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I took the rest of my money from my home sale equity and bought cheaper area rentals, moved to a cheaper area to live, and have about a 13% return netting me almost $100K a year. I didn't buy a home, I just rented as I wasn't sure if I was going to stay in the new area. I also have about $23,000 a year in depreciation which brings my taxable income to $77K.
I'm not saying you should do this. It takes a lot of time and research to do it right. It worked out for me though and I know others that have done similar.
My friend used to be a financial planner and was complaining about how her nest egg wasn't growing much. She watched me over the last 2 years as she didn't quite believe what I was doing would work. She now sees I am retired and living off my rentals and has converted her retirement funds from the stock market into rental homes and is now up to 5 rentals and trying to pick up 5 more.
I owned a lot of rental property and built up a net worth - but it is hardly a passive activity. Especially in this day and age. It may in your area people are still pretty decent, pay on time, don't have bad friends, whatever. I got out of the business about 25 years ago because I didn't have the patience for tenant hassles anymore - and don't tell me it's how you screen them or write the leases. Human ingenuity knows no bounds in finding ways around any rules. I could write a book.
And, then, there are the hassles of property maintenance. Painting, plumbing, wiring, getting bids on jobs, etc. Who the heck in their retirement wants to be bothered with that? I'm a single woman - so, for sure, not me. Only rental I have now is rented by my son.
When I had a murder in one of my buildings and lost all my tenants, I knew my days as a landlord were over. Perfect tenant for ten years had a not-so-perfect boyfriend who decided to kill tenant's sister and kidnap the tenant. Needless to say, it was all over after that. People aren't so great - at least in the more urban areas. You gotta be really careful with tenants. And, I was never slumlord. It's just the way society has evolved.
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Originally Posted by DaveinMtAiry
I am trying to figure out how this is possible other than making poor investment choices and/or pulling out in 2008.
Agree with that.
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Originally Posted by Good4Nothin
So you would recommend an index fund? Any particular one?
Please don't do an index fund, unless you are buying two or more (or market ETFs) and rebalancing. In which case, just buy VWINX. Back in the day, an index fund was a no-brainer. No more. Please don't do that. Bogleheads is a good forum. You'll learn a lot there.
Thanks. So you would recommend an index fund? Any particular one?
(Going to register and the bogleheads forum).
Once you get involved with passive investing the question will be how to construct your portfolio and what funds to include. There will be a wealth of thinking for you as you explore the thoughts of others. My situation is very different and my allocation is around 70 percent equities across several fund families. They include both passive and time honored active funds and are both pre and post tax.
I recently retired and I have about $550k, total (I do not own a house). I get about $17k/year from Social Security. I saw a financial adviser (at TIAA, where one of my accounts is) and his advice was:
- Annuitize my $100k TIAA account (no choice with that one), for $6,600/year.
- Keep $150k in a money market.
- Give $300k to TIAA to manage, as conservative investments (90% bonds, 10% stocks).
He said this would give me $30k a year, including SS (I don't spend a lot). It would mean taking 3.74% a year from the $300k investment, so I would be taking from the principle, not just profit.
TIAA would manage the investments and keep it balanced. Their fee would be one percent ($3,000 a year).
After he explained that, I told him my idea, which is different. He didn't seem to like my idea very much, but here it is:
- Annuitize $200k, for $13,200/year.
- Put $350k in money markets, at about 1% interest ($3,500/year).
With my idea, there would be no risk and no $3k/year fee. And no drawing from the principle, except for emergencies. My income would be about $33k/year, minus taxes.
I also might try to find part time or temporary work, to make about $10k/year. If I did that, I probably would be able to save money every month, since I don't usually spend a lot.
Which idea do you think sounds better, the adviser's or mine?
Neither. Forget annuities. Prefer solid tax free munis which will net you around 20k triple tax free.
There do exist active managers who consistently beat the market and justify their fees; there's a ~ 80% chance that some random dude at TIAA is not one of them. You are either getting a random active manager or a passive fund. Unless you have some reason to believe you are getting one of the 20% - and it sounds like you don't - you'd be better off annuitizing a larger chunk of the money (as your own analysis indicated) and/or putting it into an account at Vanguard.
edit: if you plan on retiring in one place, your best move is probably buying a place for yourself. Safer than stocks, higher yield than bonds, and you won't pay tax on the rent savings.
Location: Formerly Pleasanton Ca, now in Marietta Ga
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Quote:
Originally Posted by Ariadne22
I owned a lot of rental property and built up a net worth - but it is hardly a passive activity. Especially in this day and age. It may in your area people are still pretty decent, pay on time, don't have bad friends, whatever. I got out of the business about 25 years ago because I didn't have the patience for tenant hassles anymore - and don't tell me it's how you screen them or write the leases. Human ingenuity knows no bounds in finding ways around any rules. I could write a book.
And, then, there are the hassles of property maintenance. Painting, plumbing, wiring, getting bids on jobs, etc. Who the heck in their retirement wants to be bothered with that? I'm a single woman - so, for sure, not me. Only rental I have now is rented by my son.
When I had a murder in one of my buildings and lost all my tenants, I knew my days as a landlord were over. Perfect tenant for ten years had a not-so-perfect boyfriend who decided to kill tenant's sister and kidnap the tenant. Needless to say, it was all over after that. People aren't so great - at least in the more urban areas. You gotta be really careful with tenants. And, I was never slumlord. It's just the way society has evolved.
Agree with that.
Please don't do an index fund, unless you are buying two or more (or market ETFs) and rebalancing. In which case, just buy VWINX. Back in the day, an index fund was a no-brainer. No more. Please don't do that. Bogleheads is a good forum. You'll learn a lot there.
I've heard of lots of people with the same stories about dealing with renters. I can certainly understand them not wanting to deal with it. That's why I say it's not for everybody. It's not as easy as it looks, otherwise everyone would be doing it.
Is it a bit more work than throwing your money in the market and calling it a day? It can be, but for the return I get it's worth it. It allowed me to retire early.
Maybe I was lucky. When I first became a landlord I had a few stories too. Evictions, tenants thrashing the places, not paying rent. But I learned from the experiences and talked with a lot of investors I learned how to screen tenants and minimize problems. After a while it got significantly better for me.
A few years back I self managed 3 houses and a duplex with rents of over 6k a month. I no longer own those, but today rents went up where they would be bringing in over 8K a month because of rising rents in Ca.
Over a 4 year period I never was called in the middle of the night and pretty much spent about 6-8 hours per month managing them. That included book keeping, collecting rents, and doing a few smaller repairs like fixing a toilet or leaky faucet, and meeting with a repairman if the job was more than I can handle. I think if you're retired, working less than one day a month to get double your return from the market is worth it. But if you have so much set aside that you have more than enough to live on, then certainly it may not be what you want to do.
Today I don't own those rentals as I have traded them into cheaper blue collar areas of Milwaukee as compared to what I owned in Ca. I also don't have much to deal with as I have a property manager who does a great job. I spend maybe 2-4 hours a month mostly on book keeping and authorizing repairs when needed and writing checks for them when needed. If you consider working 2-4 hours a month not being retired, then I see your point. But I pretty much do everything over the net and by phone. I still have the flexibility of traveling for as long as I want as long as I have that.
If I had the same amount of money back in the market I would have to go and get a job to live to make ends meet. 160 hours a month working at a job versus 4 hours being anywhere I want , I know what the choice was for me.
I have 2 friends that were much wiser than me except much younger. Both quit their jobs after investing in real estate and are 34 and 35 years old. One is hanging out overseas until he gets bored there. The other one is vagabonding around the united states for a year then vagabonding overseas next year.
I don't understand much of what you are all talking about, but in the end I have always loved real estate so maybe that's why I stuck with it. I felt better putting my money into something I understood versus something I didn't. Maybe these things you all are talking about have higher return than what I am getting, but I don't understand them. I only know how I did compared to keeping my money in mutual funds. I only know that it works for me and that I just presented it as I thought the OP wanted ideas and was not going to get as much as he needed to live on.
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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One friend does quite well getting his spending money by actively managing $100k in Forex, events like yesterday's coup can play into his favor.
Another... Raising fryers and also selling eggs
Others:
Woodworking / turning
Handling bees
Uber
Airport shuttle driver
Funeral home work
Secret shopper....
Ski or music instructor
Translator
Gambling (many people know how to do this very successfully)
Pet sitting / walking
Raising beef (+/-)
Building a new primary residence every 24 months.
I always keep a few pieces of speculative properties (commercial, or view), some pay well, others....not so well, not so quickly. I like to rezone / take difficult properties and make attractive to investors.
I only know that it works for me and that I just presented it as I thought the OP wanted ideas and was not going to get as much as he needed to live on.
Not a bad thought for someone younger. I think every young couple should consider a two-family when they start out, live in one unit, rent the other. Gives a real leg up and frees up cash for investing/saving. That's the way I did it years ago.
Keep in mind you began these rental investments years ago. OP is almost 65. This is not a time to begin to learn the rental business, imo - especially since he's never even owned a property - unless, of course, he really wants to. He's been a renter all his life for a reason. lol
Further - re property managers - there was never a time when a property manager made sense for me - but I always had mortgages. I think you said you weren't leveraged - so, of course, you could pay a manager. I went in with very little capital.
And, that's another thing. Real estate can be very illiquid. Right now, not. But, we could get into another depression - and there would be no easy way to get that money out. In the depths of the depression in my lifetime (the early 80's), I had to sell one property on a land contract, and then had to sell the LC at a discount for further money. You can be caught in quite a squeeze w/real estate if you need your money.
Me, these days, I like liquidity.
OP has sufficient income - and isn't particularly interested growing his net worth or income, either - from what he says. His SS/$200k Annuity and MM interest will cover his expenses. If he keeps $100k cash and invests the remaining $250k in a conservative fund, he should see growth of anywhere between $15-$18k a year w/o touching principal. He sounds like a smart guy. I think he can figure it out. It isn't that hard - and doesn't need to be complicated.
Last edited by Ariadne22; 07-16-2016 at 10:49 PM..
I don't know much about stocks and whatnot. I do know that I had my IRA retirement money in mutual funds like Vanguard. After many years it was pretty much worth what I had contributed into it.
I pulled the money and rolled it into rental houses. I just ran a what if scenario to see what my money did with the rentals versus had I left it where it was. Over the last two years the rentals had outperformed the market by well over 2x.
This was based on me converting when the market was about 15,700 and a few days ago when it was sitting at 18,500.
None of the money was leveraged so it was just straight cash vs cash. If it was leveraged with financing the return probably would have been 4x or more.
I took the rest of my money from my home sale equity and bought cheaper area rentals, moved to a cheaper area to live, and have about a 13% return netting me almost $100K a year. I didn't buy a home, I just rented as I wasn't sure if I was going to stay in the new area. I also have about $23,000 a year in depreciation which brings my taxable income to $77K.
I'm not saying you should do this. It takes a lot of time and research to do it right. It worked out for me though and I know others that have done similar.
My friend used to be a financial planner and was complaining about how her nest egg wasn't growing much. She watched me over the last 2 years as she didn't quite believe what I was doing would work. She now sees I am retired and living off my rentals and has converted her retirement funds from the stock market into rental homes and is now up to 5 rentals and trying to pick up 5 more.
A lot of people gave you advice here and you just need to do more research and pick what you feel comfortable with.
The only thing I can say is be don't invest in something you don't understand.
I have both mutual fund retirement accounts and rental property, and FWIW the rentals cause fewer sleepless nights than the stock market.
Everyone needs a place to live, and the millennial generation being as big as the boomers, residential real estate is the only sure bet investment I can see for a long time to come. Even Wall Street has found a way to get in on the action by buying distressed houses in bulk, then re-furbing them into rentals. Rental property is the only thing in this economy that is paying a yield. And the bank will front the money @ 4%!
How many people do you know of who've done well in rental real estate ACCIDENTALLY? People who got a house in an inheritance and did well renting it out, or others who bought a bigger house but kept the first one as a rental?
Though neither are perfect, I'll take "taxes, tenants and toilets" over a teetering house of cards stock market any day.
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