Owning rental properties

[Interpolfanclub]

Any other docs doing this? I've always been interested in real estate. I would farm out the property mgmt with the knowledge that it would cut into profits.

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[The White Coat Investor]

I invest in real estate. Not by myself anymore, didn't enjoy that so much, but it's a great asset class.

 

[Perfect Hair Day]

Any other docs doing this? I've always been interested in real estate. I would farm out the property mgmt with the knowledge that it would cut into profits.

It really depends on how big a property you're considering. I imagine it may become very annoying, very quickly, to have to chase non-paying tenants for their rent. It will cost capital and time to evict someone, so it wouldn't make sense to outright evict them the first time they are late / miss a payment. You're absolutely right though - the cost to pay management to do this sort of thing for you could take this from being a 7%-asset to a 3-4% asset. When the margins are that low, whats the point?

Something you may consider alternatively: JLL Income Property Trust | JLLIPT

 

[BAM!]

It really depends on how big a property you're considering. I imagine it may become very annoying, very quickly, to have to chase non-paying tenants for their rent. It will cost capital and time to evict someone, so it wouldn't make sense to outright evict them the first time they are late / miss a payment. You're absolutely right though - the cost to pay management to do this sort of thing for you could take this from being a 7%-asset to a 3-4% asset. When the margins are that low, whats the point?

Something you may consider alternatively: JLL Income Property Trust | JLLIPT

following your links "Performance Fee" WTF is that?!

 

[d2305]

I remember REITs from 2008. Only made money if you found a way to short them.

 

[Groove]

I'd rather invest in the market. It never ceases to amaze me at how many docs I know dump their money into real estate buying various rental properties or want to try flipping homes. To me that just sounds like a lot of work. I'd rather just work an extra 2-3 shifts a month or put it in the stock market. To each their own though.

 

[WilcoWorld]

I'd rather invest in the market. It never ceases to amaze me at how many docs I know dump their money into real estate buying various rental properties or want to try flipping homes. To me that just sounds like a lot of work. I'd rather just work an extra 2-3 shifts a month or put it in the stock market. To each their own though.

I think that Real Estate is a good option for someone who
a) has good Real Estate investment options (do you live a block, or a county, away from that rental property?)
b) is already well invested in the market
c) would be more comfortable with a more diverse asset-type portfolio

i.e.: Stocks are your best bet for ROI with minimal effort. Houses are things with intrinsic value.

 

[guitar45]

Any other docs doing this? I've always been interested in real estate. I would farm out the property mgmt with the knowledge that it would cut into profits.

Highly recommend you talk to a good CPA, in view of the newest Tax Act passed (not yet officially signed yet by Prez). Some people use Rentals for the income of course, but in days of lore, the write-offs were also very useful. For most of us, those are going bye-bye. That's why some in the real estate industry are somewhat worried. But could be a buyer's market more.

 

[Hercules]

I think that Real Estate is a good option for someone who
a) has good Real Estate investment options (do you live a block, or a county, away from that rental property?)
b) is already well invested in the market
c) would be more comfortable with a more diverse asset-type portfolio

i.e.: Stocks are your best bet for ROI with minimal effort. Houses are things with intrinsic value.

Agree with the above. I'm already heavily invested in the market through 401ks, Cash balance plans, HSA, and back door Roths. I like using my remaining capital to add alternate investment vehicles including various forms of real estate investments. Bigger Pockets has a lot of information available for those considering real estate. Bob Rice has a good book called the Alternative Answer that does a good job discussing nontraditional investments and why you might want to have them in your portfolio.

 

[GeneralVeers]

Right now is not a good time to buy, as the market is nearing bubble territory in a lot of markets. Timing is everything in real estate. I bought two rental houses in 2010 and 2011 when the market had cratered. Turned around and made about 100K on each after renting them out for 3 years. I could theoretically buy more homes now, but it makes no sense with the ridiculous prices.

 

[BAM!]

Highly recommend you talk to a good CPA, in view of the newest Tax Act passed (not yet officially signed yet by Prez). Some people use Rentals for the income of course, but in days of lore, the write-offs were also very useful. For most of us, those are going bye-bye. That's why some in the real estate industry are somewhat worried. But could be a buyer's market more.

Can you extrapolate on the "days of write-offs going bye-bye"?

 

[BAM!]

Right now is not a good time to buy, as the market is nearing bubble territory in a lot of markets. Timing is everything in real estate. I bought two rental houses in 2010 and 2011 when the market had cratered. Turned around and made about 100K on each after renting them out for 3 years. I could theoretically buy more homes now, but it makes no sense with the ridiculous prices.

GV -- if you don't mind sharing more about this, I'm sure people would appreciate it. I imagine everyone on this forum has toyed with the idea of purchasing rental properties.

In that vein, when I read your post I immediately had some questions:

How much did you buy the 2 houses for?
How much rent did you get for 3 years?
How much did you sell them for?
What were the taxes and fees?
How would this have compared to S&P performance after taxes?

 

[bravotwozero]

I would argue real estate, like precious metals, certainly has a place in diversifying one's portfolio. Real Estate, like precious metals, has an intrinsic value that is non zero - good to have if the stock market tanks. There's also the advantage of it being a revenue stream, particularly in retirement. Granted, there is that huge hassle factor, so one's willingness to put up with that should determine whether or not it's worth it for you.

 

[GeneralVeers]

I bought two small houses (~1700 sqft)
- Purchase price approximatley $130K. Initial investment approximately $25K down payment with mortgate
- Rental $1400/month, mortgage $700/month
- Yearly rental profit (after taxes, mortgage, repairs etc) approximately $5000 per property
- Sold after three years for ~$230K
- Gross profit ~ $100K after realtor fees. Net profit ~70K after taxes.

So in total, I was able to take a $50K investment and turn it into $140K in 3 years. Not sure how it compares to S&P but likely a lot better, as the S&P didn't triple during that time. Also this is not repeatable, as it was done when the real estate market was at historic lows. Now you pretty much have to pay cash for the entire property in order to get it, which makes the investment potential not as good.

 

[namethatsmell]

I bought two small houses (~1700 sqft)
- Purchase price approximatley $130K. Initial investment approximately $25K down payment with mortgate
- Rental $1400/month, mortgage $700/month
- Yearly rental profit (after taxes, mortgage, repairs etc) approximately $5000 per property
- Sold after three years for ~$230K
- Gross profit ~ $100K after realtor fees. Net profit ~70K after taxes.

So in total, I was able to take a $50K investment and turn it into $140K in 3 years. Not sure how it compares to S&P but likely a lot better, as the S&P didn't triple during that time. Also this is not repeatable, as it was done when the real estate market was at historic lows. Now you pretty much have to pay cash for the entire property in order to get it, which makes the investment potential not as good.

Did you use a property management company when you were renting?

 

[GeneralVeers]

Did you use a property management company when you were renting?

I didn't use a property management company. Big mistake. They take about 10-15% of the rent, but the time they save is well worth it.

 

[DoubleBogey]

To add one point that has not been touched upon here is if you have kids. Having rental properties also provides a potential for housing for them in the future when they grow up and eventually given them a source of income if you place the rental in their inheritance.

I have placed our rentals in an LLC with my brother’s rental properties. A percentage of the rental properties go in a account, which gets used for maintaining the properties. The properties are mostly townhouses with 2units attached. Tenants handle all their own bills, up keep of the lawn etc. Any repairs come out of the joint acct.

We screen applicants, but have a few bad apples - late with payments, “destroying “ the place with kids. We don’t allow pets, smoking and perform “walk throughs” from time to time with notice.

More than 3 2units per person would start to become a pain. It’s a steady income with intermittent headaches that allows diversification. I knew someone in residency who’s family and himself owned 20-25 properties and hired a maintenance company, which at that point would be worth it.

One of the attendings I had in residency felt you should have 1-2 rental properties in a very expensive area of the country (she owned one in the hamptons ad rented during the summer for 32k/month). Takes a lot of capital for initial investment though.

In the end, if you’re looking to flip or make some quick cash, it would greatly rely on the local market prices and demands (which I feel in most areas of the country the time isn’t right given inflated prices).

Diversify with stocks, precious metals (or bitcoin, but probably that ship has already sailed) in various tax-favorable accts, rental properties and varied forms of professional income (hospital/clinic, teaching, consulting etc).