I was snooping around over at Dollar Disciple the other day and it rekindled my interest in adding real estate to my investment strategy. Real estate has always been a planned part of my asset allocation strategy, but I decided to put it on the back burner. With the stock market not wanting to play the game on my terms I’m thinking it may be time to reconsider the prospects of real estate.
I know people are as divided about real estate investing as they are about renting vs. owning their own home. For me, real estate represents another form of investing to add to my overall plan. Right now with the housing market still recovering probably makes it the undervalued asset class that some investors find appealing. I’m in a fortunate position to have a some cash I could utilize in making the purchase of a small single family home. Ideally I would like to have a 2-4plex, but for starting out I think a single family property might be the way to go.
My plan is to find a place that is in a decent neighborhood that is in need of some work. Being able to rehab a home that is in need of minor renovation will allow me to make a profit from the price appreciation of the unit as well as from rental income. Living overseas will require me to hire a property management service to handle most of the rental property business. This will be an added expense, but one that will be necessary with my current circumstances. I have a few properties that I am looking at and need to sit down and crunch some numbers to see what is necessary to get the return I want.
I go on my annual leave in May and there is a good possibility that I will come back the owner of an investment property. The rental business is full of potential risks just like investing in the stock market is. Being aware of these risks and making decisions that mitigate the known risks as much as possible is a step towards preventing unwanted losses. Just like stock investing many of the losses we incur are a result of our own behavior guided by emotion and not reason.
What do you think reader, is investing in real estate a good idea or a bad one?
The Stoic Investor 
I would say No, given your current circumstances. If you have to hire a management company, I think that will really eat away at your profits. If I ever invest in real estate, it will be in commercial or retail. There are so many added headaches that come with residential rentals. Because of this, I have been looking at some dividend stocks in the property sector, Realty Income Corp (O) and Main Street Corp (MAIN).
Really think about this and do your research. Just my opinion. If you decide the numbers look right for you and go for it, I certainly wish you all the best!
MSS– Thanks for stopping by! There are several things to consider before taking the plunge and I’m still not convinced if it is the best move at this point in my life. Factoring in the management company will be something I do before I make the purchase to make sure the numbers work. I like your idea about REITs as well.
I wish you luck!
For me, personally, being a landlord is not one title I’d like on my resume. To be fair, I’m not particularly handy. If you feel you have the time and skills to fix a place up then this could be a great place to make money. Real estate is very cheap right now. But, if you’re going to be overseas the entire time that adds an additional risk to an already risky investment. This could be a fantastic investment, but you have to consider your time and how much your time is worth as you pour some of that rare commodity into the investment. I think if I was to ever own real estate it would either be the home/condo I live in, or at the very most, a duplex that I was able to live in one side of. I know of one person who lives in one side of a duplex and basically lives for free due to the rent he collects from the tenant. He’s also on-site which vastly reduces risk.
Just my take on it. RE is certainly attractive right now from a price point, but the risks/rewards are amplified here, especially if you’re not local. If you decided to do this, certainly keep us updated!
Best wishes.
Thanks for stopping by DM! You and MSS bring up some great factors that need to be considered. I’ve went back and forth with the RE thing for a couple of years now. My biggest worry is being overseas and not being able to take care of things myself. A management company would handle most of the details and I have some people I know I could count on for repairs and such. It’s the unknowns that I can’t account for that are worrisome. I guess that is part of the risk though eh? I’ll keep you guys updated on what I end up doing.
I think real estate can be a good investment, but I agree that it might be riskier and more of a hassle if you’re overseas. If I were to invest in real estate, then I would probably buy a property REIT. However, I will admit that I am not too knowledgeable about real estate in general, so I cannot offer much in the way of advice. I will be interested to see what you decide to do.
Welcome Deedubs, glad you stopped by. Having a strong team will really be the ultimate deciding factor as to if I pursue RE at this time. I need people I can trust and not be worried constantly that things are not being taken care of. It would be easy to delay my RE investment plans till I return to the states, but I would really like to have several properties in my portfolio before then. True, it may cost me a smaller return in the short-term by having to outsource the management, but long-term I think it would still be a solid investment. Much to consider…
I think investing in real estate is a good idea, but not if you live overseas. I don’t have any first hand experience, but as others have said it’s best if you can do the repairs and handywork yourself. Maybe you will come across an amazing deal that will be profitable even with a management company. Who knows? It can’t hurt to look and crunch numbers. I think it would be best to wait until you are home permanently.
I personally don’t own real estate because I plan to move every year or two. It’s too much of a hassle and I don’t want to be tied down.
CI–Thanks for stopping by and adding to the discussion! I agree that it would be much safer to wait until I return to the states before considering RE investing. There are two downsides that I can think of in doing that. First, I’m much more able to handle any cash flow problems that would arise from owning rental properties. Things like vacancies, replacing appliances, roof repair etc. while I’m overseas and enjoying a high income with low expenses. Second, I would really like to have my rental properties purchased before I return home. There is a good possibility that I will be over here for several years. If I can build up my rental properties while I’m here that would offer me another source of income whenever I do return. The risk in following this plan is that it will be harder to manage the properties and I will have to rely on a property management company to handle most of the problems that arise. Part of my research now it talking to property management companies to see what they charge as well as how much they will oversee for owners who are not able to be hands on.
others have already made the overseas point so just add +1 from me on it. When I moved from Chicago (and my rentals there) to Cleveland many years ago I was uncomfortable even with that.
Seems to me that now is an especially appealing time to invest in single family homes and were I to do it I’d be following DD’s path.
but at this point, for me, if feels too much like work. 🙂
I agree, single family housing has some incredible deals right now if you’re a buyer. I’m still doing a lot of research at the moment, trying to find out about properties when I can’t actually be there is challenging, but if I can narrow the selection down to a few that sound best I can get my dad to take a look at them and tell me what he thinks. Since he has had years of experience with his own rental properties and renovations I trust his opinion.
Being an absentee landlord seems to be the biggest concern of everyone so far. This has caused me to focus more on this aspect and see if the risk can be adequately managed. That risk has to be weighed with the knowledge that now will quite possibly be the best time financially for me to move into rental property both from and income point of view and with low market prices of such properties. Still a lot to consider…
My niche site is about real estate rental property and personal finance.
I’m the owner of several rentals in Los Angeles and I used to be an investment banker. Some of my rentals are 4 untis and most are 5+ (commercial property). It has been highly lucrative for me and I have written several articles about it.
You should check out my “Real Estate or Stocks” and “Should I be a Landlord?” I think it can provide you with a lot of good information to help with your decision process.
Please let me know if I can be of any help 🙂
talineine– Thanks for stopping by! I enjoyed taking a look at your blog. Since you’re currently a landlord let me ask you a question. It seems most of the readers consider it to be a risky move to enter the rental buisness while I’m overseas. What are your thoughts??
I agree with the readers. It definitely is not something that you want to get into while overseas.
Everything from looking at a property, doing a walk through, seeing the current tenants, inspecting current leases, finding the right lender, realtor, etc…is in my opinion too difficult overseas. Especially if it is your first income property.
Even being an experienced landlord with several rentals, I wouldn’t make a final purchase while overseas.
*Sigh* You guys are really raining on my parade of building a real estate empire. 😉 I can’t say that all of your thoughtful comments have made me decide against RE investing at this point, but they have given me serious pause to decide on how to manage the risk. Here is what I’m contemplating and I would love to hear your thoughts on the soundness of the plan from anyone who cares to help. Two heads are better than one right?
For the last several months I’ve been looking at potential RE investments, actually more like the past couple of years. I have an idea of what I’m looking for for the first property: single family residence, decent neighborhood, distressed (as in needs some work, but not major structural issues). The few that are on my short list of possibilities are under 50k and meet the above criteria. I have someone that I trust and has experience in renting and investing in RE who can do an initial walk through and see if it is a viable candidate for selection. If it passes this test then I will get an inspection and do a title search to see if the property has any liens against it. I’m not worried about lenders as this first purchase will be cash. I know it is better to use leverage and in the future I will, but for this first one I don’t want the headache of trying to get a mortgage. That said, in the future once the house has the work done to improve its value I will look at cashing out some of the equity to purchase my next property. I’m looking at property management companies now and seeing what is offered and how comfortable they feel working with an absentee landlord. I also have someone lined up that can take care of maintenace issues if/when they arise. I’ve been overseas for going on three years now. I have a CPA, lawyer who can write up the lease, and a POA to to handle legal matters in my absence.
Now, this sounds great on paper and I know that there are things I’m not considering. Truth be told, I go into most big moves like this expecting the worst, but working to attain the best outcome. At worst what happens if this blows up in my face? What I can think of is this: there are more complications on getting the property renovated, unexpected expenses, legal issues etc. Lets say that once I work through all that I find that after my first year of renting, landlording sucks, what then? I sell. I now have a renovated property that has more equity in it than when I bought it, I sell and take the profit. Even if I have to hold for a significant time before selling I have a property that does not have a mortgage. My holding cost would be lower.
So, there is my perfect plan in my imaginary perfect world. Let me know what you guys think. Don’t hold back, I have thick skin. If you think I’m being naive tell me, but explain why and help me decide if the obstacles can be overcome. Thanks guys.
I own a number of real estate units even though my focus is stock market. Just recently I made a post on investing in real estate vs stocks and stocks came on top in my analysis. Here is a quick example from my own experience with remote real estate ownership:
Owning a property that was 1.5 hours drive from my own residence was an experiment that somewhat resembles your case. The decision was to hire people to deal with the condo to as much as possible and only travel when my personal attention was a must.
– Tenant selection was done by my real estate agent. One month rent went to him for that; which is $1,500 I could have saved by doing the work myself had the unit been nearby.
– For an unrelated reason we decided to sell after 1 year. Potential buyers provided the feedback that the unit is very dirty and prices came in lower than we hoped. Again, I would have gone and made and assessment of the unit myself, would have spoken with the tenant about cleanness had I been the one to select them in the first place, etc. Being a “remote” landlord I relied on the real estate agent one more time to deal with the case. Not surprisingly the tenant refused to clean up.
– We were lucky to sell the condo at a reasonable price with the condition that the unit will be professionally cleaned. I hired help and they spent the day cleaning the place. The buyer went in the next day and complained that the place is still dirty, hence I owe them additional $300 for cleaning. Again, without personal presence I could not verify accuracy of their statement.
All’n’all it was quite an experience and I am glad to be out of the situation. Of course every case is different and I wish you all the best with the upcoming purchase.
Hi AverageCFA,
Thanks for stopping by and adding to the discussion. I’ve really been struggling with what to do. On one hand I feel that now is the best time for me to branch out into RE investing. On the other hand I wonder if the headache will be worth it. In 15-20 yrs. I do feel it is worth it, but short-term it might be a bear to deal with.
An old joke says that if you miss your goal, did not achieve anything that was planned etc, etc, then what you got is “an experience”. At the end of the day, why not give it a try? Real estate made many people well-off. It is harder to invest and maintain a property when you are oversees, but who said its impossible? Just don’t put 100% of your money into it and think in advance of an exit strategy if things go wrong. Number one on the exit list in my view should be the topic of eviction of tenants. Then the topic of selling your property. Once those 2 are covered – you are set to sail. Perhaps that one purchase will help build an empire….
AverageCFA– I like your idea of having an exit strategy. I have not given up on the idea to RE investing, but I am trying my best to weigh the pros and cons of doing it while overseas. Thanks for stopping by!