The Super Official Homeowners Thread

[.RJ]

Come up with 3%? I planned on coming up with 20% to avoid borrowing money/paying interest on the money I already have

If you have $100k (down payment + closing costs, which the bank is going to want in cash) to put towards a down payment there might be better long term investments that you dont have to babysit and fix its A/C over the next 30 years. But it sounds like you want to play the landlord game.

As for the AC bill and misc. maintenance, yeah that sucks. But also, that will mean 0 profit this year, but hopefully no similar cost for the next 10 years. Just like the market, I don't see why you should discount an entire investment for one bad year if the rest of the years make up for that loss.

Yeah it could be no similar cost for 10 years, or not. You never know. Houses can be real money pits and shit happens.

What do you mean by a good rental contract and umbrella policy?

Meaning protect your ass because while 9/10 tenants will treat your house well and take care of it, there's a real risk that someone fucks up your house and/or tries to sue you because people suck. Oh, and you'll probably want a real estate lawyer to make sure that contract is good. Both of those things eat into your profit.

I think it might be unwise to think the market will keep going in the same direction it has been post-2008. So I'm curious to watch it over this next year.

If you plan to buy a house and hang your hat for a while I dont think there is ever really a bad time to buy a house. I dont think we're in a speculative bubble of prices running up around here, but things have definitely flattened/cooled off, so if part of your plan is that the property value is going to pay off big time in the next 3-5 years I think you're barking up the wrong tree. I still contend this is a shitty market to buy house for the purpose of renting it out unless you're able to buy at short sale/auction, a $450k house that rents at $2700/mo on a $2500/mo house note (P&I, Tax, Insurance, HOA fees) doesnt leave you much, if any, upside for maintenance/shit happens/updates. Sure you get some money back at the end of the year on taxes, but, not that much.

[GTBrandon]

$400k house was an example and on the highest end of the budget. Planned on doing around $300k house, with me putting 30 and the friend putting the other 30. The whole purpose of the friend was to have a higher percentage DP, as well as split the cost of repairs if they came up.

Didn't think of the liability of the tenants damaging the property. Assumed this could all be pretty airtight in a contract but I also know I don't want to spend my time in court or in a lawyers office paying each hour.

But yes I do plan on hanging my hat for a while, and while I hope the price goes up with a $300k house in the right emerging area, it wouldn't be the end of the world if it didn't.

Make a good point though that if I have the money to invest in this, maybe there are smarter investments that can give similar long term gains as well as monthly/quarterly returns. Goes back to running the numbers, maybe one of you already has or are you all speculating on the rental returns after tax deductions, repairs, interest, fees, etc.?

[.RJ]

$400k house was an example and on the highest end of the budget. Planned on doing around $300k house, with me putting 30 and the friend putting the other 30. The whole purpose of the friend was to have a higher percentage DP, as well as split the cost of repairs if they came up.

What are you going to find for $300k in NoVa that you can both live in, or live in and rent out? Whats going to happen when one of you wants to move out? Or doesnt want to be a homeowner anymore? Or is broke and cant pay for half of the roof replacement? Any bank is going to have a field day with that one, too, I'd be surprised if you got past the pre-approval. House buying is a serious pain in the ass.

Didn't think of the liability of the tenants damaging the property. Assumed this could all be pretty airtight in a contract but I also know I don't want to spend my time in court or in a lawyers office paying each hour.

There's also the liability of something going wrong in the house, someone in the house gets hurt, and them suing you. This is why you have an umbrella policy.

Goes back to running the numbers, maybe one of you already has or are you all speculating on the rental returns after tax deductions, repairs, interest, fees, etc.?

This is why the 1% rule exists, to account for those costs, and IMO, having $20-30k liquid and/or a healthy line of credit that you can pay down quickly for 'shit happens and need it fixed tomorrow'.

[Apoc]

Legitimate real estate investment is decades long. Sometimes you get lucky and make money sooner, sometimes you actually lose money. Having owned two houses in the DC area, I most definitely would not be trying to make money on real estate there. Many economic indicators suggest we're 2-6 months from a recession. I personally wouldn't want to prospect on buying a place given those conditions, too. If you want to own a house, buy one. If you want to build wealth, look somewhere different than buying a starter home in the DC area.

This was our first house: https://www.redfin.com/VA/Leesburg/871-V...e/12010505

...and it's probably what you're getting for your budget - an 1800 sqft townhouse in Leesburg. I don't think a lot of people your age will want to rent out that far.

[.RJ]

Or an older 2BR condo closer in, but then you have to pay condo fees on top of the mortgage.

[JPolen01]

Or an older 2BR condo closer in, but then you have to pay condo fees on top of the mortgage.

And working on a condo will be hell. Getting construction debris out and materials into a house is a pain in the ass. I can't imagine working in a condo. Fuck that noise.

[.RJ]

I hadnt considered that, that would blow.

[WRXtranceformed]

Buying a condo in a desirable area and renting it out at some point in the future probably makes the most sense out of what has been suggested. The condo association is going to cover a lot of really expensive stuff (studs out) and you'll have less square footage to fix up. If you can afford it, a condo in like Arlington or that area would probably generate some income in a shorter period of time. But you're going to need a lot of cash to pay to play.

My brother will tell you though, most residential real estate "investments" net 1% or less over the life of the investment, which is dismal man. I don't care how many people try to convince you that owning a bunch of residential rentals will set you up for life, it's never that easy. Property taxes in many states are sky high on rental properties, not to mention all of the costs discussed above. Here in SC, rental property tax is like 3x what it is for your primary residence, so factor in a loss of about $5,000 - $7,000 a year (down here) on property taxes alone for a decent sized house. I'm just being honest, the only way people make what I would consider to be real money on residential rental properties is by running a trailer park. I'm not even kidding.

On the flip side, I know some rich residential realtors but the wealthiest people I've ever met are in commercial real estate investing. If you're going after it as a career, get your commercial license and go that route.

[Apoc]

I was gonna say, commercial real estate is a better money maker... but probably out of reach of most people on this forum.

I've met a few folks here in Seattle who have made a KILLING on commercial property. Most everything appreciated a significant amount over the last 5+ years here, but the people who were in the commercial game have done better than private residence investment.

[WRXtranceformed]

I was gonna say, commercial real estate is a better money maker... but probably out of reach of most people on this forum.

Agreed.  Starting out as a broker is probably the best way to "break in" to that industry.

[D_Eclipse9916]

I was gonna say, commercial real estate is a better money maker... but probably out of reach of most people on this forum.

I've met a few folks here in Seattle who have made a KILLING on commercial property. Most everything appreciated a significant amount over the last 5+ years here, but the people who were in the commercial game have done better than private residence investment.

Commercial real estate is also far riskier and requires real bank flow due to vacancies having a higher turnaround cost.  It can also ends in disaster during downturns and is very cutthroat.  It's not what I would consider a side business which is how I am viewing what he intends.

Residential real estate is low returns (way more than 1%, not sure where he got that figure from as I do it myself and it is my uncle's entire livelihood for 25+ years); but generally lower risk and initial buy in than commercial.  As with any investment; it's about how you are handling it.  It also can be a tax shelter for money outside your investments (only if you are maxing out other shelters and would like to diversify your portfolio).

[Apoc]

I looked it up, because I was curious. This is one of those things that's pretty hard to measure, given the 2008 housing collapse and the last few years of stock market volatility, although it looks like real estate still performs better over the last 20 years. It would be interesting to see this on a 5 or 10 year basis normalized for the volatility we've seen and geography. If I had a spare $40k down payment sitting around, I'd probably put it in an ETF or something versus said down payment. Liquidity in your early/mid 20s and a distinct lack of things tying you down is a major component of that preference.


Average annual returns in long-term real estate investing vary by the area of concentration in the sector. Average 20-year returns in the commercial real estate slightly outperform the S&P 500 Index, running at around 9.5%. Residential and diversified real estate investments do a bit better, averaging 10.6%. Real estate investment trusts (REITS) perform best, with an average annual return of 11.8%.

The S&P 500 Index's average annual return over the past 20 years is approximately 8.6%. By any measurement, the real estate sector has outperformed the overall market, even factoring in the drastic collapse in housing prices during the 2008 financial crisis.

https://www.investopedia.com/ask/answers...sector.asp

[WRXtranceformed]

I would be curious to know if that is a net return that factors in the massive costs over time mentioned earlier in this thread. I'd be willing to bet it's not, most of those studies I have read do not factor the sunk costs into real estate investing over time that you can't avoid. That was the point he was making, most people just don't see large net returns in their real estate assets. Again, unless you own some land with a few hundred trailers on it.

DJ: 1031s and mortgage interest write offs are not what I consider true "tax shelters" but maybe we have a different definition of tax shelter.

[Apoc]

Yeah, I think there's just too many factors that aren't obvious to get a good comparison in a few minutes of research. That said, I think it's safe to say both stock market and real estate are a crap shoot unless you're talking long term. At least with the stock market, you are only in danger of loss in value and not unplanned expenses.

What's the real estate drone photography market like out that way? I feel like that might be a good real estate themed side hustle.

[D_Eclipse9916]

I would be curious to know if that is a net return that factors in the massive costs over time mentioned earlier in this thread. I'd be willing to bet it's not, most of those studies I have read do not factor the sunk costs into real estate investing over time that you can't avoid. That was the point he was making, most people just don't see large net returns in their real estate assets. Again, unless you own some land with a few hundred trailers on it.

DJ: 1031s and mortgage interest write offs are not what I consider true "tax shelters" but maybe we have a different definition of tax shelter.

hrug: I can’t argue your opinion vs facts. I’ll do me as usual as our scenarios are dramatically different.

[JPolen01]

I'm convinced the only way to make money in residential real estate is to be a slum lord. Just ask this guy in Dallas. Owned over 300 homes and was collecting $180k a month in rent. But his tenants were living in squalor - holes in floors all the way to the ground, exposed wiring, etc. Rent was cheap - under $500 a month but the poor people living in his houses couldn't afford anything else and they had no leverage for him to make repairs.

Once the city of Dallas started cracking down this guy had the brilliant idea of selling the houses to his tenants and he would finance the mortgage with extremely biased terms. This then put the responsibility of bringing the home to code on the new owners who could never afford it. Absolute scumbag.

https://www.npr.org/2017/12/18/558625656...rnment-aid

[GTBrandon]

I looked at the REIT returns and was pretty excited, until I saw how low they can drop. -40% in 2008..

I was actually looking into commercial real estate a few years ago from people I met MAAP. Never really pursued it, but would interesting to catch up with them and maybe take this a different route.

I think DJ said it best that I want this as secondary income. I like the idea of the relative stability of an ETF, REIT, IRA, but I want something a little more active. I don’t mind changing to a different idea, but regardless I hate the idea of throwing away rent if I don’t have to.

Just want as many passive income streams as I can while I’m young.

[.RJ]

Just want as many passive income streams as I can while I’m young.

Its a smart move - but generally active investments dont perform as well as passive investments over the long haul.  Not as fun though.

I've been figuring out how to get some property investment going on in Richmond, I have in laws down there and the buy in is cheaper than up here.

[WRXtranceformed]

I'm convinced the only way to make money in residential real estate is to be a slum lord. Just ask this guy in Dallas. Owned over 300 homes and was collecting $180k a month in rent. But his tenants were living in squalor - holes in floors all the way to the ground, exposed wiring, etc. Rent was cheap - under $500 a month but the poor people living in his houses couldn't afford anything else and they had no leverage for him to make repairs.

Once the city of Dallas started cracking down this guy had the brilliant idea of selling the houses to his tenants and he would finance the mortgage with extremely biased terms. This then put the responsibility of bringing the home to code on the new owners who could never afford it. Absolute scumbag.

https://www.npr.org/2017/12/18/558625656...rnment-aid

That's basically spot on.  The other way to do it is to buy or own land near active pipelines or natural gas drilling areas.  There are a few landowners near my wife's family in WV who paid the power company to run hookups into their fields and they rent out "spaces" to guys working in the oil and gas fields.  They're basically makeshift mobile home parks. The best part is they don't own the trailers or have to do any maintenance, the workers pull in their own campers / trailers and are probably getting a housing stipend from their companies.  Her grandfather said the guy next to them gets between $1500-2000 a month for each space. The last time I was there about a month ago he had probably 15 or 20 trailers on the lot next to his house. 

The obvious downside is when the pipeline is finished or the wells run dry, ain't nobody paying that money to live in a field in Nowheresville, WV.  But I can't blame those guys for hustling and milking it while they can

[G.Irish]

I looked at the REIT returns and was pretty excited, until I saw how low they can drop. -40% in 2008..

Any investment where you stand to make significant profit on, is an investment you can lose your ass on. More potential profit = more risk.

The difference with investing into an index fund or reit is that you don't have a monthly payment that you're responsible for come rain or shine. Your etf is not going to hit you with several thousand dollars of surprise repair bills. You're not on the hook for property taxes every year with them either.

And if the stock market loses double digits in value, the real estate market will get hit too to some degree. You may find that it's difficult to rent your property out at a good price if the bottom falls out of the market.

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