Possible Real Estate Portfolio In The Future

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MrF
Posts: 1
Joined: Fri Jul 30, 2021 9:50 am

Possible Real Estate Portfolio In The Future

Post by MrF »

Thank you in advance to anyone who takes the time to respond here. This forum has been a great help to me. I also apologize in advance for the wall of text to follow.

I am a 30 year old finance professional. I have a high savings rate, and split my investments between cash/i-bond reserves (~2 years expenses) with the rest in total market equity index funds. I utilize all retirement tax shelters available to me. For the first ~7 years of my career this has served me well. This will continue to be a mainstay plan for me going forward (please assume I am considering anything below only after continuing to max out retirement tax shelters with index funds).

I anticipate my savings rate will remain high. Hopefully my investments will grow as well. I am interested in investing in real estate at some point in the future, perhaps beginning 5 years from now. My goal is to build a portfolio composed of primarily stocks, real estate, and US gov short term bills/cash reserves. This has always been my plan. The appeal here is to potentially complement the generally good but volatile equity returns with real estate returns which will hopefully also be good and perhaps have a non-1 to 1 correlation with moves in the stock portfolio.
My view on cash reserves/short term gov bonds is very much safety first. These are to avert short term liquidity constrained disasters.

The reason I am invested heavily in equities, plus reserves, but no real estate so far is that the initial learning curve for real estate is steep and dollar amounts involved with real estate are in large chunks.

I have been to real estate focused forums to research these sort of first-timer issues. They appear to be chock full of moderate income folks who have done well to save up a good chunk of money, say $50k, and are now eager to lever that 5 to 1 in their first real estate investment. Real estate appeals to them as it’s tangible and more familiar than publicly traded securitized assets. The level of outright enthusiasm on these forums is off-putting and strikes me as naive. I am coming here to seek advice instead, as I think I’m more likely to receive advice than cheerleading. I’d like to hear Bogleheads’ thoughts on this too, specifically, as I am considering this as a portion of my portfolio otherwise comprised of index funds per the standard advice given here.

I am in almost the opposite situation as the hypothetical new real estate investor above. I am very comfortable with financial markets as it was both my academic interest and is now my profession. I am less familiar with real estate investing, as I do not have family involved in real estate investing. I have a good income, high savings rate and while I would like to utilize leverage, this will be a smaller portion of my portfolio than the hypothetical person above. Imagine a situation in which I am roughly 35-37 years old, have roughly 1M in liquid investments, and would consider using $50k levered into a $150k property (down payment plus initial repairs/reserves). This is a somewhat realistic scenario for me and the sort of situation I’d like advice on. This would also be many years down the line, so please take that into account. I am not super concerned with the recent run up in real estate prices as I’m not considering rushing into this for several years in any case.

The ultimate goal would be to invest in one property with leverage, but low portfolio-wide leverage, stabilize the investment, and grow the real estate portfolio from there with subsequent savings, alongside my stock portfolio.

Has anyone here followed a similar path? I would love to hear from anyone who:

Entered into real estate without prior experience working with investors in their immediate family
Entered into real estate investing after building up substantial assets
Have successfully climbed the learning curve as a non-real estate (beforehand) professional
Successfully built a real estate portfolio utilizing property management and contractors from the get-go (I do not pretend to be a handy man)

Again, thank you to all who will read and respond to this. A special thanks to those many years my senior for their time and effort sharing their wisdom on this forum.
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retired@50
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Re: Possible Real Estate Portfolio In The Future

Post by retired@50 »

MrF wrote: Thu Sep 23, 2021 10:48 pm Has anyone here followed a similar path? I would love to hear from anyone who:

Entered into real estate without prior experience working with investors in their immediate family
Entered into real estate investing after building up substantial assets
Have successfully climbed the learning curve as a non-real estate (beforehand) professional
Successfully built a real estate portfolio utilizing property management and contractors from the get-go (I do not pretend to be a handy man)

Again, thank you to all who will read and respond to this. A special thanks to those many years my senior for their time and effort sharing their wisdom on this forum.
I haven't followed any of the paths you outline above, but I've known several people in my life who do own rental real estate as a small or large part of their overall investment portfolio.

Here are links to a couple of my posts in other threads on this topic.
viewtopic.php?p=6197472#p6197472

viewtopic.php?p=5847144#p5847144

In my view, not being handy, and using property managers and contractors from the get-go will create more challenges.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Sandtrap
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Joined: Sat Nov 26, 2016 5:32 pm
Location: Hawaii No Ka Oi - white sandy beaches, N. Arizona 1 mile high.

Re: Possible Real Estate Portfolio In The Future

Post by Sandtrap »

retired@50 wrote: Thu Sep 23, 2021 11:30 pm
MrF wrote: Thu Sep 23, 2021 10:48 pm Has anyone here followed a similar path? I would love to hear from anyone who:

Entered into real estate without prior experience working with investors in their immediate family
Entered into real estate investing after building up substantial assets
Have successfully climbed the learning curve as a non-real estate (beforehand) professional
Successfully built a real estate portfolio utilizing property management and contractors from the get-go (I do not pretend to be a handy man)

Again, thank you to all who will read and respond to this. A special thanks to those many years my senior for their time and effort sharing their wisdom on this forum.
I haven't followed any of the paths you outline above, but I've known several people in my life who do own rental real estate as a small or large part of their overall investment portfolio.

Here are links to a couple of my posts in other threads on this topic.
viewtopic.php?p=6197472#p6197472

viewtopic.php?p=5847144#p5847144

In my view, not being handy, and using property managers and contractors from the get-go will create more challenges.

Regards,
Well said.
Great points.

+++++1
R/E Residential Income Property, if not just 1 or 2 small rentals using a property manager and having a well paying wage job and not wanting anything more can be done. But, wanting to expand and grow larger demands approaching R/E as a "business" and as a "business person" with deep skills and broad knowledge in "all aspects" of the "business" to be able to do it really well instead of marginally or "just okay".

j :D
Wiki Bogleheads Wiki: Everything You Need to Know
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Sandtrap
Posts: 19582
Joined: Sat Nov 26, 2016 5:32 pm
Location: Hawaii No Ka Oi - white sandy beaches, N. Arizona 1 mile high.

Re: Possible Real Estate Portfolio In The Future

Post by Sandtrap »

MrF wrote: Thu Sep 23, 2021 10:48 pm Thank you in advance to anyone who takes the time to respond here. This forum has been a great help to me. I also apologize in advance for the wall of text to follow.

I am a 30 year old finance professional. I have a high savings rate, and split my investments between cash/i-bond reserves (~2 years expenses) with the rest in total market equity index funds. I utilize all retirement tax shelters available to me. For the first ~7 years of my career this has served me well. This will continue to be a mainstay plan for me going forward (please assume I am considering anything below only after continuing to max out retirement tax shelters with index funds).

I anticipate my savings rate will remain high. Hopefully my investments will grow as well. I am interested in investing in real estate at some point in the future, perhaps beginning 5 years from now. My goal is to build a portfolio composed of primarily stocks, real estate, and US gov short term bills/cash reserves. This has always been my plan. The appeal here is to potentially complement the generally good but volatile equity returns with real estate returns which will hopefully also be good and perhaps have a non-1 to 1 correlation with moves in the stock portfolio.
My view on cash reserves/short term gov bonds is very much safety first. These are to avert short term liquidity constrained disasters.

The reason I am invested heavily in equities, plus reserves, but no real estate so far is that the initial learning curve for real estate is steep and dollar amounts involved with real estate are in large chunks.

I have been to real estate focused forums to research these sort of first-timer issues. They appear to be chock full of moderate income folks who have done well to save up a good chunk of money, say $50k, and are now eager to lever that 5 to 1 in their first real estate investment. Real estate appeals to them as it’s tangible and more familiar than publicly traded securitized assets. The level of outright enthusiasm on these forums is off-putting and strikes me as naive. I am coming here to seek advice instead, as I think I’m more likely to receive advice than cheerleading. I’d like to hear Bogleheads’ thoughts on this too, specifically, as I am considering this as a portion of my portfolio otherwise comprised of index funds per the standard advice given here.

I am in almost the opposite situation as the hypothetical new real estate investor above. I am very comfortable with financial markets as it was both my academic interest and is now my profession. I am less familiar with real estate investing, as I do not have family involved in real estate investing. I have a good income, high savings rate and while I would like to utilize leverage, this will be a smaller portion of my portfolio than the hypothetical person above. Imagine a situation in which I am roughly 35-37 years old, have roughly 1M in liquid investments, and would consider using $50k levered into a $150k property (down payment plus initial repairs/reserves). This is a somewhat realistic scenario for me and the sort of situation I’d like advice on. This would also be many years down the line, so please take that into account. I am not super concerned with the recent run up in real estate prices as I’m not considering rushing into this for several years in any case.

The ultimate goal would be to invest in one property with leverage, but low portfolio-wide leverage, stabilize the investment, and grow the real estate portfolio from there with subsequent savings, alongside my stock portfolio.

Has anyone here followed a similar path? I would love to hear from anyone who:

Entered into real estate without prior experience working with investors in their immediate family
Entered into real estate investing after building up substantial assets
Have successfully climbed the learning curve as a non-real estate (beforehand) professional
Successfully built a real estate portfolio utilizing property management and contractors from the get-go (I do not pretend to be a handy man)


Again, thank you to all who will read and respond to this. A special thanks to those many years my senior for their time and effort sharing their wisdom on this forum.
Considerations:
(lst addressing in order the above highlights).
1. You're in a great position and age to consider this. But how to do it and not fall into a hole/debt is another thing. You're also in a complimentary profession which will work great for you.
1b. You don't plan to quit your "day job" which is sensible and mature and logical.
2. How much you build up your cash reserves over the next 5 years if vital. "leveraging" to invest in R/E is a potential "hole digger/debt" so that minimizes that. Also, R/E and other personal business investments require working capital and cash reserves so you are not negative in cash flow monthly, etc, IE: working your day job to pay for your side job.
2b. That you have a long range plan is better than getting over excited and jumping into one frying pan to another.
2c. Do not confuse and assume that R/E is any less volatile than equities. They are just different and comparisons are odious. The financial risks for either are large in many respects. And, IE: an Index equity fund can or cannot be more known than a R/E investment (or a tenant, or a tenant lawsuit).
3. Yes. The learning curve for R/E residential income property investing with the intent of growing it as a business and doing well is very steep and the penalties for messing up, even steeper and long lasting. IE: there are many that will get a HELOC to invest in a rental and stay in debt with a "boat anchor" property forever.
4. The path of R/E residential or commercial income property investing is paved with those pursuing "easy money" and forums may have some jewels of knowledge and experience but in general the waters are muddy and cloudy and the currents of uninformed and inexperienced enthusiasm (greed and excitement) make it even worse. Far better to find a mentor in a family member or dear friend with no interest in your money and only your best interests, that has "done it" and "knows the path". IE: 20 high rise apartment buildings and condo's and started out as a grocery clerk making $1.25 an hour.
5. Your mention of leveraging and your hypothetical investing numbers read right out of the "fiction" book, "Rich Man Poor Man" by Kiyosaki (who makes a ton of $ on books and seminars and consulting). Delete everything you mention here. It sounds good to everyone. But, that's not it.
6. Yes yes. You have a good grasp of finance. Great.
Think of adding R/E residential income property (cash flow and assets and tax advantages) as the 3rd leg in the "three legged stool" of a long term comprehensive personal investment finance portfolio which includes; a "bogle" 3-4 fund low cost index fund portfolio, R/E income property, and funds and assets (later also SS and pension, etc) outside of those two.
So, you are diversified in assets, income stream, etc.
7. Yes. Have done everything on your list and more. Owned R/E residential income properties, high rises, etc, commercial G.C. company, property management company, and initial Degree in business/finance and worked in the Finance industry, etc. etc.
8. I think I covered your list above.

Suggestion: Read in softcover: "Millionare Next Door" (amazon.com).

*** Do You Have A Business Plan?

I hope this is helpful to you
PM me as you wish (your questions need more space than this thread and forum guidelines and moderationsss). or if your post is locked.
j :D

dis laimer: zillions of paths and zillions of options on zillions of things with zillions of opinonions and so forth.
apologies for grammer and spelling erors: Good English is my second language.
Last edited by Sandtrap on Fri Sep 24, 2021 6:18 pm, edited 1 time in total.
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toomanysidehustles
Posts: 585
Joined: Tue Oct 06, 2020 10:09 am

Re: Possible Real Estate Portfolio In The Future

Post by toomanysidehustles »

MrF wrote: Thu Sep 23, 2021 10:48 pm Entered into real estate without prior experience working with investors in their immediate family
Entered into real estate investing after building up substantial assets
Have successfully climbed the learning curve as a non-real estate (beforehand) professional
Successfully built a real estate portfolio utilizing property management and contractors from the get-go (I do not pretend to be a handy man)
I got into real estate from a business ownership perspective. I'm in a small business owners group and all of the owners were basically telling me in order to take my wealth to the next level I need to own my real estate and rent it back to my business. The tax benefits are substantial. I had a solid mid-6 figure investment account at the time but my business-owned assets and inventory was worth over a million. My venture into real estate became a business need, as well as a way to minimize our tax burden. I did work for a builder in college (so I am fairly handy) but we do hire out some of the work now that our business is making good money. We did a remodel on our home a while back and that launched us into the fray of being "in" with a good plumber, HVAC guy, trim carpenter, tile guy, etc..

A lot of my friends and people in my circle got into real estate in three ways:
1. Kept their original house and rented it out long term after they upgraded to a bigger house
2. Bought a ski condo/townhouse/house (vacation rental) and rent it out short term when they are not using it
3. Did like me and got into real estate as a business need

It sounds like you are purely investment, so I would look for turn-key style rentals that have high appreciation potential and high cash flow potential. I don't own a ski condo (yet) they are good way into high appreciation and cash flow (insert beach rental here too) and there are many good property managers that will do everything. Keep in mind though a good property manager will take 20-35%. The good ones that take 35% might only manage 60 properties but they take a higher % for a reason.

One guy in my small business group just sold two single family homes and is getting into multifamily syndications. These are the most passive forms of real estate investment and offer really good returns. https://www.youtube.com/watch?v=OkhUg-n0e2g&t=1073s is a good starter video I watched recently. (fast forward to 8 minutes) - This might be a good way to get started for you, invest in a syndication.
Gibby45
Posts: 68
Joined: Sun Nov 04, 2018 9:55 am

Re: Possible Real Estate Portfolio In The Future

Post by Gibby45 »

I followed a similar path to the one you describe. I don't use property managers and I am not handy AT ALL. I just use tenant software that allows the tenants to notify me if there is a maintenance issue and then I pick up the phone and call someone to fix it. All rent is paid online.

What are your rental portfolio goals? Do you want to invest in SFHs, condos, commercial properties? Do you want to invest locally? If so, you might be consider buying a property, living in it for a year, renting it out and then repeating until you have a portfolio the size you want. You can qualify for owner occupied interest rates by using that method and qualify for lower down payments. If you buy a property as an investment property, you will need to put down at least 25%.

There's only so much research you can do. You should figure out what type of neighborhoods you want to invest in, learn how to run the numbers and then take the plunge when a property fits those parameters. You can join forums like Bigger Pockets or your local REIA (or the REIA for your preferred market) to meet people in similar situations. It shouldn't take you 5 years if money isn't the obstacle. Focus on your target market, learn your target market, look at properties that come up for sale, estimate what you believe the home will sell for, check and see how close you are. Once you are good at assessing value, go for it. Experience will be your best teacher.
Chip
Posts: 3994
Joined: Wed Feb 21, 2007 3:57 am

Re: Possible Real Estate Portfolio In The Future

Post by Chip »

Hi, and welcome!

I suggest reading denovo's thread here: viewtopic.php?f=2&t=226980

Go into this with your eyes wide open. Here are some threads where things didn't go well:

viewtopic.php?f=2&t=140526
viewtopic.php?t=191039
User avatar
Wiggums
Posts: 7027
Joined: Thu Jan 31, 2019 7:02 am

Re: Possible Real Estate Portfolio In The Future

Post by Wiggums »

Gibby45 wrote: Fri Sep 24, 2021 12:14 pm I followed a similar path to the one you describe. I don't use property managers and I am not handy AT ALL. I just use tenant software that allows the tenants to notify me if there is a maintenance issue and then I pick up the phone and call someone to fix it. All rent is paid online.

What are your rental portfolio goals? Do you want to invest in SFHs, condos, commercial properties? Do you want to invest locally? If so, you might be consider buying a property, living in it for a year, renting it out and then repeating until you have a portfolio the size you want. You can qualify for owner occupied interest rates by using that method and qualify for lower down payments. If you buy a property as an investment property, you will need to put down at least 25%.

There's only so much research you can do. You should figure out what type of neighborhoods you want to invest in, learn how to run the numbers and then take the plunge when a property fits those parameters. You can join forums like Bigger Pockets or your local REIA (or the REIA for your preferred market) to meet people in similar situations. It shouldn't take you 5 years if money isn't the obstacle. Focus on your target market, learn your target market, look at properties that come up for sale, estimate what you believe the home will sell for, check and see how close you are. Once you are good at assessing value, go for it. Experience will be your best teacher.
real estate investments can be really good, if you are in the right markets. As with any investment, there are good times and bad times. Your response is an example of the way I would do it, but it’s definitely not for everyone.
"I started with nothing and I still have most of it left."
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