People make investment return assumptions based on their experience and history

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Jul 24, 2019
3:13:14pm

Skeptical Optimist All-American

People make investment return assumptions based on their experience and history

There are lots of people who make 20% on real estate. It's not unreasonable for them to assume they can continue with their formula to achieve those results.

I agree with you that a brand new investor shouldn't expect that, and I also agree with you that 20% isn't typical. But I don't think anybody here has argued that.

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Skeptical Optimist

Previous username: workindev
Bio page: Skeptical Optimist
Joined: Aug 2, 2006
Last login: Apr 27, 2024
Total posts: 79,033 (4,237 FO)

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Messages

Author

Time

<< Deleted >>

DetmerForever

7/23/19 9:59pm

What about rental income?

titlecoug

7/23/19 10:02pm

Rental income rarely covers the mortgage payment plus all of the maintenance

DetmerForever

7/23/19 10:05pm

Bought one last week that is +$800 a month. After maintenance and repairs I'm

byubyu

7/23/19 10:13pm

Same. Got a vacation rental on Maui. Zero out of pocket for 7 years

7/23/19 10:16pm

Because he doesn't want to do the work of to find those properties

molodyets

7/23/19 10:17pm

This is not accurate. I don't know how many hundreds of times I have found

grandpacoug

7/24/19 3:31am

People buy bonds at a lower rate of return than rentals.

7/23/19 10:36pm

That isn't true.

YSMACK

7/24/19 7:42am

Lol, ok...I have a rental that produces well above and leaves me extra each

Romex

7/24/19 1:45pm

We investors all have that- except Detmer, I guess.....

grandpacoug

7/24/19 2:02pm

Strange....here is another thought...

cougsrule

7/23/19 10:09pm

I didn't buy my house as an investment but it is great when the place you live

O Gaucho

7/23/19 10:11pm

Comparing owner occupied home and rental home is the idiotic part!

grandpacoug

7/24/19 3:34am

terrible analysis - you completely ignore the utility gained from living in the real estate (or rent collected). It's

HarlemCoug

7/23/19 10:19pm

I'm talking about the investment returns. The OP said a home is where you live.

DetmerForever

7/23/19 10:24pm

you are completely ignoring the financial benefits of having a home - unless you have an alternative place to live that

HarlemCoug

7/23/19 10:33pm

This is a massively stupid concept. It is money you are spending anyway, why not get value back.

Tokolosh

7/23/19 10:19pm

I'm talking about investment returns.

DetmerForever

7/23/19 10:25pm

If that's the case, where is your calculation for rental income in your scenario

byubyu

7/23/19 10:30pm

Rental income is, on average, less than the mortgage payment and mtx cost.

DetmerForever

7/23/19 10:33pm

Even if true (which it is not) you used a 41 year time period.

byubyu

7/23/19 10:43pm

You mean rent goes up but mortgages stay the same?! SHOCKING

molodyets

7/24/19 12:22am

I'm not sure how 1968 to 2019 is 41 years - isn't it 50 years (or 51 depending

DetmerForever

7/24/19 1:03am

51 years makes it even worse for you.

byubyu

7/24/19 8:14am

If you think it's so easy to beat stock market returns with median homes

DetmerForever

7/24/19 12:02pm

This post is so incorrect! I gave a specific example of an apartment building

grandpacoug

7/24/19 3:37am

If you had $100,000 you had to invest within the next month what would you do?

Regal Ute

7/23/19 10:20pm

Bitcoin!

7/23/19 10:26pm

The problem with viewing your personal residence as merely an investment and

CougBlu

7/23/19 10:22pm

That's pure idiocy.

mulletino

7/23/19 10:23pm

He's well aware of that fact now. I feel for him.

CougBlu

7/23/19 10:25pm

So...just continue the idiocy forever until the landlord sells and he gets kicked out?

mulletino

7/23/19 10:30pm

🤷🏼‍♂️ He's close to retirement (within 5 years) and then they're moving.

CougBlu

7/23/19 10:40pm

People in my neighborhood renting their house pay over twice what my mortgage is

viper

7/23/19 10:31pm

Goodness gracious the OP is about choosing to invest in stocks or real estate

DetmerForever

7/23/19 10:40pm

Considering that I wasn't the only one who came to the conclusion that you were

CougBlu

7/23/19 10:49pm

A portfolio of rental homes with minimum cash down will win every time.

grandpacoug

7/24/19 3:41am

No, it won't. No data backs up the claim that diversified RE is better than a diversified portfolio.

memento

7/24/19 6:00am

I can only use my personal history and beginning with the 1970s and continuing

grandpacoug

7/24/19 8:28am

Glad we finally agree that historical data doesn't back that claim up.

memento

7/24/19 8:38am

correct and historical data doesn't refute the claim either.

HarlemCoug

7/24/19 10:08am

Yes it does.

memento

7/24/19 10:38am

I love that type of tenant. I had one that lived in a home of mine for 13 years.

grandpacoug

7/24/19 3:40am

Your math and conclusions are wrong.

PizzaPipeline

7/23/19 10:24pm

Plus you are paying down your loan and you get the financial benefits of depreciation...

HarlemCoug

7/23/19 10:26pm

Plus rolling your rents received into furthering leveraging the capital

molodyets

7/23/19 10:36pm

This this this. All those who argue against rentals often assume

CougaRR4L

7/24/19 12:13am

Most homes don't generate positive cash flow.

DetmerForever

7/23/19 10:30pm

I'm batting 1.000 on every rental property I've owned over 15 years.

mulletino

7/23/19 10:32pm

Yes, and some brilliant stock market investors beat the market every year

DetmerForever

7/23/19 10:37pm

I'm not brilliant. It's not rocket science.

mulletino

7/23/19 10:47pm

true and true

HarlemCoug

7/23/19 10:57pm

Thought I'd give you a softball tonight to give you some Didi Gregorius-like confidence.

mulletino

7/23/19 11:00pm

The problem is, what is average?

slatecoug

7/24/19 12:27am

wrong

HarlemCoug

7/23/19 10:33pm

Why would I rent out a place, if it wasn't generating positive cashflow?

7/23/19 10:35pm

People do it because they are betting on appreciation, or underestimate

DetmerForever

7/23/19 10:37pm

Only investors with no knowledge or experience would do it this way. Incorrect.

grandpacoug

7/24/19 3:45am

This is an uneducated response. I'm not saying you are uneducated

CougaRR4L

7/24/19 12:38am

I guess I wrote my post poorly because clearly it's being misunderstood

DetmerForever

7/24/19 1:01am

I have bought the median priced home well over 100 times in different states

grandpacoug

7/24/19 3:48am

“Your home is where you live, not an investment.”

garyfan

7/23/19 10:31pm

Residential real estate gain can be tax free, but I still agree with your

BDAWG

7/23/19 10:31pm

Residential real estate gains are taxable when you sell out.

DetmerForever

7/23/19 10:35pm

you defer the gains from the sale using a 1031 exchange. Other tax implications - a cash out refi is a tax free

HarlemCoug

7/23/19 10:40pm

All true of stocks as well.

DetmerForever

7/23/19 10:43pm

I don't think you understand what "all true" means. 1031s and depreciation are MAJOR tax advantages.

HarlemCoug

7/23/19 10:54pm

^^ i'm with this guy

BlueFrog

7/23/19 11:09pm

1031 or 250/500 2 year exemption. Get real...

BDAWG

7/24/19 12:40am

A 20k home in LA back in 1968 is basically 750k right now..

7/23/19 10:38pm

And $20K in the S&P 500 in $2.4 million - which do you think is better?

DetmerForever

7/23/19 10:41pm

Factor in rents at 40% net of gross...

7/23/19 10:44pm

Then factor in new properties bought with that rental income,

CougaRR4L

7/24/19 12:47am

Depends on how much you paid for rent along the way.

O Gaucho

7/23/19 10:44pm

You aren't making sense, at all. In your scenario, you automatically invested

byubyu

7/23/19 10:47pm

Also why would you assume you bought the house with 100% cash? That would be weird

7/23/19 10:53pm

I bought that house for $20,000 multiple times. Never paid a down payment larger

grandpacoug

7/24/19 3:52am

I have a couple explanations on my previous posts.

grandpacoug

7/24/19 1:33pm

this is my last post on the issue - it's completely faulty to try and use your analysis to prove that ave stock market

HarlemCoug

7/23/19 10:53pm

Since so many of you are asking about rental income

DetmerForever

7/23/19 10:53pm

So which stock should I buy tomorrow?

7/23/19 11:03pm

and not that it matters but the median home price in the US $285,700 - not sure where you got $168k

HarlemCoug

7/23/19 11:12pm

He explains that in his original post.

Blue Cat

7/24/19 12:02am

He obviously didn't read the original post

DetmerForever

7/24/19 12:12am

For the 20th time, you are making incorrect assumptions. The rate of return

grandpacoug

7/24/19 3:58am

I'm not sure he understands basic finance.

WDaddy

7/24/19 4:48am

Why did you delete your post?

cheezedawg

7/24/19 10:17am

I delete most of my posts after a day or two.

DetmerForever

7/24/19 10:42am

RE: I delete most of my posts after a day or two.

cheezedawg

7/24/19 10:46am

I'll give you a more completely honest answer, since you asked

DetmerForever

7/24/19 11:57am

You’re still missing the point.

garyfan

7/24/19 11:59am

He (or she) is actually not. As I mentioned before, Blackstone doesn't use a 20% IRR

memento

7/24/19 12:06pm

You’re talking RE funds, which also misses the point people have made repeatedly

garyfan

7/24/19 12:59pm

No I'm not. Blackstone buys residential RE. Thus their portfolio is the actual residential RE

memento

7/24/19 1:43pm

So are you saying the people on this board claiming to have otherwise are lying

garyfan

7/24/19 1:46pm

Sigh. I'm saying 20% as a return assumption is unreasonable. If I tell you the Equity markets earn 20% a

memento

7/24/19 1:53pm

I don’t think people have been unreasonable in explaining the upside involved,

garyfan

7/24/19 1:59pm

It has been a panacea for me. I repeat- Buy positive cash flow residential with

grandpacoug

7/24/19 2:14pm

Great, why haven't you invested a billion dollars in this strategy?

DetmerForever

7/24/19 2:29pm

This is a silly argument. Buying and managing a few investment properties is

Skeptical Optimist

7/24/19 2:34pm

THAT IS EXACTLY THE POINT!!!

DetmerForever

7/24/19 3:03pm

What’s the point of narrowing the analysis to investments of a billion dollars

garyfan

7/24/19 3:07pm

Because people look at historic performance of asset classes

DetmerForever

7/24/19 3:28pm

Would it have been better in 1968 to put money in the stock market or under a

DetmerForever

7/24/19 3:52pm

And you just zoomed past the point.

garyfan

7/24/19 4:31pm

Ok, then I don't understand the point of the original post. Why come here to

Skeptical Optimist

7/24/19 3:09pm

Yes, they are talking about a DIFFERENT investment strategy than the one

DetmerForever

7/24/19 2:32pm

Look, if what you are really trying to say here is treating your

CougaRR4L

7/24/19 3:27pm

It's not as complicated as you're making it

DetmerForever

7/24/19 8:56pm

It's a lot easier to buy and manage your own real estate portfolio than it is to

Skeptical Optimist

7/24/19 1:53pm

This is just fundamentally flawed thinking. This is like saying it's easier for you to find the next hot stock

memento

7/24/19 1:55pm

Not at all. It's only saying that being a successful real estate investor

Skeptical Optimist

7/24/19 2:35pm

Of course not, but the thought that your return assumptions should be

memento

7/24/19 2:52pm

This is the last thing I'll say about this topic. The issue isn't should or shouldn't RE be a part of

memento

7/24/19 2:00pm

Sorry, but my data does support the #'s. Leverage and compounding are great.

grandpacoug

7/24/19 2:17pm

Your data is not the market. I repeat. Your data is not the market. This is not difficult to understand

memento

7/24/19 2:32pm

Comparing the median home price in the 1960's to today is also not the market.

Skeptical Optimist

7/24/19 2:45pm

Thanks for putting words in my mouth. I didn't say that nor did I agree with that analysis.

memento

7/24/19 2:56pm

People make investment return assumptions based on their experience and history

Skeptical Optimist

7/24/19 3:13pm

I agree that everyone shouldn't expect to be able to do what I was able to do.

grandpacoug

7/24/19 3:59pm

Nobody said that it was easy to earn 20% on residential real estate.

Skeptical Optimist

7/24/19 12:17pm

Have you read the comments?

DetmerForever

7/24/19 2:30pm

I wish I could rec this more than once.

memento

7/24/19 2:33pm

I see people saying that they consistently achieve those returns. I don't see

Skeptical Optimist

7/24/19 2:43pm

I think we're talking past each other

DetmerForever

7/24/19 3:07pm

I need to take five minutes on checking weekly rental reports. I'm done on this

grandpacoug

7/24/19 4:02pm

Ok, fair enough, but that seems like a pretty meaningless comparison to make

Skeptical Optimist

7/24/19 4:09pm

I only wish you were right

DetmerForever

7/24/19 8:52pm

That was probably the crux of where the discussion derailed here.

CougaRR4L

7/24/19 11:10pm

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