Wealth through real estate

[Complete_newbie]

Sorry I am using all my good will as a newbie here

First, shout out to DMFA - I reallocated (even though that was your example, I found it compelling and have switched my money to mostly low fees index fidelity fund)

That being said, interested to know if anyone on this board primarily invested in real estate with stock investing as secondary/smaller portion of their asset.

[Gas_Doc]

You are probably not going to find many on this site with that sort of real estate-heavy asset allocation. If you are looking for a group of people who have the bulk of their assets in real estate, I'd suggest you check out Bigger Pockets.

[The White Coat Investor]

I've got lots of readers with a significant real estate allocation, but I would bet that if I polled everyone there would be a larger percentage with stocks > real estate than real estate > stocks.

Real estate investing is a perfectly viable way to become wealthy. It has both pluses and minuses in comparison to stock investing. I see little reason that most people can't and shouldn't do both to some extent.

[G]

I enjoy getting a monthly deposit into my account from my rental property--when things are going well (nothing broken, fully occupied, etc).  I also appreciate the quarterly dividends from my REIT funds with zero associated hassle.  I am envious of those making a true side-job-income with real estate, but I had fun skiing pow today with my kid as opposed to worrying about the forecasted flooding in my area.

[Complete_newbie]

Thanks for comments

I know about bigger pockets but that site is a) general b) confusing for a newcomer

I did some statistical analysis. Depending on the type of real estate investment, returns were a bit better than stocks with leverage of course.

I will be an attending in July and was thinking about "live" experimenting: 50-70% RE, 30% bogglehead. Or 50/50 and do a head to head comparison over the next few years.

I'll probably catch some flack but think that's a good experiment for me (have some access to real estate deals if you will)

[The White Coat Investor]

Complete_newbie wrote:

Thanks for comments

I know about bigger pockets but that site is a) general b) confusing for a newcomer

I did some statistical analysis. Depending on the type of real estate investment, returns were a bit better than stocks with leverage of course.

I will be an attending in July and was thinking about “live” experimenting: 50-70% RE, 30% bogglehead. Or 50/50 and do a head to head comparison over the next few years.

I’ll probably catch some flack but think that’s a good experiment for me (have some access to real estate deals if you will)

Click to expand...

Why would you leverage the real estate and not the stocks in a comparison?

I would not rely on your experiment to decide what to invest in. Pick an allocation and stick with it. Both, done properly, can be great investments.

[Complete_newbie]

Well real estate comes with leverage/bank loan. Stocks can be but I'll keep that vanilla non leveraged. Experiment is mostly if both are passive which one leads to greater/faster wealth.

Agreed it looks terrible but I just want to try out and learn in the process. Not worried about retirement as atleast half portion is index/bogglehead anyways. I don't need much to reach FI.

Possibly can write about it and share it. Most of my attendings I have met don't do real estate at all, just market allocation. Want to understand the reluctance of doing it. I mean I have seen my high school friends do RE with great success and are much ahead with net worth. Feel like since most of data is not really super clear/details I.e RE tends to be inefficient and where I have seen my friends make money with creative deals. Starting to learn about it.

[Zaphod]

Complete_newbie wrote:

Well real estate comes with leverage/bank loan. Stocks can be but I’ll keep that vanilla non leveraged. Experiment is mostly if both are passive which one leads to greater/faster wealth.

Agreed it looks terrible but I just want to try out and learn in the process. Not worried about retirement as atleast half portion is index/bogglehead anyways. I don’t need much to reach FI.

Possibly can write about it and share it. Most of my attendings I have met don’t do real estate at all, just market allocation. Want to understand the reluctance of doing it. I mean I have seen my high school friends do RE with great success and are much ahead with net worth. Feel like since most of data is not really super clear/details I.e RE tends to be inefficient and where I have seen my friends make money with creative deals. Starting to learn about it.

Click to expand...

Comparison and explanation make no sense. Leverage with stocks in any of three ways (traditional margin, options, and leveraged etfs) are all much simpler and can be much cheaper than the arduous in comparison bank leverage for a mortgage. Margin at my taxable broker is 1.9%, less than the dividend on the SPY or even a bond fund like TLT. Stocks on even a limited amount of margin or a leveraged large index ETF (qld, tqqq) will crush real estate long term and thats including their high expense ratios on a relative level.

It would be a better plan to do your tax deferred options to the max and then RE with whatever is left. Makes no sense to leave any tax deferred on the table. At least in the early years you will already start out with way more assets in RE due to the leverage, Im currently 3:1 RE simply because of this fact. The point should really be to have diversification. There is no panacea, only reward for risk or work put in (RE is work for sure).

The reluctance to RE is it is a lot of extra work, and a general illiquid PITA that comes with higher liabilities. Your HS friends may not have as much at stake as you do as a physician who doesnt want this to impact their ability to make a great income.

It may be because you're still a resident that you dont know many that do it, idk, maybe academia selects for less risky/adventurous types. Every single doc (4 of us) in my practice has at least one rental property.

[Complete_newbie]

i am not leaving any tax deferred option. No way.

But the rest I am heavily going to focus on RE. To be honest I don't know much about leverage in stocks but you are probably right it's easier with better returns ? I just have read and seen RE make people wealthy faster than index investing. Luck/skill? Don't know and want to find out for myself.

Also not much interested in residential rentals. Will look into commercial.

[Complete_newbie]

Also won't pay my student loans fast. Believe maxing assets than aggressively paying cheap debt is the way to go. Fine if net worth is negative; it should (will?) flip in a few years with better equity build up. Again my rough premature calculations but somehow it makes sense. I'll probably have to start a post/blog to run this through. I am ok being the rest dummy of this 50/50 portfolio.

[The White Coat Investor]

Complete_newbie wrote:

Also won’t pay my student loans fast. Believe maxing assets than aggressively paying cheap debt is the way to go. Fine if net worth is negative; it should (will?) flip in a few years with better equity build up. Again my rough premature calculations but somehow it makes sense. I’ll probably have to start a post/blog to run this through. I am ok being the rest dummy of this 50/50 portfolio.

Click to expand...

It's not a net worth issue that gets people into trouble. It's a cash flow issue. Make sure you put enough down that each property cash flows on its own. You won't make enough as a doc to cover multiple negative cash flowing properties.

Let us know how it goes.

[G]

Hopefully you'll have enough time as a new attending to be a professional real estate investor.  Good luck!

[Complete_newbie]

Will keep you guys posted! Thanks for all comments. May be ill just stay a blog call it 50/50 and post my progress monthly/quarterly

@Zaphod - do people (average individual investor) really use leveraged funds? Only reason I am asking is because real estate is usually financed (institution to the individual). Stocks, looks to me most of the folks just buy and hold without leverage. Was looking at more data and if comparing s&p 500 with dividends over years vs real estate apppreciation+cash flow --- real estate did better. This was residential btw. Haven't looked at commercial data yet.

All of this is mostly thought experiment. I really love indexing the more the ideas about it. Allocate, sticks DJ forget it. RE will mostly be a "business" venture.

[Zaphod]

Complete_newbie wrote:

Will keep you guys posted! Thanks for all comments. May be ill just stay a blog call it 50/50 and post my progress monthly/quarterly

@zaphod – do people (average individual investor) really use leveraged funds? Only reason I am asking is because real estate is usually financed (institution to the individual). Stocks, looks to me most of the folks just buy and hold without leverage. Was looking at more data and if comparing s&p 500 with dividends over years vs real estate apppreciation+cash flow — real estate did better. This was residential btw. Haven’t looked at commercial data yet.

All of this is mostly thought experiment. I really love indexing the more the ideas about it. Allocate, sticks DJ forget it. RE will mostly be a “business” venture.

Click to expand...

We actually have the same plan, amass assets and let the debt take care of itself in time. Its a good plan albeit more aggressive than most people.

Comparing market vs. RE as a simple heads up isnt a very good way to do this since its such a different type of investment. They have different short term, long term, and tax benefits to each. In the short term RE may have higher cash flow (may) on a substantially smaller initial investment, and the tax treatment is such you may never pay taxes if you use 1031 to your advantage. Long term there is simply no comparison to stocks as far as ultimate wealth and even cash flow.

You have to compare apples to apples and the only reason RE does any better is leverage, which people are absolutely comfortable with in RE for some reason but the effect can be just as devastating or worse. I'd be pretty skeptical of something showing otherwise without pointing out the obvious, you are taking much more risk in traditionally financed RE deals, ie, leveraged. They are also discounting the work and time spent in RE which is not insignificant. If you have it fine, but lets not call it zero. It takes minimal time for the average non finance nerd person to deal with investments.

Yes indeed people use leveraged ETFs, but that doesnt make it a good thing. In fact there were a bunch of articles last year saying that the triple leveraged oil ETFs were the favorites among millenials and they all lost gobs of money. There are some appropriate if used correctly ones out there but thats miles away from where you are now.

[G]

I used double short ETFs while the market was melting down in 08-09.  Made a bunch of money til I made the colossal mistake of putting a bunch more in Mar 2009.  Seriously, in March 2009, I bet the market was going down.  A market timing catastrophe.

Luckily my double long gold took a bit of bite out of those losses.  But I learned my lesson: between the actual loss and opportunity cost, I could own one or two of those fancy cars they talk about in the other threads.

I bought my "attending" house around that time when the housing market was also in the toilet.  In retrospect, I wish I had bought more...but pushing a decade later and my boring, non-leveraged investing from my boring, W-2 job has me on the cusp of FI with minimal indigestion.