Why all the hate on 8 - percent that is.

[Mitchell Jaworski]

Hello fellow BPers.   I've noticed alot of posts where people don't consider an 8% return to be worth a deal or feel it is taking on too much risk for an 8% return.  Whether it's investing in a turnkey property or a rental - I've seen these comments.

I'm sure there are also those who are all for an 8% return (me included). However, let's put this into perspective compared to other investments.

(Granted, maybe my perspective is different.  I began my career as a financial advisor and then day traded for many years.) 

If you decide to pass on an 8% return in real estate, then where does one go to get that same return?

Mainly, this is a discussion point, but I'll throw in my 1/2 cent.........

First we can look at the stock market.  Ok, you buy a bunch of index funds and hold on as the market returns roughly 8% historically.  

That is assuming you retire and cash out at the correct time.   All the folks that hit retirement in 2001 and 2007, did they end up with 8% on their money?  I mean, atleast with real estate you can hold that property and rent it out for some cash flow (assuming you ran #s and bought correctly) as opposed to selling during a crash.

But wait you say - I'm not selling my stocks either because I only invest in dividend paying stocks.  Ok, well let's see what stocks give us an 8% dividend yield.

Throw out all of the blue chip and consumer staples (safe stocks) as they are nowhere close.   There are always the oil MLPs (I own some) however, that's a heck of alot more speculative.  Most dividends have been cut by 50% or suspended outright due to the recent decline in oil.  Bye bye my 8+% until the oil company reinstates (which is alot longer than a property will be vacant, believe me)

So, where else can one get 8% nowadays.  Well, there are some high yield bonds that can get you close to that.  Though the average rate on U.S. high yield is currently hovering just over 6%.

Maybe buy some bonds from Greece?

To sum up my hopefully humorous rant; when I find rental properties that will return 8% I'm good to go.  Plus, we are not even factoring in the possibility of appreciation, that's just a possible cherry on top of the sundae that is an 8% return! :-)

[Ryan Fagan]

The perceived risk to earn 8% in a real estate deal makes the 8% unattractive.  There is also an opportunity cost, 8% may be good in your local market but there are markets that you can earn well over 8% with a similar risk profile.

Just my one or two cents.