Originally Posted by
Planetrain
I have 0 personal experience in real estate investing. I would make a terrible candidate for this type investment:
-In my personal residence, I am 3 out of 3 for just breaking even after expenses. HOA fees, real estate commissions, property tax, repair, yard maintenance, etc have all been a drag on the small paper gains. This doesn’t factor opportunity cost or cost of capital.
-Real estate has poor liquidity
-Emotionally I couldn’t handle tenants. This involves late night repair calls, tenant damage, and late or no payment. I have no desire to run the eviction process after relatives that have been landlords have shared their stories. This includes one tenant that poured concrete down the toilet. Another wouldn’t leave after 6 months of non-payment. Even though the water was shut off, they just used a bucket for a toilet. That same family was finally evicted and the family’s kid badmouthed the landlord’s family to all the kids in the shared high school. Property management helps, but erodes returns. Your state’s eviction process may vary, mine favors the tenants.
-2008 Great Recession is still fresh in my mind. Have too many friends that bought their rental property in Destin, Pensacola, Gulf Shores, etc that overpaid for a dream condo that had over-extended neighbors not pay their HOA and leave the solvent few with giant assessments. The non-payers walk away, the payers burden the 6-figure roof repair.
-I also recall 2008 investors defaulting on strip mall after strip mall due to lack of tenants or non-payment by tenants. Had acquaintances that had it all and lost it all.
YMMV- In the nicest, most non-judgmental font, real estate is not for me. Love hearing about how it works for others! I have been satisfied with my brokerage account and extra time devoted to the occasional green slip. For those that make it work, I hope I can get a ride in your Ferrari!
My experience echos yours. Tenants, finding competent trades, getting caught in a tax squeeze with local property tax/regulations, wild swings in insurance, unexpected expenses...the list goes on.
That said, in GF's defense, there are essentially three ways you can handle real estate:
Go all in with personal management. If you try to do one or two rental properties, or try to hold a property for investment value, there is a high probability you could get clobbered. Non-homsteaded property taxes have spiraled upward along with property values, making it very hard to raise rents in conjunction. Random changes in local laws can burn you. For example, a municipality where I had a property randomly instituted VERY punitive fees for "non-long term rentals" (AKA AirBNB, etc) because it was eating into the local hotel revenue. Almost no warning. Everyone who was into property for that reason got clobbered or got very ugly legal letters when they didn't pay (or weren't paying attention).
You really need a critical mass of properties to amortize the rental costs, taxes and insurance. You also need a critical mass of properties to have a good relationship with trades with wholesale costs. If you are on a "call as you need them" basis with trades and paying retail rates, you WILL get creamed with expenses and spend all your free time dealing with them or the tenant(s). There are also random liability concerns. This can be mitigated, but thats $$ as well.
Go with a property manager. Removes the tenant hassle, removes "off the top" revenue, mitigates SOME of the MX costs if you have a quality manager, but again, you need a critical mass of properties to make it worth the bother. 1 or 2 properties makes it a cash flow/break even proposition for tax purposes or to mitigate costs of holding as an investment. A variation of this is to "just get big", and hire professional staff to run your properties. That might as well be a second job
Go with the "real estate syndicate". Buy into scheme that invests solely in RE. You really need to do your DYODD and results vary.
For the less-that-experienced, RE can be a quagmire even in good times. If the market turns, it could be a really bad deal. You really need to make it a primary focus, second job level of involvement over the course of several years to make it a reliable investment.