Author Topic: Investing and invest properties  (Read 2539 times)

tycanis

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Investing and invest properties
« on: April 04, 2016, 09:52:52 AM »
My wife and I are considering both investing and investment properties.  We have the means to purchase a rental property outright.  Would it be wiser to get a loan or to purchase outright?  If we can get two rental properties or is that going too deep too fast?  Would it be better to invest a large chunk of this money into market funds instead? 

We have used a lot of advice to cut our costs and to live comfortably.  However, we want to prepare for our future as well.  Please help us get started on the right path.

AZDude

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Re: Investing and invest properties
« Reply #1 on: April 04, 2016, 09:58:04 AM »
Obviously there are about 1,000 different things needed to make such a decision. Look at the properties in your price range, the expected maintenance, what kind of renters you expect to have, what the market price is for a similar rental, whether you will hire a professional landlord or DIY, etc...

Compare the expected ROI to what you think you could get long term from just an index fund(~7% to 10%).

And, of course, others have pointed out that a good rental property can provide a little more income security during a bear market, allowing you to FIRE with less total NW.

So find a list of good rental properties and run the numbers. You cannot go wrong either way as long as you do your research.

tycanis

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Re: Investing and invest properties
« Reply #2 on: April 04, 2016, 10:38:22 AM »
I did not phrase my questions well.

I have not invested money in a long time.  I have a good chunk of money just sitting in the bank not doing anything.  I want to change this and I do not plan on moving in the near future which was not the case for the past 9 years when I have moved five times in four different states.

The rental market in the town I live in is nonexistent.  Nothing is ever listed for an entire month before it is taken up.  This seems attractive but I know there are risk associated with bad tenants and/or having a property sit vacant, we are in a seasonal tourist area so this is a concern of others in the landlord market here.

I know I need to do something with my cash so that it is doing something for me.

Should I be concerned with getting in too deep with rentals?  Is there a good division between owning property and other investments?

Above all, should I get a rental with a loan or pay cash?

AZDude

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Re: Investing and invest properties
« Reply #3 on: April 04, 2016, 11:04:33 AM »
Look at the return a rental would generate versus the expected return in an index fund.

IE: rental unit costs $80K to buy, but generates $800/month in cash flow. That is 10%, so its comparable to an index fund. But say it costs $40,000 but generates $800 per month. That is 20% return. Much better than a typical index fund.

So look at potential rentals and see what kind of return you could get.

Index funds are a super easy way to invest, and if you want your money making money without any hassle, just buy and then don't worry about it.

SwordGuy

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Re: Investing and invest properties
« Reply #4 on: April 04, 2016, 11:18:13 AM »
I would suggest you read this book, cover to cover, and learn to do the math in it.

Then you will know the answers to most of your $$ oriented questions.

http://www.amazon.com/Estate-Investor-Financial-Measures-Updated/dp/1259586189/ref=sr_1_1?s=books&ie=UTF8&qid=1459790105&sr=1-1&keywords=cash+flow+real+estate+investing


HipGnosis

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Re: Investing and invest properties
« Reply #5 on: April 04, 2016, 02:18:52 PM »
I do not have any rental investment property, though I've been reading about it for years.

You don't say how much time you have or will commit to property.  I feel that one property is the least efficient - which is why I haven't done it yet.  It's also the most risky in that a vacancy of your only property of any duration can be devastating.

From what I've read;
You need to learn your local market
You need to master the math, and what allowances to make for your locality
Then you need to use that math to make your decision.

If the math tells you it's good for you, then get loans, set aside a maintenance and upgrades fund (again, using the math) and invest the rest.

Chris22

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Re: Investing and invest properties
« Reply #6 on: April 04, 2016, 02:34:43 PM »
A lot of the risks are dependent upon where in the rental market you sit.  You'll potentially different problems at the low end of the market versus a middle family level versus the high end.  Personally, I like to be a little more $$$ than average, because I think someone willing to pay more for rent and not looking for the absolute cheapest place they can is likely to take better care of it, but that may not always be true.

Another thing I did that I'd encourage others to do is put a minimum charge for repairs in the lease; my tenants are responsible for the first $100 of any repair to the house.  I haven't actually enforced this on them (only had two minor repairs and neither was likely their fault) but it minimizes the chances they will call every time a lightbulb burns out or similar.  If they get needy I can fall back on that, fortunately they haven't been so I let it slide.

mastrr

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Re: Investing and invest properties
« Reply #7 on: April 04, 2016, 06:53:17 PM »
Loan all day....

Understand ROE (return on equity) and "positive leverage"

I would go as far as to say that it is never mathematically correct (given current interest rates) to completely pay-off an investment property.  The reason being that your ROE would be lower on a fully paid off investment property compared to taking HELOC out and invested that money as a down-payment on a new property.  However, you open yourself up to more risk and debt which goes against the mustachian way.

That being said, it depends.  You have to have a solid understanding of actual cash-flow to understand how mathematically favorable your deal is.  The better your deal is the more you should finance it and the worse your deal is the more you should buy cash.  Buying a investment property cash is not a bad idea, just believe it to be sub optimal.