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  • #31
    What is RE? Start at the top and work your way down. Do you want to own a piece of what?
    A residential properties, commercial properties, shopping centers, home builders, suppliers?
    Tons of etf’s and companies. Oh, those are public companies. What edge do you have in RE switching to private deals? Plenty of real estate is private. Real estate is a business and needs capital investment. Go it alone and be an owner or invest in private deals.
    RE is a sector of the S&P 500 about 3%. Tell me why you can pick a private offer that will do better than the publicly traded companies individually or in an index. Most adopt RE tilt based on a feeling that land appreciates. Most won’t invest in raw land. Money is made from the development. Might be a tilt based on emotion, rather than data.

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    • #32
      Originally posted by Tim View Post
      . Tell me why you can pick a private offer that will do better than the publicly traded companies individually or in an index.
      That’s simple. Because RE is a local market. When you get to know your local area you can find niches that are way too small for the big boys and your competition is much lower. You can time it. All the things you can’t do in the stock market you can do as a local RE investor.

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      • #33
        Originally posted by Tangler View Post

        Yeah, this looks like a pretty crummy investment property.

        Correct me if I am wrong but the cap rate should be net operating income (NOI) divided by value. Not just rent, so you gotta count in expenses (maintenance, management fees, taxes, insurance, vacancies, utilities etc.) and those expenses are not going down in our inflationary times.

        I am no rental genius. In fact I stink at it, but this cap rate is even less than 0.5% because expenses need to be included.

        Long distance landlord adds expense (management fees) and headache (not there to check in on it).

        Sell boss.
        Cap Rate is purchase price/NOI. It ignores financing
        Purchase Price = 325k
        NOI =2200x12-vacancy 5%-maintenance $3000-tax/ins&5400=$16,680
        Cap Rate= 5.1%
        He has financing at 2.5% which makes his C on C > than the cap rate
        Is this a great deal, don’t know. But with new construction in Ca I wouldn’t call it a dog. I think it depends if the OP wants to be a landlord. He’s only going to be a few hours away, knows the market, so it’s a much different deal than buying a random house in Texas.


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        • #34
          Originally posted by pit.alumni View Post

          That’s simple. Because RE is a local market. When you get to know your local area you can find niches that are way too small for the big boys and your competition is much lower. You can time it. All the things you can’t do in the stock market you can do as a local RE investor.
          Exactly where the advantage is, individual ownership. I question the “too small” since PE and long time investors have been active in most metropolitan areas. Money to be made hasn’t been a barrier, cash offer sight unseen. It takes work for an individual to compete. Can be done, I agree.

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          • #35
            Originally posted by pit.alumni View Post

            Cap Rate is purchase price/NOI. It ignores financing
            Purchase Price = 325k
            NOI =2200x12-vacancy 5%-maintenance $3000-tax/ins&5400=$16,680
            Cap Rate= 5.1%
            He has financing at 2.5% which makes his C on C > than the cap rate
            Is this a great deal, don’t know. But with new construction in Ca I wouldn’t call it a dog. I think it depends if the OP wants to be a landlord. He’s only going to be a few hours away, knows the market, so it’s a much different deal than buying a random house in Texas.

            I meant to say 5% not 0.5%, typo on my part.

            I don't really care where the house is, I would not be a long distance land lord.

            I had a terrible experience renting out a prior residence and the cap rate was 6.8% .

            It seemed like an OK rental (cash flow was positive), that is until the house had a bunch of terrible stuff happen (roots in pipes, flooding of basement when a pipe busted etc. etc.

            Rent it if you want. But remember if you rent if for > 5 years you might lose your ability to sell it and not pay capital gains taxes.

            I think you must live in the home 2 out of the last 5 years to get 500k of zero capital gains on profits when you sell and so you get trapped into the 1031 exchange deal which may or may not be fine depending on how much you want to deal with this landlord stuff as a doc.

            I would just sell it and throw it in the market and move one trying to focus on being a good doc, but I am not you.

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            • #36
              Originally posted by Tim View Post
              Exactly where the advantage is, individual ownership. I question the “too small” since PE and long time investors have been active in most metropolitan areas. Money to be made hasn’t been a barrier, cash offer sight unseen. It takes work for an individual to compete. Can be done, I agree.
              Yes, and the average busy doc might be better off focusing on being a good doc rather than outsmarting the RE professionals.

              OP, who knows, you might have a knack for it. Or not.

              Distance from the property complicates this and increases your costs (thus decreasing your NOI and C on C returns).
              Last edited by Tangler; 04-26-2022, 05:35 AM.

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              • #37
                Originally posted by Tim View Post
                What is RE? Start at the top and work your way down. Do you want to own a piece of what?
                A residential properties, commercial properties, shopping centers, home builders, suppliers?
                Tons of etf’s and companies. Oh, those are public companies. What edge do you have in RE switching to private deals? Plenty of real estate is private. Real estate is a business and needs capital investment. Go it alone and be an owner or invest in private deals.
                RE is a sector of the S&P 500 about 3%. Tell me why you can pick a private offer that will do better than the publicly traded companies individually or in an index. Most adopt RE tilt based on a feeling that land appreciates. Most won’t invest in raw land. Money is made from the development. Might be a tilt based on emotion, rather than data.
                Yeah, but it is a think where the average doc who rents out prior residence might get lucky or he might get a bucket of headaches and annoyance (like I did).

                I bought a place in 2006 (terrible time to buy.....perhaps like now?) and then I moved to new area (new and better job, unexpected deal) and rented it out from 2007-2015.

                Disastrous.

                Had to fire one management company. New management company was good but the place was a disaster. Stuff breaks. Expenses pile up. Renters are tough on a place.

                I sold it for a loss in 2015 and was very pleased to be getting out of the long-distance landlord business.

                I would have done so much better had I sold if for a loss in 2007/8 and just moved on with life and then invested that money in VTI / VXUS.

                There are a lot of variables. One variable in your favor is the rate of 2-3% on the mortgage, but there will be expenses that you cannot think of right now; promise.

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                • #38
                  Originally posted by White.Beard.Doc View Post
                  If the property will be cash flow positive after paying principle, interest, property taxes, insurance, maintenance, repairs, and allowing 5% rental loss for vacancy, then you can consider holding.

                  If this is a property at a distance, you need to also factor in 10% of rent for a property manager.

                  If the property cash flows, and it is in a strong economic area with good prospects for rental demand and market appreciation, then it is reasonable to consider holding it for diversification purposes. If inflation is high, owning leveraged investment real estate is a great way to grow your wealth. Real estate investments were one of several pillars that helped us grow our net worth.
                  You sir know how to do it. You are also a lot smarter than the average young doc and certainly a lot smarter than I.

                  I will not do long distance land lord again but if I did I would try to do it like the infamous White Beard Doc.

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                  • #39
                    An experienced Real Estate doc can take one look at a property and pretty much tell . Major problems, high maintenance or minor issues and high potential? Some are really good at practicing real estate and enjoy it.

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                    • #40
                      Does it have ADU potential (remodel or put 1BR/1BA casita on property)?

                      Highly unlikely if it's only a 400k family home in Cali that it is in an area conducive to that, but that would up your rent and get it to make sense. It also adds some accountability between the tenants if you are managing from afar.

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