3 ms·

Probably not the sexy answer you are looking for (i.e. "using my abilities"), but if you have enough free capital (for the mortgage deposit) buying a house and

Probably not the sexy answer you are looking for (i.e. "using my abilities"), but if you have enough free capital (for the mortgage deposit) buying a house and renting it out is a pretty good option. Depending on where you are you can get 5% - 15% ROI/year, and if you pay someone else to manage it, it'll be very little work. Compared to creating something from scratch and selling it, this is much more likely to pay off, and most likely requires less work up front.

collyw 10y ago
A lot of that must depend where you would be buying property, as many places (SF, Vancouver, London) seem to have maxed out their prices already. Though I may be wrong about that.
- adenadel 10y ago
  The return on investment comes from rental income, not increases in the price of the property.
amelius 10y ago
Why is this possible? Shouldn't the market automatically eliminate such easy income? Can an economist explain this?
- patrickk 10y ago
  A few off the top of my head: - Not everyone wants to lock themselves into long term mortgages, renting keeps their future options open - Getting a deposit together for some is tricky - Risk-adverse attitudes to getting mortgages after 2008 - Outside the US and the English speaking world, renting is quite popular, perhaps the default option, e.g. continental Europe. Therefore the demand is quite high for renting and lower for buying The real question is, why aren't banks and hedge funds moving into this area, using their clout to access cheap financing and then buying attractive properties en mass and renting them out. This would take advantage of the current low interest rate environment.
  - amelius 10y ago
    > The real question is, why aren't banks and hedge funds moving into this area Yes, that was implicitly part of my question :)
  - conjectures 10y ago
    Banks are involved. In the UK most buy to let landlords use mortgages to buy properties. - The banks earn interest on these mortgages. - The landlords foot the first $deposit of losses on a bad choice. - The banks don't have to pay legal fees or stamp duty during the transaction. - The banks don't have to hire scouts to find suitable properties, or management fees to run them. I'd say they're probably doing quite well out of it.
    - TheOtherHobbes 10y ago
      Indeed. If you require a mortgage for BTL, you're effectively just an agent for the bank. You take all the risk and pay the up-front costs, and the bank gets a good return for signing off a few forms. BTL has been a good deal for the last few years, but it's getting squeezed now by tax changes. It looks like a sure thing but it really isn't, because profitability is very dependent on: 1. Tenant quality. One bad tenant can wipe out a few months of income. 2. Tax changes. The trend in the UK is clearly not in favour of landlords. 3. Interest rate changes. A good chunk of BTL property is overleveraged, and a change of a couple of percent will make it unprofitable. This seems unlikely now, but I think it's quite possible after Brexit a few years from now. 4. Legal changes, including rent controls and tenancy terms. We haven't had much of this in the UK, but it could happen with a different government. 5. Expenses. Insurance and replacement can take a gross rate of 5% down to a net rate of much less. Some of these are UK-specific. But it seems likely that AirBnB is a better bet for property in a good location.
- massysett 10y ago
  "Why is this possible?" It's not. Managing real property takes considerable time, expense, and expertise. Things break and need to be fixed. Marketing must be done for vacancies. Most significantly, tenants are risky. Some will destroy your property. Some will be late with the rent. Some will not pay rent at all, requiring eviction--a time-consuming judicial process. Someone here suggested hiring someone to manage it, so it doesn't take much time. The only problem is that the manager will also soak up most of your returns. There is nothing easy about making money in real property. Some do it, but it's because they invest significant time and expertise. After that, guess what...the income isn't so "passive" anymore!
- akrymski 10y ago
  BlackRock - one the largest investment managers in the world does exactly that. After the crash they have started buying real estate at auctions in bulk, and renting it out. It helps that they pay less than 1% in interest because they have super cheap financing arranged. The higher the yield, the greater the risk. In a traditionally safe real estate market like London yields are very low - 3-5%, where interest rates (on buy-to-let mortgages) are about 3-4% - you're not making much money assuming you'll also be paying at least 1% in management fees. Most landlords just about cover their mortgage interest with rental income, hoping for price appreciation. If you look at places just outside London, you can get higher yields of 8-10%. North of England or south of Spain or some less popular areas of US you can get 15-20%, but that comes with substantially higher risk of a crash in real estate prices. When in 2007 some areas of US dropped 50%, imagine how many years it would take to earn back 100% in rental income? You can buy a number of REITs that do this already, and have much cheaper financing than you have access to, and pay 15% dividends: https://www.valueforum.com/reits/high-yielding.mpl https://www.valueforum.com/reits/high-yielding.mpl Or you can just sell PUT options. In all cases you're getting yield for taking on risk (exposure to volatility in asset prices).
- jfoster 10y ago
  In fact, if it were such a good return, passive, and risk-free, instead of handing over the capital for it, banks would do it themselves.
deleted 10y ago
[deleted]

collyw 10y ago

A lot of that must depend where you would be buying property, as many places (SF, Vancouver, London) seem to have maxed out their prices already. Though I may be wrong about that.

adenadel 10y ago
The return on investment comes from rental income, not increases in the price of the property.

amelius 10y ago

Why is this possible? Shouldn't the market automatically eliminate such easy income? Can an economist explain this?

patrickk 10y ago
A few off the top of my head: - Not everyone wants to lock themselves into long term mortgages, renting keeps their future options open - Getting a deposit together for some is tricky - Risk-adverse attitudes to getting mortgages after 2008 - Outside the US and the English speaking world, renting is quite popular, perhaps the default option, e.g. continental Europe. Therefore the demand is quite high for renting and lower for buying The real question is, why aren't banks and hedge funds moving into this area, using their clout to access cheap financing and then buying attractive properties en mass and renting them out. This would take advantage of the current low interest rate environment.
- amelius 10y ago
  > The real question is, why aren't banks and hedge funds moving into this area Yes, that was implicitly part of my question :)
- conjectures 10y ago
  Banks are involved. In the UK most buy to let landlords use mortgages to buy properties. - The banks earn interest on these mortgages. - The landlords foot the first $deposit of losses on a bad choice. - The banks don't have to pay legal fees or stamp duty during the transaction. - The banks don't have to hire scouts to find suitable properties, or management fees to run them. I'd say they're probably doing quite well out of it.
  - TheOtherHobbes 10y ago
    Indeed. If you require a mortgage for BTL, you're effectively just an agent for the bank. You take all the risk and pay the up-front costs, and the bank gets a good return for signing off a few forms. BTL has been a good deal for the last few years, but it's getting squeezed now by tax changes. It looks like a sure thing but it really isn't, because profitability is very dependent on: 1. Tenant quality. One bad tenant can wipe out a few months of income. 2. Tax changes. The trend in the UK is clearly not in favour of landlords. 3. Interest rate changes. A good chunk of BTL property is overleveraged, and a change of a couple of percent will make it unprofitable. This seems unlikely now, but I think it's quite possible after Brexit a few years from now. 4. Legal changes, including rent controls and tenancy terms. We haven't had much of this in the UK, but it could happen with a different government. 5. Expenses. Insurance and replacement can take a gross rate of 5% down to a net rate of much less. Some of these are UK-specific. But it seems likely that AirBnB is a better bet for property in a good location.
massysett 10y ago
"Why is this possible?" It's not. Managing real property takes considerable time, expense, and expertise. Things break and need to be fixed. Marketing must be done for vacancies. Most significantly, tenants are risky. Some will destroy your property. Some will be late with the rent. Some will not pay rent at all, requiring eviction--a time-consuming judicial process. Someone here suggested hiring someone to manage it, so it doesn't take much time. The only problem is that the manager will also soak up most of your returns. There is nothing easy about making money in real property. Some do it, but it's because they invest significant time and expertise. After that, guess what...the income isn't so "passive" anymore!
akrymski 10y ago
BlackRock - one the largest investment managers in the world does exactly that. After the crash they have started buying real estate at auctions in bulk, and renting it out. It helps that they pay less than 1% in interest because they have super cheap financing arranged. The higher the yield, the greater the risk. In a traditionally safe real estate market like London yields are very low - 3-5%, where interest rates (on buy-to-let mortgages) are about 3-4% - you're not making much money assuming you'll also be paying at least 1% in management fees. Most landlords just about cover their mortgage interest with rental income, hoping for price appreciation. If you look at places just outside London, you can get higher yields of 8-10%. North of England or south of Spain or some less popular areas of US you can get 15-20%, but that comes with substantially higher risk of a crash in real estate prices. When in 2007 some areas of US dropped 50%, imagine how many years it would take to earn back 100% in rental income? You can buy a number of REITs that do this already, and have much cheaper financing than you have access to, and pay 15% dividends: https://www.valueforum.com/reits/high-yielding.mpl https://www.valueforum.com/reits/high-yielding.mpl Or you can just sell PUT options. In all cases you're getting yield for taking on risk (exposure to volatility in asset prices).
jfoster 10y ago
In fact, if it were such a good return, passive, and risk-free, instead of handing over the capital for it, banks would do it themselves.

deleted 10y ago

[deleted]