All Forum Posts by: Jesse Jones-Smith

 Awesome- thank you for taking the time to do that ROE calculation for me and for your perspective!!

Thanks so much for offering your insights. These are super helpful. I should have also added that the reason I am pulled towards real estate as a wealth generating mechanism (I.e. the appreciation aspect) is that I bought my first house with ~$20K of my own money in Baltimore (supplemented with 6K of grants), bought at the right time and did a little fixing it up, used the proceeds from sale of Baltimore home to get into the lower end of the market in quickly appreciating Seattle. Made 260K from sale of first house in Seattle after 4 years, then did an off-market deal with a friend to buy current house and now our equity in this third primary residence is ~500k. 

I read Chad Carson's Small and Mighty Real Estate Investing and I think my path is most aligned with what he calls the "live and fix" method. Although only light "fixing"-- mostly cosmetic stuff. 

That is to say that I've experienced the incredible power of an appreciating market and that makes it very tempting to want to keep my current house, rent it out and let it appreciate. But this is precisely the reason I wanted to post this question--to get insights from people who with different experience and perspective. In terms of what I learned from reading Rich Dad/Poor Dad a couple years, I think I land in the Poor Dad philosophy and I'm looking to break out of that a little, but also am risk-averse at my core. 

Here are some numbers: 

Current PITI: $3,970

Estimated rent: $4500-$5000 (there are several homes within 4 blocks of mine that owners have turned into rentals and I've been able to compare online pics to our home, so I am confident this is a good estimate)

Sq ft: 1790

Estimated sale price today: 1150000-1250000

Mortgage balance: 612,000

I would self manage. 

I'd plan to save any profits each month for future CapEx, repairs, vacancy until we had ~20K for this house set aside. Maybe this is naively low. I do have a HELOC for a worst case scenario--maybe this is also naive.

@Tim Delaney you asked what the return on equity would be and I'm not sure--I don't have that formula in any of the books I've purchased. Does it use the rental income before or after mortgage payment? I'm guessing it's low in my case.

I think that the tax perks from having a rental make this more attractive than it might initially seem, but I have only done some quick internet searches, so I could very well be overestimating the upside and underestimating the downside??

Consistent with the advice of @Jo Bradley , if I could get through the first couple years financially, keeping current home seems a lot easier than long distance investing...and at least I know what is wrong with my current home (I.e it will eventually need new roof etc). 

It is hard to think about giving up an "asset" that is worth $1.15 mil and at the low end would be expected to grow at 5% per year (house worth ~1.7 mil by 2035), even if I incurred ~$50K worth of costs over 10 years. 

But I think the advice I'm hearing from @Julia Lyrberg and @Dave Foster and @trevor finn  is 1) that it might be smarter/lower risk to diversify and 2) that I really might not be able to afford to keep my primary house as a rental. And a little skepticism that the market would continue to grow at 5% or more on average (it's been ~7% average for the 8 years I've lived here)

@Dave Foster I filled out the BP spreadsheet here for the sell or rent decision, and similar to you advice, selling and investing the profits in index funds performs only slightly below being a DIY landlord, making that seem an attractive option. 

Thanks so much for all of your thoughts and insights!! I really appreciate it--my rationale for posting was to hear different insights that I might be missing, so I am very open to this advice. I don't yet know what I'll do, but this exchange gives me more to consider. And I think I've ruled out my original option #1, which was to sink all the proceeds from sale of my current house into next primary residence in Southern California. (And it also this a kick in the butt to find a financial planner, so I will be responsible and do that as well :))

 Super helpful! Thank you for your perspective!! Appreciate it

thanks so much- appreciate your perspective!

Hi all,

I would love some advice on my specific situation. I’ve been interested in getting into real estate as a way to potentially have extra income and also have more of a safety net in retirement, either through cashing in on equity or continuing to own rentals. I’ve read about 4 books, listened to tons of BP podcasts, but I have somewhat unique situation, and I’d love to hear what others would do if they were me.

I am married and earn a good income, but we are a single income household—my husband is disabled and cannot work. We do not have kids. I am a professor and I make $200k/year. I’m 47 years old. I like my job and am not looking to replace my W2. But due to spending so long in grad school and having one income and a much lower salary for most of my career, I feel behind on retirement.

We live in an expensive city now our home worth is at least $1.15 million and we have 500K in equity.

We are moving again for my job to another very expensive city. There are some serious housing perks with my new job offer: 1) $150K in a 0% interest forgivable loan for downpayment (10% forgiven each year 2) a special home loan program that is currently lending at an interest rate of 4.1%. 3) Can join a waitlist for on-campus faculty housing that is sold for at 50-75% of the fair market value consequently when you sell you are capped at how much you can sell for; waitlist for these homes is approximately 7-10 years and you can stay there until you die).

I think my options are :

• Sell current house, sink most/all proceeds from sale into new house; buy as much of a house as we can buy because it’s a hot market and should appreciate well. Put myself on faculty housing waitlist. Live in new home while it appreciates for 10 years until I get a faculty housing spot, sell private market house, put proceeds (minus downpayment) in bank for retirement (I estimate this will be 1.3 mil before capital gains and real estate fees based on 7% growth in a very desirable Southern California location), and take out new loan for lower cost faculty housing. This feels like the easiest option, but the one with the least flexibility/back up plan. If something happens to the faculty housing waitlist, we have no way to catch up on retirement by cashing in on the appreciation.
• Keep current house as a rental. In new SoCal market, downsize and use only the $150K from the job perk as downpayment in new expensive market. Put myself on faculty housing list and wait 10 years while the smaller, downsized place appreciates at ~7% and our rental house appreciates at 4-5% per year.

We would be stretched to afford this for at least the first year. I’m also scared of the downsizing aspect; we’d probably be looking at going from 1800sq feet single family home to 1100sq foot townhome). I feel like the next 10 years, ie from age 47 to 57 are not necessarily ones during which I want to be downsizing or worried about money. However, I think this would be the most profitable option (probably 1 million additional dollars.

• Sell our current house, but put only some of the profit from the sale into the downpayment for the next house. Keep ~200K and try to buy some cash flowing rentals in a much cheaper out of state market. The area where my mom lives is inexpensive and seems like pure cash flow could be $300-400/ month or more. If done right, potentially, I could get cash flow for current years that could continue and grow into retirement and be an alternative to trying to stack 1 million more dollars in the bank. This option feels like a good one except I have no idea if I’ll hate being a landlord. I do like real estate, I have a great eye for design, but would hate to have to evict someone—that would be my worst nightmare, so I’m not sure I’m cut out for being a landlord (although I would fully anticipate having a property manager)

Is option #3 a far inferior option compared to keeping our expensive house in expensive city as a rental and only having to deal with one property that gives us great appreciation in 10 years ?

I realize this is long and specific to my situation, but I would love opinions from people with experience in real estate. Am I missing other scenarios?

Thanks for reading!! And thank you for any advice!!