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.

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).

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.

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.

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.

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.

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.

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.

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.

Anonymous wrote:

Anonymous wrote:Safer than stocks.
Better than stocks.

Not true if held long term.

Anonymous wrote:Safer than stocks.
Better than stocks.