Investing megathread extravaganza

[DaFace]

A place to talk about investing stuff.

[lewdog]

Originally Posted by wutamess

I'm a novice investor. I admit. However, what have I said (or done) that makes you think I know little about investing? I have a 401K and Roth IRA both stocked with multiple high performing index, ETF and mutual funds for long term growth. I also have a play account I use for "gambling" money with the stock market.

Anyhow... Maybe I used a wrong buzz word or something. A regular brokerage account in her name cannot play the options market. So in that case... she will learn about investing and I"ll see what she can do and she will either fail or succeed but it'll be her choice.

Thanks for your input.

Absolutely, and I wasn't trying to offend you. Just looking at things a different way. Wasn't sure of your investing background. Sounds like you know more than I originally thought you did.

That being said there are plenty of index and ETF funds that can be bought in brokerage account. I'd lean that way if you're planning to have her invest. TD Ameritrade has 100+ index and ETF funds that trade for free. Might start there.

[lewdog]

Originally Posted by Bugeater

How long do you typically finance them for?

Hogfarmer can answer this more but here's my thoughts.

Financing a house will obviously give you the tax advantage of the interest paid on the mortgage for the year. However, seeing as you'll rent this and have a new line of income, you'll have to pay taxes on this income. I'd have no idea of the tax advantage of the mortgage interest over how much income you'd generate though. Maybe Hogfarmer can answer that?

It is a different type of investment though and is fairly liquid, especially when comparing to a 401k. I would never do it because of what Hog Farmer mentioned, maintenance cost. Being unhandy like myself, I'd have to contract out all the work. If you're handy, like you are, and can do most of the maintenance, you can make way more money.

If your sole goal is to lower your taxes, having your wife max out her 401k for the year ($18,000), decreases your taxable income by that exact amount.

[O.city]

I have a friend that I golf with alot that has over 90 rental properties. Seems to do pretty well?

[Bugeater]

Originally Posted by Hog Farmer

15 years with the bank

with the owners for the 20% I offer them a 5 year balloon ammoritized for a 15 year payout but normally give them a higher interest rate like 8% to help motivate.

I never ever ever ever do a 30 year loan.

Yeah, it would have to be a 15 for it to work for me. I'd be lucky to live another 30 years. Just a matter of the monthly rent covering the payment. I haven't really crunched any real numbers yet to see if that's realistic.

Originally Posted by Hog Farmer

Rentals can be tough if you only have 1 or 2 and the reason is they normally don't generate enough cash flow. A hot water heater replacement can cost you $1000 and if you're clearing $50 /month on a rental after Principal/Interest/Taxes and Insurance well then two rentals will pay for that one water heater in a year. My break seemed to have come at 10 rentals to cover itself without having to pull money out of my pocket. but keep in mind I was at 100% financing too.

I wouldn't be at 100% financing. I'd probably be looking at 25% or so down for a lower payment so there's some extra money to help cover costs. As I mentioned, I'm not concerned so much with month to month income, I'm more interested in a place to put some money besides the 401k.

[Bugeater]

Originally Posted by lewdog

Hogfarmer can answer this more but here's my thoughts.

Financing a house will obviously give you the tax advantage of the interest paid on the mortgage for the year. However, seeing as you'll rent this and have a new line of income, you'll have to pay taxes on this income. I'd have no idea of the tax advantage of the mortgage interest over how much income you'd generate though. Maybe Hogfarmer can answer that?

It is a different type of investment though and is fairly liquid, especially when comparing to a 401k. I would never do it because of what Hog Farmer mentioned, maintenance cost. Being unhandy like myself, I'd have to contract out all the work. If you're handy, like you are, and can do most of the maintenance, you can make way more money.

If you sole goal is to lower your taxes, having your wife max out her 401k for the year ($18,000), decreases your taxable income by that exact amount.

That does seem like the easiest, most practical thing to do. I just hate having all our eggs in one basket. You can hardly lose on real estate in the midwest. But there certainly will be headaches I'm sure. There's a reason most renters are renters, and I deal with the worst of the worst every day.

[Hog's Gone Fishin]

My frame of thought has always been to use other peoples money. if you put a big down payment on a property then you have all that money tied up when it could be used to generate more income.

[Bugeater]

That's true. I could be using it to start my own hog farm.

[scho63]

Originally Posted by Hog Farmer

Rentals can be tough if you only have 1 or 2 and the reason is they normally don't generate enough cash flow. A hot water heater replacement can cost you $1000 and if you're clearing $50 /month on a rental after Principal/Interest/Taxes and Insurance well then two rentals will pay for that one water heater in a year. My break seemed to have come at 10 rentals to cover itself without having to pull money out of my pocket. but keep in mind I was at 100% financing too.

You answered an important question here for someone thinking about getting into the rental home game, I think Buehler for tax reasons.

You NEVER want to buy a rental for tax reasons, you want to buy it to make money and positive cash flow even if it's $25 a month. Taking money out of your pocket every month to pay for someone else to live in your home is ludicrous.

Great summary!

[Bugeater]

That was me. Thinking about all the potential headaches certainly has me leaning towards just dumping the money in the 401k.

[scho63]

Originally Posted by Bugeater

That was me. Thinking about all the potential headaches certainly has me leaning towards just dumping the money in the 401k.

Nothing wrong with a great rental property. Just buy it for the right reasons.

Location is paramount no matter how cliche

[O.city]

I'm looking to eventually get into the commercial real estate side of things. Right now, I rent my dental office. It's the same price as the tenant has paid there since 1981, so I'm not in a hurry to move. But I would eventually like to own my building I think.

My plan is to eventually have a little 3 offie strip mall, with my office on the end and rent out the 2 next to me.

[wutamess]

Originally Posted by DaFace

Yeah, it's really does just depend on the core purpose. If you want her to "have investments," safe funds are the way to go. If you want it to be a learning experience, throw it in a brokerage account and have her pick a couple of stocks for companies she likes and see how it goes. Even if she loses most of it, it'll be a good lesson that will pay off down the road.

And that's all I was really trying to do.

[Rain Man]

Originally Posted by O.city

I'm looking to eventually get into the commercial real estate side of things. Right now, I rent my dental office. It's the same price as the tenant has paid there since 1981, so I'm not in a hurry to move. But I would eventually like to own my building I think.

My plan is to eventually have a little 3 offie strip mall, with my office on the end and rent out the 2 next to me.

If it's for your own business, that might be great. But in the long run, I think commercial real estate is going to be a declining market. Retail sales places are in a slow race toward bankruptcy as shopping continues to move online, and I think even service businesses are downsizing due to things like telecommuting and offshoring. I don't see much indication that commercial real estate demand is going to go up in the long term.

[Buehler445]

Originally Posted by Bugeater

Yep, getting past that $12,600 mark is the problem. I'm hoping a rental could help with that. And as far as the fraud part...let's just say I have experience with that from when I was running my painting business.


We caught a huge break that unfortunately involved the death of family member. But yeah, it's nice, and it opens the door to a lot of other possibilities for us. Right now we're basically just blowing the extra money, we need to be more smart with it.

Ok. Don't look at a rental as an opportunity to take itemized deductions.

You report rent income on a schedule E. All your expenses are account ted for on the schedule E so you're taxed on the net. If you finance a rental don't put the interest A (itemized deductions). Unless you can get a far better rate on your house than a rental but even then you risk losing the deduction for the rental at all if you don't get to the standard deduction.

RE: paid off house. Does t matter how it happened, it's still a big deal.

[Bugeater]

Originally Posted by Buehler445

Ok. Don't look at a rental as an opportunity to take itemized deductions.

You report rent income on a schedule E. All your expenses are account ted for on the schedule E so you're taxed on the net. If you finance a rental don't put the interest A (itemized deductions). Unless you can get a far better rate on your house than a rental but even then you risk losing the deduction for the rental at all if you don't get to the standard deduction.

RE: paid off house. Does t matter how it happened, it's still a big deal.

Ah hell. Should've known it wasn't that simple. Apparently the only way to itemize deductions is to have a giant mortgage and a shitload of kids.

Something else occured to me, lewdog mentioned that the max we can put in the 401k is $18,000/yr, and the Mrs' pension buyout will well exceed that. So her idea of putting it all in 401k won't work then. Maybe we should just take the tax hit and buy a Corvette. /shrug