Money Matters
melissa&mark
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Our tech team has launched updates to The Nest today. As a result of these updates, members of the Nest Community will need to change their password in order to continue participating in the community. In addition, The Nest community member's avatars will be replaced with generic default avatars. If you wish to revert to your original avatar, you will need to re-upload it via The Nest.
If you have questions about this, please email help@theknot.com.
Thank you.
Note: This only affects The Nest's community members and will not affect members on The Bump or The Knot.
Invest in real estate vs. ?
I don't post here often but every time I have a MM question you ladies are so helpful!
We currently own a rental property in our area that we bought at a great time so the value has almost doubled. We did a cash out refi a few months ago (took out 75k) with the intention of buying a second rental property but now I'm having second thoughts. We live in HCOL area and a small rental property will cost us about 450k and the market is continuing to go up at a crazy rate because of low inventory in our area which I don't think will be sustainable long term. So now we have 75k sitting in a savings account earning 0.75% interest which is obviously not ideal so I'm trying to figure out how to invest that money.
I'm considering investing in real estate out of state in LCOL areas but wouldn't know where to start in researching areas besides a random google search. Do any of you have recommendations on good areas to invest in that I could look into or tips on where I might start that search? I'd also consider investing in stocks or mutual funds but have absolutely no knowledge in that area. I'd definitely go talk to a professional if I decided to go that route.
How would you invest the money? I'm ok with our retirement accounts at this point so I'm not interested in using any of the money for retirement.
Thank you!
We currently own a rental property in our area that we bought at a great time so the value has almost doubled. We did a cash out refi a few months ago (took out 75k) with the intention of buying a second rental property but now I'm having second thoughts. We live in HCOL area and a small rental property will cost us about 450k and the market is continuing to go up at a crazy rate because of low inventory in our area which I don't think will be sustainable long term. So now we have 75k sitting in a savings account earning 0.75% interest which is obviously not ideal so I'm trying to figure out how to invest that money.
I'm considering investing in real estate out of state in LCOL areas but wouldn't know where to start in researching areas besides a random google search. Do any of you have recommendations on good areas to invest in that I could look into or tips on where I might start that search? I'd also consider investing in stocks or mutual funds but have absolutely no knowledge in that area. I'd definitely go talk to a professional if I decided to go that route.
How would you invest the money? I'm ok with our retirement accounts at this point so I'm not interested in using any of the money for retirement.
Thank you!
Re: Invest in real estate vs. ?
I think it would be hard to invest out of state unless you do tons of research, visit multiple times, etc. Plus, you'd have to hire a property management company so that would cut into the potential return. But, @short+sassy is the resident rental expert so I'm sure she'll have lots of advice for you
Thanks for the shout out, @julieanne912, lol.
My brief background. I've gotten into real estate investing (buy and hold) to plan for a very early retirement. But I'm still "small potatoes" in the REI world. I currently own my personal duplex (rent out the other side), one additional duplex, one single family house, and am currently under contract on another duplex.
However, where I live in New Orleans, there is a lot of opportunity for cheap houses with decently high rent so I personally don't invest outside of my area. Which is not to say I wouldn't, if the situation changed.
1) The bolded would be the first thing I suggest.
2) The best place to go for your question is a website called Bigger Pockets (BP). It has an enormous forum all about all kinds of real estate investing. I know there are some long posts about the best areas of the country to invest in "buy and hold" real estate. You have to set up an account, but it is free to join and free to read and post on most of the forums.
Off the top of my head, some of the cities I've read about being "hot" for buy/hold investing are Kansas City, Indianapolis, Houston, Nashville, Memphis, and Birmingham. However, especially for Nashville and Memphis, you really need to be familiar with the area you are buying in or have someone on your "team" (ie real estate agent, etc.) who is very familiar. There are some really terrible and sketchy neighborhoods in those two cities (from what I've heard).
Of the cities I listed, I've checked out (on paper, not in person) what Houston, Indianapolis, and Memphis have to offer. I wasn't that impressed with the potential ROIs in Houston. Indy and Memphis do seem to have some decent deals but, after adding in PM fees, I'm better off just sticking to NOLA.
3) There are also turn-key investment companies where you basically buy a house they have either just rehabbed or will rehab and than they find and put tenants in and handle the property management. Just be REALLY careful with those. There are a lot of shady ones out there. I've heard horror stories on BP. However, there are a few with great reputations. There are a lot of posts on BP about turn-key investment companies also.
If you have any questions, send me a PM or post back on this forum. I regularly check it, except on the weekends.
H and I have talked about fixing up and renting out our basement, which is set up to be a 1 bed/1 bath very tiny apartment. We probably won't do it, but the rental income we could generate from it would easily cover over half our mortgage based on our school zone.
I can also speak a little bit to Nashville. That place has absolutely exploded. I don't know if it has peaked yet, but housing prices have gone up tremendously in the last several years. It's a really hot city right now. The whole skyline is full of cranes building new apartments, condos, etc.
Haha, it just occurred to me I can speak to a danger for out-of-state investors who don't do their due diligence.
After Hurricane Katrina, there was a flurry of investor activity in NOLA due to super cheap houses that needed substantial rehab (ie gutted). As a resident, it was crazy to see out-of-town investors rebuilding beautiful homes...in some of the worst neighborhoods in town. It was like, "Wow! What a gorgeous house. Ummm...did they not notice the projects one block away and the liquor store next door?"
But really, there are some signs for a "bubble bursting" but nobody can really tell when. Also when buying investment property to buy and hold, the immediate price turnaround is less of a concern than how it will appreciate over time. All markets go up and down. Shoot, right now here in Colorado, the market is higher than it was right before the last bubble... and some people really lost their shirts in that one because they didn't hold on long term.
Investing in real estate away from you is very risky. Some people do it and are successful with it, but you have no clue if the tenant is changing the oil of their Harley in the living room. You can pay a management company, but you're still not physically involved and this is a big investment to not have your hands on.
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On the duplex I bought a year ago, the owner's brother was living in one of the units. He had an engine in the living room. Though it was at least clean, lol. In fact, it looked new. Don't know the story on that one! I was curious, but kept my conversations with him to a minimum. Not a happy camper his 10-year "no rent" ride was coming to an end and I'd given him 30 days to vacate.
ETA: Point being that @brij2006 brings up a good point. I would never want to own property after seeing what the people next door to us are doing to the house they're renting.
I agree with the PPs who suggested not investing in RE out-of-state or out of your local area. They pretty much covered it all - too risky and too tough to maintain.
Somebody also suggested using the money to pay down principle on your mortgage loan. The money you will save in the long-term by paying down the principle balance will be in the tens of thousands of dollars. It's huge savings and well worth looking into.
And, I ALSO agree (a lot of agreement) with the PP who mentioned that the market is due for a correction. The past major one, was in 2008-2009 with the Great Recession.
It's fairly typical for corrections to occur at least every decade, usually averaging nine years. So...we're due.
What this means is that stocks are highly over-valued right now and the market will correct to bring them more in line with where they ought to be. I'm sure you've heard the investing mantra, "buy low, and sell high." Well, stocks are high right now, and therefore, not a good buy since they will likely lose value fairly soon and probably pretty quickly. Yes, you may find a few gems. Or, you may buy now and the market may ride out for another 6 or 12 months, but something is coming and many think it won't be pretty.
Another aspect compounding this issue and also making it more likely we'll see a significant downturn, is all the printing of money the Federal Reserve has been doing this past years. And, I just read an article that consumer debt is up by $35B, I think the figure said. All of these factors weaken the economy.
I'm in the minority here, at least I am pretty sure, but if you are looking to invest in something, you may wish to look into gold and/or silver, at least at this time, due to the current market conditions. In the past 10 years, gold has gone up 400% and it will likely climb higher. Silver typically follows whatever gold is doing, but it's less costly to buy. Gold and silver can be parts of IRAs, or you can hold them in separate stocks/ETFs, or you can invest in physical bars or coins that you keep in your home safe or in the safety deposit box at your bank.
I'm a realtor in my area (Northern CA) so even though prices are higher it's nice to have a full understanding of the market rather than trust a realtor and property mgmt. company across the country.
Thanks again! I need to start frequenting this board more often
Just my two cents. When your friends' lease is coming up, I'd give them notice that the rent is being raised to X as of Y date. And if they need to move, then they need to move. Since they are friends, give them plenty of notice. Let them know why.
Think of it this way. If after you pay your mortgage/taxes/insurance, you are a negative $100/month...because your friends are paying below market rate...you are essentially giving them $100/month for their living expenses. Money that isn't even out of the profit, but out of your own pocket. That also isn't taking into account "soft expenses", like maintenance.
And perhaps that is a personal decision to know you have great tenants because they are friends. Which is fine, but keep in mind that decision is costing money each month and perhaps it is time to consider selling.