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  • #16










    Strongly consider selling.  Shouldn’t have bought in the first place, but here we are…

    Real estate investing with single-family units can be more trouble than it’s worth.  It should be looked at primarily as a cash flow instrument as opposed to a bought-and-held asset, meaning your return should be considerably higher than your expenses plus a set amount for contingencies ($200/month is minimal; all it takes is $2,400/yr of expenses and you’re at a loss).  You should also get umbrella insurance for whatever your homeowner’s doesn’t cover.

    I know that a lot of people are influenced by Rich Dad Poor Dad, but it was written with someone in mind who is purely entrepreneurial, has time to do the job, and is comfortable with a high amount of leverage.  You also have enough work to do as a fellow, plus more work to do if you’re moonlighting…do you want/need to add the work and time onto your already busy schedule which could be better spent on other things, like leisure and family?

    Why even refinance?  It is likely to cost you money to do so, which is usually added onto the principal, meaning more interest to accrue, meaning a higher rent than one might otherwise think.  Why put more money down to make a 15-yr fixed payment cheaper?  Should or could that instant cash not be better applied elsewhere?  What rate of return are you expecting on the appreciation of the property alone?  Your monthly payment after that refi would be maybe a couple hundred less per month, and based on the cost of the refi, it could take you years to make that up.

    As for paying it off sooner, for an investment house, owning free-and-clear vs still having the mortgage is just another asset in just another form.  You may as well just raise rent or put future extra money into the principal; the unpaid mortgage principal is just leverage on the equity, just like if you took a personal loan to buy stocks.  Whether you have that $500K in the home equity vs in a brokerage account is fungible.

    You’re using some concerning language reflective of incomplete reasoning: a lot of “I think I can afford,” “strapping myself pretty thin,” but mostly “resident going onto fellowship for three years” plus considering moonlighting.  This is a big undertaking with many uncertainties while you’re about to be going through another big undertaking with many uncertainties.

    Either don’t refinance and rent it for higher, or just sell it.  If you’re breaking even with renting it out, then you’re at least having some of your mortgage being paid off for you, but it *has* to be worth the time and effort you’re putting into it…which is tough to do when you’re in training or working two jobs already.
    Click to expand…


    Yeah, I got on that Rich Dad, Poor Dad kick years ago and soon learned better.  I’m not saying there aren’t people who love RE investing and do it well, there obviously are, but not me.  That book and others like it make it sound a lot easier than it is.  It requires a lot more time and attention than most doctors have available given their career and family.

    The carrying costs of residential real estate (basically everything except principal and interest) average about 3% of market value per value.  And that happens to be approx the average annual rate of price appreciation too–about 3%/yr.  So don’t kid yourself that you just buy something, rent it out, and voila you’re rich in 10-20 years.  Not true.

    You really only make money on rents and saving some tax cost thru depreciation (which is recaptured when you sell).  For me, the thought of having unoccupied rental time while I am paying a mortgage and carrying costs on a property I don’t even use would drive me crazy.  I hate debt and I despise paying interest to other people.
    Click to expand…


    You are building up value in an asset at a discounted price that can be rolled into other assets very tax advantaged using 1031.

    However, I kind of agree, I dislike being a landlord as my supposed property manager has not been a great or responsive intermediary.

    Its also just so much easier from a time/effort standpoint to get return in the market. Point, click, and forget. Theres the correlated bit to it all but thats largely narrowed over time, and there are much clearer non correlated assets if you’re willing to do the mental work to understand them and implement it.
    Click to expand...


    I'm not sure what you mean there.

    The average rate of price appreciation for existing residential RE is about 3-4%/yr depending upon whose figures you read.  RRE is basically bond-like in that regard--inflation plus a small premium over time. And your carrying costs (insurance, HOA, prop taxes, maint/repair, furnishings, utilities) eats away most of that gain.  So to make any money it comes down to cranking out rental income which comes with its own set of challenges and problems as you mentioned.

    Comment


    • #17













      Strongly consider selling.  Shouldn’t have bought in the first place, but here we are…

      Real estate investing with single-family units can be more trouble than it’s worth.  It should be looked at primarily as a cash flow instrument as opposed to a bought-and-held asset, meaning your return should be considerably higher than your expenses plus a set amount for contingencies ($200/month is minimal; all it takes is $2,400/yr of expenses and you’re at a loss).  You should also get umbrella insurance for whatever your homeowner’s doesn’t cover.

      I know that a lot of people are influenced by Rich Dad Poor Dad, but it was written with someone in mind who is purely entrepreneurial, has time to do the job, and is comfortable with a high amount of leverage.  You also have enough work to do as a fellow, plus more work to do if you’re moonlighting…do you want/need to add the work and time onto your already busy schedule which could be better spent on other things, like leisure and family?

      Why even refinance?  It is likely to cost you money to do so, which is usually added onto the principal, meaning more interest to accrue, meaning a higher rent than one might otherwise think.  Why put more money down to make a 15-yr fixed payment cheaper?  Should or could that instant cash not be better applied elsewhere?  What rate of return are you expecting on the appreciation of the property alone?  Your monthly payment after that refi would be maybe a couple hundred less per month, and based on the cost of the refi, it could take you years to make that up.

      As for paying it off sooner, for an investment house, owning free-and-clear vs still having the mortgage is just another asset in just another form.  You may as well just raise rent or put future extra money into the principal; the unpaid mortgage principal is just leverage on the equity, just like if you took a personal loan to buy stocks.  Whether you have that $500K in the home equity vs in a brokerage account is fungible.

      You’re using some concerning language reflective of incomplete reasoning: a lot of “I think I can afford,” “strapping myself pretty thin,” but mostly “resident going onto fellowship for three years” plus considering moonlighting.  This is a big undertaking with many uncertainties while you’re about to be going through another big undertaking with many uncertainties.

      Either don’t refinance and rent it for higher, or just sell it.  If you’re breaking even with renting it out, then you’re at least having some of your mortgage being paid off for you, but it *has* to be worth the time and effort you’re putting into it…which is tough to do when you’re in training or working two jobs already.
      Click to expand…


      Yeah, I got on that Rich Dad, Poor Dad kick years ago and soon learned better.  I’m not saying there aren’t people who love RE investing and do it well, there obviously are, but not me.  That book and others like it make it sound a lot easier than it is.  It requires a lot more time and attention than most doctors have available given their career and family.

      The carrying costs of residential real estate (basically everything except principal and interest) average about 3% of market value per value.  And that happens to be approx the average annual rate of price appreciation too–about 3%/yr.  So don’t kid yourself that you just buy something, rent it out, and voila you’re rich in 10-20 years.  Not true.

      You really only make money on rents and saving some tax cost thru depreciation (which is recaptured when you sell).  For me, the thought of having unoccupied rental time while I am paying a mortgage and carrying costs on a property I don’t even use would drive me crazy.  I hate debt and I despise paying interest to other people.
      Click to expand…


      You are building up value in an asset at a discounted price that can be rolled into other assets very tax advantaged using 1031.

      However, I kind of agree, I dislike being a landlord as my supposed property manager has not been a great or responsive intermediary.

      Its also just so much easier from a time/effort standpoint to get return in the market. Point, click, and forget. Theres the correlated bit to it all but thats largely narrowed over time, and there are much clearer non correlated assets if you’re willing to do the mental work to understand them and implement it.
      Click to expand…


      I’m not sure what you mean there.

      The average rate of price appreciation for existing residential RE is about 3-4%/yr depending upon whose figures you read.  RRE is basically bond-like in that regard–inflation plus a small premium over time. And your carrying costs (insurance, HOA, prop taxes, maint/repair, furnishings, utilities) eats away most of that gain.  So to make any money it comes down to cranking out rental income which comes with its own set of challenges and problems as you mentioned.
      Click to expand...


      You are gaining principal value if you hold a mortgage, but someone else is paying it at least partially. If you're not leveraged its just plain cash flow and wouldnt give much beyond cash flow.

      Still, usually just gains with inflation at best.

      Comment


      • #18
















        Strongly consider selling.  Shouldn’t have bought in the first place, but here we are…

        Real estate investing with single-family units can be more trouble than it’s worth.  It should be looked at primarily as a cash flow instrument as opposed to a bought-and-held asset, meaning your return should be considerably higher than your expenses plus a set amount for contingencies ($200/month is minimal; all it takes is $2,400/yr of expenses and you’re at a loss).  You should also get umbrella insurance for whatever your homeowner’s doesn’t cover.

        I know that a lot of people are influenced by Rich Dad Poor Dad, but it was written with someone in mind who is purely entrepreneurial, has time to do the job, and is comfortable with a high amount of leverage.  You also have enough work to do as a fellow, plus more work to do if you’re moonlighting…do you want/need to add the work and time onto your already busy schedule which could be better spent on other things, like leisure and family?

        Why even refinance?  It is likely to cost you money to do so, which is usually added onto the principal, meaning more interest to accrue, meaning a higher rent than one might otherwise think.  Why put more money down to make a 15-yr fixed payment cheaper?  Should or could that instant cash not be better applied elsewhere?  What rate of return are you expecting on the appreciation of the property alone?  Your monthly payment after that refi would be maybe a couple hundred less per month, and based on the cost of the refi, it could take you years to make that up.

        As for paying it off sooner, for an investment house, owning free-and-clear vs still having the mortgage is just another asset in just another form.  You may as well just raise rent or put future extra money into the principal; the unpaid mortgage principal is just leverage on the equity, just like if you took a personal loan to buy stocks.  Whether you have that $500K in the home equity vs in a brokerage account is fungible.

        You’re using some concerning language reflective of incomplete reasoning: a lot of “I think I can afford,” “strapping myself pretty thin,” but mostly “resident going onto fellowship for three years” plus considering moonlighting.  This is a big undertaking with many uncertainties while you’re about to be going through another big undertaking with many uncertainties.

        Either don’t refinance and rent it for higher, or just sell it.  If you’re breaking even with renting it out, then you’re at least having some of your mortgage being paid off for you, but it *has* to be worth the time and effort you’re putting into it…which is tough to do when you’re in training or working two jobs already.
        Click to expand…


        Yeah, I got on that Rich Dad, Poor Dad kick years ago and soon learned better.  I’m not saying there aren’t people who love RE investing and do it well, there obviously are, but not me.  That book and others like it make it sound a lot easier than it is.  It requires a lot more time and attention than most doctors have available given their career and family.

        The carrying costs of residential real estate (basically everything except principal and interest) average about 3% of market value per value.  And that happens to be approx the average annual rate of price appreciation too–about 3%/yr.  So don’t kid yourself that you just buy something, rent it out, and voila you’re rich in 10-20 years.  Not true.

        You really only make money on rents and saving some tax cost thru depreciation (which is recaptured when you sell).  For me, the thought of having unoccupied rental time while I am paying a mortgage and carrying costs on a property I don’t even use would drive me crazy.  I hate debt and I despise paying interest to other people.
        Click to expand…


        You are building up value in an asset at a discounted price that can be rolled into other assets very tax advantaged using 1031.

        However, I kind of agree, I dislike being a landlord as my supposed property manager has not been a great or responsive intermediary.

        Its also just so much easier from a time/effort standpoint to get return in the market. Point, click, and forget. Theres the correlated bit to it all but thats largely narrowed over time, and there are much clearer non correlated assets if you’re willing to do the mental work to understand them and implement it.
        Click to expand…


        I’m not sure what you mean there.

        The average rate of price appreciation for existing residential RE is about 3-4%/yr depending upon whose figures you read.  RRE is basically bond-like in that regard–inflation plus a small premium over time. And your carrying costs (insurance, HOA, prop taxes, maint/repair, furnishings, utilities) eats away most of that gain.  So to make any money it comes down to cranking out rental income which comes with its own set of challenges and problems as you mentioned.
        Click to expand…


        You are gaining principal value if you hold a mortgage, but someone else is paying it at least partially. If you’re not leveraged its just plain cash flow and wouldnt give much beyond cash flow.

        Still, usually just gains with inflation at best.
        Click to expand...


        Ok, gotcha.  Didn't realize you were referencing leveraging. I'm sure people who do that well can make big bucks.  I wouldn't have the stomach for it.  You run into a major housing coreection or lose some tenants and can't make the mortgage payments and suddenly you're in big big trouble being highly leveraged.

        Comment


        • #19
          Well, I wouldn't suggest you buy a property that couldn't reasonably be paid for even if 100% vacant with discretionary income.

          Some moderate amount of leverage gives good return, cash flow and margin of safety. A little bit more, can be ruinous.

          What's highly leveraged? A typical 20% down situation for personal or any mortgage whatsoever? One way gives you cash flow and the other a higher irr. Some kind of happy medium makes sense. If buying for rental they usually make you pit down 30% or so nowadays I hear.

          Comment


          • #20
            I find it interesting how RE averse most MDs are.  Especially when it comes to residential RE.  In some parts of the world MDs are huge RE investors.  I wonder if it has something to do with tenant rights or perhaps just how complex medicine has become. I am certainly of the same mind and couldn't even bring myself to purchase university rentals with the kids at university.  I can only think of two colleagues who were big RE investors.  One in Florida years ago and the other here in Toronto.

            Comment


            • #21
              I thought I would like it more, and it certainly has it benefits. You may be on to something with complexity of the rest of hour life making anmoying tenant or management calls just too much. Then you have a wide range of simpler even if less possible upside investments that will work for you just fine.

              There's definitely nothing wrong with it, but it's definitely a second job even if only in spurts. Id rather do most anything else. Tenants rights are also an issue, especially in California, and litigation isn't rare either. Currently leaning toward not worth it on an annoyance adjusted return basis.

              There are more interesting alternative investments with less friction and more liquidity available.

              Comment


              • #22




                I find it interesting how RE averse most MDs are.  Especially when it comes to residential RE.  In some parts of the world MDs are huge RE investors.  I wonder if it has something to do with tenant rights or perhaps just how complex medicine has become. I am certainly of the same mind and couldn’t even bring myself to purchase university rentals with the kids at university.  I can only think of two colleagues who were big RE investors.  One in Florida years ago and the other here in Toronto.
                Click to expand...


                A) It can be a lot of work.  Most doctors don't have a lot of extra time.  And most can probably make more money working a little harder at what they are already trained to do (taking some extra call, shifts, cases, etc) than taking on a side job in RE investing.

                B) Most doctors, US doctors anyway, deal with enough risks and headaches--insurance companies, reimbursement negotiations, hospital politics, medico-legal risks, taxes, etc.  I think many shy away from the hassles and legal risks of being a landlord.

                C) As I've pointed out mathematically, residential real estate is not the pot of gold panacea some purport it to be in terms of financial gains.  And we have barely even discussed the liquidity issues and high transaction costs of RE ownership.

                I know it's not precisely the same thing, but I can add real estate exposure to my portfolio easily, both domestic and foreign, by buying index REIT ETFs like SCHH, VNQ, VNQI, and such.  I get an asset class with stock-like returns that's a good inflation hedge and is somewhat de-correlated to the S&P while paying great dividends (ideal for a Roth IRA).  SCHH costs me exactly $0.00 to buy and sell as often as I want at Schwab (0% transaction cost) and only 0.07%/yr to hold (tiny carrying costs).  It requires zero work from me and exposes me to zero additional legal liability.  In my mind, it's a no-brainer.

                Comment


                • #23







                  I find it interesting how RE averse most MDs are.  Especially when it comes to residential RE.  In some parts of the world MDs are huge RE investors.  I wonder if it has something to do with tenant rights or perhaps just how complex medicine has become. I am certainly of the same mind and couldn’t even bring myself to purchase university rentals with the kids at university.  I can only think of two colleagues who were big RE investors.  One in Florida years ago and the other here in Toronto.
                  Click to expand…


                  A) It can be a lot of work.  Most doctors don’t have a lot of extra time.  And most can probably make more money working a little harder at what they are already trained to do (taking some extra call, shifts, cases, etc) than taking on a side job in RE investing.

                  B) Most doctors, US doctors anyway, deal with enough risks and headaches–insurance companies, reimbursement negotiations, hospital politics, medico-legal risks, taxes, etc.  I think many shy away from the hassles and legal risks of being a landlord.

                  C) As I’ve pointed out mathematically, residential real estate is not the pot of gold panacea some purport it to be in terms of financial gains.  And we have barely even discussed the liquidity issues and high transaction costs of RE ownership.

                  I know it’s not precisely the same thing, but I can add real estate exposure to my portfolio easily, both domestic and foreign, by buying index REIT ETFs like SCHH, VNQ, VNQI, and such.  I get an asset class with stock-like returns that’s a good inflation hedge and is somewhat de-correlated to the S&P while paying great dividends (ideal for a Roth IRA).  SCHH costs me exactly $0.00 to buy and sell as often as I want at Schwab (0% transaction cost) and only 0.07%/yr to hold (tiny carrying costs).  It requires zero work from me and exposes me to zero additional legal liability.  In my mind, it’s a no-brainer.
                  Click to expand...


                  Well said. Amen.

                  Trying to rid myself of excess hassle. Yes Im sure you can do famously well in RE, but it requires more work than I think its worth to me right now. Especially prominent is the headache and litigation aspect nicely remarked on in B above. We already have jobs that are chock full of this, no need for any more. Investing in market is just so much easier.

                  Comment

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