Rental Properties as an investment diversifier

[Psychferlyfe3000]

Has anyone here found it worth your while to diversify your portfolio with rental properties? Or, is it not worth the trouble given a psychiatrist's pay rate?

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[Sushirolls]

I'm avoiding it. Having lived in a few homes. Stories from patients.
Some states going full on marxist - pushing rent control - making evictions harder - or even higher taxes if its a rental versus primary residency. Pets, everyone has one now, and no one trains their pets, or they get ESA letters to circumvent reducing pets in rental; so now you have a dog chewed, cat pissed home. Not worth it.

A single less ideal tennet can ruin the home, and erase any profit and strongly negate any equity built up in the rental.

I'd rather pursue small commercial offices like what we'd utilize or lawyers, or CPAs etc.

 

[Jules A]

I held between 2-3 long term rental properties for years. It was ok overall because I bought low and had decent tenants but make no mistake it isn't passive income. During COVID when tenants didn't have to pay rent I was grateful mine did but it freaked me out. I sold 3 properties in 2021-2022 and at this point in my life find it easier to put my money in a total stock market index fund.

 

[calvnandhobbs68]

During COVID when tenants didn't have to pay rent I was grateful mine did but it freaked me out.

Yeah this is the part that would keep me completely away from the rental market as an individual investor. That was completely insane and there's tons of stories of tenants that could have definitely kept paying but basically just decided not to for 1+ years because of all the "emergency" rental protections or people that couldn't get evicted for over a year simply because courts were so backed up or not hearing cases. So you basically get hosed for 10s of thousands of dollars at least.

 

[clozareal]

I bought an investment rental property in a landlord friendly state and planning on buying more. It's cash flowing and appraised at higher than purchase price. The goal of real estate is more mid-to-long term capital appreciation since it might not look like a great investment quarter to quarter especially in the first few years.

You usually can't make broad statements on investing in the real estate market as a whole though because the property may not be a good investment in many areas. The market is hyper-localized on whether the investment will be a good deal or not, from neighborhood to neighborhood and even neighboring properties! If you want to do real estate investing, then it would be worthwhile to learn the numbers that go into a deal analyses, what they mean, what works for your lifestyle on how passive or active you want to do it (e.g., do you want to do the rehab yourself, invest in turnkey, manage properties yourself vs hiring out, syndications, REITs, etc.). It's definitely not as easy or passive as putting all your savings into a total market index fund, but it can be with REITs or syndications.

 

[finalpsychyear]

VOO is up 20% with minimum fees this year and years not done yet. I'm not bashing real estate in anyway but I like truly set it and forget it type of set ups.

 

[Dr Omphalophobia]

This is a broad question and truly depends on the level of involvement the investor wants to take. In my opinion, as a real estate investor that has dozens of properties, yes it is worth it. I truly believe it is worth it at any level of income not only at a “psychiatrist pay rate”.

As some others mentioned the VOO or S&P is up a hearty sum this year, but that is a fluctuating number. In times of poor market conditions especially when it correlates to the time you intend to retire or buy a vacation home post retirement can cause you’re whole retirement plan to collapse. It is easy to look towards the positives especially in this last ~13-15 year run, however, there are down years that can wreck a portfolio.

Why I like real estate investing especially at B/C class properties is they are relatively “economic proof”. Even in times of hardship most properties that are well managed in this class tend to do well despite overall economic conditions. People always need properties to live in. Properties are also typically undervalued as admitting physicians are not very financially savvy. With owned properties physicians tend to look at net cash flow versus cost of maintaining and owning the property. They fail to recognize other upsides which increase net ROI such as rental property depreciation (often decreasing overall tax burden), land value/structure appreciation, market rent appreciation, etc.

Overall, I am a fan of diversifying portfolio to cast a wide net that incorporates years of great return on the markets but also provides similar returns for brick and mortar buildings with guaranteed appreciations. All of my properties are guaranteed to have an ROI of over 15% yearly (my cut off) which is beyond the average S&P average for the last 30 years. But again, I think that it all depends what level of involvement you’re willing to assume. I frequently will take calls to discuss repairs or screwing new renters, new properties that could be valuable to my portfolio, so on. Either way you are set to be better prepared for retirement given your income than 95% of the country (despite student loans and everything else going on at a macro level in the US). My advice would be to choose one investment category and become and expert on it and diversify from there.

 

[Stagg737]

I held between 2-3 long term rental properties for years. It was ok overall because I bought low and had decent tenants but make no mistake it isn't passive income. During COVID when tenants didn't have to pay rent I was grateful mine did but it freaked me out. I sold 3 properties in 2021-2022 and at this point in my life find it easier to put my money in a total stock market index fund.

I have horror stories from residency of people losing their rental homes (one their actual home) because renters became squattors durind COVID and destroyed the homes to the point they were condemned. I've been looking at getting inter real estate also, but some of my discussions with patients and real estate agents have made me pause about whether the time investment and risk is actually worthwhile. I have been looking into REITs more recently, but want to talk to my financial advisor about it before I actually get serious about dropping any significant cash into one.

All of my properties are guaranteed to have an ROI of over 15% yearly (my cut off) which is beyond the average S&P average for the last 30 years.

How do you ensure there is a guaranteed ROI <15%? Are you just basing this on your personal analysis or do you have some way of contractually ensuring this happens?

 

[Jules A]

I have horror stories from residency of people losing their rental homes (one their actual home) because renters became squattors durind COVID and destroyed the homes to the point they were condemned. I've been looking at getting inter real estate also, but some of my discussions with patients and real estate agents have made me pause about whether the time investment and risk is actually worthwhile. I have been looking into REITs more recently, but want to talk to my financial advisor about it before I actually get serious about dropping any significant cash into one.


How do you ensure there is a guaranteed ROI <15%? Are you just basing this on your personal analysis or do you have some way of contractually ensuring this happens?

I initially used the funds from the sale of my properties and re-allocated the percentage into REIT index in my retirement accounts in an effort to maintain the diversification but that was essentially mimicking what was happening in the stock market so I sold in favor of total stock market index funds. I have a small amount in bonds, our primary and a vacation home so not 100% stocks but about 90%.

Real estate was good to me when I was young and in the accumulation phase. It is true diversification with the ability to leverage and has tax advantages. If done in large numbers can be wildly profitable but again a fair amount of time required and even with umbrella policy I believe there is liability.

 

[Dr Omphalophobia]

I have horror stories from residency of people losing their rental homes (one their actual home) because renters became squattors durind COVID and destroyed the homes to the point they were condemned. I've been looking at getting inter real estate also, but some of my discussions with patients and real estate agents have made me pause about whether the time investment and risk is actually worthwhile. I have been looking into REITs more recently, but want to talk to my financial advisor about it before I actually get serious about dropping any significant cash into one.


How do you ensure there is a guaranteed ROI <15%? Are you just basing this on your personal analysis or do you have some way of contractually ensuring this happens?

Many of them are government or state funded properties (S8 for example) which guarantee me a certain rent. There is also a huge demand for rentals as properties are too expensive for many people the last few years. Depreciation is flat line on the property plus + other tax advantages + guaranteed payment makes 15% (some often more with appreciation of property itself)

So while it’s not contractual I feel very secure in always staying above that threshold.

I will also state that it depends on investment strategy - I utilize private money/loans heavily to reduce my total down - it eats into cash flow but overall I find it to bump my ROI

 

[mistafab]

I am a landlord. Let me tell you - unless you are passionate about it do not do it. It is not passive income. Your tenants pay rent but they live rent-free in your head.

Better to just work an extra 5-10 hours a year and dump it into a brokerage account. I have made money on my investment in both cash flow and appreciation, I enjoy real estate, and its barely worth it for me.

 

[annoyedpsychiatrist]

yeah no way i would ever do it. I would rather just dump into index funds. I think i would bet on individual growth stocks before doing rental properties. For one, it takes a while to recoup your investment. Another thing is repairs can be quite costly unless you do it yourself. People are unpredictable and can trash your place, refuse to pay, etc. Way too many things can go wrong is how I view it.

i have enough stress at work/life sometimes i dont really want to add more stress

 

[psychmd03]

I have horror stories from residency of people losing their rental homes (one their actual home) because renters became squattors durind COVID and destroyed the homes to the point they were condemned. I've been looking at getting inter real estate also, but some of my discussions with patients and real estate agents have made me pause about whether the time investment and risk is actually worthwhile. I have been looking into REITs more recently, but want to talk to my financial advisor about it before I actually get serious about dropping any significant cash into one.


How do you ensure there is a guaranteed ROI <15%? Are you just basing this on your personal analysis or do you have some way of contractually ensuring this happens?

Agreed with the question how we guaranteeing a 15% ROI? That impressive boarding on unicorn status. That isn’t something you can guarantee. You can do everything right and have the odds in your favor but that isn’t a guarantee

I have two investment properties. One in a larger city one in a smaller cash flowing area (geographically diversified) and then have a bit in in syndication that invests in a different area completely. I don’t know if I’ll get more properties. Even with a property manager it’s just a semi pain in my ass right now my brokerage has an IRR of 16% with basically little total risk. So it’s hard for me to want to take on a lot more risk for maybe a few extra % of IRR (and that would mean a perfectly picked and maintained property). I do like the idea of spendable cash flow when it comes to an early retirement or coastFIRE psychologically it would be easier for me to spend then selling off stocks.

 

[Jules A]

Agreed with the question how we guaranteeing a 15% ROI? That impressive boarding on unicorn status. That isn’t something you can guarantee. You can do everything right and have the odds in your favor but that isn’t a guarantee

I have two investment properties. One in a larger city one in a smaller cash flowing area (geographically diversified) and then have a bit in in syndication that invests in a different area completely. I don’t know if I’ll get more properties. Even with a property manager it’s just a semi pain in my ass right now my brokerage has an IRR of 16% with basically little total risk. So it’s hard for me to want to take on a lot more risk for maybe a few extra % of IRR (and that would mean a perfectly picked and maintained property). I do like the idea of spendable cash flow when it comes to an early retirement or coastFIRE psychologically it would be easier for me to spend then selling off stocks.

If @omphalophobia is renting what we call Section 8 they can be a great return but at least around here generally cheaper properties in less desirable neighborhoods which can be difficult to unload. I didn't have near the rent return they are quoting but my strategy was buy in the best school districts which kept them full and since in desirable areas, easy to sell at a profit.

 

[TexasPhysician]

Coming from someone that loves real estate, the average psychiatrist should stop at buying a personal residence. Even then, only buy if you plan to be there 5+ years.

The average private practice psychiatrist should consider going a step further and buying an office if you plan to be there a long time (7+ years).

Tons of physicians buy into real estate rentals or syndications with little knowledge and get burned. Even some teaching “real estate for physicians” courses have made terrible mistakes in recent years. Some are using $$ from their course profits to keep their real estate deals from 100% losses.

After all those disclaimers, there is lots of money to be made in real estate. One of the biggest limiting factors is developing the knowledge to accurately and efficiently analyze “deals”. Even “passive syndications” should be analyzed by you before investing. The majority aren’t worth your time. If you don’t know how to analyze properties, you aren’t ready for syndications even. Stick with mutual funds.

I find the analyzing of properties to be fun. Each deal is like a puzzle that you analyze for flaws, potential expenses, and ways to increase revenue. If you find analyzing real estate to be fun, really consider moving forward. If you have a spouse that could qualify for special tax deductions (REPS), definitely consider moving forward if you enjoy real estate analysis.

 

[sloh]

If @omphalophobia is renting what we call Section 8 they can be a great return but at least around here generally cheaper properties in less desirable neighborhoods which can be difficult to unload. I didn't have near the rent return they are quoting but my strategy was buy in the best school districts which kept them full and since in desirable areas, easy to sell at a profit.

There are a lot of horror stories on trying to do real estate with section 8. Literally dealing with the worst cohort of society who will more likely not pay rent and wreck your properties. No thanks.

 

[sloh]

Even some teaching “real estate for physicians” courses have made terrible mistakes in recent years. Some are using $$ from their course profits to keep their real estate deals from 100% losses.

Yup.

Behind the syndicator machine targeting new investors for multifamily feeder funds

Whether it's doctors, engineers and other high earners, multifamily firms are targeting specific groups to fund their projects.

therealdeal.com

 

[sloh]

Even “passive syndications” should be analyzed by you before investing. The majority aren’t worth your time. If you don’t know how to analyze properties, you aren’t ready for syndications even. Stick with mutual funds.

Yup. Crowdstreet shenanigans

https://www.wsj.com/articles/missing-millions-and-a-rabbinical-arbitrator-real-estate-deal-gone-bad-hits-popular-crowd-funder-3555314f?st=vvenhclxytjyglg&reflink=article_copyURL_share

 

[sloh]

In times of poor market conditions especially when it correlates to the time you intend to retire or buy a vacation home post retirement can cause you’re whole retirement plan to collapse.

This can be mitigated or avoided entirely by shifting your investment portfolio to majority bonds which is easy to do. What I don’t get is why physicians choose to expend all this effort and time into real estate when they can just make more money with that time and shove it into index funds. The delta is usually larger with the latter strategy unless you’re a w2 and don’t get paid based off productivity. Seriously. Every hour you spend on real estate, just think in your mind “I can be using this time to make over 300/hr. What’s the better use of my time here?”

 

[Merovinge]

This is a broad question and truly depends on the level of involvement the investor wants to take. In my opinion, as a real estate investor that has dozens of properties, yes it is worth it. I truly believe it is worth it at any level of income not only at a “psychiatrist pay rate”.

As some others mentioned the VOO or S&P is up a hearty sum this year, but that is a fluctuating number. In times of poor market conditions especially when it correlates to the time you intend to retire or buy a vacation home post retirement can cause you’re whole retirement plan to collapse. It is easy to look towards the positives especially in this last ~13-15 year run, however, there are down years that can wreck a portfolio.

Why I like real estate investing especially at B/C class properties is they are relatively “economic proof”. Even in times of hardship most properties that are well managed in this class tend to do well despite overall economic conditions. People always need properties to live in. Properties are also typically undervalued as admitting physicians are not very financially savvy. With owned properties physicians tend to look at net cash flow versus cost of maintaining and owning the property. They fail to recognize other upsides which increase net ROI such as rental property depreciation (often decreasing overall tax burden), land value/structure appreciation, market rent appreciation, etc.

Overall, I am a fan of diversifying portfolio to cast a wide net that incorporates years of great return on the markets but also provides similar returns for brick and mortar buildings with guaranteed appreciations. All of my properties are guaranteed to have an ROI of over 15% yearly (my cut off) which is beyond the average S&P average for the last 30 years. But again, I think that it all depends what level of involvement you’re willing to assume. I frequently will take calls to discuss repairs or screwing new renters, new properties that could be valuable to my portfolio, so on. Either way you are set to be better prepared for retirement given your income than 95% of the country (despite student loans and everything else going on at a macro level in the US). My advice would be to choose one investment category and become and expert on it and diversify from there.

No one wanted to touch this Freudian slip eh?

 

[Sushirolls]

Here's a bit more hands on investment strategy. Got to love the smell of chainsaw and fresh cut trees in the morning.

 

[comp1]

I saw my parents and grandparents try being residential landlords and just no thank you. For it to be profitable, it's a full time job, but the actual profit is not equivalent to the work put in. This is even massively more true for physicians. Just pick up some calls at a local psych hospital, you'll end up much further ahead and less stressed out. I was particularly surprised to hear any recommendations about commercial real estate. Isn't the commercial market completely dead? I thought everybody was trying to offload their commercial real estate. Maybe that was the goal of the poster. 🙂 And in a way, residential real estate is sort of recession proof, but it is not depression proof as we saw with COVID. With any major threat to the economy, market restrictions will be placed on investment residential real estate first and with the full throated backing of the populace.

 

[Dr Omphalophobia]

There are a lot of horror stories on trying to do real estate with section 8. Literally dealing with the worst cohort of society who will more likely not pay rent and wreck your properties. No thanks.

I find them to be some of my better tenants. First, destruction of property will lose them their voucher which no one wants so they tend to be more respectful (at least comparably to lower income non section 8 rentals); also lack of payment can also lose them their voucher. The government pays ~70% of the rent monthly which still provides me profit with that alone but nonpayment has not been an issue. My property managers also do a rigorous screening of tenants and we are quick to remove those we are concerned for property damage with. While I’m sure there are horrible tenants out there with section 8 I think that risk can be mitigated by proper screening

 

[PsyDr]

The primary benefit of rental properties is the fact that you can leverage. It is not so different than buying on margin, it's just better interest rates. Standard LL rules say 12% gross, , which is less than typical ROI for funds recently.

You will likely make more with a REIT than a traditional rental property.

 

[TexasPhysician]

What I don’t get is why physicians choose to expend all this effort and time into real estate when they can just make more money with that time and shove it into index funds. Seriously. Every hour you spend on real estate, just think in your mind “I can be using this time to make over 300/hr. What’s the better use of my time here?”

I analyze properties between patients when there is time. Then I have people that manage rehabs or rentals. If you look at it on a per hour basis, I earn more in real estate now than as a physician by a lot. Having enough decent properties in my area come across my desk is the limiting factor.

 

[TexasPhysician]

I was particularly surprised to hear any recommendations about commercial real estate. Isn't the commercial market completely dead? I thought everybody was trying to offload their commercial real estate. Maybe that was the goal of the poster. 🙂

“Commercial real estate” is a broad term. Commercial office is really struggling right now. The only commercial office I own is my clinic. Compared to renting somewhere, I could one day sell the real estate for 30% less than I paid and still come out ahead vs paying a landlord every month. This space is struggling with more working from home.

Multi-Family is not doing great right now, but with rates going down, anything that isn’t already failing will probably be fine. Rents have really jumped the last few years, so anything that survived higher interest rates will produce.

Retail space is doing pretty well. People are returning to restaurants and want to get out. Rents are going up. Good times here.

Industrial space has killed it. Anything I bought industrial in the past 5 years is dominating over anything I’ve done. 50% yearly returns on some. 20% yearly would be low.

 

[comp1]

I figured industrial was doing well, but didn't really think of individual investors owning much in the way of industrial real estate outside of complex mutual funds. I also didn't really think of multifamily housing as commercial. I'm really surprised that retail is doing okay. I see so many large stores shutting down and malls essentially floundering without much replacing them. Amazon seems desperate to even take over grocery.

 

[jbomba]

Has anyone here found it worth your while to diversify your portfolio with rental properties? Or, is it not worth the trouble given a psychiatrist's pay rate?

Yes I bought a house in residency, held on to it, and now Airbnb it. I have a non doctor friend who makes a lot of money buying cheap places, making them nicer, then selling or renting.

 

[TexasPhysician]

I figured industrial was doing well, but didn't really think of individual investors owning much in the way of industrial real estate outside of complex mutual funds. I also didn't really think of multifamily housing as commercial. I'm really surprised that retail is doing okay. I see so many large stores shutting down and malls essentially floundering without much replacing them. Amazon seems desperate to even take over grocery.

Malls in middle class areas and above are full everywhere I go. Once the area turns to lower income, the malls start to suffer. By then, the land is often worth more than the buildings and conversions happen.

Grocery anchored retail is doing fine. Grocery stores are doing well. The foot traffic attracts restaurants and other retail. After Covid, spending at retail stores jumped. People were ready to get out again and this increased spending created some inflation.

 

[Psychferlyfe3000]

This can be mitigated or avoided entirely by shifting your investment portfolio to majority bonds which is easy to do. What I don’t get is why physicians choose to expend all this effort and time into real estate when they can just make more money with that time and shove it into index funds. The delta is usually larger with the latter strategy unless you’re a w2 and don’t get paid based off productivity. Seriously. Every hour you spend on real estate, just think in your mind “I can be using this time to make over 300/hr. What’s the better use of my time here?”

I guess this was my impression overall prior to posting, which was why I was curious to see if I was missing something.

 

[Stagg737]

I figured industrial was doing well, but didn't really think of individual investors owning much in the way of industrial real estate outside of complex mutual funds. I also didn't really think of multifamily housing as commercial. I'm really surprised that retail is doing okay. I see so many large stores shutting down and malls essentially floundering without much replacing them. Amazon seems desperate to even take over grocery.

Like Tex said, industrial is killing it and I've actually looked into ways to try and get my foot in the door but seems like everything I've found that was solid required one to be an accredited investor and everything I've found available to the public is pretty shady when you start digging. I'm also just not savvy enough on real estate investing to feel comfortable dropping a minimum of $20k into something that I'm not confident that I can decently vet. Admittedly, I haven't done a deep dive but at this point I'd rather just keep putting my money into my index funds than lose it because I didn't know enough to recognize a bad investment.

 

[psychmd03]

I analyze properties between patients when there is time. Then I have people that manage rehabs or rentals. If you look at it on a per hour basis, I earn more in real estate now than as a physician by a lot. Having enough decent properties in my area come across my desk is the limiting factor.

That’s a wild thought to me. Even on a 40% cash on cash return return it wouldn’t come close to my hourly pull from being an MD.

 

[clozareal]

That’s a wild thought to me. Even on a 40% cash on cash return return it wouldn’t come close to my hourly pull from being an MD.

It also depends on how many doors you have. An 8% cash on cash return could get you $300k if you have $3.75M in real estate investments (which can be just one investment property or 40 of them or anything in between, for example), and that's not including appreciation of the home or savings from depreciation.

 

[TexasPhysician]

That’s a wild thought to me. Even on a 40% cash on cash return return it wouldn’t come close to my hourly pull from being an MD.

That doesn’t make sense. For easy numbers, you buy a $1 million property. You put down $250,000. If the property returns $100K/year profit, that is 40% cash on cash by my early morning math. Say you bought a large warehouse. You would have spent an hour going over numbers on the property. You’d spend another couple hours on inspections and walking the property/comps. You’d spend a few hours on financing. You’d spend a few hours on getting a company as a tenant. Lease would be multiple years. Year 1, this sucks up some decent hours, say 30. That’s only earning $3,333/hour (100K net profit divided by 30). Year 2 onward, I’d send a contractor to the warehouse if tenant notices a big problem. Otherwise it is their job to maintain the property in good condition and I do basic checks on it. Year 2 I spend 2-3 hours on this property and return $100K. That is $33,333/hour. You aren’t earning this much doing psychiatry. You aren’t earning 40% cash on cash in the stock market.

A house I am currently flipping on a smaller scale. Got and called the lead - 1 hour. I was busy and had wife tour property with contractor - 0 hours for me or 2 if hours count against SAHM life. 1 hour to review home with contractor. 1 hour to purchase home. 1 hour to change locks. Wife will look at the home completed in a couple days and pay contractor. It will be listed for sale within a week. I’m in this about 4 hours. I already have systems to keep me relatively hands off. Profit will be between $15K-45K. Worst case scenario, this is $3750/hour. I did finance this myself. I used $150K of my own money. Worst case scenario is earning 10% on my money in 70 days. The stock market isn’t doing that regularly. Psychiatry isn’t giving me $3,000+/hour either.

These might be glamorous numbers, but there is a learning curve to get here. It’ll take plenty of hours to get there.

 

[J ROD]

I would not recommend rental properties as a way to make money. Too much headache and liability. I do the typical stock market with some funds, and invested in grocery store anchored retail.

 

[sloh]

That doesn’t make sense. For easy numbers, you buy a $1 million property. You put down $250,000. If the property returns $100K/year profit, that is 40% cash on cash by my early morning math. Say you bought a large warehouse. You would have spent an hour going over numbers on the property. You’d spend another couple hours on inspections and walking the property/comps. You’d spend a few hours on financing. You’d spend a few hours on getting a company as a tenant. Lease would be multiple years. Year 1, this sucks up some decent hours, say 30. That’s only earning $3,333/hour (100K net profit divided by 30). Year 2 onward, I’d send a contractor to the warehouse if tenant notices a big problem. Otherwise it is their job to maintain the property in good condition and I do basic checks on it. Year 2 I spend 2-3 hours on this property and return $100K. That is $33,333/hour. You aren’t earning this much doing psychiatry. You aren’t earning 40% cash on cash in the stock market.

A house I am currently flipping on a smaller scale. Got and called the lead - 1 hour. I was busy and had wife tour property with contractor - 0 hours for me or 2 if hours count against SAHM life. 1 hour to review home with contractor. 1 hour to purchase home. 1 hour to change locks. Wife will look at the home completed in a couple days and pay contractor. It will be listed for sale within a week. I’m in this about 4 hours. I already have systems to keep me relatively hands off. Profit will be between $15K-45K. Worst case scenario, this is $3750/hour. I did finance this myself. I used $150K of my own money. Worst case scenario is earning 10% on my money in 70 days. The stock market isn’t doing that regularly. Psychiatry isn’t giving me $3,000+/hour either.

These might be glamorous numbers, but there is a learning curve to get here. It’ll take plenty of hours to get there.

lol 33k/hr. You paint an extremely rosy picture.

And strip malls in middle/upper class neighborhoods aren’t doing well.

https://www.reddit.com/r/deadmalls/s/8gEfMkhWHQ

https://www.reddit.com/r/orangecounty/s/JjncRTHGgS

 

[TexasPhysician]

lol 33k/hr. You paint an extremely rosy picture.

And strip malls in middle/upper class neighborhoods aren’t doing well.

https://www.reddit.com/r/deadmalls/s/8gEfMkhWHQ

https://www.reddit.com/r/orangecounty/s/JjncRTHGgS

I was clear at the bottom that such a return per hour is glamorous and not to be expected.

I don’t invest in malls personally, but the malls in my metro area located in nicer areas are 100% occupied and generating good returns. They are owned by publicly traded companies that disclose their financials. We own them in our mutual funds. One I follow is up 33% in the last year on the NYSE.

 

[psychmd03]

That doesn’t make sense. For easy numbers, you buy a $1 million property. You put down $250,000. If the property returns $100K/year profit, that is 40% cash on cash by my early morning math. Say you bought a large warehouse. You would have spent an hour going over numbers on the property. You’d spend another couple hours on inspections and walking the property/comps. You’d spend a few hours on financing. You’d spend a few hours on getting a company as a tenant. Lease would be multiple years. Year 1, this sucks up some decent hours, say 30. That’s only earning $3,333/hour (100K net profit divided by 30). Year 2 onward, I’d send a contractor to the warehouse if tenant notices a big problem. Otherwise it is their job to maintain the property in good condition and I do basic checks on it. Year 2 I spend 2-3 hours on this property and return $100K. That is $33,333/hour. You aren’t earning this much doing psychiatry. You aren’t earning 40% cash on cash in the stock market.

A house I am currently flipping on a smaller scale. Got and called the lead - 1 hour. I was busy and had wife tour property with contractor - 0 hours for me or 2 if hours count against SAHM life. 1 hour to review home with contractor. 1 hour to purchase home. 1 hour to change locks. Wife will look at the home completed in a couple days and pay contractor. It will be listed for sale within a week. I’m in this about 4 hours. I already have systems to keep me relatively hands off. Profit will be between $15K-45K. Worst case scenario, this is $3750/hour. I did finance this myself. I used $150K of my own money. Worst case scenario is earning 10% on my money in 70 days. The stock market isn’t doing that regularly. Psychiatry isn’t giving me $3,000+/hour either.

These might be glamorous numbers, but there is a learning curve to get here. It’ll take plenty of hours to get there.

100k net profit for one building? 😳 well if you’re pulling magic like that you’re right drop the doc job and do real estate full time get your professional status so you get some massive deductions and cruise. I for sure am doing it wrong.

But the numbers you lay out at the end and the time investment is only gonna happen after you’ve leverage a lot of hours learning which need the accounted for along with have a path for deal flow cultivated over time which also takes quite a bit of work. It’s an impressive flow you have built. To get to making efficient bumbers in real estate you need years of learning, losing, and correcting just like being a good doc. So unless you truly enjoy real estate I’d say focusing on increasing your take home pay and income flow from being a doc. Dump into your favorite large etf and get 8-12% IRR over the long term and if you hustle your cash flow will grow enough to be able to at least coast fire in 10 years even in a hcol city. But if you really like the real estate game and you commit to sitting down and learning it just know it does take time it’s not something you do well right away imo. My 2c

 

[psychmd03]

It also depends on how many doors you have. An 8% cash on cash return could get you $300k if you have $3.75M in real estate investments (which can be just one investment property or 40 of them or anything in between, for example), and that's not including appreciation of the home or savings from depreciation.

Very true accurate point. More doors means more headache even with good property managers which can be very hard to find. It just slowly becomes less passive and takes more mental bandwidth.

 

[TexasPhysician]

100k net profit for one building? 😳 well if you’re pulling magic like that you’re right drop the doc job and do real estate full time get your professional status so you get some massive deductions and cruise. I for sure am doing it wrong.

But the numbers you lay out at the end and the time investment is only gonna happen after you’ve leverage a lot of hours learning which need the accounted for along with have a path for deal flow cultivated over time which also takes quite a bit of work. It’s an impressive flow you have built. To get to making efficient bumbers in real estate you need years of learning, losing, and correcting just like being a good doc. So unless you truly enjoy real estate I’d say focusing on increasing your take home pay and income flow from being a doc. Dump into your favorite large etf and get 8-12% IRR over the long term and if you hustle your cash flow will grow enough to be able to at least coast fire in 10 years even in a hcol city. But if you really like the real estate game and you commit to sitting down and learning it just know it does take time it’s not something you do well right away imo. My 2c

40% has been my best case. If I did that regularly, I’d be done with psych. I also don’t want to work that hard to find deals non-stop. I enjoy psychiatry and move forward with real estate when something falls my direction that works.

If I wasn’t clear about the learning curve, I certainly agree that it is work to get good at it. I enjoy it or I wouldn’t do it. ETF’s are fine.

 

[sloh]

That doesn’t make sense. For easy numbers, you buy a $1 million property. You put down $250,000. If the property returns $100K/year profit, that is 40% cash on cash by my early morning math. Say you bought a large warehouse. You would have spent an hour going over numbers on the property.

How much time/work did you spend on finding out which numbers to pay attention to on that specific property, specific type of property, and specific location the property is located in? How many potentially wrong things could an investor pay attention to when going about this which entails substantial risk?

You’d spend another couple hours on inspections and walking the property/comps.

Again, this alone probably only requires a couple hours but to know what to pay attention to is the difficult part and requires a lot of research and risk. Many people don't know what they don't know. And the answers aren't readily available out there.

You’d spend a few hours on financing. You’d spend a few hours on getting a company as a tenant. Lease would be multiple years. Year 1, this sucks up some decent hours, say 30. That’s only earning $3,333/hour (100K net profit divided by 30). Year 2 onward, I’d send a contractor to the warehouse if tenant notices a big problem. Otherwise it is their job to maintain the property in good condition and I do basic checks on it.

How much time/work did you spend on making sure your contractor is competent and knows what they are doing? How much time/work did you spend on finding out what you should pay attention to when selecting a contractor? If you pick a bad contractor, how much time and money do you lose having to resolve the issues by yourself while searching for another contractor?

Year 2 I spend 2-3 hours on this property and return $100K. That is $33,333/hour. You aren’t earning this much doing psychiatry. You aren’t earning 40% cash on cash in the stock market.

A house I am currently flipping on a smaller scale. Got and called the lead - 1 hour.

Who provided you the lead and what was time/legwork to find this lead?

I was busy and had wife tour property with contractor - 0 hours for me or 2 if hours count against SAHM life.

How much time/work did you spend on educating your wife on what to pay attention to? If the wife isn't competent and does a suboptimal job, does the marriage fall apart?

1 hour to review home with contractor. 1 hour to purchase home. 1 hour to change locks. Wife will look at the home completed in a couple days and pay contractor. It will be listed for sale within a week. I’m in this about 4 hours. I already have systems to keep me relatively hands off.

How much time/work did you spend on establishing these systems and finding out what factors to pay attention to when establishing these systems?

Profit will be between $15K-45K. Worst case scenario, this is $3750/hour. I did finance this myself. I used $150K of my own money. Worst case scenario is earning 10% on my money in 70 days. The stock market isn’t doing that regularly. Psychiatry isn’t giving me $3,000+/hour either.

These might be glamorous numbers, but there is a learning curve to get here. It’ll take plenty of hours to get there.

I appreciate you highlighting that these are glamorous numbers but I think the for the purposes of this thread, very very few people can generate the results you did. I'd argue much less than the number that have the intelligence and work ethic to become top 10% psychiatrists. I think you also underestimate how much work/time you've spent to get to where you are. There's also a lot more pitfalls in the process of getting to where you are than are suggested in your posts. And if the deals don't work out, that's money and time not spent in the market (index funds) and missing the returns on index funds that are pretty much guaranteed over a 25-30 year timeline threshold.

Avoiding the market’s downs may mean missing out on the ups as well. 78% of the stock market’s best days occur during a bear market or during the first two months of a bull market. If you missed the market’s 10 best days over the past 30 years, your returns would have been cut in half. And missing the best 30 days would have reduced your returns by an astonishing 83%. Even with deciding where to invest one's money, there's always an opportunity cost. With index funds, for all intents and purposes, all that really matters is time spent in the market. No other thinking and risk involved. The rest of the time, a physician can just work more at their primary job and generate more income which is pretty much also a guarantee.

If they have time in between patients to do this real estate stuff, maybe they could squeeze more patients in and generate more income with less risk. Also, when you say you take care of this stuff in between patients, you are also downplaying the issue with task-switching/multi-tasking which erodes productivity and work quality. A lot of more cognitively complex topics require dedicated and sustained attention. If you need to make a timely phone call or are in the middle of an important text convo regarding one of your real estate investments and you have 15 minutes between 2 patients, what do you do? Try to squeeze it in or hold off until you have 30-45 minutes to dedicate to the task? If you need 30-45 minutes, well couldn't you just have seen another patient? If you put it off until the end of the day, that eats into your family time. But if you decide to not address the issue, then your investment will fall apart. With seeing patients, if you think the volume is too high, you can just cap your schedule ahead of time.

I'm not asking these questions or challenging you to malign you in any way. I genuinely respect you and think you are a great contributor.

 

[Mad Jack]

I invest in a couple of REITs to cover the real estate side of things and to get passive income. Downside is you can't leverage, upside is you avoid all that leveraged risk. A chunk of my portfolio is income-focused, with an average dividend of 5.5% and total returns within 1% of the S&P, plus or minus, and in assets that provide significantly reduced volatility. Basically, this gives me what I would be looking for out of real estate investments with far less involvement and risk. At my current investment rate and with reasonable CAGR estimates, I should be able to cover my daily expenses in about 10 years while also having a couple million I'm not even touching in my retirement accounts (all of which is in S&P 500 tracking assets). If I stick it out another 5 years, I would be sitting quite pretty and have the ability to tap my retirement accounts tax-free, with quite a high standard of living. My approach isn't the most aggressive and is admittedly tax inefficient, but the nice thing about dividend producing assets is they produce forever, and my dependents and family members that rely on me to some degree are probably going to outlive me by around 30 years at the least, so leaving a mix of dividend-paying ETFs and S&P tracking assets in a trust should ensure they're all provided for well after I'm no longer around.

 

[TexasPhysician]

How much time/work did you spend on finding out which numbers to pay attention to on that specific property, specific type of property, and specific location the property is located in? How many potentially wrong things could an investor pay attention to when going about this which entails substantial risk?

Again, this alone probably only requires a couple hours but to know what to pay attention to is the difficult part and requires a lot of research and risk. Many people don't know what they don't know. And the answers aren't readily available out there.

How much time/work did you spend on making sure your contractor is competent and knows what they are doing? How much time/work did you spend on finding out what you should pay attention to when selecting a contractor? If you pick a bad contractor, how much time and money do you lose having to resolve the issues by yourself while searching for another contractor?

Who provided you the lead and what was time/legwork to find this lead?

How much time/work did you spend on educating your wife on what to pay attention to? If the wife isn't competent and does a suboptimal job, does the marriage fall apart?

How much time/work did you spend on establishing these systems and finding out what factors to pay attention to when establishing these systems?

I appreciate you highlighting that these are glamorous numbers but I think the for the purposes of this thread, very very few people can generate the results you did. I'd argue much less than the number that have the intelligence and work ethic to become top 10% psychiatrists. I think you also underestimate how much work/time you've spent to get to where you are. There's also a lot more pitfalls in the process of getting to where you are than are suggested in your posts. And if the deals don't work out, that's money and time not spent in the market (index funds) and missing the returns on index funds that are pretty much guaranteed over a 25-30 year timeline threshold.

Avoiding the market’s downs may mean missing out on the ups as well. 78% of the stock market’s best days occur during a bear market or during the first two months of a bull market. If you missed the market’s 10 best days over the past 30 years, your returns would have been cut in half. And missing the best 30 days would have reduced your returns by an astonishing 83%. Even with deciding where to invest one's money, there's always an opportunity cost. With index funds, for all intents and purposes, all that really matters is time spent in the market. No other thinking and risk involved. The rest of the time, a physician can just work more at their primary job and generate more income which is pretty much also a guarantee.

If they have time in between patients to do this real estate stuff, maybe they could squeeze more patients in and generate more income with less risk. Also, when you say you take care of this stuff in between patients, you are also downplaying the issue with task-switching/multi-tasking which erodes productivity and work quality. A lot of more cognitively complex topics require dedicated and sustained attention. If you need to make a timely phone call or are in the middle of an important text convo regarding one of your real estate investments and you have 15 minutes between 2 patients, what do you do? Try to squeeze it in or hold off until you have 30-45 minutes to dedicate to the task? If you need 30-45 minutes, well couldn't you just have seen another patient? If you put it off until the end of the day, that eats into your family time. But if you decide to not address the issue, then your investment will fall apart. With seeing patients, if you think the volume is too high, you can just cap your schedule ahead of time.

I'm not asking these questions or challenging you to malign you in any way. I genuinely respect you and think you are a great contributor.

I live in a metro area that I grew up in, so that helps that I already know the geography fairly well. There are areas that rent better than others. Math skills go a long way. There are free calculators out there to help you calculate normal expenses. The time factor is more about developing quick estimates of expenses in your head. You’ll learn interest rates, insurance, taxes, etc for the area quickly. Time is needed to know rough rental rates or avg price per sq ft or be able to run comps quickly. There is plenty of apps/software for this. After awhile, you can see numbers and know whether it is worth examining further or not. Most deals I can glance at and ignore now.

Time to find good contractors is variable. Wife has a real estate license for the education side (she doesn’t work as an agent for others), so she has developed fair skills on what to look for in discovering problems and checking on contractors. We use contractors to help with estimates and at the beginning you may want to have 2-3 walk a house with you to see how good they are and get their thoughts. It also reduces our acquisition and sales costs with her being an agent. Leads come via word of mouth, relationships, and advertising. Networking can be helpful.

When we bought the house we are currently renovating, I didn’t know anyone that is actively seeking rentals in that area. It’s a little far from what I want to keep. Had I known someone nearby, I would have gladly quickly sold it for a profit. Someone could have bought it for that higher price, done the bare minimum, and rented it for about 7% returns at current interest rates. In 1-2 years, refinance at lower rates to earn 10% annually cash on cash. That doesn’t include depreciation and appreciation benefits. Not having that network there, I am doing a moderate rehab and trying to sell much higher. Time is certainly going to be burned learning and networking. Networking can be fun, and we didn’t mind the learning aspects.

I have 0 desire in increasing my current patient volume. Could I forget some real estate stuff and increase patient volume? Yes. I’d rather a mental break from patients though.

There will be some relatively bad decisions made. It happens. I’m sitting on a property that I think will gentrify in a few years, but currently the profit is $0.

I earn more in real estate than my ETF’s, but I wouldn’t call what we’ve done really ground-breaking yet. Our process improves yearly. It isn’t a get rich quick plan. It is more of a fun augmentation strategy to move us closer to financial independence with diversified revenue streams.

 

[Merovinge]

I live in a metro area that I grew up in, so that helps that I already know the geography fairly well. There are areas that rent better than others. Math skills go a long way. There are free calculators out there to help you calculate normal expenses. The time factor is more about developing quick estimates of expenses in your head. You’ll learn interest rates, insurance, taxes, etc for the area quickly. Time is needed to know rough rental rates or avg price per sq ft or be able to run comps quickly. There is plenty of apps/software for this. After awhile, you can see numbers and know whether it is worth examining further or not. Most deals I can glance at and ignore now.

Time to find good contractors is variable. Wife has a real estate license for the education side (she doesn’t work as an agent for others), so she has developed fair skills on what to look for in discovering problems and checking on contractors. We use contractors to help with estimates and at the beginning you may want to have 2-3 walk a house with you to see how good they are and get their thoughts. It also reduces our acquisition and sales costs with her being an agent. Leads come via word of mouth, relationships, and advertising. Networking can be helpful.

When we bought the house we are currently renovating, I didn’t know anyone that is actively seeking rentals in that area. It’s a little far from what I want to keep. Had I known someone nearby, I would have gladly quickly sold it for a profit. Someone could have bought it for that higher price, done the bare minimum, and rented it for about 7% returns at current interest rates. In 1-2 years, refinance at lower rates to earn 10% annually cash on cash. That doesn’t include depreciation and appreciation benefits. Not having that network there, I am doing a moderate rehab and trying to sell much higher. Time is certainly going to be burned learning and networking. Networking can be fun, and we didn’t mind the learning aspects.

I have 0 desire in increasing my current patient volume. Could I forget some real estate stuff and increase patient volume? Yes. I’d rather a mental break from patients though.

There will be some relatively bad decisions made. It happens. I’m sitting on a property that I think will gentrify in a few years, but currently the profit is $0.

I earn more in real estate than my ETF’s, but I wouldn’t call what we’ve done really ground-breaking yet. Our process improves yearly. It isn’t a get rich quick plan. It is more of a fun augmentation strategy to move us closer to financial independence with diversified revenue streams.

While I am 100% index fund investor and think most MDs should be as well, I absolutely see there being real alpha/arbitrage in RE that is completely different than trying to pick a stock. Knowing a geography is critical and if you like RE and find it interesting (I do as well, but not enough to spend the time to do it over my day job and parenthood), I can absolutely see it being a diversifier and possible source of alpha.

Of course things can and do go wrong, but they can in the markets as well. Particularly with the absurd tax advantages to RE, more power to you if that's your thing. I just think it's critical to note that the overwhelming majority of people on this sub should remove that idea from their mind and let the markets work.

 

[mistafab]

Not sure if anyone cares but I'll write up a brief version of my rental investment story.

I had an interest in real estate. I spent about 1-2 years researching the local area. I visited areas on foot. I calculated average appreciation. Scoured the market to understand rent patterns. I tried to understand who were the renters in the area - where they worked, what their lifestyle was, risk they brought, etc. I also considered what I wanted out of the property. I ended up deciding I wanted to maximize cash flow rather than appreciation - which was my only realistic choice given my limited capital in residency. In addition to this, I had to learn about LLC structures, taxes, local real estate law and typical contracts. I also had to interview and meet with many real estate agents and loan officers. I spent around 100-200 hours in this stage just gathering data, learning, and building a team.

Then I made the purchase after about 40-50 hours of analyzing deals, visiting houses, speaking with sellers, and negotiating/organizing things. This included ultimately some repairs, inspections, re-inspections, etc. I spent another 5-10 hours actually closing, running around, and doing necessary legal/document/tax steps to get the deal done.

After the purchase, I found contractors and supervised repairs which was around another 10 hours of work. Then I spent around 20 hours marketing to, finding, and screening potential tenants. All in all, I got someone in the door and started to cash flow.

So to get to the point of making money, it took perhaps 150-250 hours to close my first deal. I make around 12k per year of cashflow after all expenses, sinking funds for maintenance, etc. It takes me around 10-20 hours a year since the initial date to manage the property. I have a property manager there currently but it still is around 5-10 hours a year minimum for the "here and there." I probably think (worry) about real estate 2-4 hours a week.

All in all, I'm making money. The house is paying itself off. It cashflows nicely. But all that work above was for 12 k per year of cash flow, which isn't bad. And, this is not passive investing at all. This is a "success" and yet I don't think it would be worth it for someone not specifically interested in real estate. I'm much better at my day job than at real estate, and have far less risk.

In summary, I don't recommend residential real estate for anyone not completely enthralled with it - even if you make money from it. Juice not worth the squeeze.

 

[TexasPhysician]

Not sure if anyone cares but I'll write up a brief version of my rental investment story.

I had an interest in real estate. I spent about 1-2 years researching the local area. I visited areas on foot. I calculated average appreciation. Scoured the market to understand rent patterns. I tried to understand who were the renters in the area - where they worked, what their lifestyle was, risk they brought, etc. I also considered what I wanted out of the property. I ended up deciding I wanted to maximize cash flow rather than appreciation - which was my only realistic choice given my limited capital in residency. In addition to this, I had to learn about LLC structures, taxes, local real estate law and typical contracts. I also had to interview and meet with many real estate agents and loan officers. I spent around 100-200 hours in this stage just gathering data, learning, and building a team.

Then I made the purchase after about 40-50 hours of analyzing deals, visiting houses, speaking with sellers, and negotiating/organizing things. This included ultimately some repairs, inspections, re-inspections, etc. I spent another 5-10 hours actually closing, running around, and doing necessary legal/document/tax steps to get the deal done.

After the purchase, I found contractors and supervised repairs which was around another 10 hours of work. Then I spent around 20 hours marketing to, finding, and screening potential tenants. All in all, I got someone in the door and started to cash flow.

So to get to the point of making money, it took perhaps 150-250 hours to close my first deal. I make around 12k per year of cashflow after all expenses, sinking funds for maintenance, etc. It takes me around 10-20 hours a year since the initial date to manage the property. I have a property manager there currently but it still is around 5-10 hours a year minimum for the "here and there." I probably think (worry) about real estate 2-4 hours a week.

All in all, I'm making money. The house is paying itself off. It cashflows nicely. But all that work above was for 12 k per year of cash flow, which isn't bad. And, this is not passive investing at all. This is a "success" and yet I don't think it would be worth it for someone not specifically interested in real estate. I'm much better at my day job than at real estate, and have far less risk.

In summary, I don't recommend residential real estate for anyone not completely enthralled with it - even if you make money from it. Juice not worth the squeeze.

Getting your feet wet is the hardest part. Now with that knowledge, the incremental work for house #2 is less and #10 much, much less. If you stop at #1, I agree that it isn’t worth the time. This is something that needs to be completely avoided or involves at least 100 hours and building systems to make it worth it. The average psychiatrist shouldn’t be in real estate except for a personal residence and maybe a private practice office.

My wife is listing a flip house tomorrow. My wife has been there 3x to check progress and list it. I haven’t seen it yet. Analyzing the numbers, buying, and coordinating with contractors doesn’t require that I see it. It is just math to me now.

 

[moto_za]

Not sure if anyone cares but I'll write up a brief version of my rental investment story.

I had an interest in real estate. I spent about 1-2 years researching the local area. I visited areas on foot. I calculated average appreciation. Scoured the market to understand rent patterns. I tried to understand who were the renters in the area - where they worked, what their lifestyle was, risk they brought, etc. I also considered what I wanted out of the property. I ended up deciding I wanted to maximize cash flow rather than appreciation - which was my only realistic choice given my limited capital in residency. In addition to this, I had to learn about LLC structures, taxes, local real estate law and typical contracts. I also had to interview and meet with many real estate agents and loan officers. I spent around 100-200 hours in this stage just gathering data, learning, and building a team.

Then I made the purchase after about 40-50 hours of analyzing deals, visiting houses, speaking with sellers, and negotiating/organizing things. This included ultimately some repairs, inspections, re-inspections, etc. I spent another 5-10 hours actually closing, running around, and doing necessary legal/document/tax steps to get the deal done.

After the purchase, I found contractors and supervised repairs which was around another 10 hours of work. Then I spent around 20 hours marketing to, finding, and screening potential tenants. All in all, I got someone in the door and started to cash flow.

So to get to the point of making money, it took perhaps 150-250 hours to close my first deal. I make around 12k per year of cashflow after all expenses, sinking funds for maintenance, etc. It takes me around 10-20 hours a year since the initial date to manage the property. I have a property manager there currently but it still is around 5-10 hours a year minimum for the "here and there." I probably think (worry) about real estate 2-4 hours a week.

All in all, I'm making money. The house is paying itself off. It cashflows nicely. But all that work above was for 12 k per year of cash flow, which isn't bad. And, this is not passive investing at all. This is a "success" and yet I don't think it would be worth it for someone not specifically interested in real estate. I'm much better at my day job than at real estate, and have far less risk.

In summary, I don't recommend residential real estate for anyone not completely enthralled with it - even if you make money from it. Juice not worth the squeeze.

Thanks for sharing your experience! How about tax benefits? Any thoughts or opinions on that? Wondering if the juice is worth the squeeze for high income W2 or 1099 earners to save on taxes.

 

[rjs2131]

Probably not exactly what you're looking into, but my experience so far:

Bought a townhouse for residency/fellowship in an area with a big hospital system + university, have been fortunate to have essentially residents or university-affiliated staff as tenants since we moved to a different city a few hours away. Currently living in a nicer townhouse fairly close to downtown, so the hope is when we ultimately move into a house in 1-2 years, we can also rent this townhouse out and have 2 rentals going for the foreseeable future.

In my limited experience, this has worked well so far with fairly minimal headaches. I think quality of tenants is a major factor in any of this but from a cash flow/investment standpoint, seems like it has definitely been worth it so far. For the first townhouse, put down 40k and had a roommate who paid most of the mortgage essentially the entire time I was there...now there's around $6-700 of positive cash flow after mortgage/HOA each month. From what I've learned about the area we're in now, realistically can expect another $7-800 in positive cash flow if we're able find good tenants for the current townhouse.

I think if I can get over 1k in additional income each month + hold onto these properties, this seems worth it to me in the long-run. Yes there's the occasional fix/replacement that needs to be done, but if tenants are reasonable this isn't a big deal. I expect both properties to appreciate (they already have, both by over 100k) so if in 20-30 years both are paid off and we've been able to rent them out consistently...it'll be a nice additional part of the retirement portfolio.

 

[Jules A]

I find them to be some of my better tenants. First, destruction of property will lose them their voucher which no one wants so they tend to be more respectful (at least comparably to lower income non section 8 rentals); also lack of payment can also lose them their voucher. The government pays ~70% of the rent monthly which still provides me profit with that alone but nonpayment has not been an issue. My property managers also do a rigorous screening of tenants and we are quick to remove those we are concerned for property damage with. While I’m sure there are horrible tenants out there with section 8 I think that risk can be mitigated by proper screening

Horrible tenants are a possibility in any rental situation but my biggest concern with Section 8 type housing is that the properties are usually in less than desirable areas. While I know RE isn't liquid one of my goals was to not to purchase something I couldn't sell relatively easily.

 

[Jules A]

Probably not exactly what you're looking into, but my experience so far:

Bought a townhouse for residency/fellowship in an area with a big hospital system + university, have been fortunate to have essentially residents or university-affiliated staff as tenants since we moved to a different city a few hours away. Currently living in a nicer townhouse fairly close to downtown, so the hope is when we ultimately move into a house in 1-2 years, we can also rent this townhouse out and have 2 rentals going for the foreseeable future.

In my limited experience, this has worked well so far with fairly minimal headaches. I think quality of tenants is a major factor in any of this but from a cash flow/investment standpoint, seems like it has definitely been worth it so far. For the first townhouse, put down 40k and had a roommate who paid most of the mortgage essentially the entire time I was there...now there's around $6-700 of positive cash flow after mortgage/HOA each month. From what I've learned about the area we're in now, realistically can expect another $7-800 in positive cash flow if we're able find good tenants for the current townhouse.

I think if I can get over 1k in additional income each month + hold onto these properties, this seems worth it to me in the long-run. Yes there's the occasional fix/replacement that needs to be done, but if tenants are reasonable this isn't a big deal. I expect both properties to appreciate (they already have, both by over 100k) so if in 20-30 years both are paid off and we've been able to rent them out consistently...it'll be a nice additional part of the retirement portfolio.

Sounds like a great set up. Worth considering when you change from occupying to renting you may lose a nice tax break from the sale if it has appreciated.