I had an interesting conversation with somebody this weekend. They seemed to believe that:
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mutual funds are extremely risky and you can lose all of your money because "stocks are risky"
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the bank would continue to give them lots of money to leverage yourself, as long as you put $10k-$20k down, get tenants, then prove the mortgage is covered via the tenants rent
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he'd have access to "wholesale real estate opportunities". I felt this was tough because... the real estate market is like any market. There are people who do this full time with access to immense capital + connections. How would you average $40k-$60k/yr American citizen who has very little capital have any kind of upperhand or competitive edge against the real estate big boys?
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eventually, he would have banking + CPA connections that would help him access all kinds of tax loopholes once he was at 2, 3, and 4+ rental properties. I personally didn't understand this logic because outside of: mortgage interest, property taxes, and repair / maintenance expenses (depending on how risky and fraudulent you want to get to the IRS...), what magic loopholes open up once you decide "I'm an average citizen who wants to do rental properties"? or even "I am an average citizen who has leverage properties, where's my tax loophole?"
I couldn't find the exact math to back it up but... after real estate appreciation (minus inflation), with very little vacancy / squatter / tenant issues, coupled with mortgage interest, paired with tax deductions, what is the average ROI for your typical middle class American trying to "become a millionaire" through either residential or commercial real estate / rental properties? Isn't it somewhere like 11-14%?
We all know the US market has historically yielded 10% with dividends reinvested, and about 7% after adjusted for inflation. I think I read that real estate works well because you leverage yourself by buying, say a $400k property with very little down, then get somebody else (tenants) to build equity for you. That yields a good ROI, I'm sure. However, there's obviously risk + headache involved. I do think that you are able to eek out an extra 3-4% compared to stock (somebody please let me know if it is much more than this, or in reality, less than this), but for more headache / potential risk (I get that stocks go down, but real estate property management is no walk in the park I'd imagine)
In my case, mortgage interest and property taxes wouldn't be greater than the standard deduction. Granted, that's for one property, not 4. I just don't know how I'd get a bank to give me 4 loans for 4 rental properties on my 1 salary income. Nor would I want to have that much open debt, lol
If you make $40-60k/yr and save up $20k, the bank might give you a $250-300k loan at maximum. Now, say you use that money to buy a rental property and you can prove for 12 months that you've had rental income under a contract, etc. When you go back to the bank for a second time (say with another $20k), do they give you another $250k-$300k loan? If not that amount, how much? Or do they not allow you to leverage like that?
Submitted May 12, 2019 at 12:37PM by waltwhitman83 http://bit.ly/30fAN9h
