Plymouth, MI · Member since 2014 · 12 posts · 5 votes
Hi all! I don't want to start a discussion on whether REI is better than stocks, this topic has been debated extensively. Rather, I would like to get a good feel for what people's criteria are when they are trying to decide whether to invest their money in index funds or real estate. I believe that the stock market will continue to produce an 8% YoY return after inflation. My intent with my first deal is to buy a property that exceeds this return by a wide enough margin to compensate for the added work that it takes to buy properties vs. just sticking money in an index fund.
So the question is, for those of you that also invest in index funds, what is the minimum return that you seek in a buy and hold property that will make you buy it instead of index funds?
This will vary by strategy...wholesale, flip, hold, BRRRR, notes, lending, etc and by investor and by market. I hear 15-20+% IRR range a lot here. Passive real estate investments are available for low double digit returns, at a minimum; so, returns north of there for direct investment. REI is hard work...need outpaced returns.
@Mike Dymski, this question is for buy and hold. I agree, REI is a lot harder than just throwing money at an Index Fund so the added reward needs to be sufficient to justify the additional work! I just can't really find people giving much details on how much they expect to make after all expenses to go into the deal. A common number I hear is to at least cash flow $100/month/door but that doesn't tell you anything if you don't know how much the initial cash outlay is.
I also know a lot of people here are anti-stock market so they're happy with anything that beats a savings account which is not the case for me.
@Alejandro M. try searching the forums for ROI, cash on cash, IRR, etc. Also, listen to podcasts and webinars and some of the hosts and guests will reveal their criteria. I've seen posts like yours above and they do not always get traction; so, I understand where you are coming from. Some investors are humble and will not reply (or will wait until you have more activity on the forums). Others will provide returns and not include all costs. Others will lie or just not actually understand their true results. You just have to ferret through comments and will get clarity over time. Over the course of a few months of staying active on the forums, reading some books and listening to podcasts, you will get a much better feel for investors criteria and results. The returns I mentioned above are a decent starting point. Many investors don't dislike or not invest in the stock market, they just allocate more capital to REI and are getting 2x, 3x, etc. better returns. Good luck with your search.