FIRE and Rentals

[Magus]

Quote:

Originally Posted by pdxgal Another thing now is all the institutional investors have really changed market dynamics. They have access to more data, so are better able to identify and buy properties with upside potential, shutting out individual buyers.

First, I agree with you that Condos (and townhomes) in good repair and nice areasoftown are much easier for mom and pop investors - less maintenance and less stress with better tenants.

Institutional buyers entering the game has made it a bit harder in that regards, but sites like Zillow have massively reduced the headache compared to 20 years ago so I'd say net, net its actually significantly easier today than then, even with prices up so much the last two years. Zillow makes it way, way easier to price your rent (both from their estimate and looking at similar rentals in the area - both current and completed rents), market to tenants ($15 for 90 day listing gets you on zillow, trulia and hotpads), take applications (easily get credit/background/income statements from their Zillow application) on the income side and you can of course use zillow on the acquisition cost side as well.

On the 6 rentals I've bought in the last two years (all townhomes), I'm averaging a 12% cash yield on my initial investment and if you adjust all the rents for current market price, would be a 15% cash yield. My all in annual return (with 3% appreciation/yr + principal paydown) is 37.2%/yr on my investment - and given the reality of the last two years appreciation, I've actually made ~100% annualized on my return. All for about 40 hours of work in total on all of them combined.

[pdxgal]

Well, to paraphrase Tip O'Neill, "all real estate is local". A small time landlord would be hard pressed to get yields like yours in Portland I think.

Recently Zillow bought up tons of SFHs here at prices that had become inflated due to their own algorithms (and human psychology). Now they're dumping them at a loss.

https://www.nytimes.com/2021/11/02/b...g-ibuying.html

That may make it a bit easier for mom & pop landlords to compete, but the property tax and administrative costs here keep increasing rapidly. Cap rates here are pretty low.

[Magus]

Quote:

Originally Posted by pdxgal Well, to paraphrase Tip O'Neill, "all real estate is local". A small time landlord would be hard pressed to get yields like yours in Portland I think. Recently Zillow bought up tons of SFHs here at prices that had become inflated due to their own algorithms (and human psychology). Now they're dumping them at a loss. https://www.nytimes.com/2021/11/02/b...g-ibuying.html That may make it a bit easier for mom & pop landlords to compete, but the property tax and administrative costs here keep increasing rapidly. Cap rates here are pretty low.

Portland, Seattle, LA and SF have basically the worst cap rates in the country (nyc too). Combined with crazy tenant friendly laws and limitations on rent increases no matter the costs incurred, I’d never ever invest in rentals there. That said, plenty have still done really well there. Just way higher risk than southeast, south, Midwest or anywhere in the west or northeast outside of the mega cities

Zillow was a bit of exception and old news at this point - they were actually buying homes at 20-30% over their algorithm suggest the homes were worth without massive upgrades/repairs needed after a string of good quarters and welp. They didn’t have their own or enough of their own handy men and their costs to renovate and list came in way over as labor got really tight and prices skyrocketed. They also weren’t renting at all.

[Koolau]

Quote:

Originally Posted by livingalmostlarge I'm sure many used rental properties to FIRE, so I was wondering did you keep your rentals after FIRE? Or did you sell and just chill with investments? Or did anyone do the opposite retire and start buying rental properties? If you FIRE with rentals did you mortgage all and keep the rent covering them? Trying to decide if I'm too late to get into rentals. I always wanted to and never did. But I'm not sure it's the smart move to invest in rentals (effort). DH already said he didn't want to (no time). This would be my pet project.

I think your answer is in the last sentence. If you are not on the same page with DH you should figure you will be doing all the w*rk associated with rentals - and there is some - maybe lots. Imagine you become ill (perish the thought) will DH be willing/able to handle the issues?

On a more important point (IMHO) if you are handling rentals, you are only partially retired but not everyone looks at it that way. It's true that just handling our own portfolios could be called "work." Of course, I spend about an hour per year on mine so YMMV.

[almost there]

Odd politics in a particular area (State or County) make it a great investment, or near impossible depending on the area.
Thats new... And not to be taken lightly.

[mf15]

Bought my NJ shore property in 1988. Now have to sell due to gut surgery I am not
able to take care of it properly. So depreciation recapture, Fed cap gains tax,plus NJ cap
gains tax which is the same as federal. Then you get hit with big a increase in medicare
premiums due to income increase for the year. Not happy with NJ cap gains tax,makes me livid.
I can deal with the other taxes.
Oldmike

[Sunset]

Quote:

Originally Posted by mf15 Bought my NJ shore property in 1988. Now have to sell due to gut surgery I am not able to take care of it properly. So depreciation recapture, Fed cap gains tax,plus NJ cap gains tax which is the same as federal. Then you get hit with big a increase in medicare premiums due to income increase for the year. Not happy with NJ cap gains tax,makes me livid. I can deal with the other taxes. Oldmike

+1
People don't realize that for many in retirement, the income tax rate can be kept low or is just low. But still have to depreciate so save on taxes when at 12% or lower.
Later when sell, the sudden new income pops up the tax rate, so the recapture of the tax savings at 12% is not taking place at a higher rate.

[Time2]

Quote:

Originally Posted by mf15 Bought my NJ shore property in 1988. Now have to sell due to gut surgery I am not able to take care of it properly. So depreciation recapture, Fed cap gains tax,plus NJ cap gains tax which is the same as federal. Then you get hit with big a increase in medicare premiums due to income increase for the year. Not happy with NJ cap gains tax,makes me livid. I can deal with the other taxes. Oldmike

You seen to be forgetting all the benefits you get from NJ Cap gains tax.

[Dash man]

Quote:

Originally Posted by mf15; Bought my NJ shore property in 1988. Now have to sell due to gut surgery I am not able to take care of it properly. So depreciation recapture, Fed cap gains tax,plus NJ cap gains tax which is the same as federal.

That’s why we’re leaving our Jersey Shore home to the kids, who will get a stepped up basis, assuming that law doesn’t change.

[mf15]

Quote:

Originally Posted by Dash man That’s why we’re leaving our Jersey Shore home to the kids, who will get a stepped up basis, assuming that law doesn’t change.

I thought about that,but I am a mess physically. I could stop renting after this season,and not sell it,but would still be difficult for me to take care of. The house is old,and I only own half. Would have to put out money for, flood and
building ins,plus realestate taxes.
I sell it then can rent beachfront for a week and treat the grand kids.
With the fed raising interest rates the price escalation will taper off,I am already seeing some sale price reductions on OC facebook realestate groups.
Oldmike

[ncbill]

Quote:

Originally Posted by mf15 Bought my NJ shore property in 1988. Now have to sell due to gut surgery I am not able to take care of it properly. So depreciation recapture, Fed cap gains tax,plus NJ cap gains tax which is the same as federal. Then you get hit with big a increase in medicare premiums due to income increase for the year. Not happy with NJ cap gains tax,makes me livid. I can deal with the other taxes. Oldmike

1031 exchange instead?

Yields aren't what they used to be but you avoid an immediate tax hit.

[eyenitnoy]

Quote:

Originally Posted by livingalmostlarge I'm sure many used rental properties to FIRE, so I was wondering did you keep your rentals after FIRE? Or did you sell and just chill with investments? Or did anyone do the opposite retire and start buying rental properties? If you FIRE with rentals did you mortgage all and keep the rent covering them? Trying to decide if I'm too late to get into rentals. I always wanted to and never did. But I'm not sure it's the smart move to invest in rentals (effort). DH already said he didn't want to (no time). This would be my pet project.

Owning rental property has a very large learning curve. I'd urge caution "getting into rentals."

Yes, many people use this as a method to finance early retirement.

But you REALLY need to know what you are doing. The headaches can be legion as can the risk.

Be sure to compare income generating royalty trusts, REITS, and my personal favorite, O, the stock symbol for the Realty Income Corporation, currently paying around 4% dividends.

I would say most people would be better served and live a much more enjoyable life by taking the down-payment money they would put into a rental and just buying O to get real estate exposure.

Dividends, capital appreciation (hopefully) and NO HEADACHES.

[Magus]

Quote:

Originally Posted by eyenitnoy Owning rental property has a very large learning curve. I'd urge caution "getting into rentals." Yes, many people use this as a method to finance early retirement. But you REALLY need to know what you are doing. The headaches can be legion as can the risk. Be sure to compare income generating royalty trusts, REITS, and my personal favorite, O, the stock symbol for the Realty Income Corporation, currently paying around 4% dividends. I would say most people would be better served and live a much more enjoyable life by taking the down-payment money they would put into a rental and just buying O to get real estate exposure. Dividends, capital appreciation (hopefully) and NO HEADACHES.

It's really not that high of a learning curve anymore with Zillow and sites like Angi's for residential real estate but it is certainly a learning curve. I could probably teach someone 80% of what I know in 10 hours or so and 90% of what I know in double that. In the last 2 months I've bought two rentals and including those leased up a total of 4 new tenants and I've spent maybe 20 hours total on all 10 of my rentals including 2 open houses. The next 3 months will be significantly less than that with no vacancies coming up. Assuming 1 or 2 issues pop up that need fixed, maybe 5 hours for a quarter of a year.

The problem with public REITs is their multiples / values go up and down with the stock market as a whole, not with the private market valuations of real estate. Plus, public company costs is quite significant compared to most public REITs well in excess beyond management for a private firm. That's not to say not to invest in them at all but they are a poor substitute for private real estate ownership, especially weathering a major correction in stocks. Companies like Blackstone have actually made a living of this in - buying public real estate companies when well below private values and sell public real estate companies when well above private values.

[SunGuy]

Planning to start with a fourplex in southern Indiana next year, will get an FHA loan for a lower down payment, live in it for at least a year, and hopefully then do it again.

I know I won't do it more than three times total.

Hopefully by the second one, my parents will be ready to start buying apartment buildings with myself and my brother in a family real estate LLC.

If I end up going full time as a forex trader, and start a youtube/mentorship program, I know this may change my focus.