My Pro's and Con's of real estate investing

[euro]

Quote:

Originally Posted by Senator Exactly. We all have 24 hours in a day. You cannot sleep all day. Some people prefer to eat all day, I see you at the heart attack clinics. Or drink all day. Or read. I prefer to be a bit active, and have a bit more money to buy a new truck... BTW, here is my new truck...

Agreed! I do maintenance work on my rentals when I feel like it. And I hire it out when I don't. Works great for me. I see little difference to someone who may spend a couple of hours a day researching stocks or mutual funds. You COULD call that work too (certainly some people do this for a living), but hey, if you enjoy it, who cares.

Nice truck!

[Senator]

Quote:

Originally Posted by Fermion As for toys, the stock market giveth toys as well. See my shiny new 9000 pound excavator? I even took the pods off of our RV to carry it home!

And if you were a landlord, you could write the thing off...

[Senator]

Quote:

Originally Posted by Letj Senator what about the new HUD guidelines that a landlord cannot have a blanket rule against renting to felons. Kind of scary for the landlord. I am thinking of fair housing coming down real hard on landlords.

I am not sure if it is a requirement, or just a proposal. I go back 10 years for criminal record. Not a life time, which is what HUD was concerned about.

Any felon that has a solid credit score and a clean criminal record for 10 years, should be fine to rent to. If all I had was single family homes, I would even be less concerned.

[NW-Bound]

Ah, photos of new shiny toys. Is this not the tail-feather thread?

I have not bought any toy, let alone something worthwhile to post a photo of. All I had were some travel photos, and then photobucket blocked them. Darn!

[pj.mask]

Quote:

Originally Posted by NW-Bound ...People have different pastimes. Some spend a lot of time and money to pamper a horse. You spend some time to take care of a property that pays good rent.

That is the point - would any of the real estate investors do the work without the pay? If not then it isn't a hobby like pampering your horse.

I have tons of goals for my time including travel and family. If you want sense of accomplishment I would love to take up woodworking/furniture building with hand tools.
I can't see dedicating my free time to forum when I don't have restrictions on my time and activities. Even with 3 day weekends - knowing I have to be back at work Monday prevents me from visiting friends out of town and managing my lifestyle. (Small kids are also a big factor for lack of time)
For example my mom is about to go on a month long hiking trip.

[Letj]

Quote:

Originally Posted by Senator I am not sure if it is a requirement, or just a proposal. I go back 10 years for criminal record. Not a life time, which is what HUD was concerned about. Any felon that has a solid credit score and a clean criminal record for 10 years, should be fine to rent to. If all I had was single family homes, I would even be less concerned.

Wouldn't it depend on what the felony was? I can't imagine a landlord renting to a rapist, murderer or someone prone to violence with multiple assault charges. Could be dangerous for the landlord no?

[Luck_Club]

Quote:

Originally Posted by hesperus It sounds like they're more than just stories - it's work for pay. I find many ways to challenge and engage myself that don't involve that tradeoff. Seriously, pj.mask makes a good point - is it really retirement?

Over the years I've come to observe quite a few retirees. Most if not all do something for entertainment, and to fill the time.

My FIL spends his time working on projects around the house, cutting down trees, chopping wood, then delivering said wood to the poor, etc he also volunteers through his church to do home repairs for others. The rest of the time he spends on leisure activities such as golf.

My DF spends his day truly living the definition of not working, living the retirement dream if you will. HE DOES NOTHING ALL DAY EVERY DAY, EXCEPT MONITOR THE PORTFOLIO, and watch TV.

A 3rd retiree, though not by this forums definition, spends his time between the water front in the summer, and the mountains in the winter. In both places he works part to full time life style jobs as a launch driver and ski instructor. I often see him reading books, staring out at the water, or exercising on the clock during the summer.

All 3 are "retired" from their careers, but only my father isn't working. I would argue that real estate is more like my FIL's type of retirement, except it also provides a very nice return on our time, while fulfilling our need to "keep busy and productive". Think about the excitement of your last home improvement project. All the shopping and planning talking to people etc. The best part is you get all that excitement and entertainment while making a profit as opposed to dwindling your stash.

I'm only 49 so I may change my tune at 69, but it still is pretty fun and cool past time in my eyes. As long as my time commitment stays under 40 hours a year it isn't all that bad. After all we have 5840 waking hours a year to fill with activity.

[Luck_Club]

Quote:

Originally Posted by Ready-4-ER-at-14 I was curious if any of you own RE in a self directed IRA, and if you did, did you manage to finance it in any way and still have some legal shell around it? There may be taxable cash flow problems with this so may not be a good idea. Tried doing a search here but after several pages of links to firms providing services decided to ask directly. I know this may be a tad off the current thread direction but taxes and ways of holding RE seem to be pros and cons. Especially since a big pro is the depreciation amount that shows up on tax time to reduce apparent net income made.

From my experience I would not recommend this path for real estate rentals.

I've used these exotic finance vehicles (self directed IRA & ROBS) on two occasions for two different purposes. Neither worked out well.

They can add expensive carrying costs that need to be paid to a 3rd party. You lose some of the best parts of rental real estate, leverage and passive loss deductions.

The rest of the story...

The first adventure with this was buying shares in a privately held MLP. The losses which could have been used against current income, or carried forward to offset future income were essentially lost forever. When the company starts making money, which it is after several years of losses, those profits are subject to tax prior to distribution to the partners.

The second was a start up I funded out of my 401k. The accounting requirements were more restrictive due to IRS special attention than I was accustomed to in my other business ventures. As some have said us Real estate guys/gals don't have the same brain power as portfolio types. If I can't do the books out of my check register or on the back of an envelope I get lost. Had the business taken off to the extent I thought it would there were some minor tax advantages.

One pro is some have very large retirement balances from which to fund purchases.

[pj.mask]

Luck_Club: people who 'FIRE' with real estate probably count on that income to fund retirement. If your FIL wanted to stop or broke his arm there is a lot more slack in letting trees grow vs a leaky roof.

If they are completely FI based on sale -> convert to cash/stock and not required to manage real estate to make a living, it might be a different story. However I have a hard time believing everyone enjoys fishing pencils out of toilet lines - that real estate requires some level of stress/work/management that not everyone can do - this also means it is more difficult to confidently delegate the work should you be unable to do so.

[Senator]

Quote:

Originally Posted by NW-Bound True that one needs to do something other than sitting there watching his portfolio going up/down (which I do a lot). However, my own homes already give me plenty to do, but I appreciate your perspective. People have different pastimes. Some spend a lot of time and money to pamper a horse. You spend some time to take care of a property that pays good rent. People enjoy different things. We like to cook. Some dread that task, and rather watch TV. People are really different.

And some people go back to a different state and watch grand kids... Little children are some of the most unsanitary, bacteria laden things you can be around.

[Senator]

Quote:

Originally Posted by Letj Wouldn't it depend on what the felony was? I can't imagine a landlord renting to a rapist, murderer or someone prone to violence with multiple assault charges. Could be dangerous for the landlord no?

Those people have to live somewhere. I would pass as I have multifamily properties. After they have been clean for 10+ years, and have solid credit and income, they are likely OK.

[xmanz3]

Quote:

Originally Posted by Senator My rentals provide 200%+ of my spend. It has exponentially increased my NW. They do not really require too much work either. I am currently working on a flip of a 1885 building. I bought it for $38K in December 2015 and kept the renters in place. Should be able to sell it for $140K+ when I am done. The original buy was a assignment of a contract for deed that I immediately cancelled and took ownership of the home. I also extinguished a IRS lien on the property when I did that. Tearing out lath and plaster in the kitchen. Adding outlets, redid the plumbing in the entire house. It will have new windows, kitchen cabinets, new floors, new paint, etc. Probably will spend $25K total, plus the $38K or a total of $63K. Plus some sweat. I did collect over $13K in rents while the tenants were in there. Once I sell, I will buy a place in Cape Coral, FL. I may even buy a place first, and do a reverse 1031. Slightly more expensive to do it that way, but much more controlled. With 25 tenants, I have not had an eviction in years. It's all about screening them. Easy peasy, just do not take a sob story.

Can you please explain how the 1031 exchange work?

[xmanz3]

Quote:

Originally Posted by Senator I have 25 renters. ~$340K in gross rents. Purchase price was ~1.8M, but I only had to have maybe 20% of that down, across several years. I am not sure where you can get a $150K+ retirement income and only have ~$360K invested.

Did you purchase a multi-unit? Where?

That's a wonderful investment!!!

[SAtoUS]

Quote:

Originally Posted by xmanz3 Can you please explain how the 1031 exchange work?

Here you go...

https://areiusa.com/1031-exchange-rules/

[Senator]

Quote:

Originally Posted by xmanz3 Did you purchase a multi-unit? Where? That's a wonderful investment!!!

The total was ~$1.8M. It is 5-four plexes, 2-duplexes and a single family home.

I am prepping the SFH for sale, doing an extensive remodel, and hope to sell for ~150K+. I only paid $38K, and put in ~$20K.

[kcowan]

Quote:

Originally Posted by Senator I am prepping the SFH for sale, doing an extensive remodel, and hope to sell for ~150K+. I only paid $38K, and put in ~$20K.

Do you know how much is general appreciation and how much is your value added?

[Senator]

Quote:

Originally Posted by kcowan Do you know how much is general appreciation and how much is your value added?

It was probably worth $75K when I bought it for $38K. If I sold it after the renters moved out, I may not have even barely got that. It would have been a fixer-upper. The former owners/renters were hard on the property.

I am adding 20 new windows ($13K), appliances ($2500), flooring ($2,000), new plumbing ($250), re-doing some electrical in the kitchen, and other small things. ~$25K in cost to me. Plus lots of labor. Luckily I can do it all myself, but I am hiring out the windows.

After all is said and done, maybe I actually only make $65K - $75K for my labor/value added, and another ~$30K from the 'deal'. I will have ~$65K into it, and hopefully sell in the Spring for $140K - $160K.

Not really that much for my labor, and if I worked on it full-time, it would probably only be 6-8 weeks. So not bad for 2 months work. But it will take me ~8 months, as I have other obligations and like to travel a bit...

Cost ~$40K
Fixup ~$25K
Sale $140K

'Profit' = $75K. (~$30K I could have had without any work or risk.)

[Curmudgeon]

Quote:

Originally Posted by Senator 'Profit' = $75K. (~$30K I could have had without any work or risk.)

I'm trying to figure out where the profit comes from - what the 'key' is. It sounds like 30K was just that you bought an undervalued property - why do you suppose it sold for $40 if it was worth $75?

Of the remaining profit, how much of it was
a) sweat equity - you contributed $X worth of labor to the property that didn't actually cost you any $
b) you can always turn a profit when you fix a place up - if you put $X of work into a property it will net you more than $X in resale value
c) If you pick the right place, fixing up a property will net you more than you put into it

[Senator]

Quote:

Originally Posted by Curmudgeon I'm trying to figure out where the profit comes from - what the 'key' is. It sounds like 30K was just that you bought an undervalued property - why do you suppose it sold for $40 if it was worth $75? Of the remaining profit, how much of it was a) sweat equity - you contributed $X worth of labor to the property that didn't actually cost you any $ b) you can always turn a profit when you fix a place up - if you put $X of work into a property it will net you more than $X in resale value c) If you pick the right place, fixing up a property will net you more than you put into it

It's hard to say what my labor is worth. I save $40+ per hour I would guess.

I bought it in an unconventional manner, that is why it was cheap. Today, Zillow has it at $143,638. Trulia has it at $143,241. Realtor at $93,300 (Yikes...). They do not have new windows added to the valuation. A realtor friend said $180K, but that is too high. Lots of new homes in the area skew the prices higher.

It was purchased for $60K in 2012. The owners could not afford the $38K contract for deed balloon payment in 2015. They also could not sell for less than ~$70K, as there was an IRS lien on the property. They waited too long, so they had no time to act.

I purchased the contract for deed, and cancelled it, that is basically a foreclosure. The IRS lien went away. They rented back from me for ~18 months after that.

Most of my properties have been non-MLS and creative purchases. Sheriff's sales, buying mortgages, buying contracts, redeeming as a junior lien holder, having deeds just signed over to me, etc.

[Bigdawg]

Quote:

Originally Posted by pj.mask That is the point - would any of the real estate investors do the work without the pay? If not then it isn't a hobby like pampering your horse.

So if it pays it cannot be a hobby? And hobbies are better than something that pays?

I was an athlete my whole life. Now that I am older I was looking to "give back". I had a short stint as an assistant HS football coach. Then I got into umpiring baseball games. Love it. Worked my first state championship in May.
"No BD, not a hobby. Why? Because you get paid silly."

Between volleyball and baseball last year I made about 14K. I guess it wasn't as fun as pampering my horse.

If I go fishing, catch and eat the fish is it then not a hobby because I profited from the activity? If my walking hobby yields a $20 bill every now and then is it now not a hobby? -found a $20 on the street the other day while walking the dog.