Investing General Discussion

Borzak

Borzak

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LachiusTZ said:
If you ain't cheating, you ain't trying
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I must have never tried. I was self employed for nearly 20 years. Never got audited. My dad was self employed since 1970 and still does some work every so often at almost 80. He was never audited. I knew a few people who did similar work self employed and they got audited multiple times. Never seemed like the hassle unless you were somehow going totally tax free.

I was always evnious of people that could do rental properties. I never had the ability to deal with people that much.
 
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Gravel

Gravel

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Frenzied Wombat said:
I've looked into buying some rental properties as a source of passive income, but unless my calculations have been off, unless I can buy it outright at best I'd be breaking even. When I add up mortgage payments, taxes on rental income, property taxes, and repairs/insurance, the rent I'd need to charge to be competitive would basically allow me to break even. That's self managed too, with a management company there's no way I could pull a profit. Assuming no "surprises" (yeah right), at best I'm just gaining equity in the property.

Like my old 2000 sq foot townhome that I repaired and considered renting rather than selling:

$1500/month mortgage payment
$100/month insurance
$700/month property tax
estimated $200 month repairs, factoring in long term replacement of HVAC, roof, ec, as well as damage by tenant

So that's $2500/month before I factor in income taxes on revenue. I'd basically need to charge like 3k a month just to break even, which is about pushing the limit on what the going rate would be.
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Weird, because the only reason real estate really works is leverage. If you've got the cash to buy something outright, you're probably better off investing elsewhere.
 
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Locnar

Locnar

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So tomorrow is Jan 1st and its RothIRA contribution time. I DONT want to make the mistake I made this past year and put all 6k into Nokia, only to see it lose 25 percent of its value 1 week later. Part of me is saying "but if you buy another 6k into Nokia while its down, then all will be right in the universe when it recaptures its value in a year or two". This is a trap right??

To all the wise men still say stick with a index and stfu???

regarding rentals: so happy they are out of my life. Only saving grace from them was the losses I could count against regular income. If not for that they'd of been a huge waste of time and money. Why bother with rentals when you can get 10 percent in the S&P each year??
 
LachiusTZ

LachiusTZ

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Locnar said:
So tomorrow is Jan 1st and its RothIRA contribution time. I DONT want to make the mistake I made this past year and put all 6k into Nokia, only to see it lose 25 percent of its value 1 week later. Part of me is saying "but if you buy another 6k into Nokia while its down, then all will be right in the universe when it recaptures its value in a year or two". This is a trap right??

To all the wise men still say stick with a index and stfu???

regarding rentals: so happy they are out of my life. Only saving grace from them was the losses I could count against regular income. If not for that they'd of been a huge waste of time and money. Why bother with rentals when you can get 10 percent in the S&P each year??
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Leverage.

Its somewhat incidental to life.

You buy a home, pay it down some, move, repeat and it accumulates.

wormie said:
What? Mortgage note can lose you the property. It can't bankrupt you.
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I meant it can cause a negative cash flow.

Negative cash flow, in a economic down turn where you can lose your job, etc.

I honestly havent looked into whether or not mortgages were a recourse debt. Prolly depends on what type you have. Are they? I thought 15 years ago in Arkansas I had one that was recourse, but some quick searching didnt give me any real clear answers.

And I have no idea if my rental in Memphis is recourse or not. Kinda strange, I never really thought about it on mortgages until now. There was always the implication of it, but the understanding you would lose equity / home.

/shrug
 
Sanrith Descartes

Sanrith Descartes

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One thing to consider with rentals is the laws concerning evictions where you want the property. Some states protect the person fucking you by not paying rent much more than the person who owns the property. Make sure you research these laws in your area.
 
Aychamo BanBan

Aychamo BanBan

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Frenzied Wombat said:
I've looked into buying some rental properties as a source of passive income, but unless my calculations have been off, unless I can buy it outright at best I'd be breaking even. When I add up mortgage payments, taxes on rental income, property taxes, and repairs/insurance, the rent I'd need to charge to be competitive would basically allow me to break even. That's self managed too, with a management company there's no way I could pull a profit. Assuming no "surprises" (yeah right), at best I'm just gaining equity in the property.

Like my old 2000 sq foot townhome that I repaired and considered renting rather than selling:

$1500/month mortgage payment
$100/month insurance
$700/month property tax
estimated $200 month repairs, factoring in long term replacement of HVAC, roof, ec, as well as damage by tenant

So that's $2500/month before I factor in income taxes on revenue. I'd basically need to charge like 3k a month just to break even, which is about pushing the limit on what the going rate would be.
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I don't necessarily believe this, but a lot of real estate people considering it a "win" to even make $250/month cash flow. There are several things you can do with your property:

1. Refinance - So once some good equity is paid off on your house, you can just refinance the remaining debt for another 30 years. This would make your monthly note go down, and give you increased cash flow. To me this seems weird bc you're now paying hundreds of thousands more in interest for basically ever, but the property will cash flow more that you can roll into other deals.
2. Cash out refinance - I don't understand this, I think it means like if you owe $150,000 on your house, but it's worth $200,000, you could take out a new loan for the debt plus the equity and they give you a check for the difference. Like you would get a check for $50,000 but then pay a note for $200,000 worth of debt. Is my understanding of this correct?
3. HELOC - home equity line of credit, use the equity in your home to take out a line of credit to use that money for other deals
 
Aychamo BanBan

Aychamo BanBan

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Locnar said:
So tomorrow is Jan 1st and its RothIRA contribution time. I DONT want to make the mistake I made this past year and put all 6k into Nokia, only to see it lose 25 percent of its value 1 week later. Part of me is saying "but if you buy another 6k into Nokia while its down, then all will be right in the universe when it recaptures its value in a year or two". This is a trap right??

To all the wise men still say stick with a index and stfu???

regarding rentals: so happy they are out of my life. Only saving grace from them was the losses I could count against regular income. If not for that they'd of been a huge waste of time and money. Why bother with rentals when you can get 10 percent in the S&P each year??
Click to expand...

I put all stock market contributions in one of four index funds, Fidelity's total stock market, bond market, international, or real estate index fund. I never ever buy an individual stock like Nokia!

-

What did you hate so much about rentals? I see a lot of people say the best day of their life was the day they sold them. Did you calculate your returns on them, did it end up being about 10%? or less?
 
sleevedraw

sleevedraw

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Locnar said:
So tomorrow is Jan 1st and its RothIRA contribution time. I DONT want to make the mistake I made this past year and put all 6k into Nokia, only to see it lose 25 percent of its value 1 week later. Part of me is saying "but if you buy another 6k into Nokia while its down, then all will be right in the universe when it recaptures its value in a year or two". This is a trap right??

To all the wise men still say stick with a index and stfu???

regarding rentals: so happy they are out of my life. Only saving grace from them was the losses I could count against regular income. If not for that they'd of been a huge waste of time and money. Why bother with rentals when you can get 10 percent in the S&P each year??
Click to expand...

Question 1: Yes, this is the gambler's fallacy fucking with you. It may come back if the market decides that it likes Nokia's earnings or some other announcement that they make (or if the shorters decide to try pump and dumping it.) It may not.

Question 2: Yes, index and STFU. Buy one total US stock market index fund, one total international ex-US stock fund, and one total bond fund in the the proportions that make the most sense to you. You can consider adding an REIT/real estate fund as a fourth pillar as a diversifier (or to entirely replace bonds) if you don't own a house or any other real estate.
  • Bogleheads like 1/3 US stock, 1/3 international stock, 1/3 bonds; I think 1/3 bonds is delusional when you're young (<40) and 1/3 international is always delusional, but to each his own
  • The Sleevedrawfolio is currently zero bonds, 20% real estate, 10% international, remainder in US equity, but makes the following assumptions:
    • You are young
    • You have relatively high risk tolerance (not crazy, investing in leveraged funds high)
    • You expect that the US market will continue to outperform the broader world (this is an intuitive gut feeling reinforced by geopolitical/demographic arguments that I have read rather than Nobel laureate backed economic research, so your mileage may vary)
 
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Aychamo BanBan

Aychamo BanBan

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sleevedraw said:
  • The Sleevedrawfolio is currently zero bonds, 20% real estate, 10% international, remainder in US equity, but makes the following assumptions:
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I'm similar to this, except I'm 65% US, 15% REIT, 10% international, 10% bonds. I'm honestly considering dumping international for US stocks though. But also I've only really been investing since after 2008, so I haven't gone through the "portfolio drops by 50%" game yet. I'm curious if you've been investing for less than 10-ish years too?

I read Bogleheads forums daily, love it.
 
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sleevedraw

sleevedraw

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Falxy-US said:
I'm similar to this, except I'm 65% US, 15% REIT, 10% international, 10% bonds. I'm honestly considering dumping international for US stocks though. But also I've only really been investing since after 2008, so I haven't gone through the "portfolio drops by 50%" game yet. I'm curious if you've been investing for less than 10-ish years too?

I read Bogleheads forums daily, love it.
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Yeah, all of my serious investing has been post-Great Recession. I had maybe $500 or so in a brokerage before then (back when Scottrade was still around!) just for playing around. I'm fine with a major contraction; much rather have it happen now or in the near future rather than a year before I try retiring or something like that.
 
OU Ariakas

OU Ariakas

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If you really know a certain real estate market well you can make some serious equity buying short sales or foreclosures and renovating them for rental. We bought one our agents recommendation for 48k, sunk 12k into remodel, and it appraised for 85k the day the remodel was done. Felt real good.
 
Furry

Furry

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Real estate is a shitty investment market to run unless you really got your fingers in the home improvement game. If you don't know personally and/or have business associates that are reliable in every term of home repair, I'd stay the fuck away.

Crowdfunding everything is probably a scam. Some people will win, most people will lose. Don't get softbanked and stay away from that.

Individual stocks are only for people who believe really strongly in a company with good reason or for companies that pay sick dividends. If you aren't a congressman with insider information or a CEO/higher up of a company, your personal feelings are probably irrational and stupid on the matter.

Index funds are probably the most reliable and appropriate investment for average people. Play your games by shifting money around to different funds if you feel you need to do something. I recommend broad market funds, such as S&P 500 indexes, though there are plenty of funds that fit the bill of appropriate risk and reward. Intelligent investors worry more about how much they are socking away and how much taxes are mitigated, rather than the details of how their money is managed. These are the problems you can deal with and it makes a MASSIVE difference in your potential retirement balances.
 
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Khane

Khane

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Real Estate is not a shitty investment market. It's (historically) stable, is a real asset you can actually view and touch, and is less prone to speculation than the market is.

A lot of people in this thread like to point to index fund performance over the last ~20 or 30 years as proof it will always be a winner. Except everyone did the same thing with Real Estate for like 80 damn years until investment banks got de-regulated and went all in on bad faith business practices. Eventually causing the volatility we saw from the early aughts to 2008 (and now the cycle appears to be repeating itself). And long-standing investment history in real estate is what drove so many people to make blind-faith, bad investment decisions in real estate.

You never really know. Your 20 year old winners could shit the bed and leave you broke tomorrow if you don't pay attention.

If you wanna say real estate is a bad investment if you're trying to flip for quick profit then sure I agree, if you don't know home improvement that's a fool's errand. But that's gambling more than investment, the same way "investing" in fly-by-night companies or virtual currency ICO's is gambling. Current banking practices do make real estate more volatile than it has any right to be, but multi-family residential and certain commercial real-estate tend to remain stable even when the market drops because people will always need shelter and certain businesses have inelastic demand (like gas stations).

There is always one thing to keep in mind when someone tries to advise you on investing your own money. If they EVER act like something is a guarantee immediately ignore them. And there are a lot of people in this thread that act like the S&P 500 is a massive double digit guarantee...
 
Fogel

Fogel

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I don't think anyone here has claimed the s&p is a double digit guarantee, but historically it's been 10% for the last century before inflation, so figure about 7%. That's a pretty good return for what amounts to about 5 minutes of time clicking a few links on a website once a year. Obviously if you have an inside deal on real estate whether you're a realtor or contractor then play to your strengths, but the vast majority of people don't have the time, experience, knowledge, patience, or resources to play the real estate game.

The historical average stock market return is 10%

The S&P 500 index comprises about 500 of America’s largest publicly traded companies and is considered the benchmark measure for annual returns. When investors say “the market,” they mean the S&P 500.

Keep in mind: The market’s long-term average of 10% is only the “headline” rate: That rate is reduced by inflation. Currently, investors can expect to lose purchasing power of 2% to 3% every year due to inflation.
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Obviously, when you get into the market will have an effect to, but look at this link, S&P 500 Historical Annual Returns, and you will see that almost every year that the S&P 500 went down, it was followed by several years of gains, and very rarely did it ever go down two years in a row. The only two times it's gone down two years in a row was the dot.com bust and the 1970 crisis, and before that was WW2.
 
Khane

Khane

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And what you're saying is the same thing people said about real estate investment until 2008. That's really all I'm pointing out. I'm not trying to dissuade people from investing in the S&P 500.

And real estate has rebounded like gangbusters since 2008 as well.
 
Blazin

Blazin

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Both the market and real estate have made me a lot of money. In my experience real estate has been more work but well worth the diversification imo.

so agree with Khane but if you aren’t willing to put the time into it then it’s probably better to stick to the index choice and maybe own some reits
 
Khane

Khane

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Yea, real estate is a lot of time and a true personal investment. No argument there.
 
wormie

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I don't know what you dudes are complaining about, I am up 200%, on an annualized basis, this decade on my s&p index fund.

But of course the correct answer is diversifying, some money in index funds, some in real estate.
 
sadris

sadris

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Why invest in rental property when your could invest in storage? Unlike residential rental units, when they don't pay your get to just take their stuff... instead of spending 90 days trying to remove people who are trespassing.
 
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