Our modest experiment in being landlords has ended. Our son – who we were bribing to be our neighbor for the last 3 years – has moved to an apartment in a cool neighborhood of downtown Minneapolis.
His new space is much smaller, but in a very slick building close to all of the coffee shops, bars, & restaurants all the hipsters like him like to hang out at. (Watching him drive to the big city in my Jeep reminded me of the opening credits from the old Mary Tyler Moore Show.)
The rental townhouse will now go on the market for sale. Owning it for the last three years worked out fine, but I don’t think we’ll get any capital appreciation out of it after paying the real estate fees.
The current high interest rates have put a damper on the prices of entry-level places like this one. We talked about keeping it as a rental property – possibly even transferring it to our son to run as a side hustle.
The basic financials of renting it seemed positive if we committed to it for a few years. Assuming some modest appreciation (rate of inflation) and tax benefits (mostly depreciation), we could probably get $20K a year out of owning it (6% return on invested capital) – even after paying a company about $3K / year to manage the property to help when we are away. I’ve always heard that rental real estate is a good way to diversify a portfolio.
Still, we ultimately decided that none of us were up to the added responsibility. We could just as easily tuck the money into an index fund (or Real Estate Investment Trust) and let it grow on its own. We contacted our savvy family real estate sister-in-law who is getting everything pulled together to put it on the spring market in the next couple weeks.
How “hands free” are your real estate investments? How are they performing relative to stock or bond funds?
Images: (c) MrFireStation; Mary Tyler Moore Show opening credits.
MrFireStation 
Great post. Love the Mary Tyler Moore comment. I watched that every Saturday with my mom.
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I can hear that distinctive MTM music just by looking at that picture of her Mustang … https://youtu.be/XK9tVyQymXI?si=nwbFWJLeGrSwIjsa
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Great post. Love the Mary Tyler Moore comment. I watched that every Saturday with my mom.
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100% hands-free. Only real estate investment is in the Vanguard REIT index. The home we live in, is paid off, but is a home we live in and not considered an investment.
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I think that’s a good strategy for us, too. We ‘count’ our vacation place in Florida as an investment, but not our primary home. We could easily flip those designations as it gets too cold in Minnesota for us! 🙂
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Here is the tale of two neighbors.
One neighbor ‘retired’ on rental properties and constantly has to get out his plunger and paint brush. The next door neighbor invests in REITs and takes a nap everyday with his Rottweiler and Doberman close by and still has distributions rolling in while they nap. Which neighbor is truly retired?
By the way, REITs such as Realty Income, ticker symbol O, are really beat up right now. Realty Income pays every month and raises their dividend by a little once per quarter. They are paying 5.65% right now. Isn’t hiring a professional manager very similar to owning at REIT?
Realty Income covers my 4% withdrawal rate and the dividend increases keep me ahead of inflation.
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I had a MegaCorp boss who was way into REITs. I never took the time to understand them. Looks like he did well between 1995-2010 – they tripled over those 15 years. (Unfortunately, he passed away early).
Looks like they have been pretty flat the last 10 years, although that 5.66% dividend does look appealing. And, no paint brush & plunger!
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Realty Income, Ticker Symbol O, currently pays 5.71% and grows their dividend 3%. They own retail properties that are leased to entities like Home Depot, Walmart and 7-Eleven. If I reinvest the distributions, I will earn roughly 5.71% + 3% = 8.71%. If interest rates soften, I might pick up a percent or two capital gains. 5.71% current yield supports a 4% withdrawal rate and 3% helps me keep from falling behind to inflation. O is currently selling at a cheap price.
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