All Forum Posts by: K S.

There is also a point at which the income from REI doesn't make sense to chase. The juice isn't worth the squeeze, so to speak. so yes, if you have a large enough lump sum, you likely have other ways to spend your time making money that makes letting the investment be truly passive makes more sense. Most people starting out in REI are excited that they can receive outsized returns with leverage because they are starting with less capital.

A couple more counter points though. These figures assume no reinvestment of capital from the cashflow of your real estate, but does assume compounding the gains from the stocks. even if you just put the monthly gains into the S&P 500 you are going to see a significant increase in the end gains. It also assumes rents don't go up once in 16 years. if you have an average increase of 2%, which is a very conservative estimate, this will also increase the return.

If I had $400k to start, I would still buy RE. If I had $2 million, Then I would stick it in a safe boring investment that I could scrape the gains from, like S&P or TBills.

True, if you're manageing it, it's not passive.
Also true that i never though of, with an all cash deal, you can reinvest the cashflow into the S&P or whatever you want. I didn't account for that. But if you had a mortgage, I wouldn't have any cashflow to do that. That makes me wonder if one has the capital, if it would be better to purchase the properties in cash and invest the $765/month in my case into the S&P 500 over purchasing 5 SFH homes with no cashflow.

I think we said 5 properties = $1,000,000
S&P 500 = 500,000 but with the additional $765/month invested, that would be an additional $350,000 + 500,000 = 850,000.

So if I'm doing this correctly, a single family home paid in cash while reinvesting the cashflow of ~$765/month into the S&P 500 would net 850,000 vs 1,000,000 for 5 properties.

Maybe I'm busting another myth here and leverage isn't as great as we though when you can literally reinvest the extra casfhlow from a SFH into the market and come out to 85% of the 5 property returns.

If correct, this changes my strategy in real time as I've only been saving my cashflow for more property which is a huge loss in opportunity costs as the build up takes years while making no interest at all. Now I can just leverage all the free and clear properties cash flow into the S&P 500 and create the ultimate diversified maintenance free portfolio.

Robert Payne, you deserve the most useful post award.

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Quote from @Carlos Ptriawan:

Quote from @K S.:

Quote from @Carlos Ptriawan:

Quote from @K S.:

Quote from @Robert Payne:

Perhaps I would have liked two 4 plexes instead of 8-10 properties. That's putting all those problems under a single roof, fence line, plat of land, a single property management company etc. Plus, you don't have 4 times the searching and closing.

that's not how you do comps. The plex would appreciate less than single family becoz it's different class. In my market for the last ten years, the return of SF is 3x ; for MF 1-4 unit is 1.80x. You can do the same in your own market with sold listing too.

That's kinda hard to believe because over time, multis would be dirt cheap if that trend continued. The lower appreciation you see may come from the fact that quads are generally in lower income neighborhoods and much older. And ugly!

you dont have to believe, just see the data of sold listing. But you found your answer, most units in MF zone appreciate less than SF zone.

Ah I see. I'd still prefer multis just to get that count up and maintenance down but only in better neighborhoods. But that's just me.

1 Vote

Quote from @Carlos Ptriawan:

Quote from @K S.:

Quote from @Robert Payne:

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Quote from @Robert Payne:

It would take 400k in the S&P to match 200k for 10 properties at 20% down.

I personally would rather put 400k in the S&P than 200k in 10 huge risk and responsibilities but I make decent money at work so I can afford to lose some opportunity cost in exchange for convenience.

Yes, there is simplicity in pooling your investment into one vehicle. Many investors will move from SFH to Multi once they pass a certain number of doors. If you have the means, it makes since to start in multi. You also decrease costs in that scenario.

If I had $400k to start, I would still buy RE. If I had $2 million, Then I would stick it in a safe boring investment that I could scrape the gains from, like S&P or TBills.

Great point. I should have never started with a SFH when I had the capital for multi-units in my mid 20s. If you're cash strapped, one should start with condos if they want to get in the door and then SFH or Multis.

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Quote from @Robert Payne:

Quote from @K S.:

A turnkey home for 100k renting for 1k (1% rule) would net you worse than the stock market 16 years later. I went back through my 1099s and calculated my return and estimated closing costs, federal taxes, capital gains tax, depreciation recapture etc for my coming sale. Also, most people won't mention that many homes need to be renovated before the sale which cost me around $25,000.

SFH: 160k cash + 115k appreciation after sales fees and taxes over 16 years = $275,000 total earned after sale.

S&P: 580k -80,000 capital gains tax = $500,000

If you had a mortage, you'd be worse off and scraping by for the next 30 years, Ouch!, that's no fun to realize 30 years later.

S&P 500 almost doubled the returns of the SFH over the last 16 years yet I still argue with people that financing a turnkey property for investment is a terrible idea but since half the advice on here comes from salesmen or book experts, their best interests aren't being made or tailored to each persons individual needs and goals. Hopefully, new investors read this and help them with their decisions.

If you're still not convinced what you would rather do, remember that the S&P 500 took no skills and a few minutes to set up but the SFH was a lot of work over the years, buying, selling, cashing out, fixing, landlording, not to mention RISK like being sued or insurance not paying out for damages/fire/hail.

Being that the S&P 500 is nearly twice as good, you may need to purchase 4 of these properties at 25% down just to match the S&P (subtracted cashflow.

Unless I'm mistaken and missed something on the leverage part, one can conclude that multi unit land developers or perhaps section 8 hustlers leveraging themselves to the gills is the only way to beat the stock market without just dumb luck and buying houses in the 2012s.

A lot of angry back and forth on this post, so good job getting engagement I guess. Your example disregards the availability of leverage. If you have $100k and you buy a house for that amount, the return is awful.
The unique availability of leverage in REI is what makes it a great investment vehicle. If you took that same money and bought 5 investment properties with 20% down, your returns will look very different.
With an interest rate of 6% over 16 years you would pay about 70k in interest.
$205K five times over would be $1,025,000. Now you've doubled the S&P 500 return.
So yeah, you are right, but only because you approached the investment in the wrong way.

Great work! I also got the same calculation based off 20% down x5 units = 1,000,000 which would double the S&P 500.

It would take 400k in the S&P to match 200k for 10 properties at 20% down.

I personally would rather put 400k in the S&P than 200k in 10 huge risk and responsibilities but I make decent money at work so I can afford to lose some opportunity cost in exchange for convenience.

1 Vote

Quote from @K S.:

Here's my updated totals based off my 1099s and tax filings.

Rents are $2000 in 2023 however, that cost me $25,000 in renovations for the opportunity but regardless it's still a worse rent to value. That is .06% rent to market value instead of 1% when I purchased it. So despite the rents popping, it's a worse deal now.

Lastly, my efficienty is .34% which is average. That is, my expenses are .34% of my gross rents. I believe this is average for any SFH homeowner. Just look at the 1099 image. It's always something. Generally as we have all heard, we would typically slash the gross rents by 50% to get an idea of the net operating income so 35% efficiency seems respectable.

No 1031 Total = $237,000 . That's 330k -120k(cost basis) -30k(closing) -50k(taxes) -25k(renovation) -14,500(recapture)) =$90,000 + 147,000 (NOI) = $237,000

...1031 Total = $302,000

...S&P 500 = $580,000

2007 5200 11,300 gross 2900 tax

2008 5200 07,600 gross 2900 tax

2009 9000 11,500 gross 3000 tax

2010 7400 11,500 gross 3000 tax

2011 7400 12,000 gross 3000 tax

2012 8000 12,500 gross 3000 tax

2013 10000 12,600 gross 3200 tax

2014 13000 15,000 gross 3300 tax

2015 13200 15,000 gross 3600 tax

2016 13000 15,000 gross 3600 tax

2017 13000 15,300 gross 4500 tax

2018 12000 15,400 gross 4500 tax

2019 12500 15,400 gross 4500 tax

2020 9000 15,500 gross 4600 tax

2021 9000 15,500 gross 4600 tax

2022 11250 15,750 gross 4600 tax

Gross: 217,000 (1099s)

Expenses: 58,000

Cashflow: $160,000 -$13,000 (taxable income) NOI= $147,000

Taxes: 60k (according to tax filings)

Depreciation: 51,000 (according to tax filings)

Depreciation Recapture: 58,000 x .25 = $14,500

Renovation before sale: $25,000

Closing costs: $30,000

Federal Taxes at sale: = $50,000 (330k -120k(cost basis) -30k(closing costs) = 180,000 x .28)

So had I a mortgage, I would owe $550/month in interest subtract cashflow of 765/month (147k NOI \ 192 months) and I would just break even or nudge out ahead. So technically I could have purchased 5 properties and made $1,000,000. That would nearly double the S&P 500.

I can't edit the main post but hopefully people followed up on the update. I personally would still ask my self if I would rather just put 200k in the S&P rather than 100k in managing 5 properties or 400k vs 10 properties. I think it depends on how much you make at work. 400k is no problem for me after a few years of savings so that's easy money vs 10 headaches, 10 roofs, 10 fences, 10 trees crashing down on the tenants cars during hurricanes. To each there own.

1 Vote

Here's my updated totals based off my 1099s and tax filings.

No 1031 Total = $237,000 . That's 330k -120k(cost basis) -30k(closing) -50k(taxes) -25k(renovation) -14,500(recapture)) =$90,000 + 147,000 (NOI) = $237,000

...1031 Total = $302,000

...S&P 500 = $580,000

2007 5200 11,300 gross 2900 tax

2008 5200 07,600 gross 2900 tax

2009 9000 11,500 gross 3000 tax

2010 7400 11,500 gross 3000 tax

2011 7400 12,000 gross 3000 tax

2012 8000 12,500 gross 3000 tax

2013 10000 12,600 gross 3200 tax

2014 13000 15,000 gross 3300 tax

2015 13200 15,000 gross 3600 tax

2016 13000 15,000 gross 3600 tax

2017 13000 15,300 gross 4500 tax

2018 12000 15,400 gross 4500 tax

2019 12500 15,400 gross 4500 tax

2020 9000 15,500 gross 4600 tax

2021 9000 15,500 gross 4600 tax

2022 11250 15,750 gross 4600 tax

Gross: 217,000 (1099s)

Expenses: 58,000

Cashflow: $160,000 -$13,000 (taxable income) NOI= $147,000

Taxes: 60k (according to tax filings)

Depreciation: 51,000 (according to tax filings)

Depreciation Recapture: 58,000 x .25 = $14,500

Renovation before sale: $25,000

Closing costs: $30,000

Federal Taxes at sale: = $50,000 (330k -120k(cost basis) -30k(closing costs) = 180,000 x .28)

2 Votes

Quote from @Michael Haynes:

Wow! What a Cluster Fiasco of a blog. Every BP genius showed up with charts and stats to make professional opinions using Historical facts. The only members questions I try to give suggestions to are the Newbie's who are starting out and don't know how to buy a House or do a Zillow Search or work with Google Map etc. When the Newbie starts reading BP stuff it looks so complicated and they have stars in their eyes from seeing, "How to Make a Million with your First House." First Time Home Buyer stuff to show how to really make it work if you can hold for at least five years is simple. Maybe, BP needs to designate a site just for Newbie's and make another one for the Pro's to expound on their endless knowledge together.

Actually the thread goes deeper than this vs that. Let me explain. I just laid out my actual 1099s and the ask price with projected closing costs while abstaining from overt commentary other than the silent part which is that the S&P beats SF homes within the boundaries of my real life example.
The accidental study here is psychology. Those that responded in offense by my lack of beating the S&P shows they are too emotionally invested and need external validation to confirm their preexisting convictions. The fragility of their egos is a sign vulnerability. Conversely. those that express gratitude for my comparitive analysis of the potential of their turnkey property and the idea of evaluating it against the standard benchmark, the S&P 500, are intellectually curious people who are willing to change their opinion based on new information coming in and shows cognitive fluidity of the mind which historically marked the trajectory towards maturity from apes to what we now call the human species.

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Quote from @Aaron Gordy:

I am arguing that the path to real wealth should not be argued in generalities.

I never made any generalized statements other than giving you the purchase price and sale price and total return of a SFH unit purchased in cash over 16 years ago vs the same amount in the S&P 500. No more and no less.

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Quote from @Marcus Steele:

You are comparing just buying a house and selling it years later to investing in the stock market. If you made income off of the property then it would be a different analysis. If not then I think you would be living in the property and should factor in your savings from not having to rent somewhere else. I read it very quickly so maybe I missed something in there.

No problem, I did include the 160k I made in cash over 16 years. I subtracted closing costs i.e. 30k I think and federal cap gain taxes of ~$70,000 on both investment vehicles to be fair but I don't think I would only pay taxes on the adjusted amount after sale excluding closing costs etc so this may be inaccurate. I also subtracted 17,500 in recapture (improvement\27.5 x 16 years x .25) or something as I use da calculator so I hope I did that correctly, 25k in renovations before sale which people forget. The home itself was purchased in 2006 in RR Texas at about 1% rent to value and there was no crash in Texas as lending standards were better than the rest of the country. It increased to 330k (current ask price). It peaked at 400k last year but the market is down in the US on average so I don't see this being a bad market as others have stated. It's probably in line with the national average.

I can get more accurate numbers after the sale as I had to project closing costs using calculators and I'll do another without federal taxes since I might 1031 exchange for a multi unit build out.

0 Votes

All Forum Posts by: K S.

K S. has started 22 posts and replied 295 times.

Post: My 100k house vs 100k in the S&P 500 (16 years later)

Post: My 100k house vs 100k in the S&P 500 (16 years later)

Post: My 100k house vs 100k in the S&P 500 (16 years later)

Post: My 100k house vs 100k in the S&P 500 (16 years later)

Post: My 100k house vs 100k in the S&P 500 (16 years later)

Post: My 100k house vs 100k in the S&P 500 (16 years later)

Post: My 100k house vs 100k in the S&P 500 (16 years later)

Post: My 100k house vs 100k in the S&P 500 (16 years later)

Post: My 100k house vs 100k in the S&P 500 (16 years later)

Post: My 100k house vs 100k in the S&P 500 (16 years later)