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Owning a rental house is not as lucrative as buying stock

By Patrick following x   2018 May 20, 5:12pm 753 views   31 comments   watch   sfw   quote     share    


https://www.azcentral.com/story/money/real-estate/2018/05/20/buying-rental-home-metro-phoenix-great-new-investment-stock-market/609159002/

Single-family homes in large U.S. cities have generated returns of about 9 percent annually on average, according to the study, which examined results from 1986 to 2014.

That would make rental homes almost as potentially lucrative as stocks and considerably more so than bonds, deposit accounts and other conservative instruments.


Right, so you get less money out rental houses, and you have to suffer dealing with tenants.

Stocks never call you because the toilet is not working.
1   bob2356   ignore (1)   2018 May 20, 6:33pm   ↑ like (0)   ↓ dislike (0)   quote        

Patrick says
in large U.S. cities


The 15 largest cities. Move to the second tier cities away from the coastal madness and the yields are a lot higher than 9%.

If you stay out of frothy markets houses don't have a black friday either. The houses I held onto after I pruned in 2006/2007 dropped in value less than 5% and rents kept rising.

If you want to own stocks then knock yourself out. No one is holding a gun to your head saying buy rental houses. I'm making more in rentals than anyone I know does in stocks. But I do my homework.

Patrick says
you have to suffer dealing with tenants.

Stocks never call you because the toilet is not working.


That's what a property manager is for.
2   just_passing_through   ignore (0)   2018 May 20, 8:26pm   ↑ like (1)   ↓ dislike (0)   quote        

I'm making about ^10% in rental houses in San Antonio and use a property manager but he's free/family. The houses are essentially new and maintenance isn't a big deal. Except for that hail storm last year. I don't charge excessive rates and treat tenants well. It actually makes more sense to buy in that market so it blows me away how easy it is to get good renters. I make way more in stocks but I can lose more more quickly with stocks as well. It's an inflation hedge and to me part of a diversified portfolio. It's 'as-if' I purchased a 750K home that's paying for itself and then some.

I'm making a killing in the vacation rental market in Maui. That condo alone pulls in more than all 3 of the San Antonio houses put together. Tenants are easy to deal with and usually super happy because they are on vacation. I can manage the unit from my cell phone on VRBO. With a smartthings hub and schlage lock I've got door keypad control and can see who comes in when etc. I have several contacts on the island for support such as electrical work, cleaning service, handyman etc.

Aaaand I rent in CA. I'll probably be a perma-renter here. I wound up making a lot of money and didn't want to risk it all in the markets or buy a dumpy CA house. Bought the condo cash and leverage the houses with 25% down loans. Plenty left to play in the market but I'm mostly in cash right now. If I had to chose one or the other I'd definitely invest in stocks.

^Not including appreciation, which is low there vs. coastal CA
3   maya_   ignore (0)   2018 May 20, 11:28pm   ↑ like (0)   ↓ dislike (0)   quote        

I agree with Patrick on the upkeep of owning either your home/rental property, and the costs of upkeeping will cost you more in the long run. My retired parents own two homes fully paid off and never took out an equity loan on them. When I asked my mother if she felt she paid more on the home than what she originally paid for she said, "Of course!" The first home my parents own is an older home (1940's), they have paid so much on remodeling, upkeeping the yard, fixtures, property taxes etc... The newer home which was built 27 yrs ago they have spent so much on upkeeping it. My mother is ready to finally sell the older home because she said she would make more money investing it into different accounts. Just last month she had to head over to the rental property because the tenant left the stove on and some parts of the home caught on fire. Luckliy she just renewed her home owners insurance, and even if the whole home was damaged she would not get the same amount as the inflated market states that homes are worth. Tenants can do considerable damage. Also, my best friend who lives in Dallas, Texas where the hype of buying a home is cheaper, she said they get you on property taxes in Texas. Her home is worth $350k and she pays $10k in property taxes each year (there is no golf course). I'm suprised no one talks about Texas's property taxes??
4   bob2356   ignore (1)   2018 May 21, 3:45am   ↑ like (0)   ↓ dislike (0)   quote        

maya_ says
Her home is worth $350k and she pays $10k in property taxes each year (there is no golf course). I'm suprised no one talks about Texas's property taxes??


That's why I left the tx market. Property taxes doubled 2001-2009. Insurance tripled after a couple hurricanes even with being 300 miles south of the storm damage, in an area with very low probability of hurricanes, and being 30 miles inland. Having a rental property with 800 a month nut in taxes alone is insane. That's why I would never even consider owning a rental property where I live in New England. Plus having laws that let tenants drag out eviction for 6 months without paying. At least in Tx you could have them on the curb in less than a month.

I had 40's and 50's ranches on slab in tx. Maintenance was no problem at all. Not sure how a house that was kept up properly would have issues. Rule of thumb is 2% which I find to be more than adequate.

Where did the 9% return on stocks come from anyway? Inflation adjusted it's 7% gross. http://www.simplestockinvesting.com/SP500-historical-real-total-returns.htm. How come no one talks about the fees on stocks, which comes right off of the return. I never averaged more than 7% out of stocks in my IRA once the fees came out of the account.

Whatever floats your boat. If you think you can match wits with goldman sachs super computers and legions of phd quants then go for it If you think owning an index fund is your key to happiness then bon appetite. Once I was out of the company I rolled my IRA to self directed and moved it into rentals. Much happier watching the money roll in month after month than I ever was dicking around in stocks. But I'm also old enough to have owned stocks through black monday 1987, the 89/90 crash, and the tech bubble collapse. I was thrilled to ride out the 2007 crash in cash and properties that didn't drop in value more than a couple percent.
5   zzyzzx   ignore (1)   2018 May 21, 10:27am   ↑ like (0)   ↓ dislike (0)   quote        

maya_ says
so, my best friend who lives in Dallas, Texas where the hype of buying a home is cheaper, she said they get you on property taxes in Texas. Her home is worth $350k and she pays $10k in property taxes each year (there is no golf course). I'm suprised no one talks about Texas's property taxes??



bob2356 says
That's why I left the tx market. Property taxes doubled 2001-2009. Insurance tripled after a couple hurricanes even with being 300 miles south of the storm damage, in an area with very low probability of hurricanes,



I would guess that the average house price in TX is a lot lower than $350K though. In so far as them getting you anyway in the form of property taxes instead, that's true to an extent, but nobody is making you buy an expensive house by Texas standards. I would imagine that Florida would be pretty much the same, except with even more expensive homeowners insurance. I know someone in SC who lives 17 miles inland, and still pays a hurricane surcharge on their homeowner's insurance. Plenty of people in the NorthEast are paying 5-10K (or more) property taxes AND income taxes.

I also think it's nuts to be an absentee landlord. If you are going to be a landlord, make it something super convenient.
6   SunnyvaleCA   ignore (0)   2018 May 21, 2:04pm   ↑ like (1)   ↓ dislike (0)   quote        

Some people here in silicon valley think that collecting $5k/month in rent is just "free" money if they have already paid off their mortgage. What they fail to realize is that they could instead have $2M freed-up cash that could earn a much higher return. If you're getting $40k/year on a rental (after expenses), but the property could be sold for $2M, your "investment" is only returning 2% annually. On the other hand, if you believe the value of the property will continue to rise (a lot!), you'll be gaining there too. But I look at that as risky speculation, not investing. I'm already living in my own house — that's more than enough risky property speculation for me.
7   Hircus   ignore (0)   2018 May 22, 8:43pm   ↑ like (0)   ↓ dislike (0)   quote        

bob2356 says
ow come no one talks about the fees on stocks, which comes right off of the return.


There's tons of stock investment choices which have extremely low fees. The 2 main costs are from brokerage fees, and fees on the stock / fund itself.

Most brokerage accounts are free, but charge per-trade. Trades can be pretty cheap ($5-10) or free in many realistic cases. And, even if you do pay $10-30 to buy more stock every month or quarter, that's very little (% wise), if were talking about significant portfolio sizes.

There's many ETF's and funds with fees that are reasonably close to 0. Vanguard is popular: s&p500 etf, expense ratio 0.04% (basically the annual fee) https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0968&ps_disable_redirect=true

So, brokerage + stock/fund fees can be pretty low. There's plenty of stuff that will charge you 1 or 2% a yr though (usually these are pushed by salespeople).

Also regarding inflation adjusted returns, I don't personally think real estate investment talk / numbers tends to inflation adjust more than stocks - both stocks and RE tend to mostly quote their unadjusted numbers most often IMO.
8   Sniper   ignore (11)   2018 May 22, 8:55pm   ↑ like (0)   ↓ dislike (1)   quote        

Patrick says
Owning a rental house is not as lucrative as buying stock


Every time I get an itch to buy a rental property and think about becoming a slumlord, I look at my brokerage statement, and it snaps me back to reality!
9   Strategist   ignore (1)   2018 May 22, 9:05pm   ↑ like (0)   ↓ dislike (0)   quote        

Sniper says
Patrick says
Owning a rental house is not as lucrative as buying stock


Every time I get an itch to buy a rental property and think about becoming a slumlord, I look at my brokerage statement, and it snaps me back to reality!


He he he. Glad you are still alive and kicking.
I Would take half of your brokerage account and diversify into some good old California real estate. The roads are still paved with gold.
10   clambo   ignore (4)   2018 May 23, 8:05am   ↑ like (0)   ↓ dislike (0)   quote        

Stocks are better to own but those who like being landlords will not be convinced. Some like the feeling of being owners. I know a man who just loves it and he spends his time running around dealing with his various rentals, it's fun for him. I prefer other hobbies.

I'm so averse to the entanglements and bullshit I would not like being a landlord, ever. I like the idea of being able to move a mouse to manage my financial affairs.

I like the notion of being free to travel and never worry about what problems may arise from the antics of tenants or the whims of nature, e.g. high winds send a tree onto the roof, etc.

The capital appreciation in my Roth IRA has been great and when I convert it someday to a fixed annuity I will be paid a steady tax-free automatic never-ending 6.5%-7% (depending on the age I start payments).
11   bob2356   ignore (1)   2018 May 23, 10:11am   ↑ like (0)   ↓ dislike (0)   quote        

zzyzzx says
I also think it's nuts to be an absentee landlord. If you are going to be a landlord, make it something super convenient.


Why is that? Then you are stuck in your local market. Moving from opportunity to oppotunity is how you make money. FInd blood on the street and buy buy buy.

clambo says
Stocks are better to own but those who like being landlords will not be convinced. Some like the feeling of being owners. I know a man who just loves it and he spends his time running around dealing with his various rentals, it's fun for him. I prefer other hobbies.


I've done both over a very long period of time and I'm out of stocks.

I don't run around and deal with anything. Long, long past needing to do that. I don't even know what many of my properties look like at this point. Never saw them. If there is a problem I get an email and move my mouse to deal with it.

If you like stocks than knock yourself out. Most people should own stocks. Most people should own low fee index funds and nothing else. But don't tell me they are better investments no matter what.. If you do the work and keep upgrading your investments then you can do very well in real estate rentals.

clambo says
The capital appreciation in my Roth IRA has been great and when I convert it someday to a fixed annuity I will be paid a steady tax-free automatic never-ending 6.5%-7% (depending on the age I start payments).


I always love hearing from stock bulls at the end of a long run up how great they did. No one was posting how great they did in 2009 or 2001. How good would your annuity return have been in 2009? Don't count your chickens before they hatch.
12   Hassan_Rouhani   ignore (2)   2018 May 23, 10:20am   ↑ like (1)   ↓ dislike (0)   quote        

bob2356 says
I always love hearing from stock bulls at the end of a long run up how great they did. No one was posting how great they did in 2009


How is this any different from finding oneself sitting on a bunch of underwater rentals in 2009? At least with stocks you're not paying for the "privilege" in taxes,interest, insurance and maintenance. So I guess it is different after all. As in "rentals are still worse".
13   Sniper   ignore (11)   2018 May 23, 2:12pm   ↑ like (0)   ↓ dislike (1)   quote        

Hassan_Rouhani says
How is this any different from finding oneself sitting on a bunch of underwater rentals in 2009? At least with stocks you're not paying for the "privilege" in taxes,interest, insurance and maintenance. So I guess it is different after all.


Exactly...

If you're not happy with your stock performance, you can just click "sell" and within a few minutes, the problem is gone.

Try doing that with a rental house.
14   bob2356   ignore (1)   2018 May 23, 3:32pm   ↑ like (1)   ↓ dislike (0)   quote        

Hassan_Rouhani says
How is this any different from finding oneself sitting on a bunch of underwater rentals in 2009? At least with stocks you're not paying for the "privilege" in taxes,interest, insurance and maintenance. So I guess it is different after all. As in "rentals are still worse".


Since I don't have loans I didn't have any underwater rentals in 2009. I sold my east coast price going up fast units in 2006. l missed out on another 20% appreciation, but didn't get the 40% down either.

But if I did carry paper how can a rental be underwater matter if I'm not selling it? Assuming staying with fundamentals and no creative financing what the shit does it matter what the house is "worth". The rent still comes in the same as before. The ROI is exactly the same. The value makes zero difference until sale, which could be forever.

How much income did the lost 50-70% of value stocks generate in 2009? Most didn't get back to break even for 5-7 years. I collected rent every single month. Cry me a river of tears

Don't stay in a frothy market and you can't get burned. I'm selling what i own in Vegas (bought in the blood bath of 2010/11 thank you very much) because it's going up way too fast for my taste. I'll take the money and run now and I don't care if I leave some or even a lot of money on the table.

If anything 2009 was gold for rental houses with so many people looking for rentals after being foreclosed.

You are confusing flipping and gambling with investing
15   Hassan_Rouhani   ignore (2)   2018 May 23, 3:42pm   ↑ like (0)   ↓ dislike (0)   quote        

bob2356 says
But if I did carry paper how can a rental be underwater matter if I'm not selling it? Assuming staying with fundamentals and no creative financing what the shit does it matter what the house is "worth". The rent still comes in the same as before. The ROI is exactly the same. The value makes zero difference until sale, which could be forever.


Same can be said about stocks. Solid ones kept on chugging along paying out the same dividends. And still not requiring taxes, maintenance and such. And, unlike rentals, you can totally forget you even own one. So are we comparing stocks and rentals in general, good stock vs shitty rentals or shitty stocks vs good rentals?

PS. I know for a fact that my last landlord was losing money every month on the semi-attached house I rented from him. And then HOA fee jumped from $350 to $700 ....What would be the equivalent of this kind of shit with stocks? Can't think of any.

PPS. I've lost some good stocks to takeovers. So this is the kind of shit which can't happen with a rental, I guess.
16   SunnyvaleCA   ignore (0)   2018 May 23, 4:10pm   ↑ like (0)   ↓ dislike (0)   quote        

There are places in the US where you can put down a modest down payment on a property, get a 30-year fixed mortgage, and rent out the property for a break-even or profit. As long as the property is profitable (and insured, and money set aside for maintenance), then the comparison with other investments (stocks, bonds, art, etc) is a question of risk and leverage. If you can eek out $5k yearly profit on a $400k house (after mortgage and other expenses), but you only needed a $50k down payment, you are making 10% yearly profit on your $50k investment — and you'll own a "free" house after 30 years, too.

That said, there are also places (bay area) where the rentals pay so little compared to the house purchase cost that, other than speculating in massive house value increases, you'll be losing boatloads of money every month.
17   bob2356   ignore (1)   2018 May 24, 4:00am   ↑ like (0)   ↓ dislike (0)   quote        

Hassan_Rouhani says
Same can be said about stocks. Solid ones kept on chugging along paying out the same dividends. And still not requiring taxes, maintenance and such. And, unlike rentals, you can totally forget you even own one. So are we comparing stocks and rentals in general, good stock vs shitty rentals or shitty stocks vs good rentals?


Whatever dude. Dividend yields are average 3% historically. I'm netting 11-13% on rents without any appreciation. I freely admit any market that returns 11-13% isn't going to have much if any appreciation. So what, the money is in the bank already. I owned stocks for a long time. I'm seeing more return in rentals. Most people wouldn't be pro active enough and aggressive enough to to make those kinds of returns in rental properties. Most people wouldn't be pro active enough and aggressive (or skilled) enough to make more than the historical 7% gross in stocks. Most people should own low fee index funds.

You guys just keep telling me it what a poor investment rentals are, I'll just keep putting money in the bank.

Hassan_Rouhani says
PS. I know for a fact that my last landlord was losing money every month on the semi-attached house I rented from him. And then HOA fee jumped from $350 to $700 ....What would be the equivalent of this kind of shit with stocks? Can't think of any.


Anyone losing money every month isn't an investor. How would that happen if you did your homework and made an investment instead of a gamble? Did rents go into the toilet some how?

OMG no one has ever lost money in stocks Certainly no one had any highly recommended worldcom of enron stocks in their portfolio in 2000. or blue chip lehman bros stock in 2008. Not a soul. Then there is just plain old shitty management that runs the company into the ground sinking the share prices. Nah, that never happened.
18   bob2356   ignore (1)   2018 May 24, 4:12am   ↑ like (0)   ↓ dislike (0)   quote        

SunnyvaleCA says
and you'll own a "free" house after 30 years, too.


You'll own a "free" house in 15 years if you use a 15 year mortgage and as a bonus you pay 1/3 the interest. Cuts profits but builds equity fast.
19   clambo   ignore (4)   2018 May 24, 9:08am   ↑ like (0)   ↓ dislike (0)   quote        

I'm a "stock bull" who has been an investor in mutual funds since 1983.

The second richest person i know was a little old lady in Santa Cruz who owned blue chip stocks and compounded the dividends for 60+ years.

What the real estate people don't want to admit is that in 60 years their property may have cost a fortune in upkeep. I have seen houses in New England that were very old but they were built at the same level of strength as a wooden ship (by the same people who built ships).

Modern claptrap houses will require constant upkeep.
20   bob2356   ignore (1)   2018 May 24, 10:23am   ↑ like (1)   ↓ dislike (0)   quote        

clambo says
What the real estate people don't want to admit is that in 60 years their property may have cost a fortune in upkeep. I have seen houses in New England that were very old but they were built at the same level of strength as a wooden ship (by the same people who built ships).

Modern claptrap houses will require constant upkeep.


That is called a business expense. After 25 years jetliners cost a fortune in upkeep. Should airlines invest in stocks instead? After 25 years a factory costs a fortune in upkeep. Should car makers invest in stocks instead?

clambo says
I'm a "stock bull" who has been an investor in mutual funds since 1983.


Great, knock yourself out. Keep telling me how I can't make money. Especially since I'm retired and living very, very nicely on 30 years of investment in rental properites.

Just sitting on that sack of seeds.
21   Strategist   ignore (1)   2018 May 24, 10:39am   ↑ like (1)   ↓ dislike (0)   quote        

bob2356 says
Hassan_Rouhani says
PS. I know for a fact that my last landlord was losing money every month on the semi-attached house I rented from him. And then HOA fee jumped from $350 to $700 ....What would be the equivalent of this kind of shit with stocks? Can't think of any.


Anyone losing money every month isn't an investor. How would that happen if you did your homework and made an investment instead of a gamble? Did rents go into the toilet some how?

OMG no one has ever lost money in stocks Certainly no one had any highly recommended worldcom of enron stocks in their portfolio in 2000. or blue chip lehman bros stock in 2008. Not a soul. Then there is just plain old shitty management that runs the company into the ground sinking the share prices. Nah, that never happened.


It's best to hold both stocks and real estate.
Stocks: Diversified portfolio 80% in ETF.
Real Estate: Diversified portfolio of Real Estate, rentals and vacant lots.
Small family businesses. My returns in a small business run by a family has been 80% since the last few years.
22   pkennedy   ignore (0)   2018 May 24, 10:44am   ↑ like (0)   ↓ dislike (0)   quote        

bob2356 says
You'll own a "free" house in 15 years if you use a 15 year mortgage and as a bonus you pay 1/3 the interest. Cuts profits but builds equity fast.


So you're super gung-ho on inflation remaining ultra low for the next 30 years?

For me, 30 year mortgage is the way to go. Take that profit today, and hopefully use it for another property and then assume that within the next 10-15 years (when you're seriously paying down principal at an incredible rate), that inflation will kick in and wipe my loan out. I'll take that scenario over worrying about paying extra on interest.

If interest rates were high, sure. Pay it down and use the money elsewhere. But at the rates we have now? No way. Lock it in, and ride the inflation train.
23   lostand confused   ignore (0)   2018 May 24, 10:47am   ↑ like (1)   ↓ dislike (0)   quote        

Strategist says
t's best to hold both stocks and real estate.
Stocks: Diversified portfolio 80% in ETF.
Real Estate: Diversified portfolio of Real Estate, rentals and vacant lots.
Small family businesses. My returns in a small business run by a family has been 80% since the last few years.


Yup. I just diversified into real estate recently. Small investor have two rentals. I am out of stocks, but missed huge gains, just ha d alot of cash with evry little interest. Am being careful on where to invest, as real estate seems sky high everywhere-well except where I live.
24   Hassan_Rouhani   ignore (2)   2018 May 24, 1:32pm   ↑ like (1)   ↓ dislike (0)   quote        

bob2356 says
Whatever dude. Dividend yields are average 3% historically. I'm netting 11-13% on rents without any appreciation.


See: you compare "average" something with particular something else. Apples and oranges. Fallacy.
25   bob2356   ignore (1)   2018 May 24, 3:01pm   ↑ like (0)   ↓ dislike (0)   quote        

pkennedy says
So you're super gung-ho on inflation remaining ultra low for the next 30 years?


If you really are keeping a house 30 years. I doubt that. Markets change way to fast. I've changed markets 4 times in the last 30 years and done very well with each change. I'll take the accelerated paydown and have the cash on sale to reinvest rather than sending money to the bank for their bottom line. I'm past having to get money from the bank to invest with so it doesn't matter to me.
26   bob2356   ignore (1)   2018 May 24, 3:01pm   ↑ like (0)   ↓ dislike (0)   quote        

Hassan_Rouhani says
See: you compare "average" something with particular something else. Apples and oranges. Fallacy.


Yawn. Quibble much?
27   Hircus   ignore (0)   2018 May 25, 11:37am   ↑ like (0)   ↓ dislike (0)   quote        

bob2356 says

I'm past having to get money from the bank to invest with so it doesn't matter to me.


I started researching the economics of RE investing a couple years back, but haven't pulled the trigger on buying any rentals yet. One of the common themes I read though was the emphasis on the unique ability in RE investing to take advantage of inexpensive leverage via mortgages. The math I saw seemed very convincing of this aspect, and I was pretty convinced that your net worth would grow much faster if you split your capital into down payments + mortgages for multiple units, opposed to using the same capital to outright buy a unit. That way, you have maybe 3-5 rentals instead of 1, all of them cash flowing. The 1 unit is obviously more profitable on a per-unit basis due to not paying interest, but it seemed like even after interest/fees, the mortgage route with 5 units grows net worth much faster. So much more profitable that some investors sell their units after so many years once they build too much equity in each unit, because at that point it was better to redeploy the capital to buy even more units with new mortgages, maintaining their high leverage ratios.

It sounds like you outright buy rental units instead of using mortgages. Why? Is it the increased risk of leverage that you wish to avoid? I'm not criticizing, but genuinely curious to hear from someone with so much experience.
28   FortWayne   ignore (2)   2018 May 25, 11:51am   ↑ like (0)   ↓ dislike (0)   quote        

Over years I’ve averaged 7% return on stocks.

A lot is index funds, rest are just safe picks. I missed Netflix, Amazon and many other big rides.
29   bob2356   ignore (1)   2018 May 25, 3:38pm   ↑ like (1)   ↓ dislike (0)   quote        

Hircus says
It sounds like you outright buy rental units instead of using mortgages. Why? Is it the increased risk of leverage that you wish to avoid? I'm not criticizing, but genuinely curious to hear from someone with so much experience.


Sure. One big reason is a I have a number of houses through my IRA. Rolled my IRA after leaving my last job into self directed. Sold out of stocks and bought units. You cannot use leverage through a self directed IRA. I've done very well with these units, having shifted from TX to Vegas in 2010/11 and now taking out gains to move into the rust belt. Got out of TX because insurance and taxes skyrocketed causing the ROI to drop big time. As the prices have moved up and up in Vegas the last 7 years ROI on the value or the properties has been dropping and dropping. Time to hit reset and start over.

My non IRA units started with sweat equity (like every night and weekend for 4 years to start) and leverage. I've arbitraged moving from market to market with these also using 1031 swaps. That let me get mortgage free. I've retired, but wife still works making a great income that we live off of. I don't need to leverage up. I've got great rental income coming in and roll it into short term investments until there is enough to buy another unit. I don't have to give banks any of the revenue.

Even inexpensive mortgages still cost a lot. Look at an amortization table. After 10 years at 4.5% (roughly todays rate) paying 1045.00 month (total 125,400 with 251,040 left to pay)) you owe 82% of the balance but have made only 33% of the payments. Go to a 15 year at 4% after 10 years paying 1546 a month (total 185,520 with 92760 left to pay) you will have paid almost 60% of the balance and made 66% of the payments. I always used a 15 year even if it makes the cash flow essentially zero or even slightly negative until rents come up after a few years. I didn't use the cash to live on building equity instead.

Taxes would take a medium size boot to address. You need a really sharp accountant who knows real estate tax law and do lots of home work.

If any of that was helpful then great.

PS. I'm sure the naysayers will be joining us to wail and knash teeth. OMG you paid a realtor and closing costs, the horror, the horror. Yes guilty. after getting 9-12% ROI every single year and getting anywhere from 10 (TX) to 50% (some of my vegas properties are in that range, buy when blood is on the street) appreciation I gave back a whole 6% divided over 7-8 years. That's like almost 1% a year. "Please Bre’r Fox and Bre’r Bear, don't throw me in that there briar patch"
30   pkennedy   ignore (0)   2018 May 25, 3:52pm   ↑ like (1)   ↓ dislike (0)   quote        

Hircus says
One of the common themes I read though was the emphasis on the unique ability in RE investing to take advantage of inexpensive leverage via mortgages.


The big advantage to this leverage is that even if a house goes under value, you don't need to worry about a margin call. No bank is calling a loan that is performing, and since most are sold anyway, no one down the chain is trying to figure out the net worth and whether they should try and force you to sell because it's under water. But a stock, hit a bad time and you could be completely wiped out. If you're trying to do a 4:1 or 5:1 leverage.

The best route to go, when starting out is to buy properties you can live in for a year, getting the better rates. Not only this, you learn about the house or apartment. You can also fix up any issues before they become sunday night calls for a plumber. Then top it off with your renters are likely to be like minded. It just makes things easier when your ideas of what is expensive match theirs, and what's acceptable for a time line matches their expectations. Your expectations will likely match much more closely with theirs and that just makes communication easier. Since this is your first rental, it's just nice to have these extras built in. 1% lower mortage, most problems fixed and tenants you can "better" understand.

Move out after a year and move into another rental property, rinse and repeat. By year 3, you've got landlord experience, and your rental income will offset your DTI.
31   bob2356   ignore (1)   2018 May 26, 4:09am   ↑ like (0)   ↓ dislike (0)   quote        

pkennedy says
The best route to go, when starting out is to buy properties you can live in for a year, getting the better rates. Not only this, you learn about the house or apartment. You can also fix up any issues before they become sunday night calls for a plumber. Then top it off with your renters are likely to be like minded. It just makes things easier when your ideas of what is expensive match theirs, and what's acceptable for a time line matches their expectations. Your expectations will likely match much more closely with theirs and that just makes communication easier. Since this is your first rental, it's just nice to have these extras built in. 1% lower mortage, most problems fixed and tenants you can "better" understand.


Good summary. Pretty much what I did many years ago. I always used professional management even if I was local. When I was local I did all the repairs myself but never let the tenants know I was the owner. Nice to be able to inspect without anyone knowing they are being checked out. The management company I use has their own staff for repairs and mows the lawns with their own people. They keep an eye on things and report back anything going on. Amazing what a little early warning of problems can do. Its critical to have a management company that is proactive and hands on.




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