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Comment by antr | Hacker News Reader

In early 2016 I purchased commercial real estate, got a 25 year fixed rate mortgage, and leased it. This requires very little of my time every month, and the post-tax yield is above 5%. I couldn't be happier.

I'm now considering doing this again in 2017. Hopefully interest rates will remain as low as they have been in order to lock-in an attractive mortgage.

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You don't say where you are based, but you are going to get a shock if you think interest rates are going to stay on the floor. If you can get a genuine 25-year fixed rate, great, but you need to tread carefully here.

Brexit, Trump, EU sentiment, China trying to deal with their own problems, they're all pointing to the same way: devalued currencies. Where they start, rising interest start to follow.

I'd also be wary of assuming commercial real estate was a lock-in. I've heard horror stories.

I'm glad it's working for you right now, I'm just saying: make sure you tread carefully and have done your research before you start gearing up.

This isn't necessarily true. The US dollar is actually increasing in value as people want their money to be safe. If Trump does bring back American jobs, meaning less jobs in Asia, the dollar buy will continue, depressing Asia and strengthening the US for now.

But you're right, the OP definitely needs to tread lightly with property and the contracts. The devil is always in the details.

The unemployment rate in the US is 4.9% which is basically full employment.

Now sure there are a number of people who don't report and those who wish to work more. But I don't think it's going to be easy to get those people back into work. Most are either in industries that are disappearing due to automation. Or they lack the skills/training to re-educate themselves.

And without tariffs (which will impact exports) there is little chance of US being all that competitive in most industries that compete with Asia (I assume you actually mean China).

4.9% isn't even close to being the real unemployment rate.

Nor does it reflect the stagnant/decreasing income of the jobs that people DO have.

Not to mention hordes of underemployed college grads.

You want to look into participation rate. Compare participation and unemployment rate over time and it's clear '4.9%' is pure fallacy.

Unemployment is only 4.9% because the participation rate dropped 3% points in the last 10 years: http://data.bls.gov/timeseries/LNS11300000

That's close to 10 million people who have stopped looking for jobs who we would otherwise expect to have them.

Baby Boomers should be leaving the labor market though.

It's not just old people: "in 2000, if you happened to be a 20-year-old man with less than a Bachelor's Degree--and when I say 20-year old, I mean in their 20s--21 to 30. About 8% reported not working at all during the prior year. That number, today: About 18%."

http://www.econtalk.org/archives/2016/11/erik_hurst_on_w.htm...

But the participation rate can float for a few different reasons

http://qz.com/286213/the-chart-obama-haters-love-most-and-th...

(clickbaity headline, but the contents seem sound)

Roughly 100 million people in the US are out of work or no longer looking for work. That's approx a third of the population. "4.9% is basically full employment" is a terribly naive statement. The trend clearly shows things getting worse, not better.

https://fred.stlouisfed.org/graph/?g=4CRu

The all-in fixed rate is 2.10%, and let me repeat: fixed. Not LIBOR + spread + you need to have you savings account with us + you need to buy my home insurance, etc.

I don't understand why you say "tread carefully"... when it's the bank bearing all the IRS cost. Plot any LIBOR curve, and you'll see that the bank is the one to lose here. Banks are fighting for customers, and cheap loans and mortgages is the game they are playing. I could go into more detail, but given that I have a 12 month DSRA account in place, I'm quite happy with the investment.

Don't you lose if you can't find Tennant's for your property? Or do you plan to just go bankrupt if that happens?

  > but given that I have a 12 month DSRA account in place, I'm quite happy with the investment.

What happens if you can't find tenants for 12+ months? I've seen many commercial properties sit barely occupied for years.

Worst case scenario, pay the mortgage with my salary.

So that seems a pretty risky investment to me. Only a few percent profit for the risk of eating a giant monthly bill.

"Risky" investment for commercial real estate in a tier I area in a European capital? I find any residential property more risky and volatile, at least from a price elasticity point of view.

I guess we have different views on how we perceive risk. But that is ok.

I am not saying commercial is more risky than residential. I am saying for the low gain, I would not take that kind of risk (i.e. more than near 0)

I don't believe we'll see high rates in our lifetimes. The broad trends in developed countries are all deflationary.

> In early 2016 I purchased commercial real estate, got a 25 year fixed rate mortgage, and leased it.

What was your downpayment? Asking because I tried to do the same thing earlier this year. Thought I was clever, did the math on how much I can rent out an apt on AirBnB, and what the mortgage would be on 30 year fixed, and my calcs said I need to put only 5% down to break-even. Then I contact lender and turns out, for Investment properties, they require minimum of 25% to 35% cash as downpayment. They said this was to hedge their risks against a borrower who would bail easily if an investment property goes south.

Any way around this? i.e. around not having to put 25% down on investment RE?

No. Because the lender knows your AirBnB investments could easily be regulated out of existence. I suggest you live super frugally and save up cash for your real estate purchases. (We did this and so have many of our friend.)

Thanks tomcam (cool username btw :)

As the property owner, aren't you responsible for maintenance etc?

Contractually, day-to-day maintenance, no. Any extraordinary maintenance (a water pipeline bursts, electrical problems, etc), yes; but that would be covered and taken care of by the insurance company.

In the commercial world, NNN (triple net) leases are popular. The tenants take care of property taxes, insurance, and maintenance, so it is a good passive investment since you don't have to worry about operating expenses.

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