1. Rare but highly expensive major expenses like a new roof, new heating system, etc. It's like a tail risk- you don't pay for it most years, but when it comes up, it costs a lot.

2. Required renovations- just to stay at your current level of quality. I.e. let's say you rent to normal middle class tenants now. In 10-15 years, you'll need to install a new kitchen, new bathroom, overall maintenance- just to stay at a middle class level. The building is constantly depreciating! So unless you intend to move economically downscale and rent to lower income folks, to stay 'middle class' you'll need to refresh the building every decade or two. No one wants an ancient kitchen, a decrepit bathroom from three presidents ago, etc.

So you have to factor those two major expenses into your total rate of return over the decades. How much is a new roof, a new heating system, that new kitchen, that new bathroom.... You may not see these expenses every year, so you don't feel like they count, but over the decades they will.

Source, am actually familiar with the true rate of return for properties over a long enough time span to judge. A 1-3 year snapshot isn't sufficient!

And what is it?

This argument falls apart once a property is a fraction of someone's net worth, but it's rarely the case.

What is it? 7% 11%? Do you factor in financing leverage when you make the tenant pay the principal to your mortgage (if any)?

If you want leverage, you can get vastly more leverage for risky stock market trades (I am not advocating for doing that, I just think it's odd when real estate proponents talk about 'leverage' as if it's unique to buying a building)

My advice; learn how to actually put together a DCF model and get some real insight into your returns.

EDIT: I realized that my last statement might come off a bit condescending, but that wasn't my intention. Fundamentally, evaluating Real Estate returns is significantly more complex than other investments, such as holding stocks, ETFs, or Bonds. A Distributed Cash Flow (DCF) model will help you gain some understanding that will likely help you to make better decisions about your existing investment and make a more educated plan for the future (e.g. upcoming maintenance, when to exit at what price). You don't have to build a complex model, but even a simple one can help. There's plenty of resources out there, and you don't need much more than Excel to build one.

Source: formerly employed at a national REIT

https://www.nolo.com/legal-encyclopedia/the-eviction-process...

Home loans at least in the United States taken out at usually 5x leverage which would never fly for index funds but is ok for some reason for buying a home, even though you could become unable to pay the mortgage in which case the bank has to spend money foreclosing and selling it.

I tend to think it's not worth it to try to hedge against that unless know you're going to need hard cash for a specific purpose during a recession, like meeting payroll in your own company.

My ide of diversifying is to hedge against industry-specific risks like space launches if Kessler syndrom hits, internal combustion tech if the ICE car ban becomes reality, real estate if the Detroit scenario happens, etc.

Do you have a mortgage on it still? I don’t see that in your math. And what about the opportunity cost of your down payment?