Stock Investing

[IrishGreen]

8 hours ago, ramssuperbowl99 said:

Agreed. The other side of this is how firm the 5 year window is. If the market does poorly over 5 years, are you willing to wait an extra year or two? I'm in a similar situation, and am investing it because I don't absolutely need to be in a house within the next few years.

I am flexible, so im probably going to go this route. 

Appreciate the feedback guys, exactly what I was looking for. 

[Madridista]

On 12/29/2018 at 7:43 PM, ramssuperbowl99 said:

We'd probably need more information. Do you want to buy a house, need to beef up the emergency fund, or have any other short term savings needs? If this is just for retirement, I'd suggest taking your tax bracket now versus what you'd expect in retirement, and if it's higher now, max out a tIRA, if not a rothIRA. If you can do that and still have some left over, then dump that in the 401k.

Emergency fund is good and no other short term needs. Tbh I can't imagine wanting to buy a house any sooner than like 5 years from now - that being said I have not set aside a penny specifically for that purpose.

[Mossburg]

RIP Jack Bogle

“Jack did more for American investors as a whole than any individual I’ve known. A lot of Wall Street is devoted to charging a lot for nothing. He charged nothing to accomplish a huge amount.” -Warren Buffett

[ramssuperbowl99]

14 minutes ago, Mossburg said:

RIP Jack Bogle

“Jack did more for American investors as a whole than any individual I’ve known. A lot of Wall Street is devoted to charging a lot for nothing. He charged nothing to accomplish a huge amount.” -Warren Buffett

He could have been the world's richest man, many times over. He had a trillion, or even multi-trillion dollar idea, and died with $80MM (still a lot of money, but pennies on the dollar compared to what he could have made). Vanguard currently manages ~$5 trillion in funds. One 0.5% fee, which would still be considered reasonable today, on that $5 trillion is $250B. That doesn't include that those fees come yearly, compound interest, etc. etc.

Instead of having more money than god, he made index funds with almost no expenses so that the average American keep the wealth they accumulated. By maintaining that vision, he forced other places like Fidelity or TD Ameritrade to follow suit.

RIP.

[TVScout]

1 hour ago, ramssuperbowl99 said:

One 0.5% fee, which would still be considered reasonable today, on that $5 trillion is $250B.

Is that math?

[ramssuperbowl99]

Just now, TVScout said:

Is that math?

Nailed it. $2.5B. 

The general principle holds - he could have been a trillionaire.

[TVScout]

2 minutes ago, ramssuperbowl99 said:

Nailed it. $2.5B. 

The general principle holds - he could have been a trillionaire.

Easily.

[BrettFavre004]

Interested in moving 401k money out of markets and into a self-directed 401k to invest in real estate/rental properties.

Just started thinking about this.  Anyone know anything on this topic?  Cautions, tips, tricks, do’s and dont’s?

[N4L]

12 hours ago, BrettFavre004 said:

Interested in moving 401k money out of markets and into a self-directed 401k to invest in real estate/rental properties.

Just started thinking about this.  Anyone know anything on this topic?  Cautions, tips, tricks, do’s and dont’s?

About owning rental properties?

Think about a sustainable competitive advantage relative to other rental properties. IE what does your property have that will be desirable to renters? 

You need to find something reasonably priced that has some combination of:

- Unit Size

- Proximity to retail, preferably walking distance

- Proximity to Jobs/commuter pathways (public transit, freeways, main roads etc)

- parking

- in unit laundry

those are all things that the younger generation looks for. All of the other stuff is secondary imo

 

you typically want to leverage where you can, but not so much you couldn't withstand a down market with some vacant units. Dont be afraid to buy in a 'bad' neighborhood as long as it is an area that has a close proximity to jobs/retail as stated. People always need a place to live. The more units the better due to economies of scale Think on a 5-10 year scale. Where is not a 'great area' now that will be 10 years from now?

Other random tips/ideas:

Find someone who already owns a lot of investment property and either partner with them or pick their  (be careful with people you dont know that well when partnering, but that can help you learn)

hire a (good) property manager. Some property managers suck, some are really good. 

use one of the units as an Airbnb if you are in a desireable area

 

Hope that helps. 

[bigjohnson2009]

2 hours ago, N4L said:

About owning rental properties?

Think about a sustainable competitive advantage relative to other rental properties. IE what does your property have that will be desirable to renters? 

You need to find something reasonably priced that has some combination of:

- Unit Size

- Proximity to retail, preferably walking distance

- Proximity to Jobs/commuter pathways (public transit, freeways, main roads etc)

- parking

- in unit laundry

those are all things that the younger generation looks for. All of the other stuff is secondary imo

 

you typically want to leverage where you can, but not so much you couldn't withstand a down market with some vacant units. Dont be afraid to buy in a 'bad' neighborhood as long as it is an area that has a close proximity to jobs/retail as stated. People always need a place to live. The more units the better due to economies of scale Think on a 5-10 year scale. Where is not a 'great area' now that will be 10 years from now?

Other random tips/ideas:

Find someone who already owns a lot of investment property and either partner with them or pick their  (be careful with people you dont know that well when partnering, but that can help you learn)

hire a (good) property manager. Some property managers suck, some are really good. 

use one of the units as an Airbnb if you are in a desireable area

 

Hope that helps. 

Ultimately renting property is about ROI, and you need to be able to accurately forecast the rent amount. Set parameters for the return you desire and then see what kind of properties hit those goals. If you're not making 10%+ on the rent annually and the unit isn't in an area ripe for appreciation, why not just invest and remove the effort and risk?

As for a self-directed 401k, as a CPA I rarely see it. Administrative costs can be heavy and you can't take money out of it if needed (assuming you are not 59.5). Annual contributions are also subject to 401k limits and if it's an old work 401k then you could have issues being allowed to contribute at all. 

I strongly lean towards doing any real estate investment with after tax funds for a multitude of reasons (simplicity, stepped-up basis for heirs, capital gain treatment on appreciation) and just keeping your retirement portfolio simple.

[theJ]

29 minutes ago, bigjohnson2009 said:

Ultimately renting property is about ROI, and you need to be able to accurately forecast the rent amount. Set parameters for the return you desire and then see what kind of properties hit those goals. If you're not making 10%+ on the rent annually and the unit isn't in an area ripe for appreciation, why not just invest and remove the effort and risk?

 

For that reason alone, i'd say you need 15-20% return to make it worth it.  Your time and sanity is worth money, and you can make 10% on the market as you said.  Appreciation is generally slow enough that's not really worth factoring into the equation unless you feel strongly that the area is about to get hot.

So it all comes down to getting a good deal on the buy, being able to forecast the rent amount accurately, and keeping the unit full.  A flub up either of those three will compromise the return.

In other words, i agree with you.

[theJ]

3 hours ago, N4L said:

use one of the units as an Airbnb if you are in a desireable area

 

Until i took a trip to Portland last summer, i hadn't realized what the potential return on a good AirBnB is.  Probably 2-3x what you make on a long term rental.  Makes me want to move out of my area haha.  Because the AirBnB scene in my city is basically non-existent. 

[ramssuperbowl99]

Isn't the primary advantage of owning a rental that you can leverage yourself a ton to inflate the size of your initial investments? You're supposed to stay around 30% equity or even less, right?

Maybe I'm wrong, but that sounds miserable. Either you have a second job as a landlord, or you outsource to a property manager that eats up your profits. And either your return is poor because you aren't leveraged, or your return is good but your second job is now also a third job because you have more units and you go to bed worried about a housing bubble every night.

Hard pass IMO.

[LETSGOBROWNIES]

I dated a girl for a few years in college whose stepfather had half a dozen rentals properties.  I’m by no means an expert, but some take aways I had in addition to things already mentioned, was you better be handy and available.

If you plan on owning multiple properties, expect to work for your money.  Painting walls, showing the apartments, etc. on a somewhat regular basis.  Then comes maintenance.  Are you going to be replacing and installing carpet, dishwashers, sinks, etc., or hiring someone else to do that?  If it’s the latter, it’s gonna eat into your profits.  If it’s the former, it’s gonna cost you time.  Are you prepared to spend time in court and paying an attorney to chase down rent from delinquent renters or people who destroy your stuff?  Dealing with the eviction process if necessary?

I’m not saying you can’t make money, you definitely can, but there’s also a pretty decent correlation between the time and effort you have to invest and the money you make.  It’s not like a traditional 401k where you park your money in an account and let time work its magic effortlessly.

If you’re not afraid of some extra work, ask yourself if a part time job where the proceeds go solely to retirement/savings might not be a better option that allows for more flexibility, less risk and more liquidity.

[bigjohnson2009]

44 minutes ago, ramssuperbowl99 said:

Isn't the primary advantage of owning a rental that you can leverage yourself a ton to inflate the size of your initial investments? You're supposed to stay around 30% equity or even less, right?

Maybe I'm wrong, but that sounds miserable. Either you have a second job as a landlord, or you outsource to a property manager that eats up your profits. And either your return is poor because you aren't leveraged, or your return is good but your second job is now also a third job because you have more units and you go to bed worried about a housing bubble every night.

Hard pass IMO.

My brother and I bought a condo, but it's simply because he has the free time and wants to use it, you are absolutely right it's a 2nd job. I'm just in it to add some financial acumen and fill in when he's working. 

The more and more we evaluated it the smaller and smaller our list of potential rentals got. Ultimately we only picked up this one because it was left to some out of town people when the owner passed and we were able to scoop it at a 20% discount. That amount is literally all of our equity right now. Renting can be lucrative if you're willing to put in the time and you're patient and selective.

Edited March 6, 2019 by bigjohnson2009
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