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Alternative Income Producing Assets
Old 10-15-2012, 09:18 PM   #1
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Alternative Income Producing Assets

My limited exposure to the threads have left me with the feeling that most people operate under the "save/invest as much as you can, then hope your growth outpaces your expenses" mindset. However, I'd like to hear the opinions on acquisition of other income producing assets like rentals or small businesses as part of a retirement strategy.

I've been reading Rich Dad, Poor Dad lately and his strategy seems to be pretty real estate heavy, or at least skewed towards more tangible assets than stocks or bonds. I like the idea of something that sends me a guaranteed (enter discussion on tenants) paycheck for as long as I own it.

Additionally, if you have considered these kinds of assets for your strategy, what kinds of things are out there aside from rentals or owning a business?
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Old 10-15-2012, 09:22 PM   #2
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I've been reading Rich Dad, Poor Dad lately and his strategy seems to be pretty real estate heavy, or at least skewed towards more tangible assets than stocks or bonds.
Kiyosaki is trying a new strategy:

'Rich Dad, Poor Dad' author files for bankruptcy
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Old 10-15-2012, 09:28 PM   #3
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heh heh, yeah you wont find too many people who care much for Kiyosaki around here. But I will admit, RDPD was one of the first personal finance books I ever read. If you take anything from his book, let it be this...

ACCUMULATE ASSETS

The rest of the book, meh.
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Old 10-15-2012, 09:29 PM   #4
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My mother has a small commercial building and it has worked out great for her - almost like an annuity because the building has a stable tenant with a long term (10 year) lease. They could have bought the building many times over for the rent that they pay, but we're not complaining.

That said, I have always thought Kiyosaki was a flake.
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Old 10-15-2012, 09:36 PM   #5
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My limited exposure to the threads have left me with the feeling that most people operate under the "save/invest as much as you can, then hope your growth outpaces your expenses" mindset. . . I like the idea of something that sends me a guaranteed (enter discussion on tenants) paycheck for as long as I own it.
Well, as you point out, there's nothing guaranteed about the income from rental property. Regarding stocks: Some folks here aren't counting on the growth of the value of their stocks to support their retirement spending. Instead they are depending on the dividends they'll receive from owning these stocks. They buy stocks or mutual funds and receive a portion of the profits earned by hundreds or thousands of well-run, well-established companies doing business in a wide variety of industries and locales. Rental properties, coin op laundries, coin-op car washes and other low-presence businesses have points to recommend them, but they can't be called highly diversified.

Gratuitous comment: The less credence you put in Mr Kiyosaki's methods, the more likely you'll be successful.

Good luck!
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Old 10-15-2012, 09:43 PM   #6
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I suspected that bringing up Kiyosaki might open a can of worms here. Mill, I'd say I've taken two things away from the book.

1. There are other ways to finance your retirement than stocks/bonds/funds
2. Put yourself in a position to be able to take advantage of good opportunities

samclem, I guess the fact that I'm 24 and only have about 50,000 invested hasn't flipped the switch for me that dividends could be a comfortable income if/when I have more invested.

Thanks for the quick replies!
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Old 10-15-2012, 10:04 PM   #7
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[QUOTE="navydavey"]My limited exposure to the threads have left me with the feeling that most people operate under the "save/invest as much as you can, then hope your growth outpaces your expenses" mindset. However, I'd like to hear the opinions on acquisition of other income producing assets like rentals or small businesses as part of a retirement strategy.
/QUOTE]

I read his book early on in my ER research and spent almost a year investigating rental properties. While some folks seem to make a go of it, I found it to be a low-return investment strategy with a ton of time and risks involved. Part of the problem is that rental property is expensive. Even during the real estate crash, we found that properties in our region simply didn't "pencil out" as cash flow positive.

I own a small business and find it is a great career, but not necessarily an investment. Not all businesses are sellable upon exit, and those that are tend to involve a lot of capital, either in equipment or in developing billable talent. Not to mention most businesses do fail. Of the 10 or so business owner peers I had when I started out, only 4 of us remain, and half of those are making less income that they could in a regular job.

The one advantage to business ownership as an ER strategy is flexibility. Flexibility on how much and how hard you work. I can conceivably "taper" my consulting work in the future, allowing for substantial "part time income" once I reach FI. That is years out though.

So I suppose my perspective on your question is that real estate and small business ownership sound good on paper, but implementation is difficult and the challenges outweigh the opportunities. Hence "save like mad and keep expenses low."

SIS
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Old 10-16-2012, 07:34 AM   #8
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Also check out the recommended reading material. My favorite is the 4 Pillars of Investing.
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Old 10-16-2012, 09:06 AM   #9
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There are many ways to generate income in retirement. You just have to find one or several that match your risk tolerance and amount of time and human capital you want expend in the process. My plan is still to work as long as I feel like it and then retire completely. This means no part time job whether it be real estate, consulting or anything else. Just check my investments periodically.
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Old 10-16-2012, 12:26 PM   #10
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There are many ways to generate income in retirement. You just have to find one or several that match your risk tolerance and amount of time and human capital you want expend in the process. My plan is still to work as long as I feel like it and then retire completely. This means no part time job whether it be real estate, consulting or anything else. Just check my investments periodically.
I ER' d and have a part time job, three days a week, five hours a day. Three days a week, I swear I will quit this thing when after my 12 month promise is over. Fours of the week, I am ambivalent about it, and one day a month when I get the check, I say to myself I will continue for 4 more years. Hopefully I can get myself to think like you and walk away totally one day.
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Old 10-16-2012, 01:53 PM   #11
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I ER' d and have a part time job, three days a week, five hours a day. Three days a week, I swear I will quit this thing when after my 12 month promise is over. Fours of the week, I am ambivalent about it, and one day a month when I get the check, I say to myself I will continue for 4 more years. Hopefully I can get myself to think like you and walk away totally one day.
Yeah, well that's easy for me to say now. Wait til I actually do it . We'll see
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Old 10-16-2012, 02:17 PM   #12
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Unlike most here, I actually like Kyosaki and benefited a lot from RDPD. It was one of the books that changed my mindset in a way that allowed me to retire about ten years afterwards.

That said, I think he is dangerously averse to securities and dangerously infatuated with rental real estate. I have invested and am still invested in both.

Both ultimately involve hope: you hope that IBM will pay its dividend, and you hope the guy in your property will pay his rent.
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Old 10-16-2012, 04:54 PM   #13
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My plan is still to work as long as I feel like it and then retire completely. This means no part time job whether it be real estate, consulting or anything else. Just check my investments periodically.
+1
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Old 10-18-2012, 02:38 AM   #14
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Ok, well looks like I have some recommended reading to do...and it isn't the real-estate classifieds.
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Old 10-21-2012, 08:56 PM   #15
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I own/operate hotel. A good cash flowing hotel can be a good investment. Ofcourse, for it to be a good cash flowing hotel, it must in a good location and have stable management for one to be able to own it as an absentee owner. Even then you can never be 100% hands off because employees turn over and even if they don't you still need to stay on top of the financials. I'm not complaining, the ROI is good and it is a sellable asset whenever you are ready. Thanks
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Old 10-21-2012, 11:18 PM   #16
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I own/operate hotel. A good cash flowing hotel can be a good investment. Ofcourse, for it to be a good cash flowing hotel, it must in a good location and have stable management for one to be able to own it as an absentee owner. Even then you can never be 100% hands off because employees turn over and even if they don't you still need to stay on top of the financials. I'm not complaining, the ROI is good and it is a sellable asset whenever you are ready. Thanks
Rick
Isn't a hotel a high dollar investment? Could you talk about what might be bought, and what capital is needed, for purchase and for working capital? I have never heard of a hotel owned by non immigrant families other than the Pritzkers and the Tisches and others in their league. All those I know about are run by Indians and their families in a very labor intensive fashion.

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Old 10-23-2012, 10:14 AM   #17
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I've been reading Rich Dad, Poor Dad lately and his strategy seems to be pretty real estate heavy, or at least skewed towards more tangible assets than stocks or bonds. I like the idea of something that sends me a guaranteed (enter discussion on tenants) paycheck for as long as I own it.
Additionally, if you have considered these kinds of assets for your strategy, what kinds of things are out there aside from rentals or owning a business?
Welcome to the board, ND, I'm a little late to the discussion.

You've pretty much covered the asset allocation choices, and the key is to diversify among them. As long as you're getting an active-duty paycheck then you can afford to be aggressive with equities... small-cap value and international/emerging markets as well as dividend stock funds. No need to worry about bonds or big emergency funds.

Your challenge is to make sure the alternative assets fit your current lifestyle with current income instead of hoping for appreciation. For example rental properties sound great, but while you're on active duty you're almost never able to personally manage them. When you're deployed you're essentially turning everything over to a property manager (which eats up your profits) and hoping things aren't too bad when you return. The property appreciates at about the long-term rate of inflation (with wild variance by location) but the structure on it will consume plenty of maintenance, repair, and refurbishing money.

Kiyosaki used to write about more exotic investments like tax liens. The issue is that the further you go out on the alternative investment curve, the less liquid things tend to be and the higher their maintenance/transaction costs.

Maybe you'll do better with high-yield options like peer-to-peer lending or funding a real-estate property flipper, but again you have to consider what happens if there's a crisis in P2P while you're on deployment without bandwidth. Short-term high-interest loans to property flippers at least offer a lien on the property, but again it may be illiquid with high maint/transaction costs.

When you're no longer on active duty and have the time to be a hands-on manager, then the profits really start to flow to you (instead of to managers). But that's like running a business.

The biggest advantages to your current situation are a relatively high savings rate along with tax-favored investing in the TSP & your Roth IRA. Max out your contributions and let them compound while you're busy maximizing your flight hours. Read all you can about investing and real estate (and whatever else interests you) to get ready for the day when you actually have the time to do something about it. Take accounting & business classes so that you can learn all the various ways to make investments look more attractive than they actually are. Read all you can about the history of failed investments so that you develop a healthy streak of cynicism to go with your optimism.

The only other passive income option that I can think about would be blogging and eBooks. The first qualification is that you have to be a writer-- I mean someone who can't stop writing and really needs a focus for their output. Pick a topic that you're passionate about and start writing. It doesn't have to be more than a post or two a week at first (until you build up content for people to find via search engines) and then you may be able to tail off to a few times a month. If you can expand into podcasts and videos on your subject (especially helmet cameras!) then so much the better. Run advertising and affiliate sales on the blog, publish the eBooks as a download, and let the money start to trickle in. 2-3 years later it'll grow to at least a Roth IRA contribution and maybe more. The current 800-pound gorilla in this field is Pat Flynn of SmartPassiveIncome.com. A servicemember who's emulating Pat's methods is Mike at LiveTheNewEconomy.com, and you can watch as he learns.

However the writing/blogging idea is probably in the category of owning a business. It's a way to generate cash from a hobby that you'd be pursuing anyway. Blogging just allows for much more automation and passive income.
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Old 10-23-2012, 09:21 PM   #18
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One more thought-- anyone had much luck with rental farmland?
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rental farmland
Old 10-23-2012, 09:35 PM   #19
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rental farmland

Nords,

In-laws' farm is being rented out to a grass farmer. It pays the taxes. A very hands-off investment compared to farming itself. Farmers live poor and die rich. When the farm is finally sold, it will be for commercial real estate. But that will be a while yet. Not my idea of an investment at my age.

To OP: Real estate is not liquid. And it is extremely unwise to be an absentee landlord. You want real estate? Do your research and buy an REIT or Vanguard's REIT index fund. You get the diversity of many markets, income, and you can sell it in one day. From a chair by the beach in Belize. Try that with a rental.

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Old 10-24-2012, 10:02 AM   #20
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This may be a little off topic but in addition to a variety of income sources (SS, dividends, part-time job, rental income, etc) it seems to me that there are a lot of "income" streams available in cost avoidance.

In my personal case, annually: YMMV
1) About $15K in going-to-work costs: commuting, clothes, lunches, etc

2) About $8K DIY: stuff you had to pay someone to do bc you didn't have the time; landscapers, minor home/auto/boat repairs, paint/wallpaper, ...it adds up.

3) About $3K in consumer 'savings'...I've come to the conclusion that during my work days, we were constantly getting ripped off (ripping off ourselves) paying full price because we didn't have the time to shop for the best bargains, take advantage of special sales, couponing/Grouponing, buying the excact same kakhis at Costco vs Macys for $40 less etc.

It all adds up and turns into income that you don't need.

In the days ahead, keeping your income low (while still keeping your standard of living high) will be an important strategy to dodge the tax man.

A penny saved will be a penny (plus tax) earned.

Just my two cents
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