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Can I get a commercial loan without 25% down?
Any Property Management recs in Seattle area? :(
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It’s definitely more work, it’s not “passive” income like online gurus say in order to trick people into buying their course. That said, is RE going to be better than stocks is completely deal dependent.
Stocks, etfs and mutual funds are way easier to get returns. You can buy a stock in 30 seconds and never worry about it again. So for the majority of people, I agree, it’s prob better for them just to focus on equities and move on with their lives.
That said, the right RE deals can be far superior but require more leg work. It requires a good amount of time to do your due diligence, your properties, get contractors, ect. Then if you hold and rent it can be a pain dealing with tenants. But if you do the work and find the right deals, the returns are superior. Even outside of appreciation, the cash on cash return alone can be better than stocks (at least in my experience), and the cherry on top is you usually don’t even pay taxes on profits because of the tax deductions. Most people don’t like doing the work on top of their regular job, cut corners or get lazy and get negative or sub optimal results.
Regardless, I invest in both and it’s worked out very well for me.
Luck is preparation meeting opportunity. Yes, there will always be hindrances, but that doesnt mean it’s not worth it. Everyone has their own tolerance, so if it’s too much you might just not be a RE person, that’s ok too.
The part of high cash flow properties don’t appreciate much, if you just leave your property the way you bought it, sure. But if you make improvements you can often times force some appreciation. There is almost always more you can do to make money in this. There is an element of perseverance and creativity.
On you point about high interest rates impacting cash flow. Yes, it has def made it harder, I won’t disagree with that. Impossible, no. From personal experience, it made my search for my second property 3x longer than it did with my first, that said the time was well worth it, I found a great deal. They’re out there it just takes extra patience.
Subject Expert
Real estate has a lot of tax advantages that stocks don’t have. Depreciation makes annual cash flow nearly tax free, and vehicles like 1031 exchanges and bonus depreciation can erase taxable gains.
You can 1031 into a REIT 🤷
I make $125,000 net profit on one property but that’s because I purchased pre-Covid. That investment was worth it regardless of appreciation. Based on where prices and rates are now it’s much harder to cash flow, but you do also get advantages from a write off perspective and you are building significant equity.
But that profit was appreciation right? Even with cash flow and equity, returns would be better throwing it into an index fund.
Coach
Leverage multiples the appreciation though. A 10% increase in value could be a 100% increase in equity.
MD1, yes, my calculation is over simplified. I’m making 2 assumptions. 1/ that this is a primary residence, so if we weren’t paying a mortgage with principal and interest, we’d be paying the same in rent anyway, and 2/ that if we had paid cash instead of using leverage, we’d be losing out on the opportunity of investing that rent/mortgage payment elsewhere. So really, in an appreciating housing market, getting a mortgage is a win-win because you collect appreciation on somebody else’s money, and you are still free to invest your own money in the stock market. If you pay cash, your money is all tied up.
Mentor
Do you use a margin account in trading? Thats what houses are. You put in 10k on a 100k house. You get 5% historical returns. So in my example I get 5k return. I take the same 10k and put it an index fund I’d get 8% or around $800 return. Obviously there are expenses, it’s not passive income on real estate. Then I have other strategies I apply, like tax avoidance or not paying interest. I keep a stock portfolio and a real estate portfolio. I like both for different reasons.
That 10K return is not yours since you don’t own the house until the loan is paid off. If you put down 10K on a house, how much equity do you have? Probably around 10K until you starting paying it down. If you sell it in one year for example, how much are you getting back?
Real estate is an illiquid, long term asset class. If you have short term goals publicly traded REITs would be a better option.