Comparing ‘apples and oranges’

[housingrental]

Not necessairly
Many purchase cash flow positive properties with minimal margin of safety... especially post 2004...Rental rates can drop and vacanacies can happen... so those in distressed markets that have properties that lost value can only also be burning through cash from operations from what were once cash flow positivie...
QUOTE (RCrein @ Apr 10 2010, 11:45 PM) I think this is a valuable point to keep in mind. There must be two streams of income for income properties. The first covers your effort to manage the property and should be covered by expenses for Property Management, Repairs and Maintenance and perhaps Snow Removal and Grass Cutting. These expenses are not included when calculating ROI which is the second stream of income that compensates for the use of your capital. So it would seem that if expenses are properly incuded in the property analysis that the ROI is the investment return and can be readily compared to stock market returns.

I`m not sure that investors entire real estate portfolios in the states have gone bad. Some have, more are at risk, but many can carry on. If they bought under an approach similar to the one REIN uses I would think they should still be ok. Even if the current market value of the properties has taken a major hit, properties that cash flow still make money. Have residential income properties taken the same drop as single family homes? I don`t know. If they bought based on cask flow, they should be able to sell based of income still. I suppose commercial buildings are taking a hit on incomes though. If investors are not highly leveraged, they can absorb increased interest rates and vacancies to a fair degree.

The "investors" who got hurt the most were speculators and one could argue that most stock market investments are highly speculative. I am not comfortable with the suggestion of buying stocks just for the sake of diversification. Any economic challenge for real estate portfolios would tend to affect the markets as well.

Anyway just some thoughts for consideration. Regards all.

 

[gwasser]

QUOTE (RCrein @ Apr 10 2010, 09:45 PM) I think this is a valuable point to keep in mind. There must be two streams of income for income properties. The first covers your .......

......

The "investors" who got hurt the most were speculators and one could argue that most stock market investments are highly speculative. I am not comfortable with the suggestion of buying stocks just for the sake of diversification. Any economic challenge for real estate portfolios would tend to affect the markets as well.

Anyway just some thoughts for consideration. Regards all.

All valid points and it looks like you got the drift of what I was trying to say. I just did my taxes and for me, cash flow is more from the stock market and other paper securities than from real estate. That may change overtime but for me diversification is essential and real estate is just a part (often enjoyable) of my pofolio.

Last year, real estate reduced the volatility of my investment portfolio greatly, along with bonds and preferred shares. In the years before that, real estate could not come even close to keeping up with the stock market. It varies from year to year and decade to decade. Hence, the succesfull investor requires diversification, a long term investment horizon and cash to get through the rough patches. If you don`t believe me, that is fine - I`ve got the scars and the profits to know that I am right.

Having said that, there are always more ways to skin a cat.

There comes a time in everyone`s life, where you may have to live of your investments rather than of your labors. Then you need investment skills from all over, not just real estate. Do the boring calculations of what you need to live your lifestyle (Belize) and determine how much networth you need and how to invest it. It really doesn`t matter where your income and reinvestment funds come from whether it is stock market equity, real estate or debt or gold or goldfish. But you need the skills to investment in several asset classes not just one.

Suppose you need $100,000 per year to live happily ever after. What is your cashflow from real estate? 1 to 3% (after all is paid for?) same with dividends (provided you aim for dividend paying stocks. So say on average you need 3% to live from plus at least the appreciation to keep your networth up with inflation.

So you need a minimum net worth of 3.3 million that makes 7 to 8% per year. This does not include taxes. Do you really care where it comes from? No. But what you do care about is that it keeps coming during good and bad years. Hence diversification.

There are otherways people look at what you need. If your assume that by age 83 you`re dead and you retire at 55, you only need 1.2 million or so. But there will be nothing left at 83. (Of course this is theory - real life is going to be different).

Just something to think about.