Rental Properties as an investment diversifier

[TexasPhysician]

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.

Or do a 1031 exchange

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[Dr Omphalophobia]

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.

I think that’s fair assessment, when I am scouting areas I typically look for county funded section 8 that offers better rent reimbursement than federal s8. This also allows me to tailor the area as I typically try purchase in gentrifying areas or cities that have a higher housing cost but also a higher local reimbursement (and this generally more liquid). There is the occasional too good to pass up multi unit in a less than desirable area but those have to be a heck of a deal.

That being said I also own a few higher end properties and those are my favorite properties but also less cash on cash return typically. I decided to go heavy on the s8 than this route but I think both are good especially if you are good with quick reno items or have a good contractor

 

[psychmd03]

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.

Tax benefits are minimal until you basically switch to full time real estate and get your real estate professional status. Otherwise really the benefits are small overall.

 

[rjs2131]

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.

Definitely something we're thinking about, just hard to weigh the pros/cons when we don't know how long we'll be renting. I think ideally, if we can find steady tenants we could continue renting for several years (it would be in the same city we live in) and the property appreciates further. We've lived there for 3.5 years now and it's appreciated around 100k. I think the value (if we can consistently rent it out) of passive income every month over several years seems greater than the potential tax break when we buy a new house, but would need to look at the actual numbers.

 

[RomeoNP]

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?

I have experience with this as does my uncle who is a psychiatrist in NYC, it can be lucrative depending on how you play the game and a few key factors:

What state are you in? - Some states are pro tenant and if you end up with a nightmare tenant it can be a painful experience (i.e. CA, MA), some states are pro landlord and they are not as bad (FL, Ga and TX). it is very important to know the tenant rights in your state.

Cash on Cash return: this will be determined by how much you put down, how much upkeep is involved in the property and what utilities your tenants will cover. For your CoC to be solid you should not put down less than 20%/25%.

Don't make appreciation the centerpiece of your investing strategy , some people really value this, personally I have had success buying at lower prices in areas with relatively weak appreciation; I like having positive cash flow on my properties and appreciation will come at some point but I don't care too much about that.

Finally, this is not a passive investment, I have a person that does the handiwork, and helps manage things because I don't really like dealing with tenants directly but every few months there will be some repairs and upkeep that will require your attention.

I have seen colleagues make really good money flipping houses, buying distressed properties, rehabbing them and making a lot on the sale, this is quicker but requires you to have a lot of good connections with contractors and some experience in the game. Also, the tax advantages have been good too.

I think it is worthwhile to explore but take your time researching the market in the places you would buy in. I also dabble in REITs but not too much.