Hello, I've talked with a few investors who own about 10 to 15 single family properties and they have them all paid off when they said all their properties were valued between 100k and 150k. Most of them managed the properties themselves.

Why don't people sell most or all of them and take the million in cash and put it into stocks and have nearly completely passive income? Or even safer lower returning investments of 3% returns with nearly no risk in certain savings accounts?

I understand there can be extreme volatility involved in the market at times but its rarely ever more than a 10% loss and bounces back.

If you could list the pros and cons, I'd appreciate it. Thanks.

Good question. That’s me. Had 33 at one point, but have sold 11 in the past three years. All in the 160k-220k range.

Selling too many at once means lots of extra taxes. Pretty much 1/3 of my profits go towards taxes. So if you sell a house for 210k after selling costs and taxes you’re only left with 2/3rds of that to invest elsewhere.

And there is nowhere you can put it in the bank and earn 3% risk free. Can’t even get 1% these days.

what a question.

The bottom line for us is we started this company. we organized- we worked our butts off and studied. We mortgaged everything we had to own these property's and TOOK 100% responsibility for the company MAKING IT!

When you buy stocks -- what ya got? your buying into what others are doing with no control - no input-- insider trading up the kazoo. Special stocks and stock swaps and after 20 yrs what you have--? RICH portfolio managers?

Here's how I use the stock market. Not now but 10 years ago. My 401 was getting up there and I trusted what we were doing with the rentals more than the 401 so I started paying off some. Than I let some go to foreclosure and used some of that money to buy them back off the court steps. 9 property's the lenders asked us to make an offer-- we offered penny's on the dollar. I lost 7 of 24 due to debt forgiveness and the IRS but that's a different issue.

James,

Real estate is not a one size fits all product. With all that is going on in the world, I have done some 1031 exchanges that show more of a movement towards absolute passive income.

I sold a place and bought a Single tenant commercial building with a national tenant in it. The place is leased out for the next 14 years in a NNN lease. I have no responsibility and nothing but positive cash flow. In year 13, the place will get paid off.

I recently purchased a 1% stake in 14 fracking wells in two states. Where these wells will probably not increase in value, they do yield 8-13% annual yield and require me to do nothing. They should be pumping out this yield for the next 25 years........that is unless B wins the election and stops all new fracking. That means existing gas will go up in value and so will my yield.

Where you are true that stocks can be totally hands off investments, most real estate is hands on - meaning I can control not only how well it performs but if there is forced appreciation.

Myob,

A while back I had a million dollar apartment building, 8 units. I put it up for sale a got my price. The brokers commissions (listing and selling agents) plus closing costs (escrow, transfer tax, title insurance and recording fees) were around $80,000.

Then I had to pay long term federal taxes (in those days it was only 15%, and now its up to 20%) of $110,000.

Then I had to pay my California State taxes of 9.3% (in those days and now it's up to 13.3%) of $60,000.

Then I had to repay 25% of the recapture (depreciation) of $20,000.

So my total fee's, closing cost, State and Federal Taxes came to $270,000. And this does not include the new Health Care Affordable Taxes of 3.8%, which would add extra $25,000 in taxes.

So on my $1,000,000 sale, I only got a Net Value of $730,000. Then deduct the mortgage of $220,000, AND MY NET INTO POCKET WAS $510,000.

So I sold a Million Dollar Property and ended up with $510,000. These number are not exact, just from memory -- this was back in 2007.

Had I kept this property, the rent would have doubled by now and I could have a gross income of $144,000 a year, or net of $100,000 a year.

But instead I invested the $510,000 in tax free bonds with a yield of 4% (x $510,000_, equals an annual income of $20,400.

Ray,

Can you go into some more detail on your comercial property that is rented out for the next 14 years?

Also, how did you get invested into fracking?

Lastly, the returns in real estate aren't compounded unless you're continuously reinvesting into more properties(unless you're factoring in appreciation).

$1M invested in the stock market at 7% for 20 years gives you about $3.8M for doing nothing

Ray,

Can you go into some more detail on your comercial property that is rented out for the next 14 years?

Also, how did you get invested into fracking?

Lastly, the returns in real estate aren't compounded unless you're continuously reinvesting into more properties(unless you're factoring in appreciation).

$1M invested in the stock market at 7% for 20 years gives you about $3.8M for doing nothing

Instead of just purchasing a multi family - you grow to the point where you need to take it up to the next level. That next level is a NNN lease property. There are lots of the them. Many of your regional and National franchises are not in the real estate business. You want them as your tenants.......so what are some examples: CVS drug store, ALDIs, Tractor Supply, Burger King, ASPEN Dental, Cracker Barrel, Marathon, Apple Bees, SONIC, Joann Fabrics and Pizza Hut.

NNN works as you as a LL don't get the top dollar you could get, but there is no maintenance, no taxes and no insurance.

James,

With $100 you buy $100 of stock.

I can think of many reasons.

1) I got into rentals for the sole purpose of diversification. Previously I had all my money in the stock market. I have an MBA in finance, and knew that it's not smart to have all the money tied up in one type of asset.

2) Owning a business for tax purposes. Owning a business gives you certain tax advantages, such as the ability to buy tools to do work on the properties...can't do this with stock market earnings. Those tools, while primarily used on the business, come in handy sometimes on your own house!

3) Anticipation of appreciation - Some people think housing will go up in value, and when added to the return from rents, they think this will outpace the stock market.

4) Knowledge - Some people know about houses, or know about managing people, or both...but they know nothing about how to choose investments in the stock market.

When I said there were many asset classes in real estate, one of the most over looked ones is OGM. When buying mineral rights you are buying a commodity. But unlike buying gold or pork bellies with OGM you can deffer capital gains and qualify for a 15% energy tax credit on the monthly check they send you.

Ray,

Thank you for the information. Where do you typically find deals like the $100 option on a 100k property? And how is a deal like that structured?

"Lastly, the returns in real estate aren't compounded unless you're continuously reinvesting into more properties(unless you're factoring in appreciation)."

Returns in the stock market aren't compounded either unless you continually reinvest into more stocks. Which would you rather have the $3.8M after 20 years in the stock market or something North of $8-10M after the same 20 years investing in more real estate. There are many good strategies for making it a more passive investment. Hiring office workers, book-keepers, maintenance people, people to bird dog deals, and/or property managers can make it as passive as the stock market with more control over the business, higher returns, and generally less big swings in value. Recognize, most don't start here, they work their way into it as their wealth grows.

Another vote for the portfolio managers getting rich, while the accounts are lucky to stay stable. That's how things are with DH's retirement plan through work... it's gone up, but all the growth has been eaten up through commissions, etc, from the management.

Before that, at a previous employer, we watched his 401k shed value like nobody's business. They were ultimately just imaginary numbers on a piece of paper. They might have been managed by a faceless human, or by a computer program, or whatever... but each month, it would be worth thousands of imaginary dollars less than the previous month's imaginary dollars. We weren't going to trust our retirement to something as arbitrary as that.

That's why we got into real estate in the first place: control and tangibility. I can touch a house. If good stuff happens, it's because I did well. If bad stuff happens, it's probably traceable to one of my decisions, and I need to learn to not do that again. If a disaster strikes, there's a good chance that I lost control in a serious way. If I need my money back, I can sell a house. If I need some money back, fast, then I can lower the price. But otherwise, the houses each give me a predetermined $x/month, this month, next month, and the month after, etc, etc, etc...

My time and attention are necessary because I wanted control in the first place, not easy money. The returns are what makes the stress and oversight worthwhile-- I don't have to worry about manufacturing doohickeys, or marketing doohickeys, or shipping doohickeys. All I have to do is provide clean/safe/functional housing to someone who wants shelter and is willing to pay my price for it. After that, it's just a matter of maintaining major systems and keeping an eye on things.

Suppose I have 20 houses that are worth $50k each. That's a million dollars' worth of houses. And suppose each of those houses grosses $5k/year, on average. That's $100k/year. Some of that goes to insurance and taxes, vacancy and turnover. Some of that goes to replacing major systems when necessary-- roofs, cha, etc. The rest of it gets rolled into the next renovation, and you keep on growing until you're happy with where you're at. Then you keep on maintaining things, until you've got something better to do with the money that's locked up in the houses.

Leverage. Borrowed $1500 from Grandma, paod her back from profits, that house is now worth $75k, free and clear, all repairs, mortgage, and monthly cash flow provided by residents.

Tax shelter. Paid ZERO income taxes for YEARS.

Appreciation.

Cash flow while the values rise. Not so with Wall Street.

I understand RE but not the stock market and already lost $125,000 in it when one person in England tried a hostile takeover.

I see the stock market as gambling.

Real estate bin gud to me.

Interesting discussion. The second property I purchased for $42,500 is now worth just under $700,000. In 74 the rent was $410 and today’s rent is $2700. It’s been paid off for years because of our prop 13 and my property taxes are a little over $1000 a year.

Our two sons will inherit it and get a stepped up basis for taxes ifthey decide to sell it immediately. As teenagers they helped me with the property and they will reap the reward 60 to 70 years later.

This is the kind of discussion I enjoy the most on here. I agree with Deanna (Tx) and am in that situation. With 21 properties that we have worked hard to acquire & fix up, my biggest problem is dealing with the people. So I avoid turnovers by keeping rents too low. As I gradually increase our rents, I have to advertise, screen & re-rent more often with the added expense of turnover repairs. That adds a stress that I don't enjoy.

Right now, all of our HVAC units are getting old, but we have a good guy that is looking out for us selling us great used units that he replaces when people just want to (like purchasing a new to them home). We are having to replace a few roofs also, but we have a good guy for that too.

We do have some money in the stock market but I worry a little about that. (Banks & utilities, & Clorox).

...When I do, it will be because I'm tired of regulations, or my attention needs to be elsewhere due to failing health, or I'm tired of dealing with people. But not because I've lost my desire for control--- ...

This is where I've been the past few years. I sold off all but one of my multi units - although they were cash cows (especially the one with the small bungalows -I guess today they'd be called tiny houses). I was tired of dealing with them. I purchased small single family properties for appreciation. Appreciation is here a lot sooner than I expected so I've been selling those these past few months.

Now, I'm antsy. I've got a pile of "work cash" and no where to spend it. There are few bargains or deals out there. I've never done (didn't need to) send the type letters "I'll buy your house" so those deals aren't flowing my way. A TON of people in my area do that already and seems like anew TON of outside folks have also appeared recently - I guess due to lack of inventory everywhere. Never flipped a house. The market will turn and I'll be ready with my money but if that takes a few years apathy may really have set in.

You just have to have every sort of tender their is. Silver coins, gold coins, buildings and cash. It's not just people that cause trouble. The sun does also. It can blow off part of itself and knock out all of our wonderful electronics and send us back to the 19th century. There is a big nasty sunspot right now spitting out energy. Solar Maximum has returned.

More thoughts:

Paying off debt is as valuable as an investment. Less bills = instant increase in cash flow.

Me? If Wifey and I die today each child will become an instant multi-millioniare with a significant cash flow.

BUT...

It's not MY job to provide for them as adults.

We are not holding, managing, sweating over rentals to give them an inheritance.

We raised them, straightened their teeth, and paid for their solid college education. Fly little eagles! They are all doing very well on their own.

I have made it clear to them the portfolio Wifey and I built is OUR money, not theirs. We are spending it.

Kid: Dad, are we rich?

Dad: *I* am rich and you live in my house.

One more...

My Dad did something wise. I believe he got an early warning to his fatal disease. While still healthy during his last year he spent a lot of money "beefing up" is rentals and the homestead before losing his health. New roofs, furnaces, paid off debt, etc.

After he died his handful of rentals, with our management assistance, gave Mom a handsome lifestyle.

BRAD

I have to say, I really appreciate these high-level discussions from people who've figured out the day-to-day work of rental property and are now looking at what to do with the little empires that we've all built.

Over the last 30 years, I built my own little "empire" of duplexes here in California. I've never had to evict anyone and never been to court for the rentals - except for a roofer who I stupidly paid early and then he didn't finish a roofing job on one of them.

I'm retiring in the next few months and I wanted to mention that for those of you afraid of the stock market, my experience was never very good when I was investing on my own. First of all, my stock investments were only in 10 or 12 companies which was never diversified enough, and I could never stay on top of what was happening in the market so I found a company, a fiduciary company, who's only charges are based on how well my account does. The account is in my name with Schwab and they have no control over it other than to move funds around once in a while. They invested my account in about 70 different companies across several business sectors, in the US and abroad. They make changes occasionally, but rarely - less than 20 trades in the last 12 months. They have several hundred employees who all have impeccable financial credentials and know what they're doing because they do it full time, and you can tell they like this stuff. I have to say, I'm happy to pay their quarterly fee because I don't have to do all the homework. I enjoy checking in daily and see how my money is working for me and am happy I have people who know what they're doing do what they do best. I'm very happy with the rate of return, even considering that today was a tank day for the market.

We have worked several financial advisors over the years, the last one being hand-picked by Schwab. You had to have X dollars in assets to play. It was a smaller firm as we wanted to be bigger fish in a smaller pond, but a well-regarded one and their advice was sound.

It was good while the market was good, but when the market tanked (2008?) we went down along with the rest. That happened to be the third major crash we had suffered over the years and just re-emphasized our commitment to real estate. We had no control at all over any of the crashes.

AND for those of you who say just wait, it comes back: what if you ARE retired and depend on that income to LIVE? If you *have* to take money out during a down cycle, it's gone, no way for it to bounce back.

My FIL's income was fully half what it had been by the time he died in 2009. The value of his portfolio was half.

I'm in my sixties. Started investing in stocks in my 30s, RE in my 40s.

RE has WAY outperformed any of my stock and bond investments. It's harder work, but it provides us with a very comfortable lifestyle.

I enjoy the hunt. I enjoy the repairs, bringing a dog up to a nice property, and making the sweat equity that goes along with that.

Gevans, ditto all of that, except we didn't start RE until our 50's.

James - Not sure how old you are but some very good information here about RE and the market.

It seems you are developing a wealth plan - good for you - most people just wing it when it comes to planning for later years.

As others have noted diversification is probably the best route.

My RE has been part time for about 25 years - 2 or 3 SFH - bought and sold and made a very good profit every time I sold. All cash flowed and provided a good tax break.

For me it has been the other skills you pick up from RE - repair - dealing with tenants - lease contracts - dealing with contractors - financing and on and on.

I was fortunate enough to have a great full time job that paid very well and now I have a good pension with good

medical.

Also 401k from work now an IRA managed by a IFA.

And I have a 60 acre pine tree farm.

Multiple sources of income.

A few thoughts - knowledge is power - A successful LL must be smart and pro active.

Understand about the market that Return is about RISK. It took me a little to long to learn that. Never stop learning - when it comes to investing do your HOMEWORK.