Comment by davismwfl | Hacker News Reader

Comment by davismwfl | Hacker News Reader

Honestly, I'd leverage it to purchase real estate split between some rentals and rehabs when the right opportunity came up. For me the passive income of rentals and being able to leverage the $500k into far more is just to attractive. If you just put $500k into the market or business ideas, your level of risk varies more and the payoff is far into the future if ever. People are scared of real estate still some because of the last bust, but the reality is it is the single greatest generator of sustained wealth. Even people that make their money in other places like a startup, eventually find out that leveraging liquidity to enter the real estate market pays back in huge ways.

Real estate isn't risk free, but even in down cycles you don't lose all your value, e.g. a $200k house doesn't become worth $0. The key wealth generator (not get rich quick scheme) in the history of the US and most Countries is real estate (land/property etc). This means finding and buying in the right areas and not being afraid to cross state lines etc. Leveraging the $500k in California won't get you really far, but doing it most other places will let you really do quite well and you can have passive income coming in within a few months.

Also, done right, you'll still have a significant amount of the money to invest into other things like the stock market to diversify yourself.

If you're not willing to unclog toilets at 3 AM, you should consider investing in a REIT. Considering this is HN, take a look at data center REITs specifically.

I wonder how returns of real estate compare to REITs when you factor in the extra time and hassle of managing property (or paying somebody to do it)

I've been invested in REITs for a while, but I've more seriously been looking at direct investments because I've realized that REITs actually behave quite a bit differently from owning real estate.

(Traditional) REITs are priced more or less like a bond by the markets and will be largely evaluated based on their yield. As a result, you're missing out on the appreciation component of real estate. You also don't get the tax benefits of the interest deduction. With a direct investment, you can look at things like which areas will disproportionately appreciate in the future. It's more like an active investment in a value stock with a nice dividend to boot.

This is just peoples way of scaring others away from property investment, which personally is good for those of us that know the truth. The reality of getting a late call is not all that common, but I can't say it never happens. The clogged toilet, does happen, but guess what, that is why you hire a local handy man and get to know him/her. Cause for $15-20 they take care of this little stuff and you never deal with it. This is also why you background screen your tenants and how you choose your investment properties. There is a science and an art to picking the types of properties that attract the right people.

As for a REIT over direct property, REIT's are not bad but they don't compare to direct investments and as @aliston point out you miss out on appreciation. Overall from what I have seen a decent REIT might get you 10-13% annually, which isn't bad. However, it is quite a different type of investment that is also subject to the stock market turns, interest rate changes and other financial market forces which have negative changes more often then does the raw property investment. Hence, unless you have substantial amount to invest, getting much out of a REIT will take a while.

As for rentals, they are not a get rich quick scheme, but over relatively short times they make you comfortable and give you security in passive income. Over the longer term the property values along with some rehab projects can make you "rich" and then if you keep at it, mixing in some commercial property is always good, you have the possibility of becoming wealthy.

That's the closest answer to where I'm at now... real estate is the best candidate at the moment, rental properties or flipping houses.

Besides California, where would you be looking to buy?

I would recommend the Seattle area. The market is very competitive, but it's hard to imagine it weakening with Amazon's eating up all the office space it can, Google and Facebook's doubling down with new offices, and Microsoft's apparently continuing renaissance.

Rental properties in suburbs of Austin. They're growing fast but in the right spots you can pick up three or four properties by leveraging 500k. And Texas is very slanted towards landlord rights (not that I personally feel good about that, it's just how it is.)

There are a lot of places to look outside of California. Pick some of the states near you that went through the bust badly. If you are in CA, then look to AZ, NV, TX. If you don't mind the cold, MN, MI, IL. And if you like the southeast, throw a dart there is tons of stuff down this way.

Personally, I am in Florida and it is quickly recovering now and you have to look harder to find the right rehab if that is what you want to do, but good rentals are easier to find. And frankly, I am loving that the younger generation is renting far longer then in the past, this is helping to keep rental rates good and driving demand for now.

Just anecdotally, I have friends who have been very successful with buying and renting condos/apartments in a college town. Demand for rental units stays high (well-known, reputable public university).

Oddly enough, they have generally negative experiences renting to parents of students instead of directly to students.

I will say that my friend works full time as the property manager for their units. It's not a passive investment.

Several years ago, I talked with an accountant who had clients who owned rental property about the ROI. The feedback was that if you had to hire a property manager and outsource all repairs/maintenance, the value proposition of rental property was greatly reduced and closer to neutral than many owners initially assumed.

It looks like it is working out well for my friends though - they were able to leverage their financing as they acquired new units because interest rates have been so low. They have been cash-flow positive for many years. But they also capped themselves at about 20 units under management.

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