30 With a New Hobby in Real Estate

[srlimoges]

Soooo, it sounds like the OP IS working for the man... at say $24K to $30K... (net $1500 per month).... I will agree that if that is all you are making after a college education, then an alternative is needed...

It also doesn't seem like you are spamming like your first post would have indicated.... maybe a troll... we will see if you have more input than just this thread...


Don't get me wrong... RE can be a great investment as others have said... but there are a lot more people who crashed on the rocks than made it through with smooth sailing... I do know that when I was real young, we would not have food on the table if my father was not a slum lord for awhile... but we kids had to do a LOT of work on all the houses...

I also have seen one of my BIL lose everything during the last banking crisis in the 80s... he had over $5 mill in RE... but lost it all... everything... because the market crashed and people just did not lease... he did not have enough cash to pay the mortgage, the S&L went under, the loan was called etc. etc....

It is a high risk way to get rich... just like someone who bought stock on margin... you can make it big or you can lose it all.... I just think you do not see the true risks involved... maybe they will never happen... great... you win... but if they do hit, you can be wiped out... I don't want to play Russian Roulette with my retirement funds...

Good points, I agree Texas. But I feel it's just as risky investing in real estate as it is to live a life working where you don't like.

 

[Westernskies]

Good points, I agree Texas. But I feel it's just as risky investing in real estate as it is to live a life working where you don't like.....

....Which is anywhere someone will tell him what he has to do to earn that paycheck, so apparently this real estate venture is the ONLY option to consider.

 

[ronocnikral]

ahhh....the magic bullet has been found. calling realtor now. dumping entire networth into RE. checking out before 30...

...of course, the "lease to own" property down the block from the in laws is still for sale after...15 years or so. and looks a lot worse than the rental property directly next door. fetches less in "rent" despite being larger...

these RE guys are really good writers...

 

[Texas Proud]

He's not- he's doing it with borrrowed money- who do you think will left to pick up the tab when the market hiccups and this carefully constructed house of cards falls apart?

The one thing I can say is this is a better time to get into RE than it was a few years ago... there are lots of cheap houses around that can produce a good income if you can do it right.


And to your comment.... that was what I kept telling my BIL... that what he was spending was borrowed money... not something he earned.... he kept leveraging one property on another on another etc... never did have true equity in that $5 mill in RE... at least not as much as he thought... and when the S&L crisis came... anything he had went down the drain quickly... like in months... he lost his RE, his construction business, his fabrication business, his equipment rental business... and the IRS was after him... if it wasn't for an IRS screw up and the BK judge forcing them to back down he would have lost more....

 

[srlimoges]

Westernskies, I'd appreciate it if you would contribute constructively to the thread. Otherwise it's demonstrating how to spam and troll.

I have no problem with you attacking me either, but please send it to me via PM.

 

[srlimoges]

ahhh....the magic bullet has been found. calling realtor now. dumping entire networth into RE. checking out before 30...

...of course, the "lease to own" property down the block from the in laws is still for sale after...15 years or so. and looks a lot worse than the rental property directly next door. fetches less in "rent" despite being larger...

these RE guys are really good writers...

No, not a magic bullet! But lots of hard work. I feel it's a viable option for people looking to retire sooner than 10 years. I've seen several lease purchase strategies, and frankly many are lose win opportunities (for the owner and/or renter). A win win keeps a happy renter/purchaser and landlord.

Of course no investment is risk proof, and lease purchase sits a top the risk spectrum. However, I do believe thorough strategies mitigate potential hazards.

Does anyone know of other low barrier retirement strategies that can create a quick retirement?

 

[brewer12345]

No, not a magic bullet! But lots of hard work. I feel it's a viable option for people looking to retire sooner than 10 years. I've seen several lease purchase strategies, and frankly many are lose win opportunities (for the owner and/or renter). A win win keeps a happy renter/purchaser and landlord.

Of course no investment is risk proof, and lease purchase sits a top the risk spectrum. However, I do believe thorough strategies mitigate potential hazards.

Does anyone know of other low barrier retirement strategies that can create a quick retirement?

TromboneAl had a recent thread in which he detailed his neighbors' efforts to pursue a low barrier strategy to get to a quick retirement.

 

[srlimoges]

Well, (using made up numbers) the real estate version of that is:

Buy rental for $200k, putting $40k down.
Rent and earn (yeah, IRS says it's unearned income - Hah!) maybe 1% of purchase price after loan payments and expenses, or $2k/year.
On taxes, write off depreciation, at 1/27.5 per year on improvements (say 80% of original purchase price, or $160k). So the $40k down payment is making $2000/year, or 5%, but the tax man says you can write off depreciation of $5818 per year, and that $3818 depreciation amount over and above rental earnings can be written off against other income. When the property is sold you do have to pay taxes on the depreciation that has been taken - or you can 1031 exchange into a more expensive property and keep doing that until your heirs inherit the property at the basis as of date of sale - and start a whole new depreciation schedule!

Very true. In fact I feel 1% earnings on purchase price is overly pessimistic. Down payment and fix-up costs divided by net rents very modestly is over 10% earnings, which doesn't include payment on mortgage principal, appreciation (or depreciation), or tax benefits.

 

[srlimoges]

TromboneAl had a recent thread in which he detailed his neighbors' efforts to pursue a low barrier strategy to get to a quick retirement.

Thanks! I'll PM him.

 

[bbbamI]

....

heh...

 

[brewer12345]

OP, just a piece of advice: you come across as having a huge chip on your shoulder. Relax a bit, be a little less shrill and you will get along with the regulars a lot better. Nobody is telling you that securities investing is the only possible path to FIRE. Take it easy.

 

[Westernskies]

Westernskies, I'd appreciate it if you would contribute constructively to the thread...

OK. I believe you are [-]another[/-] the next RE genius, boldly going where no man has ever gone before with other people's money. Can't wait for the 4-year update.

I have no problem with you attacking me either, but please send it to me via PM.

Check your PM...

 

[srlimoges]

OP, just a piece of advice: you come across as having a huge chip on your shoulder. Relax a bit, be a little less shrill and you will get along with the regulars a lot better. Nobody is telling you that securities investing is the only possible path to FIRE. Take it easy.

Thanks for the advice.

I began working at 14 yrs old at a grain factory in VT. I've worked every year afterward during weekends, week nights, and summers at various jobs while schooling. During childhood it was ingrained by the parents to work hard, save money, and invest in mutual funds and bonds. 'Someday you might retire early, a few years before normal retirement (...and this is not meant to put down 'later' early retirees. I respect people who accomplish what they want)'. It wasn't simply my parents however - it was everyone I spoke to. I even worked as a financial agent/adviser at Primerica and they harped the popular stock/bond approach...

However, I now discovered the problem was I wasn't talking to the right people. I was talking to people who were on pace to retire at 65 or slightly before. They couldn't give the aggressive financial advice I needed to retire early because they didn't know it first hand (I don't want to come off as a know it all, but I consider this to be true).

I feel others with similar goals cave in to common blanket statements and live an unhappy life. I don't want to come off with a chip on my shoulder, but with confidence to show others there are more options, as cliché as that sounds.

 

[ronocnikral]

I feel others with similar goals cave in to common blanket statements and live an unhappy life. I don't want to come off with a chip on my shoulder, but with confidence to show others there are more options, as cliché as that sounds.

chip on my shoulder never crossed my mind...

 

[Nords]

Thanks Nord, I respect your opinion.
I'm not trying to trash others goals who want to follow 'the man and stock plan'. I respect Brewer's path as it fits his goals!!
But I defininately don't want that, and want to offer knowledge that other approaches do exist for aggresive RE. The corporate plan is a dead end for me and I'm probably not alone.
My shorter term goal is semi retirement, away from corporate america. I haven't focussed much on retirement #2. What would you suggest I do with the real estate if I want a full time retirement?

It's interesting that you feel your first dozen or so posts should offer to educate the rest of the board on ER strategy. This board has active posters who've been here (or on its predecessors) for over a decade. For example, searching through a few hundred posts on the board for keywords like "real estate", "landlord", and "rental" would help get to know the members who are already financially independent from our rental-property approaches. It's possible that, even without a lecture on lease-to-own, they could tell about their own experiences in that area.

This board is big, crowded, noisy, and busy. For several years there have been dozens of posters who've started off in the manner you appear to have chosen. Many of them have been spammers and trolls or, at best, highly opinionated in their approach and short-lived in their board activity. In other words, with that approach I think you're going to have some trouble getting people to take you very seriously. You could lurk for a while, or you could ask questions in a less provocative manner. But those would be at odds with your general overall tone of impatience.

My suggestion? Read the books that I've been recommending on this board which cover the approaches you could take to ER'ing out of your real-estate holdings: (1) Investing in Real Estate, 4th edition or later, by Andrew McLean & Gary W. Eldred (who's taken over the new editions) and (2) Landlording by Leigh Robinson (7th edition or later). I think they've held up pretty well over the years and they're worth a few hours of thoughtful contemplation. Then you can find the approach that's right for you, although it doesn't carry the benefit of lecturing other board members on how they should respond to your posts.

Does anyone know of other low barrier retirement strategies that can create a quick retirement?

Perhaps before you PM TromboneAl you'll read a few more posts on the board, especially his, and get a feeling for what other approaches people are taking to ER.

But if that approach isn't working for you, then don't let me discourage you from asking Al how his neighbor is accelerating their ER through innovative applications of rental property.

 

[Texas Proud]

/snip/

However, I now discovered the problem was I wasn't talking to the right people. I was talking to people who were on pace to retire at 65 or slightly before. They couldn't give the aggressive financial advice I needed to retire early because they didn't know it first hand (I don't want to come off as a know it all, but I consider this to be true).

/snip/

Wow... this sounds like the get rich people on TV... and an old friend who wanted to sell vitamins.... (hey, someone conned my wife into this... she thought she was going to get rich)....

Like it has been said before... you might actually get there with your strategy.... but there are others who have seen others with the same message sink... come back in 4 years and give an update... but don't try and make it sound like everybody can make a killing in RE (which is how you sound)... because they have people on TV that ARE millionaires that will sell me the know how for a few thousand $$$$s.... (note, they did not make their millions in RE....)...


And another piece of info.... I bet that more people have become millionaires with stocks than with RE... by a good factor...

 

[srlimoges]

Wow... this sounds like the get rich people on TV... and an old friend who wanted to sell vitamins.... (hey, someone conned my wife into this... she thought she was going to get rich)....

Like it has been said before... you might actually get there with your strategy.... but there are others who have seen others with the same message sink... come back in 4 years and give an update... but don't try and make it sound like everybody can make a killing in RE (which is how you sound)... because they have people on TV that ARE millionaires that will sell me the know how for a few thousand $$$$s.... (note, they did not make their millions in RE....)...

Scams are everywhere and they don't discriminate. Good advice here. Do research - read the books, take the seminars, join a local real estate association. Education is not only priceless but makes money!

And another piece of info.... I bet that more people have become millionaires with stocks than with RE... by a good factor...

No doubt, this is true.

When I ran the retirement calculators, I couldn't see myself working for a company another 10+ years without a plan B. Thats why I went into real estate.

 

[myself]

No offense but isn't that what your post was... and now this post is - spam.

Seriously, why do advisers evangelize the stock market as the best and fastest avenue to retirement? Is it a case of teach what you know and thats what advisers know?

There seems to be gapping holes in knowledge/communication of how to retire early. Working for 'the man', saving, and mutual fund investing is only one way to retire (in 10+ years). Thats certainly not for me - I don't want to spend 10+ years being told what, when, and how.

Well, there is another possibility. Find something that you actually enjoy doing. I know for the first 6-8 years of my working career, I wasn't doing anything near what I wanted to do. Then, I started downt the path I wanted. Subsequently, for the 12-15 years after that I more than enjoyed the work that I was doing. I am now focusing my efforts to semi-retiring in 14-15 years, when our mortgage will be paid and the older 2 of our 4 kids will potentially have graduated from college, and the next 2 will be 1 year behind that.
While I am not enjoying it quite as much as I once did, I am starting to enjoy it more, since I am doing things outside of work for myself, if for no reason other than to better myself.

 

[myself]

No, not a magic bullet! But lots of hard work. I feel it's a viable option for people looking to retire sooner than 10 years. I've seen several lease purchase strategies, and frankly many are lose win opportunities (for the owner and/or renter). A win win keeps a happy renter/purchaser and landlord.

Of course no investment is risk proof, and lease purchase sits a top the risk spectrum. However, I do believe thorough strategies mitigate potential hazards.

Does anyone know of other low barrier retirement strategies that can create a quick retirement?

Live at home (or share a place for little or no rent). Save 90% of your take home pay (only using 10% of it to provide food), and put into investments that make 8.4%/yr on average. Do this for 15 years. You'll have enough at age 45 to live at the same level you did before, and only withdraw at a rate of 4.5%/yr from your investments until you can receive SS.

Not the prettiest suggestion, but somewhat valid based off of an income of $25,000/yr and subtracting out taxes paid.

 

[srlimoges]

I found a real estate vs paper investing debate yesterday. The argument was for real estate so bias existed, but it provided valid information on why real estate could be vehicle to retire faster.

1.) If you had $100,000, how much paper assets can you buy? Exactly $100,000. Thats how much money was used to purchase the paper.

If you had $100,000 how much real estate can you buy? Maybe $500,000, maybe $1,000,000, maybe more. Leverage can buy 10x or 20x more than you actually invest.

2.) How much are $100,000 of paper assets worth when you bought them. Again exactly $100,000. Thats what the paper was worth when purchased at that particular time.

How much is the $1,000,000 of real estate worth that was purchased with $100,000? Could be $750,000. Or could be $1,500,000. I don't know what this is called, but through my own investing, know that it definately exists and is ready to be taken advantage of with proper research.

3.) How can you increase the value of the $100,000 in paper? Maybe write a letter to the company CEO? I don't know.

How can you increase the value of the of the $1,500,000? We could spend all day discussing this.


Of course there are negatives to real estate vs paper assets. One is time. Real estate will take more time in research and following the purchasing/fixing/renting process.

Just some points worth posting for thoughs looking to retire earlier.

 

[ronocnikral]

i can't wait for the update...

 

[FinanceDude]

When I was a boy men on my street raised families of 6-8 children on a well run bar. The things that work are always changing, but always there.

In college, I was the bar manager at the busiest bar in town. It was a yuppie place, with free popcorn and peanuts. Most weekends, we would take in $35,000. An average week was $55,000 CASH. This was the early to mid 1980's in a college town! The owner was an idiot and kept draining our bar to keep his other restaurants alive...

He got into fiancial trouble and my best friend's dad put together an investor group and tried to convince him to sell. he refused, and went out of business less than 2 years later. ALL of his other businesses followed suit...........so it doesn't always work out........

 

[ERD50]

I found a real estate vs paper investing debate yesterday. The argument was for real estate so bias existed,

Fine. I expect, and accept that just about all information I see will be biased. However, when they don't get basic facts straight, I call BS. And I'm calling BS.

1.) If you had $100,000, how much paper assets can you buy? Exactly $100,000. Thats how much money was used to purchase the paper.

Demonstrably False. There are many ways one can leverage a paper investment. Margin gets you a mere 2x (ho-hum). I can buy calls (even in my IRA) and gain 100x or more leverage, have (theoretically) unlimited gains, and have a defined maximum loss of no more than my investment amount. A 'short sale' could never happen. Yet we hear about them every single day in Real Estate.

How much is the $1,000,000 of real estate ...? Could be $750,000. Or could be $1,500,000.

Everyday people claim to buy stocks at below their 'fair market value'. Maybe they are right maybe they are wrong. But I say the value of something is measured by what you can sell it for today. If someone sold it to you for $1.00, it's worth $1.00, not $1.50. I won't argue the point with you, believe what you want. But the rubber meets the road when the pen hits the contract.

3.) How can you increase the value of the $100,000 in paper? Maybe write a letter to the company CEO? I don't know.

Well then, you learned something today. I've learned a lot from this forum, it feels good to 'give back'.

Of course there are negatives to real estate vs paper assets. One is time. Real estate will take more time in research and following the purchasing/fixing/renting process.

Fair enough. I don't know why people keep comparing them then. They are different beasts. If one or the other suits you, fine.

but it provided valid information on why real estate could be vehicle to retire faster.

It also provided valid information on why real estate could be vehicle to go broke faster. Leverage works both ways. But you acknowledged there could be bias in the article, so that's OK.

Just some points worth posting for [-]thoughs[/-] (those?) looking to retire earlier.

It's fine to post them for others to think about. I appreciate differing viewpoints. I don't feel the same about including a conclusion in the process. Let the reader decide if it will help them to 'retire earlier' or not.

I sense it wasn't just the article that was biased.

To be clear, since that might have come across a bit rough - I have no problem with anyone who decides that RE is the way for them to prosper. Do as you see fit, and I'll wish you well. But if you try to make a case for it by misrepresenting the alternatives, I smell an agenda. Agendas smell a lot like BS.

-ERD50

 

[Texas Proud]

I found a real estate vs paper investing debate yesterday. The argument was for real estate so bias existed, but it provided valid information on why real estate could be vehicle to retire faster.

1.) If you had $100,000, how much paper assets can you buy? Exactly $100,000. Thats how much money was used to purchase the paper.

If you had $100,000 how much real estate can you buy? Maybe $500,000, maybe $1,000,000, maybe more. Leverage can buy 10x or 20x more than you actually invest.

2.) How much are $100,000 of paper assets worth when you bought them. Again exactly $100,000. Thats what the paper was worth when purchased at that particular time.

How much is the $1,000,000 of real estate worth that was purchased with $100,000? Could be $750,000. Or could be $1,500,000. I don't know what this is called, but through my own investing, know that it definately exists and is ready to be taken advantage of with proper research.

3.) How can you increase the value of the $100,000 in paper? Maybe write a letter to the company CEO? I don't know.

How can you increase the value of the of the $1,500,000? We could spend all day discussing this.


Of course there are negatives to real estate vs paper assets. One is time. Real estate will take more time in research and following the purchasing/fixing/renting process.

Just some points worth posting for thoughs looking to retire earlier.

OKKKKKK.... just a point or two on your posts...

You CAN buy more 'paper' as you call it than $100,000. It is called purchasing on margin.... if you want to make the gamble and do it with the right stocks you can probably get about $300,000 invested.

You will be hard pressed to get 20X in RE. I would think 10X is close to the upper limit (without some owner financing or other kind of deals that are under the radar). So, max $1,000,000.... but more than likely $500K to $700K.


Your next sentance makes no sense... if you purchased $1 mill in RE... it is worth $1 mill... now, it might go up and down from there over time... but it is not $500K or $1.5 mill then...

But, say it is the $1 mill... and the value of the RE goes down to $900K... guess what... you are now bankrupt with an illiquid asset but with loan payments that must be met. What if you can not rent it out for a month or two... do you have enough cash flow to overcome that?

What if there is a natural disaster, such as hurricane, tornado, flooding, wind damage, fire etc. etc.... for sure you are not getting any income from them plus you have to hope that you have enough insurance to cover the disaster.

How do you affect the value of the RE Not as much as you might think. Yes, you can improve the property (by spending money) and make it more valuable... that is if you do not get the price out of range of the neighborhood... market forces have more to do with the value than you probably think... there is a sq. ft. rate for most location... usually you can not get to much more than that rate no matter how good yours is...

RE can take a lot of time... if you want, paper can be something that you take a look at once a year (or even less from what I have seen of some people)....


Now, I am not saying RE is bad... just that there are a lot of risks that most people do not consider. People think that the leverage is good... but forget that it also works on the downside and can wipe you out faster than you think. RE is also not liquid. RE also requires you to get tenants, deal with them and also deal with the taxes. I would much rather not spend the time and energy doing this JOB. I get paid very well doing the job I have.

 

[srlimoges]

To be clear, since that might have come across a bit rough - I have no problem with anyone who decides that RE is the way for them to prosper. Do as you see fit, and I'll wish you well. But if you try to make a case for it by misrepresenting the alternatives, I smell an agenda. Agendas smell a lot like BS.

-ERD50

I agree with most everything you posted except leverage about paper assets that I didn't/don't know about.

And about agendas. Sounds like a glass-is-half-empty assumption, but I understand this financial site is probably littered with financial scam agendas most days, so your concerns make sense.

Thanks for info about paper asset leverage.