Landlording Alternatives

[Freedom Invested]

I have been thinking about buying real estate (additional house/condo/townhome) and using it as an additional income source.

I'm already well diversified across national (USA) and international stocks but I want an additional diversification. The problem is, yes, I enjoy home improvement and maintenance (my own home) but the further I research it, the less appealing I think it would be to do it as a landlord.

So here is my question. What do you think of Realty Income (NYSE: O) as an alternative?  https://goo.gl/WjhJcs I've already formed some opinions on it, but I want your opinion. An FAQ I found on their site: http://www.realtyincome.com/about/frequently-asked-questions/investing-questions/

I'm not looking for a huge investment to first experiment with it. Maybe 10k. Thoughts?

[Hargrove]

I love O. APLE is another one I looked at. And HCN. It's easy real estate exposure if you're picking stocks [standard disclaimer about picking stocks being a bad idea]. The dramatic differences with REIT over the realty itself is that you have no leverage. A 200k multiplex bought with only 40k of your own money and paid off by tenants is a more accelerated return than 40k of your own money in a 4% dividend-paying workhorse. O regularly raises dividends and just took a dip from creating and selling shares, but will take another when Yellen raises rates this month (assuming she follows through).

Also remember REITs are so advantageous inside rather than outside a retirement account, owning them in a taxable account is just a waste because of the tax treatment on them.

[maizefolk]

I guess the downside of REITs is that you're much more exposed to the risk of rising interest rates than if you personally own property with 30 year fixed rate mortgages. But I really really don't want to be a landlord either, so I don't know that I have any good alternative advice to offer.

[Freedom Invested]

I love O. APLE is another one I looked at. And HCN. It's easy real estate exposure if you're picking stocks [standard disclaimer about picking stocks being a bad idea]. The dramatic differences with REIT over the realty itself is that you have no leverage. A 200k multiplex bought with only 40k of your own money and paid off by tenants is a more accelerated return than 40k of your own money in a 4% dividend-paying workhorse. O regularly raises dividends and just took a dip from creating and selling shares, but will take another when Yellen raises rates this month (assuming she follows through).

Also remember REITs are so advantageous inside rather than outside a retirement account, owning them in a taxable account is just a waste because of the tax treatment on them.

Hmm, given this argument alone it might be a good idea to not bother with O then and keep straight index stocks in the tax advantaged accounts anyway (and not bother in the taxable). It'll be so long before touching the tax advantaged accounts, so it might be best to just keep them in index.

Oh, and of course I assume all risk. I'm mostly wanting to diversify and admittedly try something new and interesting. Maybe boring is better for investing though. 

[Freedom Invested]

I guess the downside of REITs is that you're much more exposed to the risk of rising interest rates than if you personally own property with 30 year fixed rate mortgages. But I really really don't want to be a landlord either, so I don't know that I have any good alternative advice to offer.

Right, I like the idea of owning multiple homes for the income streams, but I think it might end up being more stressful then it is worth. I imagine various things breaking in multiple homes (by age of the things or by the tenants) and various other tenant issues for that matter. The math probably checks out (even with a company managing them for me) because of the rapid rising in home prices here, selling them homes later, and I'll be able to retire earlier, but I can work a couple of extra years in my career if it means I am never exposed to land-lording stress.

[Hargrove]

REITs are taxed, by the way, as if you were making any dividends as regular income, UNLESS they're in a non-taxable account.

Yeah, boring investment is the best. As far as stock picking, you are at least looking at the most boring stock picks!

I have about what you suggested in O, and I'm fine with that. I get a bit of pride out of owning and following a few companies, but it's not the way to retire. I aim to have roughly 10-25% of my portfolio in specific stocks (a basket of about 25 I picked out) and the rest in VTI and VXUS.

Individual stock perks, if you love boats, could use a car insurance discount, want coffee coupons, etc. could also be factors in stock picking in very small amounts.

Berkshire offers the Omaha conference and Geico discount (the most Mustachian perk)
Royal Caribbean offers cheaper cruises (but you're not going on cruises, right...? Haha)
Ford offers cheaper new cars (which you also shouldn't be doing!)
McDonalds and Starbucks occasionally send coupons (hell no and ok respectively)