Serious risk in owning multiple properties?
Jerusalem, IL · Member since 2016 · 12 posts · 7 votes
Serious risk in owning multiple properties?
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
10yYou are actually looking at it from the wrong angle. It is LESS risky to own multiple properties than it is to own one. Diversification decreases risk, whether in real estate or in stocks. Owning multiple assets in an asset class spreads your risk out over those assets. Take for example if you own one property and it is vacant. You have 100% vacancy. Gee better hope you can float that mortgage. But if you own 10 properties and have one vacancy, you only have 10% vacancy....which is much easier to absorb with the other 9 properties throwing off profit.
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57 Replies
- Jerusalem, IL · Member since 2016 · 12 posts · 7 votes10y
@Charles Lemelle I strongly believe in understanding the risk level of any potential investment.
Some investments have risk-adjusted returns that are too high - meaning, the compensation for taking the risk is disproportional to the risk and the investment is speculative. I'm completely new to real estate, so I'm trying to figure out how much risk is involved in gaining solid wealth through REI and whether that risk is fairly compensated.
To me, understanding risk is part of "doing the math" and being an informed investor.
- Investor / Borrower / Contractor · Pittsburgh, PA · Member since 2016 · 60 posts · 29 votes10y
I'd go with the rainy day budget suggestions - savings or emergency funds. Years ago they used to suggest 3 months savings to cover all your expenses in a down market - then they suggested 6 months, now they suggest 1 year of savings to cover all your expenses.
While dealing with multiple mortgages and multiple properties, this may seem a bit extreme but if you are doing what needs to be done rather than spending your rental and other income as soon as you get it - this suggestion is not impossible to live up too.
Multiple evictions may not seem unlikely in a downed market. No matter how many units there will probably be a percentage of vacancies. Even when times are good, vacancies occur.
But as far as serious risk - I've been through up and down markets and I lost my stocks, even lost a property or two - but all in all without my properties, I would probably be looking for a place to live myself. As for my stocks there was nothing to save them - as for my properties, money management was a real problem then. Had the money been managed better, I could have saved those properties.
Even though I knew what to do, I still had to go through the process of loss to realize how dumb it was to allow so much personal spending to go on and rely on rental incomes to come back and do it all over again - it was sort of living paycheck to paycheck. Now the rainy day fund sits quietly in a coffee can buried in the back yard < jokingly. Personal spending is under control.
To me, what it all boils down to is good decision making. Whether in stocks or real estate, good decision making is key to cutting losses and reducing risks.
- Punxsutawney, PA · Member since 2016 · 45 posts · 16 votes10y
Originally posted by @Nick Sabat:
I'd go with the rainy day budget suggestions - savings or emergency funds. Years ago they used to suggest 3 months savings to cover all your expenses in a down market - then they suggested 6 months, now they suggest 1 year of savings to cover all your expenses.
While dealing with multiple mortgages and multiple properties, this may seem a bit extreme but if you are doing what needs to be done rather than spending your rental and other income as soon as you get it - this suggestion is not impossible to live up too.
Multiple evictions may not seem unlikely in a downed market. No matter how many units there will probably be a percentage of vacancies. Even when times are good, vacancies occur.
But as far as serious risk - I've been through up and down markets and I lost my stocks, even lost a property or two - but all in all without my properties, I would probably be looking for a place to live myself. As for my stocks there was nothing to save them - as for my properties, money management was a real problem then. Had the money been managed better, I could have saved those properties.
Even though I knew what to do, I still had to go through the process of loss to realize how dumb it was to allow so much personal spending to go on and rely on rental incomes to come back and do it all over again - it was sort of living paycheck to paycheck. Now the rainy day fund sits quietly in a coffee can buried in the back yard < jokingly. Personal spending is under control.
To me, what it all boils down to is good decision making. Whether in stocks or real estate, good decision making is key to cutting losses and reducing risks.
Good for you Nick to have learned from the tough times. The buried coffee can part was funny. Good luck to you, sir.
- 10yAdrian StamerPro MemberReal Estate Investor & Agent · Richmond, VA · Member since 2013 · 319 posts · 167 votes
Originally posted by @Yoni Weisbrod:
Originally posted by @Ian Walsh:
I have actually found that people with normal incomes seem to be at the most risk when they have between 3-6 properties. People that own 15+ tend to have less risk if they purchased correctly. This isn't risk relative to the market, because I am assuming that the person purchasing buys low enough where cash flow would be safe even in a market dip. This is for people that have normal income rates and run into 2-3 evictions at one time when only owning 4-6 properties. The turn overs and evictions seem to be too much for these people and there aren't enough properties cash flowing to offset the financial burden. This is just my observation.
Wouldn't owning 15+ homes just increase the risk of evictions proportionally?
As you increase volume the results become more predictable. More predictable means less risk while maintaining the same returns. Or even better returns because you have scale and can use that scale to get discounts (buying in bulk, full time staff, etc) and run your business properly. Lots of landlords out there with 5 units and do a half assed job about it. But if you have 100 units you can properly manage this or negotiate a management fee much lower then the guy with 5 units.
So since its compounding returns as you expand and grow, even a few % here and there adds up to a large amount over time.
- Real Estate Investor · Encinitas, CA · Member since 2013 · 225 posts · 91 votes10y
Interest rate hike risk
The best way to avoid this is to match the duration of your assets and liabilities. How long do you plan to own the property? If the answer is "forever", then you really do not want an ARM or a ballooon note. (Note, you may get away with having those products but the reality is that you got lucky.)
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes10y
Originally posted by @Charles Lemelle:
Originally posted by @Russell Brazil:
You are actually looking at it from the wrong angle. It is LESS risky to own multiple properties than it is to own one. Diversification decreases risk, whether in real estate or in stocks. Owning multiple assets in an asset class spreads your risk out over those assets. Take for example if you own one property and it is vacant. You have 100% vacancy. Gee better hope you can float that mortgage. But if you own 10 properties and have one vacancy, you only have 10% vacancy....which is much easier to absorb with the other 9 properties throwing off profit.
Hi Russell, I happen to agree with you that 10 properties helps to mitigate your risk for a vacancy. Its easier to absorb a 10% vacancy than a 100% vacancy, as you described. I'm on board and we agree. However, I believe it may be a disservice to the newby's to deny the big picture, or sugar coat things. There is absolutely no debate that if you have 10 rentals, all belonging to the same asset class, that were the class suddenly to go to hell in a hand basket you aren't going to be in for some pain---major pain. Its risk--no denying it or covering it. A lot of investors merely do what they can do to manage the risk. Buying multiples mitigate the minor to above average problems. But if the Big Daddy problem ever comes, you now have it times 10. Just want to make sure that newby's, like myself, see the big picture.
I completely disagree @Charles Lemelle. (And it is ok to disagree with me) I maintain that diversification reduces risk. When the big daddy problem came a decade ago (And that is once in a few generation problem that came up)...who was wiped out.....was it the people who owned 25 or more properties....or was it the people who owned one or two properties? When the face value of the asset plummetts....it doesnt matter to the person who owns 20 or whatever number of cash flowing properties. If you continue to own properties that you bought right, you ride out the ups and downs of the market. Market crashes merely should be viewed as a way to add to your existing portfolio. Because I have no doubt that if you look at things on a 15 year timeframe, that if you pick any point that prices will be higher 15 years from that point. Now this concept doesnt give someone carte blanche to buy real estate that is a bad investment, in a dying city for instance...but that then comes down to again what one can do to mitigate risk. Diversification isnt the only way, but it is a huge part of mitigating risk. And vacancy, or a non paying tenant I wouldnt say is the minor...but rather the most the biggest risk to a real estate investor...because again, if you hold on prices will eventually rise again. There is no greater economic force in the world than inflation.
Now owning multiple properties is not for everyone. But if someone only owns one, then they should be aware of the risk involved in only owning only one. Not just to deal with vacancy, but for also any major repair, which is magnified when you own only one. Ive never had to come out of my own pocket to pay for a roof, or an HVAC....all these things that cost massive amounts of money are paid for by the portfolio of properties.
This is purely anecdotal, but it helps to illustrate my point. I am selling one of my properties now. When I purchased it, it was an REO. The individual who owned it before me let it go to foreclosure because they owed $343k on it, and I purchased it for $290k. So they felt that being $50k underwater was enough reason to let it go to foreclosure...or it may have been circumstances beyond their control. But now 6 years later I am selling it for $425k. So if they had merely held on for 6 more years, instead of worrying about being down $50k, they could have made another $80k off of it.
District Invest Group546 Reviews - Investor · Conshohocken, PA · Member since 2015 · 11 posts · 1 vote10y
To the original question- if your a "store it under your mattress" kind of investor then yes, having several rentals is probably too risky for you. But, if your like most of the people here on BP, and you are looking to generate positive return in excess of the stock market, then rental properties is the best way. With rentals you control the asset, you can use leverage and its much easier than the stock market to find assets below their fair market value. Risk depends on the person and your view, but for me by owning rentals I am lowering my risk in case of a full market crash as rentals don't crash like stocks and I have control of the asset so IMO I can generate returns greater than the stock market with risk that is the same or lower than more stocks.
- Investor · Maryville, IL · Member since 2016 · 129 posts · 81 votes10y
Ha...analysis paralysis be thy name (ok, not really cause you're asking good questions, but do not let questions hinder you from action).
It requires a combination of patience and boldness to be successful in this, from my experience. The #1 thing is BUY SMART. DO NOT OVERPAY. This is the part of the deal that all the other factors hinge upon.
Do your homework and vet everything from:
- neighborhood - don't buy all in the same area
- comps - use good comps, don't be "wishful" to what they are worth and consider 90% as a safer number than a full valuation in the event of a market downturn (@Frank Jiang is wise).
- renters in the area - turnover rates, quality of tenants, many renters or mostly owners?
- insurance - flood plain, mine subsidence, other costs
- taxes - trending up/down, overvalued, undervalued
- and many others for that matter...you'll learn as you go along
Make sure you are purchasing a property that matches the equation you want to use to set up your exit strategy @Andrew Halbert. I have three options:
- I can sell to my tenant - most of my tenants are interested in home ownership, eventually.
- I can sell to an investor - I only rent M2M so I can offer a home that produces income or can be vacant in 30 days notice.
- I can sell to the open market - most of what I own is SFH, so I have a broad market to advertise my house...I can also sell my home below market (because my purchase price is right) to get out quickly if I need to and still make a considerable profit.
Multiple properties may incur higher PROBABILITY of a bad thing happening, but it will yield you a higher PERCENTAGE of return on your investment IF you stick to your investment rules.
My largest "contrary to the popular belief" is that I buy not to generate large amounts of cash flow (although each property does @Justin Fox brings up a good point that it isn't just what you have left after you pay PITI), but to keep my equity safe and building as I own and maintain the property. @Nicole A. and @Nathan Miller are right about rent. They tend to hold even when the property may drop, particularly if you don't get all crazy and charge through the roof (pardon the pun), and people will always need to rent. I am a hopeful type, and would like to see the market and property values go up significantly one day. Even if they do not, I have enough LTV to absorb a 30% drop in the market and still be ok with my investments.
You will always face risk (amen @Walter Key). The best you can do is research, reach out for help, and then reach for your checkbook and buy. Develop relationships @Jeff B. points out it is about going in eyes wide open. Learn from those who have been through the fire and who hold golden rings. This is a great place for resources and we all wish you the best.
Blessings.
- Investor · Fort Collins, CO · Member since 2016 · 10 posts · 2 votes10y
Originally posted by @Aleksandar Popivoda:
@Yoni Weisbrod "With so little diversification and the additional leverage risk (especially with multiple properties), it feels like real estate might be far riskier than long-term index investing."
You are absolutely right. But, as any investment, as the level of risk rises the potential benefit/return rises as well. That's why we are in real estate, for above average returns. The level of risk is something that you have to live with but at the same time try to control it by making prudent decisions. Also, calculate in and Opportunity risk, the time you will be spending in Real Estate instead of doing something else (education, work,..)
@Todd Richmond "I also have stocks, 401Ks, and IRAs, which I call Funny Money. It is just a number in a computer somewhere, and there is not really anything real behind it at all."
I guess, this is supposed to be a joke.
Hmm. A half joke. My point is that with real estate I have some control over what happens to my investment, and therefore I can use that control to mitigate my risk. With stocks and many other investment vehicles, I have no control whatsoever over how those investments are perceived by the market. An analyst can downgrade my stock. A CEO/CFO may have been lying all along about the real financial state of a company. A central bank may make statements or pursue policies that adversely affect my investment. A company may be sued, whether justly or unjustly, that may cause my investment to tank. The list goes on and on.
You may make the argument that you can diversify to the extent that the risk is mitigated, and to some extent that is true. But there are sometimes overarching events that can affect the entire market, and I have absolutely no control over that.
In addition, the market is a very fickly lady, and much of the supposed value of any given stock is based on perception. If something is perceived as valuable, then that is almost a self-fulfilling prophecy, until suddenly it isn't, merely because the powers that be tell us that it is no longer as desirable as it once was. On a daily basis literally billions of dollars are won or lost merely on perception. So yes, to some extent I see those types of investments as funny money.
- Investor · Maryville, IL · Member since 2016 · 129 posts · 81 votes10y
I should have linked to @Nick Sabat.
Amen, brother. Mistakes are a fine teacher, and I prefer to learn from them rather than repeat them.
Stuff your can!
Good words, sir.
- Punxsutawney, PA · Member since 2016 · 45 posts · 16 votes10y
Originally posted by @Russell Brazil:
Originally posted by @Charles Lemelle:
Originally posted by @Russell Brazil:
You are actually looking at it from the wrong angle. It is LESS risky to own multiple properties than it is to own one. Diversification decreases risk, whether in real estate or in stocks. Owning multiple assets in an asset class spreads your risk out over those assets. Take for example if you own one property and it is vacant. You have 100% vacancy. Gee better hope you can float that mortgage. But if you own 10 properties and have one vacancy, you only have 10% vacancy....which is much easier to absorb with the other 9 properties throwing off profit.
Hi Russell, I happen to agree with you that 10 properties helps to mitigate your risk for a vacancy. Its easier to absorb a 10% vacancy than a 100% vacancy, as you described. I'm on board and we agree. However, I believe it may be a disservice to the newby's to deny the big picture, or sugar coat things. There is absolutely no debate that if you have 10 rentals, all belonging to the same asset class, that were the class suddenly to go to hell in a hand basket you aren't going to be in for some pain---major pain. Its risk--no denying it or covering it. A lot of investors merely do what they can do to manage the risk. Buying multiples mitigate the minor to above average problems. But if the Big Daddy problem ever comes, you now have it times 10. Just want to make sure that newby's, like myself, see the big picture.
I completely disagree @Charles Lemelle. (And it is ok to disagree with me) I maintain that diversification reduces risk. When the big daddy problem came a decade ago (And that is once in a few generation problem that came up)...who was wiped out.....was it the people who owned 25 or more properties....or was it the people who owned one or two properties? When the face value of the asset plummetts....it doesnt matter to the person who owns 20 or whatever number of cash flowing properties. If you continue to own properties that you bought right, you ride out the ups and downs of the market. Market crashes merely should be viewed as a way to add to your existing portfolio. Because I have no doubt that if you look at things on a 15 year timeframe, that if you pick any point that prices will be higher 15 years from that point. Now this concept doesnt give someone carte blanche to buy real estate that is a bad investment, in a dying city for instance...but that then comes down to again what one can do to mitigate risk. Diversification isnt the only way, but it is a huge part of mitigating risk. And vacancy, or a non paying tenant I wouldnt say is the minor...but rather the most the biggest risk to a real estate investor...because again, if you hold on prices will eventually rise again. There is no greater economic force in the world than inflation.
Now owning multiple properties is not for everyone. But if someone only owns one, then they should be aware of the risk involved in only owning only one. Not just to deal with vacancy, but for also any major repair, which is magnified when you own only one. Ive never had to come out of my own pocket to pay for a roof, or an HVAC....all these things that cost massive amounts of money are paid for by the portfolio of properties.
This is purely anecdotal, but it helps to illustrate my point. I am selling one of my properties now. When I purchased it, it was an REO. The individual who owned it before me let it go to foreclosure because they owed $343k on it, and I purchased it for $290k. So they felt that being $50k underwater was enough reason to let it go to foreclosure...or it may have been circumstances beyond their control. But now 6 years later I am selling it for $425k. So if they had merely held on for 6 more years, instead of worrying about being down $50k, they could have made another $80k off of it.
Russell, No problem with disagreeing. We will get more information out there this way. You say that diversification reduces risk, but you are not diversifying. You just have more of the same. It's not diversification. If you have a million in houses, a million in gold, and a million in Tech Stocks, then you are diversifying (somewhat). It's all in the Real Estate Market and same asset class.
If I have one house, and it goes to the devil, I'm only out 100k. If 10 of those go south, it's a Million dollars. I say the Million is a bigger risk than 100k. You might find a way to pay off your 100k. At a Million dollars, you are heading to the bankruptcy court.
- 10yShawn AckermanPro MemberReal Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
@Yoni Weisbrod Perhaps purchasing certificates of deposit will be your way to financial freedom. There is very little risky there. Plus you have the added protection of knowing that your deposit is backed by the Federal Government. Good Luck! Stop in to your local bank when you have a chance.
- Investor · San Diego, CA · Member since 2014 · 592 posts · 765 votes10y
@Charles Lemelle @Russell Brazil
Interesting debate. I agree and disagree with both of you at the same time.
I would argue that survival in a heavy deleveraging cycle has much less to do with how many properties you own and much more to do with your total leverage position and cash reserves. It doesn't help to own a ton of houses if you are heavily leveraged in all of them. This is why even really big operations can fall apart overnight if they are lax about managing their debt. Conversely, even if you only own 1 property, you're not likely to lose it if it's paid for in cash.
For the other topic, there is natural diversification that happens in real estate that is not available in stocks. Buying 10 rentals properties, even in the same location, is not the same as buying 10 more shares of a company you already own because the tenants themselves work in different industries and have different sources of income. You are still vulnerable to systemic economic risk, but you would be anyway regardless of what asset class you invest in.
- Jerusalem, IL · Member since 2016 · 12 posts · 7 votes10y
@Shawn Ackerman Just so we're clear, I'm not denigrating real estate investing at all, just trying to figure out what the realistic risk can be when going all in and how people manage it. And I've gotten some great perspective from a lot of (other) people here.
- Investor · Baltimore, MD · Member since 2015 · 160 posts · 76 votes10yYou can mitigate the risk by buying the right property at the right price as well so that you have enough equity to deal with market fluctuations.
- Software Developer · Vidor, TX · Member since 2015 · 922 posts · 639 votes10y
After reading some of the comments and really thinking about it, the tenants you have and their occupation is key. If you have 5 homes in an area but one tenant works for Entergy, one is a surveyor, one is an nurse, one works for a local university and etc, that is where you are truly diversifying your risk (tenant ability to pay in a downed economy). I'm a believer that local economies affect local housing markets (buying or renting) the most.
I like the comment by @Russell Brazil about the the more homes you own the less you're affected by vacancies, I appreciate the perspective. I think that your tenant occupational diversity could be used to even further analyze and improve/worsen your diversification of risk on paper. For instance, if all my tenants were employed in oil/gas I might get nervous when I'm filling up my truck for a measly $35.
Now I'm not saying discriminate against employment type but it could be another factor in assessing your current potential risk.
I think most people don't have the luxury of diversifying their savings in a way that will be meaningful in 30 years (due to income and growth) and allow them to retire care-free, certainly not early. That's why people tend to stuff most of their dollars into investments they know work or work to their satisfaction.
- 10yShawn AckermanPro MemberReal Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
@Yoni Weisbrod Good Luck on your journey..
- Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes10y
There are a few factors in responding to your question (great question though!).
- I argue leveraging isn't as risky as people think it is, assuming you have bought smart. Here's details- https://www.biggerpockets.com/renewsblog/2014/01/0...
- The above is dependent on the fact though that you have bought smart. Knowing exactly how to analyze for cash flow, buy smart properties (most actually aren't that smart), and keeping a nest egg for emergencies.
- Owning multiple properties is in other ways safer. For example, properties will inevitably go vacant for some period of time. If you only own one, you are completely out all income and responsible for the mortgage still. If you own two and one goes vacant, you can use the cash flow (again assuming you bought smart) from the second one to help cover the mortgage on the vacant one. If you own several, that's just all that less of a dent during vacancy periods. So the more you have, if they are all cash-flowing, the bigger buffer you have against down times and repairs.
Lots of factors that go into it, but lots of arguments for it as well!
- Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes10y
Ladies and gents REI is considered high risk. Owning multiples could increase or decrease risks. It depends many times on location and likely more on that than anything else long run. The advantages of being local tend to be numerous and the disadvantages of not being local tend to be numerous. Your task as an investor is to minimize those risks either way. Good luck!
- Rock Hill, SC · Member since 2015 · 1k+ posts · 597 votes10y
Originally posted by @Yoni Weisbrod:
I see that it is a common goal for Buy & Hold investors to own several rental properties. Wouldn't having multiple mortgages expose someone to an excessive amount of risk?
Suppose there's a market crash, rental rates fall, house prices fall, and then paying a monthly mortgage payment could prove challenging (not to mention other risks, like unforeseen capital expenditures). This situation would be tough when you own one property - but wouldn't the issue be dangerously compounded with multiple properties?
I realize that people look for properties that are pretty much guaranteed to provide positive cash flow, but I just wonder how much risk is involved before I get started. Is building wealth through real estate risky, plain and simple?
(New member warning!)
Yoni risk and leverage is what this business is based on.
At the end of the day their are no guarantees. There are a lot of variables in investing. It is the job of the investor, and or team they build to limit the exposure of ones self. Leverage and debt are both good and dangerous if not handled properly.
Way back in 2004-7 I had 37 properties that were mostly free and clear. So I did not care if the market crashed and house prices went down. Being prepared in this business is the key. What I mean by this and very generic answer ( sorry ) is how do I get in , and how do I get out of deals. Goals and game plan very important when taking on investment property- or properties.
Now I know a lot more smarter folks on here then me. I am simple guy who like to work in my garden. I like to think I now just enough to be dangerous in this business. Should you have any more questions feel free to PM.
If you have 1 or 2 minutes to waste read my profile page.
Talk soon
Alex
- Rock Hill, SC · Member since 2015 · 1k+ posts · 597 votes10yMatt well said I did not read what you said till after I answered this post Hope all is well Alex
Originally posted by @Matt R.:
Ladies and gents REI is considered high risk. Owning multiples could increase or decrease risks. It depends many times on location and likely more on that than anything else long run. The advantages of being local tend to be numerous and the disadvantages of not being local tend to be numerous. Your task as an investor is to minimize those risks either way. Good luck!
- Jerusalem, IL · Member since 2016 · 12 posts · 7 votes10y
Thanks @Alex Franks, appreciate your perspective!
- Rock Hill, SC · Member since 2015 · 1k+ posts · 597 votes10yNick this is good advice but for some one like myself who has been through two crashes. I tell folks how comfortable do you want to be. My rainy day fund for my wife and I is two years worth of bills put up that does not get touched. Regardless I know it is not making much interest but I can sleep at night. Leverage - risk - debt all questions when buying and selling or holding real estate but making good decisions is also high priority. What most folks miss is you wont get rich form cash flow rentals. Most of the time you cant live off it until you get them paid down. just my two cents but good points you had here Alex
Originally posted by @Nick Sabat:
I'd go with the rainy day budget suggestions - savings or emergency funds. Years ago they used to suggest 3 months savings to cover all your expenses in a down market - then they suggested 6 months, now they suggest 1 year of savings to cover all your expenses.
While dealing with multiple mortgages and multiple properties, this may seem a bit extreme but if you are doing what needs to be done rather than spending your rental and other income as soon as you get it - this suggestion is not impossible to live up too.
Multiple evictions may not seem unlikely in a downed market. No matter how many units there will probably be a percentage of vacancies. Even when times are good, vacancies occur.
But as far as serious risk - I've been through up and down markets and I lost my stocks, even lost a property or two - but all in all without my properties, I would probably be looking for a place to live myself. As for my stocks there was nothing to save them - as for my properties, money management was a real problem then. Had the money been managed better, I could have saved those properties.
Even though I knew what to do, I still had to go through the process of loss to realize how dumb it was to allow so much personal spending to go on and rely on rental incomes to come back and do it all over again - it was sort of living paycheck to paycheck. Now the rainy day fund sits quietly in a coffee can buried in the back yard < jokingly. Personal spending is under control.
To me, what it all boils down to is good decision making. Whether in stocks or real estate, good decision making is key to cutting losses and reducing risks.
- Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes10y
I read a book a decade ago that made a lot of sense to me about multiple income streams, that in order to retire worry-free, you really need to set up 5-6 different avenues for income so if some fail or go through problems, you have the other ones to get you through. Stocks, retirement accounts, pensions, real estate, etc., all have the potential to fail (as many retirees found out the hard way during the last crisis), and even if you think your money is more safe in a bank account or money market, many found that was risky too as banks went under and those with more than FDIC limit (as many retirees do) had a scare or actually lost money when so many small local banks closed.
When our stocks crashed and dividends stopped and retirement accounts fell and my husband's pension plan went in the red and almost went under before he ever had the chance to get a pension check, we still had rents coming in. That showed us how valuable real estate is, and once your tenants actually pay one off for you, you understand why most wealthy people own real estate. Yes, with multiple properties you can have 3 new heat systems and 2 water heaters replaced within 6 months (just happened to us), but you also have years where you just collect rents with minor repairs. If you are careful where you buy, make sure they cash flow properly and have strong reserves, you can survive down turns.
- Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes10y
Yes there is risk and many on here completely ignore it while chanting the OPM mantra. My personal formula is no more than 20% invested in any single class of investment. Now REI is not a single class of investment. But turnkey rentals on cheap midwest properties for example is a class. High end Bay Area properties is a class. A Tax lien fund is a class. A Hard Money fund is a class. Private Lending is a class. Stocks is a class. Etc Etc. Now due to appreciation etc, some of these are worth more than 20% but since RE is not as liquid as stocks its not so easy to balance. But it does guide future investment decisions.
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