Real estate as an investment

[nickaluch]

I've done better with investing then real estate but my rental does bring in $3100 a month profit and can sell it tomorrow for $900k . Location is everything

 

[JeffKeryk]

The problem with this sort of analysis, is it assumes that the real estate is purchased 100%, just like a stock.

The principal advantage of real estate, which is also the principal disadvantage, is leverage.

The return isn’t the total appreciation of the property, the return is measured against the amount of the investment.

So, for example, you put 20% down, and the real estate goes up by say 8% in value that year, you’ve actually got about a 40% gain on the money down as an investment.

Now, of course, you’re paying that mortgage, but ostensibly you’re either enjoying the property to live in, or you’re collecting rent on the property.

In a very hot market, where price appreciation goes up by as much as 20% per year, you can put a 20% down on a property, and basically double that money.

Leverage is how people have accumulated a great deal of wealth through real estate.

Leverage is also how people get wiped out. I watched real estate values plummet by 15 to 20% in 2007 and 2008. So, if you put 20% down on the property during that time - You lost all that money. Not only, did you not have a return, but your 20% down, your initial investment, was completely wiped out. Yep, it was gone.

Like many people, if you held onto the property, it would eventually come back. But if you were forced to “realize” the value of your property during that time, you would’ve been wiped out.

So, real estate can be a much more powerful tool than stocks in a comparison because of the ability to leverage.

Leverage is gaining an asset using other people's money.

 

[Astro14]

Leverage is gaining an asset using other people's money.

And it works both ways - to the positive.

And the negative.

 

[andrew_j]

I'm 29, working hard to invest in retirement and do reasonably good research for those investments.

Unfortunately my only downfall right now is home ownership. Impossible.

Being married and dual income is what makes it possible these days IMO, which I am not.

I earn a good income but not quite 6 figures. A $3,400+ mortgage isn't going to happen. Especially not with retirement contributions which I am not going to put off.

For now I have extremely cheap rent, and I'm saving in a HYSA.

Investing is good however you want a paid for home in retirement. I think striking a balance is important. My first home was 1100SF mill housing .13 acre and 2 bedroom 1.5 bath although great location. People want way more now.

 

[tbm5690]

Being married and dual income is what makes it possible these days IMO, which I am not.

I earn a good income but not quite 6 figures. A $3,400+ mortgage isn't going to happen. Especially not with retirement contributions which I am not going to put off.

For now I have extremely cheap rent, and I'm saving in a HYSA.

Have you considered moving? My impression is that you are in software/tech. Very transferrable.

 

[gfh77665]

I’ve said this before on here….

I gave each of my 3 grown children $70K for the down payment for their house in a nice area with low crime and good schools. No fancy expensive weddings…. just a shotgun wedding on the courthouse steps.

I don’t want my children living in a crap area with the TV show First 48 filming in the neighborhood.

All 3 are happy to have a house by the age of 27 and driving a $15K Honda. No spending on unnecessary junk and their mortgage is similar to a 1 bedroom apartment in clean safe area. They also max their yearly retirement contributions.

Most of their colleagues their age are struggling to buy a house.

Agreed. My three kids are pretty brilliant, they are smarter than me, but they really have no idea what a great start in life they had. All three walked out with a degree at 22, no debt, and 50K+ in their pocket.

 

[nickaluch]

Agreed. My three kids are pretty brilliant, they are smarter than me, but they really have no idea what a great start in life they had. All three walked out with a degree at 22, no debt, and 50K+ in their pocket.

As I told my 3 daughters. I'll send you to a private college you can graduate debt free and bought them all a nice low mileage car but I won't pay for the wedding. You n your man can save for that and really find out what type of guy you are marrying

 

[Dave Hess]

Fancy expensive weddings are only good for Social Media postings….

Down payment on house is much more important.

 

[demarpaint]

Real Estate for an investment, been there done that, made some money at it. But not for me anymore, especially with rental properties.

 

[Dave Hess]

Leverage is gaining an asset using other people's money.

Leverage can blow someone out of the water when bad things go against them.

 

[JeffKeryk]

Leverage can blow someone out of the water when bad things go against them.

Agreed. Leverage is a tool. So is a hammer, vehicle, gun, hot stove, pocket knife, computer, you name it.
Use the hammer correctly and you drive the nail. Use it wrong and you smash your thumb.
How many of us could buy a home for cash, especially starting out? Leverage makes the business world go around.
I see some parents sent their lucky children to college, paid the down on their homes, etc. No one paid for my education (actually Silicon Valley opportunity did); I asked my folks for $1100 to make the down for my 1st place. That was hard; I was sure it was a no go...

Personally, I leveraged myself, carefully, but to the credit limit hilt, and now I live in a nice little home free and clear. I had to ride out the ups and downs and I've made my share of mistakes. Without leverage I would never be here.

My motto is, contingency, contingency, contingency. Also, the biggest risk is taking no risk at all.

 

[Pablo]

Investing is good however you want a paid for home in retirement.

This is one of those, true MOST of the time but not always.

Sometimes it makes sense to rent even if (or especially if) have the dough and want to live about.

OR like us, 2% home loan, load of cash from previous sale...........just earn more money on the $ retired. Working so far! Our remaining principle is getting smaller our equity grows and we could pay it off tomorrow if we want. People mention a comfortable feeling of paid off house. I feel this now, so???

Leverage baby.

 

[gfh77665]

Yeah I keep some stratigic debt, but I could easily pay it off at any time. Be fully liquid if you can.