Good post on real estate investing

[kevink]

I enjoyed this new guest post on the "Can I Retire Yet?" blog about options in real estate investing:

https://www.caniretireyet.com/real-estate-investments-worth-effort/

I especially appreciated the way the author presents real estate investing options in increasing order of time and "hands-on" skills required, as well as the discussion of private REITS like Streitwise, Fundrise and DiversyFund which apparently open up opportunities for smaller investors that used to require being an accredited investor to participate in.

Would be interested to hear thoughts and experiences from folks here who've pursued any of these options as a way to diversify beyond pure stock-and-bond portfolios.

 

[OldShooter]

Oddly, the post doesn't seem to list what we did for 25 years. We started out in a duplex and rented the upper floor. After selling that and buying a single-family home, we used some of the proceeds to buy another duplex. From there we just continued investing, slowly ending up with some bigger properties/small apartment buildings. The Tax Reform Act of 1986 hurt the economics some, but by then we were committed. I managed the properties myself, doing all the tenant-related work (pricing, advertising, screenings, evictions, etc.) and the accounting. We benefited greatly from a fantastic caretaker who could fix anything and manage most in-building tenant issues. That was really the key to our staying with the program.

Our city council has slowly evolved to seeing landlords as enemies of the people. That's not going to work out very well, but the perpetrators will be long gone before it becomes evident. So I'm very glad to no longer be in that business.

 

[38Chevy454]

In the past I had various rental properties. Good from tax standpoint and even some income. Bad from a taking time and hassles standpoint. I am happy to not be a landlord now with the way laws are not helping landlords, in fact they are hurting them. The extent of my real estate now is REITs.

I think the best way to consider rental real estate is that it is a part time job. It is not hands off. Too much hassle for me at this point in my life, even if it does have some good benefits.

 

[OldShooter]

... I think the best way to consider rental real estate is that it is a part time job. It is not hands off. Too much hassle for me at this point in my life, even if it does have some good benefits.

+1 on both points.

 

[captain3d]

Bought a Texas four unit in 2008 for $315k. Selling (1031 exchange) this week for $825k after ridiculous appreciation in the last 18 months.

Considering appreciation, rent and tax benefits it has benefitted us approx $35k per year.

I have never seen the property in real life and have only handled property manager statements in that time. Average 3 hrs per month maybe.

90% passive investment?

 

[clifp]

I think for me it is closer to 1-2 hour a month. I had 22 emails, and four phone calls, and a 3- hour tour of my houses which let me write off most of my Vegas trip), in 2021.

In 2020, 11 email and 2 or 3 phone calls in 2020.

I spent even less time on my six Missouri properties, where I have a partner.

I know I've spent way way more time posting on here and Mr. Mustache about real estate than actually managing with it.

 

[Magus]

The main problem with public REITs isn't just that its a stock and volatile (which is of course true) its that there is virtually no residential real estate in the public markets for a number of reasons. You are investing largely in retail retails, hotel reits, medical reits, office reits, etc - all fine and dandy - but all are more volatile than residential & real estate residential rents. So just know what you are buying. That's one of the reasons I prefer sites like Fundrise, which is largely residential real estate investments.

Rentals are a part time job - fortunately a very part time job these days. Zillow in particular has made so many things that use to be time consuming (advertising, communication with tenants, screening tenants for credit and background, pricing your rent, etc) that I estimate a new rental property takes me about 15-20 hours of work its first year and then about 5-7 hours of work each year after. Helps I require ~700 min credit score and at least 3x income to rent in middle class to upper middle class areas, which means I don't end up with a lot of issues. I spend about as much time chatting with my tenants as friends than I do actually handling issues with my rentals.

If you are a good judge of character usually, direct rentals may be a good investment for you. If not, I'd stick with Fundrise or other passive real estate investments.

 

[racy]

We have investments in farmland trust deeds through a local realty company. The average rate we're currently getting is 3.3%. The deeds' typical term is 3 years. Been investing for 6 years and have not (yet) had a default.

We also have investments in mortgage-dependent promissory notes. Been doing it for about 4 years. Average return has been 6.4%. The notes typically run for 12 months. 4% of the notes have defaulted, although we've only lost money on one note.

Together, both of these investments represent about 5% of our portfolio.

 

[VFK57]

I have REITs in my stock investments and many of them with good dividends but loosing the principle, not very stable and safe. Rental properties do require management and maintenance/ repairs. I did all repairs myself up to my low 50s but now it is not so easy and I hire help, it eats into the income. Also, inflation would make prices go up on a long term.

 

[Sunset]

...

Our city council has slowly evolved to seeing landlords as enemies of the people. That's not going to work out very well, but the perpetrators will be long gone before it becomes evident. So I'm very glad to no longer be in that business.

This has happened in a lot of places, and the math is obvious:

1 landlord with 3 rentals
Politicians see it as:

1 landlord = 1 or 2 votes
3 rentals = 3 or 6 votes....

 

[Out-to-Lunch]

This has happened in a lot of places, and the math is obvious:

1 landlord with 3 rentals
Politicians see it as:

1 landlord = 1 or 2 votes
3 rentals = 3 or 6 votes....

Isn't this the correct way, in a democracy, to view this?

 

[Starsky]

That was a pretty good overview. I'm a big fan. Our family got into rentals via House Hacking way back in the '70's and my DW and I augmented it via Turnkey rentals. My parents funded their retirement on their rentals, and DW and I have done exactly the same. We started back in 2012. With a good Property Management team, I might spend an hour a month, if that, managing my rentals and I have never, ever spoken to or met a single one of my tenants. For us, it's $75 per property, per month, that is well-spent. It's worth mentioning that it's not the only investment in our portfolio, just the largest one. We need liquid investments too.

I think that one of the most important success factors in Real Estate investing is timing. While the articles make it sound like the only challenge is 'how', I think the bigger question is 'when'? For most individual investors, they only buy rentals very infrequently, to build their portfolio rather than to constantly flip properties. Is the market ready when they and their cash are? If so, they are very lucky. More often the topic arises only when it is like today, when real estate is trending, stocks are suffering, and prices are high. (When stocks are doing well, real estate is just for 'suckers'.)

Today, I'd rather own rental real estate than stocks from a cash-flow perspective, but a few months ago, that might not have been the case - especially if you listen to all the successful traders on this forum. The problem is that I wouldn't want to buy investment real estate now. Inventory is limited and it's too expensive. I would want to have owned it already for a few years to take advantage of the upswing in rental rates and home prices. Kinda like Bitcoin....the early money gets the lion's share. For new investors, now might be a better time for house hacking....

I view Real Estate as a strategy for tortoises rather hares. The big payoff happens over an extended time and there are times when you just look silly, like you're losing the race. The good news for dumb turtles like me is that, like the stock market, the trend for real estate has always been positive over the long-term. I'm barely smart enough to know what I don't know; and frankly I find Real Estate a whole lot easier to manage than trying to comprehend and predict the market - especially when it is my primary source of income.

 

[jkern]

I bought 3 condo's a couple years after retirement (retired 2009, bought condo's in 2011 and 2012) to provide an income flow. I bought them during the RE crash and they were about 65% discounted from the new purchase price (they were all 5 to 7 years old).

They have turned out to be an excellent investment. I also mange my wife's townhouse and my daughter's condo. All 5 rental's typically take about 5 to 10 hours per year to manage. Occasionally during vacancies I might invest 10 to 30 hours that year.

My process for selection:

1) Buy newer condo's/Townhouse's for easier and reduced maintenance.
2) Only buy units that I would live in myself. No crappy units in crappy areas.
3) Since I'm in CA, only buy units in semi conservative Cities/Counties with no rent control.
4) If you have a good tenant, don't be greedy and keep the rent below market. When your tenants know they have good deals, in many cases they do minor repair themselves.

For me, they have been very very easy to manage. The ROI has been excellent with rent increases easily keeping up with inflation. As a bonus, capital appreciation has gained about $800K over the last 10 years.

 

[kgtest]

Bought a Texas four unit in 2008 for $315k. Selling (1031 exchange) this week for $825k after ridiculous appreciation in the last 18 months.

Considering appreciation, rent and tax benefits it has benefitted us approx $35k per year.

I have never seen the property in real life and have only handled property manager statements in that time. Average 3 hrs per month maybe.

90% passive investment?

You stuck to it! My DF and I bought a 6 plex and did all the work ourselves. Solid tax breaks but not the greatest income stream compared to the SFH. We had a rash of bad tenants and it seemed they just attracted more bad tenants. We did have a property manager but she didn't seem to do much beyond brag about her extra income we provided her allowed her nice family trips down to Florida. I don't miss dealing with that headache. We could have made it work, but the stock market was much more passive then how we were setup with that rental. Still own SFH though and there are good years and bad years.

 

[captain3d]

Stocks have been hard to beat it is true

 

[Magus]

You stuck to it! My DF and I bought a 6 plex and did all the work ourselves. Solid tax breaks but not the greatest income stream compared to the SFH. We had a rash of bad tenants and it seemed they just attracted more bad tenants. We did have a property manager but she didn't seem to do much beyond brag about her extra income we provided her allowed her nice family trips down to Florida. I don't miss dealing with that headache. We could have made it work, but the stock market was much more passive then how we were setup with that rental. Still own SFH though and there are good years and bad years.

I don't own any low end stuff - definitely a much larger headache on average.

 

[Magus]

I bought 3 condo's a couple years after retirement (retired 2009, bought condo's in 2011 and 2012) to provide an income flow. I bought them during the RE crash and they were about 65% discounted from the new purchase price (they were all 5 to 7 years old).

They have turned out to be an excellent investment. I also mange my wife's townhouse and my daughter's condo. All 5 rental's typically take about 5 to 10 hours per year to manage. Occasionally during vacancies I might invest 10 to 30 hours that year.

My process for selection:

1) Buy newer condo's/Townhouse's for easier and reduced maintenance.
2) Only buy units that I would live in myself. No crappy units in crappy areas.
3) Since I'm in CA, only buy units in semi conservative Cities/Counties with no rent control.
4) If you have a good tenant, don't be greedy and keep the rent below market. When your tenants know they have good deals, in many cases they do minor repair themselves.

For me, they have been very very easy to manage. The ROI has been excellent with rent increases easily keeping up with inflation. As a bonus, capital appreciation has gained about $800K over the last 10 years.

You and I have very similar approaches with similar results

 

[clifp]

That was a pretty good overview. ..

I view Real Estate as a strategy for tortoises rather hares. The big payoff happens over an extended time and there are times when you just look silly, like you're losing the race. The good news for dumb turtles like me is that, like the stock market, the trend for real estate has always been positive over the long-term. I'm barely smart enough to know what I don't know; and frankly I find Real Estate a whole lot easier to manage than trying to comprehend and predict the market - especially when it is my primary source of income.

I agree it was a good overview. Real Estate is certainly more for a tortoise, which is why I think its good for not only building wealth to achieve FIRE, but ideal for owning in retirement. We do have more time, in retirement than working, and some people enjoy and/or can do their own repairs. Many of us can't/wont.

But mostly I think real estate is good for diversification. In the mid 2000 real estate got overheated in many markets and we saw 75% drops in price, that took down the stock market but not as bad. I think we are likely in for the reserve where stock market will crash, it will probably hurt real estate but not as bad. Unfortunately, interests rates are so low , that bonds can't really help protect one from a crash.

 

[Letj]

I bought 3 condo's a couple years after retirement (retired 2009, bought condo's in 2011 and 2012) to provide an income flow. I bought them during the RE crash and they were about 65% discounted from the new purchase price (they were all 5 to 7 years old).

They have turned out to be an excellent investment. I also mange my wife's townhouse and my daughter's condo. All 5 rental's typically take about 5 to 10 hours per year to manage. Occasionally during vacancies I might invest 10 to 30 hours that year.

My process for selection:

1) Buy newer condo's/Townhouse's for easier and reduced maintenance.
2) Only buy units that I would live in myself. No crappy units in crappy areas.
3) Since I'm in CA, only buy units in semi conservative Cities/Counties with no rent control.
4) If you have a good tenant, don't be greedy and keep the rent below market. When your tenants know they have good deals, in many cases they do minor repair themselves.

For me, they have been very very easy to manage. The ROI has been excellent with rent increases easily keeping up with inflation. As a bonus, capital appreciation has gained about $800K over the last 10 years.

What do you mean by manage? I manage about 40 rentals and the monthly bookkeeping including categorizing and filing takes at least 8-10 hours. If I renovate/update when tenants leave that takes even longer because I watch the contractors to minimize being ripped off.

 

[l8_apex]

I'm surprised by all of the estimates (that seem way low to me) on time spent dealing with rentals. I spend a lot more time than "5 hours a year". If that's all it takes for some, so be it. But that aint the norm.

Like others here, buying townhomes or duplexes or similar also worked for me. I ERd with nothing in stocks or bonds. Just real estate and Notes Receivable. It's a little crazy that my current income is now greater than my career's salary.

 

[Markola]

Another reason I have stuck with stock and bond indexes, plus my personal residence is diversification. Our index fund portfolio is exposed to some 28,000 companies in all kinds of jurisdictions globally.

Similar to OldShooter’s comment, the voters in my city just passed a 3% annual cap on rent increases, which sounds nice but will probably drive down everyone’s property values over 20 -30 years as landlords have less incentive and margin to maintain their properties. I can see an older, 1930’s 20-unit from my window, which is already on the edge aesthetically, and I wonder what shape it will be in a few years from now.

 

[ExFlyBoy5]

Another reason I have stuck with stock and bond indexes, plus my personal residence is diversification. Our index fund portfolio is exposed to some 28,000 companies in all kinds of jurisdictions globally.

+1. We have some vacant land that is adjacent to our home and that's enough RE diversification for us. DW is in the RE rental world and deals with all sorts of headaches across many states/homes/investors. No way we would want to deal with that buffonery on a "personal" level.

Not only that, since we have invested almost exclusively in VTI, that means about 3.5% (which doesn't include the mortgage REITs that fall under the financial sector) of our invested portfolio is in real estate and that is more than enough.

 

[Winemaker]

Forgive me if I mentioned this in another thread.

We have a brick fourplex built in a townhouse style, bought in March 2001. My tenant ( I call her the mayor) in #4, has been with me since Aug 2001, and her loyalty to me has her pay rent a a $75 discount. Plaster walls, hardwood floors, electric radiant ceiling heat. She alone, has paid for the entire building. I do my own maintenance.

WE had a SFH which was originally bought for dear MIL when she had a cardiac incident and we moved closer to us as she was in a neighboring state. Bought for $89,000, this 2 bedroom craftsman is/was beautiful. It would have cost us $4,000/month for her to live in an assisted/elder care living facility. A truly independent woman of 88 when she passed, 4 years later. We turned it into a rental after that for 7 years at $1000/month to the same tenant. With us caretaking my own Mom this past year, we had know time to maintain it, grass, bushes, flower beds, etc., and we sold it for the remaining depreciation of $74,000. Our realtor, said we would have to have removed all the wall paper in it to bring $100,000, full market value. I hate dealing with wallpaper, so it was worth $26,000 to me not to deal with it and cutting grass, and the hiring someone to stay with Mom.

 

[OldShooter]

Isn't this the correct way, in a democracy, to view this?

I don't think so, actually. What the aspiring elected officials see in big cities is a large majority iof voters (not just 2:1) that think "the rich" owe them a living and will vote for anyone who promises bread and circuses paid for with OPM.

I'm surprised by all of the estimates (that seem way low to me) on time spent dealing with rentals. I spend a lot more time than "5 hours a year". If that's all it takes for some, so be it. But that ain't the norm. ...

It's been a long time, but I'd guess I spent maybe 3-5 hours a month on my small residential empire. Just showing an apartment a couple of miles from my house certainly ate up an hour or more. Doing the accounting and making the bank deposits was more time. Chasing slow-pays, more time yet. An eviction hearing once every few years could easily eat of most of a day.

So IMO the work for the owner depends almost completely on what is hired out. A classic time vs money tradeoff.

 

[tmitchell]

I decided to invest in a crowdfunding platform called RealtyShares a few years ago. Was supposed to be a three year term with ongoing interest payments. The platform went belly up and was taken over by another. The developers have had lots of issues that are mostly impossible to know, and as such the majority of the interest had gone unpaid.

I figured it was a total loss but they’ve started paying interest again. I’m slightly hopeful I’ll get my initial investment back but someday still not counting on it. I haven’t done the exact math but it definitely hasn’t kept up with stocks.

Buyer beware.