Gyroscopic Investing

amp wrote: Really?  You consider it a "consumption item"?  What other "consumption items" not only retain their value, but keep pace with inflation, and can be financed for 30 years at 4% fixed?

I definitely believe your home is a consumption item. No doubt for me about that. It costs money to upkeep, pay taxes, repair, etc. And if you move and sell it, you need to take the proceeds often to put into another house that has gone up just as much in value. So you can't really harvest the profits effectively. Not to mention you have a lot of money tied up in the house in other ways.

Now if you can effectively run rentals that is another story they can be profitable. But I openly admit I don't have the personality for it so I don't do it myself. But I still consider that activity highly speculative.  

If it's a rental, then it should produce some income otherwise you shouldn't buy it!

Yes but that's the rub! You can buy a rental and then find out it was a bad move and it loses you money. There is a certain skill to doing it well.

Like everything in life, there are pros and cons to real estate.  Frankly, I'm surprised at how dismissive many "savvy investors" are about real estate.  

Like I said I don't have the personality for it and have known many people burned by it. But that's just my experience. I'd rather just buy REITs if I wanted to play with real estate. You get the dividends, but don't get the calls at 3AM about a leaking toilet.

When I was 18 I got turned off to rentals when I was working at a locksmith. We were called out to a townhouse in a nice area that had the door kicked in by a drug raid. The home was rented to people that turned it into a drug flophouse. Because tenant laws work to protect the renters in many cases the landlord had a hard time evicting. To make a long story short when we got there we went inside and the place was destroyed. We went outside to get our tools and my pants were covered in hundreds of fleas. It was disgusting. It made an impression on me about the risks of operating a rental for income. I'd rather not deal with the hassle. But again, that's just me.

But also I do agree with the Eichholz study that long term real estate is often not a good investment:

http://arno.unimaas.nl/show.cgi?fid=10696

Thanks for the comments Craig. I completely get where you're coming from. Given the tax advantages and cheap borrowing there are certainly some advantages to buying in the US right now. That could change (which is where the speculating comes in), but there are many advantages. One of he last free lunches tax wise if you don't mind moving often is fixing up and reselling your home. It takes skill and a lot of hard work, but you are compensated for it.

As for being a landlord, I see it much like cleaning carpets for a living. It's dirty, stinky, back-breaking work that nobody wants to do. That's where the opportunity is. At least for those with strong backs who don't have chemical sensitivities - which rules me out.

I may make another post regarding mortgages based on this weeks HB reading. It definitely seems like paying off our house puts us in the position of lessening our stock exposure...

alvinroast wrote: As for being a landlord, I see it much like cleaning carpets for a living. It's dirty, stinky, back-breaking work that nobody wants to do.

As an "accidental landlord", I haven't found it stressful or hard, but as an investment it just doesn't make an awful lot of sense.

For example last year my ROI was ~5%, but it's tax inefficient, inflation was running at 4 - 5% and I think value went down about 2 - 3%.

Irrationally, I don't worry about loss with hard assets.

However it's a little galling to maintain a house to a higher standard than the one that my family and I live in.

gizmo_rat wrote:

alvinroast wrote: As for being a landlord, I see it much like cleaning carpets for a living. It's dirty, stinky, back-breaking work that nobody wants to do.

As an "accidental landlord", I haven't found it stressful or hard, but as an investment it just doesn't make an awful lot of sense.

As an "accidental carpet cleaner" I haven't found it stressful or hard, and as an investment it has made some sense. 

Medium Tex, so carpet cleaning wasn't an active choice?

property management   imho "its a job or a career not an investment" if viewed this way the difficulty's are no better or no worse than those you would have with many other jobs, and the skills necessary to do well are no harder to learn...  jumping in to it thinking its an investment is asking for trouble.. but treat it as a job/career and it might end up being a good investment as a bonus... if you are lucky.....,

MediumTex wrote: As an "accidental carpet cleaner" I haven't found it stressful or hard...

Must have been the other MT moaning about developing forearms the size of Popeye.

gizmo_rat wrote:

MediumTex wrote: As an "accidental carpet cleaner" I haven't found it stressful or hard...

Must have been the other MT moaning about developing forearms the size of Popeye.

Well, it is stressful and hard, but no more than going to the gym, and I do get paid for it.

I mostly just wanted to use the term "accidental carpet cleaner" in a sentence.

gizmo_rat wrote: However it's a little galling to maintain a house to a higher standard than the one that my family and I live in.

I think that could be one of the worst things. It's much like the way people put a lot of effort into getting their homes fixed up just before selling them.

I was originally looking for a winter getaway in the desert with a budget of $20-50k. What I realized is that I wanted the option to rent it out or sell it if possible so I would have more exit options just in case. Looking at the rents I may become an "accidental landlord" if it makes sense at any point. I think I'm a bit more suited to working on houses and renting them out in part because of my specific skill set - carpentry skills and lack of high value tech skills/knowledge - but I'm looking at it as a job rather than an investment. Worst case scenario is managing the property doesn't work out and I'm stuck with having to go somewhere warm in the winter.

I think there are many situations where it can make sense to be a landlord. My sister is now an accidental landlord. She realized that it made more sense with current home prices to rent out her old (almost paid for) house rather than sell it after moving.

That said, I really don't think I would look at my getaway property as an investment, but I like to hedge by keeping the rental option open. Meanwhile if the SHTF I could have a bug out option as well.