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All Forum Posts by: K S.
K S. has started 22 posts and replied 295 times.
Quote from @Dan H.:
Quote from @K S.:
Quote from @Dan H.:
Quote from @K S.:
Quote from @James Hamling:
Quote from @K S.:
Here's one youtube link of many showing that renting is better. Buying cash can only be worse considering that cash can be invested at way higher than the average rate of appreciation of 3%. But this question continues to be asked over and over again when it's a pretty simple answer. If you have the money and don't care that you'll lose 900k in a decade from not investing that cash into the market instead. Then buy cash. It's your money. I'm not saying to buy with a mortgage either as the video states, this is bad investment advice as well for the average american at this moment in time (unless you're starting a family and can afford it). Leveraging yourself could also take a lot of properties like 10? just to beat the market according to another video breakdown so I also don't trust the leverage guys. If you're the type of person that has to ask this question, then just put your money in the market and wipe your hands and be done with it. Try VOO (S&P 500) or similar dividend fund which doesn't make sense but some people like the psychological feeling of monthly "rent" like checks. And remember, you can average down during a 50% crash. But when real estate crashed 50% during the great recession, nobody averaged down, it's called foreclosure. And don't forget to max your 401k matching. I've already earned about 100k in just a few years of maxing with my employers 5% match. Don't fall for the RE hype.
Why are you here K S.? I mean, other than to Troll? I don't see anything but Trolling here and hilarious levels of misinformation.
How about a Reality Check, shall we....
Real world scenario, one I just looked at. Brand new build, so no maint or cap-x for years making #'s simpler to flesh out. $340k on buy, market rent's $2,700mnth. I know this is market rent because I already lease others at this in this community of this exact floor plan.
I have $32,400 annual revenue. Minus HOA, P.tax, insurance and all operational expenses I have $26,950 OR in % I have a 7.9% COC.... Already, without anything else, I just beat most everything in "the market"......
BUT, I ALSO get appreciation which assuming really long hold is 2.9% as shown as median as averaged out over many decades. That's another $9,860 in my pocket putting us now at 10.8% ROI.
But wait, it get's BETTER.... because rents are not static, rents go up at about 4.5% annual.....
It's laughable, LAUGHABLE, to try and compare index funds too REI.
And what does one do in an '08' style "collapse", duh, ya DON'T sell, ya RENT IT OUT! Because guess what happened in '08' when OVER-LEVERAGED fools were suffering there accountability of dumb financial actions? Yeah, they became TENANTS! Rents shot through the roof as the demand exploded! So hummm let's see, what to do what to do, rent's going up 20%+ annual OR I can sell at huge discount, what to do, what to do...... ya RENT it out! And within a few years, like magic all equity is back and then some.
And now biggest problem is the property is such a cash-cow that ya don't ever want to let it go.
Ah the classic troll accusation to bring more credence to your own argument so you don't have to bring as much substance to your own. Your excessive use of ALL CAPS shows your overly emotional investment to a very low stakes situation. I'm surprised you haven't been banned yet with your condescending attitude towards other peoples experiences which only derails the integrity of the subject matter and exposes your own maturity level.
And to answer your question, I'm here responding because I have purchased 7 properties in all cash over the years making my personal experience a perfect fit to answer this particular subject as I have first hand experience and can provide actual value to the subject. What's laughable, I mean LAUGHABLE, is your theoretical example from the interweb when I brought receipts using my actual tax statements and 1099s.
Secondly, the OP or other questioner has expressed gratitude for my wisdom on this subject.
I notice in every thread you respond to, you brag about your own personal success in order to lift your fragile ego so I'll mention that I also recently purchased a condo with a 7.6% COC return in San Diego last year. But even at 10% with appreciation as you stated, that doesn't beat the 13% the S&P 500 did over the last decade. Sorry but 13% beats 10% even with the perks. What most don't realize is that 13% is compounding. Your cash on cash return does not compound. You realize that correct? It's always 7.9% on your principal no matter how much appreciation you gain, but the S&P 500 compounds. As you make an additional $25/year in rent appreciation, your HOA + Property taxes + maintenance + these new insurance premiums + lawsuit risks, will consume your $25/year increase. I know because I've owned a house for 20 years. I know macro economics is important so anyone can search the internet and come up with their own theories on the subject or a more favorable example and that's great, but this is just my personal experience. Your mileage may vary. But to call someone a troll is a cheap shot exposing your own inability to acknowledge others experiences and exposes your emotional maturity level. Reported!
Your experience is relevant to the OP’s posts about all cash purchase but your responses do not cover other options or discounts them and in some instances your response has some incorrect stats
I will address some directly:
- RE fell between 20% and 33% during the Great Recession (GR) not the 50% you claim. Look it up.
- when stocks fell during the Great Recession so did the dividends. In most RE markets rents did not decline (there are definitely exceptions such as Detroit, Las Vegas, etc., but most markets rents did not fall significantly). This implies the cash flow in most markets did not take a hit. We had units in San Diego at the GR. We did not lower any rents.
- RE in last decade has appreciated more than 2.9%. So 13% S&P over last decade should be compared with RE over last decade and not longer term historical that would include the GR in S&P number but include it in the RE number. Deceiving comparison.
- the op is talking unleveraged and unleveraged RE does not significantly outperform broad based stock markets often (meaning it occurs rarely). But at 80% LTV the return from RE appreciation is 5x the RE appreciation rate. This virtually always whoops the broader stock market.
- you discuss no compounding and I can see this argument for unleveraged purchases but if I use fixed financing leverage, I fix a large portion of my expense and in effect I get some compounding effect. In Ca this is further magnified due to prop 13 resulting in virtually fixed property tax. If rent goes up, but the majority of my expense is fixed I do compound the rent increase at the same percentage that my expenses are fixed.
- RE has option of value add. I suspect a fairly large percentage of RE investors are using value adds to magnify returns.
- in RE I can pulled out appreciation gain without paying taxes at that time. I can do similar via margin with stocks but margin has more risk.
- in RE I can use 1031 to not pay gains tax upon sale. I with I could do that with stocks.
- in RE I can depreciate the holding and if desired I can accelerate my depreciation. This makes it possible to virtually eliminate taxes for sophisticated investors. I pay virtually no taxes on my RE earnings. Good luck doing this with stocks without RE.
I do think your experience is relevant to this thread. It makes the same argument for not purchasing unleveraged as I advocate. Your example of poor returns from unleveraged RE (with no value add) might be similar return to other RE investors that do not use leverage and do not have a value add. I suspect s&p will often out produce the return of RE that is purchased unleveraged and without a value add.
However, I wanted to present the leveraged side of purchasing RE and other potential benefits of investing in RE.
I also advocate against unleverage RE investing in most RE markets (possible exception for high cash flow, low appreciating, local markets).
Best wishes
1) True, real estate fell 33% on average, but the average is made up of both the lows and highs meaning some major cities like in SoCal and Austin for example saw a much higher decline than 33%. Also, if BP members are going to use the best appreciating locations in their pro RE examples, then you must use those same locations when drawing the opposite conclusion.
2) According to chatgpt whether true or not, rent decreased by up to 10% and dividend payouts decreased by 20%. Insignificant enough to not sway me in any direction. But what makes this less of a great example you used, is the fact that you lost hundreds of thousands of dollars in equity/net worth and possibly forclosed on some properties like most Americans did at that time. However, no mainstream index fund like the VOO or some dividend index, got forclosed on. In fact, you just average down in the market causing a much better recovery than continuing to keep those San Diego homes you had. And I'm pretty sure you didn't keep them assuming you purchased pre 2009. You can't average down on foreclosures.
3) True that RE also averaged higher than 3-4% in the last decade from our artificially created boom and corrupt politicians and government, but thats where the market shines, VOO or whatever index, is the same for everyone. But the majority of people purchase "average" real estate properties and does not reflect the an increase in HOA, insurance, gas, electric, taxes, management and maintenance. So while the top 15% of investors strike the location jackpot, most are not and that appreciation has also been eaten up by the afforementioned. Not entirely, but it's not all gravy.
4) 1031: I think there's a misconception here. First off, in some brokerage accounts, you can move money around index funds without incurring a taxable event i.e VTSAX to VTI or something or withint a 401k or Roth and completely change your funds much like a 1031 Exchange.
Second, 1031 exchange is just shifting money around not avoiding taxes on usable cash. I sold a house last year and needed the money to build another house so I have to take the tax hit. And the government will recapture 25% of those tax deductions I took over 18 years which is way more than if I cash out my stocks or accept dividens. In fact, I could be taxed at 0% if accepting less than 45k/year or similiar.
I bet most people didn't know that probably not even you. You can't take 45k/year out in real estate via a cash out or HELOC or home sale. NOT gona happen. In fact, if you sell like I did, you'll end up paying 65k in taxes for a 325k home sale which is I think what I came up with. This does not include the 25k rehab in order to sell at full price, the agent fees and whatever else I forgot. And everyone will need to sell their house at some point like in my case, not 1031 exchange forever. Lastly, you can get a loan using your 401k funds to purchase a house. So you can go from stock to house, but you can't go from house to stock without taking a huge tax hit.
So the market for the win here as far as liquid cash and the ability to reduce your taxes to $0 in some cases as well as some shifting of funds around and getting a home loan against your accounts without a tax hit.
>True, real estate fell 33% on average, but the average is made up of both the lows and highs meaning some major cities like in SoCal and Austin for example saw a much higher decline than 33%. Also, if BP members are going to use the best appreciating locations in their pro RE examples, then you must use those same locations when drawing the opposite conclusion.
Or you site the range of expert averages (I can find legit references that indicate as low as 20% and as high as 33%). What I would not do it state a number outside the expert range such as a 50% decline (that you used) and attempt to pass that off as the normal decline. I think most people understand that there will be those that experience both better and worse than the average.
>2) According to chatgpt whether true or not, rent decreased by up to 10% and dividend payouts decreased by 20%. Insignificant enough to not sway me in any direction. But what makes this less of a great example you used, is the fact that you lost hundreds of thousands of dollars in equity/net worth and possibly forclosed on some properties like most Americans did at that time. However, no mainstream index fund like the VOO or some dividend index, got forclosed on. In fact, you just average down in the market causing a much better recovery than continuing to keep those San Diego homes you had. And I'm pretty sure you didn't keep them assuming you purchased pre 2009. You can't average down on foreclosures.
There are so many things in this one post
When a source states up to, they are talking worse case. Not average or usual case. My experience in our 10 rentals (3 areas) was no decline in rental income.
The only way you get foreclosed on RE is missing payments which usually implies leveraged purchase. If I buy stocks levered (I.e. margin) they foreclose even if I have not missed payment. They will sell your holdings if they fall in value below a certain value. Is there a difference? Yes, because if my house looses value but is still generating cash as would be the case if rents have not fallen (which was the case on our 10 units in 3 different markets) I get to keep them without needing to infuse additional capital. Note that under same conditions as margin purchase, I would have been required to sell these cash positive units.
If rents do not go down then the only reason for foreclosure would be if over leveraged. We had no foreclosures and still own 7 of those 10 units. We sold 2 in gulf shores because they got hit back to back years by hurricanes (sometimes wish we kept them) and the other because it was our lone property in that market and was not doing as well as locaL properties.
Note if I was in the s&p500 at GR (which I was), it lost 48% between aug 2008 and mar 2009. Note this is far greater loss than the total average RE decline from the GR.
Seeing I had no foreclosures, I did equivalent to dollar cost average as we were coming out of the GR. I pretty much purchased a property per year starting at the depreciated price after GR and stopping in Dec 2021 (purchased $4m that month). I have made some offers since Dec 2021, but have not purchased as the rates do not have underwriting that shows my high expectations on return.
>True that RE also averaged higher than 3-4% in the last decade from our artificially created boom and corrupt politicians and government, but thats where the market shines, VOO or whatever index, is the same for everyone. But the majority of people purchase "average" real estate properties and does not reflect the an increase in HOA, insurance, gas, electric, taxes, management and maintenance. So while the top 15% of investors strike the location jackpot, most are not and that appreciation has also been eaten up by the afforementioned. Not entirely, but it's not all gravy.
I am not sure why it matters the cause of the price increase or why you think the increase in RE prices derives from different economics than the rise in stock Prices. I suspect we can agree both benefitted from low rates.
I used the average appreciation recognizing the average will have some above and below the average. The average does not only represent the top 15%. If your point is some markets have done much worse than others (including worse than mine), I think that is understood.
>1031: I think there's a misconception here. First off, in some brokerage accounts, you can move money around index funds without incurring a taxable event i.e VTSAX to VTI or something or withint a 401k or Roth and completely change your funds much like a 1031 Exchange.
Are you sure you are in a taxable account? I will need to ask my investment advisors. Definitely you cannot do this in a taxable account purchasing individual stocks.
Certainly Roth accounts have no gains tax regardless if used to purchase stocks or RE.
> I bet most people didn't know that probably not even you. You can't take 45k/year out in real estate via a cash out or HELOC or home sale. NOT gona happen.
I am not sure what you are saying but assure you I have extracted a lot more than $45k/year from my properties (but $0 in last 2 years). I suspect near 10x that amount (likely have averaged near $450k). Why do you think you cannot do it? What is preventing one from doing it other than they need to have at least $60k equity gain (At 75% LTV)? This equity gain can be from value add, appreciation and/or equity paydown. For me to do 10x that amount I need $600k of equity gain per year which I have done for at least the last 6 years.
>everyone will need to sell their house at some point like in my case, not 1031 exchange forever.
Definitely not true that everyone has to sell. People die all the time holding RE and when they do, the value of the RE gets re-based at current value and the gains are never taxed. Wouldn’t that be sweet for stocks in a taxable account? This is almost too good to be true. So the plan is keep and/or 1031 until I die, then have all gains and depreciation magically ripped away via the current tax laws. Good luck accomplishing that with stocks that are not in a Roth.
Best wishes.
I don't know why you or others keep comparing margins or options to leverage as if that was anybodies argument to prove that you can leverage stocks. It's called a straw man logical fallacy because you bring up an argument that you litteraly have with yourself and then tear it down.
Passively investing in the broad stock market has definately retired more Americans than Real Estate for no effort at all because of the power of compounding. The alure of real estate feeds off the idea that you own an asset (actually the bank does), that it pays you every month (like dividends) and provides security (that's not liquid) which I described earlier as an "illusion". You don't need any of these when you're a young working professional. I owned multiple properties in my 20s and didn't utilze any of these 3 things, neither security, didn't need the monthly payments because I'm not retired and would never live in them.
The entire argument of leveraged real estate vs the broad market is this. If it takes actively investing in 4-10 properties to beat the returns of the gold standard S&P 500 for instance, is that worth it to you? That's a fat no!. I would never want to manage 27 properties. My 1 house had trees that would come crashing down every year almost killing someone or smashing a car. The $2,000 fence constantly needed replacement, spending a year trying to get the insurance check for my roof and come tax time? It's dreadfull. Now times that by 10 or 20? No thank you.
Quote from @Joe Villeneuve:
Quote from @K S.:
Quote from @James Hamling:
Quote from @K S.:
Here's one youtube link of many showing that renting is better. Buying cash can only be worse considering that cash can be invested at way higher than the average rate of appreciation of 3%. But this question continues to be asked over and over again when it's a pretty simple answer. If you have the money and don't care that you'll lose 900k in a decade from not investing that cash into the market instead. Then buy cash. It's your money. I'm not saying to buy with a mortgage either as the video states, this is bad investment advice as well for the average american at this moment in time (unless you're starting a family and can afford it). Leveraging yourself could also take a lot of properties like 10? just to beat the market according to another video breakdown so I also don't trust the leverage guys. If you're the type of person that has to ask this question, then just put your money in the market and wipe your hands and be done with it. Try VOO (S&P 500) or similar dividend fund which doesn't make sense but some people like the psychological feeling of monthly "rent" like checks. And remember, you can average down during a 50% crash. But when real estate crashed 50% during the great recession, nobody averaged down, it's called foreclosure. And don't forget to max your 401k matching. I've already earned about 100k in just a few years of maxing with my employers 5% match. Don't fall for the RE hype.
Why are you here K S.? I mean, other than to Troll? I don't see anything but Trolling here and hilarious levels of misinformation.
How about a Reality Check, shall we....
Real world scenario, one I just looked at. Brand new build, so no maint or cap-x for years making #'s simpler to flesh out. $340k on buy, market rent's $2,700mnth. I know this is market rent because I already lease others at this in this community of this exact floor plan.
I have $32,400 annual revenue. Minus HOA, P.tax, insurance and all operational expenses I have $26,950 OR in % I have a 7.9% COC.... Already, without anything else, I just beat most everything in "the market"......
BUT, I ALSO get appreciation which assuming really long hold is 2.9% as shown as median as averaged out over many decades. That's another $9,860 in my pocket putting us now at 10.8% ROI.
But wait, it get's BETTER.... because rents are not static, rents go up at about 4.5% annual.....
It's laughable, LAUGHABLE, to try and compare index funds too REI.
And what does one do in an '08' style "collapse", duh, ya DON'T sell, ya RENT IT OUT! Because guess what happened in '08' when OVER-LEVERAGED fools were suffering there accountability of dumb financial actions? Yeah, they became TENANTS! Rents shot through the roof as the demand exploded! So hummm let's see, what to do what to do, rent's going up 20%+ annual OR I can sell at huge discount, what to do, what to do...... ya RENT it out! And within a few years, like magic all equity is back and then some.
And now biggest problem is the property is such a cash-cow that ya don't ever want to let it go.
And to answer your question, I'm here responding because I have purchased 7 properties in all cash over the years making my personal experience a perfect fit to answer this particular subject as I have first hand experience. What's laughable, I mean LAUGHABLE, is your theoretical example from the interweb when I brought receipts using my actual tax statements and 1099s.
Secondly, the OP or other questioner has expressed gratitude for my wisdom on this subject.
I notice in every thread you respond to, you brag about your own personal success in order to lift your fragile ego so I'll mention that I also recently purchased a condo with a 7.6% COC return in San Diego last year. But even at 10% with appreciation as you stated, that doesn't beat the 13% the S&P 500 did over the last decade. Sorry but 13% beats 10% even with the perks. What most don't realize is that 13% is compounding. Your cash on cash return does not compound. You realize that correct? It's always 7.9% on your principal no matter how much appreciation you gain, but the S&P 500 compounds. As you make an additional $25/year in rent appreciation, your HOA + Property taxes + maintenance + these new insurance premiums + lawsuit risks, will consume your $25/year increase. I know because I've owned a house for 20 years. I know macro economics is important so anyone can search the internet and come up with their own theories on the subject or a more favorable example and that's great, but this is just my personal experience. Your mileage may vary. But to call someone a troll is a cheap shot exposing your own inability to acknowledge others experiences and exposes your emotional maturity level. Reported!
Since your (@KS) experience seems to be only in the world of "all cash buys", and not in the world of leveraged buys,...have you ever heard the expression" you don't know what you don't know"?
You mean:
The Dunning-Kruger Effect
The Dunning-Kruger effect describes a cognitive bias wherein individuals with low ability, expertise, or experience in a particular area overestimate their knowledge or competence. This phenomenon explains how people might be unaware of their lack of knowledge while simultaneously believing they are more knowledgeable than they actually are.
I hate the phrasing "you don't know what you don't know". Instead just use knowledge gaps, unforseen variables or blind spots etc.
Now to answer your question, yes in fact, since as you already know having owned a house, tax returns and 1099s, I was easily able to figure out how many houses I would need to beat the market at 25% down. I believe it was around 4. But other youtubers have done this math and came out with up to 9 properties or similiar. No thank you, I'd rather just put more money into the market. So to answer your question, yes. Yes I do understand what you're saying. Do you understand any of my arguments against leverage that I have made?
Not trying to be mean but I'm pretty sure you're not reading my posts or comprehending them because I'm actually not advocating for purchasing all cash in fact, I'm saying DON"T purchase all cash. Have you not been getting that this whole time? I'm not even arguing against your super basic leveraged position. I have a mortgage just like you do. But I still prefer index funds for all the aforementioned points I made. If the OP is like me which he sounds like he is, then he should take my advice as I've been there, done that and did it during the good times. Buying cash now even at high interest rates, may be a worse idea now than it would have been 10 years ago.
Quote from @Dan H.:
Quote from @K S.:
Quote from @James Hamling:
Quote from @K S.:
Here's one youtube link of many showing that renting is better. Buying cash can only be worse considering that cash can be invested at way higher than the average rate of appreciation of 3%. But this question continues to be asked over and over again when it's a pretty simple answer. If you have the money and don't care that you'll lose 900k in a decade from not investing that cash into the market instead. Then buy cash. It's your money. I'm not saying to buy with a mortgage either as the video states, this is bad investment advice as well for the average american at this moment in time (unless you're starting a family and can afford it). Leveraging yourself could also take a lot of properties like 10? just to beat the market according to another video breakdown so I also don't trust the leverage guys. If you're the type of person that has to ask this question, then just put your money in the market and wipe your hands and be done with it. Try VOO (S&P 500) or similar dividend fund which doesn't make sense but some people like the psychological feeling of monthly "rent" like checks. And remember, you can average down during a 50% crash. But when real estate crashed 50% during the great recession, nobody averaged down, it's called foreclosure. And don't forget to max your 401k matching. I've already earned about 100k in just a few years of maxing with my employers 5% match. Don't fall for the RE hype.
Why are you here K S.? I mean, other than to Troll? I don't see anything but Trolling here and hilarious levels of misinformation.
How about a Reality Check, shall we....
Real world scenario, one I just looked at. Brand new build, so no maint or cap-x for years making #'s simpler to flesh out. $340k on buy, market rent's $2,700mnth. I know this is market rent because I already lease others at this in this community of this exact floor plan.
I have $32,400 annual revenue. Minus HOA, P.tax, insurance and all operational expenses I have $26,950 OR in % I have a 7.9% COC.... Already, without anything else, I just beat most everything in "the market"......
BUT, I ALSO get appreciation which assuming really long hold is 2.9% as shown as median as averaged out over many decades. That's another $9,860 in my pocket putting us now at 10.8% ROI.
But wait, it get's BETTER.... because rents are not static, rents go up at about 4.5% annual.....
It's laughable, LAUGHABLE, to try and compare index funds too REI.
And what does one do in an '08' style "collapse", duh, ya DON'T sell, ya RENT IT OUT! Because guess what happened in '08' when OVER-LEVERAGED fools were suffering there accountability of dumb financial actions? Yeah, they became TENANTS! Rents shot through the roof as the demand exploded! So hummm let's see, what to do what to do, rent's going up 20%+ annual OR I can sell at huge discount, what to do, what to do...... ya RENT it out! And within a few years, like magic all equity is back and then some.
And now biggest problem is the property is such a cash-cow that ya don't ever want to let it go.
Ah the classic troll accusation to bring more credence to your own argument so you don't have to bring as much substance to your own. Your excessive use of ALL CAPS shows your overly emotional investment to a very low stakes situation. I'm surprised you haven't been banned yet with your condescending attitude towards other peoples experiences which only derails the integrity of the subject matter and exposes your own maturity level.
And to answer your question, I'm here responding because I have purchased 7 properties in all cash over the years making my personal experience a perfect fit to answer this particular subject as I have first hand experience and can provide actual value to the subject. What's laughable, I mean LAUGHABLE, is your theoretical example from the interweb when I brought receipts using my actual tax statements and 1099s.
Secondly, the OP or other questioner has expressed gratitude for my wisdom on this subject.
I notice in every thread you respond to, you brag about your own personal success in order to lift your fragile ego so I'll mention that I also recently purchased a condo with a 7.6% COC return in San Diego last year. But even at 10% with appreciation as you stated, that doesn't beat the 13% the S&P 500 did over the last decade. Sorry but 13% beats 10% even with the perks. What most don't realize is that 13% is compounding. Your cash on cash return does not compound. You realize that correct? It's always 7.9% on your principal no matter how much appreciation you gain, but the S&P 500 compounds. As you make an additional $25/year in rent appreciation, your HOA + Property taxes + maintenance + these new insurance premiums + lawsuit risks, will consume your $25/year increase. I know because I've owned a house for 20 years. I know macro economics is important so anyone can search the internet and come up with their own theories on the subject or a more favorable example and that's great, but this is just my personal experience. Your mileage may vary. But to call someone a troll is a cheap shot exposing your own inability to acknowledge others experiences and exposes your emotional maturity level. Reported!
Your experience is relevant to the OP’s posts about all cash purchase but your responses do not cover other options or discounts them and in some instances your response has some incorrect stats
I will address some directly:
- RE fell between 20% and 33% during the Great Recession (GR) not the 50% you claim. Look it up.
- when stocks fell during the Great Recession so did the dividends. In most RE markets rents did not decline (there are definitely exceptions such as Detroit, Las Vegas, etc., but most markets rents did not fall significantly). This implies the cash flow in most markets did not take a hit. We had units in San Diego at the GR. We did not lower any rents.
- RE in last decade has appreciated more than 2.9%. So 13% S&P over last decade should be compared with RE over last decade and not longer term historical that would include the GR in S&P number but include it in the RE number. Deceiving comparison.
- the op is talking unleveraged and unleveraged RE does not significantly outperform broad based stock markets often (meaning it occurs rarely). But at 80% LTV the return from RE appreciation is 5x the RE appreciation rate. This virtually always whoops the broader stock market.
- you discuss no compounding and I can see this argument for unleveraged purchases but if I use fixed financing leverage, I fix a large portion of my expense and in effect I get some compounding effect. In Ca this is further magnified due to prop 13 resulting in virtually fixed property tax. If rent goes up, but the majority of my expense is fixed I do compound the rent increase at the same percentage that my expenses are fixed.
- RE has option of value add. I suspect a fairly large percentage of RE investors are using value adds to magnify returns.
- in RE I can pulled out appreciation gain without paying taxes at that time. I can do similar via margin with stocks but margin has more risk.
- in RE I can use 1031 to not pay gains tax upon sale. I with I could do that with stocks.
- in RE I can depreciate the holding and if desired I can accelerate my depreciation. This makes it possible to virtually eliminate taxes for sophisticated investors. I pay virtually no taxes on my RE earnings. Good luck doing this with stocks without RE.
I do think your experience is relevant to this thread. It makes the same argument for not purchasing unleveraged as I advocate. Your example of poor returns from unleveraged RE (with no value add) might be similar return to other RE investors that do not use leverage and do not have a value add. I suspect s&p will often out produce the return of RE that is purchased unleveraged and without a value add.
However, I wanted to present the leveraged side of purchasing RE and other potential benefits of investing in RE.
I also advocate against unleverage RE investing in most RE markets (possible exception for high cash flow, low appreciating, local markets).
Best wishes
1) True, real estate fell 33% on average, but the average is made up of both the lows and highs meaning some major cities like in SoCal and Austin for example saw a much higher decline than 33%. Also, if BP members are going to use the best appreciating locations in their pro RE examples, then you must use those same locations when drawing the opposite conclusion.
2) According to chatgpt whether true or not, rent decreased by up to 10% and dividend payouts decreased by 20%. Insignificant enough to not sway me in any direction. But what makes this less of a great example you used, is the fact that you lost hundreds of thousands of dollars in equity/net worth and possibly forclosed on some properties like most Americans did at that time. However, no mainstream index fund like the VOO or some dividend index, got forclosed on. In fact, you just average down in the market causing a much better recovery than continuing to keep those San Diego homes you had. And I'm pretty sure you didn't keep them assuming you purchased pre 2009. You can't average down on foreclosures.
3) True that RE also averaged higher than 3-4% in the last decade from our artificially created boom and corrupt politicians and government, but thats where the market shines, VOO or whatever index, is the same for everyone. But the majority of people purchase "average" real estate properties and does not reflect the an increase in HOA, insurance, gas, electric, taxes, management and maintenance. So while the top 15% of investors strike the location jackpot, most are not and that appreciation has also been eaten up by the afforementioned. Not entirely, but it's not all gravy.
4) 1031: I think there's a misconception here. First off, in some brokerage accounts, you can move money around index funds without incurring a taxable event i.e VTSAX to VTI or something or withint a 401k or Roth and completely change your funds much like a 1031 Exchange.
Second, 1031 exchange is just shifting money around not avoiding taxes on usable cash. I sold a house last year and needed the money to build another house so I have to take the tax hit. And the government will recapture 25% of those tax deductions I took over 18 years which is way more than if I cash out my stocks or accept dividens. In fact, I could be taxed at 0% if accepting less than 45k/year or similiar.
I bet most people didn't know that probably not even you. You can't take 45k/year out in real estate via a cash out or HELOC or home sale. NOT gona happen. In fact, if you sell like I did, you'll end up paying 65k in taxes for a 325k home sale which is I think what I came up with. This does not include the 25k rehab in order to sell at full price, the agent fees and whatever else I forgot. And everyone will need to sell their house at some point like in my case, not 1031 exchange forever. Lastly, you can get a loan using your 401k funds to purchase a house. So you can go from stock to house, but you can't go from house to stock without taking a huge tax hit.
So the market for the win here as far as liquid cash and the ability to reduce your taxes to $0 in some cases as well as some shifting of funds around and getting a home loan against your accounts without a tax hit.
Quote from @Joe Villeneuve:
Quote from @James Hamling:
Quote from @K S.:
Here's one youtube link of many showing that renting is better. Buying cash can only be worse considering that cash can be invested at way higher than the average rate of appreciation of 3%. But this question continues to be asked over and over again when it's a pretty simple answer. If you have the money and don't care that you'll lose 900k in a decade from not investing that cash into the market instead. Then buy cash. It's your money. I'm not saying to buy with a mortgage either as the video states, this is bad investment advice as well for the average american at this moment in time (unless you're starting a family and can afford it). Leveraging yourself could also take a lot of properties like 10? just to beat the market according to another video breakdown so I also don't trust the leverage guys. If you're the type of person that has to ask this question, then just put your money in the market and wipe your hands and be done with it. Try VOO (S&P 500) or similar dividend fund which doesn't make sense but some people like the psychological feeling of monthly "rent" like checks. And remember, you can average down during a 50% crash. But when real estate crashed 50% during the great recession, nobody averaged down, it's called foreclosure. And don't forget to max your 401k matching. I've already earned about 100k in just a few years of maxing with my employers 5% match. Don't fall for the RE hype.
Why are you here K S.? I mean, other than to Troll? I don't see anything but Trolling here and hilarious levels of misinformation.
How about a Reality Check, shall we....
Real world scenario, one I just looked at. Brand new build, so no maint or cap-x for years making #'s simpler to flesh out. $340k on buy, market rent's $2,700mnth. I know this is market rent because I already lease others at this in this community of this exact floor plan.
I have $32,400 annual revenue. Minus HOA, P.tax, insurance and all operational expenses I have $26,950 OR in % I have a 7.9% COC.... Already, without anything else, I just beat most everything in "the market"......
BUT, I ALSO get appreciation which assuming really long hold is 2.9% as shown as median as averaged out over many decades. That's another $9,860 in my pocket putting us now at 10.8% ROI.
But wait, it get's BETTER.... because rents are not static, rents go up at about 4.5% annual.....
It's laughable, LAUGHABLE, to try and compare index funds too REI.
And what does one do in an '08' style "collapse", duh, ya DON'T sell, ya RENT IT OUT! Because guess what happened in '08' when OVER-LEVERAGED fools were suffering there accountability of dumb financial actions? Yeah, they became TENANTS! Rents shot through the roof as the demand exploded! So hummm let's see, what to do what to do, rent's going up 20%+ annual OR I can sell at huge discount, what to do, what to do...... ya RENT it out! And within a few years, like magic all equity is back and then some.
And now biggest problem is the property is such a cash-cow that ya don't ever want to let it go.
Show me your actual 1099 and property address and I'll plug in the numbers today and see if buying in cash would be better than putting it in the S&P 500 and we'll see who has the last laugh.
Quote from @James Hamling:
Quote from @K S.:
Here's one youtube link of many showing that renting is better. Buying cash can only be worse considering that cash can be invested at way higher than the average rate of appreciation of 3%. But this question continues to be asked over and over again when it's a pretty simple answer. If you have the money and don't care that you'll lose 900k in a decade from not investing that cash into the market instead. Then buy cash. It's your money. I'm not saying to buy with a mortgage either as the video states, this is bad investment advice as well for the average american at this moment in time (unless you're starting a family and can afford it). Leveraging yourself could also take a lot of properties like 10? just to beat the market according to another video breakdown so I also don't trust the leverage guys. If you're the type of person that has to ask this question, then just put your money in the market and wipe your hands and be done with it. Try VOO (S&P 500) or similar dividend fund which doesn't make sense but some people like the psychological feeling of monthly "rent" like checks. And remember, you can average down during a 50% crash. But when real estate crashed 50% during the great recession, nobody averaged down, it's called foreclosure. And don't forget to max your 401k matching. I've already earned about 100k in just a few years of maxing with my employers 5% match. Don't fall for the RE hype.
Why are you here K S.? I mean, other than to Troll? I don't see anything but Trolling here and hilarious levels of misinformation.
How about a Reality Check, shall we....
Real world scenario, one I just looked at. Brand new build, so no maint or cap-x for years making #'s simpler to flesh out. $340k on buy, market rent's $2,700mnth. I know this is market rent because I already lease others at this in this community of this exact floor plan.
I have $32,400 annual revenue. Minus HOA, P.tax, insurance and all operational expenses I have $26,950 OR in % I have a 7.9% COC.... Already, without anything else, I just beat most everything in "the market"......
BUT, I ALSO get appreciation which assuming really long hold is 2.9% as shown as median as averaged out over many decades. That's another $9,860 in my pocket putting us now at 10.8% ROI.
But wait, it get's BETTER.... because rents are not static, rents go up at about 4.5% annual.....
It's laughable, LAUGHABLE, to try and compare index funds too REI.
And what does one do in an '08' style "collapse", duh, ya DON'T sell, ya RENT IT OUT! Because guess what happened in '08' when OVER-LEVERAGED fools were suffering there accountability of dumb financial actions? Yeah, they became TENANTS! Rents shot through the roof as the demand exploded! So hummm let's see, what to do what to do, rent's going up 20%+ annual OR I can sell at huge discount, what to do, what to do...... ya RENT it out! And within a few years, like magic all equity is back and then some.
And now biggest problem is the property is such a cash-cow that ya don't ever want to let it go.
Ah the classic troll accusation to bring more credence to your own argument so you don't have to bring as much substance to your own. Your excessive use of ALL CAPS shows your overly emotional investment to a very low stakes situation. I'm surprised you haven't been banned yet with your condescending attitude towards other peoples experiences which only derails the integrity of the subject matter and exposes your own maturity level.
And to answer your question, I'm here responding because I have purchased 7 properties in all cash over the years making my personal experience a perfect fit to answer this particular subject as I have first hand experience and can provide actual value to the subject. What's laughable, I mean LAUGHABLE, is your theoretical example from the interweb when I brought receipts using my actual tax statements and 1099s.
Secondly, the OP or other questioner has expressed gratitude for my wisdom on this subject.
I notice in every thread you respond to, you brag about your own personal success in order to lift your fragile ego so I'll mention that I also recently purchased a condo with a 7.6% COC return in San Diego last year. But even at 10% with appreciation as you stated, that doesn't beat the 13% the S&P 500 did over the last decade. Sorry but 13% beats 10% even with the perks. What most don't realize is that 13% is compounding. Your cash on cash return does not compound. You realize that correct? It's always 7.9% on your principal no matter how much appreciation you gain, but the S&P 500 compounds. As you make an additional $25/year in rent appreciation, your HOA + Property taxes + maintenance + these new insurance premiums + lawsuit risks, will consume your $25/year increase. I know because I've owned a house for 20 years. I know macro economics is important so anyone can search the internet and come up with their own theories on the subject or a more favorable example and that's great, but this is just my personal experience. Your mileage may vary. But to call someone a troll is a cheap shot exposing your own inability to acknowledge others experiences and exposes your emotional maturity level. Reported!
Here's one youtube link of many showing that renting is better. Buying cash can only be worse considering that cash can be invested at way higher than the average rate of appreciation of 3%. But this question continues to be asked over and over again when it's a pretty simple answer. If you have the money and don't care that you'll lose 900k in a decade from not investing that cash into the market instead. Then buy cash. It's your money. I'm not saying to buy with a mortgage either as the video states, this is bad investment advice as well for the average american at this moment in time (unless you're starting a family and can afford it). Leveraging yourself could also take a lot of properties like 10? just to beat the market according to another video breakdown so I also don't trust the leverage guys. If you're the type of person that has to ask this question, then just put your money in the market and wipe your hands and be done with it. Try VOO (S&P 500) or similar dividend fund which doesn't make sense but some people like the psychological feeling of monthly "rent" like checks. And remember, you can average down during a 50% crash. But when real estate crashed 50% during the great recession, nobody averaged down, it's called foreclosure. And don't forget to max your 401k matching. I've already earned about 100k in just a few years of maxing with my employers 5% match. Don't fall for the RE hype.
Thanks, can't find anything because they have not adopted SB1033 as of yet. But true, since it's allowed now, I guess it would be allowed after I condo it out. But I guess I can ask later to be sure. Not sure how many free email advice I get from them before they start charging.
Post: Under performing STR and looking to do LTR
- Posts 295
- Votes 213
What all do you have to do to make a STR property an STR property? All I'm aware of is a yale lock or something and the PM does the rest like restocking nick nacks and what not.
Quote from @Matt Devincenzo:
I do land use planning in SoCal but not SB specifically. From a quick read of the SB ordinance I don't think you adding the ADU has anything to do with it. Their STR ordinance only allows STR in mountain and desert areas and does not allow it in MFR structures at all. So adding the ADU isn't somehow making the site ineligible for a STR, the use as MFR is what makes it ineligible.
Of course site specific details could change my take above, but based on what you shared you need to buy a SFR in the two allowable areas above in order to obtain a STR permit.
And so being, I believe turning them into condos would allow me to STR one. But I can't ask anybody because it's so new that planning doesn't really know.
Quote from @Scott Trench:
Quote from @K S.:
Quote from @Scott Trench:
Quote from @K S.:
I paid cash for 5 small condos over an 18 year period. In hindsight, paying cash did not make sense at that time because interest rates were dropping and the 1% rule was possible at that time making paying the mortgage with 20% down possible thus could have leveraged myself and been in a better position today but I had bad credit and wanted the comfort of tangible assets and a payout every month giving me the feeling of security but surprise,
None of this made any sense as you could also invest in dividend funds that payout every month, but I also realized, a young person working a career in his prime does not need cashflow. Dividens or rent payment make no sense until after retirement. The comfort and safety of rental cash or dividens when you won't need it for the next 30 years is wasting opportunities to grow faster.
The benefit of no mortgages to keep track of is nice, but near 20 years later, I realized that simply putting it in the S&P 500 would have netted way more in net worth today. I lost hundreds of thousands if not over a million for ideas that did not serve my future net worth building. Ideas like comfort, security and no hassle of a mortgage. This is something you do in retirement, not in your 20s and 30s. Definately pay it off if you're retiring.
For example, the average rate of appreciation on a property is 4%. The S&P 500 averaged around 12% during the same time period when I purchased my first house.
The greater cash flow was good for peace of mind only but served no purpose as I didn't need it. Reinvesting that cashflow into the S&P 500 or dividens would not make up for the gap between real estate appreciation and the S&P 500 as I had already done the math in detail using my own tax returns. You simply will do worse in the long run if you purchase a house or condo in cash as it's tying up to much money for too little return.
All this means nothing today as prices and interest rates are too high. The 1% rule is more like .5% now as I can attest with the sale of my own house and condo. In fact, whoever purchased my condo is now paying $4,600/month but I was just renting it out for $2,300/month in San Diego. You can reinvest those savings at way higher than appreciation.
So buying in cash or obtaining a mortgage are both out of the question for the more passive investor.
Also, don't listen to people who continue old school book advice about putting 20% down on multiple properties for leverage. At these prices and interest rates, you need 50% down. See how long you can leverage negative cashflow.
Last piece of advice, unlike John Morgan, I don't think debt until you die is good. Owning your home outright free and clear in retirement is the way to go as nobody wants to deal with tenants, headaches, lawsuites, constantly rotating older properties for newer ones, renovations, searching, offering, buying etc. It's exahusting. Plus your mind fades as you get older and you may not not be able to handle it. No caretaker or family member will manage your portfolio for you.
In conclusion, the answers are simple, for a more passive real estate investor like myself, it's time to move on to index funds like the S&P 500 and or buying land in cash which is more manageable, and build on the land when the time is right. With all the new ADU laws and land buying, it might be the next boom of the decade that nobody is talking about it.
I actually really appreciate this comment. The paradoxes and seeming contradictions in here reveal your experience and life lessons.
However I want to challenge a few things:
- Cash flow is not valuable until later in life.
I disagree. Cash flow early in life may enable entrepreneurship, comfort with a gap year, etc. when one has a minimum amount of cash flow to retire early in life the optionality is huge.
- RE is overpriced so buy stocks.
Real estate is expensive, yes, but so is everything else. S&P is at 25X earnings. RE at a 5-5.5 cap is priced at 18-20X. You gonna buy bitcoin? Or lend? (Good option but does not solve for long term wealth the same way as equity).
While I’m a bit bearish on rents for the next 24 months, I think they explode nationwide when multifamily supply stops coming online in 2H 2025, especially if rates stay high.
Completely agree that in many markets the property does not cash flow without higher down payment (hence the topic of this discussion) and that attempting to sustain and scale a cash flow negative investment is inviting disaster.
Last, I think most of us know that stocks beat unlevered real estate in the long run.
But, sometimes the long run isn't a math game. If I back into owning a portfolio that spits out $10K in monthly NOI, unlevered that's as good a bet as any on an inflation adjusted $10K for the rest of my life. Sure there will be puts and takes, but in terms of getting a great shot at a reliable inflation adjusted income stream, that's one of the best out there.
No more math games from there on out. That’s what freedom feels like to me.
You disagreed with my statement "cashflow is useless until retirement" statement because you can use it for unemployment or other investment opportunities.
So if you become unemployed and your minscual $1000 isn't cutting it, that's because you took 250k and locked it up. Had you not locked up the 250k, you would not need cashflow to get you by in this situation. To say that it's a good move to lock up 250k so you can have $1,000/month in an emergency, is rediculous because had you not locked up 250k in a house which is illiquid and could take months to sell and incur fees on, then you would have 250k for emergencies lol.
I'll help you with a quick example using my own condo. I dropped 250k on a condo with a 7.5% cap rate. That earned me 19k last year. Yes, I have gap funds for a situation that may never happen like when people spend their whole life practicing karate and end up never getting into a real fight or more on point, losing that fight because of your Karate because it gave you a false sense of security when walking away was the better choice.
For example, if something happened and I needed the $1,500/month that my unit earns, well, I have to live off of $1,500/month which may not be enough. However, had I a more liquid investment like a divident fund or S&P 500, I could not only pull out some in dividens, but I could pull out 250k in principal as well very easily and quickly. More quickly than the hassle of selling my property and then incurring enormous fees like recaputre, renovations, agent fees, federal and state taxes.
The money is there in either a cash investment or index fund/stock market. But one is liquid and the other is not. So assuming $1,500 is enough for this gap, emergency or other investment opportunity, then any investment that earns that much would be the same or better due to liquidity.
But wait, what about 5 propertys at 19k each? That's near 100k and you're out of the rat race right?
Not really, because I could not purchase all 5 at the same time. Saving cash for years is an opportunity cost. Not to mention, you forgot that even if you could purchase all 5 units right now and cashflow 100k/year, that's still less than putting that same amount in the S&P500 for instance or even a dividend fund that might pay you that much as well if you prefer monthly checks.
The S&P/401k is consistent for everybody and you won't get sued which can take all the cash in your house because you paid cash.
So even if you had $1M in cash to purchase 5 condos and retire with 100k/year. Well that's still less than the 120k/year index fund. You would still have less overall growth over time and real estate is less liquid for when you need to pull the principal for emergencies or otherh opportunities. Your train of thought is a poor way of thinking. Allowing the "idea" of rental cash to cloud your judgement when the simple math is staring at you, will keep you poor. But I agree with you, if you can diversify and do both, then do both, but I'd put more eggs in the stock market basket if I had to do it over again. I do like the cash, but it's an illusion.
My advice to anyone is to have a house you live in and pay it off if your interest rate is higher than inflation or other investments or you're retiring. Then purchase a vacation condo/cabin for trips and quality of life. Invest the rest in the market.
Good debate! Some counterpoints:
- The $250K in real estate is not "locked up" and can be accessed via HELOC or sale. Real estate can be volatile, but usually not as volatile as stocks. It's unlikely that it will see a 50% price reduction in our lifetimes. The stock market will do that at least 2-3 times per century.
This is a myth. The real estate market did crash 50% in the last recession. It has since barely surpassed it's peak prices 18 years later. Meanwhile, the S&P 500 has way more than gained its peak prices like quadruple or something. Not only that, you would be averaging down in the stock market but you can't average down in Real Estate. It's called foreclosure.
Your HELOC argument is to solve a problem that you created. You wouldn't need a HELOC to pull money if you didn't spend all your money on a property. That's what credit cards are for in emergencies. Not HELOCs as far as I know.
Had that money been in the market, you could pull dividends in an emergency at 0% taxable rate assuming you're unemployed.