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RE takes advantage of leverage. Example- bought a commercial building in CO for $800k. Used an SBA loan at 7% (it was a different interest environment!) with $160k down. Six years later sold for $1.7m. So $160k turned into $900k gross profit. Also have to factor in all the other goodness - profit on rent, equity building, depreciation, deductions like mortgage interest and tax.
I suppose you can do better day trading or taking long positions on high growth stocks. But for me RE is an important part of a diversified portfolio.
Also, bought our prior home - a condo loft in Manhattan - for $900k with $90k down. Lived there for 15 years and sold for $2.7m. So $90k initial investment turned into $1.8m gross profit.
Also sounds like the timing of these purchases was perfect. Prices will still very depressed in 2009-2013. Would be harder pressed to find such great returns today IMO. Very market dependent
Location, location, location and a little luck. If you buy the house and then need to repair or replace a bunch of stuff it eats into your profit. Plus you can get desperate to get the monthly rent and pick a bad tenant that destroys the property. You can make good returns but it isn’t foolproof.
Conversation Starter
What is a good return? Is it competitive with that of the stock market?
Pro
Director 1- great profit! Good for you.
Op- An additional perspective. I didn’t know what I was doing as an RE investor but became and accidental landlord when our jobs took us to a different market. My condo in an second tier city gets us 6.5% with no works at all from our end. Rents super easy/ never vacant etc. we bought it right before the 2008 crash and haven’t made any money in property appreciation. Probably break even.
The reason I mention it is that the key is to leverage and pick the right kind of investment property if you are looking to invest. Maybe commercial real-estate or duplex do much better. But probably require more work.
Pro
Deloitte OP- yes, the condo is paid off at 270k. So the 6.5% is measured on profit after subtracting (condo association cost, insurance and any repairs)
Its all relative. Do what you understand best.