Most people I talk to in real estate focus on one thing:
“How much rent does it generate today?”
But if this were a company, that wouldn’t be enough.
Companies are often valued using something like:
EBITDA × Multiple
So I started thinking about real estate the same way.
Rent ≈ EBITDA
Location / growth / demand ≈ Multiple
Two identical properties can generate the same rent…
But one is in a developing area with infrastructure coming, rising demand, better liquidity.
The other is in a stagnant area.
Same “EBITDA”
Different “multiple”
Which means… completely different future value.
So here’s the real question:
Are you buying properties for the income they produce today…
or for the multiple expansion they might get tomorrow?
Curious how you approach this.
If your entire real estate strategy is based on rental yield… aren’t you just buying a bond with maintenance problems?
byu/Ok_Distribution6386 ininvesting
Posted by Ok_Distribution6386
5 Comments
Guessing where the next million dollar neighborhood is rarely works out. Also depending on where you buy, just buying where things are already over over priced usually works out for the best (mostly in big job areas like California and the north east, not made up “popular” areas that are pure media article hype)
But most people can’t afford buying a portfolio in Silicon Valley or Westchester, NY. Which just ties in to the rich getting richer
Yea I got out of my rentals in 2023 and couldn’t be happier. Just looked at what I was paying, had some AC blower problems with one and spend a day crawling under the house to save $1000. I looked back at the past few years and realize I was making about 7-8% average return after taxes (that was if we didn’t lose a tenant) manager fees, and maintenance. Pre COVID run up it was closer to 10-12% return plus the appreciation of the property. I felt property prices had peaked without rental keeping up. Feel like I nailed the top perfectly.
Now I use that money to just sell premium tasty trade method and it’s been so much more consistent and very little “work”. Just press a few buttons every day. Now am I underperforming the market, yes, but out performing rental and steady returns. That was the point.
Yes. Being a landlord is highly regarded. You’ll make 10% if you’re lucky. Plus all the problems…
Bond with maintenance that cannot be defaulted.
People tend to grossly overestimate the return on rental properties, and grossly underestimate how much time and effort there is in being a landlord and property owner.
The yield on my REIT income is about 7%. Hassle-free, completely passive, reliable income, and on top of that they’re very liquid assets and could be sold tomorrow, easily. That’s the way to make money in real estate.