If you aren't including a PM cost (even if you DIY to save that cost), you should be. You're essentially doing that work for free, so that part of your "rental income" is a return on labor (your labor), not return on investment.
If someone said "here, buy this investment that returns less than a passive REIT/ETF, but if you do extra unpaid work, you can boost the return to be equal to that passive one" I sure as hell wouldn't say "Sign me up!"
Exactly. I would never buy a property that I didn't factor in margins of error and a PM. I would always want the option of having a completely passive investment (or nearly). If, after factoring those extra variables in, the property didn't net me at least 10-15%, I'm out.
$60 a month for a pm? Where do you own property, Detroit?
For some reason I thought you said your properties rented for around $600 mo. Now I'm remembering you're in Seattle and that's probably net. Even if a PM cost you $150/mo, I still bet your numbers come out in favor of keeping the rentals. Again, if not, you should sell and find properties that cash flow better.
I simply think real estate is too powerful for everyone not to utilize it in some capacity, especially if you aren't free from work already. Even if you have to start by renting out a room, you should be. There's simply no other investment with the same amount of risk that yields the same amount of return even when factoring in the extra work. If it feels like too much work, I say suck it up, the alternative is 4-6% net yield in the stock market.
Sure, if you have $2 million in cash, it doesn't really matter where you put your money, ~$100k/yr should be plenty for everyone here. But to quickly accelerate your path to quitting your job and doing what you want, real estate is the answer for 99% of people. With stocks, net worth matters. With real estate, cash flow matters. This site and MMM is too reliant on net worth. I could care less what my net worth is as long as I'm able to cash flow my monthly needs.
So yeah, I can definitely see why some would choose to cash out and put it in some other more passive investment (though, again, if you buy properly then it should be pretty close to passive) down the road, but I plan to always have some form of RE.
My net per month is well above that. I agree with you on the NW vs cashflow, but I'd rather have my money compound in index funds and be living off a 1% withdrawal rate on 10 million then taking on all the risk and headaches of millions in real estate. If I want FI now, yes, RE is better, but in the long run, if you let your money compound in an index, eventually you can slowly sell off some real estate and switch, while having lived on the rental income initially.
If I actually factor in the time I spend on the house when turning the place, dealing with taxes and book keeping, it would be better to put it in a REIT. I'll take a hit on transaction costs (one thing I really hate about real estate. I can sell 10 million dollars of stock for $10, but for a house of a few thousand dollars, everyone and their mother has their hand out and it costs me tens of thousands and is damn near forced upon you like a toll if you want to sell in a timely manner).
Do you own rental property? Where at in relation to your location?
I think RE is a good thing to have in your portfolio for diversification, but I feel like it ties me down. I wouldn't feel comfortable traveling the world like ARS. If I sold everything and rented, I could see myself traveling the US in an RV, having a good time.
There is one thing that I will reiterate. The only thing that keeps me from selling it and putting it in a REIT is the utility value. I can't live in a REIT for $200 a month (taxes, insurance, some minor upkeep because I'm easy on my stuff). I can't grow food and raise chickens in the back yard, rent out a room, and use the clothes line to dry my clothes.
A colleague of mine made an interesting comment to me some time ago when he found out it's paid off. "You can always use that as a fall back position". I stopped and thought, that's actually a great idea. I keep my tenants on a MTM lease so I could always move back in easily. Between the paid off house and my gf's income, I wouldn't be too worried at all. It's not my favorite location but I was fine living there, and could do it again for a few years if I fell on hard times. I just view it as a safety net.
Now, I could just 10-31 it with 10-15K added to the pot and about that in transaction costs and get another paid off house that is in the same area but more desirable, not on a busy street. Keep it as a rental, but use it as a fall back if I ever need it. For that, I think it is always nice to have a paid off house. I'm glad I bought a house first, in cash, before I speculated in the stock market again.
I mean, even if you work at 7-11, with a paid off house, you are still doing better than most people and have it relatively made.