TSP + Real Estate Mix

[bloobs]

Curious about those who supplement real estate into your retirement portfolios. Anticipating a correction of some sort in the coming year to 5 year window that may present an opportunity to buy in. But with RE, location is key. My area has proven to be very resistant to severe price drops since the beginning of civilization, so I'm considering an out-state purchase of multi-unit housing (multi-units apparently don't exist in my and neighboring zipcodes either). First as a 2nd home or pure investment play, then perhaps in retirement I can downsize in one of the units while renting out the remainder to pay my mortgage outright.

Any insight would be welcome on your experiences/plans.

[Bubba]

Curious about those who supplement real estate into your retirement portfolios. Anticipating a correction of some sort in the coming year to 5 year window that may present an opportunity to buy in. But with RE, location is key. My area has proven to be very resistant to severe price drops since the beginning of civilization, so I'm considering an out-state purchase of multi-unit housing (multi-units apparently don't exist in my and neighboring zipcodes either). First as a 2nd home or pure investment play, then perhaps in retirement I can downsize in one of the units while renting out the remainder to pay my mortgage outright.

Any insight would be welcome on your experiences/plans.

I owned a rental a few years back. It was too much of a headache. I'm also not handy at all, so I was reliant on calling companies or asking relatives for help. Also, every time there was an issue, it was at a terrible time due to family emergencies, etc. I think if you're handy that owning property(ies) isn't a bad option.

I compared this to owning some solid REITs. I found the solid REITs to provide me with less headache and almost the same return (once you discount for costs of maintenance, insurance, etc.). Also, I'm not handy, so that was factored in as well. Maybe you're different?

Edit: If I was handy, then I would wait for the next recession (which according to the 3 month vs. 10 year inversion) should be around the corner. Maybe keep some cash in money markets and ready to deploy for that period? For me, I'm enjoying REITs and dividend paying stocks.

[bloobs]

Bubs - Would you recommend O (Realty Income Corp)? If you own it, do you buy and hold long term or do you trade it strategically based on market conditions?

Question for others who have owned properties, I am particularly interested in warmer states (i.e. Florida, AZ, NM, even TX/LA/GA) because of the likelihood I may occupy it at some point.

[jimcasada]

From my past experience with rental properties they can be a real pain in the butt, but can be a good tax write-off if you really need such.

[mjedlin66]

I have done really well in real estate. I am generally pretty handy. I used to fix everything myself. Now, i have a property manager and i have pretty much zero stress about our rental.

1. When I was 23 i bought my first house. I was single at the time so i rented out the other two bedrooms.

2. Age 25 i bought another house, a total fixer, one town over. I moved into the house with one of my tenants who worked in construction. We both had full time jobs and we worked on the house when we had free time. I paid him hourly. He still paid rent. Usually it was close to a wash. I rented the first house to a lady who cleaned houses for a living.

It took 18 months but we completely re-wired, completely re-plumbed, moved the kitchen to a different room (all new kitchen), re roofed, scraped repaired and repainted the exterior, refinished the hardwood floors, installed a beam then covered it in an archway where a previous owner had removed a load bearing wall, replaced all windows, etc. We sold this house when we moved to Japan. Kyla and I were newlyweds and we profited $70k in 2016. We used that money to pay off all debt that was >4% interest. I kept my student loans because my agency in the us will pay on them every year.

Also when we moved to Japan, we hired a property manager to handle our remaining house and the lady renting it.

3. While living in Japan our house was part of a DEA raid. The house cleaner who lived there was selling meth. The property managers handled the eviction, clean-up, and re-rent in a miraculous 3 days. I had to pay $3000 to the property managers above and beyond the security deposit. Legally i could have sued the house cleaner turned meth dealer. We chose not to.

4. After we got back from Japan, we moved back into our house. I forget the name (TQSE?) but there is a DoD travel benefit for return to home station that is paid out in 30-day increments regardless of how long you stay in a hotel. We slept in a hotel one night to qualify for this and then got paid for 30. On day 2 we were back in our house.

5. I bought 2 acres of land for $20k while i lived in Japan. The land was near our house back home (20 minutes away). I did nothing but cut down one tree to better expose the mountain view, then i sold it for $40k.

6. We bought another fixer. Not as intense as the first fixer. The owner had been converting the basement to living space and then he died. We bought the house and finished the conversion for about $30k, now we rent it out for $2100. The mortgage is $1350 with escrow. I re-hired our property manager when we got this house. We have had it for 3 years now.

I have refinanced my first house a few times. I did a cash-out refi to buy the rental we own right now. This was 3-4 years ago so we still have sweet interest rates on both houses.

I have done well in real estate. I am content right now. Personally i would not buy a house out of state.

[bloobs]

3. While living in Japan our house was part of a DEA raid. The house cleaner who lived there was selling meth. The property managers handled the eviction, clean-up, and re-rent in a miraculous 3 days. I had to pay $3000 to the property managers above and beyond the security deposit. Legally i could have sued the house cleaner turned meth dealer. We chose not to.

Thanks for the substantial empirical details! Personally, your item #3 above convinced me to look for another retirement hobby other than "landlording"

[jimcasada]

When my mom died she had 4 properties altogether. Instantly, I found myself to be a landlord, along in partnership with my two brothers. I love my brothers, but if I was looking to find a partner to go into business with, there is no way I would pick either one of them. My two brothers are are almost total opposites of each other. My older brother is basically all work & no play, while younger brother was all play & no work. Guess who ended up having to do 90% of all the work in maintaining these properties while my brothers fought and bickered about every little thing?

[mjedlin66]

Yeah... I don't recommend mixing family and business.

[Bubba]

Bubs - Would you recommend O (Realty Income Corp)? If you own it, do you buy and hold long term or do you trade it strategically based on market conditions?

Question for others who have owned properties, I am particularly interested in warmer states (i.e. Florida, AZ, NM, even TX/LA/GA) because of the likelihood I may occupy it at some point.

I have a list...somewhere...with REITs that are great. To be honest, I don't remember where I placed it. To find that list will take me some time.

In the meantime, what I would suggest you do is look at the returns of a good REIT list (you can look here for that https://www.suredividend.com/reit-list/) and compare that to a benchmark over time. I used FSMEX as my benchmark (it has a much better return than the SP500 over a longer period). The easiest way to do that is to use portfoliovisualizer.com. Then compare the CAGR (considering SD) and see where you get. That system is not foolproof, but when you look over a 20 year period (I used 12 to 13 as a minimum several years ago), then you will find some awesome options. Looking over rolling periods makes your data a bit more robust. My belief is that good companies tend to stay good over time. That check allows you to throw out the useless REITs too, which are often within a common ETF like XLRE or FREL. That does, however, require you to keep up a yearly (or monthly check) about news about the company. That's easy enough to do if you input that into seekingalpha.com, there's always someone going to publish on your REIT and if it's bad enough...you'll have (mostly) advance warning.

This system has worked for me over the years as a buy-and-hold thing. Others can do something else.

[hamjam916]

We used a $50K TSP loan in 2012 to purchase a 1 BR condo on Kauai. We refinanced that to purchase a studio on Maui in 2015. In 2022 we did a 1031 exchange selling both properties for a higher end 1 BR on Maui in Kaanapali. My wife managed the rental operations. The only advice we give regarding purchasing/managing rental property is:
1. Don't do it unless you have a very high risk tolerance, especially if retirement funds are used.
2. Timing is everything - you make money in real estate when you purchase, not when you sell.

[tresrios]

We are lucky enough to have two modest rentals, both within a block of our home in a small tourist/college town. They provide a 'dividend' plus the property values increases approximately 4-5%/year. For the price of a down-payment and closing costs, we essentially let someone else pay the taxes and repairs, and buy the property for us. It took 20 years but the properties are paid for now.
Location is key. As the town grows, the neighborhood becomes more desirable. If I look at the value of each property compared to our original investment, I see a gross annual rate of return of 12%. Not too shabby.
We periodically think about cashing out and investing but we kind of like the solid feeling of the rentals. I think that rental investments are more reliable in a bad economy. Meanwhile as baby boomers sit on houses, there is a growing need for rentals. In a worst-case scenario, we could sell one or both of the properties to cover any 'long-term health care' needs.
With regards to rental nightmares - we try to keep the places nice so we can attract better renters. We keep the rent reasonable and respond to renters quickly so that those good renters will stay longer. I can live with an occasional call to repair a door knob or sending a contractor to fix a larger problem. Sometimes we get a renter that is a pain in the rear end but in my experience, those have been the exception (knock on wood). I figure that overall, this is an easy way to work for the money. Meanwhile, more of our retirement savings can stay put where they can keep on growing.

[bloobs]

Appreciate all your responses so far. I'm starting to think that maybe pushing a few buttons on a keyboard for a few minutes a day buying and selling liquid assets is a far better way to make money than RE

[Bubba]

Appreciate all your responses so far. I'm starting to think that maybe pushing a few buttons on a keyboard for a few minutes a day buying and selling liquid assets is a far better way to make money than RE

That's my world. By the time I got through the headache of handling one house, I figured that wasn't for me. I'm still of the opinion if you're handy and enjoy the challenge of fixing a place, then renting is an excellent choice for you. For me, I'll take REITs instead.

[BelieveGod]

We are lucky enough to have two modest rentals, both within a block of our home in a small tourist/college town. They provide a 'dividend' plus the property values increases approximately 4-5%/year. For the price of a down-payment and closing costs, we essentially let someone else pay the taxes and repairs, and buy the property for us. It took 20 years but the properties are paid for now.
Location is key. As the town grows, the neighborhood becomes more desirable. If I look at the value of each property compared to our original investment, I see a gross annual rate of return of 12%. Not too shabby.
We periodically think about cashing out and investing but we kind of like the solid feeling of the rentals. I think that rental investments are more reliable in a bad economy. Meanwhile as baby boomers sit on houses, there is a growing need for rentals. In a worst-case scenario, we could sell one or both of the properties to cover any 'long-term health care' needs.
With regards to rental nightmares - we try to keep the places nice so we can attract better renters. We keep the rent reasonable and respond to renters quickly so that those good renters will stay longer. I can live with an occasional call to repair a door knob or sending a contractor to fix a larger problem. Sometimes we get a renter that is a pain in the rear end but in my experience, those have been the exception (knock on wood). I figure that overall, this is an easy way to work for the money. Meanwhile, more of our retirement savings can stay put where they can keep on growing.

Ditto for us. We do investments and rentals. Stumbled into rentals and they have been good to us. Location close to our home is our key.

[evilanne]

Question for others who have owned properties, I am particularly interested in warmer states (i.e. Florida, AZ, NM, even TX/LA/GA) because of the likelihood I may occupy it at some point.

Texas has really high Property Taxes. Too many people here and hot & humid most the year. I go back and forth between Texas and Wyoming.

--Bought a foreclosure in small town in WY 2020 and fixed it up...just sold it but now I have to figure out how to do an installment sale for next tax season. Made a little profit but not the best ROI since I really had no idea what I was doing and getting contractors in a small town was challenging. Overall it was a good experience and met some good friends along the way
--When I moved from Wy to TX, rented out the house in WY from 2005 until 2022; 3 tenants, last one for 9 years was really hard on the property and it has needed a lot of repairs/updates.so converting it back to a residence has been expensive but the value of the house has increased substantially and house is paid off.

One REIT that I like is ARE Alexandria Real Estate Equities

You may want to consider REITs in Qualified Economic Zones, see https://media.velaw.com/wp-content/uplo ... 62b901.pdf