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What's riskier?
Old 09-18-2017, 02:52 PM   #1
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What's riskier?

My Fire is predicated on income from investments, currently real estate assets producing 70k a year, I've considered dumping the whole thing for dividend stocks, etf's or reits and would need 7% to maintain current cash flows. I see some stuff paying 10% or more and I understand it would be a riskier play than a 4% dividend paying issue. Just curious what the consensus thoughts here are on the risk between real estate and paper assets

I feel pretty safe with RE holdings but I'm always thinking of ways to increase cash flow and net worth
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Old 09-18-2017, 03:16 PM   #2
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Dividends are no free lunch. It is a capital payout, you then have less value in the stock (at least for a while).

Read up on Total Return investing. If a stock pays a dividend and you don't re-invest it, that is a withdrawal. No different than selling x shares to withdraw an amount from your portfolio.

Simple example:

You own 1 share of a company at $100 and it pays a 5% dividend 1 time per year.

On the date the dividend is paid, you have 1 share, the price is $95 and you have $5 in your settlement account. No change.

If you re-invest the $5, you have 1.052 shares at $95 = $100 (No change)

If you transfer the $5 to your checking account and do not re-invest, you would have 1 share at $95 and your investments are $95. You did a withdrawal of $5.

This is where all the dividend investing sites and blogs go wrong. You aren't getting free money from a dividend. The stock price won't stay at $95. It can go up (we hope) or down. A year from now, the stock price can be $120 or $80.

If you own real estate, that is a small business unless you are talking about investing in REIT funds. It is hard to compare localized small businesses to owning a broad based set of index stock and bond funds.
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Old 09-18-2017, 03:18 PM   #3
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Central Park at 3 AM is much more risky.
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Old 09-18-2017, 04:19 PM   #4
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From your previous posts, you enjoy RE investing. Accordingly, there is nothing wrong with keeping the RE. However, you might want to consider a bit of diversification. If you back out your sweat equity in the RE, I suspect your risk adjusted returns are probably similar to a stock and bond portfolio. I had a relative that believed the ideal asset allocation was 25% stocks, 25% bonds, 25% RE and 25% cash. Did I mention he was fairly wealthy.

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Old 09-18-2017, 05:00 PM   #5
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From your previous posts, you enjoy RE investing. Accordingly, there is nothing wrong with keeping the RE. However, you might want to consider a bit of diversification. If you back out your sweat equity in the RE, I suspect your risk adjusted returns are probably similar to a stock and bond portfolio. I had a relative that believed the ideal asset allocation was 25% stocks, 25% bonds, 25% RE and 25% cash. Did I mention he was fairly wealthy.

FN
Not that I'm wealthy, but that was always my favorite AA too.
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Old 09-18-2017, 05:10 PM   #6
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My Fire is predicated on income from investments, currently real estate assets producing 70k a year, I've considered dumping the whole thing for dividend stocks, etf's or reits and would need 7% to maintain current cash flows. I see some stuff paying 10% or more and I understand it would be a riskier play than a 4% dividend paying issue. Just curious what the consensus thoughts here are on the risk between real estate and paper assets

I feel pretty safe with RE holdings but I'm always thinking of ways to increase cash flow and net worth
As you obviously know, real estate risk heavily depends on your location (part of the country, but also class: A, B, C, D), what types of properties (commercial, MF, SFH, etc), but if you truly and reliably generate 7% with your real estate holdings, you should probably stick with it rather than look for the stock market. You seem comfortable with RE.
As for me, I like diversification, so I have some of each.
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Old 09-19-2017, 10:29 PM   #7
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The challenge with real estate is the disposition--at least if you plan to use the proceeds in this life. Outside of a 1031 exchange, you are pretty much stuck with not only the cap gains tax (same as al long term stock) but also the depreciation recapture and the 25% statutory tax. We pruned our RE portfolio from 4 properties to 3 this year since it the last year before RMD for us. Still working the numbers to see if we will get pushed into the highest bracket for Medicare premium (268 each/mon vs 134 for joint filers
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Old 09-19-2017, 11:09 PM   #8
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Buy a little dividend aristocrat ETF every month/year (DVY, HDV). Keep the real estate rather than get 7%+ in an ETF. Real Estate is safer.
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Old 09-19-2017, 11:14 PM   #9
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The challenge with real estate is the disposition--at least if you plan to use the proceeds in this life. Outside of a 1031 exchange, you are pretty much stuck with not only the cap gains tax (same as al long term stock) but also the depreciation recapture and the 25% statutory tax. We pruned our RE portfolio from 4 properties to 3 this year since it the last year before RMD for us. Still working the numbers to see if we will get pushed into the highest bracket for Medicare premium (268 each/mon vs 134 for joint filers
Yes,
For those that have not done this, the problem is the single large size, example you own a $400,000 rental property that originally cost $200,000 , when you sell it you get whacked with $200,000 capital gains + the depreciation recapture.

If you own stock in a company worth $400,000, you can sell just a few shares at a time, to keep your capital gain in the tax free zone.
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Old 09-19-2017, 11:18 PM   #10
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The other thing I'm learning to hate about real estate (I own rental property) is the mandatory depreciation.
Who hoo I get to save on being taxed at my current 10->15% marginal rate due to depreciation.
When I sell I get recapture it and get taxed at 25% on that recaptured depreciation.
So I can easily see over years I depreciation a $100,000 property to zero and save $15,000 taxes, then sell it and pay $25,000 in taxes for the recapture part.

I wish depreciation was optional..
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Old 09-20-2017, 05:32 AM   #11
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Hold your real estate. Anything paying the same or more these days is too risky, or it would pay less.
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Old 09-20-2017, 09:45 AM   #12
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Central Park at 3 AM is much more risky.
........along with unprotected sex.
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Old 09-22-2017, 03:32 PM   #13
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I've mentioned before that hard money lending for others' real estate projects and dreams has been a good way to earn ~8% yield without the day to day headaches of managing real estate. Just be sure borrower puts down substantial (30%) cash down and that you have a first lien. I've been doing this and the income is great without needing to get my hands dirty. The best deals are a little harder to find but I see lots of demand from good loans where borrowers will happily pay 6.5%. I try to hold out for better deals however.
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Old 09-22-2017, 04:06 PM   #14
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I've mentioned before that hard money lending for others' real estate projects and dreams has been a good way to earn ~8% yield without the day to day headaches of managing real estate. Just be sure borrower puts down substantial (30%) cash down and that you have a first lien. I've been doing this and the income is great without needing to get my hands dirty. The best deals are a little harder to find but I see lots of demand from good loans where borrowers will happily pay 6.5%. I try to hold out for better deals however.
Senator, you out there? Can I loan you money at 8%? Ill send you a Christmas card and tell you that your the best business partner ever.
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Old 09-22-2017, 04:06 PM   #15
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Plan B that I've been kicking around is dumping my silver holdings and getting it into some kind of dividend fund or stock, I see s a couple ETF's that I've been watching that yield 16% and 18%. I'm not sure how risky they are but they've never cut dividends and they seem to be pretty decent performers. A lot of high yield stuff that I've been watching the charts look very bearish, I'm guessing they are cutting the stock price to pay out dividends like mentioned alearlier in the thread

I'm pretty green with the markets, been out of them since 2001
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Old 09-22-2017, 04:09 PM   #16
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Plan B that I've been kicking around is dumping my silver holdings and getting it into some kind of dividend fund or stock, I see s a couple ETF's that I've been watching that yield 16% and 18%. I'm not sure how risky they are but they've never cut dividends and they seem to be pretty decent performers. A lot of high yield stuff that I've been watching the charts look very bearish, I'm guessing they are cutting the stock price to pay out dividends like mentioned alearlier in the thread

I'm pretty green with the markets, been out of them since 2001
If you promise not to use that 80 year old attorney to type out the agreements,, Ill loan you money at 8 %.
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Old 09-22-2017, 07:41 PM   #17
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OP. Cash flow Cash Flow Cash Flow. Stick with the rents, and look for ways to offload the maintenance/ management. For the last 3-4 years I've had the current tenants do the initial showings to future tenants. Now I have them sending the entire year of rent in advance, "because I'm traveling too much for work".
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Old 09-22-2017, 08:03 PM   #18
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The other thing I'm learning to hate about real estate (I own rental property) is the mandatory depreciation.
Who hoo I get to save on being taxed at my current 10->15% marginal rate due to depreciation.
When I sell I get recapture it and get taxed at 25% on that recaptured depreciation.
So I can easily see over years I depreciation a $100,000 property to zero and save $15,000 taxes, then sell it and pay $25,000 in taxes for the recapture part.

I wish depreciation was optional..
You recapture depreciation at your regular rate, not to exceed 25% I believe. If you have to recapture a bunch, you pay a higher rate. Just like income.
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Old 09-22-2017, 08:07 PM   #19
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Senator, you out there? Can I loan you money at 8%? Ill send you a Christmas card and tell you that your the best business partner ever.
Are you going to loan me money, or borrow it to me?

I use my HELOC for money at ~4.25%. I have loaned money to a friend for a short term loan at 22%. I loan money to tenants once in great while, as a late fee, for 8% for only a few days. That's about an 800% return.

I do know that many investors would borrow at 8%, most hard money lenders are higher.
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Old 09-23-2017, 12:23 AM   #20
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Are you going to loan me money, or borrow it to me?



I use my HELOC for money at ~4.25%. I have loaned money to a friend for a short term loan at 22%. I loan money to tenants once in great while, as a late fee, for 8% for only a few days. That's about an 800% return.



I do know that many investors would borrow at 8%, most hard money lenders are higher.


Senator, what do you think about hard money lending as an investment?
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