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re: Are rental properties worth it?
Posted on 12/13/13 at 7:32 pm to Brian Wilson
Posted on 12/13/13 at 7:32 pm to Brian Wilson
It will consume more of your time than you think.
Can you do repairs? Do you know reliable plumbers? AC repairmen?
Can you do repairs? Do you know reliable plumbers? AC repairmen?
0
Posted on 12/13/13 at 8:07 pm to TheWiz
Very few investments can give the returns of rental properties. I laugh at stock market gains.
Posted on 12/13/13 at 8:11 pm to I Love Bama
quote:
Very few investments can give the returns of rental properties. I laugh at stock market gains.
True (to an extent), but no well-balanced mix of index funds can lose as much money as a real estate adventure nor can it come close to the time commitment or headache experiences of renting.
As some said, rentals can be an awesome investment, but they can also be a nightmare.
Posted on 12/13/13 at 8:13 pm to FootballNostradamus
quote:
As some said, rentals can be an awesome investment, but they can also be a nightmare.
As with any investment, due diligence is paramount.
Posted on 12/13/13 at 8:17 pm to I Love Bama
I would much rather own rentals than have most of my money in the stock market. I like tangible things. Stocks are riskier IMO.
Posted on 12/13/13 at 9:53 pm to I Love Bama
quote:
As with any investment, due diligence is paramount.
If you percentage drip or cost average some of the main index funds or any of the all-time greats (Exxon, Coke, etc) you're almost guaranteed atleast a 7% ROI over any substantial holding period. You can also spend less than an hour a month managing and checking it.
Posted on 12/13/13 at 10:00 pm to Paul Allen
quote:
I would much rather own rentals than have most of my money in the stock market. I like tangible things. Stocks are riskier IMO.
No offense, but do you have your money stuffed in your mattress? What do you mean by stocks are riskier because you like tangible things?
Again, none of this is meant to discourage rental property investments. I own 2 of my own. All I'm saying is if you have a well-diversified stock portfolio that you cost average and hold for an extended period of time, it's almost impossible to lose money.
Rental properties are attractive because of the cash flow it generates and the potential for a higher ROI. Make no mistake about it, however, it comes with the downside of an increase in time required and risk accompanied.
Posted on 12/14/13 at 8:15 am to FootballNostradamus
If you run an APOD, it comes down to cash on cash and cap. rate.
It also comes down to an understanding that if you are writing off depreciation, you will eventually pay this back, if you sell at a gain, as ordinary income, and not a cap. gain rate.
Things a realtor will never tell you. They are in love with cap. rate.
My Iowa property caps at 19, and coc is in excess of 25. My Florida properties are different, and I bought these for different reasons.
Make no mistake, if you get in to this, you can either run it as a business, and it is a business, or you can just own a couple and see how it goes. The planning involves what to buy, where to buy it, what you expect in return, and what your exit strategy is. If you do this like I do this, it isn't just buying a building for cash flow.
It also comes down to an understanding that if you are writing off depreciation, you will eventually pay this back, if you sell at a gain, as ordinary income, and not a cap. gain rate.
Things a realtor will never tell you. They are in love with cap. rate.
My Iowa property caps at 19, and coc is in excess of 25. My Florida properties are different, and I bought these for different reasons.
Make no mistake, if you get in to this, you can either run it as a business, and it is a business, or you can just own a couple and see how it goes. The planning involves what to buy, where to buy it, what you expect in return, and what your exit strategy is. If you do this like I do this, it isn't just buying a building for cash flow.
Posted on 12/14/13 at 12:00 pm to nogoodjr
quote:
500k to make 24k return a year? That's a lot of headache for that poor of a return.
500k at 8% return is 40k and all you need to do is rebalance your portfolio a couple times a year.
Uh, who would loan him 500k to start a portfolio?
A bank will do that for rental property, because the property would be the security.
And if he could borrow the 500k, how much does the interest eat into that 8%?
Posted on 12/14/13 at 3:24 pm to League Champs
Would any bank loan someone 500k for a property? That seems kind of high.
Posted on 12/14/13 at 3:54 pm to Paul Allen
quote:
Would any bank loan someone 500k for a property? That seems kind of high.
No chance.
Posted on 12/14/13 at 4:04 pm to Paul Allen
quote:
Would any bank loan someone 500k for a property? That seems kind of high.
Come on up here to DC.
Posted on 12/14/13 at 4:14 pm to Paul Allen
Yeah. They do it for millions of dollars.
Posted on 12/14/13 at 4:17 pm to nogoodjr
quote:
500k to make 24k return a year? That's a lot of headache for that poor of a return.
Usually you put money down and the rest is borrowed. Using these numbers, suppose you put down 20%, or 100k. Assuming a 30 year loan at a 3 3/8 % interest (that's 4.5 % minus the interest tax deduction assuming a 25% tax bracket) your annual interest cost winds up being about $14k the first year and declines thereafter.
So your return for the first year is $10k on a 100k investment, and it gets better over time.
This is all very rough back-of-the envelope stuff of course, but if you are borrowing at a lower rate than your return you can do quite nicely.
Posted on 12/14/13 at 5:47 pm to I Love Bama
Any recommended reads for those thinking of purchasing residential rental properties?
Posted on 12/14/13 at 6:06 pm to kaaj24
Www.biggerpockets.com
Be prepared to read and read and read.
Best website for making money in real estate imo
Be prepared to read and read and read.
Best website for making money in real estate imo
Posted on 12/15/13 at 8:37 am to I Love Bama
Buy a property in the quarter or uptown and use it as a vacation rental. You will get about 4X the yearly return you would get from long term renters.
Posted on 12/16/13 at 1:08 am to foshizzle
quote:
Usually you put money down and the rest is borrowed. Using these numbers, suppose you put down 20%, or 100k. Assuming a 30 year loan at a 3 3/8 % interest (that's 4.5 % minus the interest tax deduction assuming a 25% tax bracket) your annual interest cost winds up being about $14k the first year and declines thereafter. So your return for the first year is $10k on a 100k investment, and it gets better over time. This is all very rough back-of-the envelope stuff of course, but if you are borrowing at a lower rate than your return you can do quite nicely.
While I agree that if you barrow the money, you can improve the ROI significantly. You cannot, at the same time, ignore the risk associated with borrowing said money. I used a cash example because it simplifies the math.
Posted on 12/16/13 at 6:51 am to nogoodjr
I'll share my latest success story.
I purchased a house to live in through HUD last year. I was able to get a 3.75 interest rate with only $100 down through one of their programs.
Monthly payment to wells Fargo is $575 which includes taxes and insurance and I will be able to get $1,000 to $1,100 a month in rent.
Nobody in the market is making that kind of return. I'm on track to have around $50,000 a year in passive income by the time I'm 35. I'm 30 now.
So yes op, study, read and learn and you can do very well in rental properties. It isn't rocket science.
I purchased a house to live in through HUD last year. I was able to get a 3.75 interest rate with only $100 down through one of their programs.
Monthly payment to wells Fargo is $575 which includes taxes and insurance and I will be able to get $1,000 to $1,100 a month in rent.
Nobody in the market is making that kind of return. I'm on track to have around $50,000 a year in passive income by the time I'm 35. I'm 30 now.
So yes op, study, read and learn and you can do very well in rental properties. It isn't rocket science.
Posted on 12/16/13 at 7:41 am to Iowa4430
That X 100. I'm out on rentals. Headache vs Return is not there. If you pay cash for a unit or if you borrow it ties up so much money. Then the headache!
Edit: I made out pretty well on a cheap rental. Bought, remodeled, kept for 6-7 years and cashed out. Made my money on the flip. The renting of said house was a night mare. 50/50 split good to bad renters and the bad ones kill your margins.
Edit: I made out pretty well on a cheap rental. Bought, remodeled, kept for 6-7 years and cashed out. Made my money on the flip. The renting of said house was a night mare. 50/50 split good to bad renters and the bad ones kill your margins.
This post was edited on 12/16/13 at 7:43 am
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