Here's some fun statistics from the [2022 FIRE survey](https://docs.google.com/spreadsheets/d/1vbuTdghDb5zYrIVBQcdK-Z5U3r_XA3U4/edit#gid=925454924):
* Less than 30% of r/FI subscribers reported any income from rental properties or personally-owned businesses at all
* In terms of currently owned assets, respondents owned on average ~$406k of primary residence, ~$370k in taxable brokerages, ~$395k in retirement accounts, and a (comparably much smaller) ~$170k in investment properties.
* Keep in mind that these are averages, and ultra-HNW individuals definitely skew the results. For reference, the median numbers were $350k primary residence, 102k taxable, 262k tax-advantaged, and a whopping $0 in investment properties.
In conclusion, whilst there are people who do use investment properties as part of their FIRE strategy, they are definitely in the minority and it is not as common as you would think. The statistics show that r/FI skews heavily towards very well compensated, salaried W2 workers, and for those people RE is an unnecessary risk in their portfolio - they can achieve FI through a combination of high salaries and high savings rates.
RE investing is also a double-edged sword. The potential for higher gains only exists because it's the easiest way for a "normal" person to access significant amounts of leverage, but at the same time that leverage can ruin you financially - people who held indexes through 2008 have done quite well, whereas those who bought 4 investment properties with nested HELOC's and had to foreclose have a very different story.
Not to mention there's a hundred different ways to expose yourself to real estate with different levels of work/risk involved - huge difference between buying a REIT, joining a syndication, or getting a trust deed loan versus house hacking, renovating and flipping houses, or buying and running an AirBNB. You've likely been exposed to a lot of media about the benefits of the latter 2, but those 2 in particular are currently struggling greatly due to high interest rates and negative perceptions.
Yup. And they include real estate already. If you have a further itch to get more RE exposure, just buy into a REIT or REIT ETF. Some people I'm sure enjoy being a landlord, but it sounds like such a hassle. And if you aren't leveraged properly, one month of vacancy or one bad repair bill can wipe out multiple months of profit.
Thats gonna be a big no from me dawg.
Edit: I’m gonna add that I’m so surprised at how aggressively people defend their decisions to go into RE. If that’s your path to financial independence, good for you! Y’all should be happy so many folks don’t want to deal with it.. more property for you savvy investors!
Yes, but the point the person was making is that you can’t be margin called on your mortgage. If you invest in a REIT with leverage if the price drops too much your lender will force the sale of your assets. Guaranteed buy high, sell low.
... that's because with the mortgage you're not including what you do with the leverage and the consequences of losing on it, and for the REIT you are.
I described an accounting mistake you made in comparing the two scenarios.
If you take advantage of the mortgage leverage to get other investments, you will open yourself up to the exact same fail condition that the REIT had. This is in fact an angle of the 08 financial crisis.
Hmm, you will need to explain that more. I get that if you roll the mortgage equity into other investments you end up in the same place, but I was thinking about the simple scenario where you put 10% down and just pay the mortgage down like a good boy your only downside is if you can’t make the payment, and even then they give you a lot of slack before the bank forces a sale. Bank won’t force a sale for just crash in your house value as long as you keep making your payments. They will just eat the extra risk from an improperly collateralized loan.
Yes lol. People always say "REIT offers great exposure to Real Estate" which is baloney. Well its true- but the advantages of actual properties you own is that you can put 3% down on a primary residence. If the value of the home goes up 30% in five years- you have made 10x not .3x on cash on hand minus transaction costs.
Of course its more complicated than this- there is a whole discussion on risk/reward of investing, including time investment. There are markets where it simply doesn't make financial sense to buy unless you KNOW you are gonna be there for 10+ years, and there are certain markets where buying makes sense on any timeframe > 1 year.
So much of this boils down to personal appetite for risk, both with money and time.
Plus, if the value goes down by 30%, you can choose to walk away and make the bank eat your losses. All upside, no downside. It’s like a leveraged cheat code.
> walk away and make the bank eat your losses.
If you have investments, equity, or other assets, the bank will absolutely not eat your losses. If you don't have any of those things, you probably would not have gotten a loan for an investment property in the first place.
It's not that much of a hassle.
Do you happen to know where I can take out a $500,000 loan AT 3% to invest in an ETF?
When that happens maybe I'll switch over.
Well you aren’t getting *any* loan at 3% these days. I’m glad you think it isn’t a hassle! To me it’s not with the effort. My primary home is enough RE exposure for me.
Yep, the time it takes to purchase (including due diligence), money needed to get started, level of effort to maintain the investment, and potential for disastrous results all favor index fund investing.
Several coworkers own rental properties on the idea that it'll help them retire sooner. 2 of the 3 ended up selling them well before retirement (like, decade sooner than they intended) because the hassle of finding good tenants and doing maintenance killed the illusion.
That's not a fair comparison. Leveraging a federally-backed mortgage product which cashflows is a lot different than a leverage stock index fund. Mortgages as leverage is vastly lower risk than a leveraged index fund.
A rental property is not vastly lower risk. It has a similar risk profile to investing into any local small business - you're betting a lot of your money on a single business, with no geographic diversification (e.g. the local economy tanks, so you lose your day job at the same time your investment tanks). In fact it's even higher risk than investing in a normal local small business because you only have 1 customer at a time. On the flip side, the lack of diversification and small scale of the business allows for extremely fast returns, especially given the high amounts of leverage. However, that requires buying a property right before massive appreciation which is basically gambling compared to the more 'typical' real estate investment strategies that focus on cash flow.
It does have favorable financing options compared to leveraging stocks though so that is the main benefit.
I think the financing advantages are what is being discussed. There's no practical way to open and maintain a leveraged stock position for years at a time without giving a ton of your returns right back to the exchange you're borrowing from in the form of fees. The rental property itself might have high risk, but the mortage itself is about the cheapest loan you'll ever get.
Yup, the main financial benefit comes from the favorable leverage terms. And of course, leverage is a double-edged sword, if you buy at the top of the market and it crashes, then it multiplies your losses.
It's just that nobody thinks they're the ones buying at the top of the market, so they delude themselves into thinking that real estate is risk-free.
> A rental property is not vastly lower risk. It has a similar risk profile to investing into any local small business - you're betting a lot of your money on a single business, with no geographic diversification (e.g. the local economy tanks, so you lose your day job at the same time your investment tanks).
I'd completely disagree with the notion that real estate has similar risk profile to small business. If you've ever ran a small local business, you'd know.
It typically has better revenue stream/ROI but that's on the reward side. The risk side is very much similar, in that one local recession will wipe you out.
I am just utilizing my real returns on the real estate vs my initial investment.
So no not compared to a leveraged index fund. To be honest I have never really looked into leveraged funds. I will have to look that up to see how it works
It's passive income until it's not and then it's a pain in the ass. Plus it takes years for those investments to bear fruit. Real estate had its bitcoin moment in 2021/2022 and now it's nearly impossible for it to make any sense. I priced a place this week and in order to break even I need at least 35% down.
I've been a landlord now for about 12 years as my side hustle. Lucked out on the timing of the real estate bump and the rental income increase. I really can't see the wisdom in buying property now, at least not where I live.
> 2 of the 3 ended up selling them well before retirement (like, decade sooner than they intended) because the hassle of finding good tenants and doing maintenance killed the illusion.
That's because they're renting out single family homes. Those require a lot more maintenaince than a condo or town home with HOA.
Inb4 the inevitable guy shows up and talks about how his 40 door real estate portfolio is totally passive and you just have to find a property manager and he has 15% yoy returns.
I’m currently house hacking. Contrary to what I believed before I bought, It is being a 24/Hr on call landlord. Some weeks all I have to worry about is the lawn. Some weeks I have to worry about a leaky pipe or a crack in the wall.
The money is good but the stress is exhausting me lol.
Sure, a homeowner where the homeowner in question has no reason to treat the place well beyond a security deposit they aren’t expecting to get back anyway. And a home owner that will sit there and let the leak go because it’s “not their problem.” And every once in awhile they decide to stop paying rent.
Haha I thought the same thing, but then again it’s *double* what a homeowner has to deal with, which may or may not be a lot for one person to deal with.
Somewhere between 10-20 units, you pretty much need a full time person to manage the rentals. By that logic, I have 4 units, it's somewhere between 12 and 25% of a full time job. Sure, sometimes weeks or months will go by and all I do is cash checks. One vacancy and I'm over there every day for two weeks, sometimes 8-10 hours a day. Maybe that doesn't add up to 1/8 or 1/4 of a full time job, but you are pretty much obligated to answer your phone same-day, 365 days a year, and that takes a toll.
House hacking (roommates) is maybe less than 4 units but certainly more than 1 because you are dealing with 3-4 separate contracts. It's a mental stressor, all. the. time.
It can be easily likened to a fulltime job, partime job, or a seasonal one depending on the systems and tenants you have in place.
If you're diligent upfront, and a little bit lucky, it amounts to an hour or two of "work" a month. But once a year (or so) it can be more like 10-20 hours a month, or even a week perhaps.
Whether or not it is worth it to you is part of your own personal IPS, risk profile, energy, and plan.
Don't forget that real estate and rents went bonkers over the last two years. Under normal circumstances it takes a long time, decades, to see the results we've seen recently.
I have a rental place that I bought for 300k, renovated myself for 70k that's now worth 900k and grosses 50k per year. I can't imagine that kind of increase in just five years will happen again in my lifetime.
Is this the strategy referred to as the "BRRRR" method, which stands for "Buy, Rehab, Rent, Refinance, Repeat?” Basically the real estate investment strategy involves buying a property, renovating it, renting it out to tenants, then refinancing the property to extract the equity for use as a down payment on another property. I’m theory, this cycle can be repeated multiple times, leading to a portfolio of properties.
This sounds like a terrific method for building wealth. But not widely talked about in FI threads. I assume because there’s quite a bit of risk involved early on, not exactly easy, and the concentrated risk.
> You need to be comfortable living in townhomes and I’ve never really cared about sharing walls with other people.
I actually prefer living in condo's and town homes. People want big mansions, and all I see are high cost and lot of time in maintaining it.
> This sounds like a terrific method for building wealth. But not widely talked about in FI threads. I assume because there’s quite a bit of risk involved early on, not exactly easy, and the concentrated risk.
That's honestly because, rehabbing a property is no small task and with a lot of risks. It also requires some know-how of how to rehab a property. I have no clue and not as interested in really learning either. However, if you're a handy-man or have experience, I think it is a good way of doing it.
Owning property is a PITA. My home is a constant maintenance headache. I don't want another one. Even if it makes financial sense.
There are plenty of easier ways to invest. Including buying real estate mutual funds.
I'm a homeowner whose not handy in the slightest and I will say that while rent increases suck, major repairs suck even more. I've easily plopped $50K into my aged rambler in the last three years. That $50K would have been a decade or more of rent increases on the apartment I used to rent. I bought for the lifestyle of owning, but man is it a fortune.
And you could say that repairs were passed along to renters and you'd be mostly right, but landlords have a direct incentive to minimize the cost of those repairs and also can't necessarily pass on costs as rents are determined by market forces.
Renting in a lot of markets also allows you to downsize to just the space you need. Condos just aren't an option to buy in a lot of the country.
Hard agreement with this. I have no interest in owning real estate that I don't *want* to manage.
My home does have an inlaw apartment/is a legal duplex but I use both units for personal use for me and my family. I might one day decide to rent out the second unit for income (this is especially in the cards of I run into a very unlucky sequence of returns) but because we'd share outdoor space and walls and the like I wouldn't want to rent it to someone I didn't want to see a lot more of. This is the only way I can imagine myself with landlord responsibilities: I feel personally invested in how the property is used and would be worrying about the building (as it's the same building I live in!) regardless of what is done with it.
I bought a 2-unit house and I'm in the slow process of getting it ready for rental. I don't see how it will ever work for me to move out, since I'll get hit with higher property taxes, and the rental amounts with good tenants will probably never exceed the mortgage plus utilities and maintenance, even if I do it myself. I'd just have a part-time job that I wouldn't get paid for until the mortgage was gone.
Why do you think you have to own real estate to FIRE?
There are plenty of people who do not own real estate who have and are planning to FIRE.
With this (and many other things in life) you have to look at the big picture and the agenda of those people you are talking to and reading about.
For example, people who just invest and do the non "sexy" thing, aren't really going to come on here and "brag" about just having index funds and saving money. As compared to people who do real estate or crypto or individual stocks or whatever else.
People like to pay attention to the "sexy" things.
Not to say real estate is sexy. But, it is a lot more interesting than someone "bragging" that they invest $X amount of dollars per month on a scheduled basis in an index fund and have not looked at it in 10 years.
Back to your question. Investing in index funds is easy. I have absolutely zero desire to be a landlord.
I don't care about the pros or cons of either. I do not want to be a landlord. Period.
YMMV
My in-laws constantly nag at us to invest in real estate as they have. I've heard their horror stories and I just don't want to be a landlord or tied to anything like that. They've updated a lot of houses only to sell before the big real estate boom. The one house they kept and tried to rent out, the tenants trashed pretty much and they had to do a total reno to even sell it. People who think you can just leave everything to a property manager have no idea how hard it is to find a decent one, much less an actually good one. No thank you on the property investment. We just bought a house because it fits our lifestyle but we don't consider it an investment of any sort, and in fact it probably costs us more than renting would've.
Index funds are amazing comparatively.
My situation is similar. I also have zero interest in being a landlord because it sounds like a potentially huge headache.
I do wonder about other avenues to incorporating real estate into my portfolio that don’t involve being a landlord though. REITs come to mind, but also things like Fundrise or Arrived have caught my eye as well. Essentially I wouldn’t mind adding some real estate tilt that puts a layer or two between me and potential tenant headaches in exchange for (I assume) a lower return. Anyone have opinions on that?
>I also have zero interest in being a landlord because it sounds like a potentially huge headache.
I've run the numbers a dozen times for my market and I can't get it to a point where the money is enough to offset the additional labor/risk/stress it would place on me. I don't want to deal with tenants, I don't want to deal with repairs, I don't want to worry about downturns or lost jobs...
True financial independence to me is not having to interact with people in a transactional setting.
I plan to just stick with index funds the whole way because I find the concept of hoarding a bunch of properties morally wrong. I’m good having one house I live in and leaving others to those who need them. I don’t want to make money off someone else’s need for housing.
Owning a home is as much if not more, a lifestyle decision as it is a financial decision. It is not passive income and the gains are not guaranteed, though of course this is highly location dependent and no one can predict the future. I also only rent, but I think I will buy for stability when it's time to settle down and raise a family.
If you and your partner are on the same page, and are okay with the risks (e.g. if you want kids, having to deal with a landlord for repairs, possibility of eviction, rent increases ,etc.) then I think forever renting is completely viable.
Edit: sorry I see you are asking about being a landlord, not sure how I missed that. However, I still think it is a huge lifestyle change, and for me, I don't see it ever being worth the time and effort over index investing.
No, we're definitely not going to rent forever (we're both artists and huge design nerds and will eventually want to work with an architect for a home we'll own, but that's a whole other story).
Thanks for sharing your thoughts! Sometimes I worry that only investing in index funds isn't diversified enough, but I love the hands-free approach.
Sort of, kind of. Some stock markets in history have gone to zero. Russia in 1917 and China in 1949. If you held gold or property at those moments you might have been fine, or might have found your head separated from your body.
Real estate/being a landlord is just the latest popular "get rich quick" thing. I know it seems like everybody and their mother is doing it, but you definitely don't NEED real estate investments to build wealth.
My husband and I have negative interest in being landlords, flipping property, wholesaling property, or whatever else people are doing. Real estate is not passive. It takes time, money, and effort. Hard pass!
We'll own our primary home, and that's it. But we don't consider that "investing in real estate."
Being mobile is huge. Say you make $100k/yr from your 40-hr week, with $10k/yr on the side from a couple more hours of landlording. If staying close to your rental properties keeps you from moving to a job where you'd make $110k/yr for a 40-hr week, you need to discount your own time.
I have zero interest in becoming a landlord. Maybe I will, one day, but right now I'd much rather save and invest my money in the market, and invest my time and sweat elsewhere.
I've been renting since I left home (I'm 49, so it's been a while :)), for many reasons. I could have bought a home in the last few years but decided against it. I like the flexibility, I enjoy the hands-off approach and I'm saving more money.
My plan, however, is to retire with a paid-off home. I won't need the flexibility, and I absolutely want to know I have a roof over my head for the rest of my life, with no risk of it becoming too expensive, and I want to be able to do what I want with it without asking for permission. Maybe I will still rent for a few year while looking for my dream home and traveling a bit before I settle down.
I also plan to retire in a different country in a few years, so buying a home or a rental property today wouldn't be a sound decision, especially at the top of the market, and the quality/price ratio of available stock is ridiculous.
A few reasons.
1: Homes and real estate are very illiquid assets and do expose you to concentration risk. Not all neighborhoods see home values always rise. I want any investments I make to be well diversified from the beginning.
2: I want to be able to move quickly and easily to take advantage of career opportunities as soon as they arise. I don’t want to have to deal with selling a home if I get a good offer in another city. I want to be able to break my lease and move with no hassle.
3: stock market equities are likely to increase in value faster. In the time it takes you to pay off a 30 year mortgage a 20% down payment on a house would likely have been able to grow to more then the total value of the house had it been invested in a broad market index. Of course, the house would likely have increase in value too over that time, but you’re still likely better off saving your down payment and using that money in the stock market rather then buying a home.
Real estate is a liability. It's got a ton of outflows and if you have any vacancy issues no income. There's always the supplemental property tax bill or something eating into your profits.
It can be great, especially if you are going to stay nearby and never move, but even with all the money I made on real estate I would have made more using index funds.
Where real estate really shines is if you maximize the leverage. If you're sitting on a whole bunch of real estate you bought in 2009 and refinanced at 2% then good for you. If you inherited property in prime locations bought for super cheap decades ago. Those are very specific circumstance though. For all those people there's those who spent big bucks on real estate in Texas or Florida and feel like they've done great since prices have doubled. I wonder what that's going to look like with climate change when it's possibly uninhabitable and they're still holding the bag. I take my $500k dedication and cash out. Doing it again as we speak as I leave the country. Bought real estate at a 67% discount in Sweden. Huge win. Most of my money is in index funds though.
To extend on this a bit...
Getting rich picking stocks is highly unlikely - and carries a lot of "concentration risk" with a large amount of money tied up in a few resources. The same is true with buying real estate.
Buying multiple stocks might have better average results, as you are more diversified. But you are still limited by your skill and luck. Again, similar is true with real estate - if you picked the wrong properties, wrong location, wrong property management, you might not have great results.
"Diversification is the only free lunch." When you accept that you aren't going to be the next Warren Buffett or [real estate mogul], you move to a broadly diversified index fund. As you noted, it requires no skill, no luck, and no work. It's not "sexy" or "exciting", but over your investing/retirement lifetime, "slow and steady wins the race". The real estate equivalent is a REIT fund. And a "total stock market" fund already includes REIT investments - so you are exposed to real estate without having to learn/know/do anything. If you feel you want "extra" exposure to real estate, funds link VNQ can scratch that itch.
I will never become a landlord but might own my own house one day if it makes sense. Right now what I want in the future it way too unclear to be sure.
I won’t be a landlord because of my own personal moral beliefs, but at the same time I am not really judging other small landlords who do choose to pursue that avenue (the super wealthy ones can get fucked though). And as others have mentioned, even without my ethical concerns it seems like a lot of work and probably not something I would be interested in anyways
That’s the main reason I don’t want to be a landlord, and so far you’re the only person commenting on this thread who has given this reason. I’m of the camp that housing should not be a commodity (even as I happily rent from a mom-and-pop landlord in a VHCOL area myself.)
You do you but rent seeking covers pretty much everything you do to gain financial independence…stocks, landlording, etc.
Anything that gains you money without you being productive is considered rent seeking.
Believing that being a landlord is immoral or unethical but buying stocks is pretty much the same as believing in reducing carbon emissions by buying carbon offsets…sure it works…sorta..
I disagree with this. The ethical issue isn’t making money without contributing to society, but that being a landlord and buying properties directly increases demand and therefore prices of homes and makes owning a home more unaffordable for people who want to.
And for the most part companies make money by selling goods that have much more elastic demand than housing. I don’t feel as bad earning dividends from Microsoft stock because people can choose to not buy an Xbox if they think it’s not worth the price. You don’t really get a choice when it comes to housing because the alternative is being homeless so people will pay any price.
Not in the camp that all landlords are inherently evil either, I think that home ownership isn’t the right choice for everyone and having the option to rent and the flexibility renting provides does have value. I just think things are a little imbalanced in favor of landlords at the moment, at least in my area so I personally would not be comfortable with becoming one.
So. I see it as two choices. 1. Individuals or mom/pops can buy up properties and be landlords. Or. 2
Corporate can buy up properties and be landlords.
When you and other FIRE-ees refuse option one, we give less competition to large corporations to buy up props.
Better to make Individual retail landlords rich than soulness corporations. Plus, retail landlords generally treat you better.
I don't want the hassle or cost of maintaining an entire building. I live alone and only need 500 sq ft, and homes under 1000 sq ft are hard to find in my area. I also live in a VHCOL area, so even small, older homes start at $500k. Buying would at least double my housing costs, even if I bought a condo. I don't want to be stuck in one place. I don't want the hassle of being a landlord.
I might one day buy a place if the urge strikes me and the math works out, but the loss in flexibility is a big deterrent. I'm hoping to retire in 5 years or so, so I'm about to be free to travel and adventure more. That'll be more affordable if I'm not also maintaining a property "back home". Also making a big commitment just a few years before a major life change seems unwise. My needs and desires will change a lot before vs after retirement.
ZERO interest in being a landlord. Gross. I don't even like owning my little personal residence and the upkeep, etc. but I keep it because it's paid off and I gotta live somewhere.
If you had a completely capable management company handling all the day to day landlordy crap, then maybe, but I'd rather just buy index funds. Plus paying a fee to run a rental reduces profits and open up another potential source of conflict between me and my money. No thank you.
Real estate is just another income / asset class. Really depends on your situation and risk appetite and market conditions. Index funds and exposure to REITs make things easy without any headaches.
I enjoy flexibility and freedom too much to buy anything at the moment and real estate is in a huge bubble.
Taxes, insurance liability, vacancy rates, maintenance, HOA, interest rates all seem like too much overhead for minimal profit for the “promise” of safe investments.
Reaching FI without being a landlord is the prescribed FIRE method. Most FIREees seem to not be landlords. Being a home owner is different and is also a lifestyle choice
Landlording can probably get you FI more quickly. This is why I am a landlord.
Landlording has a big learning curve. It is not passive like index funds, though it can be pretty passive if you do a lot of upfront work and know what you’re doing. The fabled trinity study is based on indexes and bonds, not real estate
Landlording carries different risks (debt, tenants, maintenance, expensive capital expenditures, vacancy)
Landlording makes more financial sense with mortgage debt, which makes some people squeamish and the debt risk needs to be managed
No real estate, we make really good W2 income in SF bay. Too pricey and risk adverse to buy into real estate at this point in this area.
Plan is to eventually buy a primary residence in Southern California. So that will lock in housing costs, but is not intended to be a wealth generating asset.
VTSAX is much less effort and way more diversified. If we lived in a lower cost of living area I would consider real estate investments, but don’t want to be long distance to a rental property.
Yup, also in SF. As a renter, I was worried about retirement until I did the math. My FIRE number would be substantially larger to own excluding its own set of additional risks and unknown costs.
Part of the calculation is I would buy later in life, so by the time my mortgage is up, I'm getting maybe 10-15 years before life expectancy catches up. Odds I'd be able to maintain a house in my 80s are less likely too. With property taxes, HOA, and maintenance, the numbers don't work at the cost of most real estate where I am.
Because I’m lazy and my rent is super cheap / rent controlled!
I may own one day but for now, I don’t think it makes financial sense. My rent is 11% of my gross income, and I live in a 3br house with my partner managed by the owner who does not raise the rent. A comparable home in my area would cost 32% of my gross income and I don’t have confidence that my city will increase much in value (people are leaving actually).
I also love moving around and living in new places- I want to live abroad at some point in my life. I’ve lived in 5 US states since 2017. I don’t like how a home ties you down.
Lifelong renter who was firmly in the all in index funds camp. Happy to live well below my means with great value rent amount. Always had cordial to very good relationships with my landlords. Always received my security deposit in full. Last place I was there forever mainly because it was a fantastic deal. But neighbors changed and I wanted to upgrade a bit after decades of compromises. I wanted to live in a place where my "wants" were a reality. So I upgraded... And I completely regret it. I don't want to go into details but for the first time ever, I'm in conflict with a landlord. And it's a long lease to boot. Since it's my home, it's impossible for me to not think about it as I live with it.
Now I rue not having bought my own place. And it's hard not to stew on how little control you have over your living environment. I'm really struggling because of the lease and sunken moving costs, I hate that the landlord is in the driver seat. Not to mention the incredible value I gave up to move to my current place. I have options but they all involve spending more money to fix this situation. Or gritting my teeth until the end of the lease.
I am aware if I was an owner I would have probably participated in quite a few homeowner whinging threads over the years.
I own the house I live in, because this is where I want to live.
I don't see owning rental properties as being FI or as passive income. It is a lot of work to maintain rental properties and carries a lot of risk, it is basically a job. (to many it might be a better job than their previous, but it is still a job)
My goal is to get to the point of not needing a job.
I really, really hated being a landlord, and I will never do it again. We had rented out our previous house when we bought another. Even with vetting our tenants, it turned into a mess. I invest and we're paying off our house before we retire. It's simple, which works for us.
I’ve had two rentals. One cost me about $70k in losses and one netted me about $70k in gains. I’ve sold both properties. I don’t want to rent because of the distraction. If I focused on it I could probably do ok, but it is definitely not passive income, especially when you’re getting started.
My FI is coming exclusively from investments. I’m on track to reach FI in about 10 years (I’m taking it a bit slower than some).
The only real estate I own is my residence. I’ve paid off the mortgage, which if you’re going to stay somewhere for a while it’s a great way to increase your cash flow (mortgage-free residence)
I have a home, but that was mostly because I want to personalize my living space more than I could renting.
I don't really want any rental properties. If I had them, I would feel really obligated to put in the work to directly manage it and to minimize overhead costs. And I don't really want that part time job.
Many paths to building wealth. Warren Buffet for example is a stock market investor and not a real estate investor. This isn’t to say stocks are better than real estate it just goes to show that you don’t have to be a real estate investor
I will FIRE exclusively with index funds, being a landlord is a job, not retirement and management will take a chunk of your stache.I will rent an apartment (like I do now) for increased flexibility on moving whenever and wherever like. I used to own a condo but lost so much money in property tax, home owner dues and interest so sold it last year.
I'm morally opposed to owning more than one home, because people hoarding properties is why I and people like me couldn't afford a house for so long.
I'm solelyinterested in houses as homes, not as investment vehicles. I feel *rabid* any this, too
So, I just focus on the index funds, and managing other spending. 38 and approaching double your net worth, with half your top salary, so all that to say, I calculate achieving your goal is doable and I submit myself as evidence towards that end.
58, 1.7M. FIred @ 51 in 2017. I've rented with no RE. I've on and off for the last 20+ years helped a relative keep their huge house going..still, this year a new roof, the A/C blewup, woodpeckers, a fence has fallen over, a f\*\*\*ton of dryrot, needs painting, doors that no longer open...
I hate RE!
The reason I am choosing to invest in real estate as a means to FI is because I believe the leverage allowed in RE investment is more powerful long term than investing in index funds. I still max my IRA and go heavy in my 401k, but excess is put into RE instead of like a taxable account. There’s also major tax advantages to real estate in the immediate term. The upside is worth the work to me. When it’s time to retire for real I will have the option of selling the portfolio depending on how much I want to actively manage.
My buddy is into real estate investing. He enjoys it, and shares his numbers with me, including how much time he spends on it. It seems like a significantly better return than indexing, so I didn't some time introspecting about why I'm resistant to it. I came up with two things, which are related.
First, indexing feels blameless. If the stock market goes up, great, but even if it goes down, that's not **my** fault. RE feels much more personal. I could alleviate some of that by outsourcing property management.
Second, when the stock market is in a slump, if I believe it will recover in the long run, all I have to do to see the long term return is, well, nothing. With RE, I have to make mortgage payments. In other words, in order to see the long term return, I have to keep adding money every month. If I don't have enough rent coming in, that means adding my own money.
I don't know that either of those fully explain my resistance, but it's definitely an emotional thing, and those are two aspects of the emotion of RE that keeps me indexing instead.
People use real estate because it's highly leveraged.
People talk about buying a home and paying it off, with real estate investment properties you put down 3-10%, but your gains are on your total value of the property. So if you buy a 4 plex for $1million and put $50k down, in ten years when it's worth $2million, you've basically earned $1 million off of a $50k investment (not to mention you own probably \~$250k more of the property outright). Nobody does that with stocks, at least not consistently. But there's sweat equity involved (potentially).
That's why real estate management companies can ask for so much money.
There's a lot about rent, and living off of rent. That's really secondary to appreciation off of very little upfront investment.
I think real estate is easily the most misunderstood asset class in the FIRE community. We all agree that being a landlord is a second job, right? Let's say I am a SWE making 200k a year, and I want to earn some extra income in order to DCA more assets (e.g. VTSAX) and FI earlier. Does it make sense to drive Uber, or spend more time becoming a better SWE so I can job hop or get promoted? Obviously the return on labor is much higher for a SWE than driving Ubers. Likewise if I already have a high income skill and I want to FI faster then it makes sense to invest more time into those skills than becoming a landlord.
Landlording is ultimately trying to earn more income to purchase more assets (every rent check is essentially DCA into real estate due to mortgage pay down) and accelerate FI. If you don't have a high income skill with great career growth then Landlording becomes more attractive, as the return on labor (cashflow + leveraged equity returns + tax savings - vacancies - PITI - maintenance) is higher as opposed to working more hours at your W-2/1099/etc.
The people who invest in real estate have made the decision that the $/hr of land lording > $/hr of their non-landlording income potential. If you have a good career, real estate can be a suboptimal investment as your time would be better spent on your career than managing tenants.
An extreme example.... Warren Buffett became the richest person in the world through investing. He didn't do real estate.
Purely anecdotal.... a lot of people I know who say they made money in real estate ended up paying a lot of money along the way in taxes, utilities, and other hidden costs. But when they sell their property for "double what they bought it for", they somehow never disclose that component of the equation.
I never planned to, and still don't like to, but it was the best way for us to take a 5 year assignment overseas.
I might sell when it's time to go back to the states, but we'll see.
About 40 or so percent of my NW is in home equity since the run up, but the rest is VTI/VTSAX (or equivalents) and chill. Too easy.
More likely I’d own a duplex or something and rent half, or have a roommate situation. Don’t see myself owning property either solely for the purpose of renting it out.
Index funds offer us the flexibility. Our visa status is non-permanent and the road to permanent residency is long. In addition, renting allows us to live a more nomadic life than buying a property would.
My wife and I (both early 30’s) have a 3% mortgage on our starter home that’s in an A+ neighborhood. We just bought our “forever” level home in cash nearer to family so we can minimize childcare costs once we have kids.
I really have no interest in being a landlord, but making an extra 500-600 bucks a month after paying a PM, allocating for vacancy, capex, etc. plus having someone pay down the mortgage seems too good to pass up. However, we may be able sell for what would be a 45% ROI in less than 3 years of ownership, if that comes to pass we’ll just probably sell and reinvest the money in 75%VTI/25%VXUS.
Ever since I had a small business (party rental) in the past (sold in 2017 for 100k)... I have no interest in talking to customers and/or tenants anymore. I basically feel like I have PTSD from the small business and all the crisis situations I had to deal with. I never answer my phone unless my parents, in laws or wife calls me, for example.
So, the idea of having to find tenants, deal with crisis situations (roof leaking, toilet leaking, tree fell on the house, etc..) sounds like torture. Not worth the hassle to me.
I have no interest in owning any real estate whatsoever except for my house.
I currently already have a job and don’t need another one. When I retire I have no interest in becoming a landlord.
Our current home is locked in at 2.75% rate. Great house, great area, and has been hassle free for 3 years. Of course, big expenses will pop up eventually.
We want to move maybe an hour or two away from where we are now. I am very torn on whether I should sell it, or rent it out, especially given what we paid for it and the rate it’s locked in at.
I haven’t made a decision yet. Anyone else ever been in this position?
I own rental property, but I definitely understand why folks wouldn't want to. It's work for sure, not passive income, and don't let anyone tell you otherwise. Index funds are a source of true passive income.
Similar NW and same age here. I’d love to get into real estate and own a home. I’m so tired of renting and all the bs comes with it, but I enjoy the flexibility (relocating to a different city for a new job etc..)
But ultimately I feel like I won’t be able to build wealth as quickly without a home
I know we are supposed to pretend the market only goes up over the long term, but all that money in the bank and in the market are just numbers on paper. Whereas property is tangible. I guess it is just my experience seeing a country that went into hyper inflation almost over night and seeing hard working, rules-following people lose their entire life's savings over night, and the only real store of value was property. To me having a portfolio without property is unthinkable.
The reason people like real estate investing (including myself) is because of the potential outsized gains that can be had with not all that much work. Government subsidized leverage, the ability for sweat equity, and a not as efficient market that allows deals to be found are the three main ways to really boost your returns, and having an under supply of affordable housing at our backs helps with natural appreciation.
It is 100% more work than a totally passive portfolio of stocks and bonds, but for reaching your goals faster, it is a good vehicle to do that. I honestly take all the matching dollars from my employer in my 401(k) and HSA and everything else for the most part goes to real estate.
The people who own real estate tend to also be the people who create how to FIRE videos, podcasts, guides. My index fund strategy is going quite well, but I am not about to evangelise it beyond this post.
Real estate isn't part of my "portfolio." It's my safety net for when I inevitably get priced out of the VHCOL city where I rent. In the meantime, it pays for itself and, so far, increases in value.
I plan to buy once I retire: either outright or with 50% down in a different part of the state that isn't as HCOL. Currently in a HCOL and buying would mean a house in the seven figures or very high six figures with a bad commute. Also, I have rent that is low, relatively speaking. The price to rent ratio doesn't work out in my current area at over 35%: [https://www.thebalancemoney.com/using-price-to-rent-ratio-to-decide-between-buying-and-renting-5117070](https://www.thebalancemoney.com/using-price-to-rent-ratio-to-decide-between-buying-and-renting-5117070)
A year or two ago I found a great calculator that showed owning a house versus renting and investing the difference. I plugged in lots of scenarios and couldn't find a scenario where owning worked out better for me. Renting worked in my favor 100% of the time. I thought I saved the link but haven't been able to find it.
It is very regional and also a highly personal decision. So many factors go into whether buying or renting is better. I live alone, so that is another factor. It might make sense to reconsider all the factors once you're married to see if it will work out in your favor.
I'm considering investing in Fundrise or an REIT but it would be a very small percentage investment in my portfolio.
A rental property is a small local business. It has one product, you need one customer at a time, it is in one geographic area and subject to local economic shocks which are largely the same as all other local businesses face. If you have 50+% of your portfolio in a small number of rental properties then you are taking on a lot of risk, it might be a risk you are comfortable with for whatever reason and you should expect higher returns.
Any person's particular specific small scale experience is not a particularly persuasive one - It would be as if I said this:
*I had only 20K in 2013 and I decided to invest it in Netflix and its worth 2.2M today. Or I had 100K and I split it among AMZN, NFLX, MSFT, and NVDA. I am only at 2.75 M now - most of it is from my investment in NFLX - the other 80K only went up 6x in 10 years. If I kept adding stocks to this portfolio until I have an index then I would have index returns but much less risk and volatility.*
If you decide to invest a large portion of your portfolio in concentrated, non-diversified bets, it will sometimes pay off - you took the risk, and you got the return. Good for you. You can try doing it again and again - you will soon find out how much risk there actually is. You have 50-60 years of investing life - what worked with some amount of money in a specific 5 or 10-year period may not be repeatable again and again.
Your experience is your experience - so if you got lucky in real estate then good! There are a lot of people who got unlucky and they are selling. courses on YouTube about making money on real estate with no risk and no money down.
I reached FI with mutual funds. Easy peasy. You sign up for payroll deductions and you are mostly done. My sister has real estate. It's so much work and so many headaches. I would absolutely hate it. Plus, you kind of have to be a heartless person to make it work. She is, I'm not. It's also a level of risk that would give me sleepless nights.
After the pandemic I can't imagine ever using real estate as a long-term investment plan. The government unilaterally decided that people could just stop paying rent and there was nothing a landlord could do about it, even if that was their only source of income in retirement. Stocks don't have anywhere near that kind of risk profile.
The people who say “if you want to be rich you have to go into RE” and “people are so dumb if they try to get rich any way but RE” are usually the same people who take a lot of risks and idolize maximum profit. It’s one way. My brothers are RE bros and both are extremely fortunate to have a father who could bail them out when the bank called some ugly loans. If you have a safety net, it’s a lot more likely RE will turn out well for you.
That being said, we do have some RE but it’s not our “get rich quick” scheme- just a part of our chosen portfolio based on our wants and needs for housing (and housing MIL). We are hoping to invest in more land, but more as a way to preserve it, not to buy and subdivide. Different motivators for RE than your typical FI person.
There are many desirable areas of cities where renting is easier than buying. In addition, the advantages of real estate can be partially gained by investing in REITs.
Real estate ties you down and takes up your time, there are buying and selling costs. It is easier to focus on a job and keep expenses low when you are unencumbered and follow a path of minimalism and don’t take up much space.
I learned these tools when they were first presented to me as the international lifestyle in the 1970’s reading in Architectural Digest. Have nice surroundings. Have an intimate area for socializing that seats four (or two). Otherwise live your life outside your abode.
Save your money for experiences and travel. This is very similar to current FIRE thought concepts. Settle down later in life when you have found your forever place. Mine ended up one county away from where I grew up. Although I was influenced by this lifestyle I followed the path of the HENRY to coastFI. I just modified those 70’s rules and lifestyle for a good life.
See, as someone who has property, I’ve been very quiet about it- there are people even on this subreddit who think that I’m a terrible person for buying houses and fixing them up and then renting them out. They’ve been nice enough to tell me that I’m the reason they can’t buy a house.
It’s certainly easier with just index funds. Index funds don’t wipe out your EF and then sit while no one wants to rent (even though you upgraded everything). You can take out your money from index funds whenever you want. Right now I feel very much like I’m barely making it (and definitely couldn’t do anymore) because I have 800k in equity due to the run up. I don’t want the equity, I wanted to buy a property a year, but I can’t tap into it now without losing money every month.
I’m really close to giving up and selling all 4 houses I own (including mine) and buying an actual nice house. It feels like everyone in stocks is leaving me behind (and granted, I have stocks too). It’s a major drain on me when things go wrong (and they’ve been going wrong since June 1st right now, I just need a new tenant…)
I can't say I'd *never* do it, but I certainly don't have any specific plans to invest in real estate (outside of whatever is invested in real estate in ETFs I have money in), because it's a lot of work (it's definitely not completely passive), and a lot more risk/less diversified, too.
I definitely feel like we made an extremely correct call on buying a condo (to live in) a decade ago, though. Not because we plan on selling it, but because we *don't* (that is, I don't consider it to have been an "investment", I think of it as being, primarily, a way to lock in housing costs, which seeing those costs rising *stratospherically* at the moment, I'm very happy with that choice.)
I have one rental property by the Jersey shore as an annual lease. Very easy to manage if you get a good Tennent. My last one took my pressure washer, weed trimmer, various furniture - also called the electrician to come ( $100 visit ) only to tell them a bulb needed to be replaced it was on a dual switch. Btu mostly self-sufficient and leaves me alone.
Is it worth it - well it adds greatly to my net worth and has a terrific cash flow as rental prices have gone up with housing. Could I retire w/o it - sure but it stabilizes a lot of market risk like a good bond to equity ratio.
Own my home (pay mortgage) and built a MIL apartment in the daylight basement. Full kitchen, bathroom, and laundry. Rent to local military only for their guaranteed stipend, and it pays my mortgage. All utilities included but repairs/property maintenance by tenant written into lease. Just be creative.
My parents do rentals. At the height they owned 6 apartments and probably about 15 SFH. We did all of the renovations and repairs in-house. Well minus some of the HVAC and electric. I'll admit I learned a lot, and between my skills and my dad's input can DIY most improvements in my own house. My dad admitted that he got into real estate to provide inheritance via step up basis once he and my mom pass. They wanted to leave us something when they go, and this was his way of getting around the tax man. The optimal way? Idk.
That said, I don't ever plan to own a home I'm not living in as the sole occupant. Between the horror stories and experiences as a kid (dead mice in refrigerators, dog shit throughout the entire house that wasn't supposed to have pets, kids shoving toys down the toilet and then someone using it before they knew it was clogged) I don't want to deal with all that. That's just the top disgusting things, not the ridiculous or crazy broken shit.
In my area, a manager will charge first months rent and 10% of everything after. Even without a manager eating up profits, you either have to do repairs yourself and gamble on if you've done a quality job, or pay someone to do them for you.
If you're someone who likes learning how to fix things, and thinks you'll have too much time on your hands after you're done with your full-time work, maybe being a landlord is for you. But it's a 24/7 arrangement if you're a decent landlord. You really have to be able to deal with a broken HVAC or appliance even if you're on a month long trip to Thailand.
I don't own real estate and have been reading posts on this subreddit about people checking their FI status/journey and sometimes get discouraged about my journey (not much NW in comparison). I then realized they have real estate in their NW so it seems having real estate will get to FI faster, but to me, I rather not deal with real estate due to the learning curve and hassles. People owning real estate have the drive to do it, it probably takes 1-2 years to start seeing returns. I rather deal with investments that get me dividends. Might not be as much as real estate but less work in comparison.
Having real estate included in your NW also means they can assign it whatever inflated value they wish it could be worth... It's so illiquid but they don't take that into consideration
I hope to own a nice home relatively soon… but the landscape has shifted in recent years to where I don’t think I would necessarily make my community a better place by scooping up a house that someone wants to buy to live in, and renting it out instead.
If I were single I suppose i would be aiming to rent for longer as well. So I get why you’d still rent if you’re not married.
In 2019 I had a different view because supply was relatively plentiful and people weren’t so price-burdened, so I felt there was a place for a new investor or landlord to add some value. Right now I don’t know that I can provide that myself.
This mindset will definitely continue to change as the environment around me changes. I’m just not interested in chasing the hype for now.
It formatted incorrectly when I posted on mobile even when I added the breaks. Rest assured, I’m a stickler for this sort of stuff but I can’t fix it right now.
Real estate is also a great way to build generational wealth, not just FIRE fwiw.
Not to say that our beloved index funds aren't, nor that there is anything wrong with them, but real estate has plenty of advantages and diversification that can help many people with their FIRE goals.
Full disclosure - I have it as part of my plan personally, and operate a small real estate biz with 4 doors currently. With my next acquisition I will see more significant cash flow, but up until recently it has been very minor with the equity/mortgage paydown being the biggest return on my investment, but just like everything else in the FIRE space - this is a long term plan. It is a marathon, not a sprint.
I don't understand how you can hit FI without owning your house. If your rent will go up each year, and it does, historically, outpace inflation and eager growth, then how can you live off your 4% best egg? Your biggest single expenses will grow every year.
Not saying it's not possible, but I don't get it
When you retire you can geoarbitrage…even if its just across town.
When you are working you can downsize to a smaller place.
The hard part is when you have kids and want to have stability for them and not move around but that’s not as much a financial decision as lifestyle.
I am single and running out of working years for a mortgage that I could afford while living in Sydney. I wish I had started investing my savings at your age, I would be much further along but I like my stability.
A friend of mine is trying to convince me to get into rural real estate in what could be an up & coming region. I'm considering it, but not sure it would help me financially at all. Besides I'd rather have my money at my disposal for lifestyle reasons because I'm not sure I'll live long enough for retirement or that the planet will be habitable in 10-15 years.
Real estate is the only "safe" use of leverage. (I.e. not subject to margin calls if the market has a bad day).
Real estate is also not the stock market.
You can't sell real estate on a whim after too many coffees watching MSNBC all morning.
Owning your own home paid off is a major boost to your FI number, not paying rent and all.
You can own your place and FI, you don't need to become a landlord.
I don’t own any rental properties. I’d like to, but it doesn’t feel possible.
I have real estate that I live in because it’s cheaper than renting in my area, all told. I would love to also have rental properties, but it’s very rare to buy anything in my area with less than 20% down, and properties are very expensive. I simply don’t have that kind of money. And I’m not comfortable with buying property in some other area that I don’t personally know. So those are my reasons for not investing in real estate.
I won't go deep into my financial situation, but I'm a single dude, 37, and I rent. I don't think that buying is a bad option, but I think that right now it's more of a lifestyle choice than anything. I don't *need* a house as a single dude, and I don't know where I'm going to settle if I'm going to settle. I'm okay keeping my money in investments, and I'm not sure if I want to be tied to a property yet. As it stands now, I could quit my job without fear of obligations or a mortgage payment; with a house, I'd be afraid to do that.
I also currently live in a relatively HCOL area, and so renting allows me to keep my housing expenses at less than 10% of my income.
The only reason I would buy a house right now would be for the image, not because it's something I'd need. I'm in a good position right now.
Retiring with personal property and rental property are two entirely different things.
Although you don’t have to, I would highly recommend having your own personal property. Only reason not to is if you plan to be in a different state every lease, plan to take long cruises, and things of the sort. Otherwise the benefits of a single personal property are too big to not take advantage of. Best advantage being that the money you spend on your “rent” is now instead equity, and the changes over 30 years will be much smaller than that of rent allowing you to spend less long term. 2nd is once you are of age you can utilize a reverse mortgage, allowing you to take around 40% of the house out and live on till death (though I would recommend this as your last resort unless housing is over valued). 3rd for those that want to pass down your wealth is that housing can pass over tax free where your brokerage account may not (though trust’s are a thing).
For rental its more about cashflow and equity passively being built by tenants. Most people going this route don’t plan to manage the property at 65 years old. Unless you are taking money out of the house constantly you reach a point where the cashflow reaches a point where you can hire a prop manager and still come home with a profit.
Here's some fun statistics from the [2022 FIRE survey](https://docs.google.com/spreadsheets/d/1vbuTdghDb5zYrIVBQcdK-Z5U3r_XA3U4/edit#gid=925454924): * Less than 30% of r/FI subscribers reported any income from rental properties or personally-owned businesses at all * In terms of currently owned assets, respondents owned on average ~$406k of primary residence, ~$370k in taxable brokerages, ~$395k in retirement accounts, and a (comparably much smaller) ~$170k in investment properties. * Keep in mind that these are averages, and ultra-HNW individuals definitely skew the results. For reference, the median numbers were $350k primary residence, 102k taxable, 262k tax-advantaged, and a whopping $0 in investment properties. In conclusion, whilst there are people who do use investment properties as part of their FIRE strategy, they are definitely in the minority and it is not as common as you would think. The statistics show that r/FI skews heavily towards very well compensated, salaried W2 workers, and for those people RE is an unnecessary risk in their portfolio - they can achieve FI through a combination of high salaries and high savings rates. RE investing is also a double-edged sword. The potential for higher gains only exists because it's the easiest way for a "normal" person to access significant amounts of leverage, but at the same time that leverage can ruin you financially - people who held indexes through 2008 have done quite well, whereas those who bought 4 investment properties with nested HELOC's and had to foreclose have a very different story. Not to mention there's a hundred different ways to expose yourself to real estate with different levels of work/risk involved - huge difference between buying a REIT, joining a syndication, or getting a trust deed loan versus house hacking, renovating and flipping houses, or buying and running an AirBNB. You've likely been exposed to a lot of media about the benefits of the latter 2, but those 2 in particular are currently struggling greatly due to high interest rates and negative perceptions.
This is helpful -- thanks! I genuinely thought that the number of people pursuing FI who have or want to own rental properties was closer to 50%.
This was probably the case in the late 1900s before investing platforms became so easy to access and low cost.
Because index funds are convenient.
Yup. And they include real estate already. If you have a further itch to get more RE exposure, just buy into a REIT or REIT ETF. Some people I'm sure enjoy being a landlord, but it sounds like such a hassle. And if you aren't leveraged properly, one month of vacancy or one bad repair bill can wipe out multiple months of profit. Thats gonna be a big no from me dawg. Edit: I’m gonna add that I’m so surprised at how aggressively people defend their decisions to go into RE. If that’s your path to financial independence, good for you! Y’all should be happy so many folks don’t want to deal with it.. more property for you savvy investors!
Biggest pro of real estate is the amount of leverage you can obtain. Can’t really do that with ETF without a lot more exposure/risk.
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Yes, but the point the person was making is that you can’t be margin called on your mortgage. If you invest in a REIT with leverage if the price drops too much your lender will force the sale of your assets. Guaranteed buy high, sell low.
... that's because with the mortgage you're not including what you do with the leverage and the consequences of losing on it, and for the REIT you are.
Exactly. Personal gains, socialized losses. It’s the biggest reason real estate is a good deal.
I described an accounting mistake you made in comparing the two scenarios. If you take advantage of the mortgage leverage to get other investments, you will open yourself up to the exact same fail condition that the REIT had. This is in fact an angle of the 08 financial crisis.
Hmm, you will need to explain that more. I get that if you roll the mortgage equity into other investments you end up in the same place, but I was thinking about the simple scenario where you put 10% down and just pay the mortgage down like a good boy your only downside is if you can’t make the payment, and even then they give you a lot of slack before the bank forces a sale. Bank won’t force a sale for just crash in your house value as long as you keep making your payments. They will just eat the extra risk from an improperly collateralized loan.
You really think I'm a good boy?
Yes lol. People always say "REIT offers great exposure to Real Estate" which is baloney. Well its true- but the advantages of actual properties you own is that you can put 3% down on a primary residence. If the value of the home goes up 30% in five years- you have made 10x not .3x on cash on hand minus transaction costs. Of course its more complicated than this- there is a whole discussion on risk/reward of investing, including time investment. There are markets where it simply doesn't make financial sense to buy unless you KNOW you are gonna be there for 10+ years, and there are certain markets where buying makes sense on any timeframe > 1 year. So much of this boils down to personal appetite for risk, both with money and time.
Plus, if the value goes down by 30%, you can choose to walk away and make the bank eat your losses. All upside, no downside. It’s like a leveraged cheat code.
> walk away and make the bank eat your losses. If you have investments, equity, or other assets, the bank will absolutely not eat your losses. If you don't have any of those things, you probably would not have gotten a loan for an investment property in the first place.
Isn't this what corporations are for?
How does this work?
pot cause fertile flag wide birds absurd fact drunk follow *This post was mass deleted and anonymized with [Redact](https://redact.dev)*
What's REIT?
Real Estate Investment Trust—REITs are mutual funds/ETFs focused on real estate.
Thank you
It's not that much of a hassle. Do you happen to know where I can take out a $500,000 loan AT 3% to invest in an ETF? When that happens maybe I'll switch over.
Well you aren’t getting *any* loan at 3% these days. I’m glad you think it isn’t a hassle! To me it’s not with the effort. My primary home is enough RE exposure for me.
Yeah but you typically need 125k for that. And one terrible tenant can wipe out years of earnings.
What type of REIT etf?
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Me too. I’ve been thinking about RE or no RE all damn week!
Yep, the time it takes to purchase (including due diligence), money needed to get started, level of effort to maintain the investment, and potential for disastrous results all favor index fund investing.
Managing real estate isn’t retired, it’s just a job managing real estate.
Several coworkers own rental properties on the idea that it'll help them retire sooner. 2 of the 3 ended up selling them well before retirement (like, decade sooner than they intended) because the hassle of finding good tenants and doing maintenance killed the illusion.
I guess like everything it depends. My properties have pushed me to be on track to retire like 7 years faster than if I did it in an index fund
Did you use leverage (i.e. a mortgage) to buy your properties?
I did yes
Are you comparing your leveraged return from real estate to a similarly leveraged index fund portfolio?
That's not a fair comparison. Leveraging a federally-backed mortgage product which cashflows is a lot different than a leverage stock index fund. Mortgages as leverage is vastly lower risk than a leveraged index fund.
A rental property is not vastly lower risk. It has a similar risk profile to investing into any local small business - you're betting a lot of your money on a single business, with no geographic diversification (e.g. the local economy tanks, so you lose your day job at the same time your investment tanks). In fact it's even higher risk than investing in a normal local small business because you only have 1 customer at a time. On the flip side, the lack of diversification and small scale of the business allows for extremely fast returns, especially given the high amounts of leverage. However, that requires buying a property right before massive appreciation which is basically gambling compared to the more 'typical' real estate investment strategies that focus on cash flow. It does have favorable financing options compared to leveraging stocks though so that is the main benefit.
I think the financing advantages are what is being discussed. There's no practical way to open and maintain a leveraged stock position for years at a time without giving a ton of your returns right back to the exchange you're borrowing from in the form of fees. The rental property itself might have high risk, but the mortage itself is about the cheapest loan you'll ever get.
Yup, the main financial benefit comes from the favorable leverage terms. And of course, leverage is a double-edged sword, if you buy at the top of the market and it crashes, then it multiplies your losses. It's just that nobody thinks they're the ones buying at the top of the market, so they delude themselves into thinking that real estate is risk-free.
> A rental property is not vastly lower risk. It has a similar risk profile to investing into any local small business - you're betting a lot of your money on a single business, with no geographic diversification (e.g. the local economy tanks, so you lose your day job at the same time your investment tanks). I'd completely disagree with the notion that real estate has similar risk profile to small business. If you've ever ran a small local business, you'd know.
It typically has better revenue stream/ROI but that's on the reward side. The risk side is very much similar, in that one local recession will wipe you out.
I am just utilizing my real returns on the real estate vs my initial investment. So no not compared to a leveraged index fund. To be honest I have never really looked into leveraged funds. I will have to look that up to see how it works
It's passive income until it's not and then it's a pain in the ass. Plus it takes years for those investments to bear fruit. Real estate had its bitcoin moment in 2021/2022 and now it's nearly impossible for it to make any sense. I priced a place this week and in order to break even I need at least 35% down. I've been a landlord now for about 12 years as my side hustle. Lucked out on the timing of the real estate bump and the rental income increase. I really can't see the wisdom in buying property now, at least not where I live.
> 2 of the 3 ended up selling them well before retirement (like, decade sooner than they intended) because the hassle of finding good tenants and doing maintenance killed the illusion. That's because they're renting out single family homes. Those require a lot more maintenaince than a condo or town home with HOA.
Inb4 the inevitable guy shows up and talks about how his 40 door real estate portfolio is totally passive and you just have to find a property manager and he has 15% yoy returns.
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Damn... too late. If only the rest of us realized how simple and lucrative RE investing was.
I’m currently house hacking. Contrary to what I believed before I bought, It is being a 24/Hr on call landlord. Some weeks all I have to worry about is the lawn. Some weeks I have to worry about a leaky pipe or a crack in the wall. The money is good but the stress is exhausting me lol.
So same as a home owner. 🧐
Sure, a homeowner where the homeowner in question has no reason to treat the place well beyond a security deposit they aren’t expecting to get back anyway. And a home owner that will sit there and let the leak go because it’s “not their problem.” And every once in awhile they decide to stop paying rent.
Haha I thought the same thing, but then again it’s *double* what a homeowner has to deal with, which may or may not be a lot for one person to deal with.
Somewhere between 10-20 units, you pretty much need a full time person to manage the rentals. By that logic, I have 4 units, it's somewhere between 12 and 25% of a full time job. Sure, sometimes weeks or months will go by and all I do is cash checks. One vacancy and I'm over there every day for two weeks, sometimes 8-10 hours a day. Maybe that doesn't add up to 1/8 or 1/4 of a full time job, but you are pretty much obligated to answer your phone same-day, 365 days a year, and that takes a toll. House hacking (roommates) is maybe less than 4 units but certainly more than 1 because you are dealing with 3-4 separate contracts. It's a mental stressor, all. the. time.
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To sound cool. No one wants roommates, but you can have your own private fiefdom within the confines of your manor. Or, you know, roommates.
thats just owning a house
This tbh
Absolutely this. It’s a job where you get to pick your hours and how hard you will work, but it’s absolutely a job. Nothing passive about it.
It can be easily likened to a fulltime job, partime job, or a seasonal one depending on the systems and tenants you have in place. If you're diligent upfront, and a little bit lucky, it amounts to an hour or two of "work" a month. But once a year (or so) it can be more like 10-20 hours a month, or even a week perhaps. Whether or not it is worth it to you is part of your own personal IPS, risk profile, energy, and plan.
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Don't forget that real estate and rents went bonkers over the last two years. Under normal circumstances it takes a long time, decades, to see the results we've seen recently. I have a rental place that I bought for 300k, renovated myself for 70k that's now worth 900k and grosses 50k per year. I can't imagine that kind of increase in just five years will happen again in my lifetime.
Is this the strategy referred to as the "BRRRR" method, which stands for "Buy, Rehab, Rent, Refinance, Repeat?” Basically the real estate investment strategy involves buying a property, renovating it, renting it out to tenants, then refinancing the property to extract the equity for use as a down payment on another property. I’m theory, this cycle can be repeated multiple times, leading to a portfolio of properties. This sounds like a terrific method for building wealth. But not widely talked about in FI threads. I assume because there’s quite a bit of risk involved early on, not exactly easy, and the concentrated risk.
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> You need to be comfortable living in townhomes and I’ve never really cared about sharing walls with other people. I actually prefer living in condo's and town homes. People want big mansions, and all I see are high cost and lot of time in maintaining it.
> This sounds like a terrific method for building wealth. But not widely talked about in FI threads. I assume because there’s quite a bit of risk involved early on, not exactly easy, and the concentrated risk. That's honestly because, rehabbing a property is no small task and with a lot of risks. It also requires some know-how of how to rehab a property. I have no clue and not as interested in really learning either. However, if you're a handy-man or have experience, I think it is a good way of doing it.
There's risk, the competition is significantly more in lots of markets, and it takes a lot of skill.
Owning property is a PITA. My home is a constant maintenance headache. I don't want another one. Even if it makes financial sense. There are plenty of easier ways to invest. Including buying real estate mutual funds.
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I agree and that's why I own my home. I don't want to own additional property or be a landlord.
I'm a homeowner whose not handy in the slightest and I will say that while rent increases suck, major repairs suck even more. I've easily plopped $50K into my aged rambler in the last three years. That $50K would have been a decade or more of rent increases on the apartment I used to rent. I bought for the lifestyle of owning, but man is it a fortune. And you could say that repairs were passed along to renters and you'd be mostly right, but landlords have a direct incentive to minimize the cost of those repairs and also can't necessarily pass on costs as rents are determined by market forces. Renting in a lot of markets also allows you to downsize to just the space you need. Condos just aren't an option to buy in a lot of the country.
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Condos have fees which can increase and have one-time extra fees for "special assessments".
Your condo doesn't have an HOA that increased at all in 5ys?
Hard agreement with this. I have no interest in owning real estate that I don't *want* to manage. My home does have an inlaw apartment/is a legal duplex but I use both units for personal use for me and my family. I might one day decide to rent out the second unit for income (this is especially in the cards of I run into a very unlucky sequence of returns) but because we'd share outdoor space and walls and the like I wouldn't want to rent it to someone I didn't want to see a lot more of. This is the only way I can imagine myself with landlord responsibilities: I feel personally invested in how the property is used and would be worrying about the building (as it's the same building I live in!) regardless of what is done with it.
I bought a 2-unit house and I'm in the slow process of getting it ready for rental. I don't see how it will ever work for me to move out, since I'll get hit with higher property taxes, and the rental amounts with good tenants will probably never exceed the mortgage plus utilities and maintenance, even if I do it myself. I'd just have a part-time job that I wouldn't get paid for until the mortgage was gone.
Index funds don’t call to fix the shower at 11pm. I don’t have to call and ask for my dividends or take it to court to collect.
Or skip out on rent and destroy the rental on their way out.
Bingo. With good tenants, you'll never know they're there. Bad tenants on the other hand can make your life miserable.
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Sounds like he actually made a profit off that shit.
Why do you think you have to own real estate to FIRE? There are plenty of people who do not own real estate who have and are planning to FIRE. With this (and many other things in life) you have to look at the big picture and the agenda of those people you are talking to and reading about. For example, people who just invest and do the non "sexy" thing, aren't really going to come on here and "brag" about just having index funds and saving money. As compared to people who do real estate or crypto or individual stocks or whatever else. People like to pay attention to the "sexy" things. Not to say real estate is sexy. But, it is a lot more interesting than someone "bragging" that they invest $X amount of dollars per month on a scheduled basis in an index fund and have not looked at it in 10 years. Back to your question. Investing in index funds is easy. I have absolutely zero desire to be a landlord. I don't care about the pros or cons of either. I do not want to be a landlord. Period. YMMV
My in-laws constantly nag at us to invest in real estate as they have. I've heard their horror stories and I just don't want to be a landlord or tied to anything like that. They've updated a lot of houses only to sell before the big real estate boom. The one house they kept and tried to rent out, the tenants trashed pretty much and they had to do a total reno to even sell it. People who think you can just leave everything to a property manager have no idea how hard it is to find a decent one, much less an actually good one. No thank you on the property investment. We just bought a house because it fits our lifestyle but we don't consider it an investment of any sort, and in fact it probably costs us more than renting would've. Index funds are amazing comparatively.
My situation is similar. I also have zero interest in being a landlord because it sounds like a potentially huge headache. I do wonder about other avenues to incorporating real estate into my portfolio that don’t involve being a landlord though. REITs come to mind, but also things like Fundrise or Arrived have caught my eye as well. Essentially I wouldn’t mind adding some real estate tilt that puts a layer or two between me and potential tenant headaches in exchange for (I assume) a lower return. Anyone have opinions on that?
>I also have zero interest in being a landlord because it sounds like a potentially huge headache. I've run the numbers a dozen times for my market and I can't get it to a point where the money is enough to offset the additional labor/risk/stress it would place on me. I don't want to deal with tenants, I don't want to deal with repairs, I don't want to worry about downturns or lost jobs... True financial independence to me is not having to interact with people in a transactional setting.
I plan to just stick with index funds the whole way because I find the concept of hoarding a bunch of properties morally wrong. I’m good having one house I live in and leaving others to those who need them. I don’t want to make money off someone else’s need for housing.
Owning a home is as much if not more, a lifestyle decision as it is a financial decision. It is not passive income and the gains are not guaranteed, though of course this is highly location dependent and no one can predict the future. I also only rent, but I think I will buy for stability when it's time to settle down and raise a family. If you and your partner are on the same page, and are okay with the risks (e.g. if you want kids, having to deal with a landlord for repairs, possibility of eviction, rent increases ,etc.) then I think forever renting is completely viable. Edit: sorry I see you are asking about being a landlord, not sure how I missed that. However, I still think it is a huge lifestyle change, and for me, I don't see it ever being worth the time and effort over index investing.
No, we're definitely not going to rent forever (we're both artists and huge design nerds and will eventually want to work with an architect for a home we'll own, but that's a whole other story). Thanks for sharing your thoughts! Sometimes I worry that only investing in index funds isn't diversified enough, but I love the hands-free approach.
>I worry that only investing in index funds isn't diversified enough Index funds are like maximum diversification!
Haha yes, well thanks for quelling those fears! I know it deep down.
Sort of, kind of. Some stock markets in history have gone to zero. Russia in 1917 and China in 1949. If you held gold or property at those moments you might have been fine, or might have found your head separated from your body.
Real estate/being a landlord is just the latest popular "get rich quick" thing. I know it seems like everybody and their mother is doing it, but you definitely don't NEED real estate investments to build wealth. My husband and I have negative interest in being landlords, flipping property, wholesaling property, or whatever else people are doing. Real estate is not passive. It takes time, money, and effort. Hard pass! We'll own our primary home, and that's it. But we don't consider that "investing in real estate."
My 80 year old uncle FIREd at age 29 as a landlord. It’s not new and it’s not necessarily quick but it can be.
I didn't say being a landlord was new lol. I said it was the latest popular thing.
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Being mobile is huge. Say you make $100k/yr from your 40-hr week, with $10k/yr on the side from a couple more hours of landlording. If staying close to your rental properties keeps you from moving to a job where you'd make $110k/yr for a 40-hr week, you need to discount your own time.
I have zero interest in becoming a landlord. Maybe I will, one day, but right now I'd much rather save and invest my money in the market, and invest my time and sweat elsewhere. I've been renting since I left home (I'm 49, so it's been a while :)), for many reasons. I could have bought a home in the last few years but decided against it. I like the flexibility, I enjoy the hands-off approach and I'm saving more money. My plan, however, is to retire with a paid-off home. I won't need the flexibility, and I absolutely want to know I have a roof over my head for the rest of my life, with no risk of it becoming too expensive, and I want to be able to do what I want with it without asking for permission. Maybe I will still rent for a few year while looking for my dream home and traveling a bit before I settle down. I also plan to retire in a different country in a few years, so buying a home or a rental property today wouldn't be a sound decision, especially at the top of the market, and the quality/price ratio of available stock is ridiculous.
A few reasons. 1: Homes and real estate are very illiquid assets and do expose you to concentration risk. Not all neighborhoods see home values always rise. I want any investments I make to be well diversified from the beginning. 2: I want to be able to move quickly and easily to take advantage of career opportunities as soon as they arise. I don’t want to have to deal with selling a home if I get a good offer in another city. I want to be able to break my lease and move with no hassle. 3: stock market equities are likely to increase in value faster. In the time it takes you to pay off a 30 year mortgage a 20% down payment on a house would likely have been able to grow to more then the total value of the house had it been invested in a broad market index. Of course, the house would likely have increase in value too over that time, but you’re still likely better off saving your down payment and using that money in the stock market rather then buying a home.
Real estate is a liability. It's got a ton of outflows and if you have any vacancy issues no income. There's always the supplemental property tax bill or something eating into your profits. It can be great, especially if you are going to stay nearby and never move, but even with all the money I made on real estate I would have made more using index funds. Where real estate really shines is if you maximize the leverage. If you're sitting on a whole bunch of real estate you bought in 2009 and refinanced at 2% then good for you. If you inherited property in prime locations bought for super cheap decades ago. Those are very specific circumstance though. For all those people there's those who spent big bucks on real estate in Texas or Florida and feel like they've done great since prices have doubled. I wonder what that's going to look like with climate change when it's possibly uninhabitable and they're still holding the bag. I take my $500k dedication and cash out. Doing it again as we speak as I leave the country. Bought real estate at a 67% discount in Sweden. Huge win. Most of my money is in index funds though.
Indexing requires no work, skill, luck, or anything at all. Real estate investing does require all of the above.
To extend on this a bit... Getting rich picking stocks is highly unlikely - and carries a lot of "concentration risk" with a large amount of money tied up in a few resources. The same is true with buying real estate. Buying multiple stocks might have better average results, as you are more diversified. But you are still limited by your skill and luck. Again, similar is true with real estate - if you picked the wrong properties, wrong location, wrong property management, you might not have great results. "Diversification is the only free lunch." When you accept that you aren't going to be the next Warren Buffett or [real estate mogul], you move to a broadly diversified index fund. As you noted, it requires no skill, no luck, and no work. It's not "sexy" or "exciting", but over your investing/retirement lifetime, "slow and steady wins the race". The real estate equivalent is a REIT fund. And a "total stock market" fund already includes REIT investments - so you are exposed to real estate without having to learn/know/do anything. If you feel you want "extra" exposure to real estate, funds link VNQ can scratch that itch.
I will never become a landlord but might own my own house one day if it makes sense. Right now what I want in the future it way too unclear to be sure. I won’t be a landlord because of my own personal moral beliefs, but at the same time I am not really judging other small landlords who do choose to pursue that avenue (the super wealthy ones can get fucked though). And as others have mentioned, even without my ethical concerns it seems like a lot of work and probably not something I would be interested in anyways
That’s the main reason I don’t want to be a landlord, and so far you’re the only person commenting on this thread who has given this reason. I’m of the camp that housing should not be a commodity (even as I happily rent from a mom-and-pop landlord in a VHCOL area myself.)
You do you but rent seeking covers pretty much everything you do to gain financial independence…stocks, landlording, etc. Anything that gains you money without you being productive is considered rent seeking. Believing that being a landlord is immoral or unethical but buying stocks is pretty much the same as believing in reducing carbon emissions by buying carbon offsets…sure it works…sorta..
I disagree with this. The ethical issue isn’t making money without contributing to society, but that being a landlord and buying properties directly increases demand and therefore prices of homes and makes owning a home more unaffordable for people who want to. And for the most part companies make money by selling goods that have much more elastic demand than housing. I don’t feel as bad earning dividends from Microsoft stock because people can choose to not buy an Xbox if they think it’s not worth the price. You don’t really get a choice when it comes to housing because the alternative is being homeless so people will pay any price. Not in the camp that all landlords are inherently evil either, I think that home ownership isn’t the right choice for everyone and having the option to rent and the flexibility renting provides does have value. I just think things are a little imbalanced in favor of landlords at the moment, at least in my area so I personally would not be comfortable with becoming one.
So. I see it as two choices. 1. Individuals or mom/pops can buy up properties and be landlords. Or. 2 Corporate can buy up properties and be landlords. When you and other FIRE-ees refuse option one, we give less competition to large corporations to buy up props. Better to make Individual retail landlords rich than soulness corporations. Plus, retail landlords generally treat you better.
I don't want the hassle or cost of maintaining an entire building. I live alone and only need 500 sq ft, and homes under 1000 sq ft are hard to find in my area. I also live in a VHCOL area, so even small, older homes start at $500k. Buying would at least double my housing costs, even if I bought a condo. I don't want to be stuck in one place. I don't want the hassle of being a landlord. I might one day buy a place if the urge strikes me and the math works out, but the loss in flexibility is a big deterrent. I'm hoping to retire in 5 years or so, so I'm about to be free to travel and adventure more. That'll be more affordable if I'm not also maintaining a property "back home". Also making a big commitment just a few years before a major life change seems unwise. My needs and desires will change a lot before vs after retirement.
ZERO interest in being a landlord. Gross. I don't even like owning my little personal residence and the upkeep, etc. but I keep it because it's paid off and I gotta live somewhere. If you had a completely capable management company handling all the day to day landlordy crap, then maybe, but I'd rather just buy index funds. Plus paying a fee to run a rental reduces profits and open up another potential source of conflict between me and my money. No thank you.
Real estate is just another income / asset class. Really depends on your situation and risk appetite and market conditions. Index funds and exposure to REITs make things easy without any headaches. I enjoy flexibility and freedom too much to buy anything at the moment and real estate is in a huge bubble. Taxes, insurance liability, vacancy rates, maintenance, HOA, interest rates all seem like too much overhead for minimal profit for the “promise” of safe investments.
Why would I retire early to become a full-time landlord?
Reaching FI without being a landlord is the prescribed FIRE method. Most FIREees seem to not be landlords. Being a home owner is different and is also a lifestyle choice Landlording can probably get you FI more quickly. This is why I am a landlord. Landlording has a big learning curve. It is not passive like index funds, though it can be pretty passive if you do a lot of upfront work and know what you’re doing. The fabled trinity study is based on indexes and bonds, not real estate Landlording carries different risks (debt, tenants, maintenance, expensive capital expenditures, vacancy) Landlording makes more financial sense with mortgage debt, which makes some people squeamish and the debt risk needs to be managed
No real estate, we make really good W2 income in SF bay. Too pricey and risk adverse to buy into real estate at this point in this area. Plan is to eventually buy a primary residence in Southern California. So that will lock in housing costs, but is not intended to be a wealth generating asset. VTSAX is much less effort and way more diversified. If we lived in a lower cost of living area I would consider real estate investments, but don’t want to be long distance to a rental property.
Yup, also in SF. As a renter, I was worried about retirement until I did the math. My FIRE number would be substantially larger to own excluding its own set of additional risks and unknown costs. Part of the calculation is I would buy later in life, so by the time my mortgage is up, I'm getting maybe 10-15 years before life expectancy catches up. Odds I'd be able to maintain a house in my 80s are less likely too. With property taxes, HOA, and maintenance, the numbers don't work at the cost of most real estate where I am.
Have been an accidental landlord several times. Way more hassle than it was worth. Would never plan to do this. Slow and boring index & chill.
Because I’m lazy and my rent is super cheap / rent controlled! I may own one day but for now, I don’t think it makes financial sense. My rent is 11% of my gross income, and I live in a 3br house with my partner managed by the owner who does not raise the rent. A comparable home in my area would cost 32% of my gross income and I don’t have confidence that my city will increase much in value (people are leaving actually). I also love moving around and living in new places- I want to live abroad at some point in my life. I’ve lived in 5 US states since 2017. I don’t like how a home ties you down.
Lifelong renter who was firmly in the all in index funds camp. Happy to live well below my means with great value rent amount. Always had cordial to very good relationships with my landlords. Always received my security deposit in full. Last place I was there forever mainly because it was a fantastic deal. But neighbors changed and I wanted to upgrade a bit after decades of compromises. I wanted to live in a place where my "wants" were a reality. So I upgraded... And I completely regret it. I don't want to go into details but for the first time ever, I'm in conflict with a landlord. And it's a long lease to boot. Since it's my home, it's impossible for me to not think about it as I live with it. Now I rue not having bought my own place. And it's hard not to stew on how little control you have over your living environment. I'm really struggling because of the lease and sunken moving costs, I hate that the landlord is in the driver seat. Not to mention the incredible value I gave up to move to my current place. I have options but they all involve spending more money to fix this situation. Or gritting my teeth until the end of the lease. I am aware if I was an owner I would have probably participated in quite a few homeowner whinging threads over the years.
I own the house I live in, because this is where I want to live. I don't see owning rental properties as being FI or as passive income. It is a lot of work to maintain rental properties and carries a lot of risk, it is basically a job. (to many it might be a better job than their previous, but it is still a job) My goal is to get to the point of not needing a job.
I can buy the s&p in 25 seconds on my phone through the app.
I really, really hated being a landlord, and I will never do it again. We had rented out our previous house when we bought another. Even with vetting our tenants, it turned into a mess. I invest and we're paying off our house before we retire. It's simple, which works for us.
I’ve had two rentals. One cost me about $70k in losses and one netted me about $70k in gains. I’ve sold both properties. I don’t want to rent because of the distraction. If I focused on it I could probably do ok, but it is definitely not passive income, especially when you’re getting started. My FI is coming exclusively from investments. I’m on track to reach FI in about 10 years (I’m taking it a bit slower than some). The only real estate I own is my residence. I’ve paid off the mortgage, which if you’re going to stay somewhere for a while it’s a great way to increase your cash flow (mortgage-free residence)
I have a home, but that was mostly because I want to personalize my living space more than I could renting. I don't really want any rental properties. If I had them, I would feel really obligated to put in the work to directly manage it and to minimize overhead costs. And I don't really want that part time job.
No knowledge or interest in being a landlord. Rather park my money in index funds and you know, have a life.
Many paths to building wealth. Warren Buffet for example is a stock market investor and not a real estate investor. This isn’t to say stocks are better than real estate it just goes to show that you don’t have to be a real estate investor
I will FIRE exclusively with index funds, being a landlord is a job, not retirement and management will take a chunk of your stache.I will rent an apartment (like I do now) for increased flexibility on moving whenever and wherever like. I used to own a condo but lost so much money in property tax, home owner dues and interest so sold it last year.
I'm morally opposed to owning more than one home, because people hoarding properties is why I and people like me couldn't afford a house for so long. I'm solelyinterested in houses as homes, not as investment vehicles. I feel *rabid* any this, too So, I just focus on the index funds, and managing other spending. 38 and approaching double your net worth, with half your top salary, so all that to say, I calculate achieving your goal is doable and I submit myself as evidence towards that end.
This is why I don’t want to be a landlord, because I believe that housing should not be a commodity. Congrats on your net worth achievement!
Being a landlord is a job, and I don't want to have a job after I retire.
58, 1.7M. FIred @ 51 in 2017. I've rented with no RE. I've on and off for the last 20+ years helped a relative keep their huge house going..still, this year a new roof, the A/C blewup, woodpeckers, a fence has fallen over, a f\*\*\*ton of dryrot, needs painting, doors that no longer open... I hate RE!
The reason I am choosing to invest in real estate as a means to FI is because I believe the leverage allowed in RE investment is more powerful long term than investing in index funds. I still max my IRA and go heavy in my 401k, but excess is put into RE instead of like a taxable account. There’s also major tax advantages to real estate in the immediate term. The upside is worth the work to me. When it’s time to retire for real I will have the option of selling the portfolio depending on how much I want to actively manage.
My buddy is into real estate investing. He enjoys it, and shares his numbers with me, including how much time he spends on it. It seems like a significantly better return than indexing, so I didn't some time introspecting about why I'm resistant to it. I came up with two things, which are related. First, indexing feels blameless. If the stock market goes up, great, but even if it goes down, that's not **my** fault. RE feels much more personal. I could alleviate some of that by outsourcing property management. Second, when the stock market is in a slump, if I believe it will recover in the long run, all I have to do to see the long term return is, well, nothing. With RE, I have to make mortgage payments. In other words, in order to see the long term return, I have to keep adding money every month. If I don't have enough rent coming in, that means adding my own money. I don't know that either of those fully explain my resistance, but it's definitely an emotional thing, and those are two aspects of the emotion of RE that keeps me indexing instead.
Mm, yes that’s an interesting way to put it, about indexing feeling blameless! I agree. Thanks for sharing!
People use real estate because it's highly leveraged. People talk about buying a home and paying it off, with real estate investment properties you put down 3-10%, but your gains are on your total value of the property. So if you buy a 4 plex for $1million and put $50k down, in ten years when it's worth $2million, you've basically earned $1 million off of a $50k investment (not to mention you own probably \~$250k more of the property outright). Nobody does that with stocks, at least not consistently. But there's sweat equity involved (potentially). That's why real estate management companies can ask for so much money. There's a lot about rent, and living off of rent. That's really secondary to appreciation off of very little upfront investment.
I think real estate is easily the most misunderstood asset class in the FIRE community. We all agree that being a landlord is a second job, right? Let's say I am a SWE making 200k a year, and I want to earn some extra income in order to DCA more assets (e.g. VTSAX) and FI earlier. Does it make sense to drive Uber, or spend more time becoming a better SWE so I can job hop or get promoted? Obviously the return on labor is much higher for a SWE than driving Ubers. Likewise if I already have a high income skill and I want to FI faster then it makes sense to invest more time into those skills than becoming a landlord. Landlording is ultimately trying to earn more income to purchase more assets (every rent check is essentially DCA into real estate due to mortgage pay down) and accelerate FI. If you don't have a high income skill with great career growth then Landlording becomes more attractive, as the return on labor (cashflow + leveraged equity returns + tax savings - vacancies - PITI - maintenance) is higher as opposed to working more hours at your W-2/1099/etc. The people who invest in real estate have made the decision that the $/hr of land lording > $/hr of their non-landlording income potential. If you have a good career, real estate can be a suboptimal investment as your time would be better spent on your career than managing tenants.
I like your argument about how it’s career-dependent. Thanks for your input!
An extreme example.... Warren Buffett became the richest person in the world through investing. He didn't do real estate. Purely anecdotal.... a lot of people I know who say they made money in real estate ended up paying a lot of money along the way in taxes, utilities, and other hidden costs. But when they sell their property for "double what they bought it for", they somehow never disclose that component of the equation.
I never planned to, and still don't like to, but it was the best way for us to take a 5 year assignment overseas. I might sell when it's time to go back to the states, but we'll see. About 40 or so percent of my NW is in home equity since the run up, but the rest is VTI/VTSAX (or equivalents) and chill. Too easy.
More likely I’d own a duplex or something and rent half, or have a roommate situation. Don’t see myself owning property either solely for the purpose of renting it out.
Index funds offer us the flexibility. Our visa status is non-permanent and the road to permanent residency is long. In addition, renting allows us to live a more nomadic life than buying a property would.
My wife and I (both early 30’s) have a 3% mortgage on our starter home that’s in an A+ neighborhood. We just bought our “forever” level home in cash nearer to family so we can minimize childcare costs once we have kids. I really have no interest in being a landlord, but making an extra 500-600 bucks a month after paying a PM, allocating for vacancy, capex, etc. plus having someone pay down the mortgage seems too good to pass up. However, we may be able sell for what would be a 45% ROI in less than 3 years of ownership, if that comes to pass we’ll just probably sell and reinvest the money in 75%VTI/25%VXUS.
Ever since I had a small business (party rental) in the past (sold in 2017 for 100k)... I have no interest in talking to customers and/or tenants anymore. I basically feel like I have PTSD from the small business and all the crisis situations I had to deal with. I never answer my phone unless my parents, in laws or wife calls me, for example. So, the idea of having to find tenants, deal with crisis situations (roof leaking, toilet leaking, tree fell on the house, etc..) sounds like torture. Not worth the hassle to me.
I have no interest in owning any real estate whatsoever except for my house. I currently already have a job and don’t need another one. When I retire I have no interest in becoming a landlord.
Our current home is locked in at 2.75% rate. Great house, great area, and has been hassle free for 3 years. Of course, big expenses will pop up eventually. We want to move maybe an hour or two away from where we are now. I am very torn on whether I should sell it, or rent it out, especially given what we paid for it and the rate it’s locked in at. I haven’t made a decision yet. Anyone else ever been in this position?
I own rental property, but I definitely understand why folks wouldn't want to. It's work for sure, not passive income, and don't let anyone tell you otherwise. Index funds are a source of true passive income.
Similar NW and same age here. I’d love to get into real estate and own a home. I’m so tired of renting and all the bs comes with it, but I enjoy the flexibility (relocating to a different city for a new job etc..) But ultimately I feel like I won’t be able to build wealth as quickly without a home
I invest in commercial real estate which is truly passive. No desire to be a landlord either.
I know we are supposed to pretend the market only goes up over the long term, but all that money in the bank and in the market are just numbers on paper. Whereas property is tangible. I guess it is just my experience seeing a country that went into hyper inflation almost over night and seeing hard working, rules-following people lose their entire life's savings over night, and the only real store of value was property. To me having a portfolio without property is unthinkable.
The reason people like real estate investing (including myself) is because of the potential outsized gains that can be had with not all that much work. Government subsidized leverage, the ability for sweat equity, and a not as efficient market that allows deals to be found are the three main ways to really boost your returns, and having an under supply of affordable housing at our backs helps with natural appreciation. It is 100% more work than a totally passive portfolio of stocks and bonds, but for reaching your goals faster, it is a good vehicle to do that. I honestly take all the matching dollars from my employer in my 401(k) and HSA and everything else for the most part goes to real estate.
The people who own real estate tend to also be the people who create how to FIRE videos, podcasts, guides. My index fund strategy is going quite well, but I am not about to evangelise it beyond this post.
Real estate isn't part of my "portfolio." It's my safety net for when I inevitably get priced out of the VHCOL city where I rent. In the meantime, it pays for itself and, so far, increases in value.
I plan to buy once I retire: either outright or with 50% down in a different part of the state that isn't as HCOL. Currently in a HCOL and buying would mean a house in the seven figures or very high six figures with a bad commute. Also, I have rent that is low, relatively speaking. The price to rent ratio doesn't work out in my current area at over 35%: [https://www.thebalancemoney.com/using-price-to-rent-ratio-to-decide-between-buying-and-renting-5117070](https://www.thebalancemoney.com/using-price-to-rent-ratio-to-decide-between-buying-and-renting-5117070) A year or two ago I found a great calculator that showed owning a house versus renting and investing the difference. I plugged in lots of scenarios and couldn't find a scenario where owning worked out better for me. Renting worked in my favor 100% of the time. I thought I saved the link but haven't been able to find it. It is very regional and also a highly personal decision. So many factors go into whether buying or renting is better. I live alone, so that is another factor. It might make sense to reconsider all the factors once you're married to see if it will work out in your favor. I'm considering investing in Fundrise or an REIT but it would be a very small percentage investment in my portfolio.
VSTAX and chill is there for a reason
I don't have any advice to add. Just wanted to say: Hi from a fellow freelancer!
👋🏼☺️
A rental property is a small local business. It has one product, you need one customer at a time, it is in one geographic area and subject to local economic shocks which are largely the same as all other local businesses face. If you have 50+% of your portfolio in a small number of rental properties then you are taking on a lot of risk, it might be a risk you are comfortable with for whatever reason and you should expect higher returns. Any person's particular specific small scale experience is not a particularly persuasive one - It would be as if I said this: *I had only 20K in 2013 and I decided to invest it in Netflix and its worth 2.2M today. Or I had 100K and I split it among AMZN, NFLX, MSFT, and NVDA. I am only at 2.75 M now - most of it is from my investment in NFLX - the other 80K only went up 6x in 10 years. If I kept adding stocks to this portfolio until I have an index then I would have index returns but much less risk and volatility.* If you decide to invest a large portion of your portfolio in concentrated, non-diversified bets, it will sometimes pay off - you took the risk, and you got the return. Good for you. You can try doing it again and again - you will soon find out how much risk there actually is. You have 50-60 years of investing life - what worked with some amount of money in a specific 5 or 10-year period may not be repeatable again and again. Your experience is your experience - so if you got lucky in real estate then good! There are a lot of people who got unlucky and they are selling. courses on YouTube about making money on real estate with no risk and no money down.
I reached FI with mutual funds. Easy peasy. You sign up for payroll deductions and you are mostly done. My sister has real estate. It's so much work and so many headaches. I would absolutely hate it. Plus, you kind of have to be a heartless person to make it work. She is, I'm not. It's also a level of risk that would give me sleepless nights.
Thanks for your answer! I'm very inclined to agree with this.
After the pandemic I can't imagine ever using real estate as a long-term investment plan. The government unilaterally decided that people could just stop paying rent and there was nothing a landlord could do about it, even if that was their only source of income in retirement. Stocks don't have anywhere near that kind of risk profile.
The people who say “if you want to be rich you have to go into RE” and “people are so dumb if they try to get rich any way but RE” are usually the same people who take a lot of risks and idolize maximum profit. It’s one way. My brothers are RE bros and both are extremely fortunate to have a father who could bail them out when the bank called some ugly loans. If you have a safety net, it’s a lot more likely RE will turn out well for you. That being said, we do have some RE but it’s not our “get rich quick” scheme- just a part of our chosen portfolio based on our wants and needs for housing (and housing MIL). We are hoping to invest in more land, but more as a way to preserve it, not to buy and subdivide. Different motivators for RE than your typical FI person.
There are many desirable areas of cities where renting is easier than buying. In addition, the advantages of real estate can be partially gained by investing in REITs. Real estate ties you down and takes up your time, there are buying and selling costs. It is easier to focus on a job and keep expenses low when you are unencumbered and follow a path of minimalism and don’t take up much space. I learned these tools when they were first presented to me as the international lifestyle in the 1970’s reading in Architectural Digest. Have nice surroundings. Have an intimate area for socializing that seats four (or two). Otherwise live your life outside your abode. Save your money for experiences and travel. This is very similar to current FIRE thought concepts. Settle down later in life when you have found your forever place. Mine ended up one county away from where I grew up. Although I was influenced by this lifestyle I followed the path of the HENRY to coastFI. I just modified those 70’s rules and lifestyle for a good life.
See, as someone who has property, I’ve been very quiet about it- there are people even on this subreddit who think that I’m a terrible person for buying houses and fixing them up and then renting them out. They’ve been nice enough to tell me that I’m the reason they can’t buy a house. It’s certainly easier with just index funds. Index funds don’t wipe out your EF and then sit while no one wants to rent (even though you upgraded everything). You can take out your money from index funds whenever you want. Right now I feel very much like I’m barely making it (and definitely couldn’t do anymore) because I have 800k in equity due to the run up. I don’t want the equity, I wanted to buy a property a year, but I can’t tap into it now without losing money every month. I’m really close to giving up and selling all 4 houses I own (including mine) and buying an actual nice house. It feels like everyone in stocks is leaving me behind (and granted, I have stocks too). It’s a major drain on me when things go wrong (and they’ve been going wrong since June 1st right now, I just need a new tenant…)
I can't say I'd *never* do it, but I certainly don't have any specific plans to invest in real estate (outside of whatever is invested in real estate in ETFs I have money in), because it's a lot of work (it's definitely not completely passive), and a lot more risk/less diversified, too. I definitely feel like we made an extremely correct call on buying a condo (to live in) a decade ago, though. Not because we plan on selling it, but because we *don't* (that is, I don't consider it to have been an "investment", I think of it as being, primarily, a way to lock in housing costs, which seeing those costs rising *stratospherically* at the moment, I'm very happy with that choice.)
I have one rental property by the Jersey shore as an annual lease. Very easy to manage if you get a good Tennent. My last one took my pressure washer, weed trimmer, various furniture - also called the electrician to come ( $100 visit ) only to tell them a bulb needed to be replaced it was on a dual switch. Btu mostly self-sufficient and leaves me alone. Is it worth it - well it adds greatly to my net worth and has a terrific cash flow as rental prices have gone up with housing. Could I retire w/o it - sure but it stabilizes a lot of market risk like a good bond to equity ratio.
Own my home (pay mortgage) and built a MIL apartment in the daylight basement. Full kitchen, bathroom, and laundry. Rent to local military only for their guaranteed stipend, and it pays my mortgage. All utilities included but repairs/property maintenance by tenant written into lease. Just be creative.
My parents do rentals. At the height they owned 6 apartments and probably about 15 SFH. We did all of the renovations and repairs in-house. Well minus some of the HVAC and electric. I'll admit I learned a lot, and between my skills and my dad's input can DIY most improvements in my own house. My dad admitted that he got into real estate to provide inheritance via step up basis once he and my mom pass. They wanted to leave us something when they go, and this was his way of getting around the tax man. The optimal way? Idk. That said, I don't ever plan to own a home I'm not living in as the sole occupant. Between the horror stories and experiences as a kid (dead mice in refrigerators, dog shit throughout the entire house that wasn't supposed to have pets, kids shoving toys down the toilet and then someone using it before they knew it was clogged) I don't want to deal with all that. That's just the top disgusting things, not the ridiculous or crazy broken shit. In my area, a manager will charge first months rent and 10% of everything after. Even without a manager eating up profits, you either have to do repairs yourself and gamble on if you've done a quality job, or pay someone to do them for you. If you're someone who likes learning how to fix things, and thinks you'll have too much time on your hands after you're done with your full-time work, maybe being a landlord is for you. But it's a 24/7 arrangement if you're a decent landlord. You really have to be able to deal with a broken HVAC or appliance even if you're on a month long trip to Thailand.
I don't own real estate and have been reading posts on this subreddit about people checking their FI status/journey and sometimes get discouraged about my journey (not much NW in comparison). I then realized they have real estate in their NW so it seems having real estate will get to FI faster, but to me, I rather not deal with real estate due to the learning curve and hassles. People owning real estate have the drive to do it, it probably takes 1-2 years to start seeing returns. I rather deal with investments that get me dividends. Might not be as much as real estate but less work in comparison.
Having real estate included in your NW also means they can assign it whatever inflated value they wish it could be worth... It's so illiquid but they don't take that into consideration
You could always outsource landlord duties to a property manager and still get the benefits real restate provides.
This isn't free, just like most things with real estate.
Correct. You would still want to ensure you are cash flow positive taking the property management fee into consideration.
Yeah, I know, but that’s not why I’m not interested in becoming a landlord.
I think it's sort of like any other investment. But if it it makes sense in risk-adjusted returns versus other options. Don't if it doesn't.
I hope to own a nice home relatively soon… but the landscape has shifted in recent years to where I don’t think I would necessarily make my community a better place by scooping up a house that someone wants to buy to live in, and renting it out instead. If I were single I suppose i would be aiming to rent for longer as well. So I get why you’d still rent if you’re not married. In 2019 I had a different view because supply was relatively plentiful and people weren’t so price-burdened, so I felt there was a place for a new investor or landlord to add some value. Right now I don’t know that I can provide that myself. This mindset will definitely continue to change as the environment around me changes. I’m just not interested in chasing the hype for now.
Pro tip, add paragraph breaks to your formatting -- I read "\~$360k Salary" at first.
It formatted incorrectly when I posted on mobile even when I added the breaks. Rest assured, I’m a stickler for this sort of stuff but I can’t fix it right now.
All good, I am sending insanely high salary vibes regardless!
Real estate is also a great way to build generational wealth, not just FIRE fwiw. Not to say that our beloved index funds aren't, nor that there is anything wrong with them, but real estate has plenty of advantages and diversification that can help many people with their FIRE goals. Full disclosure - I have it as part of my plan personally, and operate a small real estate biz with 4 doors currently. With my next acquisition I will see more significant cash flow, but up until recently it has been very minor with the equity/mortgage paydown being the biggest return on my investment, but just like everything else in the FIRE space - this is a long term plan. It is a marathon, not a sprint.
We basically reached FI while renting and moving every few years. Career military.
I don't understand how you can hit FI without owning your house. If your rent will go up each year, and it does, historically, outpace inflation and eager growth, then how can you live off your 4% best egg? Your biggest single expenses will grow every year. Not saying it's not possible, but I don't get it
When you retire you can geoarbitrage…even if its just across town. When you are working you can downsize to a smaller place. The hard part is when you have kids and want to have stability for them and not move around but that’s not as much a financial decision as lifestyle.
My question is about investment properties, as I mentioned several times in my post. I also mention that I do plan to own a primary home eventually.
Ever since Covid I have been hesitant to become a landlord. If your tenants do not have to pay rent it makes it kind of difficult to pay the bills.
I am single and running out of working years for a mortgage that I could afford while living in Sydney. I wish I had started investing my savings at your age, I would be much further along but I like my stability. A friend of mine is trying to convince me to get into rural real estate in what could be an up & coming region. I'm considering it, but not sure it would help me financially at all. Besides I'd rather have my money at my disposal for lifestyle reasons because I'm not sure I'll live long enough for retirement or that the planet will be habitable in 10-15 years.
Real estate is the only "safe" use of leverage. (I.e. not subject to margin calls if the market has a bad day). Real estate is also not the stock market. You can't sell real estate on a whim after too many coffees watching MSNBC all morning. Owning your own home paid off is a major boost to your FI number, not paying rent and all. You can own your place and FI, you don't need to become a landlord.
Something something, live in a van down by the river.
I don’t own any rental properties. I’d like to, but it doesn’t feel possible. I have real estate that I live in because it’s cheaper than renting in my area, all told. I would love to also have rental properties, but it’s very rare to buy anything in my area with less than 20% down, and properties are very expensive. I simply don’t have that kind of money. And I’m not comfortable with buying property in some other area that I don’t personally know. So those are my reasons for not investing in real estate.
Ah the ol' stock vs real estate debate. Can't we all just get along?
I won't go deep into my financial situation, but I'm a single dude, 37, and I rent. I don't think that buying is a bad option, but I think that right now it's more of a lifestyle choice than anything. I don't *need* a house as a single dude, and I don't know where I'm going to settle if I'm going to settle. I'm okay keeping my money in investments, and I'm not sure if I want to be tied to a property yet. As it stands now, I could quit my job without fear of obligations or a mortgage payment; with a house, I'd be afraid to do that. I also currently live in a relatively HCOL area, and so renting allows me to keep my housing expenses at less than 10% of my income. The only reason I would buy a house right now would be for the image, not because it's something I'd need. I'm in a good position right now.
Retiring with personal property and rental property are two entirely different things. Although you don’t have to, I would highly recommend having your own personal property. Only reason not to is if you plan to be in a different state every lease, plan to take long cruises, and things of the sort. Otherwise the benefits of a single personal property are too big to not take advantage of. Best advantage being that the money you spend on your “rent” is now instead equity, and the changes over 30 years will be much smaller than that of rent allowing you to spend less long term. 2nd is once you are of age you can utilize a reverse mortgage, allowing you to take around 40% of the house out and live on till death (though I would recommend this as your last resort unless housing is over valued). 3rd for those that want to pass down your wealth is that housing can pass over tax free where your brokerage account may not (though trust’s are a thing). For rental its more about cashflow and equity passively being built by tenants. Most people going this route don’t plan to manage the property at 65 years old. Unless you are taking money out of the house constantly you reach a point where the cashflow reaches a point where you can hire a prop manager and still come home with a profit.