The Federal Funds rate is the "risk free" rate in the US, and is the benchmark for interest rates. But, that's definitely not the whole picture...

Mortgage interest rates are impacted by the Fed Funds rate, but will generally fluctuate with 10 year treasuries rates, which are harder to manipulate by the Fed. In fact, if you've been paying attention over the past couple weeks, the 10 year treasury rate has spiked, and mortgage rates have as well (relatively speaking). Even though the Fed rate hasn't changed.

Additionally, cap rates tend to fall at some "risk premium" above the Fed Funds rate, but that risk premium can expand (increase) or compress (decrease). Over the past year, the risk premium has expanded, so cap rates are currently higher compared to the Fed Funds rate than they were a year ago.

Whether interest rates rise or fall, mortgage rates don't necessarily have to fall in line (again, 10 year treasuries are the better indicator) and risk premiums can expand further, driving cap rates up, even if interest rates fall.

Long story short, it's not as simple as "low interest rates, high real estate values."

Btw, as for longer-term rates, I believe we'll see low rates for at least the next 5 years. This is because of the expansion of the money supply (the government needs to keep rates low to keep interest/bond payments low), and because the Fed is looking to kick inflation into higher gear, which would be much more difficult if rates were higher.

bingo ^^^

Yes, I have a bunch of different investments also...operating business, commercial real estate, other things...

If you have ANY amount of skill & patience, equities are an incredible way to go. I've known a few people personally who have made millions in the stock market.

Depending on where you are, your position in the economic cycle, and anything you can do to add value to real estate, you most certainly can make money, and even make good money. I've done it myself a couple of times. HOWEVER, that really depends. I've got a funny feeling that people in San Francisco, NYC, and other "bubble" areas are going to find out that real estate is not always a good investment.

If you are buying real estate for a low to mid single digit cap rate, in markets such as NYC, how in the world are you going to make a return over the long term? Are interest rates going to go down even further, or turn negative? OR will interest rates start moving up? If you have a property cash flowing at 4%, look out. If you have a property cash flowing at 11%, you've got a lot more protection.

Set all this aside though...I would posit that it is VERY tough to make returns off of single properties like you can off a well placed REIT purchase. I bought SACH at about $1.38/share in the Spring time. They pay a $.12/share dividend every quarter. That is about a 35% yield. In the meantime, SACH has appreciated a little over $3/share, to a bit above $4.50/share. That is about a 200% capital gain. This is all accomplished without taking on any personal leverage. A good move, most certainly. An associate of mine, who has an excellent BLOG, wrote about this in April 2020. If interested, please point your browser to:

http://ragnarisapirate.blogspot.com/...nd-sachem.html

However, I can assure you it was not the only REIT that was available at the time.

Once I've done the research, and made the purchase, I will spend about 6 hours a year on SACH....just scanning the news feeds, listening/participating in the quarterly conference calls if needed. Set & forget.

Kind of hard to do that with individual properties, which typically require a lot more work & time.

Obviously there is big/good money to made on owning individual properties...but so is it with REIT's & others.

I'm not sure how the real estate bubbles you're talking about in places like San Fran and NYC are different than the equities bubbles we're seeing as well. Certainly, there are people who are going to lose money in real estate when the market shifts. Likewise with equities. And every other market out there that is currently in an asset bubble.

In that regard, real estate is no more or less risky than other asset classes.

As for interest rates and how that will impact real estate values, I don't see that as a big issue. First, I don't expect to see much in terms of interest rate increases over the next several years. And, even if we do, it doesn't necessarily mean that we mortgage rates and cap rates increase linearly. There's room for compression in both rates, especially after the expansion we've seen the past 12 months.

And the biggest thing you're ignoring is inflation. Assuming you believe inflation is on the horizon (this seems like nearly a given to me in the mid- and long-term), real estate and debt are the two biggest ways to win the inflation game.

I'd rather own a leveraged, break-even cash flow property during an inflationary period than any other asset. By far.

But again, just my $.02...

meh, i'm guessing your properties are in non-rent controlled area?

All my properties are in rent control (canada qc).. I have stopped buying, I fear our rent income will not keep up with inflation, because we can't raise it to market price unless the tenants leave. Optimal play here is to make 0 repairs and 0 renovation so your tenants eventually leave and you can renovate and then raise rent, post-covid will amplify this imo. The smart tenants will be the ones who never moves. Sadly I have a bunch of those....

For high cap rate areas. It is extremely difficult to "get in" the door, but selling high is relatively easy.

You may have to areas where cap rates are higher for your first purchase.

Interest rates will be a TREMENDOUS factor in the valuation of real estate. When you have low interest rates, you've got high values for income producing assets...when you've got high interest rates, you've got low valuation levels for income producing assets.

If government bonds are returning 7%, you've got to get that PLUS a risk premium for real estate (other assets too).

Also, a lot of people are buying property based on the monthly mortgage payment. If mortgage rates are 8% instead of 3%, the price of the property has to go down to fit a payment of $XXX.XX.

Property should be protected somewhat in times of inflation, no doubt.

HOWEVER, think of this. If cap rates in NYC are now 3%, what happens to property prices if NYC cap rates go to 8%? Property values are going to go down tremendously.

I don't think interest rates are going to rise in the short term, they might not even rise in the medium term, but at some point, they are going to go higher.

Rising interest rates are going to hit a lot of assets, property, stocks, businesses, bonds.

The way to lessen that problem is to cut the duration of your projects/assets.

I certainly get how interest rates and valuation work (I've written a book on the economic impacts to real estate). My point is that you can't just look at interest rates in a vacuum to determine whether it's a good time to purchase or not. You also have to look at risk premium spreads, inflation, treasury yields, correlated asset prices, etc.

Most importantly of these (in my opinion) is inflation. Assuming that interest rates will necessarily rise faster than inflation (which will offset the valuation hit and also provide significant debt benefits) is just an assumption. I think it's unlikely we see significantly higher interest rates in the next decade or two. It's more likely we'll see an overhaul of our currency before that happens.

Again, my opinion... I guess we'll see!

You buy in Quebec city? How are the cap rates there? Have the rents there increased in the last 5 years?

I buy in Montreal and the cap rates here for below market un-renovated properties are trending towards 3%.

Montreal is crazy! I have friends who invest there and buildings getting 40+ offers, wow. Quebec is much better cap rate/demand wise on most type of buildings, not as much upside to buy, renovate, refi but still doable. The biggest difference in the quebec market compared to montreal is the size of supply of big buildings, Qc is full of 6-8 units. 12+ units are VERY RARE in quebec city, they're everywhere in montreal. Our market there's around 1 building of more than 12 units that gets sold a month, so you really have to be on top of the game to buy a couple a year, since you're basically taking a huge % of the market. 12 units are so rare there is some kind of weird market reaction and multiple offers everytime there is one for sale. Plus just like AcesUp mention, people believe the best way to counter the incoming inflation is to buy RE, idk about that, we're in a economical black swan event. Insane inflation could outpace rent income, and when that happens and you're buying at sub 4% cap rate, you are done.

immigration next year will most likely save those people who paid too much, at least I hope for them.

Just as I post I'm not buying anymore a property we were trying to buy for months is now on the market with a realtor as of this morning, prime spot RE at a good price FUUUUUUUU

edit : to answer your question, market is 4.5-5% cap rate, rents have increased quite a lot but nothing like montreal, we're trying to remove a few tenants and renovate some key units. Hard part is removing the tenant

Just buyout the tenants. The only way to buy properties and make money in 3-4% cap world is to actually target very below market rents and factor in buyout costs.

Do your underwriting again with buyouts and you will see a lot more properties make sense.

Yeah and Montreal is insane. We are closing on a 20 unit in a month and it had 17 offers on it.

I like this kind of market though, you make a ton of money owning properties based off appreciation.

Yea it doesn't surprise me, 17 lol, I'm guessing you offered more than asking/paid cash? Nice deal 20 units It has begun in quebec, we were the 10th offer on this property (made our offer 4 hours after it hit market, so probably more offers on the table now). To be fair it's a very good deal that you usually don't see with a realtor (actually priced correctly at 4.8%cap in AAA location near university laval with great upside too).

We really tried to get this deal off markets because we knew it was gonna get sold soon!!! I'm a little bit sad about it So hard to connect with sellers off market

That seems like a good investment, and REITs are great for people that don't want to actively manage a business operation. However, my portfolio operates at much higher than 35% overall returns. OTOH, my returns come from leverage....

I agree with most of what you said, I just think that the missing component is the ability *for people that want to be active* to create massive upside very quickly. Plus there's the upsides of leverage to go with the risk, and there's tax advantages.

The mistake you're pointing out (such as it is) is something that I think we've tried extensively to hammer home throughout this 12+ year thread: If you can't beat a passive investment with REI, then *don't buy real estate*. I endorse that message whole heartedly.

Or....sell them and just buy in a different market

That's the advice everyone gives. Stay out of rent control markets.
I used to agree with this advice but I changed my mind completely on it lately.

The cap rates are so compressed in this market that owning properties in this rent controlled market is very lucrative.

People pay sometimes close to $200K/door and 3% cap rate on value add needed properties.

It hard to find properties, but its also very easy to sell these properties at high prices as well. I just recently sold a turnkey multi unit property at $300K/door.

Well, the leverage that is typically undertaken in purchasing properties is certainly a booster to returns, but it also heightens risk. In a rising market, not much of a problem. In property that produces cash flows of 10% and you've borrowed at 4%, probably not too much of a problem...BUT if something goes wrong, BOOM. Leverage cuts both ways.

The most you can lose with a REIT is what you put into it.

The work you will do with REIT's is the initially decision/research to invest (which can be many hours). After that, the work required drops of substantially, maybe an hour per quarter?

With an individual property, typically one puts in a LOT of work. I've owned properties that have just gobbled up time...hundreds and perhaps even thousands of hours.

In retrospect, one of my many mistakes was not valuing my time appropriately. I have made money on my first couple individual properties...but once you back out the time (and put a $ value on it), the return comes down quite substantially. On my first property investment, I probably would have been better off if I had put that time into anything that paid better than minimum wage

If one is REALLY adventurous, you can boost the returns of REIT's by using leverage. For example, leverage SACH 1:1 (pay 6% on leverage), and your income return goes to something like 70%?

End result is that you make good money in both ways.

I am just trying to point out that there are times/possibilities of making truly exceptional returns in "regular" REITs.

Is it feasible/realistic to own and rent out a property from abroad?

I'm from the US, am interested in buying property as an investment intending to hold for at least 10 years (open to any location), but I work in another country, so I'm outside the US 9+ months/year.

The downsides seem obvious, but is it a non-starter (especially for someone like myself who's never owned real estate before)? Being a landlord overseas seems like a recipe for problems, but I'm I don't see other asset classes looking too attractive at the moment. Any advice on this appreciated.

Sounds like this is the problem...

If you're putting in hundreds or thousands of hours, you're probably spending your time doing work that could be hired out for $25-50 per hour. Which means you're essentially making $25-50 per hour doing that work yourself.

Real estate is just like any other business -- you need to understand how to leverage your time at the highest possible value and then delegate everything that doesn't meet that bar. I probably spend about 10 hours on a typical rental that requires about $30K in renovation. If it's a bigger renovation, maybe 20 hours total. And then my PM takes over, and I spend maybe 5 minutes per month per property.

I focus my time on the few tasks that generate at least $1000/hour -- negotiating, final analysis, dealing with capital stacks and quality control. The rest is delegated.

If you can't run your real estate business like a business, I agree that it's better to just put your money into equities and let others manage it for you.

Only 10% of my properties are within driving distance to me. The rest are spread over 4 states.

So yes, it's definitely possible.

Do you visit the properties as part of your DD, have someone in the area who can take a look for you, or anything like that? How do you go about finding trustworthy contractors and property managers?

How much would I be handicapping myself? Other than finding a great property manager, any tips for remote owning?

I don't know how often you visit your remote properties but I assume at least a couple times a year? I feel like it would be different being separated by an ocean, and possibly going 1 year+ without seeing one.

Remote or local owning, you have to set it up so that you don't need to see it.

I have properties 10 mins away from where I live and I have not seen them in over a year.


You get a good property manager, screen them.


If you absolutely don't want a property manager, it is still possible to manage your property and be out of country. But you have to set up reliable crew in place that you can call.

1) Handy man.
2) plumber / electrician.
3) real estate agent to find you new tenants.

- Most importantly, good tenant screening. Good tenant screening = peace of mind for landlords. Good tenants are also attracted to good areas.


I think it is much easier for experienced real estate investors to manage while not being physically in the city. I would not recommend managing out of country for your 1st deal. Get a good property manager at first.

Tien did you hire someone on your roll pay or did you hire someone with a managing company?

Management company.

Referrals are the key. I like to join local REIA groups, and from there, I can get referrals from successful investors in the area for agents, contractors, property managers, etc.

Also, when working long distance, focus on credibility. Work with licensed contractors who carry all necessary insurance; work with Property Managers who are also licensed agents; work with agents from reputable brokerages. All of these people will be registered with the state in some way, shape or form, providing more confidence that they aren't going to scam you.

Most importantly, you should have at least one person on the ground in the area who you trust implicitly. They will be your eyes and ears. Could be a family member, a friend, a long-time employee, etc. This is why I tend to invest in places where I used to live or have relationships -- it helps me to find that one person I can rely on to be my eyes and ears. And I pay them well for their efforts.

Finally, be willing to pay extra for DD. Have a licensed inspector do a full inspection. It may cost $400, but at least then you won't be relying on a contractor to assess the scope of work (for the functional stuff). If you have ANY concerns about specific potential high-ticket items (structural, roof, electrical, plumbing, etc), bring in a specialist for those things as well.