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Investing in real estate

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  • Avatar Stepbystep 
    Participant
    Status: Physician
    Posts: 11
    Joined: 02/17/2018

    Hi guys,
    Need advice from people who have some real estate investing experience.
    I am 36, been out of training for one and half years so far. Paid off 450k in student loans making about 600k. I have been so focused about paying off loans that now I am not sure where to channel my energy. We are in rural part of Midwest. I currently rent. I was thinking of not buying a house in my location because it is too small of a town. Instead I was thinking of continuing to rent and perhaps buy a condo in Chicago or Nashville or some other major metropolitan and rent it out. Like 500k price range and keep repeating that process.
    Is this wrong way of thinking about it?
    I do max my 403band 457 and Backdoor Roth.
    Would you guys just suggest throwing everything else in some taxable account and index funds?
    Thanks for any insight.

    #193494 Reply
    CordMcNally CordMcNally 
    Participant
    Status: Physician
    Posts: 2477
    Joined: 01/03/2017

    I would start a taxable account and forget about real estate investing for now. Investing in real estate and being a landlord are a lot more involved than just buying a property, renting it out, and collecting checks.

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #193495 Reply
    Liked by Stepbystep
    Avatar G 
    Participant
    Status: Physician, Small Business Owner
    Posts: 1644
    Joined: 01/08/2016

    Plenty of folks make a ton of money with a real estate empire using the method you suggest.  But it sounds like you already have a job.

    I spent a couple hours this week worrying about water intrusion in a rental and will see what the contractor says on Monday about addressing it.  Being part-time with medicine and in the same city is somewhat helpful.  Ugh.

    But just tonight, we drove by some cool townhouses for sale in a gentrifying part of the city and the thought crossed my mind “wouldn’t it be cool to own one of those?!”…so I understand your itch.

     

    #193496 Reply
    Liked by Zaphod, Stepbystep
    Avatar mobilehomegurl 
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    Status: Small Business Owner, Spouse
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    I’d be careful about buying out of your area especially if you work full-time and don’t have the time to oversee the process. Working with property managers work but you still have to manage the managers. Most who get into the real estate investing game start with their own home. Live in it for a few years. Then rent it out. And do the process all over again with another home. Though, there are many different paths to take. One thing you’ll need to consider is your time. If you don’t think you’ll have time to learn how to invest in real estate, find deals and oversee the process, you may want to look at other investing options. Good luck with your decision!

    Mobile Home Gurl
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    #193497 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 2582
    Joined: 09/18/2018

    Rough translation is you have an extra $300k cash flow and need a place to park it. Actually, I don’t suggest “throwing it “ at rental property or index funds. I suggest you educate yourself in how to safely invest and run your financial life. You may already know it, but I suspect not.
    1. Open a brokerage account. All your surplus funds go there. Start with a Total Market or S&P 500 fund or EFT. Fidelity or Vanguard. $300k per yr. for 5 years.
    2. Take the Fire Your Advisor course.
    3. Read some recommended books.
    4. Complete your IPS
    5. Do this for 5 years and you will probably have refined your asset allocation, accumulated $1.5-$2mm and changed from throwing money at investments to being a great investor. The change is a good thing.
    Don’t throw money away either! Rental property is an alternative asset class to add later. You can add real estate exposure as an asset class in your portfolio.

    #193506 Reply
    Liked by AZPT, StarTrekDoc
    Avatar Stepbystep 
    Participant
    Status: Physician
    Posts: 11
    Joined: 02/17/2018

    Well put!
    Thanks so much for all of your advice.
    I have my 403B and 457 with Fidelity.
    Should I just open a brokerage account with them for simplicity sake or is there an advantage to go with Vanguard? Thanks again

    #193507 Reply
    White.Beard.Doc White.Beard.Doc 
    Participant
    Status: Physician
    Posts: 836
    Joined: 02/06/2016

    To invest in real estate you have to run a spreadsheet projection for each individual investment. The spreadsheet provides a roadmap of cash flows and projected investment returns.  Some real estate investments give a great return, some are black holes for cash, most are somewhere in between.  If you don’t know how to do some type of spreadsheet analysis for a real estate investment, you are not investing, you are gambling.

    #193508 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 2582
    Joined: 09/18/2018

    Virtually the same now cost and performance wise. I would keep them at Fidelity.

    #193515 Reply
    Liked by wonka31
    wonka31 wonka31 
    Participant
    Status: Physician
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    Joined: 03/24/2018

    You can consider investing in larger deals, syndications, lending funds, etc as well. As others have noted there can be both upsides and downsides to direct ownership, particularly outside of your market.

    #193519 Reply
    Avatar Gas_Doc 
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    Status: Physician
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    Joined: 01/09/2016
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    If you want to own real estate rather than syndicate like other suggested, I’d highly recommend educating yourself first. Given your rough plan of buying property outside of your immediate area, I suggest you first read “Long Distance Real Estate Investing” by David Greene (https://www.amazon.com/Long-Distance-Real-Estate-Investing-State/dp/0997584750)

    Just to give you a couple rules of thumb:
    – The 1% rule: a rental property is likely to cash flow positively if you can rent it monthly for 1% of the purchase price. So in your case, you’d need to rent that Chicago place for $5k/month (unlikely) to justify he $500k purchase price
    – Vacation rental: if you are looking to make your Chicago/Nashville place a short term rental, it should generate $10-12k/year annually for every $100k you spend on the purchase to get positive cashflow after all the expenses of a STR (management fees, cleaning, vacancy, etc). So you have to expect $60-72k gross revenue to justify the $500k purchase. Try airDNA.co for a rough estimate of revenue at a specific address.

    #193524 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 2582
    Joined: 09/18/2018

    @gasdoc,
    Thank you for the brief education.
    This type of program would be wonderful at WCICOM2020.

    #193546 Reply
    Avatar StarTrekDoc 
    Participant
    Status: Physician
    Posts: 1897
    Joined: 01/15/2017

    OP – GasDoc basically gave you the 101 in a nutshell.    There’s a lot of options and would suggest you take that energy to dive into reading up on the subject and so many different avenues in Real estate investing.

    Meanwhile, take that cashflow and stockpile into 3 fund investment; with a side fund for your initial venture into real estate — whatever that maybe.

    Syndicate ownership is significantly less time consuming.  If you go individual units, the time intensity can be significant while still not hitting the 750 hours mark for tax loss sheltering if that’s goal unless you go all in and do it with a passion.  This forum doesn’t skew that way, but there are a fair amount of physician families that do this as RE is an excellent tax shelter and cashflow vehicle — and generational transfer too.   To do it right though, you have to be educated on the ins/outs otherwise getting burnt is a high probability.

    #193565 Reply
    Avatar Kamban 
    Participant
    Status: Physician
    Posts: 2331
    Joined: 08/01/2016
    Would you guys just suggest throwing everything else in some taxable account and index funds?

    Click to expand…

    I would suggest this. You are 36. After 20 years this will bring the best returns with the least headache. I would not buy something long distance, pay 10% rent to actively manage it and also pay for repairs, taxes, HOA fees etc etc. You have a job to do well to keep earning that 600K. So just do that well and invest in index funds and enjoy life.

    #193570 Reply
    Liked by Lordosis
    Sajimone Sajimone 
    Participant
    Status: Physician, Small Business Owner
    Posts: 88
    Joined: 01/09/2016

    I do a bit in residential and now switching to commercial real estate. Im actually buying my 3rd commercial building soon.. just went to contract. Im about 8-9 years out from fellowship, 6 years from becoming financially literate through this and other websites. 4-5 years from paying down all the debt except house mortgage. 2-3 years since i started investing in real estate. My point is to not rush it. Spend time reading the fundamentals of real estate investment. If you dont understand the cash on cash returns or how to fully analyze a deal.. then invest a good taxable fund index and munis for now. Then read. I would spend more time on the passivemd website.. he explains a lot more about real estate in detail. Biggerpockets is also very good. Good podcast as well. If your interested in real estate.. then you want to do it right and avoid the naysayers. Passive income is king.

    #193737 Reply
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 5900
    Joined: 01/12/2016

    I hear people talk about the 1% rule all the time, however, just on the face of it it makes no sense. There are very very few places where you’re getting 1k per each 100k in price. It just doesnt happen that often, yet plenty of people do fine with real estate.

    Actually, since there is more of a hard floor on properties than any linear relationship to price:rent, cheaper places in low cost of living areas can be easier to cash flow even. You dont get to choose a rent based on what you paid, etc…you pay whatever the market offers in your area and it will be supply/demand, wages, growth, etc…but you’ll have no say and no one cares how much you paid for a place.

    How many people got 1% in each and every deal they have for rentals, every time? This would mean a standard little 200k house should fetch 2k a month, which is on its face ridiculous and wont happen most of the time. You can prove this to yourself by going on zillow or whatever and randomly select cities and look at zestimate/comps and what theyre asking to rent for similar homes.

    #193771 Reply

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