I think I might be the ultimate contrarian

[TexasHusker]

Interest is 3.5%
Property tax is 1.5%
Hoa if there is one, 0.2%
Insurance is 0.5%
Maintenance is 1%
Inflation is 2.5%

That's the true cost of hone ownership.

Don't just think your interest is low so that 3.5% is all you need to beat in order to build wealth.

Add all that up and you are closing at 8%. If you can rent and get a 10% dividend plus a 3% appreciation, then you are only getting about 6% on top of your investment.

I'm not getting how 2.5% annual inflation adds another 2.5 percentage points to your effective interest rate on a mortgage. That simply isn't the case. A fixed rate mortgage of 4% or less is a defense AGAINST inflation, as the loan amount and interest rate are static.

My house payment has gone up about 8 percent in 16 years due to increases in taxes and insurance. And if you rent, you can bet the landlord is passing these increases on to you as the tenant. I know I do.

[Nika]

Buying vacation homes to rent can produce nice profits, too.

I own 4 vacation homes, worth a total of around $850K. I have about $760K in them, owe about $300K, but they produce around $120K per year in rents, plus I have some really nice places to stay whenever I want to vacation!

The income yield on these isn't as much as a traditional rental, because I'm paying for furnishings and all utilities. However, all of that is tax deductible expense, and I have an annual depreciation deduction of around $25K per year, which amounts to another $7600 or so per year in my pocket.

However, the PRICE APPRECIATION potential is what I am banking on for these investments, as each of these is on blue ribbon trout streams and they aren't making any more of those.

I'm hoping to cash out of 3 of the 4 of them in 15 years for a tidy profit, and keep the other one to frequent.

Vacation home's worth is very much tied to the economy and the stock market. During economic uncertainly these are the first things to go. Vacation is the easiest thing to cut when people are scared, and when bonuses and jobs are threatened, first thing that goes on the market are the vacation houses. You don't have that much control - if a couple of your neighbors are desperate to sell, they will sell at whatever they can get(pool of buyers dries up like crazy), and those comps are a killer.

That's what happened here during the financial crisis. Well to do New Yorkers dependent on their bonuses had second properties. When bonuses dried up, to keep their primary apartments the second homes went for sale in a flood and you could not give them away. It recovered since than, but the recovery pretty much mirrored the stock market recovery. When people see their balances go up, they feel confident about vacationing or buying property. So the stock market will effect the property price to almost the same degree as it affects mutual fund price. At least these are my observations for my local area.

[TexasHusker]

Vacation home's worth is very much tied to the economy and the stock market. During economic uncertainly these are the first things to go. Vacation is the easiest thing to cut when people are scared, and when bonuses and jobs are threatened, first thing that goes on the market are the vacation houses. You don't have that much control - if a couple of your neighbors are desperate to sell, they will sell at whatever they can get(pool of buyers dries up like crazy), and those comps are a killer.

That's what happened here during the financial crisis. Well to do New Yorkers dependent on their bonuses had second properties. When bonuses dried up, to keep their primary apartments the second homes went for sale in a flood and you could not give them away. It recovered since than, but the recovery pretty much mirrored the stock market recovery. When people see their balances go up, they feel confident about vacationing or buying property. So the stock market will effect the property price to almost the same degree as it affects mutual fund price. At least these are my observations for my local area.

Agree on all of that - you don't sell vacation homes when the economy is in the tank.

BUT...the economy has never affected my rental income to any degree. While during good economy years people are traveling a thousand miles to stay in one of my properties, during the bad economy years, people were traveling 250 miles to stay in one of my properties.

And while my returns might be in the same ballpark as the best Janus Fund over 10 years, Janus isn't providing me 30 days a year of a vacation home where I can catch trout off the back porch.

[parafly]

If real estate is where your passion lies and you feel most comfortable, then by all means go for it.

For the vast majority of people, the equity markets have been and will continue to be the most sensible and accessible vehicles of wealth growth available in today's world. It's easy, it's proven, and it requires the smallest level of effort and active involvement to succeed.

[corn18]

I'm beginning to resent the inference that we are stupid.

[TexasHusker]

If real estate is where your passion lies and you feel most comfortable, then by all means go for it.

For the vast majority of people, the equity markets have been and will continue to be the most sensible and accessible vehicles of wealth growth available in today's world. It's easy, it's proven, and it requires the smallest level of effort and active involvement to succeed.

Investing isn't my passion, but it sure is a lot of fun.

Investing with the herd is generally going to produce herd-like results.

Contrarian investing has produced some really good income for me so far.

[TexasHusker]

I'm beginning to resent the inference that we are stupid.

I'm not claiming anyone is stupid. I just don't like the equity markets as a means of achieving financial independence, for the reasons I have laid out.

[LivingAlmostLarge]

I can see it both ways. 97guns mentioned timing the market and retiring in california. He also has mentioned that he's still single without a family to provide for both financially and medical insurance. Very different scenarios and he'd be the first to agree retiring with $300k single or with family.

Second I read Rachel's blog 5 years to financial freedom investing in a lot of real estate for $8k/month passive income. She does a fantastic job of explaining returns on properties, has a property manager and still works. She uses her income to because she has to pay off properties in 5 years because of seller financing was done. She also previously had rentals she lost in divorce. So she wasn't naive or inexperienced jumping into purchasing multiple properties from an owner who was selling to get out. But it hasn't been easy. And I find that it's taken quite a bit of cash to help it along. I wonder what she would suggest or recommend for people without her cashflow? I believe she has a $80K+ income and wasn't paying on her primary residence for a few years. That puts things into very different perspective. Her entire income was used to fund this project. She's got amazing nerve and planning but some of the risks she took I'm not sure others could duplicate.

So are there people making a killing on RE? Yes. I also know those who made a killing in the stock market and retired as well. But I think those are more outliers than the norm.

[TexasHusker]

I know a fair number of people whom I would consider millionaires. I don't know of any of them that got there from investing in the equity markets. Not a single one.

All are business owners or are very highly paid professionals (a few surgeons), or a little of both. Even the doctors are quasi-business owners in most cases.

I do know a fair number of folks who are functionally retired who have invested in various types of RE. Land, commercial, residential, flips, rentals, share-crop arrangements, and so on.

You are going to have a difficult time finding someone retired and living independently because they dollar cost averaged into the Fidelity Target 2020 Fund. Those TV advertisements inferring such are statistically a fat lie.

[autoxer]

The greatest contrarian of them all set up a trust for his wife with instructions to invest 90% of his remaining estate in an S&P index fund and 10% in short term government bonds.

[corn18]

I know a fair number of people whom I would consider millionaires. I don't know of any of them that got there from investing in the equity markets. Not a single one.

All are business owners or are very highly paid professionals (a few surgeons), or a little of both. Even the doctors are quasi-business owners in most cases.

I do know a fair number of folks who are functionally retired who have invested in various types of RE. Land, commercial, residential, flips, rentals, share-crop arrangements, and so on.

You are going to have a difficult time finding someone retired and living independently because they dollar cost averaged into the Fidelity Target 2020 Fund. Those TV advertisements inferring such are statistically a fat lie.

I'm sitting with one of those people that don't exist right now.

[TexasHusker]

I'm sitting with one of those people that don't exist right now.

[Fishindude77]

I'm with Husker on this too. Most of the wealthy people I know did it via business rather than the market.

Having said that, most sock away some of their nest egg in the market to preserve it, to have it readily available, and to hopefully beat inflation and make a little extra income.

[LivingAlmostLarge]

My parents and in-laws both made million or more with the stock market and not with investing in real estate. My DH and I sit on a million in cash right now invested the bulk of it. No real estate. I'd like to but my DH is too leery. Plus everywhere we've lived it's never made sense to invest in real estate, the returns have never been generous enough for us to take the risk.