Buying a rental property?

[Anonymous]

I am a 9-5 W2 employee looking for more passive/flexible income sources so I can eventually quit my current job. I've just started look into buying a couple rental properties. We would be able to pay cash for 1-2 rental homes to start with. The goal would be to rent to resident physicians at our local hospital (DH used to be a program director and we have a lot of contacts who would advertise for us). I am a former lawyer now in a higher ed compliance role. Any experience pro or con doing similar?

[Anonymous]

Cash flow is king and appreciation is nice. Make sure it cash flows from day one and you're gonna have a good time.

Appreciation is trickier, but if you've got good cash flow then you can choose your timing with appreciation whenever it eventually appears in the future and either cash-out refi for other investments or sale to exit.

[Anonymous]

It's a pain in the butt. I'm an attorney, and I self-manage 4 units that are nice enough to attract young doctors. I also have young kids. The last thing I want to deal with is another broken appliance, complaints about the water pressure, or the neighbors' dog. Cash flow is pretty good because I bought into real estate in my twenties, 1031'd along the way, and mortgages are at 2.8%. It will cover half my retirement expenses most years. I ignore appreciation because the properties will go to my kids, and they can sell at the stepped-up basis or hold on to them.

[Anonymous]

We looked at doing this but did not because interest rates are high and it didn’t seem like we’d be making any money, but it sounds like you can outright afford to buy properties.

The real savings is when are NOT doing it as passive. You can right off depreciation against your w-2 income but either you or your spouse has to materially participate. It’s easier to meet this for short term rentals (under 7 days) than long term.

Everyone says being a landlord is a PIA!!

[Anonymous]

Don’t do it. If you have the cash, just invest it.

[Anonymous]

I wouldn’t do this unless your HHI is around or exceeds $2M ish and will for the foreseeable future. That’s where the tax advantages and depreciation tend to be amazing compared to the alternatives regardless of how much the property appreciates etc. Otherwise, I’d put it in index funds. We’ve got 6 doors we inherited and while the depreciation is amazing, we wouldn’t pay the $2M it would cost today to buy these properties - plus their appreciation hasn’t kept up with VOO or similar despite being in a VHCOL area.

[Anonymous]

Owning rental properties is not passive.

[Anonymous]

The cash you have should have been already collecting passive income and now that passive income should be collecting passive income.
Become a property manager if you love fixing homes. No reason your money couldn't be doing what you want it to do without it being in real estate.
Do you think real estate is the way to go? Maybe 30 years ago, but market would have still beaten it.

[Anonymous]

Anonymous wrote:Owning rental properties is not passive.

It depends on what your definition of this is - are you defining it in terms of finance or what the IRS classifies it as?

[Anonymous]

Anonymous wrote:The cash you have should have been already collecting passive income and now that passive income should be collecting passive income.
Become a property manager if you love fixing homes. No reason your money couldn't be doing what you want it to do without it being in real estate.
Do you think real estate is the way to go? Maybe 30 years ago, but market would have still beaten it.

Only if you don't use leverage with real estate. Almost everyone uses reasonable (sole-recourse) financing on rental property investment.

[Anonymous]

Doesn't sounds like a good idea if you pay cash. And even if you use leverage, good luck finding a property in the DC area that will give you any cash flow. And no way in hell would I consider real estate passive.

[Anonymous]

RE is better when leveraged, paying cash you might as well just put it in stocks for fully passive investing

[Anonymous]

Anonymous wrote:RE is better when leveraged, paying cash you might as well just put it in stocks for fully passive investing

This.

[Anonymous]

I co-own a commercial property with a business partner. We each put the same amount down and took out a mortgage.We each use a unit for our small businesses. There are four units; currently the rents from two rents pay the mortgage. In 10+ years our only real issues have been a roof replacement, a slow pay tenant, and during Covid, a unit that stayed empty for a bit. Overall it's been a good investment, the property has doubled in value and is part of my retirement planning.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Owning rental properties is not passive.

It depends on what your definition of this is - are you defining it in terms of finance or what the IRS classifies it as?

I wonder if PP was talking in terms of your time/headaches. We used to have a number of properties but never again.