All Forum Posts by: Adam M.

@Simon Ruiz what I was saying is that I would want to have actual rental properties because that will generate cash that is deposited into my bank account and can access it the day I get it. This is in contrast to having it in a brokerage account that is investing in dividend paying stocks and takes 3-4 days to transfer the cash out of the account so I can use it. As someone who wants a bit of financial freedom having cash today is more important than tomorrow. I wouldn't likely need all the cash generated from my rentals as I would have a primary job. Because of this I would parlay that into my brokerage account to buy more dividend paying stocks and increase my income.

@David Faulkner from a balance sheet perspective, which is really the only way to look at it, publicly traded REITs are absolutely a 100% equity asset. You have to borrow 0 dollars to acquire a share you simply need to exchange enough cash for the current market price and thus incur no liability. Now from the standpoint of the REIT itself, they do use leverage to buy assets. If they default on the obligation the stock price will drop and if they default on enough it will drop to 0 and you lose your entire investment but the creditors do not come after you. When you buy a rental property you are exchanging some cash and signing a legal obligation to acquire the asset and if you default on that obligation you have to pay up.

@Roger S. that type of leverage is mainly for mortgage REITs. You can buy REITs that invest in actual property vs notes on properties. They obviously are still using leverage but won't give you 9-11% dividend yields but likely a still healthy yields. At the end of the day @David Faulkner is right that if you have the skills to do repairs and active management you are gonna see some solid ROI.

Check out dividend.com or obviously yahoo/google finance.

Been on here for a while but never dropped an introductory post. I'm Adam I live in Lawrence home of the best basketball school in the nation. BS in Finance and currently working on a BS in Computer Engineering.

My goals in real estate are following

1. enough income to pay for my basic cost of living (housing/food)
2. enough income to pay my student loans
3. enough income to fund my Roth IRA
4. enough income to feel comfortable focusing my time and energy pursing endeavors, whether they are work related or not, that I enjoy and find stimulating.

My strategy to do this is via rental properties near hubs of workers/tenants that are somewhat systematically immune to the ups and downs of the general economy (i.e. universities and hospitals). I'd parlay that income into investments in REITs and other high dividend yielding stocks in my investment account (i.e. taxable account not Roth) as I'd like cash now. All of which would allow me to divert W2 income and rental into retirement accounts.

Also should mention another benefit of REITs is that the "cash drag" is minimal. Cash drag is the opportunity cost of cash. If you have to save up 20k for the down payment on a house over the course of the year, $1600/month, there is going to be cash just sitting in an account not earning interest (or very little) until you have the amount necessary. Instead that could be put to work in a REIT paying out dividends which can be reinvested over the year. I am currently giving you a really big non-answer but I could build a financial model that says a real estate deal is better than a REIT or the REIT is better than any given RE deal. If you spend a lot of time trying to maximize returns you may miss out on some investments that are still solid investments but don't return as much as you'd like.

I live in a college town, Lawrence, and nearly all PM's and apartments here require parents to cosign leases. Also if that is your tenant I would make sure you use a management software that allows you to pay rent online so the parents can go in and setup recurring payments on their own instead of the parent writing a check to you or them writing a check to their child who writes a check to you. I've heard good things about Cozy.

Family member of mine has been renting out her first home (2 bed, 1k sqft) to a young doctor at KU med here in KC for the last 3 years and they barely see her. They just get the money deposited every month and go by the property for general maintenance here and there. Most everyone who works at hospital is high income/high education so a solid tenant profile.

REIT is simply a tax designation for a company. They can achieve it by following certain guidelines. The main advantage is that the company itself pays no taxes but they must pay out 90% of income to the shareholders, thus huge dividend yields. Here are the guidelines if you care https://www.sec.gov/fast-answers/answersreitshtm.h...

If they are publicly traded you can liquidate your position in a day. It would take longer if you were a much larger investor but doubtful anyone on BP is of that size. You can invest in different asset classes, MF, Mortgage, industrial, diversified, etc. They do have equity upside on top of solid dividends. I personally like mortgage REITs. They buy MSB and other loan papers so they have a really low overhead. The ones I'm in yield 10% dividends plus equity upside. Downside is that they are usually really levered up to get that high of a return which makes them susceptible to rising interest rates.

I own ARI and ABR. Both have a really solid track record. You can also get ones that pay out monthly, every other month, quarterly so you can have a steady CF. You would need to buy them in a taxable investment account to get what I think is the main advantage of real estate which is cash today. Obviously this brings up tax issues. Benefit of rentals is depreciation and ability to write other expenses off which you couldn't do buying a REIT.

My personal strategy is to do a build up rental incomes and leverage that into REITs in a taxable account which you can acquire faster and take advantage of compounding interest.

I've turned off reinvestment on mine (I've used lending robot to manage it for the last 8 months or so). The lack of liquidity shouldn't be an issue if your plan isn't to touch the money for decades but I am investing to get to a down payment on a house sooner. As I previously stated I'd rather just invest in REITs that yield better. Pictured below is from my Lending Robot account. The top value ~7% being the portfolio return, 2nd ~14% being the return managed by LR and the 0.39% being the returns on the loans picked by Lending Clubs automated investing. Due to the poor performance of the LC picked loans LR has had to buy up more risky loans to get the yield to my desired 7-8%. The $ value of LC vs LR loans is about even now LR over took LC a little while back but again liquidity was my main concern.

@Joel Owens
To me buying at a discount is that you have negotiated the price down from list, which sounds like you define that as buying at the right price. Either way I think we are talking about the same thing.

Thanks for the feedback on the % of expenses.

On a bigger picture I believe you are saying you should invest/buy at a price where you can afford to have some assumptions not end up right (rent, rehab costs, etc.) and it still be a decent investment.

Also the 3 vs 100 thing. I was more asking what are the main KPIs that you use to screen initial deals in your funnel to separate obviously bad deals vs ones that might be a good opportunity and require further analysis?