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

[97guns]

Couple of stories from my moms siblings

#1 uncle purchased 2 RV parks for around 200k each and ran them for 25 years, making income all that time and finally selling them 5 years or so ago for 1.2 mil and 1.75 mil

#2 uncle had a contract business refurbishing radios for the army, bought a 3 building commercial unit for $100k to run the business, now retired and on the market for 1.1mil

#3 aunt was a RE tycoon, owning apt buildings, multi families, and single family homes, buying, selling, wheeling and dealing, left everything to her only son

[NgineER]

I just had my first tenants sign a lease for an additional year. Tenant screening is extremely important, get the wrong tenant and you will have issues.

My first and so far only property was a tax foreclosure, I ended up spending 2x on renovations compared to the purchase price. Once I had rehabbed it and two tenants on lease I refinanced and got all but $2k of my investment out. I get $2.5k each month in rent and cash flow ~$5k/year after assuming 50% of rents going to expenses and after 15 year mortgage payments.

Looking for similar opportunities, but they don't come very often.

I've had to deal with one broken storm door and an arc-fault breaker that kept tripping. So far 10 hours of work in the first year, including quarterly inspections to stay on top of maintenance and tenants.

[travelover]

This thread reminds me of the people that occasionally knock on my door to convince me I have the "wrong" religion.

[97guns]

My moms parents were flippers in Hawaii in the 1940's And 50's, flipping the house they lived into something else to live in, making $500 on a deal, my mom moved 4 times before finishing school. Their final flip was into a house in California on 3 acres purchase for under $20k, it's probably valued at 1.5mil today, grandma sold it in the 90's for a couple 2 or 3 hundred K.

[Fermion]

Quote:

Originally Posted by BreathFree You can't seriously be making this comparison as if the two have equal risk.

True. If your rental houses were on the Texas coast, you could be wiped out by a hurricane which has only had a 0.02% effect on the stock market.

[RunningBum]

Quote:

Originally Posted by travelover This thread reminds me of the people that occasionally knock on my door to convince me I have the "wrong" religion.

I can't figure out why. This seems like the kind of business where you'd want less competition, to keep the price of these bargain properties down.

[Fermion]

Quote:

Originally Posted by RunningBum I can't figure out why. This seems like the kind of business where you'd want less competition, to keep the price of these bargain properties down.

I am waiting for them to sell me a book or set of tapes.

[Amethyst]

We thought the worst tenant ever was the Section 8 woman, until we rented to a guy with an 800 credit rating but no landlord history (b/c they had sold their home and were "renting while looking for another." On paper they were terrific. He turned out to be the most insufferable tenant we ever had. Despite all the other issues we've had, we probably would have stuck with our property, but he just PITA'd us to death. Imagine an utterly humorless Woody Allen type (no, not Jewish, just saying). Among other things, he constantly got us into trouble with the various HOA's and Community associations we were subject to - he found their rules risible, and kept arguing with US as to why they should not apply to HIS perfect family. And he constantly felt slighted and was very vindictive about every perceived slight.

Quote:

Originally Posted by NgineER I Tenant screening is extremely important, get the wrong tenant and you will have issues. .

[NgineER]

Quote:

Originally Posted by Carpediem Very impressive! How the heck do you find someone willing to finance those properties? We'd love to pull the trigger on a few more.

I believe the new Fannie Mae rules (2016) will allow for up to ten properties, including your primary residence. If you are married, you can have 19 properties, 1-4 units each, between you and your spouse. In theory you could have 36 tenants plus your primary.

[Luck_Club]

Quote:

Originally Posted by Fermion True. If your rental houses were on the Texas coast, you could be wiped out by a hurricane which has only had a 0.02% effect on the stock market.

Do you have house insurance?

Guess what so do landlords. Our insurance sometimes even comes with fair rental replacement coverage. meaning we get our rents while the place is being rebuilt.

[Fermion]

Quote:

Originally Posted by Luck_Club Do you have house insurance? Guess what so do landlords. Our insurance sometimes even comes with fair rental replacement coverage. meaning we get our rents while the place is being rebuilt.

Headline "Most Harvey flood victims on hook to pay for repairs"

https://www.yahoo.com/news/most-harv...040528436.html

Perhaps they did not see the need for flood insurance in addition to hurricane insurance and regular homeowners insurance. I would assume flood insurance is going to be quite expensive now and would reduce your overall return.

If the stock market investor wanted to reduce their return, they could also buy insurance against market failures in the form of protective puts.

[Luck_Club]

Quote:

Originally Posted by Fermion You could have taken $360k invested in 2010 and purchased $1.2M of SPY on 30% margin. The dividends would have covered the margin interest and the $1.2M would be worth about $3M today. Landlords who don't fully own their rentals are on margin, they just won't know it until we get another housing crash.

Not exactly the same thing. Leverage in real estate is usually higher, and the risk of a margin call is virtually non existent. In your scenarios a 10% price drop would trigger a margin call.

When you buy a rental on margin, it is like buying a tax free municipal bond that yields 7%, after your margin payments, while someone else pays off the 80% margin balance for you.

All I know is year after year I pay $0 in taxes on my rental income despite putting thousands of real dollars in my pocket.

[euro]

Quote:

Originally Posted by Fermion Landlords who don't fully own their rentals are on margin, they just won't know it until we get another housing crash.

Not really the same. If you buy on margin and the underlying equity tanks, you will get a margin call and will have to cover the difference. On a leveraged real estate deal, you still collect the same rent (and owe the same mortgage), regardless of whether the property loses its value.

[jollystomper]

As Sly sang, "different strokes for different folks". Some folks enjoy real estate and see "problems" as "opportunities". Some do not. Neither is right or wrong, just different.

[Curmudgeon]

People always write about the tax benefits of RE investing, but it seems as though there is a huge disadvantage, namely depreciation recapture: If I buy a property now and write off depreciation, it doesn't save me much - I'm already in a 15% Fed. tax bracket. Years from now, when I sell (say, if I need to cash out to fund my retirement) then I owe 25% tax on the depreciation I claimed. That could be a huge tax bill. Do I misunderstand this?

[Winemaker]

Some folks like hot dogs, some don't. Some folks like lobster, and seafood, some don't.

Some like real estate investing, others don't. It is what makes the world go round and conversations interesting. Within the next 7 days, there will be $6000 in checks delivered to the mailbox out front.

[Fermion]

Quote:

Originally Posted by Winemaker Some folks like hot dogs, some don't. Some folks like lobster, and seafood, some don't. Some like real estate investing, others don't. It is what makes the world go round and conversations interesting. Within the next 7 days, there will be $6000 in checks delivered to the mailbox out front.

Back when I had my 12.5% coupon mining company bonds I bought at 25% of par, I had $12500 checks coming to my mailbox every six months on a $50,000 investment. Them were the days!

[Amethyst]

If your property has appreciated, and you don't have a lot of previously -
unallowed expenses to deduct at sale, then yes, you will have to pay back some of that depreciation. It varies by situation, like all tax things.

Quote:

Originally Posted by Curmudgeon People always write about the tax benefits of RE investing, but it seems as though there is a huge disadvantage, namely depreciation recapture: If I buy a property now and write off depreciation, it doesn't save me much - I'm already in a 15% Fed. tax bracket. Years from now, when I sell (say, if I need to cash out to fund my retirement) then I owe 25% tax on the depreciation I claimed. That could be a huge tax bill. Do I misunderstand this?

[Danmar]

Quote:

Originally Posted by travelover This thread reminds me of the people that occasionally knock on my door to convince me I have the "wrong" religion.

Exactly. Once you get the "real estate religion" it's pretty easy. Used to do it when I was younger. Too much work now.

[Danmar]

Quote:

Originally Posted by Winemaker Some folks like hot dogs, some don't. Some folks like lobster, and seafood, some don't. Some like real estate investing, others don't. It is what makes the world go round and conversations interesting. Within the next 7 days, there will be $6000 in checks delivered to the mailbox out front.

Agree. Mailbox? Heck my divs go right into my account. No fuss no muss. Pretty big numbers too.