Would you drain your investment account 100% to buy a rental property outright?
I've been investing since 2015 (lel) and my account is up 15%
I THINK stocks will be mediocre in the near future
Would it be dumb to buy this property and get back into stocks in 2019?
Yeah you'd be dumb. Rental property isn't really something you just get into and out of because there is a pretty hefty rake from buying and selling frequently.
Just buy some bonds and collect the coupon until you want to get back into stocks.
I sold my rental property and invested in stocks. I'm now making money off money I actually own and have no debt.
stupid idea if i ever heard one.
if you are like fucking rich and want to have some real estate up to 10% of your wealth that will provide you with a living even in times where the market takes a crapper. and you are not shy of the difficulties of dealing with renters. then you can do that i guess.
going 100% into landlording is financially illiterate beyond comprehension.
It is really dumb top buy a rental property outright. Get mortgages instead and buy four
I'm struggling with this too...have tons in the market and no debt. It's really difficult for me to go from that to taking out 4-5 mortgages...but if they're paying for themselves it shouldn't matter. Not really sure how to justify it.
Just run the roi numbers for a leveraged and unleveraged rental home. You'll see the difference. Always make decisions based on the numbers.
i can support this! and calc some opportunity costs also!
and don't fucking forget maintenance and upkeep costs for fucks sake! look at some real relevant statistics if you can.
>but if they're paying for themselves
i always wonder how the people who write stuff like this are not hobos.
I don't understand how paying for a property without a mortgage and renting it out is obviously dumb
Probably I'd want the rental managed for me, which wipes out some of the advantage
>I don't understand how paying for a property calculate your roi as this nice user said:
if it seems like it's worth it (and by worth it i mean compared to alternative investments) it's not dumb.
calculate with 5% yearly costs if you manage and add the managers fee if not.
btw i ran some numbers for you:
if you buy a $100k property and rent it out for $450 a month your roi is 0.4% a year.
>if you buy a $100k property and rent it out for $450 a month your roi is 0.4% a year.
Are you sure that doesn't seem right
$5400 a year against a $100k property
minus $5000 cost that's 400 profit which is before taxes mind you.
but the good news if you can rent out for $1k then you can manage a whooping 7% before taxes a year.
only way to make money renting is leverage
Here's some actual numbers based on this property for sale:
spartaninvest.com
Without leverage: 8.4%
With leverage : 16.9%
Now, out of that, there's probably a 5% penalty, but still, you can see the difference that mortgages make.
Sorry, 5% penalty *for vacancy/repair*, which is not factored in.
>only way to make money renting is leverage
If house prices kept pace with inflation, one would make more money buying properties sequentially
not sure i understand what you mean, but my guess is people that make money around here renting (we have sub 0.5% rents) are actually flipping houses. they hunt for new homes with no problems ye in bear markets and sell them in bull markets and in the meantime they rent the homes out and pay the mortgage from the rent ignoring the other costs. this makes maintenance someone elses problem if they are lucky.
these people are professionals with an eye for trends and buildings and people that would rent them. you try to compete with them on honest terms, well good luck.
>Maintenance Cost: $0
the fuck am i reading?
did they just measure the return to the 20% down? wtf am i reading here?
housing prices are a function of demand and required % down
>wtf am i reading here?
alright i get it now. well that's an interesting product.
it requires these exorbitant rents to look like it's actually working tho.
and with leverage your maintenance costs will multiply by 5 compared to your investment, jesus.
A new build apartment would have less maintenance costs?
First and foremost, run the numbers, as others have already suggested.
If you have a one-time offer of buying some amazing real estate substantially below market value - yes, this is probably worth it, you don't pass up a chance like that.
Otherwise I'd have to advise caution - and this is coming from someone who has 50% networth in rental properties. Going 100% *anything* is silly. Do you have prior experience? Because real estate can be a bitch. There's a lot of very diverse skills required, from handling buildings, people, money, contracts to taxes.
yes generally you pay more for them of the same square footage but less maintenance after the first 2-3 years where any building or material fault can come out. i would say a home between years 3 and 9 years can expect very little repair. you still pay insurance and stuff.
>taxes
>on rental
You just went full cuck.
well technically you have to pay taxes at least here. imagine you get paid in cash irs never gets a whiff until a disgruntled ex rentee gives them a heads up. if you have multiple properties i don't think it's worth the increasing risk but whatever.
Because your renter can pay your mortgage and you and you still have most of your money able to make you more money.
This is where you learn to walk the line between a rental and a friend staying over for a couple of days.
As for multiple buildings, i suggest writting them under different people's names.
all i know is altho i pay for my rent in cash to my landlord we insist on a receipt every time we hand him cash. try to explain 5 years of receipts to the irs with friend "staying over". i wonder if they can keep a straight face. but it's good for everyone i guess if he doesn't pay taxes the rents can be cheaper. if he tried to charge full market price we would insist on a bill (saying we need it for tax reductions or some employee policy or whatever) but this way the landlord is really kinda taken hostage as we don't have to know he is not paying taxes by the law we have no obligation to check but we can prove he doesn't.
No I wouldn't. Putting all my eggs in one basket like that scares me.
What is rental income like these days any way, 7-8% or thereabouts? I'm confident I could get better returns outside of property.
7-8% sounds about right, then you deduct the costs and what remains is 2-3% when rents are that high, and almost nothing when rents are low.
I would just buy REITs and let some other goy handle selection of properties, maintenance upkeep etc
why doesn't everyone buy REITs instead of stocks
Stocks have higher historical returns than real estate, believe it or not
why?
On the spreadsheets, it seems to make sense.
Borrow huge amounts of money at an interest rate of 4.5%, 30 year fixed mortgage, and try to get a return of 7%
80% of the money is borrowed, and your collecting 2.5% + future inflation bumping up the rents
>trying to time the market
lmao at poor people
cost. you are forgetting cost of ownership which is around 5% average. you will make -2.5% at best.
Property is one of the biggest memes out there.
it's hard to make it work for sure. there are tons of people that rent their house out only to cover their mortgage and this pushes rents down to a level where it's unfeasible to turn a profit on buying to rent out. at least it's definitely so if you buy with mortgage.
if you buy in a bust out of your pocket under the market price don't have to spend on renovation and later on can rent it out in a boom i can see that it might come out in a slight black especially if you sell the house at an inflated price before you need to seriously repair it. every other scenario will be red.
no I'm not
Im referring to marketable capitalization rates, which include maintenance cost.
You won't find a 7% cap rate in a major nice metropolitan area, but you will find it in working class neighborhoods in B- Cities (Outskirts of Portland, Texas, AZ, NV, Oakland, but not in Bay Area or Seattle)
40% of rental income is a good estimate of maintenance cost, if your in the West.
Single family homes are more liquid, but too get a good understanding of market trends in an area, you have to take a look at the cap rates offered by listed apartment buildings.
>40% of rental income is a good estimate of maintenance cost, if your in the West.
what are the rent/buy price ratios we are talking about?
Ok, well first we have to decide what property and location we are talking about.
loopnet.com
This seems a bit overpriced to me, but the cap rate includes the expenses.
cap rate = NOI / Sales Price
what's the rent? i don't see it.
i see unit price is $93,750 but can't find monthly rent.
nah i get it now, 0.79% is the rent based on grm specified.
well that's not bloody likely to be worth it like ever if you buy with leverage. if you buy with cash weell maybe. i have serious doubts about the 2.5% and i can just put my money into gov bonds for 2.75% but whatever.
in fact i can even find some longer term gov bonds for above 3%. i don't usually buy longer than 1 year tho.
From best to worst long term investments
>kneepads
>buying and leasing commercial property to businesses
>putting your money in an index fund
>giving your money to some mutual fund to do the same thing as an index fund while paying higher fees
>trying to invest in the financial markets yourself
>investing in housing to rent to unreliable inconsistent families
>day trading
>cryptocoins
very nice summary user altho i don't see how day trading could be considered long term investment and you forgot metals.
total market funds includes REITs
your wrong it's 7.9% not .79%
The grm is about 9.5, after all expenses you make about 40,000k a year net profit, pre mortgage expense.
Lets say 500 a month for 100,000k of debt to keep it simple
You borrow 80% of 750,000 = 600k, that's 3k a month... or 36k a year
you put 150k invested into property, you make about 75,000 in gross rent.
35,000 goes towards maintenance, insurance, taxes etc...
36,000k goes towards debt.
4000 profit a year, but you build equity, debt gets reduced rents go up!
and after 30 years you own 8 units free and clear
>I THINK stocks will be mediocre in the near future
odds are you are wrong
Metals are a horrible investment. All growth, no income.
you're literally too stupid to consider even the possibility of doing both. The thought never even crossed your retarded little mind.
and you want us to believe you have some money? Retards aren't allowed to own property.
Real Estate Rentals
>8% Cap Rate
>possible appreciation in value
>earnings are taxed
>property is taxed
>interest payments unless you bought with cash
>maintenance costs
>vacancies
>headaches in general
Stocks
>8-10% returns
>can be double if you know how to invest
>possible dividends
>taxed returns only
>cheap commission fees unless you day-trade like a pleb
>no need to get a loan
>don't have to deal with tenants and unclog their toilets
gee I wonder which is better
If OP isnt an actual autist he can flip homes after holding 1 year and one day.
I wouldnt tho. Real estate isnt stocks. It's pretty much a trade skill in itself that can take years to even be descent at.
Source: slumlord for years. Shoot me?
You answered your own question m8. I will be debt free in march. Blow money till may. Refinance. Been using this method for a bit. Being a wage slave it is hard be be in more debt than u can pay but they in theory pay themselves and u if you arent a tard. Aparently im only half a tard
No mortgage is slower. Eats up your number of properties u can have.
More risk. Tenant breaks a leg and own your house.
Borrowed money isnt taxed. So you essentially are paying a 3 or 5 percent interest rate on free money.
The snowball effect can play heavy in your favor.
Tax law and assett protection are enough to make me gold buddies with a lender
Well not only that. But more often then not home appraisal values rise while simultaneously letting you write off depretiation. Its magic.
i have rental properties i also have stocks, the rentals bring in income that i put into stocks when i get enough ill cash out and buy another property.
Stocks are less headach, you can start with less, its more liquid, the potential to grow your money is better than rentals but rentals are constant return which is why i keep them and will probably only retire with rental properties and some good dividend paying blue chips.
Jesus fuck. I may be aitting on a gold mine.
>be me
>hickville usa
>3 slumblords own all property and charge rape price.
>over $500 for shitty trailer
>buy shitty houses for ~40k. Rent to own trick for $600 a month because anons "dont like banks."
0% interest user! What a deal....
Is this figuring in average appreciation and tax benefits like depretiation?
Mental illness?
Only if you are a lazy fuckboi.
I'm about to buy myb3rd house running the business like a litteral autist.
Its a lot of fucking work but the best returns and standard cuck can pull.
Historical, and probably related to the fact that the US spent the last 100 years building itself up to superpower status. I am not so bullish about the next hundred years desu
They are tho. I do...
Even still life gets easier when u understand u never really own anything and just slave for your masters.
Fuckit. I dont have the time or energy to fight the machine.
Just let me take advantage of the loopholes and leave me the fuck alone
I know that feel bro.
>8-10% returns
>can be double if you know how to invest
Complete and utter bullshit and/or just roleplaying. 16-20% annual return if you know how to invest? You would literally be in the top 50 external investors of all time with these kinds of returns. You would double your fucking money every 5 years! You're out of your mind if you think you can achieve that consistently.
>no need to get a loan
And this is the icing on the cake that shows you have no fucking clue. Why *wouldn't* you get all the loans in the world if you could make 18% ROI pa? Fuck, take a horrible loan at 12% APR and you'd still make a killing. Since you claim even people who don't know how to invest make 8-10% on the stock market, *everyone* should take out loans just to invest!
>The grm is about 9.5, after all expenses
i'm telling you it's a lie.
do you have long term experience with this shit?
like you been doing it for decades or something?
cause if not then rest assured at those rent levels it would barely produce any profit. certainly not above mere gov bonds and the risks are much higher.
this is a fucking scam.
appreciation is about 1% above inflation while maintenance costs are around 5% yearly so basically you bleed 4% on holding and maintaining a home per year long term. tax benefits are not in my calculations as i have no idea how they work there they don't exist here for sure. so whatever.
chances are stocks gonna beat the living shit out of your rentals in 30 years. i would wager that holding some bonds would too. unless the rent/buy ratio is above 1% or if you like the gmr is above 12.
>gmr is above 12.
*grm sorry
>The grm is about 9.5, after all expenses
taken out of context...
yeah you make close to 0 profit on the first year, but if you can raise the rents 2% a year, you will make a killing + the repayment on the principal and increase in equity
But yes, most of the numbers they use in that are bullshit, like Vacancy rate is the most common to be understated.
if the government was willing to give me the same 30 year fixed rates for leveraging the stock market, I would borrow 5 X my networth. but the only rates you can borrow to buy stock are variable rates like interactive brokers.
That is the difference, yes it seems like a dumb idea to buy RE with cash right now, but if you can buy/leverage/hold for 30 years, it seems like a no brainer.
yes dollar per dollar, I agree with you stocks are a better investment.
>but if you can buy/leverage/hold for 30 years
unless we are in a real estate bubble because then in 30 years you might get fucking slaughtered by depreciation.
the thing with leverage, is it multiplies your gains and your losses. in case of real estate buying is a losing game buying on leverage is actually worse then without it.
see: of course this will decrease in time as you invest more. but you start out from 25% fucking costs to your investment. and have about 16.9% yield? that's just insane in my book.
What state are you in?
>>you might get fucking slaughtered by depreciation.
yes, that is a risk, but all investments have risk associated with them.
That is why you should buy in a growing area like California, Oregon, or Washington.
They have never lost population over a 10 year period of time.
The kind of depreciation you are referring to is called "economic obsolesce" ie. Detroit, Rust-belt, South Dakota Oil fields, places with decreasing population.
The basic idea, is in order for slum lording to work... You have to be cash flow positive with a 5x leverage (if your starting the business), buy in an area with increasing population / job opportunities, manage it yourself, and stay the course over 20-30 years.
>having to deal with niggers that simply move in and don't pay rent
rental property is not as easy as you think. pro tip: niggers can be of any race
>What state are you in?
i'm hungarian btw. and like i posted a few times we have around 0.5% rent/buy ratios but this does not account for expenses like insurance utilities repairs nothing. i think we would have a grm that is negative here all things considered.
that's why it's hard for me to even comprehend some calculations and statements.
oh well yah...
We are talking about apples and oranges...
American real estate has the highest cap rate in the world, I have no idea why, and our mortgages are subsidized by Fannie Mae even apartment mortgages.
I would not buy property in Europe, it seems way overpriced your GRMs are supposedly like 20-40 on average.
here is a comparison with budapest and Seattle (a bit too expensive to be cash flow positive with our subsidized mortgage rates)
something is wonky about those prices btw.
both rents and buying is more expensive unless you count 60yo shit buildings.
but the buying prices are much higher on new apartments and the rent prices are not that much higher.
i don't even look at old rentals when i try to find a place to live.
it's inputed by 178 people, so it's up to a year old, probably 6 months trailing.
It's the whole residential market
6 months ago my rent was 40% lower fuck it still hurts to think about it.