BMW Garage BMW Meets Register Search Today's Posts Mark Forums Read
BIMMERPOST Universal Forums Off-Topic Discussions Board Real Estate Investing Question

Post Reply
 
Thread Tools Search this Thread
      03-06-2024, 07:31 PM   #1
bimmer456
Major General
2938
Rep
5,983
Posts

Drives: 340i
Join Date: Nov 2016
Location: Pasadena, CA

iTrader: (0)

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.
Appreciate 0
      03-06-2024, 08:20 PM   #2
BRAKE!
First Lieutenant
834
Rep
318
Posts

Drives: 718 GT4
Join Date: Aug 2021
Location: USA

iTrader: (0)

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)
Appreciate 0
      03-06-2024, 08:49 PM   #3
chassis
Colonel
chassis's Avatar
6374
Rep
2,283
Posts

Drives: 9Y0 Cayenne S
Join Date: Mar 2019
Location: Einbahnstraße

iTrader: (0)

Garage List
Quote:
Originally Posted by bimmer456 View Post
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.
You are squarely touching on two of the principal reasons real estate is not a good investment:

1. Illiquidity
2. Inferior return vs alternatives
Appreciate 1
xander_g962.50
      03-07-2024, 05:22 PM   #4
TboneS54
YNWA
TboneS54's Avatar
United_States
990
Rep
791
Posts

Drives: 2004 M3 6spd & 2011 M3 DCT
Join Date: Nov 2009
Location: SoCal

iTrader: (2)

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.
__________________
/// 2004 Silvergrey M3 · Coupe · 6MT · Slicktop · zero options
/// 2011 Jerez/Bamboo E90 M3 · DCT · Slicktop · IG: @na.s54
Appreciate 2
      03-08-2024, 10:36 PM   #5
Reborn_
Lieutenant
292
Rep
408
Posts

Drives: 2007 BMW Z4MC
Join Date: Dec 2014
Location: SoCal

iTrader: (7)

Quote:
Originally Posted by TboneS54 View Post
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.
I have yet to find a bank that will give me a HELOC for my rental. If you have one, please do share!
Appreciate 0
      03-09-2024, 08:11 AM   #6
ASAP
Major General
ASAP's Avatar
10050
Rep
8,560
Posts

Drives: '23 X3 M40i
Join Date: Sep 2012
Location: FL

iTrader: (0)

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.
__________________
2 x N54 -> 1 x N55 -> 1 x S55-> 1 x B58
Appreciate 2
chassis6373.50
vreihen1614883.50
      03-09-2024, 12:45 PM   #7
chassis
Colonel
chassis's Avatar
6374
Rep
2,283
Posts

Drives: 9Y0 Cayenne S
Join Date: Mar 2019
Location: Einbahnstraße

iTrader: (0)

Garage List
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.
Appreciate 0
      03-09-2024, 03:21 PM   #8
eliphil
Lieutenant
eliphil's Avatar
1732
Rep
511
Posts

Drives: M550I
Join Date: Dec 2021
Location: East Coast

iTrader: (0)

Like many other investments real estate at times comes down to timing and location. If you do both right it can be a great piece of a portfolio.
Appreciate 1
chassis6373.50
      03-09-2024, 06:09 PM   #9
chassis
Colonel
chassis's Avatar
6374
Rep
2,283
Posts

Drives: 9Y0 Cayenne S
Join Date: Mar 2019
Location: Einbahnstraße

iTrader: (0)

Garage List
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..
Appreciate 1
vreihen1614883.50
      03-10-2024, 12:21 PM   #10
bimmer456
Major General
2938
Rep
5,983
Posts

Drives: 340i
Join Date: Nov 2016
Location: Pasadena, CA

iTrader: (0)

Quote:
Originally Posted by ASAP View Post
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.
Yeah cash makes more sense but only if net monthly income is $10k or more per million invested.
Appreciate 0
      03-10-2024, 04:29 PM   #11
chassis
Colonel
chassis's Avatar
6374
Rep
2,283
Posts

Drives: 9Y0 Cayenne S
Join Date: Mar 2019
Location: Einbahnstraße

iTrader: (0)

Garage List
Quote:
Originally Posted by bimmer456 View Post
Yeah cash makes more sense but only if net monthly income is $10k or more per million invested.
12% annualized return? Is this what you are saying?
Appreciate 0
      03-10-2024, 10:09 PM   #12
MisanoblueZ4
Lieutenant
MisanoblueZ4's Avatar
1234
Rep
527
Posts

Drives: 2021 Z4 M40I
Join Date: Sep 2023
Location: South Carolina

iTrader: (0)

Depreciation gets all paid back once the investment rental home gets sold. You will owe a lot when selling plus capital gains.
Appreciate 0
      03-10-2024, 10:17 PM   #13
M4Tejas
Lieutenant
M4Tejas's Avatar
721
Rep
448
Posts

Drives: 22 G82 M4xDrive
Join Date: Jan 2022
Location: Fort Worth

iTrader: (1)

Lightbulb

Quote:
Originally Posted by bimmer456 View Post
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.


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 $$$.
__________________

2022 M4 Comp xDrive Aventurin Red Metallic

https://wieninger.de/ Seit 1666
Appreciate 0
      03-11-2024, 07:15 AM   #14
BRAKE!
First Lieutenant
834
Rep
318
Posts

Drives: 718 GT4
Join Date: Aug 2021
Location: USA

iTrader: (0)

Quote:
Originally Posted by M4Tejas View Post
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 $$$.
All true. The only way to make this truly a passive income source is to invest in REITs. Otherwise, owning a property is anything but passive…
Appreciate 0
      03-13-2024, 08:46 AM   #15
M4Tejas
Lieutenant
M4Tejas's Avatar
721
Rep
448
Posts

Drives: 22 G82 M4xDrive
Join Date: Jan 2022
Location: Fort Worth

iTrader: (1)

Lightbulb

Quote:
Originally Posted by BRAKE! View Post
All true. The only way to make this truly a passive income source is to invest in REITs. Otherwise, owning a property is anything but passive…
After rallying in late 2023, REITs have sold off again and given up a good portion of their gains. Some of them are down back to where they were in the Fall of 2023 and are down up to 50% in total …

https://seekingalpha.com/article/467...reit-investors
__________________

2022 M4 Comp xDrive Aventurin Red Metallic

https://wieninger.de/ Seit 1666
Appreciate 0
      03-13-2024, 10:02 AM   #16
Chihuahua
Brigadier General
Chihuahua's Avatar
4011
Rep
3,169
Posts

Drives: E30 329iS, E65 Alpina B7
Join Date: May 2012
Location: ATL

iTrader: (0)

Quote:
Originally Posted by M4Tejas View Post
After rallying in late 2023, REITs have sold off again and given up a good portion of their gains. Some of them are down back to where they were in the Fall of 2023 and are down up to 50% in total …

https://seekingalpha.com/article/467...reit-investors
Have a good friend currently getting pwnd in REITs right now, he told me yesterday 'never again'.
Appreciate 1
M4Tejas720.50
      03-13-2024, 10:32 AM   #17
UncleWede
Long Time Admirer, First Time Owner
UncleWede's Avatar
United_States
17873
Rep
9,376
Posts

Drives: G01 X3 M40i Dark Graphite
Join Date: Jun 2005
Location: Oxnard, CA

iTrader: (0)

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?
__________________
I have romped on her and I giggled like a drunk infant the entire time. - Sedan_Clan
Appreciate 0
      03-23-2024, 12:33 AM   #18
W Cole
Major
145
Rep
1,130
Posts

Drives: 2009 M3
Join Date: Dec 2010
Location: Newport Coast, CA

iTrader: (5)

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.
Appreciate 0
Post Reply

Bookmarks

Thread Tools Search this Thread
Search this Thread:

Advanced Search

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off



All times are GMT -5. The time now is 07:39 AM.




bmw
Powered by vBulletin® Version 3.8.11
Copyright ©2000 - 2024, vBulletin Solutions Inc.
1Addicts.com, BIMMERPOST.com, E90Post.com, F30Post.com, M3Post.com, ZPost.com, 5Post.com, 6Post.com, 7Post.com, XBimmers.com logo and trademark are properties of BIMMERPOST