Rent or buy?

[EyeBRollin]

The benefit of renting in my opinion is that you basically can come and go and you aren't responsible for anything. If you are young and single this can be a good thing if for some reason you don't like the area you are in, your job, etc. It provides a degree of flexibility that owning a home does not come with.

I should add here that remote working is the norm in some industries now so there is less overall relocation for work. That’s affecting the market quite a bit in some areas.

Here in Jersey homes have skyrocket simply because a lot of folks in NYC had less incentive to be there during covid-19, have moved, and now are remote or hybrid.

 

[Bible_Belt]

The only wise financial decision I ever saw my dad make was his rental trailers. The lower the value of a rental unit, the higher the percentage return on investment. He bought a 10' x 50' mobile home for $800, pulled it home with a pickup truck, put about a thousand dollars more in it in repairs and then rented it for $175 a month...for 35 years. And of course there are tenant and maintenance headaches; that's why not everyone can do it. Trailers and trailer parks are associated with poverty, but from growing up with landlord parents, I still see them today as wise rental property investments. In today's money in my area, a $8-15k trailer still rents for $400-$600 per month. That roi beats the hell out of an 8% reit.

 

[BeExcellent]

I should add here that remote working is the norm in some industries now so there is less overall relocation for work. That’s affecting the market quite a bit in some areas.

Here in Jersey homes have skyrocket simply because a lot of folks in NYC had less incentive to be there during covid-19, have moved, and now are remote or hybrid.

Agree with this. Working remote (as I have done since 1999) what is happening is people are moving to cheaper bedroom communities and taking advantage of lower cost of living. That is putting upward pressure on rent. Good if you are the landlord….

 

[BeExcellent]

The only wise financial decision I ever saw my dad make was his rental trailers. The lower the value of a rental unit, the higher the percentage return on investment. He bought a 10' x 50' mobile home for $800, pulled it home with a pickup truck, put about a thousand dollars more in it in repairs and then rented it for $175 a month...for 35 years. And of course there are tenant and maintenance headaches; that's why not everyone can do it. Trailers and trailer parks are associated with poverty, but from growing up with landlord parents, I still see them today as wise rental property investments. In today's money in my area, a $8-15k trailer still rents for $400-$600 per month. That roi beats the hell out of an 8% reit.

That is exactly my strategy only with houses that cost 5-50K and return 3-8% ROI. It means you deal with the most difficult renters. But it pays handsomely.

Cheers to your dad.

 

[Bible_Belt]

That is exactly my strategy only with houses that cost 5-50K and return 3-8% ROI. It means you deal with the most difficult renters. But it pays handsomely.

Cheers to your dad.

Thanks. My grandparents did well as landlords, too. Idk how you see the issue of pets. Most landlords hate them. My grandparents were always animal lovers, so they let tenants have dogs and cats. As more rentals stop allowing pets, your tenants with pets have literally nowhere else to go. They stay for years, sometimes decades. My grandparents have now both passed, but their tenants remain. Both have pets and pay $400 a month. That deal just isn't out there anywhere else. And because these tenants know they can't move, it makes them want to not destroy the place like typical tenants. Allowing dogs to the right people results in less damage, not more.

 

[Machine10033]

bought my house 2009. 169k

6k hvac replacement
1.5k driveway sealed
13k new roof
8k new windows
4k tree removal
1200 water heater replaced
20k new kitchen gut and redo
6k old bathroom redone

Looking at 8k back patio in rough shape needs new concrete

latest issue retaining wall collapsing first quote 42k

so in 14 years you can see how much owning a home can run. My advice is buy as new as possible ( if you buy)... my house is now worry 300k... but it’s still been a massive headache

 

[Bible_Belt]

retaining wall collapsing first quote 42k

Lol at that quote. You can do it yourself for 1/10th of that. A buddy of mine installed retaining walls and paver stone patios. Most customers were rich people who don't realize how much they overpay. The walls collapse because people don't pour a substantial enough of a concrete footing below them, and/or don't build adequate drainage. All you have to do is unstack it, dig the right hole, fill it with concrete, and stack it back. The right backfill helps drainage.

 

[SpartanWarrior77]

Some food for thought:

I wish (if wishes were horses, dreamers would ride), that I had held onto the residence I had with my first husband in TX. We bought in 2005 for 245K on his VA benefit, which meant only 10K down. That house is now worth 1M 18 years later. That is quadruple in value. Could I have expected that to occur in stocks? Only with far greater risk exposure. And I wouldn’t buy a primary residence for that price now. Nope. Ties up too much money.

I’ve done well with my strategy of buying in safe/stable working class areas in the small town Midwest. That is what I could afford to acquire rapidly, and at one time I had 54 units. I trimmed my portfolio starting in 2019 and now own 24 units. I bought for cash flow, not appreciation and although I had front end deferred maint to do on most, those are non-recurring costs and if I provide some nice amenities other rent houses don’t have (granite counters, central HVAC), then I get higher rents and better renters. Because appreciation has occurred on top of cash flow, my net worth is higher than it was at 54 units. I’m about 70% free & clear across the whole portfolio too and the portfolio runs in the black and has for years.

But it has not been for the faint of heart. I’ve dealt with every imaginable issue from the property manager embezzling to tenants dying in a unit, to criminal activity to evictions to the major and minor repairs that always come up. One reason I chose small towns is that I could get to know city and county officials there and they could understand the value responsible ownership confers to the area. I can pick up the phone and call the mayor, the prosecutor, the city attorney or the chief of police. They all know me. My renters know they all know me too, and that influence is helpful.

The other reason I do rental property is as a creative outlet. When I get ready to sell I design the property and create curb appeal and interior design that maxes the value and provides something beautiful for the new owners. That benefits everyone and ups property values for the area. I enjoy that. It’s like a full size art project.

Very cool, thanks for sharing.

 

[Slowhandluke]

Agree with this. Working remote (as I have done since 1999) what is happening is people are moving to cheaper bedroom communities and taking advantage of lower cost of living. That is putting upward pressure on rent. Good if you are the landlord….

So more rentals are constructed, and the prices go down. It's a never ending battle. If there is enough money to be made in a market, it will get filled and the prices will stabilize. Right now, rental prices in Chicago are going down - remote work/flex work (less people want to live in the city). However, the rental prices in the suburbs are going up. I'm sure, those prices will stabilize also.

At the end of the day, it's about flexibility and not chasing the market; also a good portion of investing is based on luck. Luck cannot be controlled, but being flexible and not chasing the market can be.

Just my opinion

 

[BeExcellent]

I allow pets @Bible_Belt for the reasons you note. And I have a couple of tenants in 2/1 houses that have been renters for 10+ years. They are never moving and I have had zero vacancy loss.

They have paid off my houses in both cases.

One of them has a dog. Fine.

Now days I charge pet rent. I up the rent $25/mo per dog, $20/mo per cat. That pays me over time to deal with pet issues.

One of those houses I paid 48K for it. Cute stone Tudor cottage. Rent is $425. In today’s market I could get $650 for it and I could sell it now for 100K.

Why? Over the last 10 years that house has earned 51K and the rent has never been late. The bank note is paid off, I pay property taxes, maint and ins. It is a money tree.

In real estate if you are paying attention you create your own luck. When I first was buying people thought I was crazy for long distance ownership, buying in a non appreciation market, buying little pre & post war cottages. Now those houses are historical & charming, have cash flowed well & the appreciation has been gravy. Add the rising interest environment keeping buyers from qualifying for a place?

I look lucky indeed, but it’s more by design than by luck I assure you @Slowhandluke.

 

[Mazer]

If you love the area where the house is, then buy the house. I just sold my house and moved into an apartment in a major city. I’ve met more women the last two weeks living in the major city than I did living eight years in the burbs. I also wouldn’t buy at these prices. I am a real estate investor and have sold off most of my single family home investments. I have about forty flips under my belt. You’re going to be buying at the height of the market. Good Luck.

 

[Machine10033]

Lol at that quote. You can do it yourself for 1/10th of that. A buddy of mine installed retaining walls and paver stone patios. Most customers were rich people who don't realize how much they overpay. The walls collapse because people don't pour a substantial enough of a concrete footing below them, and/or don't build adequate drainage. All you have to do is unstack it, dig the right hole, fill it with concrete, and stack it back. The right backfill helps drainage.

I tried... it’s a 70 year old massive drystone wall... there is almost no access to the back of my house so these massive rocks will need to be manually taken out and walked to the front. That’s the price for a landscaper/hard scape.. I have a mason coming and he says they can actually do repairs and prevent further erosion from adding some drainage.

once I get this thing taken care of I’m getting tf out of this money pit. When I was a naive 27 year old I didn’t pay attention to the big stuff that could cost the most.

 

[Slowhandluke]

I look lucky indeed, but it’s more by design than by luck I assure you @Slowhandluke.

The theory of the black swan contradicts your statement. In addition, you probably have survivorship biases.

To predict an event 10 to 15 years in the future is extremely hard to do. Those that "can", according to most professionals in the field of risk management, can be accounted for by shear luck.

Flip enough coins, and you will get 5 heads in a row. Have enough people playing the stock market, and by chance their will be a few that have results that seem prescient. Same with any other investment where there is a lot of participants. .... Even real estate.

Not to poo poo your work, but unless you were able to pivot and be flexible, longterm planning is fraught with unknowns. Hence, instead of longterm goals, it was your ability to be flexible and adapt that helped you to be where you are at. Just my opinion. I have done a lot of research on this topic.

 

[BeExcellent]

The theory of the black swan contradicts your statement. In addition, you probably have survivorship biases.

To predict an event 10 to 15 years in the future is extremely hard to do. Those that "can", according to most professionals in the field of risk management, can be accounted for by shear luck.

Flip enough coins, and you will get 5 heads in a row. Have enough people playing the stock market, and by chance their will be a few that have results that seem prescient. Same with any other investment where there is a lot of participants. .... Even real estate.

Not to poo poo your work, but unless you were able to pivot and be flexible, longterm planning is fraught with unknowns. Hence, instead of longterm goals, it was your ability to be flexible and adapt that helped you to be where you are at. Just my opinion. I have done a lot of research on this topic.

You see, you entirely missed the point, however I’ll speak to your point (since you have just proved mine, lol.)

I was a contrarian when I started buying rent houses. But here’s the thing. Like @Bible_Belt ‘s dad, my houses were bought correctly and cash flowed from the first year. I wasn’t trying to guess or time the real estate market, that is a terribly foolish thing to do.

You see, someone is teaching school in a small town. Someone is a nurse. Someone works at the courthouse, someone works at the gas station; the McDonalds, someone is a police officer or a sheriff deputy. Those people need places to live and be close to work.

My strategy was working & building wealth prior to Covid. So there was no predicting the future & getting lucky. There was finding a place where I could afford houses and make high returns, and provide a product (housing) that people need. And even if a few new apartments get built (which isn’t feasible for a big developer in a small town), people still want a house, a yard, more space & more privacy.

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

 

[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.