All done and living off rental income

[datuck]

We have 5 SFH rentals right now. We use a great decisioning calculator via Bigger Pockets to make sure we get a decent net cash flow. For those of you who have rentals what percentage of your total portfolio do you invest in RE?

[Senator]

Quote:

Originally Posted by datuck We have 5 SFH rentals right now. We use a great decisioning calculator via Bigger Pockets to make sure we get a decent net cash flow. For those of you who have rentals what percentage of your total portfolio do you invest in RE?

NW is ~$3.1M. Approximately $1.9M in RE equity. I have ~$500K in mortgages. Once that is paid off, it will be $3.6M NW if everything else stays the same.

So, ~60% RE, 40% equity. I view my RE portfolio as my bond portion of my asset allocation.

[datuck]

Thanks. That's very helpful. We are close to your NW and want to transition in that direction re: allocation. I'm close to 12 months from FIRE... Final bonus and nice stock vest. DW now realtor and we're buying. Are you using IRA funds at all?


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[movingrightalong]

Quote:

Originally Posted by Senator NW is ~$3.1M. Approximately $1.9M in RE equity. I have ~$500K in mortgages. Once that is paid off, it will be $3.6M NW if everything else stays the same. So, ~60% RE, 40% equity. I view my RE portfolio as my bond portion of my asset allocation.

FWIW, this is *very* similar to our NW, and our AA will mirror this very closely after we pay off the next mortgage (sitting on the cash for a few months to make sure that's what we want to do with it.) The real estate portfolio is also exactly why we don't have a bond allocation.

[l8_apex]

Can't say I know what I'm doing with all of this, but I've got 6 rentals (duplex and townhomes). They're worth $1.4M and I've got a little under $1M in mortgages on them. The rest of the nest egg is fixed income that I've put about $700k into - that will pay back $1.3M - structured for higher payments initially and tapering down to zero over 30 years.

My plan is to rely more heavily on the fixed income at first, then in 10 years, 20 years, etc., refinance the rentals to reduce the monthly debt payments and thus increase net profits from rentals while the fixed income tapers down.

I plan to never completely pay off those loans, I'll just keep pulling out equity in the rentals via refinance. If interest rates are too high to refinance, then I'm expecting general inflation to also cause rents to be rising. I'll just have to wait and see how it all pans out. Lots can happen between now and then - inflation, changes to tax code, getting hit with AMT when refinancing, house prices collapse, rents collapse, etc. So I know I'm not 'bulletproof', but at this point I'd rather not work much further as it's just building up the checking account just in case...

[cyber888]

Quote:

Originally Posted by Senator I calculate that as almost 7% return. How do you do that? Or did I calculate the return of $8,640 annually on $125,000 incorrectly?

Yeah, it's about 6.89%. But I do have a correction on that statement - I just recently bought some non-tax exempt funds with some real estate exposure with monthly dividends at 9% - 10.5%, which is a minor part of that that portfolio. The tax exempt close-end funds themselves average at the lower 6% when I bought them.

Mostly Nuveen and Eaton Vance funds - NMZ, for example, alone does 6.75% (link below) and all the price of these funds have really gone up, since a few months back. NMZ's now more like 6.5%

https://finance.yahoo.com/q?s=nmz&ql=1

[RunningBum]

Quote:

Originally Posted by Livefree No I think he's saying the 25k is net income AFTER paying those expenses.

Then it would be 25K in taxable income, not 8K. You don't get to deduct those expenses twice.

[Joylush]

I live off my rental property income. It's about 60% of my portfolio, maybe a little less. All properties are free and clear though. I average around an 8% return after taxes and expenses.

[calmloki]

Just had a little flurry of activity. Seems the Oregon Governor decided way too many well to do folks were moving to Portland, buying up the houses, and raising rents beyond the reach of the current tenants. Effective April 14 2016 evil money grubbing landlords in Oregon must give 90 days notice to month-to-month tenants before raising the rent. Only bright spot is that now our regular tenants will get the exact same length notice as our section 8 tenants. Griped me last year that the section 8 tenants had to have a longer notice than the mandated notice for people who weren't subsidized.

[DSC800]

Good topic. Any comments regarding using portfolio margin instead of mortgages? I paid off my home loan a few years ago, same with my rental. I'll never have another home loan again and probably not against my rental. My Interactive Brokers rate is ~1.75%, my eTrade is 3% and I can borrow against mutual funds in this account. I only borrow <20% max of the portfolio value (~10% currently).

[SAtoUS]

Quote:

Originally Posted by DSC800 Good topic. Any comments regarding using portfolio margin instead of mortgages? I paid off my home loan a few years ago, same with my rental. I'll never have another home loan again and probably not against my rental. My Interactive Brokers rate is ~1.75%, my eTrade is 3% and I can borrow against mutual funds in this account. I only borrow <20% max of the portfolio value (~10% currently).

That is an insane rate, wow. Here's the breakdown from Schwab.

Debit Balance Margin Rate Effective Rate

$0-$24,999.99 Base Rate + 2.00% 8.50%
$25,000-$49,999.99 Base Rate + 1.50% 8.00%
$50,000-$99,999.99 Base Rate + 0.50% 7.00%
$100,000-$249,999.99 Base Rate + 0.375% 6.875%
$250,000-$999,999.99 Rate + 0.25% 6.75%
$1,000,000-$2,499,999.99 Base Rate - 0.25% 6.25%
$2,500,000+ Base Rate - 0.50% 6.00%



I will NOT use my margin instead of a mortgage. What if another 9/11 happens? What if another bank fiasco happens? Nope, not I... I sleep well at night

[DSC800]

Quote:

Originally Posted by SAtoUS I will NOT use my margin instead of a mortgage. What if another 9/11 happens? What if another bank fiasco happens? Nope, not I... I sleep well at night

I understand the aversion to margin, but I don't think it is fully warranted. Another 9/11 or deep recession will still result in both mortgage defaults and margin calls. Properly managed, using margin is actually risk adverse. Even at 100% margin, the portfolio would need to decline 70% before my first margin call. Would I rather loose my house or my stocks? Personally, I don't margin more than 20% and with my conservative dividend portfolio I consider risk to be near zero. Btw, the rich generally don't do mortgages of any kind on homes or especially 2nd homes. They simply write a check against their portfolio and get to write off all the low interest (although I did read that Zuckerberg has a $6MM mortgage, but I don't know why).

Regarding Schwab, those should be their published rates. I went to IB specifically for their great rates. When I told eTrade I was going to move money they reduced their rate from 8% to 3% immediately AND, they actually margin against mutual funds (not many do).

[SAtoUS]

Quote:

Originally Posted by DSC800 I understand the aversion to margin, but I don't think it is fully warranted. Another 9/11 or deep recession will still result in both mortgage defaults and margin calls. Properly managed, using margin is actually risk adverse. Even at 100% margin, the portfolio would need to decline 70% before my first margin call. Would I rather loose my house or my stocks? Personally, I don't margin more than 20% and with my conservative dividend portfolio I consider risk to be near zero. Btw, the rich generally don't do mortgages of any kind on homes or especially 2nd homes. They simply write a check against their portfolio and get to write off all the low interest (although I did read that Zuckerberg has a $6MM mortgage, but I don't know why). Regarding Schwab, those should be their published rates. I went to IB specifically for their great rates. When I told eTrade I was going to move money they reduced their rate from 8% to 3% immediately AND, they actually margin against mutual funds (not many do).

I know, I have a few friends in the $10m club, they're doing / telling me the same thing.

As for the rates, that's a HUGE difference in interest. Maybe I should call around. I've been w Schwab for 18 years.

[RunningBum]

Quote:

Originally Posted by DSC800 Btw, the rich generally don't do mortgages of any kind on homes or especially 2nd homes. They simply write a check against their portfolio and get to write off all the low interest

I don't follow. If they don't do mortgages, what is all this low interest they are writing off?

[DSC800]

Quote:

Originally Posted by RunningBum I don't follow. If they don't do mortgages, what is all this low interest they are writing off?

The mortgage interest deduction is limited to a maximum of $1.1MM total debt on a first or second home. Margin interest is unlimited and less time and paperwork.

[Senator]

Quote:

Originally Posted by DSC800 Good topic. Any comments regarding using portfolio margin instead of mortgages? I paid off my home loan a few years ago, same with my rental. I'll never have another home loan again and probably not against my rental. My Interactive Brokers rate is ~1.75%, my eTrade is 3% and I can borrow against mutual funds in this account. I only borrow <20% max of the portfolio value (~10% currently).

I know there is a risk of margin a loan becoming called due. If the portfolio drops it can happen, I am not sure if there are other reasons. A margin loan is generally short term.

I pay off my rentals and because of this, my cash flow is incredibly good. I am working on another to be paid off by year end, which will retire a 5.375% mortgage and will give me another $960 a month in cash flow (P&I).

I view it as a guaranteed 5.375% bond, albeit a bit less liquid. Between mortgages paid off in the past two years, and rent increases, my cash flow is an extra $100K+ per year.

[Fedup]

It's a dangerous game, margin that is. My mortgage rate is 3.5%, could be lower if I went shorter term.


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[ER604me]

Quote:

Originally Posted by movingrightalong FWIW, this is *very* similar to our NW, and our AA will mirror this very closely after we pay off the next mortgage (sitting on the cash for a few months to make sure that's what we want to do with it.) The real estate portfolio is also exactly why we don't have a bond allocation.

+1. We have 1.2M in RE with 180k mortgage left. It's about 50% of our NW. We also consider the RE portion as a bond.

[DSC800]

Quote:

Originally Posted by Senator I know there is a risk of margin a loan becoming called due. If the portfolio drops it can happen, I am not sure if there are other reasons. A margin loan is generally short term.

I think if you were to buy, say, TSLA on margin, or any single stock, that would be very risky. I'm talking about a 20% margin position against my specific portfolio of conservative dividend payers, like KHC, O, JNJ, PCK*, DVY, HDV, etc (I hold about a dozen ETF's, REITs, BDCs and tax frees). Basically replacing my ~$200k mortgage at a rate half as much to enhance my dividend income.

There is near zero risk of a call with portfolio margin. Market would need to go down +80% in my case. Mortgages can be called too (foreclosure). It's not short term, it is a low, variable rate, effectively a credit line as long as you want.

Not selling margin to anyone, just presenting ideas.

[calmloki]

Quote:

Originally Posted by DSC800 I think if you were to buy, say, TSLA on margin, or any single stock, that would be very risky. I'm talking about a 20% margin position against my specific portfolio of conservative dividend payers, like KHC, O, JNJ, PCK*, DVY, HDV, etc (I hold about a dozen ETF's, REITs, BDCs and tax frees). Basically replacing my ~$200k mortgage at a rate half as much to enhance my dividend income. There is near zero risk of a call with portfolio margin. Market would need to go down +80% in my case. Mortgages can be called too (foreclosure). It's not short term, it is a low, variable rate, effectively a credit line as long as you want. Not selling margin to anyone, just presenting ideas.

So I get all excited when hearing about saving on interest rates - heck, Penfed is charging us 3% on a 5/5 adjustable. Not familiar with margin borrowing, so I Googled:

Vanguard Margin Interest Rates 2016

6% for loans in the $100k-$500k range? What am I missing?