rental business

**zqin** Tue May 01, 2007 10:56 am

rental business
Hi blast,

I remember that you said you were in rental property business. Can you discuss the pros and cons of this type of investment. If I had $200K to invest, would it be better off to put it in rental property, or in value investing? If I were not going to take back the fund for, let's say, 20 or 30 years?

thanks

**blast_investor** Tue May 01, 2007 6:44 pm

Re: rental business
zqin wrote: Hi blast,

I remember that you said you were in rental property business. Can you discuss the pros and cons of this type of investment. If I had $200K to invest, would it be better off to put it in rental property, or in value investing? If I were not going to take back the fund for, let's say, 20 or 30 years?

thanks

Hi zqin,

Real estate asset and stock investment are 2 different type of investment assets with different risk profile and require 2 different type of skill set. Since I am not pro in real estate investment, I do not want to comment on the choices.

On the other hand, rental landlording is not pure investment, it is real business with risk involved. When you do the calculation of long term returns, you will find the cost adds up. For example, if you don't want to handle landlording yourself and hire a agent, they would typically charge 10% of all your rental income as management fee plus 1 month rental commission, plus all the repair and maintanence cost you will need to pay. For big investors, the fee would be less. But for small investors, cost can add up quickly.

I did landlording myself many years ago and found I was not pro enough in this business. I gave up and instead focus on value investing, which I can do very well.

The choice could be very personal. Value investing and real estate rental business all are very time consuming and require own set of skill set unless you follow passively the BIRTP portfolio blindly:)

**Mosguy** Tue May 01, 2007 8:38 pm

Hey all,

I work in landlording and blast hit it right on the head. It is very time consuming (landlording) and is not a pure invesment for the small guy.
The skills between value investing and landlording are totally different though.

Good investing all.

Blast, this may be a stupid ? but what does "BIRTP" mean?

thanks

**blast_investor** Tue May 01, 2007 9:45 pm

Mosguy wrote: Hey all,

Blast, this may be a stupid ? but what does "BIRTP" mean?

thanks

Mosguy,

I was referring to the newsletter I run here:
Blast Investor Real-time Plus (BIRTP)

http://www.blastinvest.com/RT_Plus.htm

zqin is member of this BIRTP newsletter.

**zqin** Tue May 01, 2007 10:57 pm

Hi Mosguy,

It is "time consuming" because you manage your property yourself and save the cost that blast mentioned as risk factors. May I know where your properties are?

Actually my real estate agent was touting a strategy that might be known to many people here. That is, pay down payment to a certain percentage such that the cash flow is zero. Keep the process and once you have a dozen of such properties, you can retire in 15 to 20 years.

I am actually struggling between buying rental property in such a way, or add my $$ into my BIRTP portforlio which is already sizable.

Mosguy wrote: Hey all,

I work in landlording and blast hit it right on the head. It is very time consuming (landlording) and is not a pure invesment for the small guy.
The skills between value investing and landlording are totally different though.

Good investing all.

Blast, this may be a stupid ? but what does "BIRTP" mean?

thanks

**blast_investor** Wed May 02, 2007 10:41 am

zqin wrote: Hi Mosguy,

Actually my real estate agent was touting a strategy that might be known to many people here. That is, pay down payment to a certain percentage such that the cash flow is zero. Keep the process and once you have a dozen of such properties, you can retire in 15 to 20 years.

Hi zqin,

OK, this "real estate pro" is touting to load huge amount of debt in order to get cash flow zero?

This is a very speculative way of running real estate business betting the price going up. Many public REITs have positive cash flow and debt, and still enjoy the appreciation of real estate price. Cash flow is the margin of safety in this business. Any incident of trouble (legal dispute with tenant not paying rents, for example) will break the cash flow into negative ground. If landlord can not pay mortgage (even just short term), the real estate will be forclosed by banks and investor losing every $ of equity.

In the long run (20 years or more), real estate price did go up, but in the short term, this is not true. In early 1990's, residential houses dropped 10% to 50% across USA for many years, and recover 8 years later in 1998. In commercial real estate, it had numerous downturn dropping 10% or more. The main advantage in real estate is leverage which can be employed by investors. Without leverage, real estate appreciation rate over long term is poorer than stock market average.

For most individual families (or investors), home is probably the best investment for the long run, better than stocks. But things are tricky for investment type real estate. There is no free lunch in this real estate business, this is true in any real life businesses.

**Mosguy** Wed May 02, 2007 5:01 pm

Hi zqin,

I landlord in nyc. And cashflow is KING when is comes to landlording the more you have flowing consistently in the better.