Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Financial Advice for ER
Old 04-05-2016, 03:14 PM   #1
Confused about dryer sheets
 
Join Date: Apr 2016
Location: winnipeg
Posts: 7
Financial Advice for ER

I am thinking on early retirement.

We immigrated to Canada from Argentina, and we were lucky (at least as today) to buy rental properties at low prices.

As today we can retire in five years, but we are not sure what to do with our rental properties. We have nice houses and duplex properties.

We think to keep houses that worth $200k each and they can provide $12k/year each one before paying income tax.

That is almost 6% ROI (again, before paying tax) with some work

My wife want to keep the house to inherit them to our kids

Does anyone has a similar experience?
Does anyone has something better ?
__________________

__________________
winpplui is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 04-05-2016, 03:38 PM   #2
Thinks s/he gets paid by the post
ExFlyBoy5's Avatar
 
Join Date: May 2013
Posts: 1,977
Quote:
Originally Posted by winpplui View Post
I am thinking on early retirement.

We immigrated to Canada from Argentina, and we were lucky (at least as today) to buy rental properties at low prices.

As today we can retire in five years, but we are not sure what to do with our rental properties. We have nice houses and duplex properties.

We think to keep houses that worth $200k each and they can provide $12k/year each one before paying income tax.

That is almost 6% ROI (again, before paying tax) with some work

My wife want to keep the house to inherit them to our kids

Does anyone has a similar experience?
Does anyone has something better ?
I can't opine one way or another with so little to go on. A 6% ROI would be good, but taxes and "some work" could REALLY bite into that.

I am personally of the mindset that rental properties can be good or bad...and I lean towards the BAD side. I personally haven't had too many issues, but my DW manages quite a few properties and there can be significant issues (such as a current wrongful death lawsuit of a tenant and the great MOLD epidemic that seems to be going around) so I am becoming a great fan of REITs when it comes to real estate. As a matter of fact, we are in the process of selling our rental property and I can't WAIT to be rid of it. I guess it boils down to what you can stomach.
__________________

__________________
Founder and Head Lounger @ The Life of Leisure Institute
Retired in 2014 at the Ripe Age of 40.
ExFlyBoy5 is offline   Reply With Quote
Old 04-05-2016, 03:51 PM   #3
Moderator Emeritus
aja8888's Avatar
 
Join Date: Apr 2011
Location: The Woodlands, TX
Posts: 7,179
Rental real estate always looks good on paper.
__________________
......."Everybody has a plan until they get punched in the face." -- philosopher Mike Tyson.
aja8888 is offline   Reply With Quote
Old 04-05-2016, 03:52 PM   #4
Confused about dryer sheets
 
Join Date: Apr 2016
Location: winnipeg
Posts: 7
Quote:
Originally Posted by FlyBoy5 View Post
I can't opine one way or another with so little to go on. A 6% ROI would be good, but taxes and "some work" could REALLY bite into that.

I am personally of the mindset that rental properties can be good or bad...and I lean towards the BAD side. I personally haven't had too many issues, but my DW manages quite a few properties and there can be significant issues (such as a current wrongful death lawsuit of a tenant and the great MOLD epidemic that seems to be going around) so I am becoming a great fan of REITs when it comes to real estate. As a matter of fact, we are in the process of selling our rental property and I can't WAIT to be rid of it. I guess it boils down to what you can stomach.
Thanks for your reply

What ROI can i get with REIT?
Right now we are in our capitalization stage, having a ROI less than 8% after paying canadian taxes
__________________
winpplui is offline   Reply With Quote
Old 04-05-2016, 03:59 PM   #5
Thinks s/he gets paid by the post
ExFlyBoy5's Avatar
 
Join Date: May 2013
Posts: 1,977
Quote:
Originally Posted by winpplui View Post
Thanks for your reply

What ROI can i get with REIT?
Right now we are in our capitalization stage, having a ROI less than 8% after paying canadian taxes
Ah, gotcha. As far as ROI on a REIT, it just depends on which one (ones) you chose to invest in. But, like most other things, there are pros and cons to them. Some people like 'em and some hate 'em.
__________________
Founder and Head Lounger @ The Life of Leisure Institute
Retired in 2014 at the Ripe Age of 40.
ExFlyBoy5 is offline   Reply With Quote
Old 04-05-2016, 04:57 PM   #6
Recycles dryer sheets
 
Join Date: Jul 2015
Posts: 423
I guess a big part of the question is whether you want to keep doing "some work" on the properties when you get older, especially a lot older. What happens if your wife is stuck with the properties on her own? Can she cope and would she want to??

As the kids, are they directly involved in managing and maintaining the properties and would they really want to take over? The only inheritance we got was a life insurance policy. We're glad we didn't have to deal with rental properties and an estate.

Off topic aside: Have you read the Millionaire Next Door? Good treatment of immigrant families succeeding in their new adopted countries and the challenges of passing along values and wealth to their kids. There is a chapter devoted to passing wealth to kids and another one specifically addressing daughters.
__________________
Living the dream...
FreeBear is offline   Reply With Quote
Old 04-05-2016, 05:03 PM   #7
Confused about dryer sheets
 
Join Date: Apr 2016
Location: winnipeg
Posts: 7
Quote:
Originally Posted by FreeBear View Post
I guess a big part of the question is whether you want to keep doing "some work" on the properties when you get older, especially a lot older. What happens if your wife is stuck with the properties on her own? Can she cope and would she want to??

As the kids, are they directly involved in managing and maintaining the properties and would they really want to take over? The only inheritance we got was a life insurance policy. We're glad we didn't have to deal with rental properties and an estate.

Off topic aside: Have you read the Millionaire Next Door? Good treatment of immigrant families succeeding in their new adopted countries and the challenges of passing along values and wealth to their kids. There is a chapter devoted to passing wealth to kids and another one specifically addressing daughters.
Those rentals are almost problem free( as today, I have not being in those for 3 years literally)
My kids will not need my inheritance.
My daughter will be a medical doctor next year.
The other two are smart also.


I will take a look at your book.


The idea of this post is to open my mind and see if there are better options than mine
__________________
winpplui is offline   Reply With Quote
Old 04-05-2016, 06:25 PM   #8
Thinks s/he gets paid by the post
Sunset's Avatar
 
Join Date: Jul 2014
Location: Chicago
Posts: 4,749
Canadian rentals allow the landlord to take or not take depreciation, unlike the US where you better take it as you will pay it back later, that is an advantage CDN's have.

Some provinces in Canada have rent control, you are lucky Sask does not.
Dividend income in Canada is taxed less (by a weird method), the US method is simpler and taxed even less.
So dividend income will cost less in taxes than rental income which is taxed as normal income after deductions.

I do have one rental I'm selling right now, and will sell the other soon or in a few years. My plan is to invest the money in a couple of broad index ETF's that will generate 2% approximately in dividend and hopefully go up a few percent on avg each year.

In Canada, you have to watch out for super high MER (management expense rate) fees on the mutual funds (example 2.20%) per year.
You can however buy US ETF's directly on for example the NYSE via a Canadian brokerage (example TD).
There would probably be an exchange cost, so its a buy and hold idea, not a frequent trade type of investment.
My favorite US eft is: VTI (fee is 0.05% per year)

I also like a Canadian etf: XIU.TO (the TO means it trades on the Toronto stock exchange, so no exchange cost as it remains in CDN funds) its fee is 0.18%

Personally I'm going to get out of the landlord business, as too much money is concentrated in a few assets so there is a danger there.
While its true you can generate an income being a landlord, many years of profit go out the window the first time you have a really bad tenant.
If they sue you, and you are at fault (decided by a judge, not you), then you could lose Millions, yes your commercial insurance (you have some right?) will cover a lot of it, but maybe not all.
A rental does tie you down, and perhaps you can have your kids handle the rentals, if you ever decided to take a 2 month trip.
__________________
Sunset is offline   Reply With Quote
Old 04-05-2016, 07:26 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2006
Posts: 11,019
Quote:
Originally Posted by Sunset View Post
Some provinces in Canada have rent control, you are lucky Sask does not.
Point of geographical information: the OP is not in Saskatchewan. He lives in Winnipeg, Manitoba. The below link shows the rent controls in Manitoba.

Residential Tenancies Branch | Province of Manitoba
__________________
Meadbh is offline   Reply With Quote
Old 04-05-2016, 10:15 PM   #10
Thinks s/he gets paid by the post
Sunset's Avatar
 
Join Date: Jul 2014
Location: Chicago
Posts: 4,749
Quote:
Originally Posted by Meadbh View Post
Point of geographical information: the OP is not in Saskatchewan. He lives in Winnipeg, Manitoba. The below link shows the rent controls in Manitoba.

Residential Tenancies Branch | Province of Manitoba
Thanks for the correction.
I've never been in that part of Canada, actually never been West of Ontario, so my mistake I should have looked on a map.

This changes a lot, as those rentals are not so great after all as 2016 rent increases are limited to 1.1% for the OP.
The point is OP is not free to increase the rent as demand increases, but will have to drop the rent if demand decreases.
__________________
Sunset is offline   Reply With Quote
Old 04-06-2016, 07:53 AM   #11
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Eagan, MN
Posts: 3,067
Quote:
Originally Posted by aja8888 View Post
Rental real estate always looks good on paper.
Very true. The fixed costs, like taxes, insurance, utilities, mortgages, etc. are easy to account for.

The variable ones are more difficult. Some people forget to account for at least 10% of the rents for maintenance. Or 10% for management, even if you manage them yourself. Or vacancy, assume at least a 5% vacancy rate.

A 6% return is not enough in my opinion. My rentals return 15%+. Over they return way over $11K a month, after all expenses, including the above. Since I manage and maintain them myself, I can get another $2K-$3K per month out of them.

To the OP. Make sure your returns are what you think they are - over time, not just the current month. Could you do a $20K repair?
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is offline   Reply With Quote
Old 04-06-2016, 08:22 AM   #12
Recycles dryer sheets
 
Join Date: Dec 2005
Posts: 133
My 2 paid for Rentals net 52k after all expenses. There are NO vacancies here in the Boston area. If someone leaves on the 31st it's filled on the 1st usually for higher rent due to the demand, unless renovations are needed.

I manage myself unless something I can't handle. In the last 2 years have had roofs, water heaters, and one of the Boilers replaced on all 3 properties (mine included) in anticipation of when I retire.
__________________
Livefree is offline   Reply With Quote
Old 04-06-2016, 09:22 AM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
kcowan's Avatar
 
Join Date: Jul 2006
Location: Pacific latitude 20/49
Posts: 5,739
Send a message via Skype™ to kcowan
Quote:
Originally Posted by winpplui View Post
My wife want to keep the house to inherit them to our kids?
Why not pay the kids to totally manage the asset? Collect rents, handle maintenance, re-rentals. You continue to carry liability insurance.

This will prove their value and its role as an inheritance. If you retire, you must pay them market rates. It might work in Winnipeg. Give it a try.
__________________
For the fun of it...Keith
kcowan is offline   Reply With Quote
Old 04-06-2016, 09:33 AM   #14
Thinks s/he gets paid by the post
Major Tom's Avatar
 
Join Date: Nov 2009
Location: SF East Bay
Posts: 3,130
I owned 3 rental properties (3 bedroom family homes) for a total period of about 2 years in the early to mid 2000's. I was lucky enough to buy into a sharply rising market, and sold for a good profit. The initial plan was to keep them for life, and use them to help fund my retirement, but when I saw their value increase so much over such a short period, the temptation to sell became too strong to resist. (Their value increased about 65% in just 18 months.) In my particular case, the properties were located about 60 miles away, and looked after by a small management company. I daresay that had I performed all management and maintenance duties on the properties myself, the financial side would have looked more favorable over the long term. However, compared to taking a fast profit and investing the money in index funds, they began to look like potential liabilities.

We all have our personal reasons for liking particular investments but for me, my index funds combine very low (virtually no) maintenance with high liquidity. I find those to be very attractive qualities.

As for leaving the properties to your kids, that is fine, as long as they are comfortable with the responsibilities of owning real estate. If the inheritance would involve them sharing part ownership of any of the properties, then all is well as long as they get along well and have a sensible and mature attitude towards financial dealings. I'm not trying to persuade or dissuade you, but merely pointing out that leaving more liquid investments to kids (cash, stocks, bonds etc) creates a whole lot less work for them.
__________________
ER, for all intents and purposes. Part-time income <5% of annual expenditure.
Major Tom is offline   Reply With Quote
Old 04-06-2016, 01:16 PM   #15
Confused about dryer sheets
 
Join Date: Apr 2016
Location: winnipeg
Posts: 7
Quote:
Originally Posted by Senator View Post
Very true. The fixed costs, like taxes, insurance, utilities, mortgages, etc. are easy to account for.

The variable ones are more difficult. Some people forget to account for at least 10% of the rents for maintenance. Or 10% for management, even if you manage them yourself. Or vacancy, assume at least a 5% vacancy rate.

A 6% return is not enough in my opinion. My rentals return 15%+. Over they return way over $11K a month, after all expenses, including the above. Since I manage and maintain them myself, I can get another $2K-$3K per month out of them.

To the OP. Make sure your returns are what you think they are - over time, not just the current month. Could you do a $20K repair?
Math is easy.
The house cost 200k
Monthly rent is $1350
Prop tax is $2500
Insurance is $1500

I have several of those properties for 6 years, with no vacancy. Repair is nothing. We did some roof, hwt, but it neglectful in the big total.

My concern is that the investment is ok with 20 down (as we started) but now that I can pay the mortgages with the proceedings of selling other properties it does not look so atractive

6% return of investment with such a risk is something to evaluate.

I was looking REIT/bonds/stocks and nothing is warranted

If I can get 5% with anything but rentals I will look deeper on it
__________________
winpplui is offline   Reply With Quote
Old 04-06-2016, 01:49 PM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Brat's Avatar
 
Join Date: Feb 2004
Location: Portland, Oregon
Posts: 5,914
It will be very difficult to find an investment that yields 5% in today's market.

Personally I own "O" stock which is now yielding almost that much based on my original purchase price.

I was at Whistler over New Years and bumped into a Canadian who has a piece of Whistler Blackcomb Holdings Inc. That is yielding 3.6% at the moment and looks like a rock solid operation. One would want to research their history of dividend increases.
__________________
Duck bjorn.
Brat is offline   Reply With Quote
Old 04-06-2016, 03:21 PM   #17
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Eagan, MN
Posts: 3,067
Quote:
Originally Posted by winpplui View Post
I have several of those properties for 6 years, with no vacancy. Repair is nothing.
At some point, you will have a vacancy. Then, lots of paint, carpet, repairs, etc. Along with a few months of vacancy.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is offline   Reply With Quote
Old 04-06-2016, 05:47 PM   #18
Confused about dryer sheets
 
Join Date: Apr 2016
Location: winnipeg
Posts: 7
Quote:
Originally Posted by Senator View Post
At some point, you will have a vacancy. Then, lots of paint, carpet, repairs, etc. Along with a few months of vacancy.
It might happen, and we are ready for that.

As other user stated, when one tenant leave we have another in a line, and we raise the rent to market value with no rent cap.

It is not free, it has work and time requirement, but I am doing that while we keep full time work.
__________________
winpplui is offline   Reply With Quote
Old 04-06-2016, 05:58 PM   #19
Thinks s/he gets paid by the post
 
Join Date: May 2008
Posts: 2,264
Quote:
Originally Posted by Brat View Post
It will be very difficult to find an investment that yields 5% in today's market.
I agree. These are the best ones I have as for the yields myself (TO for Toronto Exchange)...

BCE.TO BCE Inc. 4.56%
TRP.TO TransCanada Corporation 4.56%
RY Royal Bank of Canada 4.12%


I moved to Canada last year, and I am finding that some of Canadian stocks have relatively high yields compared to the US counterparts IMO...
__________________
tmm99 is online now   Reply With Quote
Old 04-06-2016, 06:00 PM   #20
Recycles dryer sheets
 
Join Date: Aug 2015
Posts: 340
A lot depend on rental market in area you have your rentals. If you have 6% return after all your expenses (including future repairs and periods of not occupied time), it is a good return (in my opinion).
__________________

__________________
VFK57 is offline   Reply With Quote
Reply

Tags
rental properties


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Advice, Advice and More Advice flyfishnevada Life after FIRE 18 06-26-2010 06:44 PM
Financial Myth (i stole this from another financial forum). please, don't sue me. Enuff2Eat FIRE and Money 20 08-19-2007 04:26 PM
Do your family members listen to your financial advice? JustCurious FIRE and Money 63 02-08-2007 11:22 PM
best financial advice websites newyorklady FIRE and Money 17 02-04-2007 05:48 PM
Poll: Paying for financial advice LOL! FIRE and Money 10 06-26-2006 02:54 PM

 

 
All times are GMT -6. The time now is 04:06 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.