[USER]

Real Estate?

How do you decide to keep a rental or sale and invest in the SM? This is our first rental.

-We are currently breaking even while renting to a family member in need. They are leaving soon so now we need to decide if we keep it or sell it.

– We could make about $300-$350 a month profit.
This is less than what we thought because of the rise in tax and ins since purchase.

-As a rental, the rate is 7%, and higher costs on tax/ins. Though they are paying down the mortgage, would it be better to sale and invest instead?

-We would walk away with about 45-50k and could invest that.

-We have lots of kids and we thought we would buy it and let them rent it at lower than market cost to get ahead.

We know that’s not the best math but we know it will be very hard for our kids to buy anytime soon as our housing market has doubled, yes doubled in the last 5 years for starter homes.

-What would you do? Or how do you calculate the best return?

I feel like the house is at a high and it most likely won’t increase much at this point compared to the jump it made already.

The 300 a month seems like a big risk if the market goes down and we have to lower rent and then break even again.

How do I learn about real estate investing?

[Robert]

Just like FIRE itself, there is no “one size fits all” when it comes to real estate investing.

I will say this – this is just a generalization- works for me, residential real estate has been an indispensable part of my own journey towards FIRE.

I never really thought about current cash flow; in that I was always secure enough to where I did not need positive cash flow out of my rental or rentals.

I looked at it as a long-term thing- once that was paid off; I would have a source of income that my self and my heirs could NOT outlive.

And all the while my renters were paying the vast bulk of the bills associated with the property.

They were in essence, paying for my long-term investment.

Some people look at rental real estate as a way to make a few quick dollars, but to generate real wealth you must hold it for decades.

I get realized those are just generalizations; but such generalizations, over the course of decades, have helped me to where I am right now.

[Lorin]

We’re doing the same thing. Sorta. We don’t have a bunch of children though-
Just two.

Our plan is to buy them each a house now and rent out the homes until they are of age and responsible with jobs/careers, etc.

It’s been a while since I was in school but my finance professor always said “buy real estate.

It will always be a necessity.”
So in my very simple opinion I say keep it.

You’ll be earning something and maybe one day providing housing to one or more of your children.

Also, one day you’ll have it paid off.

Yes, insurance and taxes will always be a thing but that is easily covered by the increase in rent.

[Joe]

Sell it. Take the money and open a brokerage account for the kids

[Bill]

If I told you that in 100 years, that house will be worth $60 million dollars. Would you keep it then?

[Lorin]

Also, I would never rent to another family member outside of my children ever again.

Hopefully the rental was smooth but man I’ve seen some doozies on this page renting to family.

[Jason]

Just comes down to calculations. Basically take the monthly rent you receive, subtract taxes, insurance, mortgage interest (since technically you’re banking the principal being paid into the house), maintenance, etc.

that’s your real profit. Multiply that by 12, and divide it over the amount you would get that year if you sold the house (after taxes and real estate commissions), then multiply that by 100%.

That’s your annual rate of return for the property.

It could be lower than the 8-10% return you might get from index funds.

But there’s stability in the rental income, etc.

So depending on how much lower, decide if it’s worth it or not and then keep or let it go.

Of course there’s also the house value going up each year that you could calculate in, but it’s a bit more speculative, so you could factor that into the calculations somehow if you wanted to.

[Chris]

If you don’t 1031 you’ll pay 25% in tax on your sale proceeds. Right now you’re getting income, write offs etc.

You really need to talk to your cpa about your situation.

Everyone is different and there will be a million opinions.

But it’s about what best serves you that a pro can guide you on.

[Dena]

I taught real estate investing for Robert Kiyosaki, the author of rich dad, poor dad for a number of years after being an investor myself.

There are many ways you can increase the income if the market goes down by renting it for someone with low/no credit to buy. Making you the bank.

Looking at history though, while the market fluctuates (both stock & RE) real estate always goes up.

I have a house for each of my children and while they’re still young, eventually they will each at least have one to either live in or rent out.

I feel like everyone needs multiple streams of income and real estate should be a part of everyone’s portfolio, especially for the tax benefits.

Making a few hundred bucks a door is great, but is only one of several factors to consider when deciding what exit strategy serves you best when that time comes.

[Ava]

I’d keep it. And I’d bet on the real estate market/housing/land more than I’d ever bet on the stock market.

Also love your thoughts on using this property to help your kids out — housing is going to be a very real issue for upcoming generations.

Imagine passing this property on to them one day and imagine what it will be worth in 10, 20, 30 years!

[Sunny]

Is this a place you could live in yourself if you had to? If no, then sell.

If yes, then keep it.

You could invest in the SM, but if that blows up, people will always need a place to live.

[Cindy]

It looks like a manageable home. I believe in the buy and hold long term.

Real estate is a powerful wealth and investment tool, and has the advantage of providing shelter, tax reductions etc.

I think sometimes people ask too much of their real estate but for me I would always prefer to hold something if it pretty much self manages.

I would keep it for the children and rent in the meantime.

[Author]

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