Everyone has different circumstances and different risk tolerance. Here are my situation and some thoughts to invest in rental SFH.
Maybe I'm just clueless beginner... can someone help to see what's wrong with my thinking?
1. I live in HCOL area (California).
2. I don't need the cash flow for living expenses.
3. I have a nearby rental home - used to be occupied by parents. Looking at the rent, cost, and taxes, it doesn't seem to be a good investment. But it's ok and I'm going to keep it.
4. I want to diversify some of my stock investments. The main goal is capital preservation and generating some income and some appreciation.
Let's say you have $1M in the bank (I don't have that much, but for the sake of argument).
1. invest in S&P 500 ETF - the historical average is 7.96%.
2. buy 4 properties in Texas - good school, good neighborhood
according to roofstock, you can purchase a house near Houston for $230k with
Annualized Return = 7.5%, Cap Rate = 4.8%, Gross Yield=10.1%, Appreciation 4.4%, monthly cash flow = $900.
It seems like it's about the same as S&P 500 but I don't have all my assets in the stock market.
I understand that the number on roofstock might be optimistic. But if the goal is diversification and capital preservation, it looks like a good option.
What am I missing here?
You can make much better passive yields than what Roofstock is projecting. And even then, their projection looks wildly "optimistic."
What you're not accounting for is the cost of your flights and time to get to Houston to research your properties and check in on your property manager.
Appreciation is a shot in the dark. 4.4% is a pretty darn high number that I would need some evidence for. It's not exactly a conservative number, at least for most markets. Particularly since the appreciation projection is such a huge component of your annualized return. What's your annual return if your property doesn't appreciate at all?
You might want to consider syndications.
@Daniel Han the median home price in Houston is around $250,000 right now. That said, there are many opportunities below $200,000 and $100,000 depending on area and/or rehab needed.
I agree that 4.4% appreciation sounds optimistic, but many successful real estate investors can generate higher returns that the stock market.
Real estate, like the stock market, is just one of many places that you can park your money to generate wealth, but one that you can have more control over with the right knowledge and experience.