109

Real estate can be rented out (or otherwise "used"), so it "produces" income. He's not solely investing in real estate in the hopes the value increases, he's saying it's a better investment because it produces income whether or not the value increases.


51

I used to work with a team that produced a pretty accurate housing prices model so I know a little about this. There is no simple relationship between average house prices for a valuation cluster (cheapest, middle, highest value). You cannot even say that rising prices at the lower strata imply rising prices at the upper end because there are a lot of ...


32

In some jurisdictions you can donate the development rights. You and the family still own it, but nothing can ever be built on it. In some cases you will still be able to build a cabin or similar structure on a few acres, but the bulk has to be left natural. The advantage is that by giving away the logging or other development rights the land loses much of ...


28

Because the returns are not good. One of the big drivers in Australia is "negative gearing": if your investment loses money you can offset losses against your tax on other income. Institutional investors and corporations are in the business of making money: not losing it. Housing market investors are betting that these year to year revenue losses will ...


27

So here are some of the risks of renting a property: The renters damage the home or leave it in disrepair You can't find a good renter and the house goes unrented for several months The housing market falls again and you are underwater on your second mortgage and can't sell the house Plus the "normal" risk of losing your job, health, etc., but those are ...


21

If it was me, I would sell the house and use the proceeds to work on/pay off the second. You don't speak to your income, but it must be pretty darn healthy to convince someone to lend you ~$809K on two homes. Given this situation, I am not sure what income I would have to have to feel comfortable. I am thinking around 500K/year would start to make me ...


18

A city is multiple markets. Neighborhoods can be hot or cold depending on what things are going on around them. The type of housing stock can also act independently. If the local university adds a new campus in the suburbs then the neighborhoods near the new campus will change, but the demand for apartments and townhouses will react differently than single ...


17

When you buy a property the house or the building goes down in value every year (it gets depreciated) similar to when you drive a new car out of the lot. However, it is the land that increases in value over time. As land becomes scarcer the value of land in that area will increase in value, as does land in sought after areas. If more people want to live in ...


14

You are not a landlord. You have choices: Sell now. Get your profit, stop your anxiety. Keep your current situation and be unhappy. Hire a management company. They will take a percent of the rent (8-10%) but provide a firewall between you and the tenants. They should be aware of market rent, and will treat your rental like a business. The current ...


13

I do know how Zillow's tool was developed. It is in the public domain. Zillow's tool is built to minimize the percentage error in its estimate. This has triggered a lawsuit by those who feel they have been harmed by the estimate. The tool is an unbiased estimator in logarithmic space and not in the price space. In the price space, the best estimator ...


12

You're worried about your tenant. That just means you're a nice guy, and it's ok to be nice. At the same time, you can't be expected to lose money on the property or charge well below market on the rent. My suggestions: Talk to your tenant. Let her know exactly what's going on: you've kept it low as long as you could, but it's costing you money and you need ...


11

Your experience is anecdotal (outside Australia things are different). There are many companies and real estate investment trusts (REITs) that own residential properties (as well as commercial in many cases to have a balanced portfolio). They are probably more common in higher-density housing like condos, apartment buildings, flats, or whatever you like to ...


11

Gold is a commodity. If I have some gold, my gold is exactly the same as someone else’s gold. I have absolutely no control over the value, and when I go to sell it, my price is completely dependent on what everyone else in the market is doing. I compete with every other seller on price alone; there is no other way to differentiate my product. For real ...


9

I kind of hate piling on with another opinion, but this is too long for a comment. I did what you are thinking of doing, I would at least try renting it for a couple years so long as: You can cover all mortgages comfortably for a period of time if it goes unrented or rent goes unpaid. The rental market is strong in your area. The primary risks of renting ...


9

If you live in a community with a larger number of similar or equally built/styled houses, and there is some turnover (a sale every three months or so), it is a pretty good value estimate. If houses (and lots) are more differently styled and or aged (not just differently sized), it becomes a very poor predictor, as it averages and prorates only all ...


8

Here would be the big two you don't mention: Time - How much of your own time are you prepared to commit to this? Are you going to find tenants, handle calls if something breaks down, and other possible miscellaneous issues that may arise with the property? Are you prepared to spend money on possible renovations and other maintenance on the property that ...


7

The assessment will often give you the ratio to use for the land vs the house. e.g. if the assessment shows Building $100K, Land $25K, you assign 20% of the purchase price to land, and divide that among the two parcels, in proportion to their size.


7

I don't know much about New Zealand, but here are just some general thoughts on things to consider. The big difference between buying a house and investing in stocks or the like is that it is fairly easy to invest in a diversified array of stocks (via a mutual fund), but if you buy a house, you are investing in a single piece of property, so everything ...


7

I may be missing something, but I don't think you need an LLC just for the tax benefit. You can claim the interest expense as a business expense even as a "sole proprietor" for tax purposes. LLC are designed to provide liability protection, not tax benefits. Most tax benefits apply to both LLCs and sole-proprietorships through business income/expense ...


6

One reason for this is that many people don't simply allow their houses to rot and decay. If you're talking about a house built in 1980 and left vacant and unmaintained for 35 years, it probably will be in pretty poor shape. But a homeowner generally wants to preserve their house and maintain it in good condition, so they invest in things like new roofs, ...


6

As some others have pointed out, it's key to remember the difference in market value and accounting value. To simplify things, book value is the only item that specifically depreciates... it happens in the world of accounting to try to time "when did I use a long term asset?" with "when did I obtain value from that asset?" For a house, governments usually ...


6

What are the most important facts to keep in mind as I consider this? IMHO, the most important consideration to keep in mind is - do you really want to be in the landlord business, and if so, how much experience do you have in this business? Investments don't call you are 2:00 AM complaining about the toilet Investments don't trash things when skipping out ...


6

You could rent it out to hunters, or a charge a fee for camping on it. If you log it, you can often get Federal assistance in paying for replanting. You can also get certifications that your timber is being grown and harvested sustainably, making future timber more valuable, while minimizing the environmental impacts of harvesting on the property. You also ...


6

Inflation of the type currently experienced in Argentina is particularly hard to deal with. Also, real estate prices in global cities such as Buenos Aires and even secondary cities have grown significantly. There are no full solutions to this problem, but there are a few things that can really help. Invest the money instead of just buying USD. Global ...


6

Economy of scale on one side versus "person monetizing an illliquid asset" on the other. Most multifamily rental buildings are owned by professional real estate investors (as well as individuals growing an empire to become a professional real estate investor whom I will count in this group). The rental difference between a 2000 Sq foot two bedroom ...


6

As other answers have pointed out, professional real estate investors do own residential investment properties. However, small residential units typically are not owned by professional real estate investors as your experience confirms. This has a fairly natural cause. The size of the investment opportunity is insufficient to warrant the proper research/due ...


6

If you want to cash out your equity, then sell your home and buy another one that's $100k cheaper. It is a mistake to think of home equity as an asset in terms of being able to generate income. There are only two ways to monetize this "asset" - borrow against it and sell it. Borrowing against it for a risky investment puts your home in jeopardy. If the ...


6

"Buy-to-let only" probably means that there is currently a tenant in the property, and the vendor will not (possibly cannot) evict them prior to sale. This would mean that you would not be able to raise a residential mortgage on it, only a buy-to-let mortgage. The vendor doesn't want you to make on offer, then find this out two months down the line, ...


5

Two things come to mind: a conservation easement has been mentioned already and I think you might also want to look into a timber REIT (Real Estate Investment Trust). REITS are odd beasts, to be sure and the tax situation can be convoluted but it might meet your needs.


5

It sounds like you plan to sell sooner or later. If your opinion is that there is still room for the housing market to grow, make your bet and sell later. The real estate market is much less liquid than other markets you might be invested in, so if you do end up seeing trouble (another housing crash) you may be stuck with your investment for longer than you ...


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