Author Topic: Should I buy more rentals or diversify?  (Read 1456 times)

Bearded Man

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Should I buy more rentals or diversify?
« on: April 05, 2015, 03:49:18 PM »
I have about half a million in assets, most of it tied up in real estate. I still have 125K in cash to invest at the moment, and am adding to that sum quite a bit every month.

One rental is paid off, the other is not, and my primary residence is not. Part of me wants to take advantage of low interest rates and stick to what has been working for me: real estate. Part of the problem is the deals are really hard to find if not near impossible in my area. A class A single family home rental goes for about 290-300K and cash flows at about $500 a month with about $330 principal pay down per month. I can buy a four-plex for about 350K and make maybe 250-300 per unit per month with about $330 per month principal pay down.

Even though that's not a ton of money per unit, it's still money that helps with retirement now if I chose to retire.

Also, even if I let my tenants pay it all off over time, it's still a cheap way to let someone else make me nice and fat over the long haul while I work other investments such as index funds and let them compound over time (live off rental income and let index funds compound for decades).

You get to retire off the cash flow now if you so choose, and even by the time you're sixty your index funds are into the millions and your rental income just went up drastically because your rentals are now paid off.

Plus I like the returns I'm seeing from my rentals; far higher than the stock market not even counting appreciation, just cash flow. I could sit on my hands and hit millionaire in a few years just riding this train.

That said, part of me realizes rental real estate also requires repairs and carries some risk. What if the foundation get's damaged. What will it cost me to paint, re-roof, re-carpet/laminate, replace the furnace, etc. There is some ongoing expense in the long run (but tremendous tax benefits now and in the long run as well). Maybe I should diversify in index funds and REITs for now? The power of compounding should make my cash and additional savings each year compound very nicely over the long run, which can help fund not only retirement while letting the account still grow in value, but also help fund repairs to my rentals (which will fund retirement on their own).

Or should I hang on to the cash and wait for another buying opportunity during the next market downturn, whether stock or real estate.


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Re: Should I buy more rentals or diversify?
« Reply #1 on: April 05, 2015, 05:43:53 PM »
I would personally diversify.   Just so you know I'm not biased on way or the other, about 60% of our wealth is tied up in real estate (excluding our superannuation - the Aussie retirement plan) so I'm very comfortable with real estate as an investment.  But, it is very illiquid and theres a big concentration risk.   

If its the leverage that you like about real estate, try investing in shares or ETF's using one of the online brokers like Interactive Brokers.  It is a lot harder watching your portfolio move around though - a house you value irregularly, with an online account you can value every hour on the hour if you want.     

Our overall philosophy is that we are going to have liquid investments (shares, ETF's, cash) that will cover our living expenses during early retirement, with the real estate covering traditional retirement years and the superannuation being our emergency fund to ensure we don't end up having to go into a shoddy retirement / care facility because we've run out of money!

Secretly Saving

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Re: Should I buy more rentals or diversify?
« Reply #2 on: April 05, 2015, 06:01:22 PM »
We are debating this right now.  We own a couple of rentals in our home state and have been sitting on some money that we need to do something else with.  One thought that we had was to stick with rentals, but to do it in a different state as one way of moving around at least some part of the risk.  We'll also probably invest in a few other things as well in order to diversify.


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Re: Should I buy more rentals or diversify?
« Reply #3 on: April 05, 2015, 07:53:52 PM »
What makes you comfortable?  What is your long term AA and what is your plan for getting there?  What does your IPS say?

These are questions we can't answer for you, nor would you want us to.

I'm personally heavily tilted towards RE, but FIREing in a few months, and we're going to diversify after that.  All our post-FIRE surplus is going into equities.

You may want to diversify now, or later, or never. It very much depends.  :)

Start thinking about some of those questions I posed. You may have to run some scenarios and do some navel gazing to decide the right path for you.
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