3 ms·

If you ask me, the best way to invest the $2 million mentioned in the article in order to retire comfortably would be rental property. Take your $2 million and

by hugh3 16y ago

If you ask me, the best way to invest the $2 million mentioned in the article in order to retire comfortably would be rental property. Take your $2 million and buy four $500K houses (or eight $250K houses, or whatever's appropriate). Pay an agent to take care of them, or do it yourself, depending on how much involvement you want. That should yield maybe $8,000 a month in rent, which after you've taken care of all the extra costs should still be enough to live on quite comfortably. Any capital gains you enjoy (and if you're smart you'll have invested in an up-and-coming area) are a bonus. The best part is that you don't need to leave some money on the table to hedge against inflation, since in the long term rent will pretty much keep pace with inflation. There are areas where this is a completely terrible idea due to rent controls and other landlord-unfriendly policies, obviously you shouldn't do it there. Also, avoid any area where you're likely to get undesirables as tenants.

brc 16y ago
Improvement on that is avoid family housing and go for industrial/commercial. You can get a quality property with minimal leverage for your $2million. You will get a blue chip tenant like a national retailer or even a government department, and they'll sign a 10 year lease with mandated, upwards only, CPI-indexed increases each year. You won't even have to fork over 8-10% on a property manager because the tenant will maintain the property. And at the end of it, you'll have a property worth much, much more than what you paid for it. Compare to a portfolio of houses, this strategy is higher return, lower risk and much lower management. The problem with family housing is that they are full of families, with all the associated problems that brings. Families split up, move out, get into trouble, have parties - blue chip businesses just keep their place tidy, make money and get on with life.
- roel_v 16y ago
  Commercial property is much more sensitive to cyclical downturns than family housing. 10 or 15 year leases are mostly in either downtown, prime location property (with very limited supply) or in new developments, where you only get them once. After that you're left to the market. As usual, I think diversification if best for a stable portfolio. Mix various types of property, in various locations with various target markets, and then real estate is very sensible investment option.
  - brc 16y ago
    Yes, I'm talking about a prime location property. That's why you are putting down $2million with leverage (say $4 million total buy). Of course there are cyclical downturns, and also upturns. The idea is to get a low risk passive income, not to flip it and make money. Any blue chip property is going to stay blue chip regardless of market conditions, unless the location goes sour. But that's part of your due diligence.
- rmc 16y ago
  > And at the end of it, you'll have a property worth much, much more than what you paid for it. Unless there was a property bubble. Ireland recently had a massive property crash. Properties that were sold for €200million are now worth €20mil or less. Lots of people are stuck owning empty hotels and business centres with no tenants.
  - brc 16y ago
    Well, obviously you don't buy an overvalued or speculative property. I'm talking about the dirt and building underneath an established business, like a fast food retailer, or, like I said, a government department. For all the overvalued properties out there, there are still plenty which have maintained solid value based on solid cashflow from solid leases. As long as the lease is still going, then the value of the property is a function of the cashflow of the lease. The value of the lease is a function of the value of the tenant. If you do your due diligence all these mistakes can be avoided.
Vivtek 16y ago
In my experience as a landlord "any area where you're likely to get undesirables" includes the entire land mass of the planet. Unless you're a hands-on people person, I recommend running away from rentals as fast as possible.
run4yourlives 16y ago
Rentals are a shit-ton of work, even if you have an agent. If you always had dreams of being a landlord, I suppose this is the retirement for you, but for the rest of us, there's no way in hell this is a good idea. You will have issues with tenants. You will invest heavily in maintenance, possibly due to your tenants. You will be hogtied by municipal and regional laws that heavily favour the rights of the tenant. What you inevitably find is that if rent differs greatly from the amount of your mortgage (i.e this is profitable), all the good tenants have bought a house of their own. If it doesn't, you'll basically have a holding property that is gambling all your earnings on the property market. This isn't a very good strategy.
illumin8 16y ago
This is a terrible idea, unless you want a full time job. You didn't deduct from the $8,000 a month income - repairs, taxes, upkeep, insurance, potential loss of income due to bad tenants, tenants that damage your property - a bad tenant could cause $100K+ damage to your property and stop paying rent entirely. Also, property value loss due to deflation of the housing market, and other risks. The average price of maintenance on a house is 1-3% of its value per year - this takes $20-60K per year off the top of your income. Be sure to take taxes off that as well as deadbeat tenants. You could actually be in a negative situation, especially if you get a bad tenant that damages your property.

by hugh3 16y ago

brc 16y ago

Improvement on that is avoid family housing and go for industrial/commercial. You can get a quality property with minimal leverage for your $2million. You will get a blue chip tenant like a national retailer or even a government department, and they'll sign a 10 year lease with mandated, upwards only, CPI-indexed increases each year. You won't even have to fork over 8-10% on a property manager because the tenant will maintain the property. And at the end of it, you'll have a property worth much, much more than what you paid for it. Compare to a portfolio of houses, this strategy is higher return, lower risk and much lower management. The problem with family housing is that they are full of families, with all the associated problems that brings. Families split up, move out, get into trouble, have parties - blue chip businesses just keep their place tidy, make money and get on with life.

roel_v 16y ago
Commercial property is much more sensitive to cyclical downturns than family housing. 10 or 15 year leases are mostly in either downtown, prime location property (with very limited supply) or in new developments, where you only get them once. After that you're left to the market. As usual, I think diversification if best for a stable portfolio. Mix various types of property, in various locations with various target markets, and then real estate is very sensible investment option.
- brc 16y ago
  Yes, I'm talking about a prime location property. That's why you are putting down $2million with leverage (say $4 million total buy). Of course there are cyclical downturns, and also upturns. The idea is to get a low risk passive income, not to flip it and make money. Any blue chip property is going to stay blue chip regardless of market conditions, unless the location goes sour. But that's part of your due diligence.
rmc 16y ago
> And at the end of it, you'll have a property worth much, much more than what you paid for it. Unless there was a property bubble. Ireland recently had a massive property crash. Properties that were sold for €200million are now worth €20mil or less. Lots of people are stuck owning empty hotels and business centres with no tenants.
- brc 16y ago
  Well, obviously you don't buy an overvalued or speculative property. I'm talking about the dirt and building underneath an established business, like a fast food retailer, or, like I said, a government department. For all the overvalued properties out there, there are still plenty which have maintained solid value based on solid cashflow from solid leases. As long as the lease is still going, then the value of the property is a function of the cashflow of the lease. The value of the lease is a function of the value of the tenant. If you do your due diligence all these mistakes can be avoided.

Vivtek 16y ago

In my experience as a landlord "any area where you're likely to get undesirables" includes the entire land mass of the planet. Unless you're a hands-on people person, I recommend running away from rentals as fast as possible.

run4yourlives 16y ago

Rentals are a shit-ton of work, even if you have an agent. If you always had dreams of being a landlord, I suppose this is the retirement for you, but for the rest of us, there's no way in hell this is a good idea. You will have issues with tenants. You will invest heavily in maintenance, possibly due to your tenants. You will be hogtied by municipal and regional laws that heavily favour the rights of the tenant. What you inevitably find is that if rent differs greatly from the amount of your mortgage (i.e this is profitable), all the good tenants have bought a house of their own. If it doesn't, you'll basically have a holding property that is gambling all your earnings on the property market. This isn't a very good strategy.

illumin8 16y ago

This is a terrible idea, unless you want a full time job. You didn't deduct from the $8,000 a month income - repairs, taxes, upkeep, insurance, potential loss of income due to bad tenants, tenants that damage your property - a bad tenant could cause $100K+ damage to your property and stop paying rent entirely. Also, property value loss due to deflation of the housing market, and other risks. The average price of maintenance on a house is 1-3% of its value per year - this takes $20-60K per year off the top of your income. Be sure to take taxes off that as well as deadbeat tenants. You could actually be in a negative situation, especially if you get a bad tenant that damages your property.