Menu

Investing in real estate

Home General Investing Investing in real estate

  • Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 1209
    Joined: 02/11/2019

    I agree with toss it into a brokerage account index fund.  At least you can do that today and you can always learn more about real estate investing and go that route in the future if you wanted.  Seems like to much work for me but I know many people who do well with it.

    “Never let your sense of morals prevent you from doing what is right.”

    #193792 Reply
    Liked by Kamban
    Avatar Kamban 
    Participant
    Status: Physician
    Posts: 2331
    Joined: 08/01/2016
    If your interested in real estate.. then you want to do it right and avoid the naysayers. Passive income is king.

    Click to expand…

    Since I was one of the naysayers I will try and address it.

    My advice was given in the context of him being in a rural Midwest and trying to buy a condo in far away in Chicago or Nashville and forced to be a long distance landlord. That is quite different from managing commercial property. For him the better option would be to put it in an index fund while living in the rural area.

    Buying and managing commercial properties is good and gives wonderful passive income till it stops giving income. It is easy to say cash on cash and triple net lease but ultimately it comes to having enough tenants to cover the monthly loan repayments. We have had tenants that have gone bankrupt, abruptly stopped paying the rent and merged with other entities and closed the store location. The roof starts leaking and a 70K replacement was needed. At one time we had to have partners pitch in money to do emergency repairs and keep paying the mortgage. At least with an index fund there is no sudden need for money to come out of your pocket.

    I am not saying commercial property or businesses should not be an part of one’s investment strategy. But it requires much more knowledge and hands on approach than a index fund. And it has to be in the right location. All of which is not in the OP’s favor at this moment.

     

    #193797 Reply
    Avatar Dusn 
    Participant
    Status: Physician
    Posts: 178
    Joined: 01/02/2018

    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.

    Click to expand…

    I agree completely.  Does anyone expect to get 1% of purchase price in rent?   Where I live I can find rentals for typically 0.5% of what the equivalent home is selling for.    Maybe I’ve seen some condominiums get close to 1%, or if someone used it as a vacation rental…  do condos count under the same rule?

    #193799 Reply
    Avatar Dont_know_mind 
    Participant
    Status: Physician
    Posts: 883
    Joined: 11/21/2017

    Haven’t met anyone who made a million from the 1% rule. Maybe someone has a portfolio with residential or commercial properties they bought with 12% gross yields. It probably not in a reasonable sized city though.

    I think at the end of the day RE is about capital appreciation. Something that is 12% yield currently would appreciate if this was sustainable. I ran the numbers of a CRE investor today. They had 3% pa ratchet clauses on a 5 year leases on 3 properties in the same area, but the area appreciated by 8%pa over the last 4 years so the rents are actually at least 10% below market. The main reason tennants put up with above CPI increases in the long term is that the value of the land/property increases. Balanced against their cost of moving.

    CRE to me is a bit like high yield investing. Picking up cashflow is great until there is none. I actually think the good returns from buying CRE or HY are when risk premiums blow out. This is like an elephant pooping. The rest of the time most think they are a geniuses for picking up dimes until they get crapped on, JMO. Or other times CRE investors do well because they have been good land speculators but they don’t realise it.

    I have seen RE work when people 1. pick a property with good long term appreciation or 2. find an average property with terrible tennants and go through the unpleasant process of kicking them out or 3. buy liquidated stock when risk premiums blow out and they normalize again. During the latter type of nuclear event you can cast your geiger counter over resi at 20% discounts, untennanted CRE at 50% discount, some land development stock at 70% discount.

    Rules like the 1% rule sound to me to be too much wishful thinking. Like residential real estate always appreciates by 6/7% pa. It could work but maybe it won’t. Ok here is my equivalent of 1% rule : make sure you win big on the ones you get right and lose little on the losers. Make sure you also bet big on the ones you get right and little on the ones you’re wrong on. And by the way you can get lucky or unlucky.

    #194101 Reply
    Liked by Zaphod, DCdoc
    Avatar hotwired 
    Participant
    Status: Small Business Owner
    Posts: 1
    Joined: 02/26/2019

    I would go as far as to say that a property that satisfies the 1% rule only “might” make money if everything goes well. Our 30 units are all in the 2-4% range (multi family, blue collar areas, lower-middle class, with less appreciation potential than the typical nice townhouse in Chicago, or other metro area) And this gives some cushion so that they’re ALWAYS cash flowing, even with the odd roof or boiler replacement. We’ve found the key is owning at least 25 so you are forced to develop systems. It gets to the point where “nothing’s a surprise” and you know who to call right away. If you buy low enough, so that the cash flow is great, you can often offload 100% to a manager and make the same cash flow that you would buying a nicer, newer place and managing it yourself.

    #194198 Reply
    Liked by DCdoc
    Avatar Scopemonkey 
    Participant
    Status: Physician
    Posts: 72
    Joined: 12/28/2017

    Agree with Cord above; would not invest in RE until you have a nice sizable nest egg in index funds of stocks and bonds.  In the meantime you can read and learn about the various ways to invest in RE including direct ownership locally and from a distance, vs passive investing via syndicated funds, individual assets, and debt such as hard money lending.  But would first grow your net worth with basic index funds.  That you’ve already paid off your loans and max out your retirement accounts shows you have the discipline and mindset to be wildly successful if you do this!

    #194228 Reply
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 5900
    Joined: 01/12/2016

    Haven’t met anyone who made a million from the 1% rule. Maybe someone has a portfolio with residential or commercial properties they bought with 12% gross yields. It probably not in a reasonable sized city though.

    I think at the end of the day RE is about capital appreciation. Something that is 12% yield currently would appreciate if this was sustainable. I ran the numbers of a CRE investor today. They had 3% pa ratchet clauses on a 5 year leases on 3 properties in the same area, but the area appreciated by 8%pa over the last 4 years so the rents are actually at least 10% below market. The main reason tennants put up with above CPI increases in the long term is that the value of the land/property increases. Balanced against their cost of moving.

    CRE to me is a bit like high yield investing. Picking up cashflow is great until there is none. I actually think the good returns from buying CRE or HY are when risk premiums blow out. This is like an elephant pooping. The rest of the time most think they are a geniuses for picking up dimes until they get crapped on, JMO. Or other times CRE investors do well because they have been good land speculators but they don’t realise it.

    I have seen RE work when people 1. pick a property with good long term appreciation or 2. find an average property with terrible tennants and go through the unpleasant process of kicking them out or 3. buy liquidated stock when risk premiums blow out and they normalize again. During the latter type of nuclear event you can cast your geiger counter over resi at 20% discounts, untennanted CRE at 50% discount, some land development stock at 70% discount.

    Rules like the 1% rule sound to me to be too much wishful thinking. Like residential real estate always appreciates by 6/7% pa. It could work but maybe it won’t. Ok here is my equivalent of 1% rule : make sure you win big on the ones you get right and lose little on the losers. Make sure you also bet big on the ones you get right and little on the ones you’re wrong on. And by the way you can get lucky or unlucky.

    Click to expand…

    And dont forget leverage and the power of time, of course the tenant makes it so even if you’re not cash flowing a lot (or at all) you’re getting an asset at essentially a discount.

    It may not be 1% of cost today, but 5-10 years from now it could be much more. Add any capital appreciation, a 1031 or so and its golden.

    #194264 Reply
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 5900
    Joined: 01/12/2016

    I would go as far as to say that a property that satisfies the 1% rule only “might” make money if everything goes well. Our 30 units are all in the 2-4% range (multi family, blue collar areas, lower-middle class, with less appreciation potential than the typical nice townhouse in Chicago, or other metro area) And this gives some cushion so that they’re ALWAYS cash flowing, even with the odd roof or boiler replacement. We’ve found the key is owning at least 25 so you are forced to develop systems. It gets to the point where “nothing’s a surprise” and you know who to call right away. If you buy low enough, so that the cash flow is great, you can often offload 100% to a manager and make the same cash flow that you would buying a nicer, newer place and managing it yourself.

    Click to expand…

    Have found this to be true as well. Cheaper places cash flow much easier, but come with other issues.

    #194265 Reply
    Avatar StarTrekDoc 
    Participant
    Status: Physician
    Posts: 1897
    Joined: 01/15/2017

    We have a duplex in lower SES area and good SFH in nice SES area.   The ROI on the SFH is much lower than the duplex by 50%  — but the headache is nearly nonexistent too.

    All depends on what you’re willing to put in/push on/let go/maintain.   Slum lord I am not, but it can be a very high ROI area.

    #194270 Reply
    Liked by G, Zaphod
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 5900
    Joined: 01/12/2016

    We have a duplex in lower SES area and good SFH in nice SES area.   The ROI on the SFH is much lower than the duplex by 50%  — but the headache is nearly nonexistent too.

    All depends on what you’re willing to put in/push on/let go/maintain.   Slum lord I am not, but it can be a very high ROI area.

    Click to expand…

    My rule is basically if I dont feel comfortable driving and parking my lexus in the area than I wont own any properties there.

    #194274 Reply
    Liked by Peds
    Sajimone Sajimone 
    Participant
    Status: Physician, Small Business Owner
    Posts: 88
    Joined: 01/09/2016

    late response… but i check in every so often.  = )

    I agree with Kamban… I think we’re saying same thing.   Invest safely for now.. continue to read and educate yourself first.. then get into real estate once you understand it.  Get into relatively less risky real estate investments that cash flow well in case 1-2 tenants leave.  My single family homes can handle 1-2 missing tenants… if fully rented.. cash flow is 3k a month.   My commercial buildings can handle 2-3 missing tenants.  If fully rented out.. my commercial buildings cash flow 9k a month… that’s net after mortgages.  Currently.. I have one pharmacy tenant who left early on the contract… but he had paid 18k to break his contract which covers about 6 months.   If I don’t fill that unit.. then my cash flow goes down a bit but Im not feeding the beast with clinical/personal income.  I’ve also built up a large emergency funds using this cash flow in case there’s a major repair or empty units.   passiveincomemd and semiretiredmd are great educational blogs for those physicians who are more interested in real estate.

    #228430 Reply
    Avatar Infinity 
    Participant
    Status: Physician
    Posts: 53
    Joined: 05/25/2019
    Haven’t met anyone who made a million from the 1% rule. Maybe someone has a portfolio with residential or commercial properties they bought with 12% gross yields.

    Click to expand…

    I bought several houses in 2013 after crisis, for ~$100K each, and get $1200-$1500 a month (met 1% rule).  Today, these houses worth ~$200K, but the rent is still the same.  What I am trying to say is, real estate is cyclical.  Do not jump in when it is hot or you will be burned.

    #228523 Reply

Reply To: Investing in real estate

In case of a glitch or error, please save your text elsewhere, clear browser cache, close browser, open browser and refresh the page.

Notifications Mark all as read  |  Clear