Reply to Stop 401k and Purchase a Rental Property?

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]I'll go the other way, in favor of a rental property, based on data rather than the emotion (it's such a hassle dealing with tenants).

If you are earning 5-10% return a year on your rental property, then it's a good investment.  That is a healthy return that is going to be consistent and may increase over time as rents increase.  Keep in mind that returns are impacted when stuff breaks (roof, appliances, etc).

The money you put in the stock market will return somewhere between 5-10%.  Here is something that I just googled: For the period 1950 to 2009, if you adjust the S&P 500 for inflation and account for dividends, the average annual return comes out to exactly 7.0%

The difference in having an investment property is that there is capital appreciation.  In the right neighborhoods, there has been a ton of appreciation in the last 10 years.

Your tax treatment of a rental property is more favorable (e.g. depreciation), you get a leveraged return if you are borrowing from the bank (e.g. if the property increases by 5% a year, you get the full increase despite the fact that the bank loaned you 70% of the cost of the property), you learn business 101 basics (e.g. what to charge in rent, how valuable your time is vs your money, etc), in 30 years or less the property will be paid off by your tenant's money, the consistent returns will continue on regardless of your age and the property can be handed down to your kids, etc.

Lastly, if the stock market collapses, like it did in 2007, your stock portfolio will be significantly impacted.  If the price of your real estate investment drops like it did in 2007, that does not mean that rents drop (it most instances).

Long story short, owning a property is a long term play with long term benefits.  If you are in it to win it for the long term, then go with a rental property.

[/quote]

I am different poster.
Thanks for the break down.

How do you calculate total return a year? Do you include property value appreciation in it?
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Instead of writing out how I calculate it, here is a good overview: https://www.wikihow.com/Figure-Cap-Rate

You should figure out what the cap rate is before you even think about putting in an offer on an investment property.  [/quote]

Thank you!
The reason I am asking is because we already have a rental house( our first house we ever bought in different state and moved during times when market was upside down, hence couldn't sell it).
The mortgage is 1100 per month and we have a renter who covers it, but managing company takes $100 each month. So basically we are at the loss. However there is a small appreciation every year. We can't decide if we should sell this house or keep renting. And if we sell what to do with that equity money.[/quote]

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