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Poll: Do you invest in real estate?

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  • #16
    Originally posted by White.Beard.Doc View Post
    I invested in residential real estate over the course of my career. My first investment real estate purchase was when I was a senior resident. The real estate has contributed millions of dollars to my net worth, but on the negative side it was a bit of a side job. I would say that over a few decades I averaged only 1 or 2 hours a month on real estate, so I am fortunate that I did well without too much work.

    On the positive side, I now have the benefit of a six figure passive annual income from real estate. And rental income represents an excellent inflation hedge in retirement.

    On the negative side, I am running out of depreciation deductions to shield the rental income from income taxes. The solution to that that problem would be to sell via 1031 exchange to ever larger multifamily properties, but just how much does one want to own when already having enough to meet all financial needs? And a primary goal at this stage of life is to simplify things, so if it weren’t for the massive tax bill that would result, I would cash out of the real estate. The best solution to the tax problem is to simply hold on and then pass the real estate to the heirs at a stepped up basis after death, so perhaps we will ask the heirs to step up and oversee the management of the real estate in the coming years.
    I am thinking about a 1031 exchange as well. What do you think about a triple net lease? Avoids the tax hit and minimizes "work". Does anyone have experience with a 1031 exchange for a commercial property?

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    • #17
      So 55% of people don’t like pizza? Wow, what kind of crazy person doesn’t like pizza???

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      • #18
        Originally posted by IJ View Post

        I am thinking about a 1031 exchange as well. What do you think about a triple net lease? Avoids the tax hit and minimizes "work". Does anyone have experience with a 1031 exchange for a commercial property?
        1031 works the same for multifamily, retail, office or any other type of "commercial" property.

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        • #19
          Originally posted by IJ View Post

          I am thinking about a 1031 exchange as well. What do you think about a triple net lease? Avoids the tax hit and minimizes "work". Does anyone have experience with a 1031 exchange for a commercial property?
          Triple net leases are easy on the landlord, minimal work. Generally with a triple net lease, a known solid business entity leases your property and they pay taxes, insurance and maintenance. They basically care for the property while you simply collect rent. Triple net leases typically involve only commercial properties.

          Personally, I invested in residential properties because it was much easier for me to understand the balance of forces in the market and to make good judgments on what to buy and what would rent well. I was concerned that the commercial market was not in my wheelhouse and I would be more likely to misjudge pricing and demand. I also know that in good locations with a reasonable economy, there is always demand for residential rentals. If you have the knowledge to buy smart, then triple net lease properties would be easier to manage than residential properties. In these times, the risk seems likely higher, but residential properties are also higher risk at this moment. I am fortunate because I own residential properties that are for upper middle class families seeking good schools, and in this Covid situation, the knowledge workers seem to be doing just fine working from home.

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          • #20
            Count me in the zero real estate holdings at this time.

            Recently read the Physician on Fire Post on AcreTrader, a syndicated farmland investing platform. His first investment was about a year ago. I am tempted.

            The biggest barriers to my personal RE involvement are time and perceived risk (difficult for me to confidently invest without any significant understanding of what makes for a good RE investment). Syndicated real estate offers to overcome those, with AcreTrader specifically doing so with a low volatility asset class (farmland). Thinking it could be a good way to dip my toes in the water.

            https://www.physicianonfire.com/acretrader-review/

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            • #21
              Originally posted by TheDangerZone View Post
              Count me in the zero real estate holdings at this time.

              Recently read the Physician on Fire Post on AcreTrader, a syndicated farmland investing platform. His first investment was about a year ago. I am tempted.

              The biggest barriers to my personal RE involvement are time and perceived risk (difficult for me to confidently invest without any significant understanding of what makes for a good RE investment). Syndicated real estate offers to overcome those, with AcreTrader specifically doing so with a low volatility asset class (farmland). Thinking it could be a good way to dip my toes in the water.

              https://www.physicianonfire.com/acretrader-review/
              Personally it wouldn't work for me because you can't depreciate land and depreciation is a huge tax advantage for real estate. Plus it distributes only once a year and I prefer at least quarterly distributions.

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              • #22
                Originally posted by dennis View Post

                Personally it wouldn't work for me because you can't depreciate land and depreciation is a huge tax advantage for real estate. Plus it distributes only once a year and I prefer at least quarterly distributions.
                Sure, different strokes and risk Tolerances, etc. What do you make of this quote from the article?

                “In this particular investment, nearly 70% of my distribution was offset by “net rental real estate income (loss)”. I paid ordinary income tax on approximately 30% of the cash distribution.”

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                • #23
                  Originally posted by TheDangerZone View Post
                  Count me in the zero real estate holdings at this time.

                  Recently read the Physician on Fire Post on AcreTrader, a syndicated farmland investing platform. His first investment was about a year ago. I am tempted.

                  The biggest barriers to my personal RE involvement are time and perceived risk (difficult for me to confidently invest without any significant understanding of what makes for a good RE investment). Syndicated real estate offers to overcome those, with AcreTrader specifically doing so with a low volatility asset class (farmland). Thinking it could be a good way to dip my toes in the water.

                  https://www.physicianonfire.com/acretrader-review/
                  Don't forget farmland REITs.

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                  • #24
                    Originally posted by G View Post

                    Don't forget farmland REITs.
                    Good point, but would it be wrong of me to say I'd prefer to avoid market risk in my real estate investments? I was 10% broad index REITs for awhile up until January 2020 when I changed my IPS and simplified my portfolio to the three fund approach.

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                    • #25
                      Investing in real estate is the smarted endeavor I ever entered, and I say that while also having a successful practice. I guess taking that chance is not for everyone, but it’s SO worth it. I plan to retire in a few years at 45, and it’s because of real estate that I will be able to do that.

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                      • #26
                        4 SFH's in the Puget sound area. One paid off. 2nd nearly paid off. Hoping that this can be one of the investment baskets/cash flow source when retired.

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                        • #27
                          I purchase my first duplex at the age of 19 while in college. A few years later my husband and I moved into the downstairs apartment when we got married in graduate school. The Upstairs tenant’s rent covered our mortgage. We currently own a house near the University that we rent out to 4 students. They are hard on the property but it has paid for itself already. We also own a beach condo in Costa Rica, but with Covid, that has taken a hit this year. The country is finally opening up to tourism, so hopefully things will look brighter!

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                          • #28
                            I started reading The Book on Rental Property Investing by Brandon Turner. I got through about 5 or 6 chapters, then put the book down after it said for every 100 properties your realtor brings you, you should do serious due diligence on ten of them, and maybe purchase 1 of them. In the previous chapter, he talked about how one of his properties was cashflowing about $500 a month. Looking over a hundred properties a year to find one that is going to cashflow a few thousand a year? As a physician, I can make that much money in one weekend. That juice just isn't worth the squeeze. I live in a part of the country where not much is cashflow positive anyway.

                            I also started reading the The Long Distance Real Estate Investor by David Greene. It seemed to have a lot of good tips about how to complete due diligence from afar. But the book completely lost me when it discussed how important it is to anticipate local market trends and buy and sell accordingly. In other words, predict what has happened in Detroit and Austin for the last twenty years. Since I am just an outsider with no local knowledge, that seems like just as much of a loser's game as predicting the stock market. And then there is the issue of competing for the best realtors, contractors, property managers with the locals. Hard pass.

                            So that leaves REITs, turnkey investing, and syndications/funds, and hard money lending. I'm in a little bit of hard money lending through the Socotra fund, which is returning about 7%. I tried to invest in the Arixa fund, but they won't accept my self-directed 401k. I still don't really feel comfortable doing due diligence on equity funds and syndications. I'm going to start reading the Hands Off Investor by Brian Burke and see if that helps me develop an efficient process for vetting sponsors and deals. I don't really trust the deals that rely on advertising from WCI and affiliate sites to recruit investors. I'm also part of an investment club, but it seems like there are few recommended deals to be had right now at this point in the investment cycle.

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                            • #29
                              I actually have never been into real estate until I realized that owner occupied real estate (with tenant spaces that can also enhance your business as I note below) gives a great benefit above and beyond the usual benefits of real estate - lease income (NNN in my case), real estate depreciation which offers significant tax deferment, and property appreciation over the years.

                              I've realized two major benefits of the property for my business (in addition to paying rent to myself). First, no concerns about outgrowing my space and having to move, just move into a tenant space if they move out. Second, and probably more important, you have control over who you accept as a tenant. I went with other complimentary healthcare tenants (non-competing) whose customers need PCP's. With lobby television advertisements and brochures, I have a captive audience that already knows the location of my business. The ROI here cannot be underestimated.

                              Therefore, the benefit you get from an investment depends on the thought you put into it. Further benefits include equity in an asset against which you can borrow, inflation protection, a real estate portfolio LLC that can be sold on day just like a medical practice, the relative passivity of such a large ancillary income from relatively few tenants that can extend into retirement, 1031 exchange benefits...I'm sure there's more.

                              All investment come with risk and potential downsides. RE is clearly a less liquid asset - mitigating this would be as stated the ability to borrow against the equity, and individual suites can be sold if needed. You can lose tenants - mitigating this as stated my own business can grow into that space. It is easy money relative to practicing medicine, but clearly there is active effort to manage the property, I mitigate this by using an employee with property management experience to perform this function. RE may pay better dividends (lease revenue) than the stock market but tends to have a diminished long term appreciation return relative to the market and many harp on this but poorly understand all the benefits of RE ownership noted above.

                              Overall, it appears to be worth it for me. I may buy/build more CRE over the coming years, preferably distressed in good locations or build on to existing prime location. The 1% agree, more of their assets are held in CRE and personal business than in the stock market. RE offers true investment diversification outside of the stock market. I think it's a better consideration for those of us who are mid or late career more seriously considering retirement income sources, and at this age we have the financial means more so than one starting their career. I wouldn't recommend RE early on due to the significant capital requirements and limited market investment assets, smaller EF's, etc.

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                              • #30
                                I found real estate return was very good early career due to the leverage available.

                                I think it is less attractive mid career due to the fact that I don’t want to maintain large amounts of debt/leverage anymore. It is also undiversified risk.

                                I don’t like syndications due to the fees and due to manager risk.
                                My best returns have been from land investments and those are the only ones I keep now.

                                The return from real estate needs to compensate for taking undiversified risk to make sense to me. My hurdle rate is: expected unlevered net return (Capital gain return pa + net rental yield) > 12% pa.

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