123494

Diversification is key. I've got the index funds and all in retirement and taxable accounts, but real estate helps diversify even more. Although if I had $100k to use, I can only buy $100k in stocks. 100k in real estate can be leveraged for a 400k property.

Tummy

How I lost money in real estate before it was fashionable, Part I: Impossibly Naive.

Real Estate investing can work for some people. Real Estate has experienced a bull market since 2009, so it's easy to point to success stories. Many of the hypothetical examples make it sound much easier than it is.

If I were going to invest in real estate, I would buy VGSLX.

https://investor.vanguard.com/mutual.../profile/VGSLX

Personally, I just put everything in VTSAX.

https://investor.vanguard.com/mutual.../profile/VTSAX

Tummy

Would you invest on margin in equities?

https://investor.vanguard.com/investing/margin

In my opinion, the leveraged nature of real estate is a negative characteristic.

Gunfighter

I might consider margin on equities if the leverage were non-recourse, but I haven't come across a non recourse margin account. The reality is the leverage does increase risk, even with non-recourse financing. Many people richer than me (Dave Ramsey comes to mind) only invest with cash. Others with even more money have gotten there with leverage, including a couple people I call friends. I've been both a cash and a leveraged investor, depending on the nature of the property. The key to success if using leverage is having sufficient debt coverage ratios and adequate reserves, while investing in stable properties. I like single family, multi family, RV/Trailer parks and self-storage. I stay away from retail strip centers, but would consider a single tenant NNN property that doesn't exceed 15% of my portfolio.

I agree completely on the diversification front. For the last decade and change, I've put a similar amounts into retirement accounts (mostly index funds and BRK stock) and real estate. One of those is now much larger than the other and produces cash flow that is spendable before 59 1/2. It took quite a bit of effort, but still less work and more pay than flying planes.

FullFlaps

Thanks all for the feedback re: Delta hiring

In regards to asset classes, there is no wrong asset class nor right asset class. All of them can make or lose you money, that is the nature of any and all investments. If anyone else is telling you different they're stupid or lying.

Leverage is both good and bad. When it's good it juices performance, when it's bad it juices losses, a double edged sword if you will. In this respect it is not good nor bad, it just depends on what your risk tolerances are. I personally love leverage and employ it whenever possible (responsibly of course).

As far as asset classes for pilots, as stated in a previous post, I think real estate is the most viable and as many have mentioned there is depreciation, inflation adjusted income, tax advantages etc., and in general a passive income stream.

Equities (from someone that has seen the great times and horrible times from an institutional perspective) has much more volatility than real estate. Real Estate by nature has some intrinsic value, equities can go to zero. Real Estate can always be redeveloped, rented etc. Equities however have unlimited upside. AAPL from where it started to where it is now? Solar stocks back in the early 2000's? Financials on the down swing and then back on the upswing? Volatility and leverage CAN be your friends but to trade equities, derivs or fixed income you need to be there every day in front of the screens and even then you are at a disadvantage compared to larger institutional players.

As a pilot you are away roughly half the month or more, while flying it is doubtful you can call in orders or execute on your phone while at 35,000 ft. Real estate as a while is more macro driven (on a portfolio level) and tends to react slower so you could potentially sell an investment, yes you might realize a loss, but that is driven on more how you manage the sale as real estate itself is like an OTC market. One of the main drivers of real estate as an investment class in the US are the tax advantages. Once you layer in tax advantages most real estate funds outperform equity funds. To give you an example, most Real Estate CRE funds target 15% to 25% returns with much less volatility than comparable sized equity funds.

As far as NJ for your first multifamily / CRE investment, I would do some research on tax implications but would also focus on landlord friendly states (TX,FL). NJ as a state and each individual town is very tenant friendly. You have to read each town's bylaws to completely understand eviction and rent stabilization statutes as well as relevant recent case law. TX and FL however have a lot of land and vacancies are often longer than in high population MSA's. There are pluses and minuses, you have to figure out what risks you are comfortable with and which ones you are not comfortable with.

In regards to the use of leverage in real estate, if you are uncomfortable with leverage (a personal preference for some) I would say buy 1 or 2 properties with leverage and see how they operate with plenty of cash on the sidelines so you are comfortable with the asset. You can pay down the loan at a later date or simply buy another asset. Use the cashflow from all the assets to pay down 1 asset at a time. Your holding entity needs to be formed correctly to allow this and please speak with a tax professional before doing so, but essentially use the cashflow to pay down assets and then use the cashflow to keep buying properties. You might have 1 or 2 assets with high leverage which you are constantly paying down but on a portfolio level you are very low levered.

In regards to real estate ETF's - you don't really get all the benefits with ETF's. Depending on structure etc. you don't really maximize tax benefits etc. which are a huge component of the asset class.

As far as single family or multi family, large institutional players have already been active in the fix and rent out segment of this market for some time. You are competing with the Blackrocks etc. but you just don't know it. Zillow is contemplating entering the fix and flip / fix and rent market using their pricing algo's as the backbone (which I don't really see working because their values are way off, but then again what do I know?)

Thanks to anyone that listened to this entire rant.

And now back to aeronautical charts and airspace classifications.

SonicFlyer

Actually index funds aren't really very diverse in most cases.

And if you do it correctly, with tens of thousands of different stocks, you're guaranteed to get some real estate companies in there.

As far as leveraging, that's a potential quick trip to bankruptcy.

123494

I happy with my index fund that tracks the S&P. Having no commission fee and low expense ratio is nice, too.

Gunfighter

The key is understanding what creates the potential. Leveraging speculative properties like fix/flip, land, development or anything where you are trying to buy low, sell high is a recipe for disaster. Those should be cash deals. The stories I hear about personal bankruptcy in real estate involve over leverage by an under capitalized investor, limited or no due diligence and speculation on appreciation or lease up rates. Using Dave Ramsey is a good example. He didn't go bankrupt with buy and hold rentals, he went bankrupt with short term financing on speculative deals where he signed personal loan guarantees. When the loans came due, he couldn't cover the principle and was forced into personal bankruptcy.

Long term fixed rate leverage on stable income properties with proper due diligence is a different story. It is an effective way of increasing returns. Using non-recourse financing takes personal bankruptcy off the table. Admittedly my view is skewed due to past performance.

That is a smart choice for a hands off investor. It takes time and discipline when investing in income properties. I follow a similar approach in my retirement accounts. I even park excess capital reserves from my income properties in an S&P 500 Index ETF.

badflaps

Before the tax law changes, group real estate investment schemes were a dime a dozen, I wish I had that money back.

tomgoodman

Not to mention gold mines, oil leases, ostrich farms, and cattle embryo futures. Then the IRS retroactively banned interest deductions for non-recourse loans and demanded back taxes plus penalties. Then many of the deals turned out to be frauds from the beginning. Thanks to S/O poverty, I was spared those temptations.