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re: Investing in rental properties vs s&p index fund
Posted on 1/20/26 at 11:51 am to Redstickbaw
Posted on 1/20/26 at 11:51 am to Redstickbaw
I have 2 rentals
Both are paid off, have had them about 8 years. They have increase in value about 75%, which is insane to me. Together worth about 700k.
Make 2375 per month after taxes, ins, hoas and $ put toward expenses.
I have really good tenants, one has been there since I owned it. I probably could get a few more dollars but I really like the stability of the tenants.
If I bought today my profit would not he worth it. It is around 7% profit (original cost) per month. I think that is probably lower return than most expect.
Both are paid off, have had them about 8 years. They have increase in value about 75%, which is insane to me. Together worth about 700k.
Make 2375 per month after taxes, ins, hoas and $ put toward expenses.
I have really good tenants, one has been there since I owned it. I probably could get a few more dollars but I really like the stability of the tenants.
If I bought today my profit would not he worth it. It is around 7% profit (original cost) per month. I think that is probably lower return than most expect.
1
Posted on 1/20/26 at 12:24 pm to BHTiger
The only way for this to beat the S&P is to get meaningful home price appreciation. That doesn't seem likely but what do I know.
Posted on 1/20/26 at 1:29 pm to Redstickbaw
I would not go all in on real estate. Consider it a part of your portfolio and leverage in case the stock market crashes.
You make money with rentals when you sell it, and when it is paid off.
The mindset should be to take any profits and put it right back into the property, whether that means paying down the mortgage, a maintenance project, or a savings reserved for insurance claims, service calls, major expenses, etc. I would have a goal to be in a position that if the AC guy comes to repair a broken AC in July, and finds it to be shot, I would laugh, say oh well, and write a check for a new one.
I grew up servicing my family's rentals. Stuff happens all the time. The biggest mistake I see from people I know is they buy a rental, get $2000 a month, have a mortgage and expenses of $1200 a month, and pocket or blow the rest. That is bad business. That $800 is for the property and is not to be touched unless its for the property.
You make money with rentals when you sell it, and when it is paid off.
The mindset should be to take any profits and put it right back into the property, whether that means paying down the mortgage, a maintenance project, or a savings reserved for insurance claims, service calls, major expenses, etc. I would have a goal to be in a position that if the AC guy comes to repair a broken AC in July, and finds it to be shot, I would laugh, say oh well, and write a check for a new one.
I grew up servicing my family's rentals. Stuff happens all the time. The biggest mistake I see from people I know is they buy a rental, get $2000 a month, have a mortgage and expenses of $1200 a month, and pocket or blow the rest. That is bad business. That $800 is for the property and is not to be touched unless its for the property.
This post was edited on 1/20/26 at 1:31 pm
Posted on 1/20/26 at 1:59 pm to Redstickbaw
Probably the worst period to enter into the real estate game. Best advice would be to stick the money in some funds and wait it out
Posted on 1/20/26 at 2:13 pm to Redstickbaw
Just getting into rentals and a mixture of both is a good idea JMO. Rentals won’t generate a huge return on the front end so a lot of people get frustrated and give up on it. If you can be disciplined and keep around 5-10 percent of your rental homes appraised value available in a savings account for vacancies and repairs and use your profit to pay down mortgage interest you’ll be sitting pretty in 5 years and really pretty in 10. Do that a few times and retire in style.
Also once you get a few homes your ability to start an LLC is extremely beneficial
Also once you get a few homes your ability to start an LLC is extremely beneficial
Posted on 1/20/26 at 4:48 pm to Texas Tea 123
quote:
The only way for this to beat the S&P is to get meaningful home price appreciation. That doesn't seem likely but what do I know.
Maybe but when I retire in 5 years it should be reliable "tax free" income without much hassle.
Posted on 1/20/26 at 6:20 pm to Ramblin Wreck
quote:
Over the years we bought and sold to what became several million dollars worth of commercial real estate based on that initial investment.
For the OP, are you going to focus on commercial or residential properties?
Posted on 1/21/26 at 12:56 am to Redstickbaw
quote:
For those who have experience with rental properties and just simply investing in index funds which route would you recommend going with
I put eggs in multiple baskets so I have both stocks and investment properties. Real Estate has been very good for me the last 15+ years. IMO opportunity comes in many forms.
Posted on 1/21/26 at 7:37 am to Redstickbaw
We've bought and sold multiple rental properties over the years. Sold most and now have 2 units left.
Let me tell you about the time the tenant gave proper notice, but our property manager at the time (we now self-manage) had the utilities turned off. We go in to clean up and paint the unit and checked the refrigerator (which we had just previously bought). Tenant had left meat in the freezer and the whole unit (I kid you not) was filled with these black flies and the meat was now this gooey mess. Needless to say we had to throw that one away and buy another one and the clean up was horrendous.
Moral of the story: Do you want to deal with people as noted above and do you have the appetite for the unexpected. Whatever can go wrong will.
But back to your question.
When comparing rental property investments with index funds, historical data indicates that real estate generally yields total returns between 8% and 12% after accounting for rent, loan amortization, and tax advantages.
In contrast, the S&P 500 has delivered an average annual return of approximately 10% over the long term. While property appreciation alone seldom surpasses equity market performance, strategically acquired rental properties may outperform due to factors such as cash flow and leverage.
With an $80,000 initial investment, individuals can enter the real estate market on a modest scale; however, index funds continue to offer a more straightforward and passive investment avenue.
Ultimately, the most suitable choice depends on whether one prefers a hands-off approach or is willing to assume the additional responsibilities and risks associated with property ownership.
We've made a lot of money on capital gains selling units over the years. But now, there's the issue of taxable income, impact to our IRMAA calculations (for Medicare income thresholds which impact our premiums).
You can do 1031 exchanges over time, which lets you sell an investment property and reinvest the proceeds into another investment property without paying capital gains taxes at the time of the sale. But some day you have to pay the piper if you want your money or you just take your monthly rental income and have to leave the real assets to the kids.
Let me tell you about the time the tenant gave proper notice, but our property manager at the time (we now self-manage) had the utilities turned off. We go in to clean up and paint the unit and checked the refrigerator (which we had just previously bought). Tenant had left meat in the freezer and the whole unit (I kid you not) was filled with these black flies and the meat was now this gooey mess. Needless to say we had to throw that one away and buy another one and the clean up was horrendous.
Moral of the story: Do you want to deal with people as noted above and do you have the appetite for the unexpected. Whatever can go wrong will.
But back to your question.
When comparing rental property investments with index funds, historical data indicates that real estate generally yields total returns between 8% and 12% after accounting for rent, loan amortization, and tax advantages.
In contrast, the S&P 500 has delivered an average annual return of approximately 10% over the long term. While property appreciation alone seldom surpasses equity market performance, strategically acquired rental properties may outperform due to factors such as cash flow and leverage.
With an $80,000 initial investment, individuals can enter the real estate market on a modest scale; however, index funds continue to offer a more straightforward and passive investment avenue.
Ultimately, the most suitable choice depends on whether one prefers a hands-off approach or is willing to assume the additional responsibilities and risks associated with property ownership.
We've made a lot of money on capital gains selling units over the years. But now, there's the issue of taxable income, impact to our IRMAA calculations (for Medicare income thresholds which impact our premiums).
You can do 1031 exchanges over time, which lets you sell an investment property and reinvest the proceeds into another investment property without paying capital gains taxes at the time of the sale. But some day you have to pay the piper if you want your money or you just take your monthly rental income and have to leave the real assets to the kids.
This post was edited on 1/21/26 at 7:39 am
Posted on 1/21/26 at 8:08 am to FredsGotSlacks
quote:
Also once you get a few homes your ability to start an LLC is extremely beneficial
huh?
Posted on 1/21/26 at 8:22 am to Redstickbaw
I'm exiting the rental game. The expenses are high and don't have to worry about tornadoes with the stock market. Sure, goes up and down but wanting to reduce my hassle factor in my life.
Posted on 1/21/26 at 8:25 am to Redstickbaw
Stay out of both, op
Posted on 1/21/26 at 8:26 am to b-rab2
quote:
Also once you get a few homes your ability to start an LLC is extremely beneficial huh?
Poor wording. You can obviously start an LLC anytime but the work and costs involved don’t make sense to me until you have more than 2 rentals
Posted on 1/21/26 at 10:14 am to TheOcean
quote:
Probably the worst period to enter into the real estate game. Best advice would be to stick the money in some funds and wait it out
I’ve been told this every time I’ve purchased something going back to 2010.
Posted on 1/21/26 at 10:36 am to Motownsix
You have to really know what youre doing to not lose your arse in this market as a new RE investor
High rates
High prices
High remodel costs
Rent stabilizing and dropping in a lot of areas
High rates
High prices
High remodel costs
Rent stabilizing and dropping in a lot of areas
This post was edited on 1/21/26 at 10:37 am
Posted on 1/21/26 at 11:37 am to Motownsix
quote:
I’ve been told this every time I’ve purchased something going back to 2010.
Crazy
It’s almost like the dollar has been in hyperinflation since then
This post was edited on 1/21/26 at 11:41 am
Posted on 1/21/26 at 12:27 pm to el Gaucho
Have both
Retired and use both for an income stream
Fwiw.. sp averages 7+ percent gain historically ( I know better lately but I lived through the lost decade of ten years of no growth)..
Anyway.. I use my 401 built on index growth funds and converted a chunk of growth to dividend kings at retirement..
throws out 3.5-5 yield with a few hybrids kicking out 7 plus..I do not touch the base investments. ( this allows me to feel I have inflation built into this bucket).
I have a rental for diversification..
Benefits … is passive and throws out stable yield.. since you do increase rents as times goes on I consider it as an investment that has inflation built in..
I have a property manager.. cost a little but makes sure it stays rented and to quality people.. they also manage repairs if required..
Lots of hidden benefits… you depreciate the rental and write the value down against income ( divide unit value by 26.5).. you can write off a few reasonable trips to maintain stuff ( so if at vacation location offset cost of travel a little).. and hopefully get additional value with property appreciation..this hides income from taxman legally .
If you sell and do not do more rentals you will get some tax hit on the depreciation .. if you give the rental to your heirs the depreciation tax hit zeros out when you die..
Best if rental close to where you live.. and if lots of travel in your future you will want that property manager for the midnight calls..
I can fix stuff but as I aged I stopped doing things… if you find a quality handyman.. ac guy you trust .. plumber.. you will have less stress also.
Bond and high yields accounts are 3-5 now but not long ago they were 1.5 or worse and for a while..
I have those also but the reason I bought the rental was when they went that low.. I did not want that much cash bond money yielding 1.5.. took done of that bucket for rentals.
You can get the llc anytime.. you can do it online and if Louisiana they have a website that makes it very easy… cost is negligible… yearly renewal a few mouse clicks and 35 dollars or in that range.
Retired and use both for an income stream
Fwiw.. sp averages 7+ percent gain historically ( I know better lately but I lived through the lost decade of ten years of no growth)..
Anyway.. I use my 401 built on index growth funds and converted a chunk of growth to dividend kings at retirement..
throws out 3.5-5 yield with a few hybrids kicking out 7 plus..I do not touch the base investments. ( this allows me to feel I have inflation built into this bucket).
I have a rental for diversification..
Benefits … is passive and throws out stable yield.. since you do increase rents as times goes on I consider it as an investment that has inflation built in..
I have a property manager.. cost a little but makes sure it stays rented and to quality people.. they also manage repairs if required..
Lots of hidden benefits… you depreciate the rental and write the value down against income ( divide unit value by 26.5).. you can write off a few reasonable trips to maintain stuff ( so if at vacation location offset cost of travel a little).. and hopefully get additional value with property appreciation..this hides income from taxman legally .
If you sell and do not do more rentals you will get some tax hit on the depreciation .. if you give the rental to your heirs the depreciation tax hit zeros out when you die..
Best if rental close to where you live.. and if lots of travel in your future you will want that property manager for the midnight calls..
I can fix stuff but as I aged I stopped doing things… if you find a quality handyman.. ac guy you trust .. plumber.. you will have less stress also.
Bond and high yields accounts are 3-5 now but not long ago they were 1.5 or worse and for a while..
I have those also but the reason I bought the rental was when they went that low.. I did not want that much cash bond money yielding 1.5.. took done of that bucket for rentals.
You can get the llc anytime.. you can do it online and if Louisiana they have a website that makes it very easy… cost is negligible… yearly renewal a few mouse clicks and 35 dollars or in that range.
This post was edited on 1/21/26 at 12:31 pm
Posted on 1/21/26 at 9:18 pm to Redstickbaw
I need cushion. I won’t even look at it if the estimated IRR isn’t close to 11.5% or higher.
We have an awesome property manager and she’s shown us a couple of awesome houses. I also work with two RE agents and both know what I am looking for.
But not many houses can make that return while also meeting some of our other requirements. People that have more time on their hands than me (or more experience handling renovation projects on their own) can make a lot more properties work than I can.
I don’t hate a lot of consecutive free minutes these days. I’ve lost a couple of deals because I was a little too slow or because increasing my offer threatened my calculated returns. There are houses out there that work.
We have an awesome property manager and she’s shown us a couple of awesome houses. I also work with two RE agents and both know what I am looking for.
But not many houses can make that return while also meeting some of our other requirements. People that have more time on their hands than me (or more experience handling renovation projects on their own) can make a lot more properties work than I can.
I don’t hate a lot of consecutive free minutes these days. I’ve lost a couple of deals because I was a little too slow or because increasing my offer threatened my calculated returns. There are houses out there that work.
This post was edited on 1/21/26 at 9:27 pm
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