All done and living off rental income

[SAtoUS]

I don't care what financial institutions think about me..Many are a scourge on our nation. My vision of retirement is a debt free one. Yes we use credit cards but only to get rewards - we never carry a balance. If chase ever looked at their profitably on us they would ask for their card back.

My friend's 23 year old son has worked one year for our firm since he graduated. Unsolicited his credit card company just upped his limit to $10k. I believe this should be illegal. Credit cards for all too many are like heroine laced quick sand. The average balance in America for people who carry a cc balance is $15 grand. That's 3 grand a year in interest.. Funny but if you saved that three grand each year, invested it, I'll bet after 18 years you could fund a state university education.

The financial institutions fight over the credit addicts too.. Why do you think they advertise 12 months no interest on balance transfers? The desperate will jump at that offer and they too will sucked into 'the sand'.

No my goal has been to get financial institutions out of our lives ...so far so good.

My occupation at retirement: Senior Portfolio Manager.


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I'm sorry, but I have to disagree w u here. 'I believe this should be illegal'... lol... illegal??... if you are an adult and you make choices like a child, then the Credit Card Companies are to blame, really?

Do you want fries with that? Do you want to Super Size that for $1 more? If you are stupid to eat there in the first place, then why not, Super Size your disgusting meal while you've at it. Why not? Make sure you get that super size soda with 4 spoons of sugar in it too. Most people are fat, but it's the fast food companies that made 'em fat? Like it's the credit card industry that made people owing 'em money?

My credit card limit on my ONLY card is $100k. My credit score is 810. I never carry a balance and never have.

Think like an adult, act like an adult and the world will treat you like one. If you are 23 years old with a University degree too, you have a $10k limit and u use it, my two cents would be that you need to go back to grade 8.

 

[Another Reader]

Credit card issuers divide the market into two groups, transactors and borrowers. They make money on transaction fees for transactors like you and me. They buy our business by rebating a percentage as points or cash back. They also sell our information to their "partners" who use it to market other products to us. So Chase is very happy to make a profit on you and won't be asking for their card back anytime soon.

 

[SAtoUS]

Credit card issuers divide the market into two groups, transactors and borrowers. They make money on transaction fees for transactors like you and me. They buy our business by rebating a percentage as points or cash back. They also sell our information to their "partners" who use it to market other products to us. So Chase is very happy to make a profit on you and won't be asking for their card back anytime soon.

Very true. You want to be a transactor or borrower. You want to eat fast food or you want to eat healthy. You want to smoke or you don't. You want to live within your means and retire early, or you don't. It's that simple.

 

[Senator]

Right now, I have $125K earning $720/month in dividend income, mostly from tax-exempt bond funds. And if I really need it, I could sell the funds for cash right away. I'm sticking with tax-free dividends if possible.

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?

 

[rayinpenn]

I'm sorry, but I have to disagree w u here. 'I believe this should be illegal'... lol... illegal??... if you are an adult and you make choices like a child, then the Credit Card Companies are to blame, really?

Yes really - Think Big Picture...50% aren't saving for retirement but they sure can vote. Who's pile will they be looking at? I'll tell you yours and mine. We can't make people make the right financial decisions but we can help them with the traps. Sorry but we can't bury our heads in the sand and say "they should be responsible" LOL

So you don't remember the last credit crisis? People by the boat load bought homes they couldn't afford - and when it blew up do you think only the financially irresponsible took it on the chin? Sorry many hard working people lost thousands...

Better education
Laws to encourage saving
Laws to discourage unsolicited credit proliferation

Yes Really!



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[RunningBum]

Agree. It also takes a loooong time, to get to 25 doors like Senator/ or a few commercial properties (15 years in my case)/ or other forms of passive income. Folks also have to remember, when you have income properties, you don't pay the same amount of income tax on 'that' income from you rents received. Let me try to explain.

You file your Form 1040, and by the time you are done with line 23e (the total of all your expenses) your final 'income' is waaaay lower than any other income.

For example: Let's say you have 500k in the market (IRA, bonds, stocks, whatever), you get 5% a year return, that's $25k/ year. You pay income tax (of course your income bracket and so on will have to be taken into account too) but the point is... that $25k gets taxed as INCOME, period... Now,if you invest that same $500k in income property and get $25k a year from rental income on that, you can legally deduct things like:

- Advertising
- cleaning
- commission
- insurance
- legal fees
- management fees
- repairs
- property tax
- utilities
- depreciation expense (a good one but read up about this one and make sure you understand it)

So by the time you are done with all your LEGAL expenses, you deduct that from your $25k rental income... and end up with let's say, $8k (or less)... you then pay income tax on only THAT $8k... get it?

If you have all those expenses, then aren't you making only $8K, not $25K?

I know depreciation is not an out of pocket expense, but it reduces your basis so eventually you'll pay for that.

 

[Senator]

Rental properties
Well, if I bought a townhouse for $125K cash, rented it out for $1,000/month (the rate in my area is probably $850-$1000/month for a 2 bedroom apartment), I'll pay for HOA ($150), pay for any maintenance ($100), pay $100 (10% for agent who finds renters). I will net about $650/month. And that 'net' does not include home insurance and real estate taxes on the property, and personal income tax for rental income. I'll probably net $450-500/month at most after taxes and insurance. And my $125K is not liquid.

That is where most people go wrong. Buy that same place for $65K as a fixer upper. Put $20K into it, and start making money. Those deals are not available every day, nor are they always available for a mortgage, but they are there is you look.

That is the difference between a real estate investor, and a real estate buyer.

 

[Livefree]

If you have all those expenses, then aren't you making only $8K, not $25K?

I know depreciation is not an out of pocket expense, but it reduces your basis so eventually you'll pay for that.

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

 

[jkern]

That is where most people go wrong. Buy that same place for $65K as a fixer upper. Put $20K into it, and start making money. Those deals are not available every day, nor are they always available for a mortgage, but they are there is you look.

That is the difference between a real estate investor, and a real estate buyer.

You may be lucky to find these deals where you are, but where I am they are either non existent or the proverbial needle in a haystack. There is very little incentive for a seller to sell at below market value when almost all sales garner multiple offers at market value.

 

[SAtoUS]

You may be lucky to find these deals where you are, but where I am they are either non existent or the proverbial needle in a haystack. There is very little incentive for a seller to sell at below market value when almost all sales garner multiple offers at market value.

Can't you travel? Buy something in a different state.

 

[movingrightalong]

i am here to tell you it does not get you anywhere.

hahahahahahha!

 

[Letj]

I'm sorry, but I have to disagree w u here. 'I believe this should be illegal'... lol... illegal??... if you are an adult and you make choices like a child, then the Credit Card Companies are to blame, really?



Do you want fries with that? Do you want to Super Size that for $1 more? If you are stupid to eat there in the first place, then why not, Super Size your disgusting meal while you've at it. Why not? Make sure you get that super size soda with 4 spoons of sugar in it too. Most people are fat, but it's the fast food companies that made 'em fat? Like it's the credit card industry that made people owing 'em money?



My credit card limit on my ONLY card is $100k. My credit score is 810. I never carry a balance and never have.



Think like an adult, act like an adult and the world will treat you like one. If you are 23 years old with a University degree too, you have a $10k limit and u use it, my two cents would be that you need to go back to grade 8.

Don't underestimate how stupid many people are and the impact upbringing has on one's life. Most children learn by mimicry and grow up to be adults who just repeat the behaviors they see. Sometimes it takes going away to college or exposure to a different environment for them to learn or realize the errors of their ways.


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[kgtest]

when retired and people ask I will respond, I manage our family's money.

True, and true.

 

[Senator]

You may be lucky to find these deals where you are, but where I am they are either non existent or the proverbial needle in a haystack. There is very little incentive for a seller to sell at below market value when almost all sales garner multiple offers at market value.

There are deals everywhere. Investors are finding them. As long as there are divorces, deaths, landlords that think they know how to be a landlord, there will be deals or distressed properties. It may be 1 in 100, and competition to find and procure them, but they are out there.

You need to buy downtrodden properties, in the pre-foreclosure status. If there are flippers, there are deals.

Send letters out to people in the public notices of foreclosure status. Put out bandit signs. Find a bird-dogger. Buy a non-performing note and foreclose. Send letters to families listed in the obituaries. Do some door knocking on homes that are unkempt. I once paid a woman $4,000 to put a $150 mechanics lien on her home, and made over $50K in two months that was split with a partner.

The best deals generally require all cash. Plus fix up cash. Sometimes are sight unseen. They may require cash, even if you do not get the property. There is also some risk involved.

But there are deals out there.

 

[l8_apex]

To SA - congrats. I too am 47 and planning to retire this year via rental properties. I don't have nearly the cash flow as you but my projections seem to be reasonable...

I don't find being a landlord to be particularly pleasant, but it sure beats being stuck in a cubicle M-F 8-5. As Senator just pointed out - nobody should expect this to be easy, but real estate has been and continues to be a viable way to amass wealth and more importantly, passive 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]

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]

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]

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]

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).