quality—and rates—may rise
To the extent that tax reform benefits the bottom line of US companies that issue debt, their credit quality may improve. The repatriation of cash from foreign earnings may shift the capital structure of multinational corporations, allowing them to issue less debt to raise US operating cash. The limit on deductibility of debt interest payments will generally hit only the most highly levered companies (those issuing high yield debt), but may increase credit risk at the very lowest end of the credit spectrum.

To the extent that the act stimulates the economy as anticipated, the Fed may be encouraged to raise rates faster, which will influence government, corporate, and municipal rates. However, the Fed’s economic projections have accounted for moderately higher economic growth due to tax cuts, with no change as of yet to their policy rate projections. Actively managed bond funds may be best positioned to take advantage of shifts in the fixed income market as issuance volumes, issuer credit quality, and rates change."

The first sentence from the first article kinda blows your point....

Investing in individual bonds can often require a more strategic, sophisticated approach than, say, choosing 1 or 2 bond funds, but there are unique benefits for those willing to commit the time.

​

This is an alternative from choosing 1 or 2 bond funds.... so just chose 1 or 2 and be done... no need to read the rest of the article... that is the beauty of a MF or ETF....

 

[Texas Proud]

I bought a 4-plex every year from 2008 to 2012. Five total. All were rehabbed and rented before I bought the next one. Any landlord that cannot find a tenant needs to get out of the business, or learn quick. You can always increase demand by lowering price.



Craigs is a good indicator, but I do it a bit different. I generally rent 6-10 units per year, in various places. I start showing a place as soon as I get notice the existing tenant is vacating (45+ days before an actual vacancy), and plan to have it rented in 2-3 weeks, maximum.

I start a bit higher than I think the rent should be, and look for the number of inquires. If the volume is not what I expect after a week or so, I lower price. I have a tendency to get 50+ inquires on each opening, each week. I pre-screen, so I only show a place a few times before it gets rented.

If I am too high on the price, lower quality renters are the only ones I get to inquire or view the apartment. These are ones that are barely qualified, ore ones that think I will waive the rules. Good renters can go anywhere, they know value and will not pay more than a place is worth. Poor quality renters have to take a chance and see and apply for every thing.

If the tenant quality is not what I expect after a week again, I lower price again. $25 or so. It depends on how high I initially thought I was. Also what season we are headed into and how many other vacancies I have coming up. I have dropped by $100 a month already.

If I get 1-2 tenants, that I think were qualified (based on discussions of wages, occupation, credit score, etc.) and they do not rent, I lower price. Works every time.

My rents in 2014 to now are up considerably, 20%+. From ~2000 to 2013 or so, rents were pretty flat. My vacancy rate is sub 2%, most of which is planned.

What did you own before 2008? That is the point I was making...

Did these 4 plexes get repoed? If so, then someone before you was renting them out and lost everything.... if not, they decided the work needed for the return was not worth it.... who knows for sure...


I agree that if you only bought after the crash then you are doing well... but I also say if you only bought stocks after the crash you are also doing well.... a quick look takes it from 7,000 to 24,000 and that does not include dividends.... say around 350%....

With leverage you might be up that much... but are you?


BTW, I would not want to be dealing with 20 renters... and you might have more than that...

 

[Senator]

I owned two duplexes before that. Since Jan 2001.

All property I have ever purchased have been in some process of foreclosure. The banks lost more than the investors or owners that went broke.

 

[Texas Proud]

This was touched on earlier when I said I did not pay any federal income tax...

I have almost all of my bond allocation in IRAs or 401(k)s... I keep my taxable account income as low as possible with stocks which is exempt...

Now, I did know someone who had their RE in an IRA, but that meant she did not get the tax savings on depreciation... but like the RE people here she was only interested in cash flow... bought really bad property (IMO) cheap and was able to raise the rent as the economy got better...

 

[Senator]

That's very interesting, and runs counter to what people might typically believe. But it makes sense, and I wish I had tried this when I had a rental in Virginia from 2006-2011, the worst of the recession. We had a good tenant leave at the end of 2007, and had a terrible slew of tenants following that, the last of which left the home and surrounding yard infested with fleas. I was completely reliant on a property manager there, because we had moved back out west. I never knew how bad it was until it was too late. For a couple of years all I remember was getting my checkbook out whenever the property manager called me. It was a terrible experience. But I digress from the topic...

Property managers are the worst, if you do not know how to manage them. They make the most money when you make the least.

A vacancy is like a truck load of bananas. You need to get rid of it before it goes bad. Lower the price if you have to. That is what you would do with bananas. Another truck load get delivered in 30 days.

Vacancy is the number one avoidable expense as a landlord. Keep in mind that good renters look 45-60+ days out. Low quality renters look for next week. If you have a vacancy, and do not have a renter lined up, expect to be vacant for 6+ weeks.

Most landlords see a lot of low-quality renters inquiring. 95%+ of all inquires are low quality renters. Low quality renters move more often due to eviction, lease non-renewal, and just not behaving well in the rental. They also know that they cannot get accepted to too many places, so they apply to many more places.

Factor those statistics in, and you have a high number of low quality applicants. In reality, only about 30% are low quality.

With leverage you might be up that much... but are you?

BTW, I would not want to be dealing with 20 renters... and you might have more than that...

I have 25 renters when full. 8 buildings, only two small mortgages. Adding in my own hoe makes 9 buildings.
With good tenants, it's easy to manage. I did it for many years and still held a full time job.

Approximately $2.8M in real estate, and only $375K in mortgages. I am up almost double, 200%. And I did cash flow like a madman. If I would have kept all the money and not spent it, like a stock, it would be at least another $750K or so. I paid down about $375K in mortgages in the last thee years to increase my cash flow for retirement.

 

[Texas Proud]

I will say that a good renter makes it easy... one of my sisters rented out the first house she bought.... always wanted a cheap place to go if they lost jobs etc...

Had a renter in for 15 years and never had to worry... it was agreed that they take care of everything except if something major breaks and they could not fix.. she said there were be years without doing anything except deposit the check...


Still, enough horror stories out there when you have to evict someone that I would not want to do it... even though it is easy in Texas...

 

[Senator]

I will say that a good renter makes it easy... one of my sisters rented out the first house she bought.... always wanted a cheap place to go if they lost jobs etc...

Had a renter in for 15 years and never had to worry... it was agreed that they take care of everything except if something major breaks and they could not fix.. she said there were be years without doing anything except deposit the check...


Still, enough horror stories out there when you have to evict someone that I would not want to do it... even though it is easy in Texas...

It's all about screening and waiting for a good tenant. Knowing what a good tenant looks like on paper is key. I screen often sight-unseen. I can approve them all based on the applicants paper trail.

I have not missed a day of rent in years.

 

[Joylush]

Let us know once you have sold.... until then it is wishful thinking.

Sold on 2/20/18 for full asking price, $215,000.

 

[pb4uski]

Congratulations.

So you paid $110k about a year ago, made $25k of improvements and sold for $215k? That's extraordinary.... what part of Florida are you in? Was it a special situation of some sort?

P.T. Barnum was a wise man.