I’ve got a rental that is worth about $80k and by the time I pay taxes, insurance and all else, I net about $2000 a year on it.
Not that I want to do better, but I wonder if I can sell it and put the money somewhere else and get at least the same return.
I don’t want to invest in the stock market because I’m already heavily placed there, through IRA, 401K and mutual funds. I’d prefer properties, because it diversifys me and its value tends to increase on top of the return (in spite of recent events).
But is there some other investment that I’m not thinking of? So two questions to the dopers.
What other types of investments are out there that give me a safe rate of return of $2000/year?
and
If I go with property, what suggestions (specifically where) should I purchase? (I’m currently thinking midwest cropland, that is cash rented or in CRP)
One way to invest inm real estate without all the mess of actally owning real estate is to buy shares of publicly traded REITs. They will all pay an annual dividend (ie, unlike stocks, only som$e of which pay dividends), and you can research to find the disred mix of expected dividend and investment rerturn.
A 2.5% net return? Yes you should be able to do better (looking at yield alone), hell dividends on some stocks alone can beat that. GE gives you an over 2% dividend yield and some real prospects for appreciation. Merck will give you a yield of over 4%.
My understanding (from a family member who rents out multiple properties) is that you should be looking for a 10% net. Maybe 8% today. You run the risk of losing the tenant so you want a decent return.
REITs are an idea. Vanguard has an REIT index fund even which over time has done well and has recovered amazingly well over this past year.
A few dopers myself included are getting some interesting returns from www.lendingclub.com. The lowest risk loans there could net you 5-6% even with a few defaults.
Question: is the 80 K worth on the paper, or the current market price you can realistically get? I know several properties where the worth on paper (for tax and other purposes) and the price you can get on the market when selling now is widely different - in extreme cases, you can’t sell a low-quality property in a bad location at all.
Is the location such that you can’t demand high rent? The property so old that upkeep fees are high? Both would make selling it for high worth difficult, I would think.
sorry for the hijack, but doesn’t the Lending Club lock you into a fixed low interest rate? It might sound attractive now, but if we get big inflation and rates hike tomorrow, what would your loans portfolio be worth then?
Is the 2,000 "net" before or after paying your mortgage? If it's after then comparing it to other yield instruments predicated on an 80,000 cash invesment is not really going to be apples to apples as your yield is leveraged by your loan.
FWIW how most investors will judge the value of your real estate (re buying it) will be predicated on the “cap” rate. The typical cap rate for single residential units is currently typically 9% - 12% +/- percent for units in good condition. Your unit is not worth anywhere near 80,000 to an investor if all it's throwing off is 2000 annual net cash flow.
Is the $2,000 including appreciation on the property? Obviously, real estate values are down significantly from where they were a few years ago. But - over the long run - real estate should produce something like 3-5% return in the property value that won’t be realized until you sell it.
This is pretty comparable to a stock paying a dividend. Maybe you get 2% a year in dividends, but if you’re also getting 5% a year in capital appreciation, that’s a pretty good deal.
I can’t really advise a particular investment because there are too many variables, including the question of what you’re saving for. But emphasize diversity. If your whole nest egg is all in one basket, you’re at higher risk of losing it all. Ideally, you want a little real estate, a little stock, a little bonds, a little in cash, etc.
Historically its been increasing in value about 8% a year. The last year or so, its hard to tell, its a condo and the last unit to sell was about 6 months ago for around $95K. I figure mine is worth less, mainly because I’m a pessimist at heart and avoid dissappointment that way.
Mortgage is all paid off. Condo fees eat into my investment so that I net $2000. I could get more in rent, but I haven’t because my renter is VERY VERY good and thats worth a lot to me. I didn’t buy the place originally as an investment. It was my home until I bought another place, and just kept it because there was no reason to sell it.
The attractiveness or lack thereof, to another investor of something that only nets $2000 is irrelevant, because I’d sell it to someone who will live there and not rent it out…owner occupied rules have since been passed by the condo board. (though there are a couple of loopholes)
Any given loan is locked for the 3 year term of the loan however most investors have dozens if not hundreds of loans (I just funded #19) As payments roll in you would use that money to fund additional loans which could easily be invested at “current” rates. I can almost fund a new $25 loan every month from my incoming payments on my 19 loans. The yeild calculator on my account (which updates with every payment) is sitting at 13.48% for the 5 months I have been doing this. That number is down 0.5% because I have taken several lower risk loans lately.
It wasn’t clear to me whether the OP is factoring in the price increase on the rental property (if it is indeed increasing in value) as part of the annual rate of return. In cash money yes, you’re netting 2,000 in profit in one year - but if the place is worth 80K today, what was it worth 5 years ago, and what could you reasonably expect it to be worth in 5 years? That’s always hard to predict obviously, but that value change is still worth considering. If you’re getting 2,000 a year now, and the place is worth 90,000 in 5 years, your real profit in 5 years is 20,000, not 10,000.