Better investment options than Real Estate?

[Anonymous]

Anonymous wrote:

Anonymous wrote:If you had to pay a ~ transaction cost of ~6% when buying/selling AND pay ~1% of the portfolio value every year, just to hold it, AND spend ~0.25-0.5% on "maintaining" them every year...

Guess where the S&P 500 would be if those were the rules....One guess. Down in the dumps. Now, rental properties are different. The math on them gets seriously complex, but if all you are looking for is "investment", equities, and other financial products are MUCH better investments.

But, you know why most people don't do the above but "invest" in real estate instead?? One word. LEVERAGE.

If you're putting down 5% and are able to get a house, that's a 20x leverage. Show me a stock broker that will allow that level of leverage and I'll show you the bridge I'm selling. This is the ONLY reason "small" investors play more in the real estate markets. Blackrock? It goes out and sells a bond for $30B and has fun with the proceeds.

These are all very good points.

Agree. I inherited rental properties that were not leveraged, and it just didn’t pencil out. Rental property makes sense if they are highly leveraged and in an area that is appreciating in value. If you want to be diversified from equities, REITS are better, because your money is spread across multiple properties and you don’t have landlord hassles.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:OP there's also the 25 percent depreciation recapture tax, which you'll be required to pay whether you've been taking a depreciation expense deduction or not.

If you’re carrying losses forward because you can’t deduct them then the losses generally offset the depreciation recapture.

OP, this is going to depend on your specific tax situation.

You can't offset recapture depreciation from the passive loss. You could only use passive loss for offsetting capital gains. Recapture depriciation would never be offset. If that would be the case then all the super rich people would buy only REs and not stocks because they would not have any gain to show.

You absolutely can use your suspended passive losses to deduct X amount from your W-2 income, and then the depreciation recapture is negligible/non-existent. If you have losses equal to depreciation it’s just about a wash.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:If you had to pay a ~ transaction cost of ~6% when buying/selling AND pay ~1% of the portfolio value every year, just to hold it, AND spend ~0.25-0.5% on "maintaining" them every year...

Guess where the S&P 500 would be if those were the rules....One guess. Down in the dumps. Now, rental properties are different. The math on them gets seriously complex, but if all you are looking for is "investment", equities, and other financial products are MUCH better investments.

But, you know why most people don't do the above but "invest" in real estate instead?? One word. LEVERAGE.

If you're putting down 5% and are able to get a house, that's a 20x leverage. Show me a stock broker that will allow that level of leverage and I'll show you the bridge I'm selling. This is the ONLY reason "small" investors play more in the real estate markets. Blackrock? It goes out and sells a bond for $30B and has fun with the proceeds.

Citigroup and other places will allow 2 percent down on stocks. Always had. Just need to be a qualified investor.

That said cash is king to buy rentals. Hard money discount. I recall I dated a girl her mom had around 200 properties. 199 paid for cash. What she did was mortgage prior purchase to buy next first few. From there she used cash flow to buy more. She buy cheap.

All her transactions are like straight transactions. She never actually records the rent. She lets it pile up then buys another house. It was truly hilarious out of a movie. She take one of her large sons on rent day but both busy I went with hey and collected at least 90 rent payments nearly all cash. Once in a while check made to cash. No one had a lease. A lot were illegals or poor credit from kid. That day in 1995 we picked up around $80,000 in rent.

She was a character. The town newspaper was calling her out on suspicion so she bought town newspaper. She also randomly collected stuff. Like tiny weird small run down commercial properties if she knew developer was trying to build. She also had a realtor license and own real estate business.

She is still alive as I see her on Facebook. When she dies that will be interesting. She has four kids and multiple grandkids so assume she knowing her is transfering properties. Even in 1996 she had ski houses, Florida condos, her crown jewel 200 buildings on a rich Long Island town. She literally owns 10 percent of town but through lllcs and stuff who knows she started this in 1972.

My cousin on other hand legally owns 3,000 homes

What does this tirade have to do with an "investment" analysis??

This person shows up in every post to tell stories about Long Island back in the '90s.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:If you had to pay a ~ transaction cost of ~6% when buying/selling AND pay ~1% of the portfolio value every year, just to hold it, AND spend ~0.25-0.5% on "maintaining" them every year...

Guess where the S&P 500 would be if those were the rules....One guess. Down in the dumps. Now, rental properties are different. The math on them gets seriously complex, but if all you are looking for is "investment", equities, and other financial products are MUCH better investments.

But, you know why most people don't do the above but "invest" in real estate instead?? One word. LEVERAGE.

If you're putting down 5% and are able to get a house, that's a 20x leverage. Show me a stock broker that will allow that level of leverage and I'll show you the bridge I'm selling. This is the ONLY reason "small" investors play more in the real estate markets. Blackrock? It goes out and sells a bond for $30B and has fun with the proceeds.

These are all very good points.

Agree. I inherited rental properties that were not leveraged, and it just didn’t pencil out. Rental property makes sense if they are highly leveraged and in an area that is appreciating in value. If you want to be diversified from equities, REITS are better, because your money is spread across multiple properties and you don’t have landlord hassles.

Also good points. I just wanted to add that in addition to highly leveraged and appreciation, it also needs to have substantial positive cash flow. And actually, if you get that, you can make money without appreciation. Unfortunately, the only way it looks like people can do this right now is to be a Section 8 landlord and not a lot of people want to do that. So instead people are gambling on appreciation and think that if the rent covers the mortgage then everything is good.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:OP there's also the 25 percent depreciation recapture tax, which you'll be required to pay whether you've been taking a depreciation expense deduction or not.

If you’re carrying losses forward because you can’t deduct them then the losses generally offset the depreciation recapture.

OP, this is going to depend on your specific tax situation.

You can't offset recapture depreciation from the passive loss. You could only use passive loss for offsetting capital gains. Recapture depriciation would never be offset. If that would be the case then all the super rich people would buy only REs and not stocks because they would not have any gain to show.

You absolutely can use your suspended passive losses to deduct X amount from your W-2 income, and then the depreciation recapture is negligible/non-existent. If you have losses equal to depreciation it’s just about a wash.

You missed the point. We are not discussing deducting depreciation from your regular income for every year but at the time of the sale when re-capture depreciation kicks in. BTW, there is a limit of offsetting depreciation against your income every year if your AGI is more than $150K.

If anyone could do that without income limit then all the rich people would only invest in REs.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:If you had to pay a ~ transaction cost of ~6% when buying/selling AND pay ~1% of the portfolio value every year, just to hold it, AND spend ~0.25-0.5% on "maintaining" them every year...

Guess where the S&P 500 would be if those were the rules....One guess. Down in the dumps. Now, rental properties are different. The math on them gets seriously complex, but if all you are looking for is "investment", equities, and other financial products are MUCH better investments.

But, you know why most people don't do the above but "invest" in real estate instead?? One word. LEVERAGE.

If you're putting down 5% and are able to get a house, that's a 20x leverage. Show me a stock broker that will allow that level of leverage and I'll show you the bridge I'm selling. This is the ONLY reason "small" investors play more in the real estate markets. Blackrock? It goes out and sells a bond for $30B and has fun with the proceeds.

These are all very good points.

Agree. I inherited rental properties that were not leveraged, and it just didn’t pencil out. Rental property makes sense if they are highly leveraged and in an area that is appreciating in value. If you want to be diversified from equities, REITS are better, because your money is spread across multiple properties and you don’t have landlord hassles.

Also good points. I just wanted to add that in addition to highly leveraged and appreciation, it also needs to have substantial positive cash flow. And actually, if you get that, you can make money without appreciation. Unfortunately, the only way it looks like people can do this right now is to be a Section 8 landlord and not a lot of people want to do that. So instead people are gambling on appreciation and think that if the rent covers the mortgage then everything is good.

But I’d rent covers the mortgage, aren’t you building equity in the home? So even if it doesn’t appreciate, someone else is building your equity. It’s not as good a return as stocks, but isn’t that still valuable?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:If you had to pay a ~ transaction cost of ~6% when buying/selling AND pay ~1% of the portfolio value every year, just to hold it, AND spend ~0.25-0.5% on "maintaining" them every year...

Guess where the S&P 500 would be if those were the rules....One guess. Down in the dumps. Now, rental properties are different. The math on them gets seriously complex, but if all you are looking for is "investment", equities, and other financial products are MUCH better investments.

But, you know why most people don't do the above but "invest" in real estate instead?? One word. LEVERAGE.

If you're putting down 5% and are able to get a house, that's a 20x leverage. Show me a stock broker that will allow that level of leverage and I'll show you the bridge I'm selling. This is the ONLY reason "small" investors play more in the real estate markets. Blackrock? It goes out and sells a bond for $30B and has fun with the proceeds.

These are all very good points.

Agree. I inherited rental properties that were not leveraged, and it just didn’t pencil out. Rental property makes sense if they are highly leveraged and in an area that is appreciating in value. If you want to be diversified from equities, REITS are better, because your money is spread across multiple properties and you don’t have landlord hassles.

Also good points. I just wanted to add that in addition to highly leveraged and appreciation, it also needs to have substantial positive cash flow. And actually, if you get that, you can make money without appreciation. Unfortunately, the only way it looks like people can do this right now is to be a Section 8 landlord and not a lot of people want to do that. So instead people are gambling on appreciation and think that if the rent covers the mortgage then everything is good.

But I’d rent covers the mortgage, aren’t you building equity in the home? So even if it doesn’t appreciate, someone else is building your equity. It’s not as good a return as stocks, but isn’t that still valuable?

*if rent

Not “I’d rent”

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:OP there's also the 25 percent depreciation recapture tax, which you'll be required to pay whether you've been taking a depreciation expense deduction or not.

If you’re carrying losses forward because you can’t deduct them then the losses generally offset the depreciation recapture.

OP, this is going to depend on your specific tax situation.

You can't offset recapture depreciation from the passive loss. You could only use passive loss for offsetting capital gains. Recapture depriciation would never be offset. If that would be the case then all the super rich people would buy only REs and not stocks because they would not have any gain to show.

You absolutely can use your suspended passive losses to deduct X amount from your W-2 income, and then the depreciation recapture is negligible/non-existent. If you have losses equal to depreciation it’s just about a wash.

You missed the point. We are not discussing deducting depreciation from your regular income for every year but at the time of the sale when re-capture depreciation kicks in. BTW, there is a limit of offsetting depreciation against your income every year if your AGI is more than $150K.

If anyone could do that without income limit then all the rich people would only invest in REs.

I literally said in the first post about carrying forward losses and that it depends on OP’s specific tax situation. Stop being so hostile.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:If you had to pay a ~ transaction cost of ~6% when buying/selling AND pay ~1% of the portfolio value every year, just to hold it, AND spend ~0.25-0.5% on "maintaining" them every year...

Guess where the S&P 500 would be if those were the rules....One guess. Down in the dumps. Now, rental properties are different. The math on them gets seriously complex, but if all you are looking for is "investment", equities, and other financial products are MUCH better investments.

But, you know why most people don't do the above but "invest" in real estate instead?? One word. LEVERAGE.

If you're putting down 5% and are able to get a house, that's a 20x leverage. Show me a stock broker that will allow that level of leverage and I'll show you the bridge I'm selling. This is the ONLY reason "small" investors play more in the real estate markets. Blackrock? It goes out and sells a bond for $30B and has fun with the proceeds.

These are all very good points.

Agree. I inherited rental properties that were not leveraged, and it just didn’t pencil out. Rental property makes sense if they are highly leveraged and in an area that is appreciating in value. If you want to be diversified from equities, REITS are better, because your money is spread across multiple properties and you don’t have landlord hassles.

Also good points. I just wanted to add that in addition to highly leveraged and appreciation, it also needs to have substantial positive cash flow. And actually, if you get that, you can make money without appreciation. Unfortunately, the only way it looks like people can do this right now is to be a Section 8 landlord and not a lot of people want to do that. So instead people are gambling on appreciation and think that if the rent covers the mortgage then everything is good.

But I’d rent covers the mortgage, aren’t you building equity in the home? So even if it doesn’t appreciate, someone else is building your equity. It’s not as good a return as stocks, but isn’t that still valuable?

Leverage helps, in theory, we it’s not just the mortgage — when I did the math, by the time I included taxes, maintenance, management fees (or hassle of doing it yourself), insurance, and depreciation, plus some allowance for the the house to sit empty every now and then (for refurbishment, if nothing else), the payback was very low. Add in interest on a mortgage, and it would have been negative, even with a smaller amount of capital invested. At best, it came nowhere close to the returns I could make in the stock market with no management hassles. Maybe there is some magic place where rents are high, but that wasn’t the case in the area I was in, even though it was a very hot real estate market.

It can also be great if you get lucky — e.g., if you had bought in Southern California 40 years ago. I had a relative who did that, and did very well. But (a) the timing was mostly luck, and (b) once you’ve seen the majority of the increases, it doesn’t necessarily make sense to leave your equity there.

I agree with pp that buying rentals can be a good way for people without much capital to build wealth via leverage, but if you have lots of capital already, there are better and easier ways to produce returns. Also, if you’re looking for exposure to the real estate sector, REITS are an easier and more diversified way to do that (vs. putting all your chips into one single investment).