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  • Avatar StateOfMyHead 
    Participant
    Status: Advanced Practice Provider
    Posts: 31
    Joined: 01/01/2019
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    Not a high end earner by physician standards, around $230,000 year with side hustle, but I’ve always lived below my means, invested and saved. Plan to retire at 62-65yo  in 8-11 years would like to take out $80-$100k a year to live on. I have no interest in a cushy nursing home or leaving money on the table when I croak, any excess will go to spouse or charity. Starting in my late 20s when I was only making $40k a year I began buying and selling a few modestly priced single family homes in excellent neighborhoods to rehab and rent or live in. I prefer residential to commercial due to lower acquisition and overall investment with quicker sale potential if in a jam. The rental income has generally covered the mortgage with $200-$300  to spare but there has been and continues to be decent appreciation. Accounting for repairs, rare vacancy etc. I estimate them to have provided the equivalent to 6% if compounded quarterly and as those of you who have real estate know also about 5-10 hours of my time each year.  I also have multiple 401 whatevers, SEP, an old Roth IRA, CD and high interest savings accounts. Overall 60:40 stock market/savings accounts to real estate.

    I currently own 2 rental properties with some equity and 2 personal properties that are paid in full. I am a generally in favor of real estate, it has been good to me over the years, and offers a concrete object that I can monitor for slow trends as opposed to the here today, gone tomorrow feeling I get from the stock market. Both current rentals will be paid off by the time I retire if I keep them. Rental income would result in +/- $3,500 a month income less maintenance etc. with the plan to sell as I age and lose interest in the hassle of upkeep.

    I’m interpreting many comments here as discouraging real estate investment in favor of all stocks/bonds. Questions posted about keeping a current home as a rental when upgrading are met with nearly unanimous sell comments. Other than the obvious time required, lack of liquidity and that it is unlikely to result in high returns as stocks possibly could please share insight into why a reasonable holding in real estate rentals is frowned upon here. It is a mild annoyance at times and if I were confident I could count on not losing the farm in the market I would gladly sell at least one of the rentals.

    #183633 Reply
    Avatar familydocPA 
    Participant
    Status: Physician
    Posts: 47
    Joined: 03/03/2017

    If you like Tim Ferriss, he recently had Peter Mallouk on his show (#356) and he has a really good description–which I agree with–as to why RE can be an overrated asset class.  The discussion is at about the 40 minute mark of the podcast.

    I invest in some SFH rental real estate, and don’t get me wrong, it is solid and has treated me well. But I think the outsized returns are in general overstated, and are due to the use of leverage (which can cut both ways), survivorship bias (you hear about the winners a lot more than the losers), and not accounting for the value of your time (in some cases this is a substantial contributor to the returns).

    #183683 Reply
    Avatar Raster 
    Participant
    Status: Physician
    Posts: 38
    Joined: 02/01/2016

    I’m not sure why others frown upon it.  I don’t do it because it doesn’t seem like a great investment at this time. The key thing with direct investment in real estate is the purchase price.  It’s easy to have a good investment if you purchase it cheap enough.  For the last half decade, it hasn’t been cheap enough.  Current optimistic cap rates for residential multifamily in my area are around 4%.  For SFH, it’s less.  It might work as a part-time job if you are very handy, i.e. you do all the management and all the maintenance/repairs/upgrades, but that isn’t attractive to me at this time.  I’m also not interested in being a long distance land lord.

    There seem like big risks – a bad tenant can wipe out many years of profits.  Threatened rent regulation can permanently impair the value.  Compared to the highly diversified and free transaction costs offered by the public markets, real estate isn’t very attractive, when most of the return is predicated on speculative price appreciation.

    #183875 Reply
    White.Beard.Doc White.Beard.Doc 
    Participant
    Status: Physician
    Posts: 683
    Joined: 02/06/2016

    We have owned investment residential real estate for a long time.  We have done well, but real estate does require care and feeding.  Not a lot, but at some times more than others.  The leverage made us lots of money with magnified appreciation in the earlier years at times of higher inflation.  These days with the properties paid off, we make about 6% of the quite inflated equity value tax free each year, plus probably a bit more than the inflation rate on appreciation that is also tax free if we hold until our heirs take over the properties.

    I think stock market investments would have been somewhat similarly successful over the long haul, with a bit less return but no work to maintain.  I guess we feel good having a diversified portfolio of various asset classes, but at this point I kind of regret that I cannot liquidate the real estate without taking a significant tax hit.  At some point I may do a 1031 exchange into larger multi-family properties with professional management to allow higher returns, but current prices on multi-family are generally too high and I have other things I would rather do with my time than assess investment options on real estate.

    #184006 Reply
    Avatar snowcanyon 
    Participant
    Status: Physician
    Posts: 319
    Joined: 10/22/2018

    Agree with everything everyone else has said.

    I think the best ROI for real estate is a place that can basically zero out your own housing expenses- renting out a MIL suite, buying a duplex and renting out half etc. Easier when you are young, and obviously not everyone’s cup of tea long term, but not paying for housing is a huge savings, especially for those who are young and struggling.

    #184039 Reply
    Avatar mobilehomegurl 
    Participant
    Status: Small Business Owner, Spouse
    Posts: 116
    Joined: 02/21/2017

    It’s mostly due to management. Many older landlords I’ve met (and bought from some) are just burnt out. Putting tenants in and out of properties takes work and time. If you can find long-term tenants, it can work. But even then, properties still need to be maintained. A lot of long-term landlords hold for a period of time and then sell (when the market is high) to cash out. Good luck with your decision!

    Mobile Home Gurl
    Get my free book: http://www.adventuresinmobilehomes.com/free

    #184945 Reply
    Avatar Dont_know_mind 
    Participant
    Status: Physician
    Posts: 745
    Joined: 11/21/2017

    RE is a great vehicle to generate wealth through leverage, but with some risk.

    If you get this at least partially right, then you will have large property assets with large capital gains and suboptimal yield (as compared to stocks). You will also have less appetite or need for leverage as you get more progressed. So the choice is – keep the RE with lower returns, apply leverage again or cash out and take a tax hit.

    No correct answer there. I personally would not invest in RE initially without leverage. But I am at a stage where I have real estate and now little need for leverage. Some people keep the property and sell gradually over retirement. Others sell, take a tax hit and invest in more diversified, higher yield index funds or CEF’s. Others keep their property and live off the yield.

    #185021 Reply
    Liked by StateOfMyHead
    Avatar StateOfMyHead 
    Participant
    Status: Advanced Practice Provider
    Posts: 31
    Joined: 01/01/2019

    Thank you all for taking the time to share your insights and experiences. With regard to the concerns of a tax hit I look at it like any taxable account that made a profit and is being cashed out. I haven’t exchanged due to selling when the local market has been favorable for selling but not buying. It is possible that I need to focus more on the tax implications but I also don’t want to hold something largely to avoid paying tax on the profit.

    #185098 Reply
    Avatar mobilehomegurl 
    Participant
    Status: Small Business Owner, Spouse
    Posts: 116
    Joined: 02/21/2017

    I think it’s more of a concern with time being a working physician and investing in real estate. Like any business, it’s very time consuming. But it’s different because there really are no rules. Everyone has different experiences based on their personalities. There are things you can do to cut your time like hire out contractors and property managers, but even that requires the skill of learning how to hire good, reliable, and honest people. Still a challenge for me, even with over a decade of experience as a real estate investor. Hope that gives more insight!

    Mobile Home Gurl
    Get my free book: http://www.adventuresinmobilehomes.com/free

    #197026 Reply
    Liked by StateOfMyHead
    Avatar Anne 
    Participant
    Status: Physician
    Posts: 778
    Joined: 11/07/2017

    I think there are plenty of people on this forum who invest in real estate.  But they are not all that vocal about for a variety of reasons.  Two reasons I can think of off the top of my head are:

    1.  Not wanting to get into debates with those who are vocally anti-RE investing.  It’s fine not to want to do it.  Many roads to Dublin and all that.  No need to change anyone’s mind.  Besides, if everyone was into RE it would be even more difficult to find suitable properties

    2.  If you discuss your successes, people will want details on exact specifics.  Not that people don’t want to help others, but details are going to vary depending on your market, capital available, willingness to learn, available of resources/mentorship to learn, and luck.  It’s a lot easier to tell someone how to decide on a successful 3 fund portfolio than it is to tell someone how to get started in real estate investing.

    #197039 Reply
    Avatar Larry Ragman 
    Participant
    Status: Other Professional
    Posts: 392
    Joined: 08/30/2018

    We have owned investment residential real estate for a long time.  We have done well, but real estate does require care and feeding.  Not a lot, but at some times more than others.  The leverage made us lots of money with magnified appreciation in the earlier years at times of higher inflation.  These days with the properties paid off, we make about 6% of the quite inflated equity value tax free each year, plus probably a bit more than the inflation rate on appreciation that is also tax free if we hold until our heirs take over the properties.

    I think stock market investments would have been somewhat similarly successful over the long haul, with a bit less return but no work to maintain.  I guess we feel good having a diversified portfolio of various asset classes, but at this point I kind of regret that I cannot liquidate the real estate without taking a significant tax hit.  At some point I may do a 1031 exchange into larger multi-family properties with professional management to allow higher returns, but current prices on multi-family are generally too high and I have other things I would rather do with my time than assess investment options on real estate.

    Click to expand…

    If you have not looked into it, the new tax law created opportunity zone funds, which can be used defer, reduce, or even potentially eliminate capital gains on real estate sales. WCI partner CityVest is forming such a fund.

    #197156 Reply
    Liked by StateOfMyHead
    Avatar MaxPower 
    Participant
    Status: Physician
    Posts: 244
    Joined: 02/22/2016

    I think it’s because the gains are overstated and the time commitment is understated, grossly in both cases at times. When I hear someone who is managing their own properties say they only spend 5-10 hours per year dealing with it that they are full of it, and everything else they say has to be taken with an ocean full of salt.

    There is tons of survivorship bias with residential real estate investing. No one gets on here and spouts about their horrible returns, so you only hear the positive outcomes.

    I just sold a single family home I had for over $20,000 less than I bought it for 11 years ago. Our expenses were mostly covered for the 5 years we rented it out, but we lost a lot of money on that house. We spent way more than 5 hours per year just dealing with the two incompetent management companies that “managed” our properties. I’ve never once gotten an email on a weekend night from VTSAX saying that Vanguard stopped paying the sewer bill and there was a notice on the door saying that the sewer was going to be shut off Monday, possibly causing backflow of sewage into the house. I’ve never had VFINX not do the monthly drive by inspections I was promised so the grass completely died and had to be resodded for thousands of dollars while the management company changed hands and claimed ignorance.

    The people that post about their awesome residential real estate portfolio are unicorns.

    #197220 Reply
    Avatar StateOfMyHead 
    Participant
    Status: Advanced Practice Provider
    Posts: 31
    Joined: 01/01/2019

    I think it’s because the gains are overstated and the time commitment is understated, grossly in both cases at times. When I hear someone who is managing their own properties say they only spend 5-10 hours per year dealing with it that they are full of it, and everything else they say has to be taken with an ocean full of salt.

    The people that post about their awesome residential real estate portfolio are unicorns.

    Click to expand…

    So while I didn’t boast about my awesome portfolio, real estate or otherwise, I have not spent more than 10 hours per year per property since they were rehabbed. I don’t use a management company. When something goes wrong as it seems to a couple of times a year the tenant texts me, I call the plumber, electrician, roofer whatever and then write the check. Definitely not as easy as the money I now have sitting in VTSAX but overall the properties I have rented and the houses I have lived in, rehabbed and sold have been decent investments, provided leverage and diversification for me over the past 25 years.

    #197367 Reply
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 5401
    Joined: 01/12/2016

    Im not sure I spent 10 hours on my rental last year…but I certainly put in many hours of hard work getting it ready, and real estate work is very lumpy. There isnt much and then theres a bunch.

    I agree you get mostly the good stories as its survivorship bias. I’ll let you know in 10 years as I dont think its something you can pass judgement on in a short time frame. Its not just buy and collect cash, nothing is quite that easy.

    #197399 Reply

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