And that is how I teach people to invest. Learn how to apply the time tested metrics, think about the macro trends, have reserves, invest long term, build a plan that can get you where you want to go, listen to [real] experts, and always continuous learning, etc.

Personally, I think it is foolproof, but you might disagree with me. But we both are in total agreement that folks that are following the herd (mutual fund investors or house flippers) are going to end up exactly where the herd is going! And that is not a pretty sight!

I understand what you are saying, heck, I made most of my money in the Detroit real estate market and I wish I was still their to capitalize on this down turn. I just think you give an average investor too much credit. Much like there are very few Warren Buffets out there, there are very few great investors. Real Estate investing is rife with people who buy courses or just follow the crowd, as is stock market investing.

Now THAT’S what I call a good day.

The value of investment real estate is based primarily on rental income. When you look at purchasing investment real estate you buy on metrics that define the cost you are willing to pay based on return on investment that you are trying to achieve. Only amateurs base purchase price on what the “housing market” is at that time. If the housing market (like here in Florida) is too high to support the rate of return you are looking to achieve you don’t buy. You have an option to look elsewhere where the numbers might make more sense. Your “average home value” is a meaningless statistic since no one is buying a “average home.” RE investors don’t depend upon immediate appreciation to bail them out of negative cash flow situations or short term debt/income ratio’s that are off the chart.

Now if after you buy an investment property there is a drop in rental income, then you can have a paper loss in value. So the proper metric to look at in what you can rent the property for and that can certainly drop. But those judgements on rental value is what makes a good investor from a average investor.
If you have reserves to last through any downturn and you did a good job looking at the rental value up front, the leverage simply doesn’t hurt you.
Same in stock investing by the way. If you are a good judge of cash flow for a particular business (Warren Buffett is the best in the world at this) then any downturn is only temporary and if you have reserves to get you through (assuming some leverage used) then you are fine.

Now who lost money in the latest real estate crash. Only those that have to sell in this market and who bought in 2005-2007 or who can’t make their payments because they were speculating on rapid appreciation being there to bail them out of their cash flow deficit. Sorry, but don’t think that someone that buys a property with a negative cash flow starting out knows what they are doing. There are professional re investors making money in areas that are depressed like Detroit or even here in Florida because they knew what they were doing.

Can even professional re investors lose money every now and then? Of course just as Mr. Buffett has bought a couple of dogs in his career. But the reality is that folks make money in real estate even in down markets and if you pay attention to the metrics then you will win many times more than lose!

A lot of people lost money in the latest real estate crash, not just the speculators. Certainly there were astue investors that are doing just fine, just like there are astue stock market players that are doing just fine.

I am talking averages here. If the average median home price drops 10%, then the average home investor, particularly the ones that invested in 2006 and 2007 lost a lot of money. Using the leverage argument that we love to use here, the stock market investor would have only lost 10%, while a real estate investor would lose 50%+.

As to real estate, if you didn’t overpay according to commonly used metrics, depreciation means nothing in the short term because your property is still cash flowing. And as long as your property is still cash flowing your depreciation is limited because the cash flow (and cap rates)is how investors (not speculators) assign value to investment real estate. Stop using amateur speculators as a straw man in your arguments. Ask Bawld Guy how his clients are doing? Because I know myself and my clients who have been taught how to become an investor (real estate, equities, whatever) are doing just fine! Even one of my homes, which is in Florida, one of the epicenters for loss of value since 2006, is up over 110% since I bought in in 2000!

The difference is the real estate investor over the same 20-35 year period will be avoiding more income taxes in retirement than your approach will produce in gross income.

>Unmentioned is the time & effort of servicing these 4 properties… whether it’s going under the sink yourself at 8am on a Saturday, or finding out why your Mr. Fixit didn’t fix it.

Only unmentioned by an amateur. Seriously, considering the properties used in the illustration are brand spanking new, and the operating expenses used in the example allowed for out of state ownership — i.e. precluding any under the sink crawling, your argument in this case is fatuous. Put another way, i think you should stick with the S & P.

All these properties have to do to speed past your single digit return is to appreciate radically — about 1-3% a year.

Real estate investing certainly isn’t for everyone. You sound pretty knowledgeable when it comes to the stock market. A 9.37% return without having to put up with anything but coupon clipping is attractive to many.

Thanks for dropping by Alf.