Man, I keep thinking that this stock market is way over valued just by the fact that Trump is in office and very business friendly (please, oh please, leave off with any kind of political commentary on here - we all know how people feel about Trump). If the man gets reelected, then it’s going to last another four years at most. If one of the Dems gets in, just by sheer emotion and etc, this stock market will come crashing down - good buying opportunity for sure but it will still be unsettling. I’m about 14 years away from conventional retirement - would dearly love to retire early - I keep thinking real estate investment and passive income would be the way to go - but where to invest? I don’t think it’s here where I live in Colorado.
Get Rich Realistically
This is my opinion only based on personal experience. Real estate, unless you are in coastal area a lake or a business district with limited land appreciates over the long term at about the rate of inflation. This is historically true. Once you count in the maintenance costs, property tax and interest expense if you carry a mortgage the price appreciation is not that great.
I would not worry about Warren being elected. Historically presidential elections have little to do with investment returns and oddly enough historical US investment returns are higher under democratic administrations. I have zero interest in either political party by the way. I couldn’t care less what party is running the country. What’s more important is who is running the business. P&G, 3M, J&J have all done well no matter if Roosevelt or Obama was president. If Warren were president and managed to tax people making 500 million a year an additional 5% it would not affect me. I wish it would as that would mean I have a lot of money. As my grandfather said 50 years ago, “I wish I had to pay $100,000 a year in taxes. You know how rich that would make me?” He was right at that time when income from all sources was taxed roughly the same. But now? The rich got congress to rewrite the tax code over the last 30 or so years. The result? Before I retired and worked for a living my effective tax rate was about 40%. Since I retired and do no productive work my tax rate is down to less than half that on about the same amount of income since I pay tax on capital gains which are limited to 20%. So, non-productive me gets a tax break and working folks take up the slack in the budget. 
Of course when I have to take mandatory IRA withdrawals my tax will go up but my capital gains will be limited to 20%. So…it’s obvious who the tax code was written to benefit.
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Fred Firestone said it best: “A man with a surplus controls his circumstances, but a man with no surplus is a victim of circumstances.”
True. If you have surplus you can buy politicians and have the laws written to favor you. You can also pay to convince the electors that the politicians you want are best for them. It is BS but it works.
Political messaging is probably not a reliable guide to investing.
Markets go up and down, presidents come and go. AFAIK nobody has established a plausible link between the two.
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Buying real estate has significant risk and is unlikely to make much money. Buying REIT index funds allows you to be “in real estate” in a highly diversified manner so you minimize risk AND you don’t have to manage properties yourself.
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Very true. It is a fact that investments do better under democratic administrations but that may be purely coincidental.
What is certain is the national debt goes up more under Republicans. They love to spend and cut taxes at the same time. They remind me of a moron I knew that bought a new house with a hefty mortgage and then got mad and quit his job.
However since the US seems to be going to a MMT economy whether they admit it or not the debt may have no meaning.
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Everyone can contribute to a Roth IRA regardless of income. Commonly called ‘backdoor Roth IRA’ it involves contributing to a traditional IRA, then converting that to a Roth IRA. There are rules that must be followed. Also some conditions may not make it a ideal for everyone.
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When one of my real estate mentors started in the real estate market in '01-'02 myself & his others coworkers were naysayers & told him if it was that easy everyone would be doing it. To his face & behind his back all his crew said he was going to lose his ass with his crazy scheme. We were wrong. He was up to 30 properties but lost more than half during his divorce. In 2007 when my wife & I got into buying foreclosures my shipmates told me exactly the same thing, that I was dreaming & wasting my time & money. We were up to 10 properties but sold one recently. No regrets at all concerning investing in real estate.
Since you asked, below are a few observations & advice from a mariner who invests in real estate.
#2. Get as many mentors that you can. From my experience, people who invest in real estate love talking about it & sharing what they learned.
#3. Realize before hand that you are buying a job. The more work you put into it the more you earn. But its a real chore. Too much work sometimes.
#4. Realize that there’s no 2 investors who do it exactly the same way. I have 4 mentors who all made tons of money & all of them have completely different business models & my model is different than all of theirs.
#5. Read the book, “Building Wealth One House At A Time”. After our 3rd purchase I figured I should get some book knowledge & read about a dozen real estate books. This book was the best IMO.
#6. IMO, it’s really not worth it if you only have 1-2 investment properties. Taking care of 1 is the same amount of work as taking care of 2 & taking care of 2 is the same amount of work as taking care of 4. Don’t waste your time with 1.
#7. Spending more to purchase doesn’t mean a higher rate of return. When we started investing we could of bought $100k homes & charged $1,000 a month in rent. Instead we purchased $25k - $40k homes & charged $750 a month rent. Those $100k homes in 2008 are now worth $200k & those $25k- $40k home are now worth +$100k. You do the math.
#8. Do as much work as you possibly can. Think of the work that you do yourself as money earned. If you paint a room, you earned $200. If you pressure wash a house, you earned $250. Etc, Etc. Not bad money to earn on your off time.
I saved #1 for last.
#1. Have a spouse who is willing to or willing to learn how to take care of business while you are at work. You will not be able to successfully manage property from the ship for any amount of time. Never tell a tenant or a contractor no one is in town to take care of it. Property Managers will ensure you only earn enough to break even if you are lucky & relatives will screw you over no matter how much you love them or how generous you think you are. Only trust your spouse. They have to be on board because they will do at least 1/2 of the work.
I can go forever but won’t. Check out the book I mentioned. Its full of tips.
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That’s the big one right there!
As a mariner I realized rental property wasn’t for me because I had to contract a lot of the work out. I needed a property manager because I’m gone all the time. If a tenant moved away and I’m not there to find a new one I’m loosing money. If a room needed to be painted between tenants the property manager would hire someone. If something simple like a garbage disposal needed replaced the property manager would hire someone to do it.
I could do all these things for free if I was around to do them. But I’m not around so the profits go to someone else.
I still have property but I’m not buying any new ones. My property manager and her handyman must love me.
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thanks much. thats the kind of info i am looking for. just ordered the book you mentioned.i lucked out with my first house and had to put a bit of work into it, which i am happy to do myself, but in ft lauderdale where i live there are SO many property vultures and buyers the good deals or anything with some potential gets snatched up quick. i would not mind buying somewhere else cheaper but i dont want to spread myself out too thin. Thanks for the good advice.
There is no way you can add value to a stock or bond
You can add value to real estate. Sometimes it’s easy, but generally it takes a lot of time, effort, and money.
Buying foreclosures can be a real moneymaker, in some areas. But in other areas there are too many crazy people overpaying, or too many large investors buying in bulk from banks.
It’s very easy to lose your ass doing renovations. You really need to know what you are doing, or keep it very minimal.
In some markets you can flip houses quickly with modest work at a good profit. In other markets you can get stuck with a house for a long time.
Land is a long term speculative investment.
Oceanfront or lakefront has the best returns, if you have secure rights to build.
Single family houses almost always lose money as rentals. 2-4 unit buildings can be moneymakers. Large buildings with many apartments have a different type of tenant and require professional managers who visit the building constantly.
Air BnB can be a good money maker if you can manage it and get the day to day work done.
Buy in the early stages of an improving market. Sell when the market has been unrealistically hot for awhile.
You make money on real estate when you buy it. Buy it cheap or don’t buy it at all.
REITS and similar investment can be a good real estate hedge, but there is no way for you to buy them below market value, or to add value.
Every mutual fund I own can be liquidated at the end of the next business day (I use eTrade, I’m sure the other big online brokers are the same).
RMDs are not applicable to Roth IRAs. Yet another advantage to the Roth.
Agree with this. All I am advocating is that it’s wasteful to have this large sum of money sitting in cash on the sidelines earning negligible interest for something that MIGHT happen (the emergency where you lose your job for 6 months to a year). This is especially true for someone just starting their savings plan because, as you said:
Yeah I’ve been reading up on REIT funds and that actually appeals to me for sure. Real Estate is dicey where I live (bubble is gonna burst).
I am absolutely in to doing most of the work myself on renovating a little shit hole and renting it out - we did manage to find some fairly cheep places in northern cali (believe it or not) but I am terrified of owning and renting out anything in California. It would be a decent investment though - cheap housing is hard to find there and the little places I’ve seen (and one I fixed up a bit and sold for a really nice profit) are certainly affordable - But I don’t live there so eek
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If you can only afford one there’s a good argument for your emergency fund being in a Roth IRA but when you’re most likely to need it (when the job market is down) the IRA is also likely to be negative, which is a very bad time to sell.
BTW, there are good online only savings accounts out there that make a guaranteed 2.20% APR, I use Barclay’s Bank but there are a few other equivalent ones.
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Having an emergency fund does more than give a comfortable piece of mind it also helps you avoid credit card & other types of finance charges. When our daughter needed braces, the transmission went out on my truck & a death in the family involved making an international flight reservation we just paid them & continued putting the same amount of money into the emergency fund each pay period. If a person has an emergency fund then they can become their own credit card/lending company. Instead of paying 3-10% to borrow money you can earn 2-3% by having money in CD’s or a money market.
Also, we plan on using our emergency fund as a buffer account in retirement. All the financial books I read & podcast I listened to said the same thing, in retirement, timing is everything. If a person retires in a bad economy or gets a few straight years of bad returns at the beginning of their retirement it can ruin a person’s life savings. Instead of using the 4% rule in retirement or waiting every month/quarter for our dividends to deposit we will pull the same small fixed amount out of our emergency fund & have our retirement accounts returns deposited directly into our emergency fund. If we pull out 3-4% & our returns are 3-7% then hopefully we should never have to touch our principal. Larger the cash buffer account, less influence a negative market will have on our retirement.
I’m in the downhill slide toward retirement in five years. My five year plan.
Eliminating credit card debt is a big priority. Interest and fees really snatch a lot of your hard earned money.
Credit cards are very useful if used properly. Interest for a month or two between jobs is no problem. But as soon as cash starts flowing in pay the cards to zero immediately.
It makes more sense to be fully invested and use credit cards as an emergency fund, as long as your emergencies are not too frequent.
or long…
With mariners it seems we lose employment when the economy goes down due to recession, trade wars or oil price declines. Not coincidentally invested capital declines at the same time. Bad time to remove money from investments. Credit card interest is ridiculously high compared to what the banks pay for the money and can leave one in debt longer than it takes investments and income to recover. There is nothing wrong with having 6 months or a years cash stashed away in a credit union or some other insured depository. No FDIC insured money has ever been lost.
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