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Real Estate vs Land vs REITs?

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  • Real Estate vs Land vs REITs?

    Greetings all,
    We have been contemplating about investing in real estate, land or continuing on our current investments of REITs.

    We are currently in our mid 30s and have been very fortunate, doing well for ourselves. We have a stable 600k income and only mortgage debt. We have been investing currently by maxing our our 403b/457b and placing the rest in taxable income. We have maintained a ratio of 50% domestic stocks, 25% international stocks, 10% REITs and 15% bonds. We have a goal of early retirement in 10-15 years.

    I have given much recent contemplation over purchasing single-family homes for rental income as a way of diversifying my portfolio with a plan to have the properties operated by a manager. Unfortunately I don't have much handyman skills to take care of operational issues on my own. I would plan on this at least replacing my REIT portfolio.

    Secondarily, I have also given much thought about purchasing 80 acres of land near our home. 50 acres is agriculture and would produce a agriculture land rental from a local farmer. 15 acres is pine woods that we would be able to harvest. I would also plan on this replacing my REIT portfolio but I would see it as more of the "bonds" of real estate compared to the perhaps higher earning but more labor intensive option of single-family homes. Additionally, it would provide some hunting land for deer season.

    Lastly, we could simply continue the course with our current portfolio and continue the course.

    Out of the three options, I have been leaning toward the second option of buying and renting the land. Your advice is always appreciated!

  • #2
    Agree if you're not a handyman, owning multiple single family homes for rent could get expensive when the inevitable repairs/upgrade needs come up.  I can't really comment on the land investment.  Seems like it might be an easy deal since you wouldn't have structures to be responsible for, but I'm clueless as to how to judge this from an investment standpoint.

    I personally like having REIT index funds (VNQ).  Broad exposure to lots of different real estate options seems less risky to me than owning individual properties.  And if they continue to behave as they have in the past, I'd be happy with the rate of return.  It requires zero effort on my part other than buying shares and holding.

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    • #3
      Timber land and hunting leases can work out very favorably.  However, either you or someone you trust needs to be close enough to make sure that someone doesn't log timber from an absentee landlord or trespass during hunting season (or poach outside of hunting season) and cause all sorts of trouble.

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      • #4
        All very different choices. Agricultural leases can work out nicely and should have excellent longevity. Single family homes are a great way to invest in direct real estate ownership, but it is time intensive and has significant vacancy risk. Multi- family housing mitigates the vacancy risk, and due to economies of scale can allow for professional management. REIT's are of course real estate stocks, and are not direct ownership in real estate.

        I'm sure you have calculated the ROI on the land deal, and if it is favorable net of taxes it could work out nicely, especially if you choose to hunt on it as well. I would view that more as a "use investment" rather than a strong cash flowing entity. However, I have no idea what cash flow you could generate on a 50 acre farming lease. If you are going to hunt it, why cut the timber????

        The single family home deal can also work out nicely, but you have to buy right, or repairs, maintenance and vacancies will eat your profit up. Appreciation and amortization are nice, but not when you are cash flow negative at times. If you buy right, select good properties and work out some deal with a local handyman, then it can be great. Most of the busy Docs I hang with have no time for that, we go to commercial deals, whether it be multifamily (my fav)or office. Conservative cash on cash returns can be excellent and for a large part predictable. I tend to use large syndicated groups for the bulk of my investing. Just my opinion.

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        • #5
          If you can find someone to rent the land (for whatever purpose), it may work. I've seen it done where the land is sold and owner financed to someone just wanting a small piece of land mainly for survivalists. Currently looking into the possibility of land in my niche of mobile home investing. Good luck!

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          • #6
            I am a previous owner of some agricultural land.  It is very common for farmers to rent land for crops and cattle.  This type of land use and costs varies greatly in different areas of the country.  If you you clear cut the timber you have no hunting area.  You really need to supervise anyone you hire to selectively cut the timber.

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