So we purchased several townhouses after the housing crash for around $250-300k, putting down about $60k on each house for 15 years mortgages. We sped up by prepaying the last few years and have paid them off. Those houses are zestimated around $450-480k now and we just increased our rent this year by around 10%, though still several hundreds below market. Meanwhile, my portion of retirement portfolio just went down about 15%. I'm not saying real estate should be a huge portion of your retirement, but it's good to diversify. Our paid off rentals net us about $95k per year and more than enough to cover our basic retirement expenses without having to touch our 401k/iras, especially during market down turn.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Is there a firecalc type app that compares the ROI between a RE investment compared to S&P? Assume a 20% down payment and a 1% gross rental return vs. a one-time S&P investment of the same 20%? How would one fare if they did this in 1900 vs 2000 vs 2015, etc. over time?

Of course real estate would give you more due to leverage on initial investment. Because with stocks you only get income on those 20% that YOU invested. In real estate, you get return on the whole 100% (your down+ remaining 80% financed by the bank). Of course if real estate prices call you are at a loss more than you would be in stocks. But in reality they don’t fall that drastically at lease in urban areas, and when it works well as a rental covering your mortgage and carry costs you can continue holding it . There is no point in selling real estate unless you want to do 1031 exchange or reinvest

+1

I'm the OP and people that keep calling me dumb don't seem to grasp this concept. (BTW, for all those saying I should take a course in finance, I have a degree in math and understand finance/investments just fine.) What these people don't get apparently is the value of leverage in generating returns. And leveraging a property makes it more likely that it will not yield a positive cash flow, hence my initial question. Of course, any property that you buy with no mortgage will give you positive cash flow. However, you can boost your returns with leverage, and sometimes that means covering a $500 monthly shortfall between the rental income and PITI/other expenses.

But so what? Most people put much more than $500/month (i.e. negative cash flow) in their 401(k)s and Roth IRAs. And yet you never see the pearl clutching like you do with negative cash flow properties.

There's a difference between expenses and investment. Covering the $500 a month shortfall on your real estate carrying costs doesn't add to the value of the underlying asset. That's more like paying $500 a month in advisor fees on your 401(k), not adding to principal with a new investment.

NP and I'm not tracking on this. Let's say you hypothetically have a$500K unit 100% financed and no appreciation just to keep the math easy. That $500 outlay will reduce your principle so in year 1 the net value is 0 but in year 2 its $6K since you'd get that back when you sell. Seems different than paying financial advisory fees which are gone forever.

From real estate developer perspective - the property requiring your own cash outlay is just not a good investment. You call find better options that don’t need that. No commercial bank would ever finance an asset that’s not generating cash income (not counting for depreciation and write offs). It’s called “not stabilized” properties

Anonymous wrote:I’m learning a lot by reading this thread and it’s making more open to rental properties. But how do you account (monetarily or otherwise) for the hassle of being a landlord? And during the pandemic there were horror stories galore about renters not paying, eviction courts being backlogged, and the like. Even though things seem to be returning to normal, tenants rights have only been strengthened. Isn’t there a big financial risk to being a landlord? How do you account for that?

I have different term contracts in my property to address this. Some units only rent as furnished business accommodations for around 30 days, the unit in my own townhouse is a licensed Airbnb which doesn’t rent LT. But yes, there is a risk of vacancy or non payment of rent always. It’s the reason I want to move to add commercial RE to my properties. And I think rental business generally works with multi units, when you are vested in one property the risk is pretty high. Of course I also screen tenants (those working for feds, good companies don’t want landlord disputes ), and check credit score and employment

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Is there a firecalc type app that compares the ROI between a RE investment compared to S&P? Assume a 20% down payment and a 1% gross rental return vs. a one-time S&P investment of the same 20%? How would one fare if they did this in 1900 vs 2000 vs 2015, etc. over time?

Of course real estate would give you more due to leverage on initial investment. Because with stocks you only get income on those 20% that YOU invested. In real estate, you get return on the whole 100% (your down+ remaining 80% financed by the bank). Of course if real estate prices call you are at a loss more than you would be in stocks. But in reality they don’t fall that drastically at lease in urban areas, and when it works well as a rental covering your mortgage and carry costs you can continue holding it . There is no point in selling real estate unless you want to do 1031 exchange or reinvest

+1

I'm the OP and people that keep calling me dumb don't seem to grasp this concept. (BTW, for all those saying I should take a course in finance, I have a degree in math and understand finance/investments just fine.) What these people don't get apparently is the value of leverage in generating returns. And leveraging a property makes it more likely that it will not yield a positive cash flow, hence my initial question. Of course, any property that you buy with no mortgage will give you positive cash flow. However, you can boost your returns with leverage, and sometimes that means covering a $500 monthly shortfall between the rental income and PITI/other expenses.

But so what? Most people put much more than $500/month (i.e. negative cash flow) in their 401(k)s and Roth IRAs. And yet you never see the pearl clutching like you do with negative cash flow properties.

There's a difference between expenses and investment. Covering the $500 a month shortfall on your real estate carrying costs doesn't add to the value of the underlying asset. That's more like paying $500 a month in advisor fees on your 401(k), not adding to principal with a new investment.

NP and I'm not tracking on this. Let's say you hypothetically have a$500K unit 100% financed and no appreciation just to keep the math easy. That $500 outlay will reduce your principle so in year 1 the net value is 0 but in year 2 its $6K since you'd get that back when you sell. Seems different than paying financial advisory fees which are gone forever.

Anonymous wrote:I’m learning a lot by reading this thread and it’s making more open to rental properties. But how do you account (monetarily or otherwise) for the hassle of being a landlord? And during the pandemic there were horror stories galore about renters not paying, eviction courts being backlogged, and the like. Even though things seem to be returning to normal, tenants rights have only been strengthened. Isn’t there a big financial risk to being a landlord? How do you account for that?

Someone who created a thread and keeps responding with a financial IQ of -60 has convinced you to be open to rental properties? Well have fun

I’m learning a lot by reading this thread and it’s making more open to rental properties. But how do you account (monetarily or otherwise) for the hassle of being a landlord? And during the pandemic there were horror stories galore about renters not paying, eviction courts being backlogged, and the like. Even though things seem to be returning to normal, tenants rights have only been strengthened. Isn’t there a big financial risk to being a landlord? How do you account for that?

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Is there a firecalc type app that compares the ROI between a RE investment compared to S&P? Assume a 20% down payment and a 1% gross rental return vs. a one-time S&P investment of the same 20%? How would one fare if they did this in 1900 vs 2000 vs 2015, etc. over time?

Of course real estate would give you more due to leverage on initial investment. Because with stocks you only get income on those 20% that YOU invested. In real estate, you get return on the whole 100% (your down+ remaining 80% financed by the bank). Of course if real estate prices call you are at a loss more than you would be in stocks. But in reality they don’t fall that drastically at lease in urban areas, and when it works well as a rental covering your mortgage and carry costs you can continue holding it . There is no point in selling real estate unless you want to do 1031 exchange or reinvest

+1

I'm the OP and people that keep calling me dumb don't seem to grasp this concept. (BTW, for all those saying I should take a course in finance, I have a degree in math and understand finance/investments just fine.) What these people don't get apparently is the value of leverage in generating returns. And leveraging a property makes it more likely that it will not yield a positive cash flow, hence my initial question. Of course, any property that you buy with no mortgage will give you positive cash flow. However, you can boost your returns with leverage, and sometimes that means covering a $500 monthly shortfall between the rental income and PITI/other expenses.

But so what? Most people put much more than $500/month (i.e. negative cash flow) in their 401(k)s and Roth IRAs. And yet you never see the pearl clutching like you do with negative cash flow properties.

There's a difference between expenses and investment. Covering the $500 a month shortfall on your real estate carrying costs doesn't add to the value of the underlying asset. That's more like paying $500 a month in advisor fees on your 401(k), not adding to principal with a new investment.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:What rental properties give me is something that I cannot easily convert to cash. Had I instead invested in the stock market, it would've been too easy to cash that out for something I wanted or to deal with unplanned expenses. Instead, for those unplanned expenses, I got a personal loan that I quickly paid off.

I have a ton of equity across my properties, but no one would know it because I don't pull it out to increase my lifestyle.

I agree that positive cash flow is not a huge thing for me because my principal is being paid down each and every month, which is income to me.

The one downside to rental properties to me is knowing when to get out, if ever, knowing that the tax hit will come. When is the end game?

The end game is to leave it to your kids so they can take advantage of the step-up basis...no tax hit if they sell right away.

The same is true of any asset, including stocks.

Hard to do if most of your equity are in 401k or pretax IRAs

Apples to oranges. The $$ you're investing in investment property wouldn't be from a pre-tax IRA.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Is there a firecalc type app that compares the ROI between a RE investment compared to S&P? Assume a 20% down payment and a 1% gross rental return vs. a one-time S&P investment of the same 20%? How would one fare if they did this in 1900 vs 2000 vs 2015, etc. over time?

Of course real estate would give you more due to leverage on initial investment. Because with stocks you only get income on those 20% that YOU invested. In real estate, you get return on the whole 100% (your down+ remaining 80% financed by the bank). Of course if real estate prices call you are at a loss more than you would be in stocks. But in reality they don’t fall that drastically at lease in urban areas, and when it works well as a rental covering your mortgage and carry costs you can continue holding it . There is no point in selling real estate unless you want to do 1031 exchange or reinvest

+1

I'm the OP and people that keep calling me dumb don't seem to grasp this concept. (BTW, for all those saying I should take a course in finance, I have a degree in math and understand finance/investments just fine.) What these people don't get apparently is the value of leverage in generating returns. And leveraging a property makes it more likely that it will not yield a positive cash flow, hence my initial question. Of course, any property that you buy with no mortgage will give you positive cash flow. However, you can boost your returns with leverage, and sometimes that means covering a $500 monthly shortfall between the rental income and PITI/other expenses.

But so what? Most people put much more than $500/month (i.e. negative cash flow) in their 401(k)s and Roth IRAs. And yet you never see the pearl clutching like you do with negative cash flow properties.

Because that wasn't at all the question you asked. Your OP had nothing to do with leverage, multiple properties, etc. It focused exclusively on the rising property values of one single property over time. To remind you, it was:

Until retirement, no one‘s 401(k) is cash flow positive and yet no one says those are a bad idea. Amazon has never paid a dividend and yet, if you had bought Amazon stock at many points over the last 27 years, you would’ve become very rich. Houses in the DC area are only going to go up over time (yes, we may be due for a correction or even a crash in the short term).

But over time, buying the right house in this area can be a very good idea as an investment, even if the rental income does not cover your PITI and all other miscellaneous expenses (vacancy, repairs, etc.). Why is there this obsession that rental properties have to have a positive cash flow?

So, yes, you're dumb, but apparently for a different reason than we initially thought.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Is there a firecalc type app that compares the ROI between a RE investment compared to S&P? Assume a 20% down payment and a 1% gross rental return vs. a one-time S&P investment of the same 20%? How would one fare if they did this in 1900 vs 2000 vs 2015, etc. over time?

Of course real estate would give you more due to leverage on initial investment. Because with stocks you only get income on those 20% that YOU invested. In real estate, you get return on the whole 100% (your down+ remaining 80% financed by the bank). Of course if real estate prices call you are at a loss more than you would be in stocks. But in reality they don’t fall that drastically at lease in urban areas, and when it works well as a rental covering your mortgage and carry costs you can continue holding it . There is no point in selling real estate unless you want to do 1031 exchange or reinvest

+1

I'm the OP and people that keep calling me dumb don't seem to grasp this concept. (BTW, for all those saying I should take a course in finance, I have a degree in math and understand finance/investments just fine.) What these people don't get apparently is the value of leverage in generating returns. And leveraging a property makes it more likely that it will not yield a positive cash flow, hence my initial question. Of course, any property that you buy with no mortgage will give you positive cash flow. However, you can boost your returns with leverage, and sometimes that means covering a $500 monthly shortfall between the rental income and PITI/other expenses.

But so what? Most people put much more than $500/month (i.e. negative cash flow) in their 401(k)s and Roth IRAs. And yet you never see the pearl clutching like you do with negative cash flow properties.

I am the poster/real estate developer who wrote this post. From perspective of finance, there is no point of worrying about negative cashflow. But it depends if you are ok in practice to have this outlay from your monthly cashflow. I am not feeling as secure leveraging at 80-90% which would mean negative cashflow, so I never had actual negative cashflow on my properties. My W2 "main" salary is also not high so I don't want to be stretch financially before retirement and need financial freedom. Also, if you can find properties which bring POSITIVE cashflow while being 80-90 % leverage financed, it's even better. I try to only deal with these types of properties (not condos for sure, but 2-3 units townhouses), and then "minimize" this factual positive cashflow with depreciation, mortgage interest and maintenance expenses on tax returns. I have 3 separate entities open to do this.
Condos in general are poor investment: in DC market, single family and townhouses nearly doubled in price since 2010. Condos only appreciated by 11-15%. The condo fees and restrictions on renting it making poor investment, both from income and equity increase standpoint

Anonymous wrote:

Anonymous wrote:Is there a firecalc type app that compares the ROI between a RE investment compared to S&P? Assume a 20% down payment and a 1% gross rental return vs. a one-time S&P investment of the same 20%? How would one fare if they did this in 1900 vs 2000 vs 2015, etc. over time?

Of course real estate would give you more due to leverage on initial investment. Because with stocks you only get income on those 20% that YOU invested. In real estate, you get return on the whole 100% (your down+ remaining 80% financed by the bank). Of course if real estate prices call you are at a loss more than you would be in stocks. But in reality they don’t fall that drastically at lease in urban areas, and when it works well as a rental covering your mortgage and carry costs you can continue holding it . There is no point in selling real estate unless you want to do 1031 exchange or reinvest

+1

I'm the OP and people that keep calling me dumb don't seem to grasp this concept. (BTW, for all those saying I should take a course in finance, I have a degree in math and understand finance/investments just fine.) What these people don't get apparently is the value of leverage in generating returns. And leveraging a property makes it more likely that it will not yield a positive cash flow, hence my initial question. Of course, any property that you buy with no mortgage will give you positive cash flow. However, you can boost your returns with leverage, and sometimes that means covering a $500 monthly shortfall between the rental income and PITI/other expenses.

But so what? Most people put much more than $500/month (i.e. negative cash flow) in their 401(k)s and Roth IRAs. And yet you never see the pearl clutching like you do with negative cash flow properties.

Anonymous wrote:Is there a firecalc type app that compares the ROI between a RE investment compared to S&P? Assume a 20% down payment and a 1% gross rental return vs. a one-time S&P investment of the same 20%? How would one fare if they did this in 1900 vs 2000 vs 2015, etc. over time?

Of course real estate would give you more due to leverage on initial investment. Because with stocks you only get income on those 20% that YOU invested. In real estate, you get return on the whole 100% (your down+ remaining 80% financed by the bank). Of course if real estate prices call you are at a loss more than you would be in stocks. But in reality they don’t fall that drastically at lease in urban areas, and when it works well as a rental covering your mortgage and carry costs you can continue holding it . There is no point in selling real estate unless you want to do 1031 exchange or reinvest

Is there a firecalc type app that compares the ROI between a RE investment compared to S&P? Assume a 20% down payment and a 1% gross rental return vs. a one-time S&P investment of the same 20%? How would one fare if they did this in 1900 vs 2000 vs 2015, etc. over time?

Anonymous wrote:

Anonymous wrote:I paid 290k cash my condo in a distress sale 10 years ago. Common charges and taxes are 700 a month and insurance $50 a month. I have it rented $2,250.

It is worth $450k. But I had $18k income for 10 years. If I bought more would have done a mortgage. This was a one time thing.

Some investor guy got three run down or worse location units three for 725k cash. He making $50k a year last ten years. His units way up.

Different strokes. That guy also bought a yacht cash.

That means you made $340k on a $290k investment, for a total of $630k. If you'd invested that $290k in a S&P 500 Index fund at the beginning of 2012, you'd have $1,235,549 now.

Ramit? Is that you?

Anonymous wrote:Historically real estate appreciated little more than rate of inflation.
If you think of it that way you want your property to have positive cash flow.
If you want to compare it stock market it is like low growth and dividend paying company.

This is exactly how we view our paid off rentals holding, like a pension or a basket of high dividend stocks.