All Forum Posts by: Account Closed

I've invested in REITs rather than direct real estate. Publicly-traded REITs before (buy and sell in seconds during market hours) and private REITs now (generally illiquid, so plan on owning them for years). Think of a REIT as a mutual fund of properties (usually commercial properties) where you are delegating the management task to the executives running the REIT. You vote for the members of the board of directors of a publicly-traded REIT, but get no say in how the REIT is run.

Besides private crowdfund REITs (some include loans for rehabbing), I own an ETF that holds REITs and I'm diversified internationally by owning shares of a global real estate mutual fund. This approach to real estate investing requires a minimum of a few hundred to a few thousand dollars of capital. In exchange for fewer headaches (no tenants, toilets, or termites to worry about), you don't get to use as much leverage (debt financing) or get the juicier tax benefits of directly owning real estate. But you do get exposure to the business dynamics of rental real estate.

If the government can show a compelling need and the inspection requirement applies equally to everyone, I suspect such inspections are legal. DUI checkpoints during the holidays fall under this provision.

When I lived in California, I had no choice but to have my car smog-tested every other year as a condition of renewing the registration. Anyone who has lived in the Los Angeles or San Francisco regions will understand the compelling need.

The private sector can also have a vested interest. When I owned a home in California, my homeowners insurance offered me a discount for having a fire extinguisher. The idea was that a fire would end up doing less damage to the home when a fire extinguisher was readily available to help put it out. Luckily, I never had to test this theory. The insurance company never inspected my home to make sure I had one, but it could have denied the claim if I had lied about it.

California also requires every home have a carbon monoxide detector. The fire department doesn't do the inspections, but my realtor made sure my house had one when I sold it because appraisers include a photograph of the detector when they send their reports to the lender.

As far as I know, you can always refuse to do business with a person solely on grounds they have too much money. The risk to the landlord is that the wealth might come from illegal activities (such as drug dealing or money laundering). Banks have a "know thy customer" requirement, however, which means they have to report large cash transactions and other suspicious activities to the government. For example, former New York State Governor Elliott Spitzer was turned in by his bank for dealing with a shell corporation that didn't seem to have any legitimate commercial purpose (it wasn't selling a product or service). My landlord only accepts checks and money orders (or ACH transfers from a bank account for a fee). It won't accept cash.

I read where some landlords have to document a prospective tenant's income as a requirement of the landlord's lender. If the landlord is mortgaged to the hilt (high LTV), the lender wants to make sure the tenants are able to handle the rent payments comfortably. Too many evictions for non-payment of rent would put the landlord at risk of default.

How bad do you think a recession will be?

It took a generation for stock prices to recover during the Great Depression of the 1930s and half a generation during the Stagflation of the 1970s. Real estate suffered during the Great Depression (which was deflationary), but soared during the Stagflation (which was inflationary). We only know this by hindsight; no one saw it turning out this way in advance.

The county where I live has an ordinance requiring every apartment unit have a fire extinguisher and this extinguisher must be inspected once a year. We're told to leave it outside our front door by 8 am on the day of inspection. For those tenants who fail to do so, the landlord enters their unit and brings the extinguisher out (and charges the tenant a $50 fine). The inspection is done by a contractor, but I don't know if the county or the landlord pays the contractor.

My current landlord rented to me without a job, but with money in the bank. I moved here from out of state for retirement after selling my house there, so I had no job or rental history. My story was consistent (out-of-state driver license and car registration).

I needed to show a savings account statement that had a year's worth of rent on deposit. I also had to undergo credit and background checks, for which I paid the regular application fee with my out-of-state checks (the landlord wanted to make sure they didn't bounce).

I don't own income property directly as other members of BiggerPockets do. Instead, I own other income-producing assets, which consist of publicly-traded securities, high-yield saving accounts, and crowdfund real estate. From the posts on the BiggerPockets forums, I concluded I wouldn't enjoy being a landlord and decided to stay away from direct real estate.

For my dividend growth portfolio, I know what the dividend income is and because the companies I chose for the portfolio have a long history of increasing their dividends per share each year, I have confidence they will continue to do so. (Note -- GE, which I never owned, is an example of a long-time dividend raiser that lost its way and cut its dividend to a penny a share recently.)

For my asset allocation portfolio, I use the more conservative 3% safe withdrawal rate (some investors prefer the 4% SWR). The robo adviser service that manages the portfolio says I have an excellent chance of never draining the balance down to zero (meaning I'll run out of time before I run out of money, which will make both me and my heirs happy).

I keep the proceeds of an asset sale I made a few years ago in a high-yield FDIC-insured savings account that is paying a 2% rate of interest right now. The interest rate was only 0.5% when I first opened this account a few years ago, but the bank has been increasing the interest rate as the Fed raises its rate (which suggests it will reverse course someday if the Fed decides to lower its rate at some point).

For crowdfunding, I usually consider only the income (interest from loans), but I made a balanced investment last year. Fundrise, which pays for a sponsored post in the BiggerPockets forums, is an example where I chose the balanced portfolio (both income and growth). But crowdfunding is part of my EXPLORE portfolio where I'm only toe-dipping at the moment.

I also lowered my cost of living. The apartment I'm renting in Pensacola would cost me three or four times as much if I had rented the same unit in the San Francisco Bay Area. Someday I might buy a home here (which cost only a fraction of similar homes in Silicon Valley), but for the time being, I enjoy outsourcing the property management projects to a landlord.

I played the Cashflow game 50 times back in the 2000s (mostly Cashflow 101, but some Cashflow 202). I'm glad I did.  Although it's counter-intuitive, I discovered that people in lower-paying professions have an easier time getting out of the rat race with passive income (generally speaking) than people in higher-paying professions do.

Back in the 1970s when I was right out of school, the first two apartments I rented were furnished (these were quite common in the Los Angeles area at the time). I knew the landlord was getting a good deal, but I didn't want the hassle of dealing with buying and moving my own furniture.

Now that I'm older and wiser, I looked into renting rather than buying the furniture when I became a renter again after moving to Pensacola (furnished apartments are harder to find here). I found the breakeven was 4 months, meaning if I was going to rent the apartment for more than 4 months, it was cheaper for me to buy rather than rent the furniture, which is what I did.

My conclusion is that furnished rentals are a good deal for the right tenant niche, but "cheap furniture" you can cheaply replace is probably the right approach. As long as a bed is a bed and a desk is a desk, the lowest price works best for me.

I start by living out of my checking account. I keep enough cash on hand to cover my living expenses for many months.

Then I think of my investments as supplying cash to refill my checking account regularly. In the abstract, this cash could come from such sources as rents, capital gains, dividends, freelancing, or commissions -- each one of these sources is potentially a lumpy income stream. My checking account is there is absorb the variability of these different income streams.