Anyone feel like they missed out by not buying real estate?

[NiceUnparticularMan]

From a theoretical perspective, not having a mortgage should reduce sequence of returns risk in retirement - since the success or failure of a retirement depends largely on the withdrawal rate in the first 15 or so years.

Actually, the math of Sequence of (Real) Returns Risk tends to favor having a reasonably low fixed-rate mortgage plus more in liquid savings, particularly if the savings are inflation protected, and also particularly if the mortgage terms stretches beyond the first years of retirement. This is true for a variety of reasons, including because one of the greatest sources of Sequence of (Real) Returns Risk is unexpectedly high inflation.

This is a somewhat systematic problem in these conversations, that people account for the benefits of not having mortgage payments early in retirement, but then don't compare them to the benefits of having more liquid savings early in retirement.

[bertilak]

"Anyone feel like they missed out by not buying real estate?"

Nope, because I bought some!

I overpaid for the building lot adjacent to me. There was a bidding war. I deliberately bid much higher than I thought it was worth to anyone else. It was worth more to me because it was the only property on the planet both adjacent to my property and for sale. I had my eye on it for years.

[Sax32]

As it has gone up so much, a lot of areas are up well over 50%, some over 100% in the last 2-3 years, and due to leverage those cash on cash returns are even higher, much higher actually. Is there a case for real estate as an investment?

Real estate should be viewed as a consumption good. As an investment, it's not great - a single property (or even a collection of properties) is far riskier in some ways than the stock market (e.g., neighborhood goes bad, sinkhole develops in your yard ...). It's not very liquid and transaction costs are high. And overall it really only keeps up with inflation, even though individual locales can experience much higher growth. However, the reality is that many Americans can't / don't save except for the equity they build up over time in their homes, and so we've convinced ourselves that our homes are an "investment," which often leads to consuming too much housing ("We have a 6-bedroom McMansion for a family of 4, because it's a good investment!").

First question. How much investment real estate have you owned? I've owned two rental properties in the last 10 years, I also have pensions, 401k's and Roth IRA's. I feel as though we are well diversified. 2022, was a terrible bear market year, one of the worst since the Great Recession with the Dow losing over 20%, while real estate flourished, with rents staying very high and home values out of this world with buyers out the door. We sold both rental properties and made a killing. We paid our capital gains and depreciation back and was able to come out ahead 200k. The year we first bought was 2014, the first house for 180k and sold for 375k, it also paid all of the expenses and more.
In order to be successful in real estate, you have to be hands on and love doing it. If not, stick to Reits or index funds, they are truly passive, but you have zero control in the outcome of any of the companies in your portfolio, which is why I love real estate, because I was able to get my hands dirty and do value adds which increased rents and value. I am very good at person to person relationships in the business and did very well, hope to get back into the business in the future.

[NiceUnparticularMan]

2022, was a terrible bear market year, one of the worst since the Great Recession with the Dow losing over 20%, while real estate flourished, with rents staying very high and home values out of this world with buyers out the door. We sold both rental properties and made a killing. We paid our capital gains and depreciation back and was able to come out ahead 200k. The year we first bought was 2014, the first house for 180k and sold for 375k, it also paid all of the expenses and more.

If you bought $180,000 of S&P 500 in 2014, today it is worth about $470,000. Even back in September it was worth about $411,000:

https://www.portfoliovisualizer.com/bac ... ion1_1=100

But sure, if you get things like the locale and timing right and buy low and sell high, you can get nearly stock-like returns.

If you get anything wrong you can do significantly worse.

A diversified portfolio of properties reduces the chance you will get certain things wrong with all your properties, but a localized portfolio of only a handful of properties exposes you to what is typically known as idiosyncratic risk, for which there is no expected risk premium.

But risks don't always materialize, of course, and specifically people who bought rental residences in 2014 and sold in 2022 usually did OK--not necessarily as well as stocks did, though.

[02nz]

As it has gone up so much, a lot of areas are up well over 50%, some over 100% in the last 2-3 years, and due to leverage those cash on cash returns are even higher, much higher actually. Is there a case for real estate as an investment?

Real estate should be viewed as a consumption good. As an investment, it's not great - a single property (or even a collection of properties) is far riskier in some ways than the stock market (e.g., neighborhood goes bad, sinkhole develops in your yard ...). It's not very liquid and transaction costs are high. And overall it really only keeps up with inflation, even though individual locales can experience much higher growth. However, the reality is that many Americans can't / don't save except for the equity they build up over time in their homes, and so we've convinced ourselves that our homes are an "investment," which often leads to consuming too much housing ("We have a 6-bedroom McMansion for a family of 4, because it's a good investment!").

First question. How much investment real estate have you owned? I've owned two rental properties in the last 10 years, I also have pensions, 401k's and Roth IRA's. I feel as though we are well diversified. 2022, was a terrible bear market year, one of the worst since the Great Recession with the Dow losing over 20%, while real estate flourished, with rents staying very high and home values out of this world with buyers out the door. We sold both rental properties and made a killing. We paid our capital gains and depreciation back and was able to come out ahead 200k. The year we first bought was 2014, the first house for 180k and sold for 375k, it also paid all of the expenses and more.
In order to be successful in real estate, you have to be hands on and love doing it. If not, stick to Reits or index funds, they are truly passive, but you have zero control in the outcome of any of the companies in your portfolio, which is why I love real estate, because I was able to get my hands dirty and do value adds which increased rents and value. I am very good at person to person relationships in the business and did very well, hope to get back into the business in the future.

I have owned two investment properties. The "you have to be hands on and love doing it" is one heck of a massive qualifier!

[stocknoob4111]

If you bought $180,000 of S&P 500 in 2014, today it is worth about $470,000. Even back in September it was worth about $411,000:

And the S&P 500 did not require any maintenance costs or property taxes, and you could sell it in portions, at zero transaction costs with the click of a button.

[Sax32]

If you bought $180,000 of S&P 500 in 2014, today it is worth about $470,000. Even back in September it was worth about $411,000:

Moderators delete this post please, I'm not seeing a way to do this.

[Sax32]

As it has gone up so much, a lot of areas are up well over 50%, some over 100% in the last 2-3 years, and due to leverage those cash on cash returns are even higher, much higher actually. Is there a case for real estate as an investment?

I have owned two investment properties. The "you have to be hands on and love doing it" is one heck of a massive qualifier!

Yes, because what I've learned as an investor, is that no one does a better job than me at taking care of my rentals. Management companies are reactive when it comes to forecasting problems, whereas I was in the until probably once every 3 months and could check on everything and be proactive.

[Sax32]

If you bought $180,000 of S&P 500 in 2014, today it is worth about $470,000. Even back in September it was worth about $411,000:

And the S&P 500 did not require any maintenance costs or property taxes, and you could sell it in portions, at zero transaction costs with the click of a button.

You missed the point. In 2014, we put down $50k on the duplex, not 180k. The 200k we netted was in 2022, when the Dow lost 20%. If we would have taken that 50k in 2014 and instead invested in the S&P 500, we'd had a return of 10.58% and 121k. So we did much better in real estate on that investment. Also, you missed the fact that tenants paid the principal of the mortgage, taxes, insurance, repair, etc. Also we had interest tax benefits and depeciation. The Gov't loves to give real estate investor tax breaks, just ask Donald Trump.

[bloom2708]

Nah. Real estate is always priced just out of reach.

In the late 80s we had a chance to buy a relatives lake cabin for $30k. It was on a nice lake. $30k was not chump change in 1986 for the average Joe. Now that cabin is worth $400k.

In 2011 I had a deal to buy a 4/2 in Arizona with a pool hot tub. Fully furnished for $250k. Now $250k was a good price with the furnishings, but I passed because of the hassle and ongoing cost. That house is now $550k. Maybe heading back toward 2011. Maybe not.

Part of me wishes we stayed in our original house. We had 3 kids and it only had 2 bedrooms on the top level. 4 level split. The other 2 bedrooms were 3 levels down. Hard to put a 3-4 year old that far away. So we upgraded. We'd have a lot more money if we had stayed put and I liked that house layout better than our current house.

Oh well. I am actually looking forward to not owning here in the next 5 years. Rent in a few places to try them out to stay flexible.

Over the years we probably made that 1% per year. But, the improvements and upgrades and related cost a lot of money from 1998 to today.

[NiceUnparticularMan]

In 2014, we put down $50k on the duplex, not 180k. The 200k we netted was in 2022, when the Dow lost 20%. If we would have taken that 50k in 2014 and instead invested in the S&P 500, we'd had a return of 10.58% and 121k. So we did much better in real estate on that investment. Also, you missed the fact that tenants paid the principal of the mortgage

I have $50,000 in the S&P 500 at about $130.5K as of now, although I suppose it depends on when you invested in 2014:

https://www.portfoliovisualizer.com/bac ... sisResults

You also didn't mention any closing costs or other transaction costs for the initial purchase, which should be added to your hypothetical stock investment for comparison purposes. Like, for example, if you had 5% closing costs on the $180K, that would be another $9K, and $59K invested in the S&P 500 in 2014 is now about $154K.

https://www.portfoliovisualizer.com/bac ... sisResults

But that said, it appears this was a successful use of leverage to increase your real estate returns above that of stocks. That is definitely a possibility, but of course leverage also increases the downside risk if something goes wrong instead.

Also we had interest tax benefits and depeciation. The Gov't loves to give real estate investor tax breaks, just ask Donald Trump.

Also stock investors, of course. Reinvested earnings become unrealized capital gains, which are then not taxed at all until sale, and when finally taxed given favorable treatment. People will note this helps moderate "double taxation" of the pre-tax company revenues, but of course then companies are also frequently able to get all sorts of tax subsidies, credits, deductions, and so on at that stage.

So yes, real estate investors get a lot of tax breaks, but so do stock investors.

[FireToBiz]

In 2014, we put down $50k on the duplex, not 180k. The 200k we netted was in 2022, when the Dow lost 20%. If we would have taken that 50k in 2014 and instead invested in the S&P 500, we'd had a return of 10.58% and 121k. So we did much better in real estate on that investment. Also, you missed the fact that tenants paid the principal of the mortgage

I have $50,000 in the S&P 500 at about $130.5K as of now, although I suppose it depends on when you invested in 2014:

https://www.portfoliovisualizer.com/bac ... sisResults

You also didn't mention any closing costs or other transaction costs for the initial purchase, which should be added to your hypothetical stock investment for comparison purposes. Like, for example, if you had 5% closing costs on the $180K, that would be another $9K, and $59K invested in the S&P 500 in 2014 is now about $154K.

https://www.portfoliovisualizer.com/bac ... sisResults

But that said, it appears this was a successful use of leverage to increase your real estate returns above that of stocks. That is definitely a possibility, but of course leverage also increases the downside risk if something goes wrong instead.

Also we had interest tax benefits and depeciation. The Gov't loves to give real estate investor tax breaks, just ask Donald Trump.

Also stock investors, of course. Reinvested earnings become unrealized capital gains, which are then not taxed at all until sale, and when finally taxed given favorable treatment. People will note this helps moderate "double taxation" of the pre-tax company revenues, but of course then companies are also frequently able to get all sorts of tax subsidies, credits, deductions, and so on at that stage.

So yes, real estate investors get a lot of tax breaks, but so do stock investors.

I'm on the stocks camp, too, but reinvested dividends trigger realized capital earnings afaik, unless you mean something else by reinvested earnings.

[jrbdmb]

Not passive enough for me.

A real estate ETF like Vanguard Real Estate Index Fund (VNQ) is always an option. But a cursory look at the past 15 years shows that real estate doesn't always go up.

[Exodus]

I was unable to buy a house before real estate skyrocketed and I am still unable to buy a house after the prices have "dipped". It is just difficult to find anything in CA without paying a pretty penny or living far from the city. Some days I feel like I missed out but I don't look at housing as an investment unless it's my second property.

-Exodus

[NiceUnparticularMan]

I'm on the stocks camp, too, but reinvested dividends trigger realized capital earnings afaik, unless you mean something else by reinvested earnings.

Yes, what I mean is when a public company generates after-tax net income, aka earnings, it can choose to pay those earnings out to its owners (the common stock holders) through dividends/buybacks, or it can instead reinvest those earnings, meaning buy or upgrade some assets, cancel some liabilities, or so on.

If it reinvests those earnings, that presumably increases the value of each share of the company (one hopes), but this is not a taxable event until the appreciated shares are sold for a capital gain.

[NiceUnparticularMan]

Not passive enough for me.

A real estate ETF like Vanguard Real Estate Index Fund (VNQ) is always an option. But a cursory look at the past 15 years shows that real estate doesn't always go up.

One of the implicit "benefits" of running your own private real estate business is you don't have to deal with annoying market buyers/sellers telling you every year (or month, or day, or second) exactly how much they think your business is currently worth.

[runner3081]

Not passive enough for me.

A real estate ETF like Vanguard Real Estate Index Fund (VNQ) is always an option. But a cursory look at the past 15 years shows that real estate doesn't always go up.

That is what I do, put some "play" money in VNQ.

[secondopinion]

Not passive enough for me.

A real estate ETF like Vanguard Real Estate Index Fund (VNQ) is always an option. But a cursory look at the past 15 years shows that real estate doesn't always go up.

One of the implicit "benefits" of running your own private real estate business is you don't have to deal with annoying market buyers/sellers telling you every year (or month, or day, or second) exactly how much they think your business is currently worth.

Right. Having to deal with non-marketed fixed income with optionality involved, however, it would save me some number crunching to have the market "annoy me".

[NiceUnparticularMan]

Not passive enough for me.

A real estate ETF like Vanguard Real Estate Index Fund (VNQ) is always an option. But a cursory look at the past 15 years shows that real estate doesn't always go up.

That is what I do, put some "play" money in VNQ.

For what it is worth, in my now shockingly long time investing in VGSIX, it has delivered on expectations in terms of giving (roughly) stock-like returns which are not perfectly correlated with actual stock returns.

It also has not really mattered, not at the level I have been investing anyway. But nor has it really hurt.

[Sax32]

In 2014, we put down $50k on the duplex, not 180k. The 200k we netted was in 2022, when the Dow lost 20%. If we would have taken that 50k in 2014 and instead invested in the S&P 500, we'd had a return of 10.58% and 121k. So we did much better in real estate on that investment. Also, you missed the fact that tenants paid the principal of the mortgage

I have $50,000 in the S&P 500 at about $130.5K as of now, although I suppose it depends on when you invested in 2014:

https://www.portfoliovisualizer.com/bac ... sisResults

You also didn't mention any closing costs or other transaction costs for the initial purchase, which should be added to your hypothetical stock investment for comparison purposes. Like, for example, if you had 5% closing costs on the $180K, that would be another $9K, and $59K invested in the S&P 500 in 2014 is now about $154K.

There is so much you're missing here, I just didn't want to write a novel 50k is everything we put in, including closing costs. This doesn't enough account for the cash out refinance we did on this property to pull out 48k on that initial 50k due to the equity and bought a short term rental which we airbnb for 2 years, before selling that property for a profit. Technically we only had 12k into the duplex that we sold for 375k, so that deal made a killing. We used the distribution from the short term rental to buy my wife her used 2015 Honda Pilot.

Also stock investors, of course. Reinvested earnings become unrealized capital gains, which are then not taxed at all until sale, and when finally taxed given favorable treatment. People will note this helps moderate "double taxation" of the pre-tax company revenues, but of course then companies are also frequently able to get all sorts of tax subsidies, credits, deductions, and so on at that stage.

So yes, real estate investors get a lot of tax breaks, but so do stock investors.

My example was in comparison to the S&P 500 which the majority of people invest in, not individual stocks. The only tax advantage for someone investing in a Roth IRA in say an index fund, such as the one I am in (VTASX), the advantage is the tax free withdrawls which is awesome, but that's it.

[NiceUnparticularMan]

There is so much you're missing here

I mean, we obviously only know what you tell us.

But I am again happy to agree that many people who bought US residential properties in 2014, sold in 2022, and did it on a sufficiently leveraged basis may have outperformed an unleveraged investment in US stocks.

As I noted before, though, leveraging increases risk.

My example was in comparison to the S&P 500 which the majority of people invest in, not individual stocks.

The points I made apply equally well to stock funds.

The only tax advantage for someone investing in a Roth IRA in say an index fund, such as the one I am in (VTASX), the advantage is the tax free withdrawls which is awesome, but that's it.

So investing in stocks (or stock funds) in a Roth only eliminates the benefit of the favorable tax treatment of reinvested corporate earnings.

It doesn't affect the various tax benefits that the corporations themselves can get.

[Sax32]

There is so much you're missing here

I mean, we obviously only know what you tell us.

But I am again happy to agree that many people who bought US residential properties in 2014, sold in 2022, and did it on a sufficiently leveraged basis may have outperformed an unleveraged investment in US stocks.

As I noted before, though, leveraging increases risk.

My example was in comparison to the S&P 500 which the majority of people invest in, not individual stocks.

The points I made apply equally well to stock funds.

The only tax advantage for someone investing in a Roth IRA in say an index fund, such as the one I am in (VTASX), the advantage is the tax free withdrawls which is awesome, but that's it.

So investing in stocks (or stock funds) in a Roth only eliminates the benefit of the favorable tax treatment of reinvested corporate earnings.

It doesn't affect the various tax benefits that the corporations themselves can get.

25% dp on a duplex is not sufficiently leveraged, it's a lot more conservative then someone who puts down nothing, 3% or 5%. Most people cannot afford to put 25% down. I am conservative in my approach to my investing in real estate. When it comes to my Roth IRA's, I'm as aggressive as I can be and we have done quite well with our Vanguard VTSAX fund that invests in over 3,000 companies. This will beat active managers every time, because according to many studies, the same active managers that beat the S&P 500, only do it 15% of the time and 85% of the time they fail. I'm just giving people advice on how we've grown our wealth, we are well diversified in 401k's, Pensions, Roths and real estate.

[NiceUnparticularMan]

25% dp on a duplex is not sufficiently leveraged, it's a lot more conservative then someone who puts down nothing, 3% or 5%.

Well, 4X leverage is still 4X leverage, even if it is less than 20X or 33X.

But since most residential real estate did well between 2014 and 2022, it is not surprising it worked out for you.

Of course if you had done 4X leveraged investments in S&P 500 over that time, then those would once again be way ahead (unless you have omitted more from your story).

Generally, ultimately once you introduce leverage, you have to try to figure out what returns look like normalized to the same level of risk.

[Jimsad]

25% dp on a duplex is not sufficiently leveraged, it's a lot more conservative then someone who puts down nothing, 3% or 5%.

Well, 4X leverage is still 4X leverage, even if it is less than 20X or 33X.

But since most residential real estate did well between 2014 and 2022, it is not surprising it worked out for you.

Of course if you had done 4X leveraged investments in S&P 500 over that time, then those would once again be way ahead (unless you have omitted more from your story).

Generally, ultimately once you introduce leverage, you have to try to figure out what returns look like normalized to the same level of risk.

I think sax32 is pointing out that you should diversify into real estate rather than putting all your eggs in stock market basket
You may be right that long term returns of stocks may be equivalent but what if they raise cap gain tax rates or tax Roth 401 k etc .
If you diversify , at least all your assets are not exposed to one type of risk which is why I also bought investment real estate to diversify my assets and spread out my risks

[uaeebs86]

Not passive enough for me.

A real estate ETF like Vanguard Real Estate Index Fund (VNQ) is always an option. But a cursory look at the past 15 years shows that real estate doesn't always go up.

I looked into RE index funds once to portion some of my portfolio to diversify and have something that might not tank when stocks tanked, but since they are traded I found people panicked when the markets went down and sold them just like stocks so no insurance there. I guess anything that is traded/liquid will have this issue.

[eldinerocheapo]

No, I've been a landlord/real estate investor and it was a nightmare. Couldn't wait to sell and move on. The more you own, the more you have to take care of, and RE is no exception.

[Sax32]

25% dp on a duplex is not sufficiently leveraged, it's a lot more conservative then someone who puts down nothing, 3% or 5%.

Well, 4X leverage is still 4X leverage, even if it is less than 20X or 33X.

But since most residential real estate did well between 2014 and 2022, it is not surprising it worked out for you.

Of course if you had done 4X leveraged investments in S&P 500 over that time, then those would once again be way ahead (unless you have omitted more from your story).

Generally, ultimately once you introduce leverage, you have to try to figure out what returns look like normalized to the same level of risk.

How many times have you invested in real estate? I've been in the biz for 10 years and recently sold all my properties because of the inflated prices and made a killing. For a conventional loan on a multi-family, you have to put 25% down unless you do a VA loan or FHA or other low dp's. Are you saying that you only pay cash for your rentals? If so then you are a rarity.
You said "It is not suprising it worked out for you". No I didn't walk dumbfounded into an investment property and got lucky, I was just very good at what I did. I hired a good broker, I did my math and calculations based on cash on cash formula's, the 2% rule on rents divided by Market value and rehab and repair costs predicted. We knew when buying that the 2nd unit was in such poor condition that when the tenant left, he left it in such bad condition, that I was able to keep $1,400 of his deposit to replace the floors, paint the unit and by me putting in 5k, the bathroom was a total gut job and after all of these value adds, I was able to bump rents from $700 to $995.
Another value add was painting the home myself, adding a small deck on the bottom unit and putting in a door on unit #1, so that both tenants could use the storage in the basement and the laundry. This allowed me to jack rents for a total of $2450 on a home that I purchased for 180k. I mean talk about a good strategy I made with all of my sweat equity. The cash flow was great and the equity was so good, that I was able to do a cash out refi and took out 48k to buy another rental property that I short term rented. I sold the property in 2022, because I was ready to get out of the deal and cash out on all of my hard work. After taxes and paying back income tax and depreciation on both the duplex and the short term, we ended up with a check for $198k.
My wife and I decided that because we have a good networth and I'm 52 and she's 44, that we both wanted to pay off our primary, in which we now only owe 83k on a house that worth 450k. Once we pay off the 83k, we plan to get back into real estate, so that I have a new career once I quit my w2 job and have a lot more freedom to travel, work in real estate rentals and spend time with the kids.

[Sax32]

No, I've been a landlord/real estate investor and it was a nightmare. Couldn't wait to sell and move on. The more you own, the more you have to take care of, and RE is no exception.

Not sure about your situation, but after I got all my systems into play and finished renovations, I rarely got calls for anything. In fact my short term rental was like a part time job, it kept me so busy. Long term if you do it right, it doesn't require a ton of time if you buy the right property, screen your tenants and do your due diligence.

[NiceUnparticularMan]

I think sax32 is pointing out that you should diversify into real estate rather than putting all your eggs in stock market basket
You may be right that long term returns of stocks may be equivalent but what if they raise cap gain tax rates or tax Roth 401 k etc .
If you diversify , at least all your assets are not exposed to one type of risk which is why I also bought investment real estate to diversify my assets and spread out my risks

So if you want to make diversified investments in real estate beyond the real estate already owned by listed companies--and that is a reasonable idea--you can use equity REITs. Equity REITs also have favorable tax treatment, also are leveraged, and generally allow you to get exposure to any compensated risk premiums available in commercial real estate without exposing yourself to uncompensated idiosyncratic risk.

Now, a particularly active real estate investor may enjoy the work, and may also feel like they can market time their investments in productive ways, which is not completely implausible as real estate markets are not always very liquid and therefore might not always be very efficient. Like, the Yale Endowment thinks real estate is sufficiently illiquid for this purpose. Of course they also have a staff of highly-qualified people doing that, and the scale to do it in a highly diversified way, but you might feel like you are sufficiently expert in some market to pursue such inefficiencies as well.

But a passive, buy-and-hold investor is likely better off with just pursuing diversified market returns through REITs. Not that it is inherently wrong to be an active direct investor, I just don't think there is any sort of strong case that passive equity investors are missing out if they stick with stocks and REITs.

[NiceUnparticularMan]

25% dp on a duplex is not sufficiently leveraged, it's a lot more conservative then someone who puts down nothing, 3% or 5%.

Well, 4X leverage is still 4X leverage, even if it is less than 20X or 33X.

But since most residential real estate did well between 2014 and 2022, it is not surprising it worked out for you.

Of course if you had done 4X leveraged investments in S&P 500 over that time, then those would once again be way ahead (unless you have omitted more from your story).

Generally, ultimately once you introduce leverage, you have to try to figure out what returns look like normalized to the same level of risk.

How many times have you invested in real estate?

Passively through REITs, many times. As a direct investor and landlord, twice. Neither time did I enjoy it, and each time it only made sense due to certain specific circumstances, such that as soon as practicable I exited the "business".

I've been in the biz for 10 years and recently sold all my properties because of the inflated prices and made a killing.

You seem to be under the impression I am denying that story.

Here is Case-Shiller's national repeat sales index, seasonally and inflation adjusted, over that period:



It does not in any way surprise me that people who invested in residential real estate over that period with leverage did well.

Of course here is the full Case-Shiller series:



Obviously not all periods have been as good as the period you referenced, and being leveraged in other periods would have meant (and in fact did mean) many people doing particularly poorly.

No I didn't walk dumbfounded into an investment property and got lucky, I was just very good at what I did.

I'm not going to try to persuade you differently.

But I will observe that if you had decided to try this out in, say, 2006 instead of 2012, it would have been a lot harder to do well.

Now, part of what you may be claiming is you would not have done this in 2006 but did do it in 2012 because you have the ability to predict the future of house price trends over 10 year periods.

And maybe you do! I certainly have no way of proving you don't.

Unfortunately for me, I do not have that power.

I mean talk about a good strategy I made with all of my sweat equity.

Obviously sweat equity is not costless, but again it is a lot easier for sweat equity to generate positive returns when markets are generally going up.

[NiceUnparticularMan]

Not passive enough for me.

A real estate ETF like Vanguard Real Estate Index Fund (VNQ) is always an option. But a cursory look at the past 15 years shows that real estate doesn't always go up.

I looked into RE index funds once to portion some of my portfolio to diversify and have something that might not tank when stocks tanked, but since they are traded I found people panicked when the markets went down and sold them just like stocks so no insurance there. I guess anything that is traded/liquid will have this issue.

I definitely think if you are hoping to sell shares of REITs high when stocks prices suddenly drop, that is often not going to work.

However, if you look at the total returns on REITs including income (and that is really the main source of return on REITS given the REIT structure), then over longer periods that can vary significantly from stocks. Just not over many short periods where there is some sort of market crisis, though, since of course income is typically going to be a relatively small component of returns versus NAV changes in such periods.

[Sax32]

25% dp on a duplex is not sufficiently leveraged, it's a lot more conservative then someone who puts down nothing, 3% or 5%.

Well, 4X leverage is still 4X leverage, even if it is less than 20X or 33X.

But since most residential real estate did well between 2014 and 2022, it is not surprising it worked out for you.

Of course if you had done 4X leveraged investments in S&P 500 over that time, then those would once again be way ahead (unless you have omitted more from your story).

Generally, ultimately once you introduce leverage, you have to try to figure out what returns look like normalized to the same level of risk.

How many times have you invested in real estate?

Passively through REITs, many times. As a direct investor and landlord, twice. Neither time did I enjoy it, and each time it only made sense due to certain specific circumstances, such that as soon as practicable I exited the "business".

I've been in the biz for 10 years and recently sold all my properties because of the inflated prices and made a killing.

You seem to be under the impression I am denying that story.

Here is Case-Shiller's national repeat sales index, seasonally and inflation adjusted, over that period:



It does not in any way surprise me that people who invested in residential real estate over that period with leverage did well.

Of course here is the full Case-Shiller series:



Obviously not all periods have been as good as the period you referenced, and being leveraged in other periods would have meant (and in fact did mean) many people doing particularly poorly.

No I didn't walk dumbfounded into an investment property and got lucky, I was just very good at what I did.

I'm not going to try to persuade you differently.

But I will observe that if you had decided to try this out in, say, 2006 instead of 2012, it would have been a lot harder to do well.

Now, part of what you may be claiming is you would not have done this in 2006 but did do it in 2012 because you have the ability to predict the future of house price trends over 10 year periods.

And maybe you do! I certainly have no way of proving you don't.

Unfortunately for me, I do not have that power.

I mean talk about a good strategy I made with all of my sweat equity.

Obviously sweat equity is not costless, but again it is a lot easier for sweat equity to generate positive returns when markets are generally going up.

Again, what is your success rate in owning investment real estate? I just want to know if you have a proven track record. I speak from experience and have gotten to where I am because of hard work. I like to share my success stories, so that if other's want to know how to get invested in real estate, I'd be happy to guide them.

[NiceUnparticularMan]

Again, what is your success rate in owning investment real estate?

That's the first time you asked me that particular question.

But off hand, I don't know a meaningful answer to that question as I never tried to evaluate my "success" against a reasonable benchmark on either occasion that I ended up doing it.

Of course that reflects my view that you have to start with a reasonable benchmark, which will vary by market and period for the reasons I previously stated.

[warner25]

...It does not in any way surprise me that people who invested in residential real estate over that period with leverage did well....

...I speak from experience and have gotten to where I am because of hard work....

...Of course that reflects my view that you have to start with a reasonable benchmark, which will vary by market and period for the reasons I previously stated.

Sax32, I think you're missing the point in this great series of responses by NiceUnparticularMan. Even someone who doesn't have experience or put in hard work can make a killing in a bull market. It's no different than people who pick stocks during a bull market and brag about their success when they really did no better or perhaps worse than an index fund when adjusted for risk.

Personally, I feel like I missed out on real estate in the same way that I missed out on tilting heavily towards big US tech stocks with leverage between 2012 and 2022. I had my reasons for not doing it, and I think they were good reasons, but yeah that could have made me fabulously wealthy... or not.

[Sax32]

...It does not in any way surprise me that people who invested in residential real estate over that period with leverage did well....

...I speak from experience and have gotten to where I am because of hard work....

...Of course that reflects my view that you have to start with a reasonable benchmark, which will vary by market and period for the reasons I previously stated.

Sax32, I think you're missing the point in this great series of responses by NiceUnparticularMan. Even someone who doesn't have experience or put in hard work can make a killing in a bull market. It's no different than people who pick stocks during a bull market and brag about their success when they really did no better or perhaps worse than an index fund when adjusted for risk.

Personally, I feel like I missed out on real estate in the same way that I missed out on tilting heavily towards big US tech stocks with leverage between 2012 and 2022. I had my reasons for not doing it, and I think they were good reasons, but yeah that could have made me fabulously wealthy... or not.

Real Estate and the stock market (mostly talking about the S&P 500, because the majority of investors don't pick single stocks) has always gone up historically so long as you invest for the long haul. See in Real estate the investor gets to make choices, such as what neighborhood you buy in. If you make the wrong choice and that neighborhood was trending downward and you failed to do your research, then yes your appreciation can take a hit. But if you buy in the correct neighborhood then eventually the value's always go up historically, but no one can time that.
Second, me as a investor in rentals, I brought value to the property knowing that with a rehab and some adjustements, I could raise rents and that wasn't because of the market, it was because of my research and math. We bought it at 180k in 2014 with 50k down in total including all closing costs and fees. Rent at the beginning was $1625 a month, which is you calculate cash on cash, you divide the net income from cash flow by the initial out of pocket investment and that came to a 14% return.
After 3 years of improvements and an additional 5k used for rehabs to make unit 1 and unit 2 better, we were able to up rents to $2450. After pulling out 48k in a cash out refinance to buy another rental, the cash we had into this property now was around 12k total for everything so our cash flow on this property was just over $1,000 noi. This property was killing it.
We hadn't ever planned on selling this unit, so appreciation was just a plus. 2022 came and my thought was the economy was looking scary with inflation, higher gas prices, food expenses going up, supply of housing low and demand teetering off due to most owners had already locked into historically low interest rates and probably aren't lookin for homes. With all of this said, we thought, the market is at an all time high, let's sell and get out of this before it's to late. I'm glad we sold and will never look back. Cannot wait for the next adventure.

[Flashes1]

I see two reasons for remorse over not buying a home in the past few years: (i) historically low interest rates of 2.5% on a 30 year fixed and (ii) large run-up in prices ahead of when you wanted to buy. Both would be very painful for would-be real estate buyers.

[GhostMang]

Nothing to have missed out on investment wise. It's always a good time to buy if you're planning on living in it for 10 years. The run up in equity has been nice, but it's not liquid and could sink at any time because of anything really. For us it's been one of those things where the area might get too crowded for us in which case we got really lucky, but then we have to buy a new place and move. Just buy a house to live in and forget the market past the business deal.

For investments could over leverage into REITs if you want and you'll never have to fix the toilets.

[NiceUnparticularMan]

I see two reasons for remorse over not buying a home in the past few years: (i) historically low interest rates of 2.5% on a 30 year fixed and (ii) large run-up in prices ahead of when you wanted to buy. Both would be very painful for would-be real estate buyers.

One the "plus" side, they may get similar if not better buying opportunities in coming years. I wouldn't count on real house prices going all the way down to 2012 levels, but something like mid-2010s seems plausible.

Not so sure about those mortgage rates, but who knows?

[placeholder]

If we're going to count reits then I have had an allocation to that since my portfolio was developed in 2007 but that's not usually what people mean by real estate investing in my experience.

[Jimsad]

I think sax32 is pointing out that you should diversify into real estate rather than putting all your eggs in stock market basket
You may be right that long term returns of stocks may be equivalent but what if they raise cap gain tax rates or tax Roth 401 k etc .
If you diversify , at least all your assets are not exposed to one type of risk which is why I also bought investment real estate to diversify my assets and spread out my risks

So if you want to make diversified investments in real estate beyond the real estate already owned by listed companies--and that is a reasonable idea--you can use equity REITs. Equity REITs also have favorable tax treatment, also are leveraged, and generally allow you to get exposure to any compensated risk premiums available in commercial real estate without exposing yourself to uncompensated idiosyncratic risk.

Now, a particularly active real estate investor may enjoy the work, and may also feel like they can market time their investments in productive ways, which is not completely implausible as real estate markets are not always very liquid and therefore might not always be very efficient. Like, the Yale Endowment thinks real estate is sufficiently illiquid for this purpose. Of course they also have a staff of highly-qualified people doing that, and the scale to do it in a highly diversified way, but you might feel like you are sufficiently expert in some market to pursue such inefficiencies as well.

But a passive, buy-and-hold investor is likely better off with just pursuing diversified market returns through REITs. Not that it is inherently wrong to be an active direct investor, I just don't think there is any sort of strong case that passive equity investors are missing out if they stick with stocks and REITs.

REITs are just a type of stock investments
You cannot claim depreciation on REITs like with direct real estate . REITs are nothing like owning ‘real’ real estate .
It is fine if someone does not want to put in the work or take the risk of owning real estate but for them to equate REITs to directly owned real estate ? They are just not the same thing and just do not give the same amount of diversification

[ScoobyDoo]

I bought my home as the result of a lifestyle decision, any investment gains will be ancillary. I have no interest in being a landlord, it involves work (in the form of decisions) even if you have the best property management company, and I already suffer from decision fatigue thanks to my job & personal life lol. My lazy stock portfolio is truly passive and I don't feel FOMO by not holding rental real estate.

Thought I was the only one with decision fatigue. But apparently renters have this same fatigue with prices going up year over year so much!

[CMD1]

Of course. But you won't get that consensus on here, and on real estate forums you'll generally get anti stock folks. Real estate is a long term game but over decades if bought right it pays great via debt pay down, rental income, appreciation and favorable tax laws. Of course results are neighborhood specific and lots of horror stories, just like there is buying meme stocks. Most of us sell real estate way too much during our lives.