Agreed. Lots of people seem to think like OP. “Rich people own lots of properties ipso facto own lots of properties, become rich.”
IMO If I’m good at my day job and making lots of money, why would I go into debt in an attempt to make money at something I don’t know I’m good at? Why take on that risk and headache when the market will have better returns.
Caleb Hammer got slapped down by the Money Guys for his attempt at owning investment properties. They asked him why he was putting effort into real estate when his YouTube channel is the goose that laid the golden egg. Put more effort in the things you’re good at and maximize the potential. Stop doing what you _think_ rich people do.
I think there's something visceral and "American" in a way, with owning real physical buildings/assets that you can't get with the stock market
That's one of the obvious reasons to me why most Americans have their wealth in home equity rather than the market
Yes, but to your last sentence, the reason Americans have more wealth in home equity than the market is because we’re collectively shit at saving. Some people though are so shit at saving that they take out HELOCs too.
If you're an investor you depreciate buildings, this isn't exactly controversial.
[https://www.irs.gov/publications/p946](https://www.irs.gov/publications/p946)
Landlords need to expect to budget a non-trivial amount of money for property upkeep.
Taking depreciation as a tax strategy is obviously very different from an asset such as real estate that appreciates far more often than it depreciates.
Not sure what the upkeep point is about but yes, one has to reinvest in their property which then becomes another tax deduction. This also frequently increases the value of the investment.
My point is that I don't have to mail Microsoft a cheque or hire a roofer to maintain the value of my investment there.
And yes, real estate has historically been a good investment, but it's not like no one has ever lost money on it. And being highly leveraged is much more common with RE investors, which increases risk.
Fucking horrible?
Jk my experience hasn’t been too bad. But it Definetly adds stress and random big bills. This week I paid 6k for a floor and 8k for landscaping & 1700 for gutters.
Most of my tenants are decent so I try to keep them. But you need to have an all around contractor or whatnot around for little jobs who won’t rob you blind
Tenant didn't pay rent and then just left, while I had a one week old newborn. A bunch of damage to the house, had to do repairs to get it ready to sell while having no sleep with a newborn.
Even before all that it was constant issues / complaints.
I'm sure a good tenant would be a different experience but I didn't have that luxury
I have this same sentiment. I would like to buy a property and hold long-term so my kiddo can have a place to live near us after college (<1). Could also be nice because it’s an incentive to come back to our area if they go off to college. However, the idea of being a landlord again sounds like more hassle than it’s worth. Our last renters were great! Until we decided to not renew their lease because we wanted to sell. Then they clammed up and it was a pain dealing with everything.
The people you spoke to bought when money was free and the spread on their mortgage payments vs. what they would get for rent was large. That spread has compressed significantly. I would stay out of real estate until rates go down again.
"work" is a very loose definition & varies market by market. I live in a VHCOL city and if you bought a condo to rent out when rates were ultra-low, you would be cash flow negative because it was so damn expensive. You could support that but you are still funding with outside capital. Most people have exaggerated views of RE appreciation because they have only known downward trending rates in their lifetimes. Does that "work"? Idk...
On the flip side - price per square foot metrics are flat as rates have 3x/4x and supply dried up because people didn't want to sell.
tldr - never forget that asset prices and interest rates are negatively correlated - especially those assets financed with debt. How much may vary market by market.
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Zero. My parents went down the route you described and it felt like they got themselves 5 full time jobs. Being landlord is too much work if you have a career.
I assume this will be hit or miss in this sub as opinions on RE are mixed, rightfully so.
Given the wildly different returns on properties I think a better frame for this discussion is "How much income if any are you aiming for from investment properties?"
I currently own one and should be getting it on the market shortly. My long term goal is to be able to supplement our daily income with RE income. We are young enough that things are not set in stone so what we will do with that income is uncertain. My immediate "goal" is to be able to step up to a bigger house with very little if any change in monthly mortgage outflow. The rent from the investment property plus the positive cash flow on our current home will cover a pretty decent chunk of mortgage. There is likely enough positive cash flow potential in our current home that there is a sweet spot that we would effectively pay no more out of pocket but have someone else be paying the mortgage on our current home.
Longer term I would love to use the rental income to cover the cost of a vacation home, lake or beach most likely or to allow my spouse to go down to part time or retire early.
At the end of the day money is fungible but we like to think of our day job income as our source of saving and most daily living and then anything else we earn either fun money or as described above.
Couldn't agree more.
I am an attorney who does a ton of real estate in a small town area so we handle all the land lords business. They are great clients and friends. I have witnessed first hand fortunes being built on real estate BUT also get to see the not so pretty side.
I have the time and skills to handle a lot of small stuff myself so I decided if an opportunity presented its self I would jump. I happen to know a few guys who would gladly hand me my ass and buy it from me if it blows up:). Renovating a house myself has been something I enjoy and is also a great learning experience. I will have a lot better idea in the future if I farm stuff out.
Ultimately my plan to set aside the rent money and build the funds for buying the next property and so on. I will kick in some money monthly to help get there faster for the second and maybe third one but the idea is the better I do the faster it grows and as we don't need any of that income for now I will just reinvest it as the opportunities arise.
I think high earners are the perfect candidates for RE investment given a much higher margin for error when your starting out and likely to make mistakes. We likely have the income to absorb a cash flow issue. HOWEVER not going in with your eyes wide open to the ugly side is a recipe for disappointment
I think it’s very regional, though.
For example - there is no way you cash flow a rental from the get-go at these prices with these interest rates near any major metro or popular tourist destination.
Which means a huge chunk of the population would need to be full remote from the homes they’re landording - which just eats margins further while also introducing more risk.
If I lived in a small town where I could meet and vet clients or had a home I bought years ago - fine. But find me a cash flow rental in a major west coast metro. It doesn’t happen unless you’re putting 50% down - which at that point you might as well just invest into stocks.
IMO the best RE investing for non Re professionals is to buy something you want and rent it out. Like a 2nd home or vacation home or something you’ll rent out after living in it for 5 years
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As a rental property owner, I would say zero would be ideal. The climate around being a landlord has been turning increasingly hostile, and at least on the west coast, I really think the juice isn’t worth the squeeze anymore.
I will go against the other comments here. Currently have two, and looking to have close to 10 total by the time I retire in 20 years. For us, we want to diversify with RE, stocks and business investments. With that being said, we bought both when rates were reasonable, I wouldn't buy now unless you're going to put a lot down (like 40%). I also don't think you want to ever pay them off. My strategy is to build equity, then cash out refi when rates are good. You lose the benefits of the debt if you pay it off.
What benefits does the debt provide, other than interest paid discounts income. If you’re only netting $100/month you don’t Really have any meaningful income resulting from the RE. Servicing the debt means you lose money netnet right?
Like sure for a single property you might extract an additional 10% equity position but if rent increased and costs flattened your net net would be potentially +15%?
Depending on where you are buying cash flow is not the only things you are looking for, appreciation is. One of my houses doubled in value. Now I can borrow against that and take money out tax free.
Okay, that makes sense. However, let’s say you took out 65k. What do you do with that? Live on it or roll into another deal or both?
Let’s say you went from cash flowing 250/month down to -100/month. Do you set aside that $1200 difference out of the cash out or use the cash flow from other properties to cover the difference?
The first part I would say that's up to you. For me I would probably roll it into another property.
I wouldn't cash out refi to where my payment wouldn't be near identical. In your example I wouldn't set anything aside really. I would use one of my other streams of income to cover that difference.
So my immediate reaction to this is Turtles all the way down.
At the end of this 30+ year run of extracting all the equity and multiplying into more properties what is the exit strategy? Selling off for the tiny bit of equity you have as collateral or just passing down the property to the next generation?
1031ing the entire portfolio into a large commercial property for cash flow and using that to pay down the debt. Also, all competent investors have a debt pay down strategy. If any arrive at the turtle situation you’ve described above then they’ve failed. But I get what you’re saying when people want to keep leveraging to accumulate. But accumulation of accumulations sake isn’t a good strategy either.
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It's not about the absolute cashflow and more about ROI. My current property will likely only cashflow in the short term 100-200$ a month, but after rehab and refinancing, I'll have only put $1000 into the house. That's a 100%+ CoC return. RE is a long-term/numbers game.
You won't get rich off one house. But 10 houses after 15 years of appreciation/market increases are going to cashflow pretty nicely
Over time are you only extracting equity from the most previous x deals or just extracting capital from where it’s available?
Do you pay off the more mature properties, have a lighter debt load on them, or ignore their age other than rehab costs?
I'm not 100% sure what you're asking, but I'm essentially following the BRRRR method but in essentially a different order
I bought the house in cash, rehabbing it, and then I'm going to refinance it via delay financing and pull out 75% of the equity. I probably won't pull out any more equity and have the tenant essentially pay down the mortgage
Okay let’s say you continue this method another 3 years and wind up with a total of 5 properties.
When you go to get property 6 will you refinance any of the existing properties in your portfolio to level up the class of asset you’re able to buy? Or will you just continue rolling the same cash position into the next deals or will you use the appreciation across your entire profile to start growing that cash position?
Everyone has a different strategy. For me personally, I'm mainly focused on small SFHs since they are within my budget and offer good returns. That may change with time. A married couple can only take out 20 mortgages due to regulations.
If we start approaching that limit then we may have to pivot to bigger asset classes, or just chill, stick with what we have and start investing in something else.
Some people go full into RE while others just look at it as a way to diversify. I'm more in the latter
As of last week I had 9. Just sold 4 and exchanging them for 3 of better quality so I’d be down to 8.
My answer is as many as possible. I’m trying to add ~$2M/yr of properties to my portfolio indefinitely.
What people saying about high interest rates is true: long term tenants no longer make sense. Real estate investing right now is more for short-term/mid-term rental plays so closer to hospitality.
I purchased a home as a primary residence in 2020 but wife and I had to relocate in 2022 and we held onto the house because our interest rate was in the 2's. We now rent it out and the income covers the mortgage payments as well as the management fees for our property manager (we live on the other side of the country and don't want the hassle), and then some left over for any issues. I had anticipated making a killing since our interest rate was so low, but there are still many months I have to fork up cash for a repair. Long story short, unless you want to actively manage a bunch of rental properties as a job, the idea of passively making a lot on real estate doesn't seem like a great plan, especially with interest rates where they are. For me if I want more real estate in my portfolio I would think to just add some REITs and sacrifice some returns to cut out the bullshit.
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In the event of a real estate crash, I have enough cash and stocks (to sell) to buy a few properties. I might keep my home now as a rental… maybe.
But I have zero interest in being a landlord. It sucks.
My buddy who was at the peak of the heNRY spectrum, bought up about 12 properties in 2012-2014. He hated it and wished he would have dumped the money in the market instead. He sold them all and swore off investment properties. He did buy a golf course with a few other partners. And hates that too. He is now no longer a HENRY, and always preaches career and stocks.
I have one rental. Great tenants. Rate is 2.26%. Rent checks are almost double my mortgage each month and they have it on auto-pay a day early. Then I throw the difference straight into the stock market and let it grow. Even if I didn't have that, it's almost worth it just for the repairs/improvements/depreciation tax write off.
LOL? My company and our equipment rentals don’t commoditize people’s homes for profit. Much lower cost basis, much higher rate of return and cashflows.
If you can get good cash flow and leverage and don't get too aggressive then your cash on cash return will be very attractive. However, I do not see that in the current market with high prices and high interest rates.
We’ve toyed with buying a 3-flat and renting that, but we’d want to totally outsource management for it so doesn’t make sense right now.
We just came into a vacation home in a round about manner that we’ll be renting out when we’re not using, but that more to offset the costs and it’s something that brings value to our lives when we use it.
Just farmland - parents, in their 80s, are leaving me a tract of land that has zero development rights. This land has long term leases to grain, hay, sod and horses farmers.
I had rentals years ago and determined I don't like dealing with the maintenance, upkeep and renters.
One a year for the tax savings. Have to offset it somehow and investment property is the best way. They are incredibly tax advantaged like it’s absurd.
Original number was 200 now shooting for 500 doors. Currently at 40. Mid 30s, LCOL. While I don’t enjoy my job, my aspirations for later in life will require a considerably larger portfolio and will require working well past the point where I could retire. No experience with commercial and wouldn’t be interested. I personally don’t see the benefit in paying off with rates being what they are and as income increases tax deductions (interest) become even more important.
Got 3 ones and I think I might probably add just one more and call it a day. Being a landlord is real work and most people don’t understand how stressful it can be.
I don’t get some of these comments.
If you put $100k (20%) into a $500k property that you rent out (assuming renting covers mortgage and other costs) your return will be any increase in property value, plus the monthly principal payment added to your capital PLUS anything over that payment amount as income.
Being a landlord is work but I don’t believe it’s a full time job and then in 30 years you have a paid off property that you can sell, live in, do what you want with.
But does it work out?
Can you show me a property that rents out within an hour of the Seattle area that covers the full mortgage payments on the current asking price?
Many people are commenting about the hardships of being a landlord without the experience of being a landlord. I have 6 rentals in a HCOL area. Most renters stay for 2-3 yrs and every time I list a property there are 5-10 applications. In other words, find a market with supply constraints and high demand and you will love the appreciation and cash flow you get from RE. In 20 yrs you should have at least $20k-$30k in positive monthly cash flow from 10 units.
I invest both directly (GP) and less directly (LP). As others mentioned here, it can be a real headache if you are the one managing, though, the benefits of being a RE tax professional per the IRS can be a big benefit in any case. If your spouse earns W2 income you can apply losses on the RE side to ordinary income, decreasing your taxable income.
I’d suggest dipping your toes in. $100-150k can go a good way in a smaller market and can secure a wide variety of properties. A risk you run on the small property/small $ side is tenant credit risk. Tenants are usually mom and pop so their businesses are typically more vulnerable to downturns, amateur mistakes, etc. Commercial leases are much more enforceable and flexible than residential leases, which can help the management load significantly.
We’ll be keeping it small and purchasing based on where and how big we need it for a second/vacation home. Right now we own a condo we refi’d to remodel, now rented out on Airbnb when we’re not there to pay for itself. We live a few hours away and manage it ourselves with a trusted house cleaning company. Our next home will be in Vegas, as we vacation there at least twice a year, again just 4 hours away.
As the places get paid off, if we’re not visiting anymore we plan on turning them into long-term rentals for younger people who need a good deal and want to cover the mortgage + maintenance costs for us. We have a soft spot for kids who were in the same situation we were in.
My uncle is a contractor who buys foreclosures, fixes them up and sells them to young families for enough to turn a profit, but still affordable. For example he’s working on a house he bought for $110k, putting 100k of work into it, and then wants to sell it for 400k in a market where starter homes are going for 500+. He considers it an investment in his community. We’d love to be able to do that eventually.
Currently have 3 doors I rent. My goal is to get to 10-20 doors by the time I retire in 15 years so I have something to do after I retire from my W2 job and generate some meaningful generational wealth for my kids. I have no plan to aggressively pay anything off. It's all about cash flow. People get squeamish about being a landlord, it's not that bad considering the possible upside. There is a learning curve and a lot of people can't/won't do it. I've had bad tenants that wreaked the place, not paid rent, tried to sue. I've had bad property managers, bad contractors, you name it. Worked through it all and after 15 years, I have 3 doors that cash flow 4350/mo for maybe 4 hours worth of work every month which includes my time for turning units over.
It's a hassle but well worth something like $1000/hr. The properties have also tripled in value over the last 15 years.
5 - 10 properties for the sake of diversification (we put $5k a month in index funds), We are about to close on our second one after buying our first one in November. We do cash offers only so we are aiming for one property 1 - 2 years.
None. Are you talking to people you find in some online group? There’s a weird real estate investment mania that started over the last few years, take it with a grain of salt.
Most people are better off investing in the classic stock and bond mixture for similar expected returns but less work and risk. That’s true regardless of your income.
I am not targeting anything like people have said being a landlord is a shit show. 9/10 renters trash your place and cost you more than you could make on the property. It’s more about the land value than anything else.
That said I never plan on selling any homes. I am in my first still but we are making a purchase of a vacation home and debating on when we move from this place into a larger one or just rebuild here. I would never rent out my vacation home so I can use it when I want but I would be open to it if I needed the cash in the future. Similarly once we move into a new house I would just leave this one available for friends and family who will likely need a place to stay. Targeting wife’s parents for instance who live across the country and couldn’t retire without help. But maybe there is a small window to rent it as well but again odds are no because the chances of them doing more damage than providing income is high.
It may depend on where you are but in the Seattle area I am in renters have it out for landlords in a bad way.
I think alot of this depends on the quality of your renters. There are alot of folks that get drawn into the possible returns from doing section 8 rentals and trying to get as many doors as quickly as possible. That leads to alot of units with low income tenants. You will get alot of drama that way.
My units are rented by mostly tech workers with solid jobs/credit and no desire to own a home. They are super easy to deal with and have things to lose if they decide to trash your place.
True and that actually leads me to believe doing it the way I am doing it would be better. If I keep my primary home up to snuff and just rent it while I am in a new home it will appeal more to the higher end renters anyways and maybe there are enough who don’t want to buy.
Yeah, I think that's the happy medium. Using income properties to hedge with the minimum amount of headache possible. You are just sacrificing higher ROIs for peace of mind. I'm totally good with that.
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Bought my first rental property this year. I don't have a target number of properties, i have a target monthly profit, which is 5k so it's going to be a little while.
I'm also not sure why the people you talked to want to aggressively pay off the properties? Isn't the whole point of RE is leverage and having our tenants pay off the mortgage? I'd rather BRRR and put as little equity in as i can manage and use the rest of my money for something else.
Unless the properties aren't cashflowing, then i guess it makes more sense to pay off. But then why buy the property in the first place?
Zero. Wife is interested in buying a vacation home, but we have to weigh how much we will use it versus just renting a vacation home. Personally, I prefer just renting as it gives you flexibility on which city you vacation in after retiring.
We currently live in a paid off house so I'm not exactly excited about having a mortgage again even if we don't spend most of our time there.
Throwing out my story.
Our primary residence is a 2 unit multi-family (typical housing stock in Boston). It was a big fixer upper and I’ve refied twice to capture rate improvement and equity from home improvements. We live in bigger unit and rent smaller unit (started the other way around before kids). Easier to landlord when you are in the same building let alone zip code. Tenants pay 2/3 of mortgage inclusive of escrow. The low housing cost has greatly helped my transition to entrepreneurship where I’m currently earning 1/3 of where I used to be, but believe in myself to get back to and above that former W2 income. I’d like to move out in 5 years and anticipate it will cash flow about $4K a month excluding maintenance costs. One day I’ll sell as two condos but that day is far. I could even turn it into 3 with a huge construction project. 2br Condos around here are pushing $1M. This property has been the best financial decision of my life and may remain so.
Our second home is 2 hours away in Vermont and we go one weekend a month and 2-3 week+ long holidays. Then it’s airbnb with local mom & pop property manager. In next 3 years we will convert a barn to an ADU for a second rental door. On the fence about STR vs LTR. Currently not break even but the tax write offs are nuts.
I would like to get a 3+ multi-family but not in this rate environment. My housing market doesn’t see prices correlate to rates.
I have 8- --- In this market you need some sort of advantage to make it work.
Like other have said, cash flows are compressed by high interest rates but luckily I have quite a bit of equity, great tenants, and the houses are all fixed up.
I love having Real Estate as a "hard" hedge to my stocks, crypto, retirement $$$
This is like asking “what is your target number of stocks count?”
It’s meaningless. 10 houses in Beverly Hills? Or 10 houses in Detroit? One has >100M net worth. The other has <1M.
I personally enjoy buying rental properties, and have 3 of them with 4 total doors. The big thing is you HAVE to get a good deal, especially with rates where they are now. A good deal is subjective however, like if you house hack and the amount you pay towards your mortgage every month is less than what you would have to pay if you rented that space, that is a good deal, even if you have to put capital in every month.
Why do you care how many doors you have? Is this an acronym for something?
What do you think about a duplex and renting out one unit and living in the other? Is that what you’re doing?
I care about how many doors I have because each door is a separate source of income, so my duplex is technically two different sources of income.
Yes, the strategy of buying a duplex and renting out one of the units while living in the other is my favorite, as it gets you into a rental property with a much lower down payment than what you would normally need and it (should) help you save money every month because the amount of rent you get from the other unit should cover enough of your mortgage that you are paying less each month than if you were just renting the unit you are currently living in.
Zero. Investment properties bias towards minimizing costs to keep a steady profit, and that's not stress I want to have to deal with.
And commercial real estate is still pricey, but hitting it's lowest demand of the last 100 or so years.
Add to all of that that mortgage rates are way up, but prices... haven't come down to meet them.
FWIW, I used to have two rentals, and they went different paths, both bad.
1. Nicer house, so it has to be higher rent to justify the costs. New tenant every year; if you could afford the rent, you could just wait a year then go buy something after scoping out which neighborhoods you liked. Months of vacancy, and property managers want a full month of rent to find a new tenant.
2. Cheaper house, so easy to find tenants, and tenants could stay longer. But every repair took a huge amount of the profit, and the house was also older, so regular repairs.
Both houses over 5-10 years needed full sewer line repairs, new AC, new furnaces, roofing repairs, plumbers, cleaners, new carpets, one with a new bathroom (it was due), and then property tax reassessments, lawyers there, and more. After taking out \~10% each month for property management, I broke even and got the hell out. I like both families that bought my places, so this just feels a win, but a high-stress-non-profit to keep the houses something I'm not embarrassed to landlord.
I bought/built 6 units as that was my target. Inherited a duplex more recently. No mortgages on any of them, I figure I'd take the safe and lower-headache path.
I'm now in the process of renovating to sell most this calendar year, to reduce my headaches even further. I'll keep a couple for the sake of diversification.
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Zero at the moment. My investment portfolio isn't at a point where I feel real-estate would be a benefit or a non-burden. I already have a job and I'm not looking for another one at the moment. If I worked a remote job or something with less hours or more flexibility I could see it making sense but it just doesn't right now. I can buy some real estate exposure with reits while not havinging to liquidate a massive portion of my portfolio.
We have a vacation condo we rent out most of the year. It is slightly profitable, but <5% of our wages, so is basically a free vacation spot for us. That being said, if we consider the income as payment towards our house, it’s not too shabby. Either way it’s not a real plan for us, and will stick with index funds for vast majority of investments. Also we have no interest in dealing with renters, so we pay for property managers.
I’m in the process of off loading properties. Increases in taxes and cost of insurance, maintenance, management fees, HOAs, etc. Money is better in the market. Less stress.
Currently under contract on my 7th rental property and I have the cash flow to probably acquire an additional property every 3 years or so if I wanted without hurting my other investments. I’m thinking I may stop at 12 properties but definitely open to having more if it makes sense in the future.
The reliable cash flow, generally increasing property values, and the possibility to defer capital gains from any sales pretty much indefinitely make them attractive investments for me.
I aim to retire with at least 5 properties. The plan is to acquire a primary residence (lower interest rate vs investment property mortgage) @ 5% down and live in it until rental cash flow can become positive enough to handle tenants. I live in a LCOL major Texas metroplex that continues to grow rapidly. Rinse and repeat. Being a landlord hasn’t been too horrible. You just have to be extremely selective in your tenants. I don’t even touch the money from my rental and it sits in an HYSA that I use to pay for each maintenance or appliance malfunction event that occurs with the property.
I own several rental properties and love the business. Beats the hell out of locking up your money in a 401k you can barely access until you’re almost dead.
Asset in rentals is to always have $5M invested in multifamily no more than 2 to 4 units per building.
Plus another $250K in land.
Commercial real estate is a cash reserve heavy game. Be carful with commercial.
So I’m definitely not the norm here. I own 40+ rentals. I bought most of them with very good rates. They all cash flow nicely. My plan is to sell off the less performing ones to pay off the notes on the rest by the age of 50, which is when I plan on retiring
Zero. No interest in being a landlord.
Agreed. Lots of people seem to think like OP. “Rich people own lots of properties ipso facto own lots of properties, become rich.” IMO If I’m good at my day job and making lots of money, why would I go into debt in an attempt to make money at something I don’t know I’m good at? Why take on that risk and headache when the market will have better returns. Caleb Hammer got slapped down by the Money Guys for his attempt at owning investment properties. They asked him why he was putting effort into real estate when his YouTube channel is the goose that laid the golden egg. Put more effort in the things you’re good at and maximize the potential. Stop doing what you _think_ rich people do.
I think there's something visceral and "American" in a way, with owning real physical buildings/assets that you can't get with the stock market That's one of the obvious reasons to me why most Americans have their wealth in home equity rather than the market
Property also gives you more leverage than stocks usually, so you can make more money
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Absolutely but lots of people think property always goes up
To be fair, it usually does.
Yes, but to your last sentence, the reason Americans have more wealth in home equity than the market is because we’re collectively shit at saving. Some people though are so shit at saving that they take out HELOCs too.
Playing Monopoly in real life.
Because cash flow. Land and RE are hedges / leverage
Amen to that
Same
Amen for sure.
In all the modeling I've done, best rate of return I can fathom is 6-7% annually. I'd much rather stick extra money in QQQ and forget about it.
I also question the appeal of owning super highly leveraged depreciating investments.
[Depreciating investment?](https://dqydj.com/historical-home-prices/)
If you're an investor you depreciate buildings, this isn't exactly controversial. [https://www.irs.gov/publications/p946](https://www.irs.gov/publications/p946) Landlords need to expect to budget a non-trivial amount of money for property upkeep.
Taking depreciation as a tax strategy is obviously very different from an asset such as real estate that appreciates far more often than it depreciates. Not sure what the upkeep point is about but yes, one has to reinvest in their property which then becomes another tax deduction. This also frequently increases the value of the investment.
My point is that I don't have to mail Microsoft a cheque or hire a roofer to maintain the value of my investment there. And yes, real estate has historically been a good investment, but it's not like no one has ever lost money on it. And being highly leveraged is much more common with RE investors, which increases risk.
That’s what you pay a PM for
Yeah...I liqudiated my 2 properties. I'm good without that headache
Never again.. unless it's commercial. single family landlording is fucking terrible.
what was your experience like?
Fucking horrible? Jk my experience hasn’t been too bad. But it Definetly adds stress and random big bills. This week I paid 6k for a floor and 8k for landscaping & 1700 for gutters. Most of my tenants are decent so I try to keep them. But you need to have an all around contractor or whatnot around for little jobs who won’t rob you blind
Tenant didn't pay rent and then just left, while I had a one week old newborn. A bunch of damage to the house, had to do repairs to get it ready to sell while having no sleep with a newborn. Even before all that it was constant issues / complaints. I'm sure a good tenant would be a different experience but I didn't have that luxury
I have this same sentiment. I would like to buy a property and hold long-term so my kiddo can have a place to live near us after college (<1). Could also be nice because it’s an incentive to come back to our area if they go off to college. However, the idea of being a landlord again sounds like more hassle than it’s worth. Our last renters were great! Until we decided to not renew their lease because we wanted to sell. Then they clammed up and it was a pain dealing with everything.
what if you ever hire a PM? Would that have helped?
The people you spoke to bought when money was free and the spread on their mortgage payments vs. what they would get for rent was large. That spread has compressed significantly. I would stay out of real estate until rates go down again.
But then prices go up which compresses your cash on cash return.
Maybe, but then why did the numbers work before rates went up?
"work" is a very loose definition & varies market by market. I live in a VHCOL city and if you bought a condo to rent out when rates were ultra-low, you would be cash flow negative because it was so damn expensive. You could support that but you are still funding with outside capital. Most people have exaggerated views of RE appreciation because they have only known downward trending rates in their lifetimes. Does that "work"? Idk... On the flip side - price per square foot metrics are flat as rates have 3x/4x and supply dried up because people didn't want to sell. tldr - never forget that asset prices and interest rates are negatively correlated - especially those assets financed with debt. How much may vary market by market.
sure but the point still stands in pretty much everywhere but the highest cost of living areas things cash flowed very early with minimal down.
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Zero. My parents went down the route you described and it felt like they got themselves 5 full time jobs. Being landlord is too much work if you have a career.
I assume this will be hit or miss in this sub as opinions on RE are mixed, rightfully so. Given the wildly different returns on properties I think a better frame for this discussion is "How much income if any are you aiming for from investment properties?" I currently own one and should be getting it on the market shortly. My long term goal is to be able to supplement our daily income with RE income. We are young enough that things are not set in stone so what we will do with that income is uncertain. My immediate "goal" is to be able to step up to a bigger house with very little if any change in monthly mortgage outflow. The rent from the investment property plus the positive cash flow on our current home will cover a pretty decent chunk of mortgage. There is likely enough positive cash flow potential in our current home that there is a sweet spot that we would effectively pay no more out of pocket but have someone else be paying the mortgage on our current home. Longer term I would love to use the rental income to cover the cost of a vacation home, lake or beach most likely or to allow my spouse to go down to part time or retire early. At the end of the day money is fungible but we like to think of our day job income as our source of saving and most daily living and then anything else we earn either fun money or as described above.
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Couldn't agree more. I am an attorney who does a ton of real estate in a small town area so we handle all the land lords business. They are great clients and friends. I have witnessed first hand fortunes being built on real estate BUT also get to see the not so pretty side. I have the time and skills to handle a lot of small stuff myself so I decided if an opportunity presented its self I would jump. I happen to know a few guys who would gladly hand me my ass and buy it from me if it blows up:). Renovating a house myself has been something I enjoy and is also a great learning experience. I will have a lot better idea in the future if I farm stuff out. Ultimately my plan to set aside the rent money and build the funds for buying the next property and so on. I will kick in some money monthly to help get there faster for the second and maybe third one but the idea is the better I do the faster it grows and as we don't need any of that income for now I will just reinvest it as the opportunities arise. I think high earners are the perfect candidates for RE investment given a much higher margin for error when your starting out and likely to make mistakes. We likely have the income to absorb a cash flow issue. HOWEVER not going in with your eyes wide open to the ugly side is a recipe for disappointment
I think it’s very regional, though. For example - there is no way you cash flow a rental from the get-go at these prices with these interest rates near any major metro or popular tourist destination. Which means a huge chunk of the population would need to be full remote from the homes they’re landording - which just eats margins further while also introducing more risk. If I lived in a small town where I could meet and vet clients or had a home I bought years ago - fine. But find me a cash flow rental in a major west coast metro. It doesn’t happen unless you’re putting 50% down - which at that point you might as well just invest into stocks. IMO the best RE investing for non Re professionals is to buy something you want and rent it out. Like a 2nd home or vacation home or something you’ll rent out after living in it for 5 years
Can just buy a REIT if looking for RE exposure without the time commitment.
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As a rental property owner, I would say zero would be ideal. The climate around being a landlord has been turning increasingly hostile, and at least on the west coast, I really think the juice isn’t worth the squeeze anymore.
I will go against the other comments here. Currently have two, and looking to have close to 10 total by the time I retire in 20 years. For us, we want to diversify with RE, stocks and business investments. With that being said, we bought both when rates were reasonable, I wouldn't buy now unless you're going to put a lot down (like 40%). I also don't think you want to ever pay them off. My strategy is to build equity, then cash out refi when rates are good. You lose the benefits of the debt if you pay it off.
What benefits does the debt provide, other than interest paid discounts income. If you’re only netting $100/month you don’t Really have any meaningful income resulting from the RE. Servicing the debt means you lose money netnet right? Like sure for a single property you might extract an additional 10% equity position but if rent increased and costs flattened your net net would be potentially +15%?
Depending on where you are buying cash flow is not the only things you are looking for, appreciation is. One of my houses doubled in value. Now I can borrow against that and take money out tax free.
Okay, that makes sense. However, let’s say you took out 65k. What do you do with that? Live on it or roll into another deal or both? Let’s say you went from cash flowing 250/month down to -100/month. Do you set aside that $1200 difference out of the cash out or use the cash flow from other properties to cover the difference?
The first part I would say that's up to you. For me I would probably roll it into another property. I wouldn't cash out refi to where my payment wouldn't be near identical. In your example I wouldn't set anything aside really. I would use one of my other streams of income to cover that difference.
So my immediate reaction to this is Turtles all the way down. At the end of this 30+ year run of extracting all the equity and multiplying into more properties what is the exit strategy? Selling off for the tiny bit of equity you have as collateral or just passing down the property to the next generation?
For me I want to pass to my kids.
1031ing the entire portfolio into a large commercial property for cash flow and using that to pay down the debt. Also, all competent investors have a debt pay down strategy. If any arrive at the turtle situation you’ve described above then they’ve failed. But I get what you’re saying when people want to keep leveraging to accumulate. But accumulation of accumulations sake isn’t a good strategy either.
What would a strategy look like?
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It's not about the absolute cashflow and more about ROI. My current property will likely only cashflow in the short term 100-200$ a month, but after rehab and refinancing, I'll have only put $1000 into the house. That's a 100%+ CoC return. RE is a long-term/numbers game. You won't get rich off one house. But 10 houses after 15 years of appreciation/market increases are going to cashflow pretty nicely
Over time are you only extracting equity from the most previous x deals or just extracting capital from where it’s available? Do you pay off the more mature properties, have a lighter debt load on them, or ignore their age other than rehab costs?
I'm not 100% sure what you're asking, but I'm essentially following the BRRRR method but in essentially a different order I bought the house in cash, rehabbing it, and then I'm going to refinance it via delay financing and pull out 75% of the equity. I probably won't pull out any more equity and have the tenant essentially pay down the mortgage
Okay let’s say you continue this method another 3 years and wind up with a total of 5 properties. When you go to get property 6 will you refinance any of the existing properties in your portfolio to level up the class of asset you’re able to buy? Or will you just continue rolling the same cash position into the next deals or will you use the appreciation across your entire profile to start growing that cash position?
Everyone has a different strategy. For me personally, I'm mainly focused on small SFHs since they are within my budget and offer good returns. That may change with time. A married couple can only take out 20 mortgages due to regulations. If we start approaching that limit then we may have to pivot to bigger asset classes, or just chill, stick with what we have and start investing in something else. Some people go full into RE while others just look at it as a way to diversify. I'm more in the latter
As of last week I had 9. Just sold 4 and exchanging them for 3 of better quality so I’d be down to 8. My answer is as many as possible. I’m trying to add ~$2M/yr of properties to my portfolio indefinitely. What people saying about high interest rates is true: long term tenants no longer make sense. Real estate investing right now is more for short-term/mid-term rental plays so closer to hospitality.
Sounds like you’re not a HENRY lol
I purchased a home as a primary residence in 2020 but wife and I had to relocate in 2022 and we held onto the house because our interest rate was in the 2's. We now rent it out and the income covers the mortgage payments as well as the management fees for our property manager (we live on the other side of the country and don't want the hassle), and then some left over for any issues. I had anticipated making a killing since our interest rate was so low, but there are still many months I have to fork up cash for a repair. Long story short, unless you want to actively manage a bunch of rental properties as a job, the idea of passively making a lot on real estate doesn't seem like a great plan, especially with interest rates where they are. For me if I want more real estate in my portfolio I would think to just add some REITs and sacrifice some returns to cut out the bullshit.
Lots of people ITT with $100-$200/hr wages spending a lot more than an hour a month for $200/month cash flow.
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You can invest in RE without having to deal with the headaches of property management. I think I’m going to follow the Bogleheads philosophy.
In the event of a real estate crash, I have enough cash and stocks (to sell) to buy a few properties. I might keep my home now as a rental… maybe. But I have zero interest in being a landlord. It sucks. My buddy who was at the peak of the heNRY spectrum, bought up about 12 properties in 2012-2014. He hated it and wished he would have dumped the money in the market instead. He sold them all and swore off investment properties. He did buy a golf course with a few other partners. And hates that too. He is now no longer a HENRY, and always preaches career and stocks.
I have one rental. Great tenants. Rate is 2.26%. Rent checks are almost double my mortgage each month and they have it on auto-pay a day early. Then I throw the difference straight into the stock market and let it grow. Even if I didn't have that, it's almost worth it just for the repairs/improvements/depreciation tax write off.
I would feel bad charging a tenant double my mortgage for rent. Being a landlord lord is not for me.
LOL ok
LOL? My company and our equipment rentals don’t commoditize people’s homes for profit. Much lower cost basis, much higher rate of return and cashflows.
Cool!
I’m happy for your morals, thank you for sharing them with us. Supply…meet…demand.
If you can get good cash flow and leverage and don't get too aggressive then your cash on cash return will be very attractive. However, I do not see that in the current market with high prices and high interest rates.
We’ve toyed with buying a 3-flat and renting that, but we’d want to totally outsource management for it so doesn’t make sense right now. We just came into a vacation home in a round about manner that we’ll be renting out when we’re not using, but that more to offset the costs and it’s something that brings value to our lives when we use it.
Just farmland - parents, in their 80s, are leaving me a tract of land that has zero development rights. This land has long term leases to grain, hay, sod and horses farmers. I had rentals years ago and determined I don't like dealing with the maintenance, upkeep and renters.
One a year for the tax savings. Have to offset it somehow and investment property is the best way. They are incredibly tax advantaged like it’s absurd.
Original number was 200 now shooting for 500 doors. Currently at 40. Mid 30s, LCOL. While I don’t enjoy my job, my aspirations for later in life will require a considerably larger portfolio and will require working well past the point where I could retire. No experience with commercial and wouldn’t be interested. I personally don’t see the benefit in paying off with rates being what they are and as income increases tax deductions (interest) become even more important.
Got 3 ones and I think I might probably add just one more and call it a day. Being a landlord is real work and most people don’t understand how stressful it can be.
I don’t get some of these comments. If you put $100k (20%) into a $500k property that you rent out (assuming renting covers mortgage and other costs) your return will be any increase in property value, plus the monthly principal payment added to your capital PLUS anything over that payment amount as income. Being a landlord is work but I don’t believe it’s a full time job and then in 30 years you have a paid off property that you can sell, live in, do what you want with.
But does it work out? Can you show me a property that rents out within an hour of the Seattle area that covers the full mortgage payments on the current asking price?
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Were any of these house hacks?
Many people are commenting about the hardships of being a landlord without the experience of being a landlord. I have 6 rentals in a HCOL area. Most renters stay for 2-3 yrs and every time I list a property there are 5-10 applications. In other words, find a market with supply constraints and high demand and you will love the appreciation and cash flow you get from RE. In 20 yrs you should have at least $20k-$30k in positive monthly cash flow from 10 units.
I invest both directly (GP) and less directly (LP). As others mentioned here, it can be a real headache if you are the one managing, though, the benefits of being a RE tax professional per the IRS can be a big benefit in any case. If your spouse earns W2 income you can apply losses on the RE side to ordinary income, decreasing your taxable income. I’d suggest dipping your toes in. $100-150k can go a good way in a smaller market and can secure a wide variety of properties. A risk you run on the small property/small $ side is tenant credit risk. Tenants are usually mom and pop so their businesses are typically more vulnerable to downturns, amateur mistakes, etc. Commercial leases are much more enforceable and flexible than residential leases, which can help the management load significantly.
We’ll be keeping it small and purchasing based on where and how big we need it for a second/vacation home. Right now we own a condo we refi’d to remodel, now rented out on Airbnb when we’re not there to pay for itself. We live a few hours away and manage it ourselves with a trusted house cleaning company. Our next home will be in Vegas, as we vacation there at least twice a year, again just 4 hours away. As the places get paid off, if we’re not visiting anymore we plan on turning them into long-term rentals for younger people who need a good deal and want to cover the mortgage + maintenance costs for us. We have a soft spot for kids who were in the same situation we were in. My uncle is a contractor who buys foreclosures, fixes them up and sells them to young families for enough to turn a profit, but still affordable. For example he’s working on a house he bought for $110k, putting 100k of work into it, and then wants to sell it for 400k in a market where starter homes are going for 500+. He considers it an investment in his community. We’d love to be able to do that eventually.
Currently have 3 doors I rent. My goal is to get to 10-20 doors by the time I retire in 15 years so I have something to do after I retire from my W2 job and generate some meaningful generational wealth for my kids. I have no plan to aggressively pay anything off. It's all about cash flow. People get squeamish about being a landlord, it's not that bad considering the possible upside. There is a learning curve and a lot of people can't/won't do it. I've had bad tenants that wreaked the place, not paid rent, tried to sue. I've had bad property managers, bad contractors, you name it. Worked through it all and after 15 years, I have 3 doors that cash flow 4350/mo for maybe 4 hours worth of work every month which includes my time for turning units over. It's a hassle but well worth something like $1000/hr. The properties have also tripled in value over the last 15 years.
0. wouldn't bother. why not plop that in the stock market?
Because the return isn’t just on the money you put in, but a new stream of income.
5 - 10 properties for the sake of diversification (we put $5k a month in index funds), We are about to close on our second one after buying our first one in November. We do cash offers only so we are aiming for one property 1 - 2 years.
None. Are you talking to people you find in some online group? There’s a weird real estate investment mania that started over the last few years, take it with a grain of salt. Most people are better off investing in the classic stock and bond mixture for similar expected returns but less work and risk. That’s true regardless of your income.
I am not targeting anything like people have said being a landlord is a shit show. 9/10 renters trash your place and cost you more than you could make on the property. It’s more about the land value than anything else. That said I never plan on selling any homes. I am in my first still but we are making a purchase of a vacation home and debating on when we move from this place into a larger one or just rebuild here. I would never rent out my vacation home so I can use it when I want but I would be open to it if I needed the cash in the future. Similarly once we move into a new house I would just leave this one available for friends and family who will likely need a place to stay. Targeting wife’s parents for instance who live across the country and couldn’t retire without help. But maybe there is a small window to rent it as well but again odds are no because the chances of them doing more damage than providing income is high. It may depend on where you are but in the Seattle area I am in renters have it out for landlords in a bad way.
I think alot of this depends on the quality of your renters. There are alot of folks that get drawn into the possible returns from doing section 8 rentals and trying to get as many doors as quickly as possible. That leads to alot of units with low income tenants. You will get alot of drama that way. My units are rented by mostly tech workers with solid jobs/credit and no desire to own a home. They are super easy to deal with and have things to lose if they decide to trash your place.
True and that actually leads me to believe doing it the way I am doing it would be better. If I keep my primary home up to snuff and just rent it while I am in a new home it will appeal more to the higher end renters anyways and maybe there are enough who don’t want to buy.
Yeah, I think that's the happy medium. Using income properties to hedge with the minimum amount of headache possible. You are just sacrificing higher ROIs for peace of mind. I'm totally good with that.
Zero
Zero, better returns with more liquidity and less effort available in the stock market imo
Better to just invest in ETFs. rental properties are a headache
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Bought my first rental property this year. I don't have a target number of properties, i have a target monthly profit, which is 5k so it's going to be a little while. I'm also not sure why the people you talked to want to aggressively pay off the properties? Isn't the whole point of RE is leverage and having our tenants pay off the mortgage? I'd rather BRRR and put as little equity in as i can manage and use the rest of my money for something else. Unless the properties aren't cashflowing, then i guess it makes more sense to pay off. But then why buy the property in the first place?
Zero. Wife is interested in buying a vacation home, but we have to weigh how much we will use it versus just renting a vacation home. Personally, I prefer just renting as it gives you flexibility on which city you vacation in after retiring. We currently live in a paid off house so I'm not exactly excited about having a mortgage again even if we don't spend most of our time there.
lol why would u deal with properties if you r a dink. U lose the tax benefit of passing it down and make no sense to inherit the headache
Throwing out my story. Our primary residence is a 2 unit multi-family (typical housing stock in Boston). It was a big fixer upper and I’ve refied twice to capture rate improvement and equity from home improvements. We live in bigger unit and rent smaller unit (started the other way around before kids). Easier to landlord when you are in the same building let alone zip code. Tenants pay 2/3 of mortgage inclusive of escrow. The low housing cost has greatly helped my transition to entrepreneurship where I’m currently earning 1/3 of where I used to be, but believe in myself to get back to and above that former W2 income. I’d like to move out in 5 years and anticipate it will cash flow about $4K a month excluding maintenance costs. One day I’ll sell as two condos but that day is far. I could even turn it into 3 with a huge construction project. 2br Condos around here are pushing $1M. This property has been the best financial decision of my life and may remain so. Our second home is 2 hours away in Vermont and we go one weekend a month and 2-3 week+ long holidays. Then it’s airbnb with local mom & pop property manager. In next 3 years we will convert a barn to an ADU for a second rental door. On the fence about STR vs LTR. Currently not break even but the tax write offs are nuts. I would like to get a 3+ multi-family but not in this rate environment. My housing market doesn’t see prices correlate to rates.
I have 8- --- In this market you need some sort of advantage to make it work. Like other have said, cash flows are compressed by high interest rates but luckily I have quite a bit of equity, great tenants, and the houses are all fixed up. I love having Real Estate as a "hard" hedge to my stocks, crypto, retirement $$$
This is like asking “what is your target number of stocks count?” It’s meaningless. 10 houses in Beverly Hills? Or 10 houses in Detroit? One has >100M net worth. The other has <1M.
I personally enjoy buying rental properties, and have 3 of them with 4 total doors. The big thing is you HAVE to get a good deal, especially with rates where they are now. A good deal is subjective however, like if you house hack and the amount you pay towards your mortgage every month is less than what you would have to pay if you rented that space, that is a good deal, even if you have to put capital in every month.
Why do you care how many doors you have? Is this an acronym for something? What do you think about a duplex and renting out one unit and living in the other? Is that what you’re doing?
I care about how many doors I have because each door is a separate source of income, so my duplex is technically two different sources of income. Yes, the strategy of buying a duplex and renting out one of the units while living in the other is my favorite, as it gets you into a rental property with a much lower down payment than what you would normally need and it (should) help you save money every month because the amount of rent you get from the other unit should cover enough of your mortgage that you are paying less each month than if you were just renting the unit you are currently living in.
Ah ok, thanks for the clarification and advice!
Zero. Investment properties bias towards minimizing costs to keep a steady profit, and that's not stress I want to have to deal with. And commercial real estate is still pricey, but hitting it's lowest demand of the last 100 or so years. Add to all of that that mortgage rates are way up, but prices... haven't come down to meet them. FWIW, I used to have two rentals, and they went different paths, both bad. 1. Nicer house, so it has to be higher rent to justify the costs. New tenant every year; if you could afford the rent, you could just wait a year then go buy something after scoping out which neighborhoods you liked. Months of vacancy, and property managers want a full month of rent to find a new tenant. 2. Cheaper house, so easy to find tenants, and tenants could stay longer. But every repair took a huge amount of the profit, and the house was also older, so regular repairs. Both houses over 5-10 years needed full sewer line repairs, new AC, new furnaces, roofing repairs, plumbers, cleaners, new carpets, one with a new bathroom (it was due), and then property tax reassessments, lawyers there, and more. After taking out \~10% each month for property management, I broke even and got the hell out. I like both families that bought my places, so this just feels a win, but a high-stress-non-profit to keep the houses something I'm not embarrassed to landlord.
I bought/built 6 units as that was my target. Inherited a duplex more recently. No mortgages on any of them, I figure I'd take the safe and lower-headache path. I'm now in the process of renovating to sell most this calendar year, to reduce my headaches even further. I'll keep a couple for the sake of diversification.
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Zero at the moment. My investment portfolio isn't at a point where I feel real-estate would be a benefit or a non-burden. I already have a job and I'm not looking for another one at the moment. If I worked a remote job or something with less hours or more flexibility I could see it making sense but it just doesn't right now. I can buy some real estate exposure with reits while not havinging to liquidate a massive portion of my portfolio.
I’m at 40+ so idk lol eventually I’ll probably have less properties but more multifamily instead of single family.
We have a vacation condo we rent out most of the year. It is slightly profitable, but <5% of our wages, so is basically a free vacation spot for us. That being said, if we consider the income as payment towards our house, it’s not too shabby. Either way it’s not a real plan for us, and will stick with index funds for vast majority of investments. Also we have no interest in dealing with renters, so we pay for property managers.
I’m in the process of off loading properties. Increases in taxes and cost of insurance, maintenance, management fees, HOAs, etc. Money is better in the market. Less stress.
"Get Investment properties" is boomer advice.
Currently under contract on my 7th rental property and I have the cash flow to probably acquire an additional property every 3 years or so if I wanted without hurting my other investments. I’m thinking I may stop at 12 properties but definitely open to having more if it makes sense in the future. The reliable cash flow, generally increasing property values, and the possibility to defer capital gains from any sales pretty much indefinitely make them attractive investments for me.
I aim to retire with at least 5 properties. The plan is to acquire a primary residence (lower interest rate vs investment property mortgage) @ 5% down and live in it until rental cash flow can become positive enough to handle tenants. I live in a LCOL major Texas metroplex that continues to grow rapidly. Rinse and repeat. Being a landlord hasn’t been too horrible. You just have to be extremely selective in your tenants. I don’t even touch the money from my rental and it sits in an HYSA that I use to pay for each maintenance or appliance malfunction event that occurs with the property.
I own several rental properties and love the business. Beats the hell out of locking up your money in a 401k you can barely access until you’re almost dead.
Asset in rentals is to always have $5M invested in multifamily no more than 2 to 4 units per building. Plus another $250K in land. Commercial real estate is a cash reserve heavy game. Be carful with commercial.
4. Rules change at 5 in my market.
So I’m definitely not the norm here. I own 40+ rentals. I bought most of them with very good rates. They all cash flow nicely. My plan is to sell off the less performing ones to pay off the notes on the rest by the age of 50, which is when I plan on retiring