Reply to Should I sell my house or rent it out?

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]Take it and invest it. After investing for 20 years at 6% interest, your initial investment of $650,000 will have grown to $2,084,638 with literally ZERO outlay on your part. Meanwhile, that house in Reston will have property taxes, repairs, etc. and even if it's paid off will absolutely COST you money year over year.[/quote]

Isn't her house paid off and she will make rental income? Your scenario assumes the house only carries costs and appreciate with inflation if at all.  She can take rental income and invest it in the markets. She needs to calculate how much rental income she will net and compare with the performance of her market investments. She isn't likely to do better in the markets than she is already doing, because this assumes re-education and for her to change her strategies.

Another question to ask is whether she wants to pass the house on to her kids.  She needs to do the numbers, that's the bottom line.  Also, it is beneficial for her to sell and not pay cap gains tax on her appreciation now before it gets rolled over into a rental property.  But then she gets to deduct expenses of rental maint. from her income as well as depreciation. Depending on her income bracket she may get tax breaks and invest the money she would have had to pay in taxes each year.

What you say (cash out, pay no tax and invest the whole 600+K in the markets that will continue growing steadily with a rather high rate of 6% and with no risk) sounds tempting and convincing, but I don't think counting on markets consistently returning this for the next 2 decades is realistic.  You are looking at the past  performance, but then the same rule has to apply to housing market where properties keep appreciating.  Yet we don't believe this will continue and believe housing prices may actually drop or barely keep up with inflation.  What makes you believe markets will keep rising in that scenario?[/quote]

The stock market consistently returns 7%+ over time.  So as long as you take it out of market a few years before you actually fully need it you should be good....market is the simplest way to get a good return.  Much less risky than a rental house, especially one that's older and will need work. What if you go 3 months between renters, then your profits for the year might be gone. [/quote]

Are you saying everyone who had been using RE for investment is foolish? If it is that easy to make 7% yearly with no risk why isn't everyone doing it?  It's not just regular schmucks investing, it's billion dollar companies, they buy RE too.   They key is diversifying[/quote]

Absolutely not.  If you want to invest in RE it is safer to do so with other investment vehicles than your personal house/rental homes.

Obviously it is not 7% with no risk, but the market has returned over 7% (inflation adjusted) since 1950.  So put your money in S&P500 or total stock market index funds and you will do just fine.  Diversify as you see fit. I have a well balanced portfolio---done the research and I prefer to keep my RE investments thru funds not thru personal investments as that reduces the risks greatly.   
All it takes is one bad renter to destroy your home or one time where you cannot find renters for 2-3 months and you wipe out all gains for a year.  If you hire a management company they will take one months rent for finding renters/setting up lease and 10% of each months rent (more in a vacation rental area if it's weekly renters).

[/quote]

What do you suggest for people who invested most of their NW into RE to correct such "horrible mistake"?  [/quote]

Maybe the PP is referring to crowdfunding investments like fundrise?  The main issues with REITs is they are horrible in a taxable account and one could argue that you are less diversified by overweighting REITs because this is clearly a sector bet. People generally underestimate the risks involved with any type of investment, so it's good to be skeptical.[/quote]

REITs aren't a sector bet, they are a diversification of asset type. [b]It's more diversification than a total market stock index.[/b]  But you should hold them in a tax-deferred/protected account.[/quote]

Clarifying above--Holding a REIT (in small percentage) + a total market stock index is more diversification rather than a particular sector bet.  Similar to also holding a little bit of gold, a little bit of private capital, a little bit of crypto, a little bit of commodities etc.  These are not a sector of equities rather a different class of assets.[/quote]

REITs is by definition a sector. Any time you overweight a particular sector you are betting on that sector. Now you may be doing it for diversification reasons if you believe that correlations with the broader market will be low. But this is a bet because correlations change all the time and are unpredictable.

REITs have done well in the past, but why invest in REITs now? Not that long ago people were pushing overweighting commodities or energy stocks. Those didn't really do so well. Or maybe you read about some new hot sector or academic study. Do you then dump the REITs and switch to whatever the new research recommends? If it's a small amount of your portfolio, it's not going to change much.  I guess it just seems like a guessing game to me. [/quote]

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