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Hey all,
TLDR; I did a revamped overall benefit analysis of my rental for the next 22 years and concluded it is marginally better [$362k for real estate] than just investing in the market [$231k], but not as overwhelming as I thought (especially factoring in the stress associated with renting a property). I'm curious about your thoughts/take, especially from someone with a good amount of real estate investing experience. Am I more or less right or is this way off track and I'm missing the point?
I did a comprehensive analysis of what I estimated the total derived benefit from a rental property would be over the next 22 years of ownership until it is paid off. The point was to see how it compares with just investing the equity in the stock market. The house was originally $130,000 and is now worth around $250,000. Rent is $1,775/mo with a mortage/interest/insurance payment of ~$1,000/mo. The home is in an above average growth area (SC), although not insanely high.
Below is a high-level overview of the analysis showing the estimated net benefit at the bottom. Of course there are assumptions, methodologies, and calculations behind each one of these numbers that I'd be happy to share if someone is interested. I tried to keep it simple.
The conclusion is that the rental appears to be the better investment by about $131k in todays dollars. Not an insignificant figure, but certainly not a "no-brainer" when considering the amount of effort and mental anguish associated with dealing with a rental (even when you have it 'managed').
I'm really curious about your thoughts; especially if you are very experienced in the real estate (as I am not). Are these numbers consistent with what you would expect or your experience? Have you personally found that this marginal advantage (assuming I am right) from renting isn't worth the effort? Is there something that perhaps I haven't considered? Another benefit or expense? Perhaps a way that you can use a house to make more money than I am considering.
An aside, what I am learning is that the primary benefit of real estate is that it is leveraged. Basically if you can cover your expenses, it is literally free equity (money). However, what I am also starting to learn is that as you become less leveraged (i.e., pay off your debt) and have more equity in the home it begins to become more and more comparable to a traditional stock with a high dividend. After all, since your equity is not leveraged, there is a strong opportunity cost argument to be made against a rental with a significant equity...you could cash out and invest that in the market. It seems like if you home appreciates quickly, it is more beneficial to cash out (invest the proceeds) and then re-leverage to maximize the primary benefit of real estate...otherwise it is arguably just a stock with a high dividend as you use leverage.
ANALYSIS
Over the next 22 years (until the house is paid of)
BENEFIT (Positives)
Total Rent (2024 Dollars) - $468,600
Estimated Appreciation (over 22 years in 2024 dollars) - ~$30,000
Total Gross Benefit - $498,600 (2024 dollars)
EXPENSES (Negatives)
(In 2046 dollars, 22 years from now)
Capital gains tax on sale - $57,729
Depreciation Recapture - $28,750
Sales Cost (8%) - $31,000
Total Future Expenses (2046 dollars) = $117,479
Total Future Expenses (2024 dollars) = $61,310
Total repairs/maint. over 22 years (2024 dollars) = $75,000 *for simplicity/conservatism it was assumed that most major repairs will occur earlier rather than later.
Sum of all expenses in 2024 dollars = $61,310 + $75,000 = $136,310
Total Expenses - $136,310 (2024 dollars)
Total Net Benefit - $362,290 (2024 dollars)
vs.
Investing in Stock Market Index Fund Alternative
$100,000 equity @ 7% for 22 years = $443,040.17 (2046 dollars)
==> $231,219 (2024 dollars)
Total Net Benefit = $231,219 (2024 dollars)
Difference of $131,071 (2024 dollars)
Is the extra benefit worth the hassle of dealing with a rental for 22 years?
submitted by /u/cynicalnewenglander
[link] [comments]
Continue reading...
TLDR; I did a revamped overall benefit analysis of my rental for the next 22 years and concluded it is marginally better [$362k for real estate] than just investing in the market [$231k], but not as overwhelming as I thought (especially factoring in the stress associated with renting a property). I'm curious about your thoughts/take, especially from someone with a good amount of real estate investing experience. Am I more or less right or is this way off track and I'm missing the point?
I did a comprehensive analysis of what I estimated the total derived benefit from a rental property would be over the next 22 years of ownership until it is paid off. The point was to see how it compares with just investing the equity in the stock market. The house was originally $130,000 and is now worth around $250,000. Rent is $1,775/mo with a mortage/interest/insurance payment of ~$1,000/mo. The home is in an above average growth area (SC), although not insanely high.
Below is a high-level overview of the analysis showing the estimated net benefit at the bottom. Of course there are assumptions, methodologies, and calculations behind each one of these numbers that I'd be happy to share if someone is interested. I tried to keep it simple.
The conclusion is that the rental appears to be the better investment by about $131k in todays dollars. Not an insignificant figure, but certainly not a "no-brainer" when considering the amount of effort and mental anguish associated with dealing with a rental (even when you have it 'managed').
I'm really curious about your thoughts; especially if you are very experienced in the real estate (as I am not). Are these numbers consistent with what you would expect or your experience? Have you personally found that this marginal advantage (assuming I am right) from renting isn't worth the effort? Is there something that perhaps I haven't considered? Another benefit or expense? Perhaps a way that you can use a house to make more money than I am considering.
An aside, what I am learning is that the primary benefit of real estate is that it is leveraged. Basically if you can cover your expenses, it is literally free equity (money). However, what I am also starting to learn is that as you become less leveraged (i.e., pay off your debt) and have more equity in the home it begins to become more and more comparable to a traditional stock with a high dividend. After all, since your equity is not leveraged, there is a strong opportunity cost argument to be made against a rental with a significant equity...you could cash out and invest that in the market. It seems like if you home appreciates quickly, it is more beneficial to cash out (invest the proceeds) and then re-leverage to maximize the primary benefit of real estate...otherwise it is arguably just a stock with a high dividend as you use leverage.
ANALYSIS
Over the next 22 years (until the house is paid of)
BENEFIT (Positives)
Total Rent (2024 Dollars) - $468,600
Estimated Appreciation (over 22 years in 2024 dollars) - ~$30,000
Total Gross Benefit - $498,600 (2024 dollars)
EXPENSES (Negatives)
(In 2046 dollars, 22 years from now)
Capital gains tax on sale - $57,729
Depreciation Recapture - $28,750
Sales Cost (8%) - $31,000
Total Future Expenses (2046 dollars) = $117,479
Total Future Expenses (2024 dollars) = $61,310
Total repairs/maint. over 22 years (2024 dollars) = $75,000 *for simplicity/conservatism it was assumed that most major repairs will occur earlier rather than later.
Sum of all expenses in 2024 dollars = $61,310 + $75,000 = $136,310
Total Expenses - $136,310 (2024 dollars)
Total Net Benefit - $362,290 (2024 dollars)
vs.
Investing in Stock Market Index Fund Alternative
$100,000 equity @ 7% for 22 years = $443,040.17 (2046 dollars)
==> $231,219 (2024 dollars)
Total Net Benefit = $231,219 (2024 dollars)
Difference of $131,071 (2024 dollars)
Is the extra benefit worth the hassle of dealing with a rental for 22 years?
submitted by /u/cynicalnewenglander
[link] [comments]
Continue reading...
