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Author: katiewa Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75873  
Subject: Re: Probably just a stupid question... Date: 12/19/2011 1:14 AM
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My two cents....

Over the 27 years that we've been investing our savings (in a variety of mutual and index funds, a few stocks--all highly rated), we've had two investments that, at this point in time, have produced anything approaching a 10%/year average return: INVESCO Leisure Fund and a big chunk of bare land in a remote area of Northern Idaho that has no winter access (other than by snowmobile). At the time we sold, these had average annual returns of about 20% and 30% respectively. The Leisure Fund starting capital was not all that much, so even though the return was good, the amount of money made was not great. The bare land returned a substantial amount. All our other funds and stocks have an average annual return of 5-6%.

We like real estate. We like doing construction and refurbishment, although at 50+ we have to be a little smarter about how we do it. We are actively looking for good properties to use as rentals or fixers and then transfer some of our investments to these. Our requirements are bargain-basement prices for properties with very good potential. Have one SFH that will be a vacation rental next summer (unless someone offers to buy it--in which case we stand to make a 75% return in a year). Considering a multi-family unit that, even with conservative reserves and professional management, would return just shy of 20% cash-on-cash and enough cash flow to cover about 50% of our son's college costs, regardless of where he is accepted next year. Watching 3 or 4 others, waiting for the banks to lower their prices again.

Real estate is local, so it's much easier to understand the economics of it. You aren't going to get rich, but neither are you going to fatten the pockets of someone making several millions/year. You can't guarantee that a renter isn't going to be stupid, but you can't guarantee that a board of directors or a CEO isn't going to be stupid. You can insure somewhat against renter stupidity; if a CEO is stupid, you get to pay him to get him to go away. It doesn't hurt that Idaho has laws that heavily favor landlords, and the "bleeding heart liberals" here would be considered moderate Republicans almost anyplace else.

We will keep money in the market, but transferring more, gradually, into real estate gives us more control over what happens.

Kathleen
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