Connect Invest: Retirement Income

[damonhowatt]

Hello all. It’s been 2.5 years since I last posted but I’m an avid lurker/reader of this specific forum on Early Retirement. My situation has been relatively stable since retirement in May of 2018. My assets are in indexed ETF funds, cash, and several tech stocks purchased in the early and mid 1990’s. These single stocks have treated me well and I’ve held on to them so long due to their steady performance.

My post today deals with transitioning some of my assets from capital gains to income. No decision has been made yet. I wanted to run this idea past the long time members of this forum. Here it goes:

Connect Invest is offering short term real estate notes; all interest is on an annualized basis. Minimum investment is $500.00. The investments are in residential and commercial real estate.

Interest: Length of Investment Term:
7.5 6 months
8.0 12 months
9.0 24 months

I’ve searched for reviews of this firm and see generally positive critiques (who is writing the reviews is a different question)! The BBB shows only one complaint that can be read and one that isn’t accessible. The complaint that can be accessed looks to be a simple misunderstanding. Not many details.

I’ve read through the entire website and see no fees being charged. They acknowledge and state that there is risk. No guarantee. I see where you can pull funds out early once you reach eligibility status. I don’t see the requirement for achieving this status of eligibility. I don’t foresee needing the funds early that would be put into this account so I’m not overly worried.

Here is the link to the Connect Invest website. How It Works - Connect Invest | Generate Passive Income Through Real Estate - Connect Invest


My questions:
1) Do you think this investment is worth funding? (Is it worth the risk?).
2) Would the forum members look elsewhere for dividend/interest income? If so, what asset types would you fund?


Thank you
Steve.

 

[pb4uski]

Preferred stocks of investment grade credits are paying 6-8%. I've cobbled together a portfolio of 38 preferreds that yields about 6.8%. We have a preferred stock thread here that may be of interest to you. Also, innovativeincomeinvestor.com and quantumonline.com are good sources and Schwab has a decent preferred stock screener. Below is screenshot of the first 15 investment grade preferreds trading below call.

Here is a link to an interesting article on them.

Why we think preferred shares look strong after the 2023 bank failures | J.P. Morgan Private Bank U.S.

Preferred securities can provide long-term investors with attractive compensation for the associated risks. Here’s our current thinking about the asset class.

privatebank.jpmorgan.com

 

[Flyfish1]

Well I love real estate , both the equity side and the debt side, it's a huge reason I retired early. Personally, I would stay away from a small player. Why not buy a publicly traded mortgage REIT like ABR or BXMT or similar if you want income from the debt side of the real estate sector? Or just buy a publicly traded real estate equity REIT? There are also some well established big private funds that you could work with if you qualify. And I totally agree with pb4uski ( which is a name that always makes me laugh) that preferred stocks are also a smart move for income. There are tons of ways to play the income equation if that's what you want. Rates are still high and you can great some great yields out there. Diversify , diversify and then diversify...

 

[OldShooter]

There is no free lunch. High yields come from high risk one way or another. Bernie Madoff demonstrated this to a lot of customers. If this were a good deal, Connect would be selling to professional money managers rather than screwing around selling to pipsqueeks. I think it's quite funny that this company is headquartered in Las Vegas.

 

[Koolau]

My questions:
1) Do you think this investment is worth funding? (Is it worth the risk?).
2) Would the forum members look elsewhere for dividend/interest income? If so, what asset types would you fund?


Thank you
Steve.

My personal requirement is that I understand how it w*rks well enough to sell it to someone else (or myself.) If not, I won't touch it. I learned this the hard way (taking someone else's word for how something w*rks.) Now, when in doubt - I don't. YMMV

 

[damonhowatt]

Thanks to all of you who replied. This is exactly the type of analysis that I wanted to see. I’m also considering REITS and stocks. One asset class I haven’t given much thought to is preferred stocks. Their rates look significantly higher than those offered by Connect.

 

[audreyh1]

I have no need for specifically income producing assets. In fact I prefer to minimize income in taxable accounts. I just focus on total return, taking out what I want annually and rebalancing to a target AA. As it turns out the mutual funds usually throw out enough income and qualified dividends/capital gains distributions by December to cover Jan annual withdrawal. I’ve worked hard to reduce this in taxable accounts by moving mostly to index funds but so far still generating enough for my 3% withdrawal. For rebalancing sometimes I still need to trim the winners.

 

[FlaGator]

With a 30 year career in real estate-related businesses behind me, there is no way I would put money into unsecured RE notes right now. And your position is unsecured - it's the syndicator that holds the lien, not you individually.

The residential market is trying to figure out its future after outsized gains in 2020-2022 that blew up affordability. Commercial, broadly, is under stress due to a variety of changes, none of which seem to be ready to reverse course.

And after looking at the website, hell no, for me. Too much "will be" and "to be" in the project descriptions. They are financing speculative projects that couldn't get better terms elsewhere. Might all work out, eventually. If it doesn't, you have unsecured money with a syndicator who could end up in the business of owning undeveloped and/or partially complete projects. The timeline for ever getting even a portion of your money back in that scenario could be years.

Your money, your decision.

 

[pb4uski]

I have no need for specifically income producing assets. In fact I prefer to minimize income in taxable accounts. ...

I just want to add that dividends on many, but not all, preferred stocks are qualified dividends eligible for preferential tax rates.

 

[mrfeh]

My post today deals with transitioning some of my assets from capital gains to income.

Why? What is the impetus?

 

[target2019]

Thanks to all of you who replied. This is exactly the type of analysis that I wanted to see. I’m also considering REITS and stocks. One asset class I haven’t given much thought to is preferred stocks. Their rates look significantly higher than those offered by Connect.

When I went to the Connect Invest site using your OP link, alarms went off in my head. I'm glad you're looking elsewhere.

I'm wondering about the long-held stock you mentioned. Selling off shares strategically sounds like income to me, and the gains get tax preference. If you buy REIT's the income they throw off is taxed as ordinary income.

 

[damonhowatt]

Re: Mrfeh. I have been (over the last several years) converting enough IRA funds to a Roth account in order to make it a significant percentage of my total assets. I would like to specifically generate income in that account due to the tax status. Some stable, dependable etf’s or REITS.

I do sell off stocks on an as-needed basis. The selling of stocks does indeed get preferential tax rates. I like those tax rates!

I envision having ~ 50% of my annual expenses covered by the Roth generated income. REIT income in this account would be tax free (unless there’s something I’m not aware of). Here’s a follow up question to my earlier one: does anyone else do this type of strategy for Roth generated income? If not, why not?

I have definitely eliminated Connect Invest as a future investment due to everyone’s ideas and responses to my query. Thank you.

Re: pb4uski. Regarding the preferential tax rates for preferred stocks, I just learned something new. Thank you

Thanks to all who responded. You guys/gals are great!

Steve.

 

[FlaGator]

I have used my Roth as a transition bucket for the last couple of years. I drew down taxable accounts for the first 8 years while converting what I could at a reasonable tax cost. Might get 1-2 more years of conversions before the $$ don't work.

Now I'm pulling from the Trad IRA, but pushing most of it through the Roth. With short Treasury rates as they are, I'm picking up a few thousand of tax-free interest along the way. Expect I'll ride that horse until it (rates) collapse.

I have longer term estate plans, so it doesn't make sense *for me*, right now, to convert the Roth to income generating assets. I think you have a good plan if that is not your concern. The higher the income, the more risk, so keep an eye on that. Short Treasuries are good for me right now, will adjust when there is a shift in rates.

 

[SecondCor521]

I would like to specifically generate income in that account due to the tax status.

Here’s a follow up question to my earlier one: does anyone else do this type of strategy for Roth generated income? If not, why not?

I don't.

Generally, all forms of return in a Roth get tax free treatment. I don't assign any value to "getting away with" having a type of return inside my Roth that would be otherwise taxed. It sounds like you might. If so, why?

I put my investments that I expect to grow the most (regardless of where that growth comes from) inside my Roth, because I want to increase the relative proportion of assets and income that are tax free.

My bonds, which are slower growing and produce income, live inside my traditional IRA. Thankfully my AA and the size of my traditional IRA are such that all my bonds live inside my traditional IRA. If I owned REIT type stuff I'd probably also do it in my traditional IRA.

Your OP reads as though you feel you need to invest in income producing assets in order to fund your spending requirements. This even though you also seem to be comfortable selling assets for income and appreciate the lower tax rates on capital gains. Why not just sell assets periodically for income? It might even help you reduce your exposure to those tech stocks if they represent too large of your portfolio (which they might if you've held them that long; presumably they've done well for you).

 

[mrfeh]

Re: Mrfeh. I have been (over the last several years) converting enough IRA funds to a Roth account in order to make it a significant percentage of my total assets. I would like to specifically generate income in that account due to the tax status. Some stable, dependable etf’s or REITS.

I do sell off stocks on an as-needed basis. The selling of stocks does indeed get preferential tax rates. I like those tax rates!

I envision having ~ 50% of my annual expenses covered by the Roth generated income. REIT income in this account would be tax free (unless there’s something I’m not aware of). Here’s a follow up question to my earlier one: does anyone else do this type of strategy for Roth generated income? If not, why not?

I still don't understand the preference for dividends over capital gains.

Unless you're talking about having something to provide money for living expenses that doesn't have the volatility of equities. If that's the case, that's a whole other discussion.

 

[pb4uski]

+1 Money is fungible, $1 of capital gains is economically equivalent to $1 of qualified dividend income since either results in 85c of cash available for spending.

IOW if in your Roth you have a dividend payer that has a total return of x% or a non-dividend payer that has a total return of x%, in both cases your total return is x%.

The only real difference is with a dividend payer part of your investment is returned to you unilatterally (though you can easily reinvest) and with the non-dividend payer you have to act to get part of your investment returned to you by selling some shares.

 

[DrRoy]

After reducing my AA, I did not worry about income production per se. When I need extra cash, I sell some equities. The cap gains taxes are less anyway.

 

[racy]

Sounds a lot like PeerStreet ("Introducing the first real estate investment platform that gives you access to high-yield, short-term loan") which went bankrupt last June.

Real Estate Investing Platform | Invest in Real Estate Online

Our online real estate investing platform provides alternative investments to invest money in real estate backed loans. Diversify into real estate today and high-yield returns.

www.peerstreet.com

 

[damonhowatt]

Re: Dr. Roy, per pb4uski’s text above, the tax on cap gains should be the same for dividends. Assuming dividends are qualified. Am I missing something here?

My interest n dividends is exactly what mrfeh stated above: having a lower volatility asset for living expenses. I have other assets that generate capital gains. I sell some of those on an as-needed basis for income also.

Re: Racy. Just read your link to PeerStreet. Very similar to Connect, I agree.

 

[mrfeh]

My interest n dividends is exactly what mrfeh stated above: having a lower volatility asset for living expenses. I have other assets that generate capital gains. I sell some of those on an as-needed basis for income also.

Ok, well then I don't think we have enough info to provide advice. Which accounts to draw from and in what order and what to hold in each account varies on your specific situation.

The rule of thumb is to draw from Roth accounts last and to hold equities there, but it's definitely not one size fits all.

 

[viking111]

Hello all. It’s been 2.5 years since I last posted but I’m an avid lurker/reader of this specific forum on Early Retirement. My situation has been relatively stable since retirement in May of 2018. My assets are in indexed ETF funds, cash, and several tech stocks purchased in the early and mid 1990’s. These single stocks have treated me well and I’ve held on to them so long due to their steady performance.

My post today deals with transitioning some of my assets from capital gains to income. No decision has been made yet. I wanted to run this idea past the long time members of this forum. Here it goes:

Connect Invest is offering short term real estate notes; all interest is on an annualized basis. Minimum investment is $500.00. The investments are in residential and commercial real estate.

Interest: Length of Investment Term:
7.5 6 months
8.0 12 months
9.0 24 months

I’ve searched for reviews of this firm and see generally positive critiques (who is writing the reviews is a different question)! The BBB shows only one complaint that can be read and one that isn’t accessible. The complaint that can be accessed looks to be a simple misunderstanding. Not many details.

I’ve read through the entire website and see no fees being charged. They acknowledge and state that there is risk. No guarantee. I see where you can pull funds out early once you reach eligibility status. I don’t see the requirement for achieving this status of eligibility. I don’t foresee needing the funds early that would be put into this account so I’m not overly worried.

Here is the link to the Connect Invest website. How It Works - Connect Invest | Generate Passive Income Through Real Estate - Connect Invest


My questions:
1) Do you think this investment is worth funding? (Is it worth the risk?).
2) Would the forum members look elsewhere for dividend/interest income? If so, what asset types would you fund?


Thank you
Steve.

I have some questions for you.

When you chose to retire in 2018, did you run calculations that showed you have enough to retire comfortably for the time you needed?

Did you save enough that you would have some extra based on the calculators and your calculations?

If yes, then why do you need more? You reached enough. Why do you need to take the risk?

If you do risk more (for whatever reason) it should not be a large part of your portfolio. Perhaps 1 to 3 percent.

I took a small risk (gamble) on bitcoin. 2% of portfolio. I ran the numbers and it I lost that money I would still be able to stay retired. But the upside is pleasant enough that I chose to take the risk and hold it long term. I keep a very, very close eye on it. Ready to sell at any moment.

If you want income, buy treasuries, bonds (low NAV right now, high interest). But as a general rule you should be looking at total returns not just capital gains. Your AA is the most important part of that.

 

[Al18]

If your taxable income is less than $94,051, there are no taxes on LTCG or qualified dividends

 

[viking111]

If your taxable income is less than $94,051, there are no taxes on LTCG or qualified dividends

Correct. I was just making a general statement. He did not mention his taxable income level.

 

[damonhowatt]

The income level of $94,051 for zero LTCG/Dividend tax is for Married, Filing Jointly. My filing status is Single ($47,025).

I enroll in Medicare next Spring, when I turn 65. Since I retired, I’ve been very focused on keeping my income under the 400% FPL to qualify for as much of the premium ACA (Obamacare) tax credits since my COBRA coverage closed out. So, my income for the last six years has either been just below the FPL limit or slightly higher. To fund some of my expenses (and not ratchet my income up from capital gains) I’ve been pulling some funds from a Roth account. My monthly ACA premium payments have been extremely low - about $40 - $65 since I’ve retired. This is juggling a lot of balls in the air. I’ve also been converting IRA funds to Roth while keeping within my self-imposed FPL income limit.

Goal of the conversions are to increase future tax free income and to reduce future RMD’s.

I’m aware of the standard advice to draw down accounts in this manner: Taxable>>>Tax Deferred >>>Roth.

For my age cohort, RMD’s begin at age 75.

I haven’t provided as much information about my personal finances as I could have. Things have changed since I originally posted years ago. Here is a breakdown of my accounts:

Cash account: $200,000

Taxable account: $980,000 (95% is in three tech stocks purchased in 1993, lots of LTCG and 5% in cash)

Roth: $650,000 (some tech stocks and consumer stocks and $5,000 in cash)

IRA: 1,180,000 ($680,000 in Vanguard VGT and VOO etf’s); and $500,000 cash

Fidelity HSA: $28,000 (cash)

Primary residence: $700,000 equity

SS: will take at age 70

Total of all taxable, IRA and Roth accounts upon retirement in 2018:
$1,490,000

Am I too focused on converting funds to Roth at my age?

 

[teej1985]

Holy smokes! That's a lot of concentration in 3 stocks. I guess you can keep riding the wave. I would sell and diversify and pay high premium for a year just to not risk those 3 stocks crashing. Nothing wrong with Roth conversions, you have a pretty healthy traditional balance that will be RMD'd.

It looks like your traditional IRA has grown $7k since your post in 2021 despite Conversions, your Roth has more than doubled, your HSA has halved, your taxable brokerage account has grown and you have substantially more cash.

It seems like you can probably keep doing what you are doing as long as you're okay with the concentration in 3 individual stocks