[USER]

Which is a better option:
1) Investing in a $400k condo to generate $2200 rental income
2) invest the $400k in S&P500

Time horizon is 20 years.

Thanks!

[Ben]

That’s over 2.5 million (before taxes), without finding tenants, paying property taxes, paying for upkeep, paying for hoa (depending). Definitely the S&P 500 if I were you.

[Jorge]

Careful with the condo. Could have high HOA fees and if there is a major condominium renovation project, you may have to shell out more money.

Just something to consider.

[Michael]

Why not do both? $200k down on condo and $200k in S&P 500. The rent will cover the mortgage. You will also write off the taxes. Actually, turn it over to a property management (e.g. 10%).

Good luck!

Don’t miss: Should I sell everything and reinvest in SP500?

[Josh]

I will retire early off of rentals and like them way more than stocks. That being said, even with the best assumptions made on the rental numbers provided you are only at a 6.6% cash on cash return which is terrible for real estate.

I personally wouldn’t buy that deal. Fwiw my minimum requirement is 15% cash on cash return.

[Jule]

That’s not enough rental income return for that high of investment. Double the rental income and then that might be worth it (after the hassle of dealing with tenants).

For that reason, investing the money in the stock market would be much better and provide better sleep at night.

[Hans]

I would audit that condo association, is their capital reserve properly funded? If not, and they need new roofs or roads, or a new septic system, or any surprise major expense your going to get smacked with a huge bill. Special assessments are a very real thing in condo world.

(I manage condo associations/HOA’s for a living)

Explore these too: How can I find someone to partner with me on a property for short term rentals?

[Gary]

I know places where you can buy a condo for 100k and get $1200 a month. $4800 might be better than $2000 but I’d still put it in the market.

[Billy]

As long as you are debt free and have an emergency fund then I would invest it and forget it. Less headaches, less hassle factors.

[Sabby]

please don’t do anything silly like an “infinite banking” scheme. You’ll find your money will enrich the insurance companies.

As a landlord, I’ll tell you that the passive income from property is anything but passive. Having rentals is a great way to develop wealth just be sure you’re taking into consideration all the initial costs and on going costs and time commitment.

Also, check out: I need to figure out what to do with a potential 300K from capital gain if I sell my rental property?

[John]

Not a big fan of condos due to HOA fees and unexpected “assessments”, but RE can be a great long term investment.

It’s hard to match the leverage and tax breaks with RE. The best way to analyze this is to estimate the ROI on both options. Don’t forget to include fees and taxes on both investments.

Try to invest in both if you can for more diversification.

[KC Kline]

VOO has a current dividend yield of 1.49%. That equates to almost $6k/yr. Re-invest some or all if you like. VOO requires no management and won’t call you about repairs or a leaky toilet.

Condo management can be like a small 2nd job.

I don’t see how you’re adequately compensated with the condo given the numbers provided.

[Colin]

Not enough info to give you a definitive answer (what are your expenses? How much do you need to retire? What will the expenses on the condo be? How much do you currently have invested?) but a good rule that could guide you is the rule of 72.

Take your expected interest rate and divide it into 72, and that’s the amount of years it will take for your principal to double.

So, if you get a 10% average annual return on your $400k in the S&P 500, then your money will double every 7.2 years. So, in 21.6 years you’d have approx $3.2 million. So, 20 years from now you’d likely have in the neighborhood of $3 million given 10% return.

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