Why do people have investment properties over stocks?

[Anonymous]

Anonymous wrote:Safer than stocks.
Better than stocks.

Not true if held long term.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Safer than stocks.
Better than stocks.

Not true if held long term.

Very true if held long term. Opposite of what you think.

Stocks always being created. Land is not.

[Anonymous]

Anonymous wrote:I'll ask my dad. He is 100% real estate..for some reasons he has this massive fear of the stock market. He has 2 buildings with a total of 10 bedroom apartments. He has no mortgage. After all expenses taxes maintenance renovation etc his take home is $20k. He has been living that money in various savings accounts. He won't invest. It's crazy to me.

LMAO. Yeah, that he admits to.

[Anonymous]

Anonymous wrote:This is why we've always been 100% in stocks that we hand-picked. Mostly Apple and other high tech that morphed into the Magnificent Seven (I shorted Tesla recently). It's gone spectacularly.

My BILs are 100% in rental properties because they don't understand the stock market. It works well for them because they know how to be landlords.

So really you should know what you're doing, OP, regardless of what you choose.

Sure everyone can pick the magnificent seven.

I mean owning Google and Apple is hardly swinging for the fences.

[Anonymous]

Anonymous wrote:We live in a TH with a rock bottom mortgage rate in a good school zone and are torn between selling it or keeping as a rental when moving up. We would get about 225k equity out of it if we sold and it would rent for around $3500/month based on comps.

The monthly cost for the house (PITI + HOA) before any maintenance is $2200. Best case scenario after dealing with upkeep and vacancies we would cash flow maybe $1000/month, but would also benefit from $850/mo principal pay down and a few % appreciation per year on a 600k TH. This looks like ~40k/yr in gains putting those three together if we assume 3% appreciation. Over 20 years time frame if we assume rent and house value grow at 3%, and all cash flow is reinvested into the SPY, the total value we are left with in the end is about $1.5M if we combine the stocks and TH equity.

On the flip side if we just sold and invested the 225k equity up front in the SPY then averaging 10% would yield $1.5M in 20 years, so pretty much the same as renting the house but with zero hassle.

It seems like this math holds true for most situations where someone has at least 30-40% equity in their house, it’s almost always better to sell the house and invest the equity in stocks. Not only do you get better returns but there’s no headache involved. Only in situations where you’re highly leveraged with very small amounts of equity is it more ideal to turn it into a rental.

So my question for the people here with lots of rental properties that are at least 1/3 of the way paid off: what keeps you from just selling and investing the proceeds in stocks? Even with all the tax deductions available for landlords I still can’t get the math to make sense.

th and condo are bad idea, HOA can make renting expensive or banned

[Anonymous]

Overall I think diversification is the correct answer to this question and there’s nothing wrong with that.

But, plenty of people get into RE because, in no particular order, they heard about it from a “rich” friend / think they are sophisticated investors / are afraid of things they don’t understand (the market/economy) / think “passive income” from their old house is their path to FIRE, etc etc.

[Anonymous]

Anonymous wrote:Overall I think diversification is the correct answer to this question and there’s nothing wrong with that.

But, plenty of people get into RE because, in no particular order, they heard about it from a “rich” friend / think they are sophisticated investors / are afraid of things they don’t understand (the market/economy) / think “passive income” from their old house is their path to FIRE, etc etc.

Passive income from my old house is exactly how I got to FIRE.

[Anonymous]

Anonymous wrote:1) Our rental properties aren't instead of stocks, they're in addition to stocks. Diversification.
2) Rentals can provide income without having to sell any assets;
3) Rental income is much less affected by economic downturns than stocks - this can vary by the type of rentals you have (commercial/high end/apartment) but we have units that are geared toward LMC families.

That said, it's much more hassle than just throwing a couple hundred K into stocks; you're right on that point. We have a good property management company now but it was ugly for a while there.

+1 Most of our assets are in stocks, but we diversified with a vacation rental property to offset stock market risks. Historically, this area rented well even during the 2008-2012 economic downturn.

[Anonymous]

Most people do it for diversification. The market is verbally a lot better than the townhouse real estate market. You also need to pay taxes on your income yearly and houses have big expenses that can wipe out a year or two of gains. You need to recapture the depreciation when you sell and you can’t write off the excess depreciation/expenses in excess of rental income.

[Anonymous]

Anonymous wrote:Op, I'm with you, but I can do better. I did 100% return in my two tax free accounts last year, and I'm at 35% this year already. Previously, I had just at on my investments like suggested.
I think I figured it out how to get the high return. It's not luck anymore. People also don't understand how the heck do I do it tax free. How is this even a question when there's Roth account.
For the life of me I cannot get through to people how I do it. Most people I know, who ventured into investing, abandoned it instead of sticking to it and learning. I also couldn't get through to my family how we 'lost money' with three properties if I look what the stock market did at the same time.The properties were not needed. We just didn't know investment options at that time.
People also don't consider what they can learn in the market every single day while watching it and buying and selling. I learned nothing from real estate but to stay away. Happily renting now.

Can you describe it here how you achieved the returns ?

[Anonymous]

As a landlord of 15+ years existence - it only works if you own multiple units that you developed yourself.
You have to spreadsheet before buying for development to ensure the rate of return is higher than SPY

[Anonymous]

Anonymous wrote:1) Our rental properties aren't instead of stocks, they're in addition to stocks. Diversification.
2) Rentals can provide income without having to sell any assets;
3) Rental income is much less affected by economic downturns than stocks - this can vary by the type of rentals you have (commercial/high end/apartment) but we have units that are geared toward LMC families.

That said, it's much more hassle than just throwing a couple hundred K into stocks; you're right on that point. We have a good property management company now but it was ugly for a while there.

This

Additional reasons
1 tax free income . we r high income family , w2 so our tax on long or short term capital gain s very high on top of w2. But our rentals bring in pretty much tax free income.
2 leverage. We only out down 25% the rest mortgage on rental properties.
You can do that with stocks too such as using margin for stocks and options. But…when the underlying value goes down the leverage ( mortgage) on properties don’t get marginal call. On the other hands, you get margin call and force liquidation on stocks and options, futures.



I have about 1.5 mil in RE. All are long term rental.
3.5 mil in stocks. I allocates about 200k to day trade futures and options. The rest of the 3.5 mil portfolio Is in long term buy and hold large caps and index funds, set and forget kind of thing.

[Anonymous]

Anonymous wrote:First, assuming a 10% SPY return is optimistic. Long run it’s more like 7.5%.

But to answer your question…leverage.

You can borrow 80% of the purchase price of a rental property, so your equity return is much higher from rent, plus the increase in purchase price.

Sure, you could buy stocks on margin…but that’s a risky thing to do and most won’t do it.

Also, RE provides a hedge against stock market volatility. If you owned the SPY in 1999, it went down and didn’t come back to even until 2011. In theory, an investment property would have earned a nice return of er that time period (assuming you didn’t lose it in theory financial crisis).

This is the correct answer.

Also think about it another way. If you buy SPY, so many people are taking a cut of the true profit along the way. The underlying stock has compliance, finance, and audit people to stay listed on the market and do reporting. Then the company running the market takes a cut, then the people running SPY take a cut, then your brokerage takes a cut. You don't see all these items directly (some are inherent in the price), but they all have a cost.

Compare that to your real estate "business". You are doing the work landlording like finding tenants, maintaining the property, or maybe paying a person to do that. But not many people taking a cut of the action along the way, between the rent and what ends up in your pocket.

[Anonymous]

Spare me the “diversification” bullshit. For most people, the single most expensive asset is their primary residence. Being a homeowner in the DMV is sufficient diversification into real estate.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Overall I think diversification is the correct answer to this question and there’s nothing wrong with that.

But, plenty of people get into RE because, in no particular order, they heard about it from a “rich” friend / think they are sophisticated investors / are afraid of things they don’t understand (the market/economy) / think “passive income” from their old house is their path to FIRE, etc etc.

Passive income from my old house is exactly how I got to FIRE.

Care to share the #s?