re: Rent house vs REITs

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Jag_Warrior

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you pretty much nailed it as usual.

I guess I've been more focused on appreciation than cash flow. I've bought all of them with 10% down, the condo cost $265,000 in 2006, the townhouses were $255,000 in 2007 (and we lived in 1 townhouse from 2007 - 2011). They've appraised for $410,000 and $325,000 each, respectively, this year for the most recent cash out refinancings. The condo yielded $62,000 in cash out most recently.

I'd rather a situation where I could sell anyone of them tomorrow should circumstances change, whether we relocated, financial demands change, we have more kids, etc. I don't think several $100,000 houses would appreciate the same or be as liquid as fewer, more expensive houses. I live within 10 miles of all these places and I don't like dealing with them often, I couldn't imagine dealing with them from another city.

There's a whole bunch of wealthy professionals who don't want the responsibility of ownership, prefer the certainty of rent and would prefer to do other things with their time than cut grass. I've only had a few months of vacancy in nearly a decade and no shortage of qualified tenants. Different strokes for different folks, just like any other purchase.

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I guess I've been more focused on appreciation than cash flow.

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and maybe that's just another topic altogether for another time. i suppose you could just play the appreciation game, but if you're dealing with realtors, you have to beat their 6% commission on the back end. i'd be looking to appreciate somewhere around 21% to 26% minimum, and if i was consistently getting that much, i'd be worried about a bubble. once it pops, you're left with your original low cashflow returns and now no appreciation.

also with those big purchase prices come big mortgages, especially at 10% equity. if your returns are pretty low on a big mortgage property, one or two vacancies will destroy your profit for the year. if you're only clearing $400 or $500/month and bringing in around $5k/year, having just one vacancy and having to pay that $1800 mortgage is killer.

having to rely on massive appreciation on top of no vacancies year in and year out seems like less of an investment and more of a gamble.