Early Retirement Extreme Forums

I want to invest 100k in real estate.

I save 4k per month, which goes into a savings account or stocks/bonds.

I'm asking for possibilities regarding real estate. What is the best long term investment in real estate if you had to invest 100k?

Would you buy a small condo and pay it off in cash? Find a small town where I could buy a 100k house in cash? Buy a more expensive home with a mortgage if I can pay off the mortgage within 4 years?

Looking for any replies/ideas......thanks

I don't know the answer, but this is where I would look to find it: https://www.biggerpockets.com/about

Here are the key datapoint you need to look at for every investment:

-Interest rate
-Closing Costs (Depends on state & if cash or mortgage)
-Property Tax rate
-Historic utility costs
-Age of building
-Type of construction (so you know what the most common repair issues)
-Age of roof, HVAC, plumbing, electric, foundation
-How many tenants
-Rent

The general rule of thumb is collect 2% of the property value per month in rent. So @ 100k you want 2k/month cashflow.
The reason you want 24% of your total investment in rent every year is these are your yearly expenses
Opportunity cost of capital (6%) + Vacancy risk premium (4.5%) + Maintenance & Depreciation (4%) + Property taxes (1.5%) + Water & sewer (.5%) = 20.5% of property value in expenses.

Therefore 24% - 20.5% = 3.5% of total investment in positive cash flow per year = $3500/yr profit

Have you considered REITs?

Buy a duplex. Live in one half and rent out the other half. Will save you a great many of the headaches associated with being a landlord, such as having to get up in the middle of the night and deal with frozen pipes. When you interview tenants, you will automatically filter out some of the drek if they know they will be living next door to you. Many improvements you make to your rental unit will improve your own living space and vice-versa. Any services you want to hire out, such as lawn maintenance, will be reduced in cost. Most of the tax/mortgage benefits of homestead will apply, but you will also have the flexibility of some of the rules (loop-holes) that apply to rental property. If you want to relocate yourself, you will own two made-to-rent units. If you can find a duplex that is located in a neighborhood that is otherwise mostly well-maintained single family homes, you will likely have a very easy time finding good tenants.

ether wrote:Here are the key datapoint you need to look at for every investment:

-Interest rate
-Closing Costs (Depends on state & if cash or mortgage)
-Property Tax rate
-Historic utility costs
-Age of building
-Type of construction (so you know what the most common repair issues)
-Age of roof, HVAC, plumbing, electric, foundation
-How many tenants
-Rent

The general rule of thumb is collect 2% of the property value per month in rent. So @ 100k you want 2k/month cashflow.
The reason you want 24% of your total investment in rent every year is these are your yearly expenses
Opportunity cost of capital (6%) + Vacancy risk premium (4.5%) + Maintenance & Depreciation (4%) + Property taxes (1.5%) + Water & sewer (.5%) = 20.5% of property value in expenses.

Therefore 24% - 20.5% = 3.5% of total investment in positive cash flow per year = $3500/yr profit

thanks for the breakdown...Good stuff.


This is pretty much what I understood. 3.5% is not that great when compared to 7-8% average in the stock market.

Therefore, real estate isn't a great investment most of the time. I guess I'll just buy a place if I want to live in it. I've swore to myself I will only buy in cash or at a price where I can pay off the mortgage within 4 years.

I have an unsubstantiated feeling that the rewards in real estate is either to know how to flip houses, or to bump up the ROI with leverage. Buying a house in cash is not the way to make a lot of money from your investments.

Rent tends to increase with inflation and RE tends to provide a much more stable income than stocks. It's illiquidity is what gives it an edge over bonds that are supposed to work in much the same way, cash flow wise. Unless you're leveraging your RE investment, don't expect it to yield anything close to stocks.

The reason you're including RE in your portfolio is to diversify away from bonds and stocks, right? Why wouldn't you expect this asset to behave significantly differently from those two other classes then?

Phil pustejovsky has a youtube channel. You could check it out. He's obnoxious, but after five minutes you get why he's so excited. He also advocates frugality and using your money to make more money. He seems legit. Like he couldn't be bothered to write the book, and just put it all on Youtube instead. I can't find fault with much of his reasoning anyway, and since you're an American, his advice might hit closer to home compared to a euro RE investor.

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I would have to agree with JasonR about the storage units (if you can find them). They can bring in some real good cashflow and a lot less hassle.

Why do I always gotta be different?

I like the storage/commercial idea, but I have no experience with them. In the Seattle area, anything zoned commercial becomes expensive, with property taxes to match.

While the formula listed above works well for apartments, I have never in even the darkest days of 2011 seen 2% rents on SFR.

The only real advantage of RE is leverage. Leverage and relative stability. That is why it should be in your portfolio. If you don't value it that way, there are other, more passive investments you should be putting your money and effort into.

My strategy has been to find the 2br 1.5ba with a garage home that looks like the fantasy home of every 10 year old girl. Craftsman, white picket fence, crown molding, blah blah. Too small for a family, perfect for empty nesters. I price my rent similar to a house not as nice, and but an inflation adjustment into the contract.

This gets me great renters, many applicants to choose from, with long term being the goal. Turnovers are a headache. I want to minimize this. Other than turnover, landlording is a breeze.

I started a thread, with numbers. If remember, I came out at 6% inflation adjusted.

But, buy low, sell high. Now is not the time to be buying RE retail. If you don't have an edge, now is the time to study and run numbers.

tylerrr wrote:

ether wrote:Here are the key datapoint you need to look at for every investment:

-Interest rate
-Closing Costs (Depends on state & if cash or mortgage)
-Property Tax rate
-Historic utility costs
-Age of building
-Type of construction (so you know what the most common repair issues)
-Age of roof, HVAC, plumbing, electric, foundation
-How many tenants
-Rent

The general rule of thumb is collect 2% of the property value per month in rent. So @ 100k you want 2k/month cashflow.
The reason you want 24% of your total investment in rent every year is these are your yearly expenses
Opportunity cost of capital (6%) + Vacancy risk premium (4.5%) + Maintenance & Depreciation (4%) + Property taxes (1.5%) + Water & sewer (.5%) = 20.5% of property value in expenses.

Therefore 24% - 20.5% = 3.5% of total investment in positive cash flow per year = $3500/yr profit

thanks for the breakdown...Good stuff.


This is pretty much what I understood. 3.5% is not that great when compared to 7-8% average in the stock market.

Therefore, real estate isn't a great investment most of the time. I guess I'll just buy a place if I want to live in it. I've swore to myself I will only buy in cash or at a price where I can pay off the mortgage within 4 years.

Maybe I'm being an idiot, but I'm not seeing how your math works...

6 + 4.5 + 4 + 1.5 + 0.5 = 16.5%, not 20.5%...

Also, assuming the 20.5 is correct, your return is 3.5% + 6% provided by the market, so 9.5%total cash flow / yield (NOT including appreciation).

This also doesn't take into account:

- favourable taxation - deductible interest and depreciation mean taxes are close to 0
- ability to easily leverage to enhance returns (with added risk) if desired
- much less volatility than equities
- much less liquid than equities
- appreciation potential which isn't factored into the 9.5% at all (although 6% market returns as your hurdle rate is just assumed to be true?)

A specific example is in FEB 2013, a solo 401k type account bought a 2 bedroom, 1 bath, 1 car garage brick home for $77,500, which is being rented out at $805/month.

tylerrr wrote:I want to invest 100k in real estate.

I save 4k per month, which goes into a savings account or stocks/bonds.

I'm asking for possibilities regarding real estate. What is the best long term investment in real estate if you had to invest 100k?

Would you buy a small condo and pay it off in cash? Find a small town where I could buy a 100k house in cash? Buy a more expensive home with a mortgage if I can pay off the mortgage within 4 years?

Looking for any replies/ideas......thanks

If it were me, I would buy a house in a city where I could buy a house under 100k for 1OO% debt free. But I would only do whats called an Oxford House and thats a Clean and Sober House. They are self managed like a democracy and its like having a free property manager that kicks butt. They even drug test the tenants. Its a gold none of Landlording Gravyness !

dropoutretire wrote: If it were me, I would buy a house in a city where I could buy a house under 100k for 1OO% debt free. But I would only do whats called an Oxford House and thats a Clean and Sober House. They are self managed like a democracy and its like having a free property manager that kicks butt. They even drug test the tenants. Its a gold none of Landlording Gravyness !

I hadn't thought about that, but it is probably a good bet given the opioid crisis in rural America these days and the increasing demand for transition places. How do you "sign up" a house you own to become an Oxford house?

Dragline wrote:

dropoutretire wrote: If it were me, I would buy a house in a city where I could buy a house under 100k for 1OO% debt free. But I would only do whats called an Oxford House and thats a Clean and Sober House. They are self managed like a democracy and its like having a free property manager that kicks butt. They even drug test the tenants. Its a gold none of Landlording Gravyness !

I hadn't thought about that, but it is probably a good bet given the opioid crisis in rural America these days and the increasing demand for transition places. How do you "sign up" a house you own to become an Oxford house?

You dont like sign up, you rent your house to Oxford House just like any other renter. Go to Oxford House.com and look throughout their site and there should be a phone number and simply call them and say hey, come talk to me and lets do this. Any other questions please feel free to ask me.