Rent or buy?

[Slowhandluke]

So no. Luck has not been involved. This has made me a millionaire @Slowhandluke. How’s your theory working out for you?

This is not my theory. Experts who deal in risk; it's their theory. I however, do agree with them.

While I'm not poor, I'm not a millionaire. I currently work a steady job (while I could put in more hours and get more $$$ - and easily be a millionaire, I'm not that type of person). I got burned doing a startup earlier in my career. After getting burned, I started to do more research on the topic of risk. Only within the past couple years, have I started to understand it more -- at least my version of it "Risk" is a big topic, and theories are ever changing

Feel free to think whatever you want. Lottery winners think that their "strategy" of picking numbers helped them to be a millionaire. You cannot convince them otherwise. There are millions of people who leverage their money in order to hopefully gain high wealth. Some succeed and some fail... actually, most fail.

you obviously had to leverage and gamble; there were doubts to the outcome because you stated that what you did was not for the "faint of heart" (or something to that effect) implying great risk. I'm glad it worked out well for you. However, where are the people who has the same IQ as you, the same drive, and decision making abilities, but through random luck choose a different area to invest, and lost their shirt? That is survivorship bias.

Your plan was to buy rentals that cashed flow. You predicted it to continue to cash flow for a long enough time to make money. That was your gamble. I'm sure at one point in time, you were extremely leveraged and you were at the mercy of the markets. If the rental market went down, you would have ben SOL, but it didn't so you reaped a nice reward.

I guess my main point is one can be successful because of luck while thinking it's because of their skill in predicting the future OR one can be flexible enough that long-term planning doesn't matter as much. you roll with the punches. I think you do roll with the punch's, but you put too much stock on having a good idea -- "buying rentals that cashflow at the very beginning". That idea means very little if a black swan event happens. Look at all the commercial real estate now. I'm sure a lot of the owners were saying "buy commercial real estate that cashflows from the very beginning.. it's never going to go down.. companies will always need space for their employees, etc." --- BAM, blackswan..... I'm sure a lot of them are in the poor house now.

 

[EyeBRollin]

Feel free to think whatever you want. Lottery winners think that their "strategy" of picking numbers helped them to be a millionaire. You cannot convince them otherwise. There are millions of people who leverage their money in order to hopefully gain high wealth. Some succeed and some fail... actually, most fail.

Come on, bruh. You did not just compare real estate investors to lottery winners. Terrible analogy.

 

[BeExcellent]

@Slowhandluke there is risk in living each and every day. You might be in a fatal car accident on your way to that job of yours, my airplane might fall out of the sky. If we live in fear we would never get out of bed in the morning.

I know people who lost everything in the 1980s when interest rates went to 21% and that was residential 30 year notes, commercial was considerably higher. I understand that you feel rather imperious in your opinion, but you are assuming greater risk than I, because you could be fired or laid off. I cannot.

My strategy was simple. Manage risk by buying in cash where ever possible, and never over leverage. Kind of a millionaire next door tactic. I did not buy fancy vacations or new cars. I was disciplined to live well within my means. I saved every dollar to make the next purchase, and paid cash often. I took funds out of stocks, paid the one time penalty on taxes and bought houses for cash. Those houses immediately cash flowed. No debt necessary. I bought a 20K house in an online auction, got a 6 month short term consumer loan at the bank, boom, paid it off in 6 months. An owner carried back, I got private investors and did 100% loans on houses where the purchase price was so good I bought 20-30% equity paying simple interest of 9% (no amortization maxes cash flow), Currently out of a 2M portfolio I owe only 200K. Most of that 175K is to private investors, only 25K to banks. The portfolio easily services that debt.

My max leverage ever was 750K and that included my primary residence of 250K, so 500K in investment loans. When you make 250K a year you easily qualify for 1M in a home loan. I didn’t do that. I bought something modest to max the income & credit available for real estate investment. So I was never ever over extended. Not at all.

Sometimes tenant issues are challenging. Not everyone is cut out for it. I am.

Not every person will sacrifice personal lifestyle to get ahead financially either, but I did. I bought used cars for cash & drove them for 300K miles until this very last car, which is an exotic, but I can easily afford it now because of the income stream I built.

Risk is in everything. You as a man have to figure out which risks are acceptable to you. That’s what I did. Hell I studied markets and real estate for 5 years in depth before I bought anything. I consulted others who I knew were successful, I understood lending, market risk, interest rate risk, ROI, cash on cash, leverage and its associated risk. I evaluated the risk of doing nothing and the risks of the financial markets, which I didn’t like.

So no. No luck and no lottery involved. Also my investments are inflation hedges. Something that 2% raises cannot do. I also understand inflation risk. Real estate combats that risk rather well.

 

[Slowhandluke]

@Slowhandluke there is risk in living each and every day. You might be in a fatal car accident on your way to that job of yours, my airplane might fall out of the sky. If we live in fear we would never get out of bed in the morning.

I know people who lost everything in the 1980s when interest rates went to 21% and that was residential 30 year notes, commercial was considerably higher. I understand that you feel rather imperious in your opinion, but you are assuming greater risk than I, because you could be fired or laid off. I cannot.

My strategy was simple. Manage risk by buying in cash where ever possible, and never over leverage. Kind of a millionaire next door tactic. I did not buy fancy vacations or new cars. I was disciplined to live well within my means. I saved every dollar to make the next purchase, and paid cash often. I took funds out of stocks, paid the one time penalty on taxes and bought houses for cash. Those houses immediately cash flowed. No debt necessary. I bought a 20K house in an online auction, got a 6 month short term consumer loan at the bank, boom, paid it off in 6 months. An owner carried back, I got private investors and did 100% loans on houses where the purchase price was so good I bought 20-30% equity paying simple interest of 9% (no amortization maxes cash flow), Currently out of a 2M portfolio I owe only 200K. Most of that 175K is to private investors, only 25K to banks. The portfolio easily services that debt.

My max leverage ever was 750K and that included my primary residence of 250K, so 500K in investment loans. When you make 250K a year you easily qualify for 1M in a home loan. I didn’t do that. I bought something modest to max the income & credit available for real estate investment. So I was never ever over extended. Not at all.

Sometimes tenant issues are challenging. Not everyone is cut out for it. I am.

Not every person will sacrifice personal lifestyle to get ahead financially either, but I did. I bought used cars for cash & drove them for 300K miles until this very last car, which is an exotic, but I can easily afford it now because of the income stream I built.

Risk is in everything. You as a man have to figure out which risks are acceptable to you. That’s what I did. Hell I studied markets and real estate for 5 years in depth before I bought anything. I consulted others who I knew were successful, I understood lending, market risk, interest rate risk, ROI, cash on cash, leverage and its associated risk. I evaluated the risk of doing nothing and the risks of the financial markets, which I didn’t like.

So no. No luck and no lottery involved. Also my investments are inflation hedges. Something that 2% raises cannot do. I also understand inflation risk. Real estate combats that risk rather well.

No worries. You don't have to prove anything to me. Lets agree that you did incur risk; risk implies some sort of randomness. Some sort of chance--- or as they say "luck" in any case, I see too many instance of people who don't know anything about real estate and making a lot of money just by being lucky. They had no real plan. Just that "real estate always go up"... I'm sure you did not fit into this group.

 

[radha]

No way. Stock market out-earning the market indices are the exception not the norm.

I wasn't stating an opinion. The average annual appreciation for residential RE in the US is 6.77%. RE investors are probably leveraged about 4x on average so that makes the annual return 27.08% and that does not include any hedging. A basic dual momentum etf portfolio returns an average of 10% per year unleveraged so multiply that by the same 4x factor and it is 40% per year which is greater than 27.08% and also includes a built in hedge with the dual momentum timers. If RE investors were properly hedging that would cost at least a 2% annual drag so 8% per year in hedging costs at 4x.

 

[EyeBRollin]

A basic dual momentum etf portfolio returns an average of 10% per year unleveraged so multiply that by the same 4x factor

Can’t do that.

 

[RickTheToad]

Yikes. @RickTheToad what say you?



Primary residence yes, not good. However, there are some decent owner occupied programs right now.

Not in CT/NY/NJ/ I consistently raise the rents at least 3% each year. This offsets the prop. tax increase, BS tenant calls, and expenses. My costs do not really go up 3% a year, however, I try to keep it at market. I purchased three MF homes during the pandemic. If the deal works, go for it. I try to find homes which need a little work and then offer a fair price. I've not purchased anything in 2 years, as the prices are just too high with the current interest rates. I also only purchase 3 units are higher. In NJ or NJ, it would have to be a 3 unit, as 4 or more could trigger rent control (Jersey City, Hoboken, etc.). Connecticut isn't bad for rentals either; outside of Blackrock.

I used to buy the building and live in one unit for a year to get better rates, then move into my next one. That's the requirement from Fannie and Freddie.

When Republic Bank was around, they offered some good rates. However, since they are gone, hard to find some decent rates. As rates continue to go up, I will see if any itchy owners would hold paper at 5%. Then it would make sense for me. 7%+, no thanks. I get 5% worry free on my cash each month now from SPAXX.

 

[RickTheToad]

Renting and buying in the north east is about the same sans the down payment. Most people do not have the down payment for the mortgage; thus they are forced to rent. The more they make, the less they keep. Example, My GF makes significantly more than me on paper, however, since she's in a higher tax bracket, we earn about 800 difference net in salaries. We had this conversation the other day since we had a double date with another couple. The wife, I'm friends with both, asked me some ideas on how she can make more money with her degree (she's a doc). I suggested some ways, but the husband kept on saying it won't work. I said it does, because I did it.

On the drive back, my GF asked what I thought the big issue was. I said, he's old school and it may hurt his ego if she made more than him. She then asked, if it would hurt mine if she made more than me. I clearly smiled and said, respectfully, you will never earn more than me due to my real estate holdings. However, if you made more money then me, it wouldn't bother me a bit.

There in lies the problem. On paper, through a w-2, yes she would make more than me. However, I have significantly more in savings, credit lines, no debt other than mortgages, and 8 figures worth of real estate. She still, after earning 150k plus every year, doesn't have a down payment for a home. And there is the problem. People cannot afford the 20% down. We will turn into a renters nation. It's just a matter of time.

 

[RickTheToad]

If you have a tolerance for risk and choose wisely, the stock market would BLOW away real estate. If I had put my money into stocks 15 years ago, the right stocks, I'd be worth 100+ million now. RE is SLOW money, but safer...much safer and I'm risk averse. And being a landlord is NOT for everyone. I've met TONS of people who tried it and went bankrupt. One of my tenants actually tried to make it as a landlord and lost everything. This is not a game for the faint of heart. You're taking on a lot of debt, need to manage legal issues and liars, idiots, and other problems like eviction moratoriums that are unjust.

Oh yea, one person said she was leaving, so her lease ended, she didn't move out. She said may be in July or August; I had my attorney serve her the next day. She was gone at the end of the month. You need to be fair with them, but cannot allow them to run the show.

 

[RickTheToad]

The fvck? No way. RE is more profitable by a mile.

Depends. Timing has to do a lot with it. If you bought a sh!t ton of either in 2009/2010, you'd be sitting on tens of millions of profits. Unfortunately, most didn't; me included.

 

[RickTheToad]

Most of my houses rent for less than it costs me to own them. The rent barely covers the mortgage unless I bought them long ago and never took money out. Then I have to factor in vacancy, repairs, capex, etc. Add to that that I have hundreds of thousands of dollars of down payment money sitting in each of them that could be making me much more money in the stock market, in the short term it's not worth it. As I said before though, it's much less risky than the stock market and over time the tables turn in the landlords favor.

Need to look at your numbers dude. Are these MF's or SF? If MF, if I do not NET 600 a unit; I pass. Not worth my time. All my buildings are profitable from day one. A lot of the repairs I do myself. However, I have a team for maintenance which I give them so much work; I get some decent prices. Need to look and see what's a miss with your P & L? Are you in crappy C and D areas?

 

[Slowhandluke]

We will turn into a renters nation. It's just a matter of time.

Too much land. It wouldn't happen. Also, you can always build up -- higher and higher.. more and more floors of condos NOT to mention, the USA has a lot of land and the population isn't increasing very fast and I think it's actually slowing down.

In any case, whatever.. Just only 70 years ago, people said Florida "swamp" land was worthless and would never amount to anything. They also said Texas was too hot and there wouldn't be a lot of people living there. Now we have AC and various ways to control the swamps and manage the land. There will always be change an innovation. Hell, California use to be the place where people flocked too... not anymore.

 

[RickTheToad]

Too much land. It wouldn't happen. Also, you can always build up -- higher and higher.. more and more floors of condos NOT to mention, the USA has a lot of land and the population isn't increasing very fast and I think it's actually slowing down.

In any case, whatever.. Just only 70 years ago, people said Florida "swamp" land was worthless and would never amount to anything. They also said Texas was too hot and there wouldn't be a lot of people living there. Now we have AC and various ways to control the swamps and manage the land. There will always be change an innovation. Hell, California use to be the place where people flocked too... not anymore.

Not much land not built on in the North East or SoCal; hence the reason why the real estate market continues to climb. Looking for a home in suburban NY, NJ or CT? Good luck. There are still over ask offers and bidding wars with rates at 7%.

 

[EyeBRollin]

Not much land not built on in the North East or SoCal; hence the reason why the real estate market continues to climb. Looking for a home in suburban NY, NJ or CT? Good luck. There are still over ask offers and bidding wars with rates at 7%.

Can confirm. Every time I look at a place, it is sold less than 72 hours later. And above asking price. Some of the stuff is fvcking garbage too.

 

[Slowhandluke]

Can confirm. Every time I look at a place, it is sold less than 72 hours later. And above asking price. Some of the stuff is fvcking garbage too.

Why are looking to buy garbage?

 

[EyeBRollin]

Why are looking to buy garbage?

Not. I notice that even the garbage is selling like hotcakes.

 

[Slowhandluke]

Not. I notice that even the garbage is selling like hotcakes.

At one point in time, in japan, you could buy used women underwear from vending machines. Ehhhh... I just don't care... People can buy garbage.. whatever...

 

[RickTheToad]

Can confirm. Every time I look at a place, it is sold less than 72 hours later. And above asking price. Some of the stuff is fvcking garbage too.

Renters will still pay it since there's nothing out there. It's batsh!t crazy. Prob. wise to stay out of the Oranges (west okay), Newark, and Irvington

 

[DonBig]

Buy. You can easily see who understands about finance and long term strategical investment just based on your question.
I can only shake my head with disappointment that People reply with rent and still don’t get it. More then likely have a bad financial lifestyle as well.

Anyways, buying a house is my answer.

 

[The Duke]

I bought my first house for $145k and It was brand new. I did all the landscaping, improvements, remodeling myself. Spent very little. 15yrs later I sold it for $460k. My payment increased from $950 to $1300 over the years due to property tax increases. But My payment didn't go up as fast as rents did. I also deducted all the loan interest. Typically where you come out ahead on ownership is on the appreciation. You can put money in a landlords pocket or your own.

I took the money I made, rolled it into a new place I built. Spent $850k building it. 2yrs later I could sell if or $1.2M. I project it will double in value in 8 more years.

When you lose money owning vs renting is when you buy when the price is too high, and sell when low, spend too much remodeling, or stay less than 5yrs or so.

As far as rental houses and commercial real estate go, the others that actually do it and have shared their insight are right on the money.

Best way to be successful in real estate is come to the table well financed, do as much work as possible yourself, time the market right.

And yep you get calls all the time when you are a landlord. I've spent more than a few Saturday nites boarding up a commercial building because some dumb azz drove thru it. Boarded one up when a tornado tried to destroy it. I've spent all nite mopping up a flooded property because a pipe broke. Cancelled several social engagements and a few trips to make emergency repairs.

And if you think landlords are rolling in cash you are sadly mistaken. There isn't a lot left over when you pay taxes, loan payments, insurance, and keep those air conditioners running. And not to mention set money aside to remodel and replace $10-15k a/c systems every 15yrs.

The money is in the long run. And you don't get to see it until you sell.