thinking of real estate investing..

In reply to frenchyd :

Hind sight is indeed 20/20 but it's the only real metric on investment returns we have. And yes, you can pick a stock that will massively outperform the S&P but that's besides the point, as you need to look at returns at similar or lower risk for this to be a valid comparison. From that perspective, IMHO SVreX's comparison is valid - the point isn't to find the best yield in the same period, but a good yield for similar risk or less that's easily accessible to the general public during the same time period.

 Don't feed the [unintentional] troll... Yet here I go and do it. 

frenchyd said:

In reply to SVreX :

I don't believe that's a valid comparison. 
I'm not disputing your facts  merely the cherry picking of them.  What other stock market investment  would have exceeded investing in the S&P 500?  
What  would have lost?

Even  selection of the S&P 500 during that period?  Is there a time if you'd sold early your results would have lost. Or another choice would have yielded better?  

He didn't cherry pick, he used the same dates that Adrian used for his real estate investment. That was the comparison. And he used the S&P500 because it is the baseline you should always be trying to beat, either that or an total market index fund, as has been proven time and time again. 

frenchyd said:

In reply to dculberson :

Here in the Midwest farmers use the expression, "You can lead a horse to water". •••••• 

Farm Land is really about knowledge.  

Kind of ironic to say it's about knowledge and make a claim about leading horses to water but not provide said knowledge (water I guess in your parlance?). I understand famers as a whole are aging out and retiring, what I don't understand is how that leads to an individual purchasing farm land and having a passive income stream from it. I know plenty of people that lease land to farmers. My brother does so. He "makes" about $300/year from the lease payments and really only does it to very partially offset the real estate taxes on land he does not want to sell because it's adjacent to his house. In no way is it a cash cow or revenue stream to fund a retirement.

So as I said, "I've never seen the case for the average person to be able to make a reliable and decently sized income off of land investment." Keep in mind this is coming from someone who has 100% of their regular income come from self-owned real estate. Lead me to the water, if you have it.

mtn said:

 Don't feed the [unintentional] troll... Yet here I go and do it. 

frenchyd said:

In reply to SVreX :

I don't believe that's a valid comparison. 
I'm not disputing your facts  merely the cherry picking of them.  What other stock market investment  would have exceeded investing in the S&P 500?  
What  would have lost?

Even  selection of the S&P 500 during that period?  Is there a time if you'd sold early your results would have lost. Or another choice would have yielded better?  

He didn't cherry pick, he used the same dates that Adrian used for his real estate investment. That was the comparison. And he used the S&P500 because it is the baseline you should always be trying to beat, either that or an total market index fund, as has been proven time and time again. 

Agreed, not to dog pile on the French guy but the S&P 500 is positioned above the Dow 30 and below the Nasdaq in terms of volatility and average return so it is the most centrist of the major indicators.

Since its inception in something like 1918, the S&P 500 has provided an average return of about 9.74% per year. There’s always something to worry about…the PE ratio’s are too high, we’re overdue for a correction, blah, blah, blah.

Wars, pandemics, natural disasters, heck, even the great depression are baked into that 9.74% average return. Unless your investment portfolio exceeds about five million, you’re probably best off to just buy and hold S&P 500 index funds; VFINX being a good example.

Warren Buffett has said this for years, I’m a math guy and despite considerable effort to find a better strategy, I can’t.

You mean I did ok?!?  Whew!!

I think the opposite is true. The RE example was cherry-picked. It’s a single example, not an average, which was believed to be an outstanding example showing a 60% profit (admittedly after buying it at a very good price!)

RX Reven' said:

mtn said:

 Don't feed the [unintentional] troll... Yet here I go and do it. 

frenchyd said:

In reply to SVreX :

I don't believe that's a valid comparison. 
I'm not disputing your facts  merely the cherry picking of them.  What other stock market investment  would have exceeded investing in the S&P 500?  
What  would have lost?

Even  selection of the S&P 500 during that period?  Is there a time if you'd sold early your results would have lost. Or another choice would have yielded better?  

He didn't cherry pick, he used the same dates that Adrian used for his real estate investment. That was the comparison. And he used the S&P500 because it is the baseline you should always be trying to beat, either that or an total market index fund, as has been proven time and time again. 

Agreed, not to dog pile on the French guy but the S&P 500 is positioned above the Dow 30 and below the Nasdaq in terms of volatility and average return so it is the most centrist of the major indicators.

 

Since its inception in something like 1918, the S&P 500 has provided an average return of about 9.74% per year. There’s always something to worry about…the PE ratio’s are too high, we’re overdue for a correction, blah, blah, blah.

 

Wars, pandemics, natural disasters, heck, even the great depression are baked into that 9.74% average return. Unless your investment portfolio exceeds about five million, you’re probably best off to just buy and hold S&P 500 index funds; VFINX being a good example.

 

Warren Buffett has said this for years, I’m a math guy and despite considerable effort to find a better strategy, I can’t.

Don't forget that inflation is also baked in. The return is AFTER inflation.

SVreX said:

You mean I did ok?!?  Whew!!

I think the opposite is true. The RE example was cherry-picked. It’s a single example, not an average, which was believed to be an outstanding example showing a 60% profit (admittedly after buying it at a very good price!)

 

Yup. But it technically isn't actually cherry picking because it is a real-world example. Adrian bought the house at a certain date. 

In reply to mtn :

I know. I was kidding. 

mtn said:

RX Reven' said:

mtn said:

 Don't feed the [unintentional] troll... Yet here I go and do it. 

frenchyd said:

In reply to SVreX :

I don't believe that's a valid comparison. 
I'm not disputing your facts  merely the cherry picking of them.  What other stock market investment  would have exceeded investing in the S&P 500?  
What  would have lost?

Even  selection of the S&P 500 during that period?  Is there a time if you'd sold early your results would have lost. Or another choice would have yielded better?  

He didn't cherry pick, he used the same dates that Adrian used for his real estate investment. That was the comparison. And he used the S&P500 because it is the baseline you should always be trying to beat, either that or an total market index fund, as has been proven time and time again. 

Agreed, not to dog pile on the French guy but the S&P 500 is positioned above the Dow 30 and below the Nasdaq in terms of volatility and average return so it is the most centrist of the major indicators.

 

Since its inception in something like 1918, the S&P 500 has provided an average return of about 9.74% per year. There’s always something to worry about…the PE ratio’s are too high, we’re overdue for a correction, blah, blah, blah.

 

Wars, pandemics, natural disasters, heck, even the great depression are baked into that 9.74% average return. Unless your investment portfolio exceeds about five million, you’re probably best off to just buy and hold S&P 500 index funds; VFINX being a good example.

 

Warren Buffett has said this for years, I’m a math guy and despite considerable effort to find a better strategy, I can’t.

Don't forget that inflation is also baked in. The return is AFTER inflation.

9.7 % every year? No matter when you buy or when you sell?  Works just like interest in the bank?  
Of course not. Timing applies there too.  

In reply to frenchyd :

Come on, Frenchy. He said average. I’m sure you can cherry pick periods of time that were worse.

For the record, I included the 2018 S&P net LOSS of -4.4% in my 71% number. 

frenchyd said:

mtn said:

RX Reven' said:

mtn said:

 Don't feed the [unintentional] troll... Yet here I go and do it. 

frenchyd said:

In reply to SVreX :

I don't believe that's a valid comparison. 
I'm not disputing your facts  merely the cherry picking of them.  What other stock market investment  would have exceeded investing in the S&P 500?  
What  would have lost?

Even  selection of the S&P 500 during that period?  Is there a time if you'd sold early your results would have lost. Or another choice would have yielded better?  

He didn't cherry pick, he used the same dates that Adrian used for his real estate investment. That was the comparison. And he used the S&P500 because it is the baseline you should always be trying to beat, either that or an total market index fund, as has been proven time and time again. 

Agreed, not to dog pile on the French guy but the S&P 500 is positioned above the Dow 30 and below the Nasdaq in terms of volatility and average return so it is the most centrist of the major indicators.

 

Since its inception in something like 1918, the S&P 500 has provided an average return of about 9.74% per year. There’s always something to worry about…the PE ratio’s are too high, we’re overdue for a correction, blah, blah, blah.

 

Wars, pandemics, natural disasters, heck, even the great depression are baked into that 9.74% average return. Unless your investment portfolio exceeds about five million, you’re probably best off to just buy and hold S&P 500 index funds; VFINX being a good example.

 

Warren Buffett has said this for years, I’m a math guy and despite considerable effort to find a better strategy, I can’t.

Don't forget that inflation is also baked in. The return is AFTER inflation.

9.7 % every year? No matter when you buy or when you sell?  Works just like interest in the bank?  
Of course not. Timing applies there too.  

Ok, then when should you get in and when should you get out? 

Answer: Don't try to time the berkeleying market. Get in as soon as you can. Don't get out, live off the dividends/sell only to provide income in retirement. 

In reply to dculberson :

Fair enough, Some is speculatioon based on a conversation I had with a neighbor* during a block party.  
He got started with a few spare dollars, and some credit.  The farmer wanted to sell but had too much land/ machinery/ etc to make it attractive. Developers only wanted land Small farmers couldn't  finance land and machinery and big farmers didn't want the taxes property that near urban areas cost. He found a small farmer who needed the bigger equipment  to profitably farm both his place and the bigger place.  Getting a commitment from him he went to the farmer and made an offer.  The retiring farmer financed the whole operation.  The small farmer bought the equipment on contract and leased the land on a share crop arrangement secured with the equity he had in his farm.  
 My neighbor wound up taking a small portion of the machinery sale up front and as each payment was made. Plus looked and found a developer for the land.  
By the time the developer had his ducks lined up a couple of seasons had passed.  And the small farmer found an even bigger  farm further out without the property tax issues. 
     The original farmer didn't have to pay as much capital gains taxes due and he was happy. The small farmer got to grow to a viable size and the developer developed and  sold the whole farm inside of 5 years. 
* The neighbor owns in addition to a very nice house nearby either all or some of a local banking chain. But this was his first transaction.  

Hi mtn,

True but that’s the case for any type of ROI so it can be ignored for purposes of making apples-to-apples comparisons.

You probably already know this but for the benefit of others, just divide 72 by the ROI minus inflation to estimate when your asset is likely to double in value in inflation adjusted dollars.

For example, let’s say your portfolio is likely to generate a nine percent rate of return on average and you think real inflation (not the laughable gubmint numbers) is three percent. OK, (72 / (9-3)) = 12

There you go, your portfolio is likely to double in value after adjusting for inflation every 12 years.

Hi frenchyd,

Why, why, do I keep falling for this.

Good grief,

I like you, I make 12+ trips to Minnesota per year (just down the road from you in Minnetonka, Plymouth, etc.) and I'd be happy to buy you a beer but holy E36 M3 man, everything has risk...bury gold in your backyard...maybe alchemist will figure out how to produce it for $10 a ton...maybe a trillion pound solid gold astroid is going to crash down next Thursday...everything has risk, please get over it. 

In reply to mtn :

I'll skip repeating everything that's been said.  
I do happen to agree with your statement, Get in and stay in.  
Except for that pesky old life.  
people get seriously ill, divorced, lose jobs, have bad stuff happen. Etc.  
Sometimes it takes more than your savings to deal with.  If the timing is wrong you get hurt twice, taking it out and selling in a down market. 
 

SVreX said:

In reply to Adrian_Thompson :

New roof?  Free property management?  100% of the repairs and upgrqades?

You don't meet the 1% rule if you don't count your time.

New roof was materials only.  I'm not sure what you mean by 'You don't meet the 1% rule if you don't count your time'.  I think you mean we don't meet the 1% rule if we count our time, becasue we certainly do if time = $0/hr.  As far as we're concerned we'll get paid on the back end.  This isn't like I'm missing out on other paid work when I'm working on the houses.  I'm missing out on TV, wrenching, family time etc.  And as I'm often with my wife when working on the houses, it's still time together. 

SVreX said:

In reply to Adrian_Thompson :

Just to clarify...

I am understanding you have owned a property since 2016 that has appreciated by 60% over that time, but you paid 15% in improvements.  That means your real returns if you sold it today are about 45%.  You also need to DEDUCT the value of your time- management, repairs, and improvements. (And the costs of marketing the property to sell it)

During the same period, the S&P 500 returned 71%.

I think you have made it clear that the stock market can out perform the returns in RE, and that RE is not apassive investment.

Basically yes, but you need to remember various points.  First, I'm using % rather than actual numbers as I'm not going to put that much personal info out on the webs of prey and intrigue.  Secondly, things are rounded up or down to make it simeple, don't consider them 100% accurate.  Also the repairs are acounted for in the 60% appreciation.  Finally while the S&P has made massive returns I think most people would agree that return for that period of time isn't something that can be counted on.  Finally, we are getting income on top of that 60%, think dividends in stock terms, so the overall return would be higher.

We did get lucky on that house though.  It had been on the maket for over a year for some stupidly minor issues.  We put in a massively low ball bid that was accepted as it was part of an estate and the survivors just wanted rid of it at the end.  I give 100% of the credit to my wife, I was initially too embarrased to put in such a low bid, but she insisted and it worked. 

Wow this has taken a turn.  Let's not beat up on Frenchy, he's told his story in the past, he had some unfortunate events happen and made, what are in hindsight, some not ideal decisions.  He got bunt and is now very gun shy.  That's OK, E36 M3 happens.

I wasn't trying to brag or claim to be an expert. People were asking so I tried to provide some insight into our (myself and my wife) decisions and outcomes along with some insight into our thinking.  Please don't consider it THE way to do anything, I was just trying to add some further examples to help answer the OP's Q.

Let's just keep this to friendly advice and not argue, M-kay?

I get excited every time one of these threads pops up because I'm very interested in becoming a bigger landlord than I am already (just a basement suite right now).

Then I look at what some folks are paying for property and I realise that a property with a 40+ year old house that needs to be knocked down goes for over $500k here.

Not sure how I'll ever manage to get beyond my one house.

I don't think apartments or townhouses would pay once I'm done making the mortgage payment and handling strata fees.

Adrian_Thompson said:

While the S&P has made massive returns I think most people would agree that return for that period of time isn't something that can be counted on. 

The exact same can be said of housing market appreciation. In fact, most of the expert/professional real estate advice I've seen points to housing market appreciation being a substantially larger gamble than the S&P. The only part of it that's not a gamble is finding a property for considerably below market value, which is why they typically say you make your money when you buy the property and not when you sell it.

ShawnG said:

I get excited every time one of these threads pops up because I'm very interested in becoming a bigger landlord than I am already (just a basement suite right now).

Then I look at what some folks are paying for property and I realise that a property with a 40+ year old house that needs to be knocked down goes for over $500k here.

Not sure how I'll ever manage to get beyond my one house.

I don't think apartments or townhouses would pay once I'm done making the mortgage payment and handling strata fees.

Think outside the box.  One of the guys in the bus company got his house by  working with a few barbers. People tell barbers a lot. Eventually found a guy getting a divorce. He couldn't pay for the house without his wife's help, he was going to lose it.  Working with the bank he caught up on the back payments ( on a house that was slightly underwater)  and wound up owning a house he couldn't have qualified for.  

Adrian_Thompson said:

SVreX said:

In reply to Adrian_Thompson :

Just to clarify...

I am understanding you have owned a property since 2016 that has appreciated by 60% over that time, but you paid 15% in improvements.  That means your real returns if you sold it today are about 45%.  You also need to DEDUCT the value of your time- management, repairs, and improvements. (And the costs of marketing the property to sell it)

During the same period, the S&P 500 returned 71%.

I think you have made it clear that the stock market can out perform the returns in RE, and that RE is not apassive investment.

Basically yes, but you need to remember various points.  First, I'm using % rather than actual numbers as I'm not going to put that much personal info out on the webs of prey and intrigue.  Secondly, things are rounded up or down to make it simeple, don't consider them 100% accurate.  Also the repairs are acounted for in the 60% appreciation.  Finally while the S&P has made massive returns I think most people would agree that return for that period of time isn't something that can be counted on.  Finally, we are getting income on top of that 60%, think dividends in stock terms, so the overall return would be higher.

We did get lucky on that house though.  It had been on the maket for over a year for some stupidly minor issues.  We put in a massively low ball bid that was accepted as it was part of an estate and the survivors just wanted rid of it at the end.  I give 100% of the credit to my wife, I was initially too embarrased to put in such a low bid, but she insisted and it worked. 

What I don't understand is why we can compare the gain of a leveraged item like real estate against  something you have to put the full  purchase price up front. 
If  I put the same amount in a stock purchase that I put down on on a property while the percentage of return is the same. But the total amount sure isn't. 
If I put $10,000 down  on a million dollar house. The property goes up by 10%  I get $100,000. 
yet if I buy $10,000  of stock that goes up by 10%  I make $1,000. 
eliminating the nit picking , where am I wrong?  

frenchyd said:

What I don't understand is why we can compare the gain of a leveraged item like real estate against  something you have to put the full  purchase price up front. 

Because the Return On Investment (ROI) calculation inherently takes that all into account, by comparing gains against the actual amount you have invested regardless of how much you did or didn't leverage to get there. So what's being said is that, excluding the primarily luck (both good AND bad) based outliers in BOTH camps, the true long-term total ROI for real estate averages similar to the overall stock market when measured objectively.

In reply to Driven5 :

Yes but ROI doesn't matter as much as how much is in your pocket does it?  
Given. a choice wouldn't you rather have $100,000 than $1000?  
Yes I realize this is all hypothetical and doesn't include costs etc etc but it's leveraged. Yes you put up the down payment/ investment. But beyond that we're assuming renters are making payments etc whereas the investment just sits there without any additional investment.  

frenchyd said:

 
Except for that pesky old life.  
people get seriously ill, divorced, lose jobs, have bad stuff happen. Etc.  
Sometimes it takes more than your savings to deal with.  If the timing is wrong you get hurt twice, taking it out and selling in a down market. 
 

frenchy, we all know this. And many of us because one or more of those things has happened to us.

I promise, you don't have to repeat this multiple times in every single thread that has anything to do with money. 

Guys. This discussion is devolving