100k investment in funds for 2006?

[bearkeley]

A few months ago, I posted a new topic about investing some Real Estate equity into stocks....we're heavy into RE and were scared of the stock market.   We've done our homework but before we spend invest, thought I'd check and see if you guys see anything wrong with what we plan to do.

Background:  We're in our late 30's, no kids; $300k salary now with dreams of ERing in 2008; est. 40k/yr to live internationally.

- 1.2M in equity now from all RE investments (expect to hold value despite RE market downturn)

-401k and other retirement acts: $320k (25% international; 25% 2030 Fid Fund; 50% S&P)

- 90k in international (Asia) RE investment

- $100k cash in money market

We expect to sell 1 rental property in April and invest another 100k in stocks, but for now, here's what we were thinking for the 100k we have now:

T. Rowe Price Emergi PRMSX 10% Diversified Emerging Mkts
Dodge & Cox Internat DODFX 20% Foreign Large Value
Selected American Sh SLASX 15% Large Blend
USAA Growth & Income USGRX 15% Large Blend
Oakmark Select I OAKLX 20% Large Value
Masters' Select Smal MSSFX 10% Small Growth
Fidelity Select Tech FSPTX 5% Specialty-Technology
T. Rowe Price Global PRGTX 5% Specialty-Technology

I researched some Vanguard funds since most of you guys here seem to be diehards but I wasn't successful in finding ones that are open to new investors that seem to fit the mix above....

Any thoughts would truly be appreciated!  Thanks!

 

[Craig]

Side note: about selling that rental property, just consider refinancing it to take money out, instead of selling. Our view has been to keep the real estate investments invested in real estate ... to the extent we sell them, we use section 1031 exchanges, and don't pay any income taxes. We roll the profits from one property to the next. You can do this forever, never pay income taxes on the profits, and borrow the equity out if you need to.

Yes, there is an interest cost, and you need to consider the arbitrage on the loan rate Vs. your investment rate of return. But paying taxes on real estate gains is not mandatory.

And, someday, when you go to that big forum in the sky ... your heirs get a step up in basis, no income taxes. [But watch those estate taxes.]

You're in incredible shape, especially for your age. Just out of curiosity, what occupation(s)?

Best of luck.

 

[Arif]

Side note: about selling that rental property, just consider refinancing it to take money out, instead of selling. Our view has been to keep the real estate investments invested in real estate ... to the extent we sell them, we use section 1031 exchanges, and don't pay any income taxes. We roll the profits from one property to the next. You can do this forever, never pay income taxes on the profits, and borrow the equity out if you need to.

Yes, there is an interest cost, and you need to consider the arbitrage on the loan rate Vs. your investment rate of return. But paying taxes on real estate gains is not mandatory.

And, someday, when you go to that big forum in the sky ... your heirs get a step up in basis, no income taxes. [But watch those estate taxes.]

Amen brother! I'm too cheap to pay taxes on real estate (unless uncle sam says so). Too many other options available before I consider selling and paying the taxes. In the process of doing a 1031 exchange on 2 duplexes and 2 homes for an 18 unit apartment. My income will increase by atleast $1000 per month and I'll get some equity as well. I don't know of many stocks that can do that at the same level of risk.

 

[bearkeley]

Thanks for the help.  Some other thoughts

Low cost index funds are available, cheap and more often than not, beat active mangement.  Have you considered iShares, VIPER's... other Fidelity funds?

We will - Thinking of staying away from index funds since our 401ks are in the Federal TSP S&P (100k), Russell 2000 (50k) and International (50K) index funds and Fidelity's International (30k) index fund as well as Fidelitys 2030 fund of funds (50k).  So the thought was, again to try to  diversify by putting some money into managed accounts outside the 401ks which are low fee index centered funds. 

I understand the logic that a monkey with a box full of darts preforms better than the average managed fund and that the low fee indexed funds over time will preform as well as the averaged managed funds before fees and not as well after fees.  But there must be a way to determine who the good managers are that will consistently beat the indexs after fees?  Right?

about selling that rental property, just consider refinancing it to take money out, instead of selling.]

We are currently debating purchasing a property to replace the one we intend to sell.  But I think were set on selling.  The neighborhood has a little to much hood and while it has nearly doubled in value in two years we are tired of dealing with the tenants that want to live there and turing down offers to buy drugs while visiting the area.

Our other properties are less hassle and we get better tenants but with the recent rise in property values in our area it is difficult to find properties with a positive cash flow and a decent ROI and rent to value ratio.  I think the days of speculating on real estate with the assumption of 20%-30% annual price appreciation are quickly comming to an end and we will be lucky to see future apreciation levels above the historical rate of 5%.  So any rental properties that we purchase must make sense based on the traditional rental property evaluation models.

On your 18 unit apartment do you intend to manage it yourself or use a management company?  What is your expected income to equity (total cash and expenses in) ROI excluding appreciation and what do you consider to be an acceptable annual rent to price ratio?  Also, if you dont mind sharing, what % do you have in RE versus equities.

For us in the current realestate (Metro DC) enviroment it is increasingly difficult to find good investments.

Just out of curiosity, what occupation(s)? 

Husband works for Federal Goverment makes 100k.  Wife works is the Recruiting director for private firm makes 200k per year but salary has only recently 2 years  months  jumped above 100k. 

As even without moving the money out of realestate we will need to find a home for around 40k-60k in salary over the next three years until we FIRE ourselves.

We have done well on the realestate and the whole stock thing is pretty scary after 2000.   Our gut says stick to RE, but our head says stock market --- guess it's really finding the right balance, correct?   

 

[LOL!]

But there must be a way to determine who the good managers are that will consistently beat the indexs after fees?  Right?

Yep, there is a pretty easy way to determine who the good managers are.  Just do a fund screen for funds that are closed to new investors.  You have noted as much in your original post.

I like (and own) DODFX, but I was surprised to see it associated with all those lesser funds. I use an ETF when I cannot find a suitable stellar fund in the same asset class.

 

[Arif]

On your 18 unit apartment do you intend to manage it yourself or use a management company? What is your expected income to equity (total cash and expenses in) ROI excluding appreciation and what do you consider to be an acceptable annual rent to price ratio? Also, if you dont mind sharing, what % do you have in RE versus equities.

I wish I could manage it myself but I recently moved to Panama and the property is in Georgia. I'll be using a property manager to take care of it for me. We have approimately 70% in RE with 30 units spread out over 3 states right now and are looking to diversify only with new money into other asset classes. Our strategy right now is to sell off the small stuff and buy larger properties to gain efficiency and increase our cashflow from the equity. The 18 unit is selling for about $400k and with a 10-20% dp our income will be approximately 18k per year after all expenses and vacancies. The property is about 20% below market value due to it's current use. Since we're in Georgia we don't expect double or even high single digit appreciation. I just try to buy things that are cheap that I know I can turn into a higher cash flowing property and increase the value that way. I consider the way we invest "value investing."
DC is a tough area to find value unless you're willing to do the rehab thing. Depending on how much equity you have in your rentals you might want to consider a tenant in common (TIC). You can do a search on google to find out more info on it.

 

[bearkeley]

The 18 unit is selling for about $400k and with a 10-20% dp our income will be approximately 18k per year after all expenses and vacancies

Sounds like you've got a great deal! We got lucky with ours -- all 3 houses have appreciated at least 50% in one year. We have also had luck with the positive cash flow, even with the 20% dp that we decided to put down.

You definitely caused us to think twice about selling the one we planned to...maybe its worth giving it to a pm and see how it does over the next year.

I looked briefly into the TIC -- looks interesting...thanks again!

 

[PJ03]

Sounds like you've got a great deal!  We got lucky with ours -- all 3 houses have appreciated at least 50% in one year.   We have also had luck with the positive cash flow, even with the 20% dp that we decided to put down.

You definitely caused us to think twice about selling the one we planned to...maybe its worth giving it to a pm and see how it does over the next year.   

I looked briefly into the TIC -- looks interesting...thanks again!

Hey Bearkeley, I'm somewhat in the same boat as you, I'm heavy in real estate. My plan it to reduce all but my home. I'm selling off one or two this year and moving that money into stocks, We too have seen hugh jumps in house prices and I think we won't see that for some time, I'm just east of you in Annapolis and hoping to FIRE in two or three years.

 

[Nords]

We  too have seen hugh jumps in house prices and I think we won't see that for some time, I'm just east of you in Annapolis and hoping to FIRE in two or three years.

Whoa!! Hey, PJ, if you're living there then I take back everything I said about selling & diversifying.

My FIL bought a house in Bowie in 1964 for $17K and sold in 1983 for $122K. 23 years later he's still kicking himself for selling too soon.

He bought in Annapolis ($122K in '83) and then sold for $250K in 2001. He's still kicking himself (with his other leg) for selling too soon there, too.

My BIL the CPA has been up in Crofton for the last two decades and he sees Annapolis as his dream commute.

I think you're living in one of the country's most desirable areas, where the only real estate competing for those retired naval officer's pension checks is at Ginger Cove. It's my belief that you should hold on to all your Annapolis real estate with a deathgrip... unless, of course, you come across a great 1031 exchange in Georgetown!

 

[bearkeley]

I'm somewhat in the same boat as you, I'm heavy in real estate. My plan it to reduce all but my home. I'm selling off one or two this year and moving that money into stocks, We too have seen hugh jumps in house prices and I think we won't see that for some time, I'm just east of you in Annapolis and hoping to FIRE in two or three years.

That's very comforting to know, PJ. Not sure what the rent to value ratio is on Annapolis, but I agree with Nords that it's a great area! Old Town Alexandria is similar, but the numbers here for rentals dont work. You can still get great deals in PG County across the river, but different challenges there....

The hardest thing we're struggling with is really WHERE and WHAT stocks to put the money in....without appreciation, would our cash flow ROI do better than the stocks Let us know when you find the answer

 

[PJ03]

Yeah Nords it has been crazy here for the last 6 or 7 years, I build my home on a $20K lot in 96, at that time it valued at $340K. This past April I had someone offer me $1.5 mil. Today with the softening market I think I could get around 1.3- 1.4 mil.
I have a few others that have almost doubled since I bought them (2 years) all of them are in the downtown area and within walking distance to everything.
But I'm tired and I think I'm in need of a change, I've been working hard since I arrived in the US in 82. At this moment in life I'm wondering if I'm really just chasing the dollar or doing something I like. I'm mostly thinking its the former. I have about $4 mil in real estate including my home and about $1.3 in notes. Also about $300K in cash. Apart from about $25K in silly stocks I have no other investments. Those stocks I'm holding have had a massive demise since I bought them (99 and all tec) I had about $280K in cap losses of which I've used $160k against some cap gains two years ago. I plan to use the balance against any gains on one property I have on the market for $900,000.
So at this time I'm reading and learning about the proper way to go about a long term investing path, I have learned so much from this board and for that I'm so grateful to all of you, beers are on me if we ever meet.

Whoa!!  Hey, PJ, if you're living there then I take back everything I said about selling & diversifying.

My FIL bought a house in Bowie in 1964 for $17K and sold in 1983 for $122K.  23 years later he's still kicking himself for selling too soon.

He bought in Annapolis ($122K in '83) and then sold for $250K in 2001.  He's still kicking himself (with his other leg) for selling too soon there, too.

My BIL the CPA has been up in Crofton for the last two decades and he sees Annapolis as his dream commute.

I think you're living in one of the country's most desirable areas, where the only real estate competing for those retired naval officer's pension checks is at Ginger Cove.  It's my belief that you should hold on to all your Annapolis real estate with a deathgrip... unless, of course, you come across a great 1031 exchange in Georgetown!

 

[nnkrealtor]

bearkeley,

I live in the Northern Neck of Virginia, not sure if you are familiar with the area or not (between Rappahannock and Potomac Rivers) but with money to invest in R.E. I have seen several investors come down here from NOVA and invest in large acre waterfront properties usually old farms and subdivide them into 5-20 lots, put the roads in and when all lots are sold usually within a year after roads are complete walk away with 1+million in their pocket.

I am an agent in the area and if you would be interested in seeing whats available just let me know.

Allen

 

[cute fuzzy bunny]

he's still kicking himself for selling too soon.

I think it was sir john templeton who once quipped that the reason why he was rich is that he always sold too soon?

I suppose it beats the hell out of selling too late

 

[justin]

nnkrealtor,

I happen to do a lot of work for a real estate development company that is working on a big new mixed-use development (Haymount) just north of Fort AP Hill in your neck of the woods (just south of the Rappahannock in Caroline County). It seems like an up and coming area that is still relatively secret.

 

[bearkeley]

We actually have 12 acres on the Northern Neck and we love it! We're trying to figure out a way to retire there if we can, but for now, we're there every weekend.... The #s don't work for rental properties out there, otherwise we would do it in a flash...

If anyone is interested in contacting nnkrealtor, I think it would absolutely be worthwhile... Northern Neck is right off the Chesapeake Bay and people are just great!

 

[nnkrealtor]

Justin, Caroline is a little out of my area I try to remain in Northumberland, Lancaster, Richmond and Westmoreland counties but you can certainly find lower priced RE in Caroline. I guess because of proximity to the water.

Bearkeley,
You are correct about rentals here the rents have not kept pace with the mortgages. The money is being made by finding water view or water front (even pond or lake front in a water access community) and well.... I don't want to give too much away but you get the idea...
Where are you 12 acres located?

 

[bearkeley]

We're right on the Little Wicomico River -- we got real lucky when we bought our place...doubt if we can afford it if we bought it now!

 

[nnkrealtor]

you must be in the Ophelia or Sunnybank area right?