Real estate in ERE

[zbigi]

Real estate investing seems like a great match for ERE. The returns are historically similar to stocks, but there's little volitality to them, which gives much more peace of mind. Also, when renting out houses/flats, the DYI-aspect of ERE will translate into greater ROI. And yet, it seems that most people here prefer to invest in financial instruments (mostly stocks) instead. I wonder why that's the case (I personally would love to invest in RE, but the nearest place where that makes sense is 80 km away, which would eat into to the ROI and convenience of the setup).

[ertyu]

I'd wager the answer is that in the west, you cannot really pursue that model unless the properties are mortgaged, and being on the hook for 3 or 4 mortgages at the same time doesn't look at all fun in moments of volatility. Further, you take on the risks of being tied to a single location.

[Seppia]

Mostly:
1/ you need a LOT of money to be diversified in RE. Pick the wrong location and you’re toast. Most of southern Italy for example has RE values that are (nominal terms) below circa 2005. The internet tends to show only the stories of those who bought in LA 10 years ago or similarly appreciating areas.

2/ RE has a TON of hidden costs. Maintenance, taxes, frictional costs. Once accounting for the. The yields are much smaller

3/ if you have a number of properties, managing them is a full time job. With stocks, I click two buttons and I’m done. Relocating on the other side of the planet? Just send two forms and the stocks move with you.

[jacob]

Also, when renting out houses/flats, the DYI-aspect of ERE will translate into greater ROI.

Yup, DIY real estate investor is a clever WOG design for ERE. You're integrating not only the ability to fix things in your own home, but it translates into other homes and you get to invest or store wealth as well. And it's even local. I even make that point here https://www.getrichslowly.org/early-retirement-extreme/

However, in my case, I've learned that handyman/caretaking/upgrading/renovation creates absolutely zero sparks of joy even when it comes to my own home. I do the bare minimum. If I outsourced all the aspects I personally don't like about owning real estate, it would result in the equivalent of a REIT.

[M]

I did this for a while then got out.

The short answer is - like @Seppia says - there are hidden costs both in time, hassle, and money. It is true you can do very well e.g. all the new real estate investors who started in the 2008-2012 time frame made out like bandits and now think they are amazing when they actually just got lucky. Likewise for anyone in California for the last few decades.

But for the average person in average city in normal times - this is basically just buying yourself a part time job. Does it make sense? That depends. What other skills do you have? What do you enjoy doing? Are you a people person? If your options are to be a landlord or drive for uber, if you have the skills to be a landlord then I would choose to be a landlord. Likewise for most retail, fast food, or service jobs. Landlord 100% for the win. However if you can work as a software engineer, accountant, doctor, lawyer, plumber, etc, being a landlord probably does not make sense. Unless you really just hate the idea of having a boss.

For a certain kind of person, with a certain skill set though, being a landlord definitely makes sense. If you are good with people, good with working with your hands, but maybe do not enjoy school or academics, being a landlord may very well be your best option.

Edited: I took the money from selling physical properties and put it in REITs. Are the returns as high? Nope. But I can now take a vacation without getting call at 2 am hundreds of miles away that a water pipe froze.

[candide]

If I had a crystal ball, I could have invested in RE by "paying retail," but housing in my area (university town in a red state) has seemed over-valued to me my entire investing career. So to do real estate in most of U.S. you need to find alternate ways to buy low.

Shout out to the gone, but not forgotten MikeBos, who was able to evaluate houses very quickly and get them off foreclosure -- or whatever way in he found. If memory serves, he had mentors.

The other way to buy a house below market value in the U.S. is the vulture route. I know from personal experience that this version of the hustle is alive and well. I get plenty of cards in the mail, and even texts, from people who would just love to buy my house. They are waiting for death, divorce, disaster, or desperation to get a house for cheap. I probably get the maximum amount of these requests, as my house seems like a perfect entry point to their real estate empires; it is relatively cheap and paid off -- the second one is important because it means I could theoretically sell it at a huge loss. (Most houses this cheap are not paid off, and most paid-off houses are a lot more expensive). They forget the "what's it in for me" part. But most Americans have gone completely brain-dead when it comes to this.

I also had to kick out a vulture out of my grandparents house shortly after their death. I came back from an errand and somehow other relatives had let the person in to "look around."

[Jean]

real estate allowed me to buy FI when my savings were around 30k.
You don't really have to buy cheap.
The hard part is selecting tenant or handling poorly selected tenant.
But even at the worst time, it was less bad than a part time job.
Now it's really good, and i know the house well enough to have the tenant follow my instructions on the phone to do the minor repairs.

Also, @zbigi, watching the market in your beloved area might still be worth it, because there might be outliers.

[zbigi]

Also, @zbigi, watching the market in your beloved area might still be worth it, because there might be outliers.

Hypothetically (and maybe practically) that's true. There are a couple areas around here which are deemed highly desirable and are already priced as such (3-4x more expensive per m^2 that say flats in my area). The question is - will their value continue to rise if (when) the demographic tsunami hits around here, and the whole region loses 30%+ on its inhabitants over the next 2-3 decades. I personally doubt that the prices, incl. in the "hot" areas, will even track inflation - but it's only based on a hunch.

[Jean]

I don't know your area, and I am very unqualified to give you any advice.
But in my case, buying the house at normal price would have been a bad investement, but watching the market allowed me to buy it at an interesting price.

[Mister Imperceptible]

The question is - will their value continue to rise if (when) the demographic tsunami hits around here, and the whole region loses 30%+ on its inhabitants over the next 2-3 decades. I personally doubt that the prices, incl. in the "hot" areas, will even track inflation - but it's only based on a hunch.

If you own one house with a mortgage you are hedged against housing hyperinflation. It’s a defensive asset.

If you own more than one house, you go from playing defense to playing offense, making a directional bet, and assuming all of the costs to do so.

[Jean]

That's why ERE is great, because one house is enough to generate enough income..

[unemployable]

We're all about being cheap. And real estate in the US right now is anything but that.

[jacob]

That's why ERE is great, because one house is enough to generate enough income..

I do believe we have some house hackers(*) around here too, no?

(*) Meaning renting out rooms in the same house that one lives in.

[chenda]

Yes I almost entirely invest in property.

A friend of mine does house hacking. She became FI by renting out rooms.

I'm looking for some speculative land in Scandinavia for a long term bet.

[jacob]

I'm looking for some speculative land in Scandinavia for a long term bet.

A few years ago (pre-covid) that would have been Danish vacation homes (summer houses). Now with ECB rates receiving upward pressure it's more dubious. I wonder if "svensk odegard" (I murdered the grammar to make it googleable, it's basically remote or perhaps not so remote homesteads in Sweden) are still a thing or whether it's a place for hipster-idealists to burn their wealth in the woods. It was a fantasy of mine two decades ago, so hipster seems likely.

[chenda]

A few years ago (pre-covid) that would have been Danish vacation homes (summer houses). Now with ECB rates receiving upward pressure it's more dubious. I wonder if "svensk odegard" (I murdered the grammar to make it googleable, it's basically remote or perhaps not so remote homesteads in Sweden) are still a thing or whether it's a place for hipster-idealists to burn their wealth in the woods. It was a fantasy of mine two decades ago, so hipster seems likely.

Yes I was thinking of just buying some cheap old Swedish cabin or land and just holding it as a speculative investment. Not going to spend much.
Svensk odegard is indeed what I imagined it.

[Seppia]

I wonder if "svensk odegard" (I murdered the grammar to make it googleable, it's basically remote or perhaps not so remote homesteads in Sweden) are still a thing or whether it's a place for hipster-idealists to burn their wealth in the woods. It was a fantasy of mine two decades ago, so hipster seems likely.

It could be we are in the last moments before a blow off.
A friend of mine (italian) living in Sweden has said he heard about it from a local colleague who is a lot into RE.
My friend is intelligent enough to understand that if he’s hearing about it, we’re already in the last innings, but he’s certainly not an APE-like moron retail investor, so again there may be some room on the upside still

[chenda]

It could be we are in the last moments before a blow off.

What is a blow off?

[jacob]

What is a blow off?

https://www.investopedia.com/terms/b/blowofftop.asp

It happens when the lesser fools run out of greater fools under the prevailing narrative (investment thesis). IOW, when speculators run out of suckers as "the next great thing" becomes "the worst idea ever".

[chenda]

I'll wait for a crash then.

I've not really looked into it in any detail yet, just an idea.