Real Estate FOMO?

[bobedwards]

I feel I’m pretty level-headed and thought I felt comfortable with my long-term financial plan of just spending less than I earn and investing in the market. Apparently, I’m not so comfortable that I can’t start to second-guess my plan.

I recently watched some of the Fast Fire to Freedom virtual summit by the Semi-Retired MD team. It was free and pushes for direct ownership of rental properties as a way to build wealth quickly.

The summit was basically marketing for their fairly expensive real estate course ($3900?) and they interviewed students from the course who have gone on to build quite large real estate portfolios. It looks like they only picked success stories. Much of it sounds highly leveraged. They imply their course will teach the right skills to physicians and offers a community of resources.

I know there are many routes to financial independence, and perhaps I’m just having second thoughts about my slow and steady approach of investing in broad index funds. I may just be hearing from a vocal minority in direct ownership of real estate, but I feel I may be missing out by at least not taking it seriously (diversification, tax benefits, higher returns etc.)

The real estate community says to jump in and start with your first deal, but the fear of a mistake also helps market taking an expensive course. I’m not sure if books and forums alone are enough to learn the ropes but I’ve looked at a few out of curiosity.

I never felt I understood the risks of crowdfunding or syndications and so I never invested in this form of real estate.

Background:
-NW: $2.6 MM in investments and cash
-Age: mid 40’s married couple
-We both work part-time in primary care and really enjoy the flexibility and work/life balance. Our spending is low and we can keep saving.
-No debt, no children (not planning), no primary residence
-We currently rent an apartment in HCOL area
-Our original plan was to just keep saving and put money in the market, with a 3 fund approach.
-Not sure when/if we may buy a primary residence given low inventory and insane competition
-We have a cash down payment for a house or to use for real estate if we decide to add this to our portfolio.

Does anybody else have are real estate FOMO if you don’t own a rental property and were just planning on investing in the market? What if you don’t even own a primary residence? Appreciate any input.

[White.Beard.Doc]

I’m getting long in the tooth. Been a doc for 3 decades. I followed 4 pillars of wealth building:

1. work hard as a doc to earn a high income
2. max all retirement accounts
3. purchase direct ownership real estate
4. start a medically related side business

I am ridiculously wealthy now. Every single one of these 4 investment pillars greatly contributed to our wealth. The direct real estate investments added a ton to our wealth because of market appreciation over the years. But we bought in an expensive coastal market and used 80% LTV loans. 100% market appreciation over time equals a 500% gain when you use leverage.

In my view, if you buy well located, quality real estate assets that cash flow well in both thick and thin, it is reasonably safe to use leverage. The leverage and tax benefits can lead to average 20-30% ROI every year, and those returns are based on intelligently using leverage and expecting a 3% per year level of market appreciation. Real estate yields growth based on cash flow, on mortgage pay down, on market appreciation, and on tax savings. But real estate markets fluctuate. You have to plan for the down years. You need positive cash flow for insurance in those down years.

I know another doc who is significantly younger than I am who is all in on real estate. I expect they will end up with a net worth north of 100 million when they get to my age.

[Sigrid]

We're pretty similar ot you - slightly younger with slightly less net worth, but also no kids and no primary residence.

I don't have any FOMO with real estate. We owned property once. It was a PITA to maintain, and we lost money on it. I have no desire to take all of that on with the additional headache of trying to make money off of it.

As near as I can tell,, you make money in real estate by either hard work (not outsourcing any of the cleaning/maintenance/management), luck (good appreciation in a hot market), or some combination of the two. Both my wife and I have full time jobs and have no desire to take on another one, and we have amply proven that we don't have a crystal ball and have no desire to get burned again. So no, not interested.

We spend considerably less than we earn and are well on our way to FIRE with just a three-fund portfolio. We're happy with that.

[StateOfMyHead]

I am small potatoes, currently 5 properties, single family which I started doing 25 years ago when my yearly income was in the 30k range. I was over leveraged by any stretch of the imagination but I bought properties in need of work in excellent neighborhoods and either lived in and renovated then sold or fluffed up and rented. It has been a great side gig but make no mistake it is not passive and if you expand too quickly a few duds could negate the entire haul. When the real estate bubble was ramping up I sat out as I would recommend doing now. I’m guessing it will swing back around as all the youngsters who just spent the motherload on a house due to FOMO that they really don’t like and can barely afford decide they have to move in a couple of years.

[abds]

I feel the same way. I am 100% equities outside of my ASC and MOB investments. I’m blessed with a high enough income that if I am fortunate enough to not have it significantly change (until I decide to slow down), and I get 5+% average annualized returns, I will have mid 8-figure taxable investment account by normal retirement age. That’s more than enough money of course, but also a lot of “ifs,” so I’m always wondering if more direct real estate is a way to diversify into more income producing investments.

However I will not manage anything myself, so I would hire a management company. We’re at what seems to be the top of the housing market right now. I have no idea where or what to buy. I have friends making (in addition to paying mortgage of course) hundreds a month on each of several single family long term rentals. I have 3 different friends making $10-20k a month (on top of expenses) on each of their multimillion dollar short-term rentals in exclusive costal, mountain, and other locations. But who knows what might happen to that market? The inertia to jump in is terrifying, despite my otherwise high risk tolerance.

Since I don’t need real estate to retire as a very very wealthy person, I consider my interest as mostly FOMO.

[CordMcNally]

I often have FOMO of not putting on my own real estate course.

[G]

I often have FOMO of not putting on my own real estate course.

LOL

OP, yeah, you bet I feel some REFOMO. But...when I sold my rental property, it felt like I had shedded a 60# backpack at the end of a long uphill hike. Some people do well with it, some love it. For me, it was 10% of my NW, but 90+% of my financial stress. Presently I am in a private real estate deal that is <0.5% of my NW and maybe 80% of my tax-time stress. Interesting, huh?

The RE programming is relentless. But I have faith that you can overcome it. If need be, unsubscribe from the WCI network.

[bobedwards]

It's good to hear some different opinions on this.

I do think with knowledge and connections (realtor to find properties, contractor, learning how to value a property, understanding local rents etc) it can be possible to have positive cash flow and use leverage to maximize ROI. It also seems clear that this isn't really passive. It's a lot of learning upfront on how to do it right and with a system in place, it could be repeated. I suspect the courses out there offer the hand-holding for the learning part.
CordMcNally I can only imagine how much money these folks are making on tuition.

Sigrid It's also realistic to hear that sometimes real estate doesn't work out. Sorry about your experience. Since I don't have generational wealth to worry about, I know what will be "enough" for us and anything left over will go to charity anyway. So, maybe the working and slowly saving approaches are good enough.
White.Beard.Doc maybe pillars 1&2 will get me where I want to be!

[Hoopoe]

I watched the same program. Lots of rah rah success stories but some good information. The best thing I learned was that short term rentals can also get cost segregation analysis and bonus depreciation against earned income even if you don’t have REPS. So starting a property as a short term rental and getting a 20-30% tax deduction then either stay short term or go long term is a winning strategy. I’m now looking at a short term rental pickup that could shelter half of my clinical income this year and be cash flow positive if all goes well, with tax savings essentially paying for the whole down payment. If this goes well I’m definitely starting down the real estate path. If not, I likely can make back some of my costs and have an amazing vacation home. I’m actually interested in the course mainly for the contacts that it would have, directly plugged in to network of realtors, contractors, property managers in select markets out of state that I might not have the confidence to go with. If you are thinking about it I think doing the course and planning 30-50k trial investment is about as sound a choice as a similar expense with a real estate syndication.

Personally I am worried about inflation and as I’m also a renter I wanted to own some real estate just to ensure that I would have somewhere to live that wasn’t too painfully expensive if needed in the future and have some investments that would thrive in inflation. As such I’m moving towards about 60-70% stocks and 30-40% real estate mainly evergreen syndications but a few properties over the years.

[Craigslist]

OP I think you are doing well with 2.6M NW and mid 40s only working part time.

[SerrateAndDominate]

I've listened to some podcasts like Rich Doc Poor Doc. As soon as I get FOMO for owning real estate, I remember the meth head who ruined my accidental rental and cost about $10k of combined damage and lost rent.

[Pixel]

I feel I’m pretty level-headed and thought I felt comfortable with my long-term financial plan of just spending less than I earn and investing in the market. Apparently, I’m not so comfortable that I can’t start to second-guess my plan.

I recently watched some of the Fast Fire to Freedom virtual summit by the Semi-Retired MD team. It was free and pushes for direct ownership of rental properties as a way to build wealth quickly.

The summit was basically marketing for their fairly expensive real estate course ($3900?) and they interviewed students from the course who have gone on to build quite large real estate portfolios. It looks like they only picked success stories. Much of it sounds highly leveraged. They imply their course will teach the right skills to physicians and offers a community of resources.

I know there are many routes to financial independence, and perhaps I’m just having second thoughts about my slow and steady approach of investing in broad index funds. I may just be hearing from a vocal minority in direct ownership of real estate, but I feel I may be missing out by at least not taking it seriously (diversification, tax benefits, higher returns etc.)

The real estate community says to jump in and start with your first deal, but the fear of a mistake also helps market taking an expensive course. I’m not sure if books and forums alone are enough to learn the ropes but I’ve looked at a few out of curiosity.

I never felt I understood the risks of crowdfunding or syndications and so I never invested in this form of real estate.

Background:
-NW: $2.6 MM in investments and cash
-Age: mid 40’s married couple
-We both work part-time in primary care and really enjoy the flexibility and work/life balance. Our spending is low and we can keep saving.
-No debt, no children (not planning), no primary residence
-We currently rent an apartment in HCOL area
-Our original plan was to just keep saving and put money in the market, with a 3 fund approach.
-Not sure when/if we may buy a primary residence given low inventory and insane competition
-We have a cash down payment for a house or to use for real estate if we decide to add this to our portfolio.

Does anybody else have are real estate FOMO if you don’t own a rental property and were just planning on investing in the market? What if you don’t even own a primary residence? Appreciate any input.

I feel similarly. In our case however, we keep finding ourselves in the "accidental landlord" situation which has been fine, but not life changing. We currently have two LTR and will soon convert a vacation home to a STR, all in very HCOL areas. The taxes and maintenance in our HCOL area and the fact that we are not really leveraging the equity in these properties keep our profits pretty minimal in the grand scheme of things.

However I am curious about acquiring more real estate in a way where we are truly vetting properties for investment purposes and the prospect of scaling up. We have built enough equity and have enough in investments/cash that it would not be too great a financial risk to test the waters. In addition, we are a two-physician household and I'm currently PT with a child who is just starting full day school. My intent was to work additional shifts, but I question whether I should direct my time towards gaining REPS hours instead, while building a separate, non-medical skill set. Life is good as is, which is why I'm afraid to rock the boat. I may consider the Zero to Freedom course, mainly because if I choose to move forward with this plan, I might need the "rah rah" of others, it would be helpful to have access to a network of trusted lenders/ PM, and the course would be tax deductible I believe.

In your case, why don't you try and find a duplex or multifamily home that can be converted to accommodate a rental and do a "house hack," where your mortgage/costs are subsidized by a renter. That way you gain some RE exposure while putting money towards ownership in a primary residence? We had considered doing this in the past, but were young and not up to the renovations that were involved in the property we looked at...I kind of regret not getting that in retrospect...

[StateOfMyHead]

I feel similarly. In our case however, we keep finding ourselves in the "accidental landlord" situation which has been fine, but not life changing. We currently have two LTR and will soon convert a vacation home to a STR, all in very HCOL areas. The taxes and maintenance in our HCOL area and the fact that we are not really leveraging the equity in these properties keep our profits pretty minimal in the grand scheme of things.

However I am curious about acquiring more real estate in a way where we are truly vetting properties for investment purposes and the prospect of scaling up. We have built enough equity and have enough in investments/cash that it would not be too great a financial risk to test the waters. In addition, we are a two-physician household and I'm currently PT with a child who is just starting full day school. My intent was to work additional shifts, but I question whether I should direct my time towards gaining REPS hours instead, while building a separate, non-medical skill set. Life is good as is, which is why I'm afraid to rock the boat. I may consider the Zero to Freedom course, mainly because if I choose to move forward with this plan, I might need the "rah rah" of others, it would be helpful to have access to a network of trusted lenders/ PM, and the course would be tax deductible I believe.

In your case, why don't you try and find a duplex or multifamily home that can be converted to accommodate a rental and do a "house hack," where your mortgage/costs are subsidized by a renter. That way you gain some RE exposure while putting money towards ownership in a primary residence? We had considered doing this in the past, but were young and not up to the renovations that were involved in the property we looked at...I kind of regret not getting that in retrospect...

In my opinion you are exactly the type who would likely be successful in expanding your current portfolio. You already know what makes a good rental prospect and that rental properties are not passive anything. The long term income and appreciation can be tremendous as well as a nice diversification. If I were you I'd go for it when the market cools off a bit.

[Pixel]

In my opinion you are exactly the type who would likely be successful in expanding your current portfolio. You already know what makes a good rental prospect and that rental properties are not passive anything. The long term income and appreciation can be tremendous as well as a nice diversification. If I were you I'd go for it when the market cools off a bit.

Thanks for the reassuring words StateOfMyHead! And ITA about waiting a bit...I'm hoping the market will cool within the next few months.

[Ripley]

I have the same FOMO, I live in a HCOL area, and I can't buy anything around here as a rental. But I do own my own home.
What is the 3 fund approach?
Very new here.