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I spent the first 5 years of my career in commercial real estate where I met a lot of people who started with a single house and turned it in to massive portfol

I spent the first 5 years of my career in commercial real estate where I met a lot of people who started with a single house and turned it in to massive portfolios. I asked every single person for advice on the best strategies and two points came out of those discussions: 1) Interest rates falling is the single biggest factor that allowed people to make a lot of money on real estate. (This is pointed out by the author and its worth rereading that section and really understanding it). 2) Geographic diversification doesn't work in real estate because its a physical asset that requires a hands on approach. Big developers / owners get big by buying locally and being ruthless about only buying things very, very close to where they live until they get so big that they start hiring (40+ units). Then they stretch out 1-3 miles and they don't truly geographically diversify until they get absolutely massive (200+ units). I leave this comment as a warning for those who think its a good idea to buy a rental property in Vegas or whatever. Feel free to not buy anything in SF, but what ever you do, DO NOT ATTEMPT to geographically diversify by buying a house outside the bay area if you live in the bay area. It will not be a fun time.

jorts 11y ago
Having a property manager and a home warranty can alleviate a lot of the pain points of owning a place that's not local.
- wtvanhest 11y ago
  That is a misconception. Once you do the math, a property manager is not economically feasible and a home warranty doesn't really help. Typical property management fees are 10% of gross where most properties net much less than 10% over the first 10 years of ownership in cash flow. A home warranty is usually only given for new homes as an incentive. New homes can appreciate, but if you are 'investing' you should be focused on buying at a good price, not buying at a retail price from a home builder. The home warranty second market (i.e. 3rd party home warranties) can reduce risk, but do not typically cover small repairs like a toilet not working etc. Those need to be done by the home owner, because if you hire someone every time it will cost you too much. Like I said, you will have a very, very bad time if you try to geographically diversify real estate holdings.
- prostoalex 11y ago
  Gotta agree with @wtvanhest on this - I've been a passive real estate investor for more than a decade now and between scenario A, where several distinct properties are owned and managed through several property managers, and scenario B, where a single property manager takes over multiple properties, B would offer a consistent lead all else being equal. It's just easier to scale things such as service requests, day-to-day operations, a large manager would have a better time negotiating things like paint jobs or re-carpeting due to sheer volume.

jorts 11y ago

Having a property manager and a home warranty can alleviate a lot of the pain points of owning a place that's not local.

wtvanhest 11y ago
That is a misconception. Once you do the math, a property manager is not economically feasible and a home warranty doesn't really help. Typical property management fees are 10% of gross where most properties net much less than 10% over the first 10 years of ownership in cash flow. A home warranty is usually only given for new homes as an incentive. New homes can appreciate, but if you are 'investing' you should be focused on buying at a good price, not buying at a retail price from a home builder. The home warranty second market (i.e. 3rd party home warranties) can reduce risk, but do not typically cover small repairs like a toilet not working etc. Those need to be done by the home owner, because if you hire someone every time it will cost you too much. Like I said, you will have a very, very bad time if you try to geographically diversify real estate holdings.
prostoalex 11y ago
Gotta agree with @wtvanhest on this - I've been a passive real estate investor for more than a decade now and between scenario A, where several distinct properties are owned and managed through several property managers, and scenario B, where a single property manager takes over multiple properties, B would offer a consistent lead all else being equal. It's just easier to scale things such as service requests, day-to-day operations, a large manager would have a better time negotiating things like paint jobs or re-carpeting due to sheer volume.