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Earlier quoted context omitted.
In hindsight, was it worth it compared to just investing all that money into the S&P500?
I think that's his point; that 5% returns aren't actually that great.
So, about renting, I bought a single family home for $500k in bay area. It now is worth $1M. Gets me rent before expenses of $40000. So far, I have spent about $5k per year on. Repairs etc. So effectively, I make about $20k after taxes, repairs, mortgage interest etc. Overall, I spent $350k by way of downpayment, mortage interest payment, etc. No major tenant issues. Hence, I would peg my return on investment of 5% i…
1. Rare but highly expensive major expenses like a new roof, new heating system, etc. It's like a tail risk- you don't pay for it most years, but when it comes up, it costs a lot.
2. Required renovations- just to stay at your current level of quality. I.e. let's say you rent to normal middle class tenants now. In 10-15 years, you'll need to install a new kitchen, new bathroom, overall maintenance- just to stay at a middle class level. The building is constantly depreciating! So unless you intend to move economically downscale and rent to lower income folks, to stay 'middle class' you'll need to refresh the building every decade or two. No one wants an ancient kitchen, a decrepit bathroom from three presidents ago, etc.
So you have to factor those two major expenses into your total rate of return over the decades. How much is a new roof, a new heating system, that new kitchen, that new bathroom.... You may not see these expenses every year, so you don't feel like they count, but over the decades they will.
Source, am actually familiar with the true rate of return for properties over a long enough time span to judge. A 1-3 year snapshot isn't sufficient!
It's not a bad way to earn an income, but it really requires a lot of capitol to get started and earn enough to be worth it. Once you have enough units to sustain yourself you'll invest a decent amount of time keeping the whole operation going.
Edit:
Some people are pointing out you can use a property manager as a middle man to keep your involvement to a minimum. This is true but they will cut into your profits, which may or may not work for you depending on your margins. But it might make sense to go this route if you have minimal time or many units to manage.
For me this is investing in property but without the hassle of long term maintenance. You don't own the property but it's much more hassle free and fairly passive as long as you pick which things you'd like to invest into.
Services I've personally invested in and would vouch for: - https://www.kuflink.com/ - https://www.loanpad.com/ - https://www.lendingworks.co.uk/ - https://www.abundanceinvestment.com/
You might like to try out some peer to peer loan based investments if you're after some fairly passive gains.
So, about renting, I bought a single family home for $500k in bay area. It now is worth $1M. Gets me rent before expenses of $40000. So far, I have spent about $5k per year on. Repairs etc. So effectively, I make about $20k after taxes, repairs, mortgage interest etc. Overall, I spent $350k by way of downpayment, mortage interest payment, etc. No major tenant issues. Hence, I would peg my return on investment of 5% i…
And that can quickly disappear for those who end up with tenants that don't pay and can't be evicted.
Compound will give you a risk-free 6.3% APY (other than the risk of smart contracts) on USDC (digitized dollars) https://compound.finance/markets/USDC
As another poster already said, being a landlord is not 'passive'- you are essentially buying a part time job with no set off hours. The heat could go out on Christmas Eve, while you're on vacation, etc. It is a highly regulated (especially in blue states) field involving, you know, actual human beings! Anyone advocating for being a landlord as a 'passive' investment vehicle is generally some type of Trump University…
With that said, depending on the property manager, they will do some of the following: find tenants, place tenants, evict tenants, collect rent, find contractors/repairperson to fix issues, etc.
The property manager makes it mostly passive but probably an hour a month of work if that.
So, about renting, I bought a single family home for $500k in bay area. It now is worth $1M. Gets me rent before expenses of $40000. So far, I have spent about $5k per year on. Repairs etc. So effectively, I make about $20k after taxes, repairs, mortgage interest etc. Overall, I spent $350k by way of downpayment, mortage interest payment, etc. No major tenant issues. Hence, I would peg my return on investment of 5% i…
Compound will give you a risk-free 6.3% APY (other than the risk of smart contracts) on USDC (digitized dollars) https://compound.finance/markets/USDC