Realistic INCOME question. Thinking of retiring.

[MichaelB]

It is not at all hard to average 8+% if capital gains are included, but one cannot withdraw 7% from this account. Don't forget volatility. It is really a high wire act without a net.

Are you referring to nominal or real returns of 8+% ?

 

[haha]

Nominal

 

[MichaelB]

Nominal

Right. Thanks, and I agree with your point.

 

[youbet]

I'm 61 also and retired. I thought we were being fairly conservative living on 60000 yr with 2.4 M portfolio but compared to you we look down right irresponsible. I'm hoping you are being more conservative than is really necessary to maintain your level of spending. Maybe you want to leave more assets to your heirs?

Although you're at a 4% WR currently, won't this drop when you begin SS? And, regardless, my guess is that your 4% WR will result in the odds of success being heavily on your side.

 

[jclarksnakes]

It is not at all hard to average 8+% if capital gains are included, but one cannot withdraw 7% from this account. Don't forget volatility. It is really a high wire act without a net.

If someone needs, for example, 3% from a portfolio, he should save until he has enough invested assets to make 3% from conservative dividend paying and dividend growing stocks and or TIPS. Then stay out of principle, including inflationary gains to the principle. For me, I want the corpus to grow a bit in real terms, as I like a slowly increasing standard of living, not a slow death of the portfolio, and not a lot of hoping and nail biting.

But hey, it might be a terrible method, it's only worked for 25 years so far.

Ha

It works for you and it works for me but it may not be the only way to do things.

 

[WiltonKnight]

Rental Housing

I agree with an earlier post-consider rental property, esp. single family homes. I have never earned less than 10-12% on paid off properties, (less if you pay for management help-however, the tax benefits of deductions should offset those costs and then some).

Many real estate people are noting the change in attitudes about home ownership, esp. with the young. Many are afraid to make the investment plunge and will become long term renters. Good long term investment with prices so low and people always needing a roof over their heads.

Bruce, if you don't mind sharing some of your secret recipe....

*The single family homes, what price ranges did you buy?
*What size, 3 bed? 4?
*Did you go with busy metro areas or rural?
*How effective are property management companies? If you have a good property management company, do they handle repairs, maintenance, tenant issues to where you still feel retired?

*When you purchased a home, how did you 'know' that you'll have a good chance of renting it out soon?

(I'm looking at net-leased commercial properties these days. McDonald's credit is great, but they pay around 5.5% return. 2nd tiers, like KFC/Taco Bell, around 7.5%...but of course the leases are really written in the tenant's favor)

Thanks!

Thanks!

 

[haha]

It works for you and it works for me but it may not be the only way to do things.

No doubt about that. The large majority of people do it differently.

Ha

 

[REWahoo]

No doubt about that. The large majority of people do it differently.

And compared to yours, our heirs will probably have a lot less to console them when we're gone.

 

[pb4uski]

And compared to yours, our heirs will probably have a lot less to console them when we're gone.

+1 by design

 

[haha]

And compared to yours, our heirs will probably have a lot less to console them when we're gone.

Somehow I don't think this is a compliment. But remember, I am a cantakerous old man, and we are famously conservative. I've heard some of these newfangled whippersnapper ideas, and I don't like 'em!

Ha

 

[REWahoo]

But remember, I am a cantakerous old man...

Ha

Can I quote you on that?

Oops, guess I just did...

 

[mjkagan]

Such a great thread! Just wanted to jump in recommend rental property as a viable option for getting the kind of returns you want. You can borrow up to 75% of the value of an apartment building at roughly 4% right now. As long as you make sure not to really over-pay, you should be looking at pre-tax returns of 8-10%. And, if you pick a gentrifying area, I'd expect that yield to rise over time.

 

[haha]

Such a great thread! Just wanted to jump in recommend rental property as a viable option for getting the kind of returns you want. You can borrow up to 75% of the value of an apartment building at roughly 4% right now. As long as you make sure not to really over-pay, you should be looking at pre-tax returns of 8-10%. And, if you pick a gentrifying area, I'd expect that yield to rise over time.

Tell us a bit about the area you operate in? How many units/per building do you like? Do you manage, as well as do maintenace and apartment turnovers yourself or hire it all out? If you have time, please tell us what a building might cost, and what your gross expenses on this building might be.

Thanks for any info.

Ha

 

[mjkagan]

I'm in a gentrifying area of LA called Silver Lake. I control 8 properties now with around 70 units total (down from 104 mid year last year). I have some people who work for me managing the properties, but you can outsource here with reasonable results for 5% of the income. Generally speaking, right now, you're going to pay roughly 10x the annual gross rents for a building. Expenses including property tax (but not mortgage) run to around 35% of rents.

For Wilton, who has a bunch of cash, I would recommend doing a few larger ($1-3M) deals using reasonable amount of debt (maybe 70% loan to value). For people with less cash just getting started, I would strongly recommend using a 30 yr. fixed, FHA loan - it's the best leverage you can get in the world, because the government is heavily subsidizing it.

Happy to answer any other questions, obviously!

 

[Major Tom]

I'm in a gentrifying area of LA called Silver Lake.

Silver Lake's been on the up and up for years now hasn't it? Then Echo Park was supposed to be the new Silver Lake. Now I'm hearing that the hipsters are invading Highland Park.

How much further east are they going to go?

 

[mjkagan]

Major Tom clearly knows LA!

Yeah, Silver Lake is pretty gentrified already, although you can still find a deal every once in a while south of Sunset. Echo Park is definitely up-and-coming now as well, and I own a building there as well. Highland Park is further down the curve... there are definitely stirrings there, but rents are really low [MOD EDIT]

 

[haha]

Silver Lake's been on the up and up for years now hasn't it? Then Echo Park was supposed to be the new Silver Lake. Now I'm hearing that the hipsters are invading Highland Park.

How much further east are they going to go?

How about Boyle Heights? For me, gay men are the major gentrifiers and markers of an improving neighborhood, not those nasty hipsters with their cigarettes and skinny jeans and pasty complexions

 

[mjkagan]

I think Boyle will eventually end up being interesting - there's a major development there that's slowly going through the entitlement process (it's by the 15 group). But I think Montecito Heights is actually the next one to pop.

 

[mjkagan]

By the way: Do they not allow you to post links here? I put one in a previous post and it's supposedly "under review"... any idea why?

 

[haha]

By the way: Do they not allow you to post links here? I put one in a previous post and it's supposedly "under review"... any idea why?

Please Pm me the link. Who knows what "they" will do.

First place I ever lived in LA was Boyle Heights. After that I went upmarket.

Ha

 

[Gumby]

There is an automatic "spam-catcher" program for new members. It quarantines posts with links until they are reviewed and approved by the moderators. We'll take a look at your post and the link and approve it if warranted.

 

[FIREd]

By the way: Do they not allow you to post links here? I put one in a previous post and it's supposedly "under review"... any idea why?

Because you are new here. We get so much spam that, for new members, we have to filter posts containing links until we are sure they are legit.

 

[Major Tom]

For me, gay men are the major gentrifiers and markers of an improving neighborhood, not those nasty hipsters with their cigarettes and skinny jeans and pasty complexions

In my usual fashion, I remember something funny that someone said, but don't remember who it was. It could have been someone I know, or could have been someone on this board.

They were talking about how funny the hipsters in LA looked in their woollen hats on hot fall and winter days (I'm guessing those hunter-type hats with the furry ear-covers). In the Pacific NW they're practical but in LA, the hipsters look silly.

In retrospect, I'm now quite glad that my Mum refused to buy me a pair of platform shoes in the 1970's

 

[Gumby]

There is an automatic "spam-catcher" program for new members. It quarantines posts with links until they are reviewed and approved by the moderators. We'll take a look at your post and the link and approve it if warranted.

To follow up:

The Community Rules, which are linked at the bottom of the page and with which we all agree to comply when we join the board, prohibit "blog spamming". Accordingly, with rare exception, we do not permit direct links to one's own blog in any post. A link to one's own blog may be placed in the user profile page (but not as a signature).

For that reason, the post has been approved by the moderators, but the link has been deleted.

Members can contact any moderator or administrator by PM if they have any questions about the posting rules.

 

[mjkagan]

Wow - thanks for all the clarification, everyone.