Young Pup looking for wisdom

[brewer12345]

Look at my holdings I posted, what is risky in this? 

At some point, you will find out, I suspect.

I think you are advocating chasing return, but I'm not sure you are also paying adequate attention to risk-adjusted return.

 

[cute fuzzy bunny]

Hey, if you're happy, i'm happy.

 

[PsyopRanger]

I just read one of the Mod's quotes

"Live like you're dying, invest like you're immortal."

That's all I am trying to do

 

[PsyopRanger]

Did I make a first impression as "Billy the Kid" investment risk slinger yet? :

Seriously, thank you all for your comments and critiques, it makes me think and challenges me to think of other options.

 

[Nords]

"Live like you're dying, invest like you're immortal."
That's all I am trying to do

The first part of the phrase you seem to have down.

The second part reflects that you can't predict your lifespan and so you shouldn't try to make your portfolio run out during your funeral procession. Maybe it's not such a bad idea to be able to live on a pension/annuity or dividends instead of consuming principal.

As for risk-adjusted return, have you run your asset allocation through some sort of volatility or risk-adjusted analysis like Financial Engines? "Six up, three down, one sideways" doesn't describe whether you're getting compensated for additional volatility or single-stock or single-asset risk...

OTOH if you're able to beat the losses with your cash flow (before retirement) or live within your pension (after retirement) then you should do anything you want with your retirement portfolio.

 

[unclemick]

Hmmmm

Here are some random 4th of July musings:

Be glad of your male hormones - both you and the Rangers need them. I too did well starting out - at about 15 years in investing I'm guessing here - my long term average begin to approach that of the market.

With the great benefit of hindsight - here's what I did (truth told, entirely by accident) - maxed my 401k every year - plunka, plunka boring DCA S&P 500 index fund - while I invested my real money(that was going to make me well off) - in rental RE, timberland, gold, foriegn stocks/mutual funds, even some raw semi precious stones and collector coins - missed commodities somehow - skipping a list of some boring VG funds like Wellesley(forum joke). 1966-1993 at the end of the period 'da benchmark' boring DCA Index fund was 80% plus of my ER stash - 200k, not a million. That came after in ER by doing mostly nothing except sitting in balanced index during the 90's. I'm oversimplifying here - but the point is - in my case the benchmark won.

Two winners I know - one a woman engineer(Home Depot) and an lead engineer(JNJ) knew when they bought right, invested big and just held with some diversifying around their primary winner. Two others I know were real estate - houses(8) in CA and apartment units in greater Denver.

Don't quote me on this - but I think Bernstein's 15 Stock Diversification Myth calculates your odds at 1 in 6. I think there was a Bogle article in the 80's estimating 2 in 5 of beating the then S&P over ten years. Any skill you bring to the party - gets buried in the stats.

So I owe my ER to indexing - lead sled dog is Target Retirement 2015.

However - hormones are incurable. At the ripe old age of 62/63 this month - 15% in individual stocks - I'll be sure to sure to let this forum know when I beat the stuffing out of my balanced index and begin posting from my villa in the Bahamas.

In life you gotta play your offense - but never forget your defense.

heh heh heh heh - 1966-2006 so no big rush - right. Off to see the fireworks.

 

[Brat]

As the mother of a son who got hooked by me on investing in middle school, I understand your point of view.  It is much easier for folks, other than a parent, to hoist a warning flag.  A lot of the guys who are giving you feedback have been there, done that - both professionally and investing.  We want to save you the hard lessons we have learned.

My Mother (who is pushing 90) used to tell me not to spend all my money in one place.  The lesson there is to parse out your resources.  There is nothing wrong with setting aside a portions of your retirement investments for your approach and another for another investment approach.  Enter more than one horse in this race.

I am at the other end of life's cycle (65+).. retired at 48 with a modest pension annuity, and IRA savings to suplement.  Even there our allocation in the IRAs is 20% international.  The other 80% is in TIPS, cash. and two balanced mutual funds with a Forbes "A" rating for bear markets.  Our IRR for ytd for the portfolio is 8.2%.  Not hot, but in this market where we are withdrawing less than 4%/yr, OK.

You have the advantage of folks who have nothing to gain by their comments.  We want you to win the race to financial independence.  Some will push your buttons, but only out of kindness.  We are your Great Aunts and Uncles who want the best for you and your family.

 

[spideyrdpd]

I told you its a conservative bunch. Compared to them your like General Custer going to attack the indians at bighorn

 

[samclem]

spideyrdpd,
Right--Custer had a plan . . .

I joined the military mainly for the pension after 20 years and the benefits (insurance, LTC, etc) I learned Arabic and have made frequent trips to the Middle East since 9/11.

Lance,

Just to clear things up for others--the military does not provide long term care (or long term care insurance) to retirees. You can buy it if you want (through the federal program administered through OPM), but it is far from free.

And, as you've pointed out--a pension of $6k per month, for a guy who is retiring at 20 years, is not possible. The individual would need to be a O-9 at retirement (and to have held that grade for three years=a pin on at 17 years). Nope. Well, maybe not impossible, but it would involve a lot of luck, bosses who can write like Hemingway, stopping a bullet on the way to the POTUS, devising and implementing a Marshall Plan for Iraq, etc. Your revised number is a lot more realistic.

I'll add myself to those favoring a more "conservative" investment approach. Simple, dull, backed by boring peer-reviewed research, and something that has worked for milions for people without need to validate it in the rear-view mirror. What you are doing seems to be working (for you, to you), so I'll not try to disuade you from doing it. However, if you haven't done so already, I'd urge you to read William Bernstein's "The Intelligent Asset Allocator" or "Four Pillars of Investing." I think you'll find some useful stuff there.

I'm recently retired from the USAF, have spent a lot of time at Ft Bragg among all types of SOF characters. Best of luck to you--you know you'll be in high demand for a long time. The work being done by SOF today (all the SOF disciplines, including Psyops) is tough and incredibly important.

 

[Cool Dood]

You're in luck...on hollidays I only charge 50c to use one of my trademarks.

Uh oh...no you arent...you're Canadian...its not Independence Day for you...

That'll be five bucks.

Heh... that reminds me of the sign a store in a touristy location could use:

Milk: fifty pesos

Leche: cinco pesos

I guess it works even better in a language that bears little resemblance to English, but then the joke would be less clear

 

[Enigma]

Psyop,

Way off topic, However I will say it. Make time to have some fun along the way and spend a little bit of dough too. I started at 19 and hit it hard. Investing like a maniac. Slamming as much as I could where ever I could.

At about age 33-34 "I melted" as I put it. Just flamed out big time. I figure I knocked at least 5-7 yrs off my life span watching the ticker like a maniac, trading on margin, etc. Age 40 next month for me. It looks like things are going to work out ok but "melting" takes a lot outta you and a huge effort to recover emotionally to find out who you are and who you want to be.

 

[justin]

Psyops - question for you re: your real estate investments. You said you are debt free, although you also have two residential rental units. I assume they are leveraged to some extent. They are held in a holding company from what you wrote. Did you not have to personally guarantee the loans on those properties, or did you get a non-recourse loan?

 

[PsyopRanger]

Psyops - question for you re: your real estate investments. You said you are debt free, although you also have two residential rental units. I assume they are leveraged to some extent. They are held in a holding company from what you wrote. Did you not have to personally guarantee the loans on those properties, or did you get a non-recourse loan?

I said I am “bad debt” free, meaning liabilities that take money from my monthly income.

They are personally guaranteed and then quit claimed to the LP.

Both homes after PITI, management and expenses put $225-$275 per month into my pocket or actually into my LLC account with an emergency fund for repairs, that is aside from my personal funds.

The 1st home has been occupied by a widow for over 10 years who has no desire to leave.
The 2nd home has been occupied by a defense contractor for the last 5 years in an extremely high rental area. Most SFH rent within 1 week.

If I lose occupancy, I could easily pay both mortgages for at least 6 months.

I suppose you are now going to argue my definition of “bad debt”?

So here is my definition:

Bad debt is a debt that takes money out of your pocket monthly: Credit Cards, HELOC used for liabilities, personal loans, etc.

Good debt is debt acquired with little capital risk that is then recouped as soon as possible and produces income or asset appreciation.

I buy my properties under 85% FMV, with 10-20 percent down. When the loan is seasoned, I refinance and pull my original capital out and apply it to another asset. Therefore my initial capital is never at risk of loss.

Of course the markets could tank, no renters, foreclosure, yada yada, and that is investment risk. However, I am risking my credit not any realized capital after it is pulled out.

I don’t plan on holding these properties forever instead I will 1031 exchange into a multiple unit eventually.

 

[Gumby]

..

 

[justin]

And the bank will get all your shares of any LLC's or LP's you own that in turn own other rental properties!

 

[PsyopRanger]

[
Sure if they foreclosed and I couldn’t sell prior to the 6 month foreclosure process.

Isn’t this the same with a personal residence?

Could someone lose there job and have the same thing happen to there personal home?

You could get in a car accident today and be sued for everything in your name?

Does this keep you from investing?

 

[justin]

I suppose you are now going to argue my definition of “bad debt”?

I have no qualms with your definition of "bad debt". I misread your earlier post as you are debt free except the car loan, not "bad debt" free. I'm highly leveraged too with liabilities (in the GAAP-sense, not Kiyosaki-sense) multiple times my net worth. But very good debt.

 

[PsyopRanger]

And the bank will get all your shares of any LLC's or LP's you own that in turn own other rental properties!

No offense but this attorney says you are misifformed:

The purpose of holding your assets in a properly structured and drafted LP is that if you are ever sued, and if the plaintiff is successful in obtaining a judgment against you, then, (under the Uniform Limited Partnership Act as adopted in 49 states) all the plaintiff can get is a "charging order" against the income portion of your limited partnership interest. The plaintiff (who becomes a "judgment creditor" after a successful lawsuit) will not become a substituted partner, will have no voting rights in the limited partnership, cannot remove you as a general partner - so you continue in 100% control of the assets, cannot force you to dissolve the LP or distribute profits, cannot force you to sell or liquidate assets to pay the creditor, and only if the general partner(s) decide to distribute profits will the judgment creditor receive anything except (a nasty "poison pill" under Rev. Rule 77-137) the right to pay income taxes on the income "earned" by the LP - whether or not that income is distributed!

 

[PsyopRanger]

Not to mention that the General Partner of my LP is a LLC and then they would also have to sue the LLC.

If foreclosure however and the loan is in my name, it is my credit hit.

I also could partner with others in a syndicate and spread liability.

Forgive my ignorance, what is GAAP?

 

[cute fuzzy bunny]

Sure if they foreclosed and I couldn’t sell prior to the 6 month foreclosure process.

Isn’t this the same with a personal residence?

Could someone lose there job and have the same thing happen to there personal home?

You could get in a car accident today and be sued for everything in your name?

Does this keep you from investing?

The jumps from specifics to global concerns are rather sudden, arent they?

I think the point being made is that the debt is only "good" if risk adjusted. I think Nords made that point sometime yesterday. You need a good broad risk analysis of your investments to see how much risk you've taken on in exchange for your returns.

Risks of a 'lose everything' car accident, foreclosure of personal residence and long term job loss for an employable person are fairly low in comparison to potential losses in investment properties.

Even if the risk is manageable, its nice to know the risk exposure.

I think Brat said we're just trying to help you identify which shovels might hit you in the face. One of them is thinking "good debt" doesnt need to be factored into a risk profile. Another is that stop losses dont fully protect you at 10%. I'll add a third that when you start getting a little nervous, throwing a lot of other "good" or "safe" points out doesnt mitigate the original question of risk or downside even a little bit.

 

[brewer12345]

Not to mention that the General Partner of my LP is a LLC and then they would also have to sue the LLC.

If foreclosure however and the loan is in my name, it is my credit hit. 

I also could partner with others in a syndicate and spread liability.

Forgive my ignorance, what is GAAP?

I would be uncomfortable personally guaranteeing a loan taken out by an LLC that held property.  That is exactly the kind of entanglement that could be used to "pierce the corporate veil".

GAAP = Generally Accepted Accounting Practices.  The fact that you are asking tells me a lot about how much fundamental analysis you do.  But hey, different strokes...

 

[Gumby]

..

 

[justin]

Not to mention that the General Partner of my LP is a LLC and then they would also have to sue the LLC.

If foreclosure however and the loan is in my name, it is my credit hit.

I also could partner with others in a syndicate and spread liability.

Forgive my ignorance, what is GAAP?

GAAP - you've seriously never heard of it? - Generally Accepted Accounting Principles. Business/Accounting 101 (which I never took).

So the GP in your LP is an LLC, which presumably you also own. A judgment creditor is going to attach and take your ownership interests in the LLC too. Then when the judgment creditor controls the LLC, they'll be the GP in your LP. Then they've got the power.

Or maybe you've tied up ownership of the LLC somewhere?

Then there's always corporate veil-piercing like brewer mentioned. You don't happen to have an undercapitalized business or a business that isn't sufficiently separated from other businesses or personal affairs do you?

 

[Martha]

No offense but this attorney says you are misifformed:

The purpose of holding your assets in a properly structured and drafted LP is that if you are ever sued, and if the plaintiff is successful in obtaining a judgment against you, then, (under the Uniform Limited Partnership Act as adopted in 49 states) all the plaintiff can get is a "charging order" against the income portion of your limited partnership interest. The plaintiff (who becomes a "judgment creditor" after a successful lawsuit) will not become a substituted partner, will have no voting rights in the limited partnership, cannot remove you as a general partner - so you continue in 100% control of the assets, cannot force you to dissolve the LP or distribute profits, cannot force you to sell or liquidate assets to pay the creditor, and only if the general partner(s) decide to distribute profits will the judgment creditor receive anything except (a nasty "poison pill" under Rev. Rule 77-137) the right to pay income taxes on the income "earned" by the LP - whether or not that income is distributed!

You do not provide a link, but this information is not quite correct, thoughit may be close to accurate in some states. Here is a thread where I talked about limited partnerships and creditor rights: http://early-retirement.org/forums/index.php?topic=2016.msg31545#msg31545

I used to practice in this area of law and I used to be a bankrutpcy trustee. To quote myself responding to another poster:

"The Uniform Limited Partnership Act provides that a creditor cannot take assets of a limited partnership to satisfy the debt of a limited partner. Basically, the partnership isn't liable for the debts of the limited partners. It also provides that a creditor of a limited partner can "charge" that partner's interest to pay a judgement, and that the creditor will be treated like an assignee of the partnership interest. This does not mean that a creditor cannot take a limited partner's interest in the partnership to satisfy that partner's debt.

Some states do, however, limit the ability of the creditor to "take" the partner's interest. This is where your charging order comes in. The creditor will get an order of the court requiring any distributions to the partner be paid to the creditor. The creditor just sits and waits or settles with the debtor or other partners.

However, the trend is to allow the liquidation of partnership interests where the creditors judgment cannot be satisfied by the charging order. Because of this trend and the fact you can't be sure where you will get sued and what state's law applies, there is always the risk that a creditor or bankruptcy trustee will successfully obtain ownership of the limited partner interest.

The practical problem still remains, however. Even if the creditor gets ownership of the limited partnership interest, it is going to be hard to force a distribution. There also is the tax risk you mentioned, but I believe all the LPs will suffer the same consequence. Nevertheless, a determined creditor or trustee will likely be able to squeeze something out of the partnership interest.

It is worse for the debtor if the debtor is both the general partner and a limited partner. Say dad sets up a FLP. Dad is the GP and is a LP along with his kids. Dad ends up in financial trouble and files bankruptcy. As trustee, I would step into his shoes as GP and force a distribution to the LPS.

To protect himself, Dad might have formed a LLC to hold the general partner interest. This makes my job tougher but not neccessarily impossible. Dad files bankruptcy. His LLC is property of the bankruptcy estate. As trustee, I take action as the member of the LLC to cause the LLC to cause the GP to order a distribution to the LPs. It starts getting hard if the LLC has a number of members."

 

[justin]

He he, thanks martha for saying in more specific details what I was trying to say!

I often wonder if all these "shields" to liability and supposed tax benefits end up costing more in the long run than what they are worth.

You've got the annual LLC and/or LP filing fees w/ the Secretary of State where you are organized, any other states you are registered in, etc. Then you may have to pay an annual fee for a registered agent in each state if you don't have an office or some phyisical presence. Then you've got your corporate books to maintain for each entity, and all the annual board meeting/corporate forms to keep to show that it's a real entity. Then comes tax time with multiple professional fees for tax prep and more complications. Higher chance of an audit I'd assume.

You're probably already carrying a good bit of insurance on the properties since that's one of the standard mortgage's terms, why not pay the extra couple hundred bucks a year and buy a couple million in umbrella policies for the sue-happy tenants or car accident victim? Wouldn't those policies be 100x simpler and much cheaper than the complicated corporate shell game you are playing for (what I assume) is a rather small-time residential real estate rental business?

I've never really understood the point of all of the complications for what you are doing. And I do have some experience setting up my own business (as a general partnership w/ adequate insurance) and other businesses on a pro bono basis, and advising family/friends on pros/cons of different corporate structures.

That's just another complaint I have against the Kiyosaki mentality. It seems all of his followers have to develop some uber-complicated corp structures (that do next to nothing) for small time business enterprises. When asked about their rationale behind their structure, it is pretty simple to see there isn't a sound basis for their decisions. Sometimes these structures are appropriate, sometimes not.