Quote:
Originally Posted by HappyinCali
I meant to say "to me", but somehow that got omitted. And I was using PFE as an example. As I mentioned in the post above, I am in a lot of closed end funds run by the top investment firms, such as Pimco and DoubleLine. They pay 10% yield. 2% in management fees leaves you at 8%. and then ordinary income tax leaves you at 6%. 6% return for doing nothing is very good. What can you do that beats 6% passive return given that a lot of Real Estate properties have <10% Cap rate, that also gets taxed at ordinary income and requires you to assume a lot of the maintenance risk.
Closed-end funds are of course risky. Nothing that yields 10% is without risk. But unless the underlying assets start going bankrupt left and right, the distributions will not get cut materially. For me, I am more comfortable with that risk than with buying a property in a market I don't know and assuming all repair risk.
What sources of passive do you recommend that are better than that?
I would argue RE is better for appreciation, because you get the benefit of leverage and you can deduct the interest. But for passive income, I prefer closed end funds over landlording.
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A lot of people don't want to be a landlord, but once you get the hang of it it isn't that much work if you do it right.
You do have to know what you are doing. The risks you speak of are mitigated by inspecting the property and knowing what major repairs will be coming up when you buy it. You can always hire an inspector. Then screening the tenants.
I am getting almost 14% return, after depreciation write offs the taxable amount is about 75% of that 14%. I paid all cash similar to you investing in funds, but had I leveraged my money the return would have been something like 40% or more.
When I managed my own properties I was spending about 5 hours a month total on them combined (a duplex and 2 houses).
I can afford a manager now, so I make a little less (hence the 14%), but my time is closer to 1-2 hours a month, mostly paying vendors and doing book keeping. I have 13 and will be getting 3 more by the end of the year. I also own 4 in my self directed ira which beat the market by over 2.5x over the last 2 years.
Now I bought these for cash flow (dividends in your world) but appreciation is a bonus if it happens.
For me the difference of your 8% vs more 14+% is significant and I don't feel there is any more risk. My 14+% factors in expenses, money set aside for future repairs when they happen, etc.
I agree it is not for everybody. You have to use common sense, be fair, treat people fairly, but not get taken advantage of.
This seems to be hard for a lot of people as you sometimes see them post about bad landlord experiences. Heck one posted here on CD last week, but they brought it on themselves.
What I like is I have some control myself. ( some see this as a plus or a minus). I can control who rents from me, I can adjust rents to the times. If everything falls apart they are all owned mortgage free, heck I can move into one if I need to.
Next year I will start using leverage and based on my projections I should see about 200% return each year on my money invested.
I'm not special. There's people here that make me look like a peon.
Last year 3 of my investor friends quit their jobs and live off of real estate. They had been in the game for about 3 years and are in their mid 30's. Two of them are just traveling. One got bored and is part time consulting as she has no travel aspirations.
I keep wondering what my life would have been like to retire at such a young age. The world is truly their oyster.
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