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Old 04-16-2018, 09:16 AM   #81
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Originally Posted by Offgrid Organic Farmer View Post
Stock can be easier. Better?

My grandparents were burned badly by the market crash. When they got back on their feet, they did rental real estate, and it turned out to be a solid investment for them.

So growing up I was taught to avoid the stock market, and that rental real estate is preferable.
First, while I am glad your grandparents did well with real estate, I can counter that argument by telling you about a number of old-folks I know who are living quite well thanks to their investment in stocks and bonds. They have a buffer of cash to see them through downturns and they never get greedy and chase the last years 'big winner' in the market. They never buy stocks on margin or dabble in risky schemes.

None of them ever went bankrupt or were foreclosed on.

I certainly hope that RE works well for you and wish you a prosperous and happy retirement.
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Old 04-16-2018, 09:40 AM   #82
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Absolutely.

Most of the dividends that I receive are tax-free, as are LTCGs.
Tax-free is good. But during most of my working career I had taxable salary income.My investments were tax-shelters. They sheltered my salary from being taxed.

'Tax-free' and 'tax-sheltering' are completely different topics. Tax-free is good. A tax-shelter is better.



Quote:
... And unlike your real estate where you face a big tax bill if you convert it to cash to spend, I can judiciously sell stocks and pay no tax at all since LTCG are tax free if managed correctly.
Well, again tax-free is different from a tax-shelter.

There are methods of converting real estate equity into cash, without it being taxed.



Quote:
... You say that you should be fine with your new set of rentals with no further recessions... I hate to burst your bubble but periodic recessions a regular part of economic cycles.
Perhaps I misspoke.

Of course recessions will happen again, as will depressions. I think we will be okay even if a new recession were to occur tomorrow.



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... A geographically concentrated portfolio of apartment properties is much riskier than a diversified stock portfolio.
If you say so.
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Old 04-16-2018, 09:43 AM   #83
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Stock can be easier. Better?

My grandparents were burned badly by the market crash. When they got back on their feet, they did rental real estate, and it turned out to be a solid investment for them.

So growing up I was taught to avoid the stock market, and that rental real estate is preferable.

When I was working, we focused a lot on the tax-sheltering abilities of rentals. Stocks can not do that.

We went from 1983 to 2001 without paying any income taxes. Nothing was 'withheld' from my salary and no taxes were due when we filed each year. At the same time, we gained a lot of Net Worth. Tax-shelters can be a nice tool.

Our 'rental real estate' provided my family with a home at each duty station, side income, built-up Net Worth, and provided tax-sheltering.

As a whole these are things that owning stocks, can not do.


And yet you still filed for BK during the downturn.... most people who had a stock portfolio did not.... sure, they had a bad few years if they were using savings for income, but they did not lose everything....

You had a backup, that being a pension.... and probably your farm which you could probably keep during BK....

So, yes, stocks were better than your choice...
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Old 04-16-2018, 09:45 AM   #84
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My grandparents were burned badly by the market crash. When they got back on their feet, they did rental real estate, and it turned out to be a solid investment for them.
A lot of people have done well in real estate, and if you like it and it works for you, that is great. But, just to address the issue of "getting burned by the market crash", because this affected the investment psyche of a generation, and some of their descendants: The DJIA was back to its 1929 high within about 6 years. That's with dividends reinvested, adjusted for inflation (really, deflation) and with corrections for changes in the index (esp the decision to remove IBM from the DJIA index, at least for a time). So, if a retiree was withdrawing 4% per year and owned these stocks along with a starting allocation of about 25-30% bonds/bills, etc and rebalanced annually, they would have been fine.

It was people who sold their stock when it was down who got badly burned.

Compare this to the holder of income real estate in 1932 who sees his rental income dive, can't make the loan payments, and loses the property (and maybe more). He's probably not going to be whole again in 6 years. Maybe not in 60.

RE tax advantages: Plenty, especially in the short term (and lots of RE investors learn a bitter lesson about depreciation if/when they sell). Income taxes are big issue for someone with a big income. The changes for 2018 will significantly reduce taxes for many retirees at the lower end of the scale (higher standard deduction, continued 0% rate on capital gains up to the top of the 15% 12% bracket).

I'm glad OOF believes that RE investing is working for him now, after the previous "issues." It is probably worthwhile to occasionally figure out the opportunity cost of keeping a lot of money tied up in that apartment building--it could be doing something else. And, unless painting, fixing faucets, replacing water heaters, etc is an enjoyable hobby, it would be realistic to assign a value to the time spent on those things.
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Old 04-16-2018, 10:00 AM   #85
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....We hoped to withdraw the equity and leave it to build equity again.

It never occurred to me to sell it, as that would have required paying taxes.

In the middle of the recession, nobody was buying anything. We tried to do a 'short sale' but the bank refused to allow it. Due to our efforts to sell it, that triggered the bank to foreclose and file a law suit.
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....There are methods of converting real estate equity into cash, without it being taxed....
You forked tongue devil.

So... when the SHTF in the great recession why didn't you just use one of those magical methods of converting real estate equity to cash without it being taxed and avoid foreclosure?
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Old 04-16-2018, 10:17 AM   #86
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You forked tongue devil.

So... when the SHTF in the great recession why didn't you just use one of those magical methods of converting real estate equity to cash without it being taxed and avoid foreclosure?
Because there wasn't any equity. He had already stripped some out to buy the farm and the rest evaporated.

Leverage is a very useful tool for building a portfolio when used conservatively. Pulling out equity in the early stages of a rising market to buy more properties is fine as long as you recognize where you are in the market cycle and you create enough income to pay the debt created, with a cushion.

Based on what the OP said, he over leveraged and did not recognize where he was in the market cycle. His solution now is not to use leverage. However, he hasn't shown he has the knowledge or skills to recognize if what he is buying makes financial sense. Rather, he is relying on his pre-crash beliefs and hoping there is not another crash. The investments he contemplates may not make enough net income to be worthwhile because of his market. OP needs to "run the numbers" before he writes any checks to be successful at investing.
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Old 04-16-2018, 10:21 AM   #87
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That is kinda the point that people are making... you filed BK.... very few people on this forum has done that... so what you did was NOT a good idea as you did not survive the downturn...
My 'mistake' was leaving that apartment building. If we had stayed there it would have continued to provide my family a home, with an income. We would have been okay.

Instead I converted its equity to cash and used that cash to establish a farm in Maine. We assumed that the apartments would continue to be a cash-cow for many decades. When that recession hit, we were living in Maine and focusing on farming.

In hindsight, I should have cashed out the equity, and then sold the property, before moving to Maine.



Quote:
... Now, you seem to have recovered.... not sure how... but you do have a pension... most people here do not have a pension, so if they filed for BK they are not going to stay retired....

I would be interested in hearing how you did recover? IOW, if you were truly BK then how did you get money to buy a new place? Also, how much income is the farm providing? Last, how much time and effort are you putting into the farm and apt bldg? I do not see you being retired, but that is a discussion that goes nowhere with people who still work for income and say they are retired....
Nearly ten years have gone by. We spend less than what we bring in.

There is a big learning curve to subsistence farming. We have tried many things. Most things have not worked well. But some things have.

After years of raising chickens, for meat and eggs. We finally have gotten into meat birds. They take 10 weeks to go from day-old chicks to being processed. 50 birds are enough to provide us with 2-years worth of poultry in our freezers. So we are only dealing with raising birds for 10-weeks every other year. We are doing it now. Next to my desk are three brooders loaded with chicks. As the weather warms, they will move outside to coops, and the kennels they are in now will fold-up and go back into storage.

We are active in Farmer's Markets. We have been marketing honey [I am a beekeeper], maple, fiddleheads, pork and herbs.

Bees need to be looked at maybe once a week, but for much of the year, I can easily go months at a time without bothering them. Harvesting honey can be a full day process. Once a year.

In 2007 I planted an apple orchard. Now our trees are beginning to come into production. Last year we got 20 gallons of hard cider. We host a tree pruning workshop every March, people show up and we walk through the orchard to prune. Then in the Fall, we host a cider-pressing event. Everyone who helps goes home with a jug of fresh pressed cider. So it boils down to 2 days of activity a year.

My wife took a course on butchering, it turns out that she LOVES butchering a carcass. Some of our woodlot is fenced in and we have had a boar with 4 sows, if everything goes 'right' each sow can give 2 litters a year. 10 to 12 piglets per litter. We sell most piglets at 8 weeks of age. On a good year we can produce
80 to 90 piglets. For 9 months/year they feed themselves by foraging in the forest. They only need supplemental feed when the ground is frozen and covered by 2 foot of snow.

We have 90 high-bush blueberry shrubs, I need to prune them once a year, it takes about an hour. When they produce, we fill 5 or 6 5-gallon buckets for ourselves. Then we invite all our friends to come over and pick all they want. Those pickings have to be spread out, a person can go through and pick every ripe berry, maybe once a week. It goes on and on for 2 months before it is finally over. We get what we want, and then we invite others to come and pick how much they want.

It is the lifestyle that we wanted. I do not commute to work anywhere. I don't think I could ever just stop doing anything. The things I do, most go toward lowering our COL. Like our solar-power system, the batteries need to be checked and given water once a month. I have it down now to a routine that takes about 40-minutes, and that keeps us from having to pay an electric bill.
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Old 04-16-2018, 11:04 AM   #88
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I can't really agree with most of this.

During the downturn, the values of my out of state properties dropped dramatically. My rents actually went up, because most of the people that foreclosed or short sold still had some income and needed a place to live. I don't think you need to be geographically diversified if you invest in locations with strong, diverse economies.
That property, when I bought it was in a Navy town. It was close to the base and near a shipyard. I needed a home for my family to live and the rental income was okay.

Ten years later, the locals built two Indian casinos. One 4 miles to the South and one 6 miles to the East. These tribes decided to compete for the title of world's largest casino. So they grew and grew.

The competition between Mohegan Sun/moon and Foxwoods was big. The entire area became a boom town, as those casinos began hiring people from all across the nation, and pit crews from overseas.

During the recession, both casinos had huge lay-offs. Out of work casino workers returned to their countries of origin. They left.

You could have set rent at $1/month, there simply were no tenants.
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Old 04-16-2018, 11:11 AM   #89
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Nearly ten years have gone by. We spend less than what we bring in.

There is a big learning curve to subsistence farming. We have tried many things. Most things have not worked well. But some things have.
good job sticking it out!

sounds like you have it down. I'd love to do that but I think DW and I are too late to the game (and too citified).
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Old 04-16-2018, 11:12 AM   #90
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What they probably sued you for was the difference between what they netted from the property when they sold it and the total of the unpaid balance, the accrued interest, and the legal fees and other expenses incurred in collection and foreclosure efforts.
They refused to allow a short-sale and they sued me for the market value of the property.

Along with foreclosing on the property.

The courts stopped the foreclosure, because they had skipped some of the steps required when they had originally processed the mortgage. At that time, it was big in the news, many mortgage companies were caught in the same scandal.



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... Were they able to collect anything from you and your "estate" in bankruptcy? If not, they wasted their time and money pursuing this.
No, they did not get another penny from me. They got the property, which I had offered to give them back before they filed the lawsuit.
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Old 04-16-2018, 01:13 PM   #91
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good job sticking it out!

sounds like you have it down. I'd love to do that but I think DW and I are too late to the game (and too citified).
At 18 I was in a career field [subs] that has an extremely high divorce rate. Everyone of my co-workers were either singles, divorced, or newlyweds.

At the end of each patrol, when we surface everyone gets excited to get their first mail in 4 months. The trick to getting 4 months worth of mail is to lay it out in order. Every patrol sees a few new divorces, and going through the mail like this, is when you learn who has became divorced. It was also how we processed debts. Notices of your wife failing to make payments on time, maxxed-out CCs, vehicle repos, divorce court proceedings and absentia rulings, etc. It is all in the mail bags.

After a few years of making patrols, I knew that if I was ever going to marry, I needed to seriously screen my potential bride. Before marriage.

A couple times when courting, I told the girl that my goal for my future was to live in the woods and grow our food. That would generally be the last date a girl would go on with me. Then one time I was dating
a very independent-minded girl, when she heard my goals she said that she could see focusing her life to achieve those goals.

We have been together 37 years. This was our plan, from before we even got married.
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Old 04-16-2018, 02:20 PM   #92
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Somehow I was under the impression that borrowing money on a rental (cashing out equity). didn't give one a tax deductible expense unless the money was used ON the rental.

It doesn't get the IRS cranky if you depreciate a rental purchased for $100k to zero, borrow $200k on it, sell it for $200k, pay the loan off and walk away with $200k you borrowed? Tax free? Feel like I've been a real dummy here paying taxes on sales.
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Old 04-16-2018, 02:38 PM   #93
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Somehow I was under the impression that borrowing money on a rental (cashing out equity). didn't give one a tax deductible expense unless the money was used ON the rental.

It doesn't get the IRS cranky if you depreciate a rental purchased for $100k to zero, borrow $200k on it, sell it for $200k, pay the loan off and walk away with $200k you borrowed? Tax free? Feel like I've been a real dummy here paying taxes on sales.
If you purchased a property for $100k, you are not likely going to sell it for $200k.

If you bought property for $100k and paid off the mortgage, then you could borrow $100k against it, and then sell the property for $100k. The IRS would see that you sold it for the same price you had paid to buy it, and there would be no taxes.
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Old 04-16-2018, 02:40 PM   #94
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Depreciating a rental to zero takes 27 1/2 years, and it would be a seriously ugly slum.
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Old 04-16-2018, 02:44 PM   #95
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If you bought property for $100k and paid off the mortgage, then you could borrow $100k against it, and then sell the property for $100k. The IRS would see that you sold it for the same price you had paid to buy it, and there would be no taxes.
Or you could just take the money you used to pay off the mortgage and spend that instead of paying it off. Same difference, no?

You still owe someone $100K either way.
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Old 04-16-2018, 02:55 PM   #96
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If you purchased a property for $100k, you are not likely going to sell it for $200k.

If you bought property for $100k and paid off the mortgage, then you could borrow $100k against it, and then sell the property for $100k. The IRS would see that you sold it for the same price you had paid to buy it, and there would be no taxes.
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Or you could just take the money you used to pay off the mortgage and spend that instead of paying it off. Same difference, no?

You still owe someone $100K either way.
+1.

And that is also no different from a stock investment. If I buy $100K of stock, and sell it for $100K, I don't owe any taxes either, regardless of my tax bracket. So where is this RE advantage in this regard?

I can borrow against a stock as well, if I wanted. But you have seen where leverage can get you.

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Old 04-16-2018, 03:18 PM   #97
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good job sticking it out!

sounds like you have it down. I'd love to do that but I think DW and I are too late to the game (and too citified).
Have you heard about urban homesteading? That is one of my hobbies. I enjoy it and it helps keep our overhead low. I just got a couple of books on indoor food gardening at a library book sale.
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Old 04-16-2018, 03:29 PM   #98
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If you purchased a property for $100k, you are not likely going to sell it for $200k.

If you bought property for $100k and paid off the mortgage, then you could borrow $100k against it, and then sell the property for $100k. The IRS would see that you sold it for the same price you had paid to buy it, and there would be no taxes.

Are you talking about doing this at the same time? If not, then you need to reduce your basis by the depreciation.... and the gain would be the depreciation you took.... how it is taxed depends on what method of depreciation you took....
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Old 04-16-2018, 03:42 PM   #99
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Or you could just take the money you used to pay off the mortgage and spend that instead of paying it off. Same difference, no?

You still owe someone $100K either way.
Back in the 1980s and 1990s, every month we made an extra principal-only payment to each mortgage. These payments came from the rent receipts, not from my salary income.

The mortgage payments were recorded on our schedule E and went to sheltering my salary from being taxed.

Later I can cash-out that equity and it is not reported to the IRS as 'income'.

If I had just kept it in the first place, it would have been taxable income, AND it would have defeated the tax-shelter. My salary would have suddenly been taxed.
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Old 04-16-2018, 03:43 PM   #100
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So let me get this straight....

You bought a property. You paid it down to zero. You took out a large loan on that property to buy your farm. The crisis hit and the value of that property dropped to a good amount less than you owed. You then stopped paying on the mtg and eventually it was foreclosed and you do not have the property. And you declared BK so you would not have to pay the difference between the loan amount and the value of the property when sold.

Do I have this right?

And you think this is a better way to invest?

Also, was the money you took out of the property more than you paid for it? What about depreciation? IOW, if you bought for $100K, took out a loan for $100K and had depreciated it down to $75K then you had a gain of $25K. Did you pay taxes on that? Or did you pay taxes on the forgiveness of debt??

Seems to me that besides sticking it to the bank you might have stuck it to the gvmt.


Don't get me wrong, there are a few people on the board who have been very successful with their RE, Senator comes to mind without me looking... it does not seem that you are one of them...

I applaud you for getting to where you are, but it is not a way I would want anybody I know to go... I also applaud you for your service... I had a friend who was on a sub... not a lot of years, maybe 4 or so, but never did have a healthy relationship.... not sure if it was the sub that was the problem though... maybe subs attract a certain type of person....
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