Passive income = the best

[flintnational]

I sold my rental properties and stocks. I put the money in bitcoin. No pesky renters and no pesky dividends to fret over. In fact, I have the ultimate passive portfolio. If I just leave it alone, it will go to zero all by itself.

 

[HadEnuff]

I used to be a landlord.

I didn't find it passive enough to suit me.

To each, his own. I also have no desire to spend enough time in an airplane to get me anywhere near Vietnam,

again, to each, his own.

 

[pb4uski]

No I consider it passive income. .... It's very difficult to evict deadbeats and I did not want to deal with it. Some real estate agents were making noise about us discriminating so we decided to sell. If we didn't have to deal with some of the rental laws in our state, we would have continued to rent and frankly with the price appreciation since 2003, we would have been better if we kept it. I don't think many of you understand that you can depreciate your property (building only not land) and carry this depreciation expense against all your income.

It seems strange to call it passive income when one is spending time dealing with deadbeat tenants or real estate agents.

My guess is that most people here know about real estate depreciation... they also know about depreciation recapture when you sell.

 

[ERD50]

.... I don't think many of you understand that you can depreciate your property (building only not land) and carry this depreciation expense against all your income.

Wow. You really underestimate people here. We are all in awe of you. I've never owned rentals, but I'm aware of that.

Are you aware that that depreciation comes back to bite you in cap gains when you sell? (Don't bother to answer).


oppps! cross posted with pb4uski - gee that's two of us that know about depreciation, surely the only two on this forum

-ERD50

 

[Luck_Club]

Which would you rather have?

1. $2.2M 60/40 portfolio that you withdraw 3% from each year ($68,000)

2. $68,000 of rents from $1.7M of real estate property

I pick #1 and that's my plan.

Option 1 is chump change.
Option 2 doesn't reflect the true value of the cash flow.

$2.2 in real estate will generate about $220,000 a year cash on cash return. I'll work the 2-8 hours a year per door to get the extra $152,000 dollars a year!

When I find an alternative investment that gives me a 10%+ inflation adjusted return I'm all in.

 

[Freedom56]

Wow. You really underestimate people here. We are all in awe of you. I've never owned rentals, but I'm aware of that.

Are you aware that that depreciation comes back to bite you in cap gains when you sell? (Don't bother to answer).


oppps! cross posted with pb4uski - gee that's two of us that know about depreciation, surely the only two on this forum

-ERD50

Did you get beaten up in the schoolyard by bullies? Or are you that grumpy old guy that kids tease? You seem to be on the attack all the time.

 

[Freedom56]

It seems strange to call it passive income when one is spending time dealing with deadbeat tenants or real estate agents.

My guess is that most people here know about real estate depreciation... they also know about depreciation recapture when you sell.

It was a small percent of overall time to deal with tenants and agents.

Anyway, it's a nice day and it's time to eat, go for a bike ride, and then in the pool/spa. Some you you guys should do the same given the number of posts I see (I'm not singling you out), but others pushing 18K to 20K need to get outside more or find some hobbies.

You don't get a cardio workout from typing. Maybe rental properties would help.

 

[calmloki]

Passive is doing next to nothing... not spending time on the phone fielding call about problems from tenants and co-ordinating repair work with contractors.... not as passive a stocks and bonds using index funds... rebalancing once a year (or even less) so an hour a year... it doesn't get more passive than that... no tenants or failed sewer pipes or frozen pipes to deal with.

Mark Twain: "The truth is a precious commodity. That's why I use it so sparingly." My passive income remark was kinda tongue in cheek.

 

[YeahNo]

I think most here agree that RE is not a passive activity for the most part. At least when comparing to managing a portfolio. Maybe when you are relating it to a regular 9-5 job then I could see how people might use the term "passive".

We've had just 1 rental townhome for 13 years with only two renters that whole time. About as easy as it gets and I still wouldn't call that passive.

 

[HadEnuff]

I think that if I had rental properties to worry about, I wouldn't have enough time to keep the neighbors' dogs off my lawn.

 

[Winemaker]

Which would you rather have?

1. $2.2M 60/40 portfolio that you withdraw 3% from each year ($68,000)

2. $68,000 of rents from $1.7M of real estate property

I pick #1 and that's my plan.

My plan was and is #3, which is both.

 

[CardsFan]

Just one anecdotal piece of information:

We know a couple (DW's cousin and husband) that invested in real estate for years. They started with storage units, moved to small buildings, and finally 4 or 5 8-unit apartment buildings. They have since sold every rental, live in a paid for McMansion, and travel the world extensively. I am sure their NW exceeds $5 million, and maybe $10 million.

So, I know that real estate can be VERY lucrative. I also know that, while they they were in the active phase, if you ever suggested it was a passive activity, they would have read you the riot act citing chapter and verse of the work and aggravation they went through to get to the end game.

They are not sorry they did it, and they are not sorry they sold it all and can now enjoy.

There are many ways to FIRE. This just one. But not my cup of tea.

 

[splitwdw]

Getting ready to leave for 104 days in Asia soon and getting my finances in order, I’ll be collecting over $16k in rents while sipping on whatever they drink out there I hear Vietnam has some bangin coffee

Have a great trip. I thought that you or your wife were originally from Asia, no?

Nope, nope, Nadia, nope, your conclusions are inconclusive, haven’t had that issue in a long while, now that you got me thinking about it... a $4000 renovation 9 months ago and prior to that a new ac unit for $2800 around 5 years ago. I haven’t stepped foot anywhere near my properties in a couple of years. After almost a decade of landlording things couldn’t be smoother

I could not invest in real estate rentals, do not have the personality for it. I would be upset if I had to go into a rental property and found that it wasn't taken care of as I would take care of it. Anyway, glad it works for you.

I am curious, how can you not go near your properties in a couple of years? Maybe this is why you call it passive?

Have a safe trip!

 

[Chuckanut]

I thought genetics had a lot to do with it. However, his 4 brothers and 2 sisters (some are older and some younger) who live off "passive income" only are in terrible shape. They are overweight, some borderline senile, some walk with walkers and have limited mobility. Most of his friends are rotting away in senior homes or have passed away. So rental properties may not be for everybody, but don't discount the financial security and health benefits of managing them into retirement.

I know a number of older people well into their 80's who are still active, mentally and physically, and their income comes from stocks, bonds, SS and CDs. Or they might be outliers.

 

[ExFlyBoy5]

Interesting thread. For a moment, I thought I had stumbled into the MMM forum, or perhaps the /financialindependence Reddit group...

 

[Huston55]

Unless you keep it until you die, you are only deferring payment of those taxes.

Not completely correct. There are multiple options that don’t require death. One in particular (that importantly doesn’t require death ) is to convert your depreciated rental property into a CRT. This will generate lifelong income plus a significant tax deduction; and, the tax due disappears. Read this thread for more info.

http://www.early-retirement.org/for...ptimum-income-from-rental-property-83474.html

 

[calmloki]

Which would you rather have?

1. $2.2M 60/40 portfolio that you withdraw 3% from each year ($68,000)

2. $68,000 of rents from $1.7M of real estate property

I pick #1 and that's my plan.

I see others have noted that $68k profit from $1.7M in rentals is paltry. Like 4%. Just checked and we were at 9.5% profit from the fully paid for rentals last year. Though we did raise our rents in September and will again this September. We have money in the market as well, and when it is booming that is really neat, but when stocks crash there is much to be said for rents that just keep coming in. In fact, when the housing crisis hit our rentals did great - lots of people needing places to live. Shoulda coulda bought more in 2009-20013 than the one place we bought for us, but we didn't need or want more.

 

[Offgrid Organic Farmer]

... The 20k cost of rehabbing comes back to your pocket on the tax return

Depending on exactly how the rehab was done, most of that $20k should go onto the 'cost-basis'. Which will increase how much you can depreciate every year. So it does come back to you.

The other part that does not go into the cost-basis, will be written off that first year.

Residential rental real estate is not what I'd consider passive, either.

As a former member here demonstrated, the best returns on the above come from doing all the work yourself (demo, roughing in plumbing/electrical, screening tenants & collecting payments, etc.)

Paying a management company usually cuts into the returns enough that you might as well just put the money in a stock/bond portfolio instead.

The IRS says that if you manage it yourself, and your investment is 100% 'at-risk', then the activity is 'non-passive'.

I have used management firms, they have always been a rip-off.

 

[HadEnuff]

My dental practice was a passive investment. All I had to do was fix a few teeth, keep my staff from cutting each-others' hearts out, make sure the equipment was working and the bills all paid, the lawn mowed(passive because I paid someone else to do the mowing), get the bills out on time, pay my bills on time, run payroll, .... passive.

 

[97guns]

Have a great trip. I thought that you or your wife were originally from Asia, no?



I could not invest in real estate rentals, do not have the personality for it. I would be upset if I had to go into a rental property and found that it wasn't taken care of as I would take care of it. Anyway, glad it works for you.

I am curious, how can you not go near your properties in a couple of years? Maybe this is why you call it passive?

Have a safe trip!

I see others have noted that $68k profit from $1.7M in rentals is paltry. Like 4%. Just checked and we were at 9.5% profit from the fully paid for rentals last year. Though we did raise our rents in September and will again this September. We have money in the market as well, and when it is booming that is really neat, but when stocks crash there is much to be said for rents that just keep coming in. In fact, when the housing crisis hit our rentals did great - lots of people needing places to live. Shoulda coulda bought more in 2009-20013 than the one place we bought for us, but we didn't need or want more.

My wife is from Thailand... I have a very unique situation with my rental manager and my properties, it’s a close friend of the family that I trust 100%, properties are 75 miles from my hometown but my brother lives there, I use the property manager to oversee the properties and my brother to over see the properties and property manager.


My 68k a year income is generated on my original $280k investment, not the $1.2 mil it is today

 

[Another Reader]

IIRC, you live in the next city south of me. If that's the case, 75 miles covers a lot of the 99 corridor in the Central Valley. Also Richmond, Concord and Pittsburg. These cities would not be my top picks for investments.

Your cash flow rate of return should be calculated on the current value. It's not ROIC, the $280k plus all your capital improvements. We have the same issue there. Hard to find anything that will generate Calmloki's 10 percent on current values west of the Rockies now.

 

[RunningBum]

We see threads all the time about moving income around to be able to qualify for ACA freebie subsidies. DW and I will never qualify for ACA subsidies, but rental income property allows me to control my income for tax purposes legally.

To the degree I need to, and am able to, I control my income for tax purposes legally too, without rental income property.

 

[flintnational]

My 68k a year income is generated on my original $280k investment, not the $1.2 mil it is today

Have a great trip.

I also recommend calculating your return on current values.We sold our last rental in January. The reason was because the value of the house had outstripped the rent we could charge, (the return on the investment fell too low). You could then reinvest in properties with higher yields. But highly appreciated rentals are a nice problem to have.

 

[Denverite]

I see others have noted that $68k profit from $1.7M in rentals is paltry. Like 4%. Just checked and we were at 9.5% profit from the fully paid for rentals last year. Though we did raise our rents in September and will again this September. We have money in the market as well, and when it is booming that is really neat, but when stocks crash there is much to be said for rents that just keep coming in. In fact, when the housing crisis hit our rentals did great - lots of people needing places to live. Shoulda coulda bought more in 2009-20013 than the one place we bought for us, but we didn't need or want more.

Yes, but there is also much to be said for dividends that keep coming in, regardless of the current stock market direction. In the long run, the short term market decreases actually helped me to arrive at FIRE status because the reinvested dividends bought more additional shares compared to when the market was high. Those additional shares are paying off today in additional dividend income.

One other helpful tactic: buying only companies that have a long history of increasing their dividends each year. Now I consider that my annual "raise."

 

[Music Lover]

I have a COLA govt pension...you can't get any more passive than that. Every single month they give me 120%+ of what I need to live on and the only actions I've taken since retirement is to log on to my bank account to verify the monthly deposit.