03-06-2024, 07:31 PM | #1 |
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Real Estate Investing Question
So let me say I know someone who sold a house in San Gabriel, CA for $1 million and then used that money to buy 2 brand new construction houses in Las Vegas. He is renting out the houses for a total of $4000 a month. To me it's not worth it since you have to pay property tax, insurance, HOA, property management. So my estimate is net profit of around $1700 a month and you would have to pay income tax on that so maybe $1300 after tax. That's a whole lot of cash for relatively little in monthly income cash flow. You could just put that $1 million in an annuity and get $5000-$7000 a month with no expenses besides income tax. Or even a high yield savings account will get you around $3300 a month. Not to mention the house he sold must have had a much lower property tax basis so now his property tax may have doubled. And houses in CA are going to appreciate more than in Vegas unless you're talking about the inland empire maybe.
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03-06-2024, 08:20 PM | #2 |
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But he can continue to depreciate his property (for tax reasons), collect rent, build up equity in the 2 properties he has, and have a secondary income stream.
However, as you mentioned, to assess whether a real estate deal is worth it or not, he should consider what the 10 year treasury note yield is and make sure that his real estate deal will bring in a realized yield higher than this. Otherwise, why take the risk of doing this vs getting a sure rate from the treasury note with zero risk? Lastly, he may have bought a new property as opposed to using that money for other investment vehicles because buying a new property allows tax to be deferred through a 1031 exchange (and I can’t imagine the taxes due on $1M in California) |
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03-06-2024, 08:49 PM | #3 | |
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1. Illiquidity 2. Inferior return vs alternatives |
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03-07-2024, 05:22 PM | #4 |
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Real property investments provide multiple benefits, not just profit from rents.
Appreciation Tax shelter (business) Increased equity through loan principal repayment (greater farther into the loan ofc) And flexibility. God forbid, but you have another house you could move to if needed. Also an ATM that be tapped into (HELOC) for other investments, emergency, improvements.
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03-08-2024, 10:36 PM | #5 | |
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03-09-2024, 08:11 AM | #6 |
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with current interest rates, there are far better investments than buying a property to rent... if you are buying a house to live in and are within your budget, that's a different story...
There are 3 key things that were never focused on by all of the Instagram real estate investors of the last 10 years- 1) Low interest rates made it easy to cash flow while properties were still cheap. 2) Liquidity was almost something that was forgotten... the amount of people that I knew that got hosed because they couldn't find renters and couldn't make the payments themselves was huge. 3) Taxes, insurance and all maintenance costs have gotten up tremendously since the pandemic.
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03-09-2024, 12:45 PM | #7 |
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Compared with equities (stocks) I can see no advantages at all to direct ownership of residential single family real estate. I can see almost no advantage of direct ownership of residential multi-family real estate.
Commercial real estate is a different animal. |
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03-09-2024, 06:09 PM | #9 |
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Just listened to a Masters in Business podcast with Barry Ritholtz, interviewing Sean Dobson, CEO of Amherst Holdings, an investment company in residential and commercial real estate.
Commercial real estate has 10%-15% economic vacancy, meaning that much space is not under lease. CRE has 50% physical occupancy, meaning that much space is actually physically used on a given day. Said differently, CRE has 50% vacancy on a given day. Last, physical vacancy is a leading indicator of economic vacancy. CRE is in rough waters now, and this will not change soon. Residential RE is a nightmare as noted in previous posts. Exceptions have always, and will always, exist. Not an attractive place to put my capital. Last edited by chassis; 03-10-2024 at 04:28 PM.. |
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03-10-2024, 12:21 PM | #10 | |
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03-10-2024, 04:29 PM | #11 |
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03-10-2024, 10:17 PM | #13 | |
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You have to be concerned with rent payments. I had 2 houses in Austin and one renter stopped paying. It takes months to remove them. In addition there was some damage to the property. Never again…….its a krap shoot and I am too old now to #uck with it. YMMV. Depending on factors, you can make good money flipping……cars and homes, with the right demographic $$$.
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03-11-2024, 07:15 AM | #14 | |
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03-13-2024, 08:46 AM | #15 | |
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https://seekingalpha.com/article/467...reit-investors
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03-13-2024, 10:02 AM | #16 | |
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03-13-2024, 10:32 AM | #17 |
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I didn't re-invest 1M, but the two rental properties that came out of my father's trust and into my hands are pretty much cash cows.
Just did my taxes Monday, was really worried about these new income streams. Since they are new to me, the depreciation, plus some $ I invested to upgrade one places, means their combined ~4200/month income has no net effect on my tax. Heck, with no other changes in employment withholdings, I'm writing checks for April 15 about $2k less than last year. Nevada property taxes have to be MILES below Cali, no?
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03-23-2024, 12:33 AM | #18 |
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It makes sense if you use accelerated cost seg depreciation and write off your passive losses against your ordinary income. Continually 1031 exchange and you will never pay income taxes again.
Vegas is going to get crushed in the coming recession. Some markets have much better cap rates than others but single family resi is pretty much just a tax play. |
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