What would you do?

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Submitted by Ready2Invest on April 6, 2020 - 4:58pm

Hi all,

Long time reader, first time poster.

I am relatively new to RE investing in general but have been fortunate to have parents who invested in RE for me. Below are my stats. I work in the bio-industry but have always been interested in RE investing since I ended up being the "property manager" for my parent's rentals. I have personally managed 3 properties (1 SFH, 1 condo & 1 townhome) for over 10 years, so I have a sense of what I'm getting into. I am an only child so eventually these properties will transfer to me. But in the meantime my partner and I would like to grow my own RE portfolio. My partner and I haven't invested in properties in the past 10 years b/c we just got out of school and didn't have the $ for a down-payment and my partner prefers stocks and enjoyed the last decade's bull market. Now we're re-evaluating.

So here's the question:
At this very moment in time, in the midst of Covid19 chaos, if you were in my situation what would you do? would you invest in more "residential" properties (SFH/Condo/Townhome) or in multi-family properties (2-4 units)?

Our ages: late-30s
Children: 3 little kids (younger than 7)
Yearly pre-taxed income: ~$200-250K
Current cash on hand (not in stocks/401K/roth): ~$200K
Debt: none other than monthly credit card expenses that are paid fully each month.

What would you choose?
1. Residential (SFH, condo's, townhomes)
2. Multifamily
3. Stock market

Thanks in advance for reading and your inputs :) I have learned so much reading all these forums and from Rich's monthly analysis!

Hope everyone is staying safe!

*** Edited to simplify the question ***

Submitted by Coronita on April 6, 2020 - 5:27pm.

Don't choose, do both, except home prices haven't really corrected (yet). When and how much,dunno.

Submitted by Ready2Invest on April 6, 2020 - 6:13pm.

@Coronita - when you say both.. you mean both SFH and Multi-family? I don't think our downpayment is going to cover two properties.

Submitted by gzz on April 6, 2020 - 7:29pm.

With your income, owning your own home is a no-brainer for tax and stability reasons for your kids. If you don’t, go for it.

Given that you probably already own your own home and will inherit 3 more, that’s already plenty of exposure to our local market. For that reason, I’d say focus on stocks and bonds.

My favorite stocks now are MET IRBT and KHC.

iRobot is an established pure-play and profitable robot company with pentagon contracts and I assume a nice portfolio of patents. I think it will eventually be gobbled up by a tech giant like Amazon or Microsoft for a 30-50% premium.

For your IRA, I like the taxable muni fund GBAB.

If you do want to buy property, I think City Heights will do well due to its location and amenities compared to its price. For established areas, Ocean Beach I believe has the best value. But nearly all of San Diego is attractively priced compared to rents.

Submitted by scaredyclassic on April 6, 2020 - 7:33pm.

Dollar cost avg into the stock market over 18 months, put more into REITs if u favor r.e., 90 % stocks, gold 5%, 5% bonds,

I'm stunned at how the zillow estimates on temecula housing keeps going up. Does not seem like a good deal 2 me

Submitted by ltsddd on April 6, 2020 - 8:24pm.

gzz wrote:
My favorite stocks now are MET IRBT and KHC.

My vote is to put it in the stocks market if you don't need the money for the next few years. Not a whole lot of bargains in real estate at the moment. One would expect this coronavirus thing will eventually ripple through the housing market sometime down the road.

I actually unloaded my shares in KHC today. I like KHC, but I like SLB, CSCO & BAC better at the current prices. So that's where my $ go.

Regarding IRBT, not sure what else they make other than ROOMBA. Definitely a niche market and it's losing ground to the made-in China knock-offs. Bought my first roomba years ago for $400+. Needed to replace it last year and ended up buying a couple offshore brands for about $120/each. The least expensive Roomba is about $250.

To OP - how about DRIPing the money equally between US & International stock funds?

Submitted by Ready2Invest on April 6, 2020 - 8:39pm.

Thanks everyone! Seems like the consensus is to hold off on RE and get some stocks on "sale".

Anyone invest in multi-families (2-4 units) or smaller apartment complexes (10-20 unit range)? We're really drawn to these.

Submitted by Ready2Invest on April 6, 2020 - 8:48pm.

You sound like my partner - the need to diversify part.

Even though it makes more economical sense to invest in the market right now as you all pointed out. I think we will eventually purchase more properties b/c we enjoy the process of refurbishing older properties and then renting. We're looking to take advantage of the Opportunity Zones (City Heights being one of them).

Anyone else utilized the benefits of Opportunity Zone RE investments?

Submitted by Ready2Invest on April 6, 2020 - 8:52pm.

I wonder the same thing regarding Temecula and Chula Vista. My conclusion is people really like their bigger houses and a 50min commute is acceptable.

Compared to the bay area where people would drive/commute 2hr plus into the penisula/silicon valley, 50min seems like nothing.

Submitted by gzz on April 6, 2020 - 9:03pm.

10+ unit buildings these days are owned by either people who got them in ancient times or full time owners with corporate management. The market is fairly different and involves a different lending market. In the midwest this is more common because 10 unit complex can be under $500,000, and rarely go above $2 million.

Scaredy: REITs are not good investments for someone already well exposed to RE.

I actually am short SPG, a mall reit. This is as a hedge against my own local portfolio.

“Worst case” is that they go up and my much larger investment in rentals goes up too.

What could happen with spg is even if things reopen fairly soon, some of their marginal tenants won’t survive. Retail was already doing badly before Covid. A 2 month shutdown, another 2 month partial shutdown, then a recession....

The company is leveraged by about 10, so if you assume a 10% decline in the value of malls, their balance sheet is negative.

That’s an oversimplification, as they’ve taken a lot of paper depreciation losses that as of 1/2020, did not reflect the market.

Finally, they agreed to buy another mall reit for cash at a giant market premium. I read the sales agreement, and I don’t think they can wiggle out.

Submitted by gzz on April 6, 2020 - 9:17pm.

The QOZ program seems to let you defer capital gains tax on something like selling stock if you buy a property there. Sounds good to me if you have a lot of appreciated stock you want to invest. Ideally you’d hold it until death and never pay!

If you enjoy renovating, I’d again suggest OB. Very easy to find tenants and lots of old houses and small complexes. Some are 50+ years old and never have been renovated. I’ve done 3 so far and really enjoyed it. I finished the last one 2 years ago and am missing the fun of tossing 90lb bags of concrete into my car and the smell of fresh cut lumber. The streets behind sports arena blvd, Hancock and Kurtz, have a bunch of smaller and unique hardware stores that often have crazy prices. Those places, home depot, OB Hardware, and Dixieline are all very quick drives making the process simpler.

Submitted by The-Shoveler on April 7, 2020 - 8:08am.

Ready2Invest wrote:
I wonder the same thing regarding Temecula and Chula Vista. My conclusion is people really like their bigger houses and a 50min commute is acceptable.

Compared to the bay area where people would drive/commute 2hr plus into the penisula/silicon valley, 50min seems like nothing.


There are a lot of other reasons besides 50mi is acceptable,
1) How close to retirement
2) What will Temecula look like in 10,15 or 20 years, Carlsbad and Oceanside industrial base is growing very fast as well.
etc...

Submitted by scaredyclassic on April 7, 2020 - 8:16am.

The-Shoveler wrote:
Ready2Invest wrote:
I wonder the same thing regarding Temecula and Chula Vista. My conclusion is people really like their bigger houses and a 50min commute is acceptable.

Compared to the bay area where people would drive/commute 2hr plus into the penisula/silicon valley, 50min seems like nothing.


There are a lot of other reasons besides 50mi is acceptable,
1) How close to retirement
2) What will Temecula look like in 10,15 or 20 years, Carlsbad and Oceanside industrial base is growing very fast as well.
etc...

In 20 years I doubt temecula will be much more industrialized. But I'm pretty sure itll be more crowded.

Submitted by Coronita on April 7, 2020 - 8:50am.

I would pick index funds or ETFs, setup a monthly or bimonthly autoinvestment plan, elect to reinvest interest and dividend , and call it a day. I wouldn't move money into the market in one large chunk all at once. Id spread the risk out over months.

in addition, you can try one of those newer Robo-advisers that are around $30/months. I'd be curious if they are any good.

Submitted by The-Shoveler on April 7, 2020 - 9:02am.

Seems to be industrializing fairly fast to me, Carlsbad/Oceanside area is just going berserk with how fast they are growing their industrial base.

Submitted by Ready2Invest on September 21, 2020 - 3:11pm.

Just wanted to send everyone who replied to this thread a BIG THANK YOU. Definitely enjoyed the "sale" of stocks back in late March/early April. You really couldn't go wrong.

Hope you all improved your positions in the last 6 months as well :)

We're even more nervous about purchasing new real property as an investment now than we were 6 months ago. I think we're going to wait it out until Winter 20/21.

or am I missing something. How's your confidence in the RE in the next 12 - 36 mo ?

Submitted by sdrealtor on September 21, 2020 - 11:49pm.

Confidence is strong as is the market. The biggest challenge these days is low inventory

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