$15k of $200k is 7.5%.
My investment portfolio has returned an average of 7.9% over the last ten years and it requires zero work. I could pull out 7.5% each year and still leave the principal alone to appreciate further.
I think rental property is overrated because the checks coming in the door each month give you a false sense of profitability. I’m not saying it doesn’t work out, my great grandfather made his fortune on apartment buildings years ago, but it isn’t as easy as folks make it sound.
I put a 7.5% withdrawal rate strategy into www.cfiresim.com and it had a 30.43% success rate over 30 years.
THAT is the difference.
For a 30 year retirement, you need to use a 4% withdrawal rate to have a 95% success rate.
Functionally, that rental property investment is producing the income that a stock/bond portfolio of $375,000 can sustain over 30 years, but it only required a $200k investment to do it.
But you’re assuming that a rental property returns 7.5% every year. Which would ignore maintenance expenses and any rental income that might be lost if a property sits empty or you have to evict someone etc.
I think when rental property is good, it’s really good. But when it’s bad it can be really bad and a huge drain on your assets.
We’ve kicked around the rental property idea for many years, as well as vacation properties and ultimately decided it seemed to be a bigger risk to us than it’s worth when we can live on 3% of our portfolio.
No, I'm not assuming that at all. I'm assuming the OP knows how to properly calculate profit on a rental property. You have to subtract out vacancies and future repair costs before you calculate profit.
Some years the expenses will be higher and some they will be lower, but over time they average out -- just like the stock market has ups and downs that average out.
Yes,
@SwordGuy is correct. It's 15K on a 200K investment, after factoring in expenses including vacancies, taxes, insurance and property manager for that particular unit. There's no mortgage. This investment is stable, the sturdy, well maintained house will most likely still be standing when I'm dead and buried, and the rent checks should be coming in like clockwork for as long as I own it. I know many of my beloved friends in this cohort are skeptical, but hear me out. It's always good to hear how someone made it to this thread, yes?
We do most of our own work in true MMM style, and yes, there's the occasional need for a roof (about 7500 for a small 3/2 footprint w/garage), or a backed up pipe. Or we buy a fixer upper and the work is substantial. It may take weeks or even months to get a fixer to the caliber that we want them to be. We'll know that going in. But let's set fixer uppers aside, because our core rentals have been fixed up and cash flowing for years, most more than a decade.
Overall, our tenants are very happy and long term (we keep them happy, our beautiful houses are below market and in good repair, and they stay). Most of my houses are only vacant for for a few days at a time. Most of the occupied houses need less than an hour of our time a month, some less than a minute. In July, so far, one tenant called to ask where the water shut off valve is. One asked if they could remove some bushes. I didn't hear from anybody else. Then I check the financials for the first few days of the month to make sure the autodeposits are deposited. That's about 10 minutes so far this month and we're 3 weeks in. Last year we had several vacancies, but that is very unusual. We raise the low rents when they move out, so it's a cash positive move. Generally we have about 1 vacancy a year that takes 1-4 weeks to get rented.
RE is so good to us that I can't bring myself to do it any other way. There is no doubt that investment portfolios are easier and has worked brilliantly for most of you, but RE has made us very wealthy. When I do the math, I can't imagine sinking 200K into the market and hoping it all works out. In theory, I've heard again and again how it works, but in practice, I'm way better at real estate and more comfortable having my eyeballs on my own investment. No judgement or debate, because we all choose a path that is comfortable for us. I'm glad it's worked for most of you, but it hasn't for us. Instead, I make an investment that starts to give me a return immediately. I don't see monthly rent checks as a false sense of profitability. I see them as a bird in the hand. I know that rent income came in last month and safely landed in my bank account. It will happen again next week. I didn't wait for the dividends to post. We're not hand to mouth here waiting on rent checks to pay the bills. We an ever increasing NW and cash in a growing bank account. Freedom and wealth.
Topic: Race from $2M to $4M...and Beyond! (Read 1468701 times)
