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Old 04-19-2021, 07:38 PM   #1
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Real Estate funding your cruising?

Question for those of you who've retired and are now cruising. I just read through the "What do you do in real life" and was fascinated by the various backgrounds of TF membership. I'm wondering how many of you earn at least a portion of your income from real estate investments?

I am eligible to retire in 10 years. We've lived a frugal life and saved a decent amount of money, so we should be able to have a comfortable retirement. But our retirement savings probably won't comfortably fund our dream, which is a summer home in Colorado/Prescott/somewhere similar, and a 40'ish trawler (eg Mainship 430) for cruising in the winter.

I plan to do some work remotely in retirement, like online teaching, and we recently started investing in real estate. We purchased one rental property approximately 18 months ago and have it managed by a property management company so we are almost totally hands off. I don't intend to become real estate moguls but if we can acquire 4 or 5 properties that cashflow a couple hundred dollars a month, that goes a long ways towards helping pay for gas, or slip fees, etc. Not to mention options that the equity in these homes provide. We're being conservative with this, not overly leveraging, and only looking for properties within our budget and where the numbers make sense.

We have a decent income finally, not wealthy but decent (which doesn't go far in DC.) Our house will be paid off by the time we retire so I think we can afford the retirement home, and possibly the boat itself, on our retirement savings. My goal for real estate and part time work is to help cover cruising expenses so that we aren't strapped. It's not going to be fun if we're stressed about affording it and trying to fix everything ourselves because we can't pay for maintenance.

So I'm curious on the thoughts from those of you who are 10+ years ahead of me. Any of you found success with funding some of your adventures through real estate?

Although I value everyone's opinions, I'm not looking for advise on whether real estate investments are a good thing. Believe me, we're aware of all the horror stories. I'm looking specifically for opinions from those who have tried to help fund a portion of their cruising with real estate.

Thanks
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Old 04-19-2021, 07:54 PM   #2
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No real estate except our primary dwelling. I used to own a property management business and saw how bad people could destroy a house. I then decided that I would never put my money into rental houses. I have been in houses where I stepped out of my shoes before I got into my truck and drove away leaving the shoes at the house. Too much possible heartburn IMO. But maybe you will be lucky...
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Old 04-19-2021, 09:06 PM   #3
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Question for those of you who've retired and are now cruising. I just read through the "What do you do in real life" and was fascinated by the various backgrounds of TF membership. I'm wondering how many of you earn at least a portion of your income from real estate investments?



I plan to do some work remotely in retirement, like online teaching, and we recently started investing in real estate. We purchased one rental property approximately 18 months ago and have it managed by a property management company so we are almost totally hands off. I don't intend to become real estate moguls but if we can acquire 4 or 5 properties that cashflow a couple hundred dollars a month, that goes a long ways towards helping pay for gas, or slip fees, etc. Not to mention options that the equity in these homes provide. We're being conservative with this, not overly leveraging, and only looking for properties within our budget and where the numbers make sense.


So I'm curious on the thoughts from those of you who are 10+ years ahead of me. Any of you found success with funding some of your adventures through real estate?

Although I value everyone's opinions, I'm not looking for advise on whether real estate investments are a good thing. Believe me, we're aware of all the horror stories. I'm looking specifically for opinions from those who have tried to help fund a portion of their cruising with real estate.

Thanks

An old high school friend and I started purchasing multifamily apartment buildings in a low income area 25 years ago. We accumulated buildings that were grossly uninhabitable one at a time. Yes, we needed construction mortgages to gut and reconstruct each property elevating it to current code. Mortgages are long gone as is my business partner and life long friend. His son does my plumbing repairs, I remain close to partner's family.

The income from my investment is a gift that keeps on giving. I refuse to sell anything. The problem with a money bucket is that it can be emptied and the last thing I want is to run out of money before running out of breath. I highly recommend property investment. An article in the WSJ's last week told about foreign investment companies buying up tens of thousands of homes here in the U.S. I understand why. OH--- no interest here to live on a boat nor does my wife. Our boat is just a toy.
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Old 04-20-2021, 12:52 AM   #4
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I believe in a diverse portfolio. Owning Multifamily properties is just one of my investments. RIETs are another investment along with Stocks. I'm not much of a fan of bonds at the current interest rates.

I'm in the process of winding down my last business. It simply can't function with out my money and I don't want to trust my money to anyone else. I have yet to make up my mind it I want to turn my multifamily properties over to a management company or sell them and invest in more REITs.

In any case I'm slowly moving to investments that pay me dividends over growth.
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Old 04-20-2021, 05:11 AM   #5
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We had a similar idea 10 years ago and now have three properties. One us rented full time, two are vacation rentals (vrbo). Each is cash-positive but it can be lumpy. An AC goes out with a $2k repair for example. Finding a decent property manager is key, but their fees are difficult to absorb if you're considering residential housing.

Where we have done well is in appreciation. But that too has been lumpy. All properties are in sunbelt areas so have almost tripled in value over the 10-12 years we've owned, but majority of appreciation has been in last 2-3 years, especially the last 12 months.

One idea I considered 10 years ago that I still think was a good one was go buy a small apartment complex with 8-12 apartments. Because commercial property is priced on Cap Rate (an index of ROI based on income vs cost), pricing is rational. A complex of that size allows an on-site property manager. Finding one where the units need to be remodeled means the remodel work can be done in a cookie cutter manner, and also means the higher rents greatly influence Cap Rate and thereby quickly increase property value vs waiting on market vagaries of supply and demand.

Overall, I have not found real estate to be a great investment at small scale. Transaction costs are high in both directions, holding costs are high, and it can take a while to sell the property. Add risk of lousy tenants. For me, managing my stock portfolio is easier, lower risk, less expensive, more liquid, and more consistent/higher returns. When I compare the appreciation of my portfolio vs real estate holdings over past 3 years, equities have a similar appreciation but a more consistent increase.

But here's the big caveat: although having a finance background, I am not comfortable with debt, especially as retirement looms. In my opinion, nothing kills a cruising dream faster than debt. The biggest benefit of real estate is ability to leverage money so you have to be comfortable with debt. Yea, a property may increase by 20% but if you have 80% financing, you've doubled your money. That won't happen with equities unless you use some higher risk, high velocity mechanisms.

Good luck

Peter
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Old 04-20-2021, 07:26 AM   #6
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I believe in a diverse portfolio. Owning Multifamily properties is just one of my investments. . . I have yet to make up my mind it I want to turn my multifamily properties over to a management company or sell them and invest in more REITs.
I own some REITs as well, and have put some money in a sort of crowd-funded eREIT called Fundrise. But wouldn't selling your apartments and putting the money into REITs eliminate the whole benefit of owning real estate? That is, the monthly cashflow after mortgage pay down? (I know threre are potential tax benefits as well.) I ask because believe me, I'd much rather just own REITs vs the hassle of finding and owning individual properties. But the attraction of owning property is the cashflow and having tenants pay off my mortgage. The cashflow only increases over my lifetime as rents go up and the mortgage is paid off. The best I can get with my REIT is the increased value of my shares.

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We had a similar idea 10 years ago and now have three properties. One us rented full time, two are vacation rentals (vrbo). Each is cash-positive but it can be lumpy. An AC goes out with a $2k repair for example. Finding a decent property manager is key, but their fees are difficult to absorb if you're considering residential housing.

Where we have done well is in appreciation.
Peter
You're correct, finding properties that cashflow after all expenses, set asides for maintenance, CAPEX, Vacancies, and paying a PM is very tough. I won't settle for less that a cash on cash of around 8% which is becoming very difficult. Based on your experience, would you purchase the properties again? Or has it really not been worth it? I know you've done well with appreciation but I don't want to bank on that.

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The income from my investment is a gift that keeps on giving. I refuse to sell anything.
This is the goal, have a handful of properties that cashflow, after all expenses, enough to help fund the expenses of cruising.
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Old 04-20-2021, 08:48 AM   #7
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As MVweebles said. Real estate is great because you can leverage it. I am no longer leveraged. Now I could add more properties if I needed more money but what I want is less risk and less hassle.

The right answer for each person is different.
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Old 04-20-2021, 09:05 AM   #8
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We have a small shopping center in a Southern California beach town anchored by one of those 99cent/dollar stores and a bank on the pad in the parking lot. There are 4 small eatery’s and a couple of doctors offices as well as other tenants.

It pays for everything in our retirement and quite comfortably too. We went a few months with no income in the early shutdown days while we negotiated with our lender for interest only payments for the duration, but all is back to normal now.

We have used the same management company for over 35 years with nothing but good results. Triple net commercial properties are the way to go, if you can afford to buy in. Like many commercial properties we have a 5 to 8 year loan that needs periodic refinancing, this allows us to take cash out tax free if we want. We still have under 30% loan to equity ratio.

At some point we will sell it and cash out. We have no heirs and no favorite charities to donate to. We plan on spending as much as we can on ourselves before we die, giving the remainder to progressive causes after we are gone. I also anonymously established a college scholarship fund a decade ago in the name of a deceased friend which is financially self-supporting.
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Old 04-20-2021, 10:05 AM   #9
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Question for those of you who've retired and are now cruising. I just read through the "What do you do in real life" and was fascinated by the various backgrounds of TF membership. I'm wondering how many of you earn at least a portion of your income from real estate investments?


Although I value everyone's opinions, I'm not looking for advise on whether real estate investments are a good thing. Believe me, we're aware of all the horror stories. I'm looking specifically for opinions from those who have tried to help fund a portion of their cruising with real estate.

Thanks
I am doing exactly that. I am 10 years into my plan.

I 'retired' at 49 and went sailing for 4 years. I then went back to work for a final 7 years before retiring again at 60. During those last 7 years I formulated my retirement plan as follows;

Leg 1 Investment income from IRA / Small pension from employer / small SS from Wife's former employment. My SS doesn't kick in for a few more years.

Leg 2 A Income from a charitable trust

Leg 3 Real Estate.

At the time I set this plan each leg was expected to be approximately equal in income. Now, I find that the Real Estate leg is producing 3X the income of each of the other two. So yes it can be an amazing investment.

I started out with a single family home in a nice area (SFH). I added a second SFH before souring on the SFH model for a number of reasons I'll explain later. I sold one SFH and I used the equity to purchase a 4-plex in 2013. With a 75% mortgage this immediately started returning me 8% on invested capital (ROIC). In 2015 I sold the other SFH and added a 3-Plex. By this time Property #1 was generating an ROIC of 15%. The new prop #2 started out at an ROIC of 5%. I added a 6-plex in 2016 and my last investment was another 4-plex in 2018. Currently the ROIC on these props is #1 16%, #2 11%, #3 7% and #4 16%. My overall ROIC is 10% this year and projected to increase to 13% next year and 15% the year after (This year I am replacing an expensive upper floor deck which will depress this year's earnings).

I self-managed all properties at the outset and I did extensive upgrades to a total of about half the total units.

The upgrades as well as general rent inflation have allowed me to increase rents by at least 100% since purchase of all except the most recent purchase. I now have half the units maintained/managed by a relative and I maintain/manage the remaining half which are closer to home. I collect all rents electronically using Venmo typically.

Why sell the SFHs for multi fam homes?

I used the funds from one SFH to purchase one 4-Plex.

1. An SFH has a single tenant so rent is collected 100% or zero. No spread of risk.

2. It has one roof per tenant and one yard per tenant. It has a similar exterior SF and number of windows as the 4 plex. These are maintenance items. The roof on the 4 plex is no larger than the roof on the SFH and costs less to replace, similar metrics apply to the yard, exterior etc. Yet the rent on the 4-plex starting out was 1.5X the rent of the SFH and is now likely 2.25X the rent of an equivalent SFH. Yes the MFHs have more washers/dryers/dishwashers and I typically replace several a year but the cost of replacing say, 2 machines in a year is spread over 17 units.

3. The value of the SFH fluctuates considerably and exclusively on aspects completely out of my control ie: market. This can be very good or it can be bad. More importantly the increase in potential sale price does not necessarily help me increasing the rent. In our area it is typical for people to rent out their well located homes rather than selling them. This creates a glut of fine rental properties, which depresses the rent even though at sale these properties will achieve a great return. That is not helpful to me as I am seeking monthly income, and capital appreciation does not help me short term.

The 4-plex is commercial property and appreciates purely as a ratio of its net rental income to the prevailing cap rate. If I increase its annual net income by $100 per unit per month it amounts to an increase in the value of that property of $87,000 at the current market Cap Rate of 5.5%. Although rent is not totally in my control I can influence rent by (a) improving the property, (b) marketing effectively (c) being very selective on tenants.

Looking back I was very lucky to start this in 2013 when property prices had yet to recover from the great depression. That said if you can buy a property at a cap rate that exceeds your mortgage rate and have basic repair skills you will have an appreciating asset.

Tips:

Spend as much time as you can with property inspectors and other qualified real estate pros, learning good and bad buildings before you look or buy.

Sign up with a Tenant Verification service and take the time to follow up on all references and inconsistencies. Be harsh (but fair) as a single bad tenant will cost you a minimum of 3 months income as you try and evict. With 17 units over a total of 8 years I have had two evictions and only one from a tenant that I approved (the other was a legacy tenant when I purchased the building).

Be prepared to negotiate when tenants inevitably experience cash flow issues. To date, including CoVid I have not lost any rent, but I have extended terms many times and I have encouraged communication of problems before they manifest in missed payments. I will waive late fees frequently if I am kept apprised of issues. I have also enabled tenants to apply for CoVid relief/rent support. All this takes time.

I am trying not to 'crow' here. But I started out knowing nothing, and with a bit of luck as to timing and some solid advice from pros I have a high performing portfolio which attracts potential buyers EVERY month with cash offers for one of my buildings. None of which are for sale. I did completely renovate 7 units and did all the work myself (since I have the time) other than some electrical (panels) and some plumbing. What I know I learned from You Tube!

Good luck if you choose this route.

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Old 04-20-2021, 10:36 AM   #10
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I own some REITs as well, and have put some money in a sort of crowd-funded eREIT called Fundrise. But wouldn't selling your apartments and putting the money into REITs eliminate the whole benefit of owning real estate? That is, the monthly cashflow after mortgage pay down? (I know threre are potential tax benefits as well.) I ask because believe me, I'd much rather just own REITs vs the hassle of finding and owning individual properties. But the attraction of owning property is the cashflow and having tenants pay off my mortgage. The cashflow only increases over my lifetime as rents go up and the mortgage is paid off. The best I can get with my REIT is the increased value of my shares.



You're correct, finding properties that cashflow after all expenses, set asides for maintenance, CAPEX, Vacancies, and paying a PM is very tough. I won't settle for less that a cash on cash of around 8% which is becoming very difficult. Based on your experience, would you purchase the properties again? Or has it really not been worth it? I know you've done well with appreciation but I don't want to bank on that.



This is the goal, have a handful of properties that cashflow, after all expenses, enough to help fund the expenses of cruising.
Would I do it again? Yes, but I purchased properties I liked. We make a few bucks but it's more of a hobby than a business. Big difference. What AlanTs post right before this one describes a good business model and if you get critical mass, it generates enough to have its own property manager. AlanT also gives a good description of the risk of single family residential properties.

Overall, I am happy with what we've done, but for retirement, best bet for us is to sell and invest the cash in some sort of annuity stream. Managing properties is a lot of work, a lot of surprises, and takes some cash. Not exactly a nice income stream while cruising.

One thing I might do is invest in storage units. Market is now dominated by a few large companies, but if there's still room for a mom and pop storage complex, seems like a decent model to me. And low maintenance.

Good luck

Peter
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Old 04-20-2021, 10:52 AM   #11
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One thing I might do is invest in storage units. Market is now dominated by a few large companies, but if there's still room for a mom and pop storage complex, seems like a decent model to me. And low maintenance.
Peter, I have also recently thought about storage units. There is a shortage in my immediate area and properties are available within sight of the freeway. I would likely pick a franchise since my expertise in build/own is non-existent. If I find an exit point on a MFH property in a few years this will be worth more of my time investigating.

As to others comments on REITS, I have had REITS in my other two 'legs' of my retirement stool for many years. I have had stable results with dividends/distributions averaging between 4% to 6% but appreciation has lagged my overall stock portfolio which is split large value/growth.
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Old 04-20-2021, 11:05 AM   #12
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Yes, RE is an excellent choice to fund your boating... and fund most everything else you do.


I'm strictly a Single Family Home guy. I'd had multi, commercial, land etc. and over time the SFH out performs them all with a LOT less work and MUCH more stable. REITs, no way in hell! No control.


I still leverage, just fun to do so, but keep some free and clear for safety. However, the leveraged houses produce a MUCH better return. I manage my own... easy peasy, BUT one needs to be educated AND needs to have a property that will attract the BEST of tenants. Also, all my properties are close by, except some that I joint venture where I do zero work and still get a good return.


The key to successful real estate is EDUCATION and the RIGHT TENANT. Without those, failure is likely. I hear all the horror stories about tenants, which is clearly a case of the wrong tenant. Multi family creates some very exciting stories and crazy tenants. Commercial is feast or famine. Land is just a short term guessing game. SFHs are not thought of as "investments". Home owners buy them and sell them on emotion. Tenants won't corrupt other tenants because the don't know them. Less rent control and govmt intrusion. MUCH easier to get financing on.


Just food for thought.
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Old 04-20-2021, 12:10 PM   #13
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The key to successful real estate is EDUCATION and the RIGHT TENANT. Without those, failure is likely. I hear all the horror stories about tenants, which is clearly a case of the wrong tenant. Multi family creates some very exciting stories and crazy tenants. Commercial is feast or famine. Land is just a short term guessing game. SFHs are not thought of as "investments". Home owners buy them and sell them on emotion. Tenants won't corrupt other tenants because the don't know them. Less rent control and govmt intrusion. MUCH easier to get financing on.


Just food for thought.
SeeVee makes some excellent points. The problem I had with SFHs is that I would get antsy if one was empty for more than a month between tenants. With zero income and a mortgage payment I hated having negative cashflow. This led me to compromise and accept a substandard tenant which ultimately cost me far more than if I had kept it empty for 4 months! So what SeeVee says is absolutely true; EDUCATION and TENANT selection. My small point is that with my MFHs I don't get antsy if one unit is empty for a month or more. My costs are more than covered by the remaining units, this gives me the patience to be super discriminating and wait for the perfect tenant to show up. So we both agree on the fundamentals - what is different about our decisions likely comes down to differences in temperament.

IF deciding between SFH and MFH, you will have to decide what your temperament is and your tolerance for negative cash flow, and balance that against the other factors (tenant interaction/appreciation/active management required etc.).

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Old 04-20-2021, 12:33 PM   #14
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"... 4 or 5 properties that cashflow a couple hundred dollars a month, that goes a long ways towards helping pay for gas, or slip fees,..."

I think you need cash flows of a couple of thousand dollars a month to support the yachting lifestyle. Mortgaged properties are OK for long term appreciation but for retirement you need cash. Lots of it. Rental properties need new boilers, new refrigerators, new roofs, tax increases, maintenance is ongoing.

Same with a boat or second home. I need new props. $3000. Not a problem. I have ample cash flow from unmortgaged apartments to replace the props. No worries at all.
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Old 04-20-2021, 12:38 PM   #15
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I've found a lot of retirees are funding their pleasure, whether boating or something else, through rental real estate. Most started off small years ago and that allowed them to learn over the years. With some it's been a straight investment purchase at first, with others they've backed into it perhaps when moving by keeping the previous home as a rental.

I think you have to learn and find what works best for you. Having regular and dependable investment income in an asset such as a house that is also marketable if you want out is a sound strategy. Now, I think the key is at the buying stage. The quality tenants and good returns are only possible if you buy right. If you start with a home that is in a good solid neighborhood but needs a little work, updating, and you can do that and have less than market in the home, then you increase your rate of return for the life of the property.
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Old 04-20-2021, 01:15 PM   #16
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Real Estate funding your cruising?

We (family corporation) have some single family homes and some commercial office and light industrial properties. Quite frankly the rate of return on the investment is often lower than investing in equity index funds given our typical vacancy rates and turnover costs, which don’t come with all the bother of property management but of course carry a different level of risk. Now all are under professional management, which removes some of the bother, but also reduces the profit. There are other reasons to be in real estate of course, besides income.
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Old 04-20-2021, 03:02 PM   #17
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Time

If all the investment options that come to mind, this is the one most sensitive to time.

It can take a lot of time to get in. Even more to get out. You can’t turn on a dime. In the worst of times no buyers at any price. Stocks and bonds take no time

The issue is doing this while boating. If some issue hits the fan how much time before you can be on site if you are cruising?

Lots more to being a landlord than cashing rent checks.
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Old 04-20-2021, 03:37 PM   #18
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Leg 2 A Income from a charitable trust
I presume you mean a charitable remainder trust, but if there is a way to become the beneficiary of a charitable trust, I would sure like to hear about that.
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Old 04-20-2021, 04:49 PM   #19
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We (family corporation) have some single family homes and some commercial office and light industrial properties. Quite frankly the rate of return on the investment is often lower than investing in equity index funds given our typical vacancy rates and turnover costs, which don’t come with all the bother of property management but of course carry a different level of risk. Now all are under professional management, which removes some of the bother, but also reduces the profit. There are other reasons to be in real estate of course, besides income.
Real estate investment comes closer to fixed income than to equity investing. Investing in rental properties will never provide the return the stock market does in strong markets. However, it remains constant when the market falls. It also can receive favorable tax treatments. We have friends and family very much into real estate investment with their own REIT's and all the frills possible. We have some housing but for non-investment reasons. We own very few of the buildings our businesses are in because the returns are better for us without owning them. On the other hand, one of our CEO's owns the new office building our Corporate headquarters are now in (fully above board and with our encouragement. She's wealthier than we are).

I think if you buy right in real estate you can have positive cash flow deep into your retirement and have assets which may fluctuate in value but eventually can be sold for more than you paid or, at worst, what you paid.

Still I agree with you that the cash return is less than many think going in. Take a 6% projected, throw in professional management and drop it to 5.2%, toss in vacancies and drop it to 4.7% and drop in a few other unbudgeted items and you're soon at 3-4%. However, it's a dependable return then of 3-5% which is equal to that of other fixed income investments and in most situations your assets are appreciating over the long haul.
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Old 04-20-2021, 04:58 PM   #20
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We were "forced" (and I use that word lightly) into much of this type of investment as a section 1031 exchange. Our income is remarkably similar to your figures at bottom, we only reach 4.5% or better in unusual years with no vacancies. Not recession proof - vacancies go up, so do turnover expenses - but safer than equities

Mulling taking management back over again from the professionals. Gives me mild heartburn thinking about it. To relate it to the OP: which is harder while cruising in retirement? Answering the phone or email every time the yard irrigation springs a leak or the tub drain clogs, or checking your investment portfolio online and (if you want to go there) making trades?
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» Trawler Port Captains
Port Captains are TF volunteers who can serve as local guides or assist with local arrangements and information. Search below to locate Port Captains near your destination. To learn more about this program read here: TF Port Captain Program





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