Poll

Poll A: What fraction of your total portfolio is real estate (use current account and property values)

0-25%
18 (36%)
25-50%
12 (24%)
50-75%
9 (18%)
75-100%
11 (22%)

Total Members Voted: 48

Voting closed: July 06, 2014, 10:57:19 AM

Author Topic: Net worth and sustainability for real estate investors  (Read 10791 times)

monarda

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Net worth and sustainability for real estate investors
« on: June 22, 2014, 09:58:02 AM »
Ok, I figured out how to make a poll ...

I saw Arebelspy's 2012 poll surveying Mustachian net worth, but among those of us investing in real estate as buy-and-hold landlords, I wondered the following about your current portfolio.  If you didn't invest in any additional properties, just taking your REI net worth right now, along with your other investments, IRAs, etc,  and all you did was pay (have your tenants pay) down the mortgage with whatever loan you currently have, what's the value of your current portfolio and what's the value of your portfolio (not counting property value increase, nor increase in the stock market) in say, 10 years from now (or at mortgage payoff)? 

I sort of see this as a minimum net worth value in the long-term for the buy-and-hold landlord (since everything will also appreciate) and there will still be rental income if we want.

So I've created an anonymous poll: 
A) What fraction of your portfolio is real estate? Use current portfolio values: include cash,  brokerage accts, 401K, IRAs, current assessed value of all real estate.

Then, after getting results from this poll, I'll see if I can add a second one (or maybe I'll have to start another related thread?)
B) Counting all of these current values, what's your minimum net worth (assuming mortgages are paid off, but subtracting any other debts)


Any takers? Where do you stand?  I'm thinking about FIRE when factoring this in... a little different than some of the other polls out there, for those of us interested in real estate.

Our goals for our rental properties is to have them ecologically/environmentally sustainable (we do green-habbing, and promote green apartment living), and also a long-term financially sustainable investment strategy.



« Last Edit: June 22, 2014, 11:23:45 AM by monarda »

arebelspy

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Re: Net worth and sustainability for real estate investors
« Reply #1 on: June 22, 2014, 11:29:10 AM »
I'm not sure why you're specifying mortgages paid off.  I want to keep my mortgages as long as possible.  And have the ability to keep refinancing cash out (as long as it remains cash flow positive) for tax free income.

And I'm not sure what you mean by "what's your minimum net worth."

To answer as best I can:
When I FIRE I will have a net worth of ~1.2MM, maybe a bit higher depending on appreciation over the next few years - 1MM in net worth in Real Estate, plus ~100k in equities (in an AA that is about 85/15, with the 85 being broken up as 60 domestic, 25 international), plus ~100k in NPV of a pension not due to come for 20-30 years.

That 1MM of real estate is split between rental properties owned as well as notes held (and the rentals will be spread across multiple different states and economic/geographic areas, as well as varying in tenant/property quality level across the spectrum, from probably C+ to B+).  So a little diversity in the real estate holdings itself.

I plan on having a large buffer of income from rents over my spending, and to have a savings rate of ~33% in FIRE, which will all be reinvested into the markets according to my AA to diversify me.  (That doesn't count principal pay down on the mortgages, which would push my savings rate to around 50%, but that obviously isn't reinvested into equities, but is trapped equity.)

In other words, real estate is my rapid path to FIRE.  After I FIRE I'm going to throw excess into stocks to diversify my portfolio.

I think that answers your question, but lmk if not.  I'll be curious to hear other's answers, if they're willing to share.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

monarda

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Re: Net worth and sustainability for real estate investors
« Reply #2 on: June 22, 2014, 11:39:30 AM »
Yes, that's exactly what I was trying to get at. Thanks for your reply. Many net worth calculators end up subtracting the mortgage, I wanted to include property value only.

I just called it 'minimum net worth' for lack of a better term. I'm happy to edit and change that.  It is really like a current portfolio snapshot for all your stocks/bonds allocation, but to see how the real estate investors are treating the 'eggs in basket'.  It might seem that you and I both (at over 80% real estate) have most of our eggs in that one real estate basket, but also plan to diversify later. Given that property values vary greatly by city and investing styles (amt of leverage) may differ greatly as well,  I  just bring in mortgage payoff just because I wanted to separate all REI-related debt from other consumer debt.
« Last Edit: June 22, 2014, 11:41:57 AM by monarda »

arebelspy

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Re: Net worth and sustainability for real estate investors
« Reply #3 on: June 22, 2014, 11:44:00 AM »
Yes, that's exactly what I was trying to get at. Thanks for your reply.

I just called it 'minimum net worth' for lack of a better term. I'm happy to edit and change that.  It is really like a current portfolio snapshot for all your stocks/bonds allocation, but to see how the real estate investors are treating the 'eggs in basket'.  It might seem that you and I both (at over 80% real estate) have most of our eggs in that one real estate basket, but also plan to diversify later. Given that property values vary greatly by city and investing styles (amt of leverage) may differ greatly as well,  I  just bring in mortgage payoff just because I wanted to separate all REI-related debt from other consumer debt.

Ah.  I won't have any non-mortgage debt in FIRE.

I think it's a phenomenal time for real estate investing. Were it 2004 and I was trying to FIRE rapidly, I wouldn't be buying real estate (assuming, of course, that you don't have the benefit of hindsight and timing the market to sell only a few years later, but would be trying to hold long term).

But right now we still have relatively low prices in lots of places (even though not at the absolute low of 2011 or so, a lot of places have risen quite a bit, but there are still good deals to be found), a fairly stable economy, and super low interest rates for mortgages.  A great time to buy, so I'm loading up.  Then later, I'll diversify more.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

monarda

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Re: Net worth and sustainability for real estate investors
« Reply #4 on: June 22, 2014, 11:53:55 AM »
So, ARS, maybe I'm already at FIRE according to your goals?  I'm trying to figure out what our FIRE goals should be. Hmm... 
Our current real estate value is $850K and other accts (mostly IRAs, not available for some time) total $120K.

arebelspy

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Re: Net worth and sustainability for real estate investors
« Reply #5 on: June 22, 2014, 12:26:58 PM »
So, ARS, maybe I'm already at FIRE according to your goals?  I'm trying to figure out what our FIRE goals should be. Hmm... 
Our current real estate value is $850K and other accts (mostly IRAs, not available for some time) total $120K.

Yeah, I'm at about the same level you are right now.

IDK, depends on what your goals are, as well as what yield that is getting.

In some parts of the country that 850k could be in a free and clear home renting for a mere 3k/mo, where you're only netting maybe 25k annually.

I'm shooting for cash flow goals, not net worth goals.  I'd like to have 60-70k annual net cash flow with very conservative assumptions for expenses (vacancy, repairs, etc.). Whether my net worth is 500k at the time or 1.5MM, I don't care so much.  My FIRE goals have nothing to do with my net worth.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

ketchup

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Re: Net worth and sustainability for real estate investors
« Reply #6 on: June 22, 2014, 01:17:02 PM »
23 years old.  Total net worth right around $24k right now.  401(k) value is about $4.5k, car is worth about $1k, ~$14k in rental real estate equity, and about $4k in cash/equivalent.  So that puts me at almost 60% real estate at the moment.  That'll probably increase in the future.  I hope to do something similar to arebelspy long-term.  Exact plans are hazy but our income will be increasing in the next few years, which should be able to lead us to pursue more RE investments.  Not sure on our FIRE age yet, but we're hoping early 30s or so.

Another Reader

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Re: Net worth and sustainability for real estate investors
« Reply #7 on: June 22, 2014, 01:28:29 PM »
I went back and forth with Arebespy about creating categories greater than $1M when he set up that net worth poll.  He was adamant that there did not need to be any categories over $1M.  I thought then and think today you need a break out at higher levels because there are actually quite a few people with a net worth of more than $1M on this site.  Folks with higher net worth have different perspectives, and have generally been through multiple asset valuation cycles.  I suggest $1-$2M, $2M-$3M, $3M-$5M, $5M-$10M and over $10M.

When I retired in early 2007, my net worth was significantly higher than it is today, thanks primarily to real estate markets that have not completely recovered.  With recent refi's, including a 30 year loan on my house at 3.125 percent, some of the mortgages will probably outlive me.  However, my income is higher than in 2007, because I restructured both the real estate and paper asset portfolios.  I could fiddle with the portfolios to increase income and I may do that at some point.  Currently I'm around 80 percent of net worth in real estate.

I don't think the OP meant current assessed value but rather current market value.  Who cares what the property tax collector thinks?

arebelspy

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Re: Net worth and sustainability for real estate investors
« Reply #8 on: June 22, 2014, 01:42:25 PM »
I went back and forth with Arebespy about creating categories greater than $1M when he set up that net worth poll.  He was adamant that there did not need to be any categories over $1M.  I thought then and think today you need a break out at higher levels because there are actually quite a few people with a net worth of more than $1M on this site.  Folks with higher net worth have different perspectives, and have generally been through multiple asset valuation cycles.  I suggest $1-$2M, $2M-$3M, $3M-$5M, $5M-$10M and over $10M.

Sure, of course there are, but once you get past a certain point, what does it matter?  Should we have a 10-20MM, 20-50, 50+?

IMO, once you're past a certain point, whether that's 1MM, 2MM, or 5MM, it just doesn't matter.   At that point you're in the "enough" category, and at or very close to FI.  You've hit the highest level, whether you have 1.5MM or 3.5MM.  Even if there's a bunch of people here with >1MM, great.  Do we need to break them out into people with 1-3MM and 3-5MM?  Eh.  You apparently still think so, I still don't.  :)

I don't think the OP meant current assessed value but rather current market value.  Who cares what the property tax collector thinks?

Agreed.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Another Reader

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Re: Net worth and sustainability for real estate investors
« Reply #9 on: June 22, 2014, 01:54:56 PM »
You can kind of figure out where the active posters fall if you read the posts, but I'm curious about the deep pool of lurkers.  I know the intent of the blog and forum is not to sell eyeballs, but I think the universe of readers is divided up into some distinct and very diverse groups.

And what is "enough" in Manhattan, London or Tokyo is very different than in a small town in the Midwest.

monarda

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Re: Net worth and sustainability for real estate investors
« Reply #10 on: June 22, 2014, 09:05:59 PM »

I don't think the OP meant current assessed value but rather current market value.  Who cares what the property tax collector thinks?

Agreed.

Yep. (But in our frequently reassessed town, the two values are pretty close.)

I like your idea, ARS, to think about cash flow instead of (as well as) net worth. Our gross annual rents now are about 60K  for the 5 units we rent (roughly corresponds to the 1% rule,  850K includes my primary residence)... so cash flow is lower than that, obviously, but at retirement I'll need to calculate how much of my income will be coming from the rentals vs my draw on other assets. I think compared to you, we're kind of at the same place in terms of total value, but I'm behind you on the cash flow, as we've got fairly pricey local rentals in our relatively expensive Midwest city.  We bought our properties 8-12 years ago and two have nearly doubled in value. We're way better than 1% on original purchase price.

Re: 1MM+ categories, I do agree that over 1MM is pretty much 'enough' for most people. Somehow 1MM doesn't seem as much to me.

Keep up the poll responses. Interesting how wide a spread there is so far. I'll have to think back and figure out what proportion RE was in our portfolio when we first bought our two 2-family rentals in late 2001.

arebelspy

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Re: Net worth and sustainability for real estate investors
« Reply #11 on: June 23, 2014, 12:22:23 AM »
I like your idea, ARS, to think about cash flow instead of (as well as) net worth. Our gross annual rents now are about 60K  for the 5 units we rent (roughly corresponds to the 1% rule,  850K includes my primary residence)... so cash flow is lower than that, obviously, but at retirement I'll need to calculate how much of my income will be coming from the rentals vs my draw on other assets. I think compared to you, we're kind of at the same place in terms of total value, but I'm behind you on the cash flow, as we've got fairly pricey local rentals in our relatively expensive Midwest city.  We bought our properties 8-12 years ago and two have nearly doubled in value. We're way better than 1% on original purchase price.

Gross rents is another way to look at it.  Though obviously what you net is what matters, that will be a reflection of the gross, debt service, and expenses.

My current gross rents are just above $8,800 monthly, with monthly mortgage payments (P&I) of just under $1,500.

My FIRE goal is to have about $19,260 gross rents monthly, with monthly mortgage payments (P&I) of about $3,750, though that could change based on some cash out refinancing options I've been looking into (if it did change from what's stated here, it'd change to more in mortgage payments, but way more gross offsetting it).

Wonder if other landlords are willing to chime in, either with their current portfolio, their FIRE goal portfolio, or both.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

monarda

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Re: Net worth and sustainability for real estate investors
« Reply #12 on: June 24, 2014, 07:38:02 AM »
3 buildings.
Monthly total gross rents will be $5500 in a month or two (when we rent the unit we're almost done remodeling),
mortgage P&I $1800, (though one of the loans is interest only until fall 2016, we need to refi or sell then).
Property taxes are high here (around $1000 monthly total)

$5500-$1800 -$1000=net $2700  (~50% for now).

I think we plan to pay off one house in the next 10 years, keep the mortgage on the other, so P&I will go down. We'll probably sell the third (the interest only loan) and buy something with better numbers.

We buy C+ properties, rehab to B+/A- properties, and have green-minded A-/A tenants, who usually rent from us until they buy their own places.

Still working on FIRE goals

arebelspy

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Re: Net worth and sustainability for real estate investors
« Reply #13 on: June 24, 2014, 08:43:08 AM »
3 buildings.
Monthly total gross rents will be $5500 in a month or two (when we rent the unit we're almost done remodeling),
mortgage P&I $1800, (though one of the loans is interest only until fall 2016, we need to refi or sell then).
Property taxes are high here (around $1000 monthly total)

$5500-$1800 -$1000=net $2700  (~50% for now).

This doesn't appear to count insurance, vacancy, maintenance, turnover costs, capital expenditures, any potential utilities you pay, etc. etc.  I'd guess your expenses would run around 60% of your gross, since the property taxes are so high, but you'll save about 10% of that managing it yourself.  That leave NOI at more like 2750 minus P& I = net cash flow of about $950/mo.

That might still not be bad, depending on what you have into it, but you won't net "Gross - Taxes - P&I"... there's a LOT more expenses in owning a property than that.

I'd love to hear your eventual FIRE goals once you figure them out - I'm curious what other landlords feel is "enough" in terms of units, gross and net rent, etc. etc.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

monarda

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Re: Net worth and sustainability for real estate investors
« Reply #14 on: June 24, 2014, 09:11:55 AM »
3 buildings.
Monthly total gross rents will be $5500 in a month or two (when we rent the unit we're almost done remodeling),
mortgage P&I $1800, (though one of the loans is interest only until fall 2016, we need to refi or sell then).
Property taxes are high here (around $1000 monthly total)

$5500-$1800 -$1000=net $2700  (~50% for now).

This doesn't appear to count insurance, vacancy, maintenance, turnover costs, capital expenditures, any potential utilities you pay, etc. etc.  I'd guess your expenses would run around 60% of your gross, since the property taxes are so high, but you'll save about 10% of that managing it yourself.  That leave NOI at more like 2750 minus P& I = net cash flow of about $950/mo.

That might still not be bad, depending on what you have into it, but you won't net "Gross - Taxes - P&I"... there's a LOT more expenses in owning a property than that.

I'd love to hear your eventual FIRE goals once you figure them out - I'm curious what other landlords feel is "enough" in terms of units, gross and net rent, etc. etc.

As to your last point, yes, that's why I started this thread. I'm starting to feel like we're sort of getting close to 'enough' in a long-term view. But not quite there.

Your calc of $950/mo net means almost $200/mo per 'door'.  Since $100/mo/door is what the BP folks like to say is their monthly goal, that's pretty good.  But how many 'doors' is enough?

Over 13 years of ownership, not counting costs of the remodel, our total expenses have been 40%.
And yes, we self-manage.  The remodel should pay for itself in 5-6 years, just considering the additional rent from that new space.
The P&I is a bit high bc one of our loans is a 15 year.  That's the one we intend to pay off. (leaving remaining P&I $900)
« Last Edit: June 24, 2014, 09:59:54 AM by monarda »

mooreprop

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Re: Net worth and sustainability for real estate investors
« Reply #15 on: June 25, 2014, 07:33:56 AM »
I would be interested in hearing opinions on the two options for when one has "enough" real estate investments.   It appears that Arebelspy's plan involves refinance in order to obtain extra untaxed income on properties while monarda plans to pay-off all mortgages.  I have struggled with this myself.  Should I take on the extra risk (and interest) to obtain income by adding financing to properties or do I just sit tight until the mortgages are paid off?  If the answer is a combination of the two, then what percentage?

arebelspy

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Re: Net worth and sustainability for real estate investors
« Reply #16 on: June 25, 2014, 07:38:10 AM »
I would be interested in hearing opinions on the two options for when one has "enough" real estate investments.   It appears that Arebelspy's plan involves refinance in order to obtain extra untaxed income on properties while monarda plans to pay-off all mortgages.  I have struggled with this myself.  Should I take on the extra risk (and interest) to obtain income by adding financing to properties or do I just sit tight until the mortgages are paid off?  If the answer is a combination of the two, then what percentage?

It really depends on a number of factors, including but not limited to:
Your portfolio
Your risk tolerance
Interest rates
Opportunity costs (i.e. other available investments)
etc.

If you want a general rule of thumb... refi when rates are low, and pay off when rates are high.

There's no set answer for every situation.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

monarda

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Re: Net worth and sustainability for real estate investors
« Reply #17 on: June 25, 2014, 09:09:27 AM »
I would be interested in hearing opinions on the two options for when one has "enough" real estate investments.   It appears that Arebelspy's plan involves refinance in order to obtain extra untaxed income on properties while monarda plans to pay-off all mortgages.  I have struggled with this myself.  Should I take on the extra risk (and interest) to obtain income by adding financing to properties or do I just sit tight until the mortgages are paid off?  If the answer is a combination of the two, then what percentage?

It really depends on a number of factors, including but not limited to:
Your portfolio
Your risk tolerance
Interest rates
Opportunity costs (i.e. other available investments)
etc.

If you want a general rule of thumb... refi when rates are low, and pay off when rates are high.

There's no set answer for every situation.

#1 for me is risk tolerance.  Related somewhat to your age.  I'm older than arebelspy.

The risk of your real estate holding its value will depend on location.  My properties are in a low-risk, easy to rent, appreciating neighborhood of a hip city. I can always get a HELOC if I want some cash down the road.  I don't like stocks as a rule (but the one biotech stock I own (where I used to work) has made me a lot of money in my IRA).

Must_Stash

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Re: Net worth and sustainability for real estate investors
« Reply #18 on: June 27, 2014, 12:16:13 PM »
Hi Rebel Spy, would you expand on the tax-free income from refinancing?  I know you can pull out money by refinancing as mortgage pays down or value increases, but how is it tax-free?  Have link or thread on this?  Thanks!

arebelspy

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Re: Net worth and sustainability for real estate investors
« Reply #19 on: June 27, 2014, 12:26:21 PM »
Hi Rebel Spy, would you expand on the tax-free income from refinancing?  I know you can pull out money by refinancing as mortgage pays down or value increases, but how is it tax-free?  Have link or thread on this?  Thanks!

When you take a loan out, you aren't taxed on it, because it isn't income.

As long as the cash flow from the rent covers the increased mortgage, you just got a big chunk of cash to spend, tax-free.

(Note: the interest is probably no longer tax deductible, unless you use it for certain investments - talk to your CPA.)

So say after 20 years your home value has doubled (due to increasing at the rate of inflation) and the principal has been paid down ~1/3.  Likely the rents are much higher due to inflation, so you've been getting much more cash flow - you can turn that into a big chunk of tax free cash by refinancing.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Must_Stash

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Re: Net worth and sustainability for real estate investors
« Reply #20 on: June 27, 2014, 03:18:57 PM »
Awesome, thanks.  I knew it would be something simple, but sometimes those things are the most elusive concepts-- they just seem too easy!

monarda

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Re: Net worth and sustainability for real estate investors
« Reply #21 on: June 28, 2014, 10:15:54 AM »
Wow, interesting...  uniform distribution in this poll so far.   
I suppose the average mustachian landlord's rental property value varies greatly.

Thinking more about this... should normalize for real estate equity at retirement and planned # of years until retirement.  A FIRE calculator that includes rental income, perhaps....  I've been trying to see if this calculator is helpful to include real estate income. I just tried it quickly. It says I'm ok to retire now... hmmm.   I'm going to put in the most conservative numbers I can think of, and see what happens. 

Know of any other calculators out there that include real estate income?

arebelspy

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Re: Net worth and sustainability for real estate investors
« Reply #22 on: June 28, 2014, 10:21:00 AM »
Know of any other calculators out there that include real estate income?

Every calculator, if you know your net cash flow.

What are you wanting the calculator to do?
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

sol

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Re: Net worth and sustainability for real estate investors
« Reply #23 on: June 28, 2014, 10:30:28 AM »
Is this poll asking for total sale prices of all of your RE, regardless of what mortgages you carry?  Am I supposed to include my primary residence in the total?

arebelspy

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Re: Net worth and sustainability for real estate investors
« Reply #24 on: June 28, 2014, 10:39:26 AM »
Good questions.

It says "What fraction of your total portfolio is real estate"

I'd interpret that as "Equity in real estate" (so market value minus mortgage balances) divided by net worth.

I would include primary in both the numerator and denominator.

Some obviously will interpret that different, but it probably doesn't matter too much for a non-scientific opinion poll.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
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sol

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Re: Net worth and sustainability for real estate investors
« Reply #25 on: June 28, 2014, 01:22:58 PM »
In my case they are relevant questions.  Counting only extractable equity and excluding our primary residence, we're less than 20% RE.  Counting value and including primary, we're about 60% RE.

But owning a million dollars in RE while carrying a million dollars in mortgages doesn't really feel like true "net worth" to me.

monarda

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Re: Net worth and sustainability for real estate investors
« Reply #26 on: June 28, 2014, 09:49:29 PM »
Sorry about being unclear. All good questions.

Part of the reason that I worded it (poorly?) the way I did has to do with my own strategy. I can definitely see how it would make a big difference for others.   I get  the same poll answer whether I use equity or total values.  We're at over 50% total extractable RE equity now (including primary residence), so my poll answer is 81% RE counting equity in rentals (without primary res.) or 87% RE counting current value (including primary).   I know that I have a bigger than average RE portfolio, and a smaller than average brokerage/IRA component. Hence the reason I'm curious if there are more people out there like me, tapping the leverage that I've already got (that's probably not the correct term) in my RE portfolio.

Thanks sol, for responding to the question in both ways.

I guess my motivation in asking is to see how much others are relying on their RE portfolio. Another way to ask: if everyone on this thread retired today, is your current RE portfolio going to be a significant factor to get you to (and through) retirement (taking full advantage of the leverage), if you'd continue paying the mortgage as you have it currently financed (changing nothing). Is it sustainable now?   

It's the way that we 50-somethings think. Or, I suppose, anyone trying to figure out if they might be pretty close to FIRE.  Another question for those who'd like to chime in, do you plan to be a landlord in retirement? Or is real estate just a way to get to FIRE quickly, then diversify as needed, like arebelspy plans to do?

So yes, total property market value does become important if you do hypothetically pay off your mortgages 10-15-20+ years into the future. Then after payoff, of course you have a more significant NOI, higher cash flow, and/or if you sell the building, you could walk away with that amount-of-cash.   And yes, you could possibly earn more by keeping the loan and investing cash otherwise. That's, I suppose, what I meant by 'minimum' net worth.  I'm talking buy and long-term hold.  You already are in a position to own the building outright- please consider the leverage.

Yes, arebelspy, you're right, any calculator would totally work. Cash flow is income. Just takes a tad more brain engagement. But as you might have noticed (from the Betterment vs Vanguard thread), I like having the friendly user interface for such things where I can manipulate and monitor the effects of altering different element of my portfolio already pre-labeled. That's all any 'calculator' is, right?

I hope this clears things up, but I'm posting this reply while mildly intoxicated, so no guarantees!  Sorry if I'm rambling. Or less than efficient in my use of wording

;-)

KBecks2

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Re: Net worth and sustainability for real estate investors
« Reply #27 on: July 01, 2014, 07:13:07 AM »
This is an interesting topic. We currently own no real estate other than our home. And I'm interested in diversifying into real estate investments, For the cash flow.  I am currently trying to determine how much of our net worth to put into real estate. But, I am hesitant to pull away from stock investing. Much of our net worth is in IRAs and 401(k), so the amount available may not even be much to work with. For people with heavy real estate percentages, are you using all "nonretirement" money? I these in regular accounts, or are you doing  self directed IRAs and Solo 401(k)s?

I am also struggling with choosing an investment type. Right now, I am leaning toward the working class neighborhoods with low-priced properties that could attain 1.5% to 2% rent versus value. For me these can be found locally.  But then, I am curious about the "appreciation crowd", who spends more on the properties, has fewer capital expenditures and seems to make it work.  However, I am very hesitant to take a huge chunk of our portfolio and dive into real estate with it. I am leaning much more toward starting very small as an experiment.

sol

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Re: Net worth and sustainability for real estate investors
« Reply #28 on: July 01, 2014, 08:30:02 AM »
are you using all "nonretirement" money? I these in regular accounts, or are you doing  self directed IRAs and Solo 401(k)s?
...
I am curious about the "appreciation crowd", who spends more on the properties, has fewer capital expenditures and seems to make it work.

We're accidental real estate investors, but we're not using any sort of retirement account.  We own houses, the mortgages get paid out of regular savings accounts, into which we deposit rent checks.

We're sort of planning on selling some RE upon our retirement.  When your income is below the 25% tax bracket, the depreciation recapture upon sale sucks because it is taxed at 25% and without income the depreciation is wasted.  This makes holding rental real estate for appreciation purposes much less attractive in retirement. 

Selling upon retirement should work out well for us, though, because it will generate a large influx of cash right as our income goes to zero and we start our five year Roth IRA pipeline.  As we start those transfers from 401k to Roth IRA we'll need non-retirement accounts to live on during the five years the transfers need to "season" and a RE sale will provide much of that money.  So in a way I think of rental property equity as our "first-phase" ER money, which needs to be outside of tax-sheltered retirement accounts anyway.

GrayGhost

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Re: Net worth and sustainability for real estate investors
« Reply #29 on: July 01, 2014, 08:35:06 AM »
KBecks, you'll find that most people on this site (and also on BiggerPockets) agree that cashflow is king. In other words, you buy properties with strong revenue/expenses figures, and any appreciation you get on top of that is icing on the cake.

Some people bet on housing appreciation, and a smaller number of them make bank on it. As far as me goes, that's too risky and speculative. The only way I'd bet on housing appreciation is if I came across a property or group of properties that has just okay numbers, maybe even cashflow neutral, and it's in a really screaming area like a waterfront in a tourist town.

KBecks2

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Re: Net worth and sustainability for real estate investors
« Reply #30 on: July 01, 2014, 09:22:15 AM »
Thanks for the replies.  I know that I must be confident and knowledgeable about the investment, and it seems my plan will be to get an under $50k property in the city that can rent for 1.5 percent or more.  Still a lot to learn.  I'll get going when the kids are back in school.  Bigger pockets is great.

Back to the original poster, what kind of green changes are you making to your properties and how are you marketing them?  It is very interesting.

Cheddar Stacker

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Re: Net worth and sustainability for real estate investors
« Reply #31 on: July 01, 2014, 10:59:58 AM »
RE holdings are currently about 18% of NW, but I expect that to increase to a plateau of about 30-35% in a few years.

I'm taking full advantage of all tax deferrals I can, and all extra funds (non tax deferred funds) will go towards RE investments.

Current projections for FIRE show 30% of NW tied up in RE and 40% of cash flow coming from RE holdings.

But, the wind may blow tomorrow and change my trajectory, who knows.

monarda

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Re: Net worth and sustainability for real estate investors
« Reply #32 on: July 01, 2014, 02:04:41 PM »
Thanks for the replies.  I know that I must be confident and knowledgeable about the investment, and it seems my plan will be to get an under $50k property in the city that can rent for 1.5 percent or more.  Still a lot to learn.  I'll get going when the kids are back in school.  Bigger pockets is great.

Back to the original poster, what kind of green changes are you making to your properties and how are you marketing them?  It is very interesting.

We're adding all kinds of green changes to our 100 year old rental.  Energy efficiency measures (new furnaces, insulation), water savings measures (low flow fixtures), garden plots in the back yard, mostly all reclaimed wood for the remodel project that we're doing, solar PV, solar hot water. Our location has a great walk score.  Its interesting, we had showings recently for an upcoming tenant turnover (Sept 1), and over a dozen people (on the single showing day) were interested in green features, but each was most excited about different things. We signed an avid gardener whose job is conservation related.  Other local green properties feature low VOC, hypoallergenic, natural fiber carpets.  There are so many interpretations of green, we and some other landlords have come up with a checklist/score system. 

We've recently created a local "green apartment network".  It's really a brand, to promote the green features (via the checklist) in ours and other apartments.  We want to create a searchable database someday.  Also someday, we hope to go national.  See (and 'like') our facebook page... greenapartmentnetwork


Poorman

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Re: Net worth and sustainability for real estate investors
« Reply #33 on: July 01, 2014, 02:30:05 PM »
But then, I am curious about the "appreciation crowd", who spends more on the properties, has fewer capital expenditures and seems to make it work.

Appreciation investors tend to focus on areas where income growth is the strongest, such as New York, DC, San Francisco, and parts of Southern California.  The basic idea is that rapidly increasing incomes will translate into rapidly increasing RE values as demand to live near those job centers drives the value, not necessarily the ratio to rents.  Rents should also be increasing rapidly though.


webform

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Re: Net worth and sustainability for real estate investors
« Reply #34 on: November 28, 2014, 02:13:22 AM »
I'm at $1.7M now (excluding cars and personal residence) with $300k in 401k.

I think gross rent is a bad measure; in my opinion, 50% of gross less PITI = "true net cash flow"  is the right way to look at it for best results.

Personally I am not going to plan to exit the workforce until I have double my current expenses in net cash flow (from houses only - early access to 401k isn't something I want to do so not included) every month, which will allow me to live the lifestyle I want as well as have money left for investing in more houses or other interests.

Quite frankly, while I COMPLETELY get the concept and fully agree with reaching FI ASAP through investment and cost cutting, I don't want to have to worry about spending and I want to be able to invest in new business and real estate opportunities for fun and profit. 

Plus my job isn't exactly miserable.  The difference is that now I'm working for myself vs my employer, and if they fire me I'll probably just thank them for making me figure out what to do with the rest of my life ahead of schedule.

arebelspy

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Re: Net worth and sustainability for real estate investors
« Reply #35 on: November 28, 2014, 08:22:50 AM »
I'm at $1.7M now (excluding cars and personal residence) with $300k in 401k.

I think gross rent is a bad measure; in my opinion, 50% of gross less PITI = "true net cash flow"  is the right way to look at it for best results.

Personally I am not going to plan to exit the workforce until I have double my current expenses in net cash flow (from houses only - early access to 401k isn't something I want to do so not included) every month, which will allow me to live the lifestyle I want as well as have money left for investing in more houses or other interests.

Quite frankly, while I COMPLETELY get the concept and fully agree with reaching FI ASAP through investment and cost cutting, I don't want to have to worry about spending and I want to be able to invest in new business and real estate opportunities for fun and profit. 

Plus my job isn't exactly miserable.  The difference is that now I'm working for myself vs my employer, and if they fire me I'll probably just thank them for making me figure out what to do with the rest of my life ahead of schedule.

Welcome to the forums!  Congratulations on your success.  Good to see another realistic real estate investor around here.  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Fallenour

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Re: Net worth and sustainability for real estate investors
« Reply #36 on: December 12, 2014, 09:37:59 AM »
Age: 25

Annual Incomes: ~115k
Net worth: Private

Distribution:

Cash:
IRA: ~5,500
401k: ~41,000
SEP-IRA: ? (I forget :( )
Corporate 401k: 102,000
Real Estate: ~1.4M
P2P: ~30,000
Municipalities: ~25,000 (water)
Commodities: DMV of assets

I dont plan on FIRE, I want to see how high I can go.