Alternative Investment Ideas?
- Thread starter Clonedogg
- Start date
My wife invested in a handful of rental properties which included 4 small houses and one condo unit before I met her. She made the investments right out of college and would absolutely agree with the above issues. She bought her properties at the height of the oil boom in OK in the early 1980's. When the oil economy collapsed, the value of homes / condos also collapsed and did not recover for years. My wife was able to collect enough rent to cover the amounts owed to bank. But any excess cash flow went into repairs or covering loan payments on properties that were vacant. Tax benefits on the rental properties were reasonable, however. My wife ultimately sold the properties. I doubt she got back what she originally paid for some of the properties. But she received enough to cover the outstanding owed on the loans against the properties. She would have been better off to invest in stocks. Stocks were very undervalued in the early 1980's.
Given what I learned from my wife, this does not feel like the right time to directly invest in real estate. It would be better wait until after the real estate market fell to more reasonable valuations. I am not sure if the tax benefits are as beneficial at the current time. Our investments in RE are limited to REITs. They can be a great investment if you get in on the right (low) valuation.
I posted this in another thread. I think it is instructive. The blue line is the federal data and the red line is my addition. Yes, this is U.S. level (and the regional variations can be considerable as you might imagine), but take this into some account.
The linear trend with the red line on real housing prices holds from about 1945 through 2000. The chart only has data from roughly 1975 forward, but you could extend it back another three decades if you wanted to using other data series.
Then, all the sudden, around 2000... something changed.
We all know the story from there -- bubble inflates, bubble pops.
I think said bubble might be back.
I would not want to be buying into real estate about now. Sure, go for it if you need a place to live and have a personal or professional situation that calls for you to move. If 90%+ of your reason is, "I need a place to live, not an investment return" then okay go for it. But if you want something as an investment, not sure real estate is the one.
Right now looks like the proverbial "buying high."
Last edited:
Precious metals might be a good alternate investment. Gold, silver, and major / junior gold miners have really begun to take off due to the current economic environment. I never invested in precious metals until last year. I became convinced that the U.S. (and most governments) would go deeper into debt and print lots more money to fund their programs. I decided to invest about 3% of my retirement portfolio in precious metals EFTs. There has steady appreciation in past year and massive appreciation in the past week alone on the various gold / silver investments. It's possible that precious metals are overbought at the current time. It might be wise to wait for a pullback (?).
As someone who co-owns 25 units (9 properties), most of this is true. But what’s also true is that if you can tolerate these things, there are some great potential returns. Especially in the long term.
Multi-unit properties are typically best for cash flow and single families good for longer term appreciation.
That said, we havent expanded in about 2 years because we feel the DSM market is overvalued. Still deals to be had but you have to search a lot.
I’ve kept my eye out in the dsm area for quite awhile as I’ve wanted to get into rental properties but can’t justify it with how high the costs are. Back when we first moved to the area in the 10’-11’ timeframe would’ve pulled the trigger as the costs seemed more palatable but now I can’t justify it (but have the money necessary to pull the trigger).
For sure. Single family homes in good areas are tough to make pencil out unless you want to put in some work to upgrade (this is our preferred route). There are some decent multi-family deals out there is you stay away from commercial brokers who want to price everything based on cash flows and not true property values.
Low interest rates highly correlate to home prices. Hardly anyone cares about the cost of the house. It's all about the mortgage payment. I agree to your point on buying high. Now is not the once in a generation shot to buy residential real estate.
Know 2 wealthy guys ... one deals in onions and the other dairy, who knew you could make a very good living off those.
Personally my thought was to go duplex or more for multi family and steer clear of single family. Spread some of the risk over more units. I occasionally see duplexes on the market however they go to quick for me to act or they’re pending before I even see them. I also see an issue of the market getting overly saturated with multi family housing though at least in our area (ankeny) and wonder what the market would be like if I ever needed to sell. Where do you look for your purchases if you don’t mind me asking? Do you already have an in with a realtor so you catch listings before they hit the market or what’s your method?
I'm trying to learn as much about real estate for investing purposes, too - include me on that private message! lol
Is it worth it (in your opinions) to get a real estate license to save on acq/disp costs? How many deals/year would you think you'd need to have to make that worth it?
I too have been trying to buy more properties to grow my rental units. I only have one now, a single family home. But I have ambitions for more.
Regarding the duplexes, investors will make an offer on a property without actually looking at it in order to tie it up. During their inspection period, they will then actually look at the property and negotiate the purchase price then. It’s just a strategy to get the unit off the market as quickly as possible so the decision to actually buy can be made later.
Strip malls and storage units will be just fine and there will continue to be a demand for these assets. I agree that office buildings are not that desirable at this time, but hard to gauge the future.
You're a couple years behind on the smaller unit properties. A lot of investors competing for those smaller multi-unit properties(2, 4, 8 unit) and it's driving up sale prices which is making your cash-on-cash return in the low single digits. I agree with your second paragraph, but sellers are fully aware there is line of buyers and don't need to negotiate.
We turned our focus that last couple years on 40+ unit properties because there is far less competition, #'s still need to make sense to sell and cash-on-cash returns are still solid (11-14%). Our area of focus is from Philly to Des Moines.
A few questions:
How close are you to retirement?
Are you willing to learn something new?
Are you willing to feel growing pains (losses) to learn this new investment?
Real Estate is fine and dandy, but if you aren't serious about learning it, spending that kinda of cash, or taking care of the property then stay away.
I hear people say "I wanna diversify" all the time because they heard someone say that somewhere. People say that because any investment could lose money, so I don't want to risk everything on one play. Financial Advisors say it because eventually they want you to invest in a high risk asset that they will make a ton of cash on.
If 401k and IRA are working for you, why switch?
Agree on storage units but not strip malls as they relate to mall tenants selling stuff that can be bought and delivered online.
I would say that you need a clear understanding of your investing goals. Do you want to focus more on cash flow or long term appreciation? Because that will help get you pointed in the right direction. As for acquisition, when we started around 2010, we used a realtor and the MLS like "normal" people. My business partner ended up getting his real estate license 6-7 years ago which helps us find more and earlier deals. Once you get a little reputation for being able to close and other agents know your investment targets, you'll get more opportunities. We also bought 8 of the units (2 four-plexes) direct from a private seller. So in our experience, deals can be found in a lot of places. The key is to have your formula and stick to it - don't stretch for a deal, make sure it meets your requirements.
Happy to give more details if you'd like (or PM me).
Initially, no its not worth it. Especially in acquisition mode as it doesn't cost you a thing to buy a prop. Possible down the line if you like it and are growing. Not relying on a realtor to setup showings is probably the biggest advantage.
I bought some Lending Club 3 years ago. I placed them in my IRA to simplify taxes. My notes are just now expiring. My main goal was to educate myself on the concept.
