Unjustified fear

[2177V]

is my math right? Your $2M in real estate is only kicking off 48k/yr, or 2.4%? Why not invest that elsewhere (equities) or REITS?

With all due respect, I disagree with selling the property with the 2.4% return because I was a landlord.

The 2.4% return does not include property appreciation. There are rich folks who own property which has a "negative" cash flow....but their property appreciation makes up for this. i.e. owner of a losing sports team with a negative cash flow. They hit the jackpot when they sell.

They also use the negative cash flow to offset the positive cash from other income resulting in less taxes. If OP's $2M property sells for $4M in 10 years since property value tends to double, then the 2.4% return will be much higher.

I recommend keeping the property and keeping the 2.4% cash flow return. It is similar to owning stock with 2.4% dividends but the equity in the stock may potentially have a high appreciation. However, that is OP's decision. Only OP can assess the potential property appreciation.

 

[pb4uski]

....If I were you, I would consult a professional Financial Advisor who is licensed and certified by the FTC to review your portfolio. ...

No such thing. The FTC doesn't certify financial advisors. Why are you making sh!t up?

https://www.consumer.ftc.gov/blog/2015/06/fortuneteller-or-financial-advisor

Fortunetellers are not financial advisors. Period. Actual financial advisors are trained and licensed. If you want to find a real financial advisor, here are some ideas on how to start. If you’ve found someone, you can look here, here and here to see if that person is licensed.

 

[HarveyS]

With all due respect, I disagree with selling the property with the 2.4% return because I was a landlord.

If OP's $2M property sells for $4M in 10 years since property value tends to double, then the 2.4% return will be much higher.

Well, you bring up some good points. On the other hand, the home I am selling in the Chicago suburbs - which I bought in Oct. 2009 - will sell for just about what I paid for it. So, I can say with 100% certainty that not all real estate doubles in 10 years.

 

[2177V]

No such thing. The FTC doesn't certify financial advisors. Why are you making sh!t up?

https://www.consumer.ftc.gov/blog/2015/06/fortuneteller-or-financial-advisor

For the benefit of OP... In California, an Investment Advisor must register with the SEC depending on the dollar amount being managed.

https://dbo.ca.gov/state-licensed-investment-adviser/

However, in event of a fraudulent business practises, consumers may file a complaint with the consumers section of FTC as noted in the following link:

https://www.ftc.gov/about-ftc/bureaus-offices/bureau-consumer-protection

Here is a link of what defines a CFP:

https://www.thebalance.com/certified-financial-planner-4123903

Let me re-phase my recommendation in order to make pb4uski happy:

"If I were you, I would consult a professional Financial Advisor who is licensed and certified by the CFP Board, FINRA and/or SEC, to review your portfolio".

I acknowledge my misquote....but I personally try not to separate the pepper from the fly s**t.

 

[pb4uski]

^^^ Well, I'm thankful that it turned out that you just wrote it poorly and that you didn't actually think that the FTC certified financial advisors. It was hard to know based on what you wrote.

 

[2177V]

Well, you bring up some good points. On the other hand, the home I am selling in the Chicago suburbs - which I bought in Oct. 2009 - will sell for just about what I paid for it. So, I can say with 100% certainty that not all real estate doubles in 10 years.

Real Estate: Location, Location, Location

In the past, there was a huge tax advantage in owning rental real estate due to the 25% recapture tax rate cap and the 28% tax bracket for wages for a married couple $82K to $171K annual income.

If a couple in a 28% tax bracket buys a $250K rental house and they take a 27-1/2 year depreciation period on the $200K property which about $7,272 a year. At 28% tax bracket, this is a tax savings of $2,036 a year. Multiply by 27 years translate to $54,972 of tax savings. Note that you cannot take depreciation on the $50,000 land.

They sell the house but because they took the depreciation, they must pay the capital gain recapture tax of 25% on the $200,000 portion that they deprecisated. 25% x 200,000 = $50,000.

The $4,972 difference may appear small but if they had invested the original $54,972 of tax savings in the stock market, the $4,972 difference will become much much bigger. However, due to the recent tax changes, some of these numbers no longer apply so you should consult a CPA.

My point: 90% of the millionaires made their fortune in real estate because of (1) real estate appreciation, (2) rental income and (3) tax advantage. Stock market is also a good investment but not the only investment option. IMO...Understanding real estate is a lot easier than the stock market. I actually did this when I was young. I went to school to study real estate, got a license, worked for a real estate company which I did not make much money but that experience became valuable as a real estate investor. With some extra cash flow from my rental properties, I then became an active stock market investor as well.

Ref: https://www.cnbc.com/2019/10/01/rea...ment-you-can-make-today-millionaires-say.html

 

[Monterey298sc]

I would also look to retire in new state with lower taxes, and overhead.

 

[ncbill]

With all due respect, I disagree with selling the property with the 2.4% return because I was a landlord.

The 2.4% return does not include property appreciation. There are rich folks who own property which has a "negative" cash flow....but their property appreciation makes up for this. i.e. owner of a losing sports team with a negative cash flow. They hit the jackpot when they sell.

They also use the negative cash flow to offset the positive cash from other income resulting in less taxes. If OP's $2M property sells for $4M in 10 years since property value tends to double, then the 2.4% return will be much higher.

I recommend keeping the property and keeping the 2.4% cash flow return. It is similar to owning stock with 2.4% dividends but the equity in the stock may potentially have a high appreciation. However, that is OP's decision. Only OP can assess the potential property appreciation.

You're really advocating speculation, not investing, in real estate.

While RE investors use depreciation to offset other income they do their best to avoid being stuck with properties with a negative cash flow.

And 2.4% is a sub-par return for rental real estate...OP should redeploy that capital.

 

[pb4uski]

.... My point: 90% of the millionaires made their fortune in real estate ....

There you go again. Throwing out something that is totally absurd as a statement of fact. Do you have support for that statement other than that turn of the century quote of Andrew Carnegie that has been debunked?

I'm one and know a number of millionaires.... in my experience nowhere near 90% even had real estate other than their homes... IME more often than not they were self-employed and developed businesses or high-income people that LBYM and saved and invested well (mostly in stocks and bonds but sometimes also in real estate).

One anecdotal survey: 37% got wealthy on real estate

Source: https://www.businessinsider.com/how-millionaires-manage-money-interviews-2018-12

Another study indicates:

In the wealth group (233), 51% were self-employed entrepreneurs/business owners, 28% were professionals, 18% were senior executives in large publicly-held companies and 3% were other.

The above is pretty constent with my experience.

Source: https://richhabits.net/rich-habits-study-background-and-methodology/


Finally:

The correct quote is "90% of all Millionaires become so through owning Real Estate" and it's attributed to Andrew Carnegie. Given that he was born in 1835, I can imagine that his statement was true at he time, but not today.

Thomas J. Stanley's recent book (he's one of the duo who researched and wrote about The Millionaire Next Door) claims that the top occupation of millionaires is "business owner / self-employed" (28%). "Real estate investor" is lumped in with "other" (9%), and if the ordering is correct in the list, it's no more than 2% of the total.

Source: https://money.stackexchange.com/que...-99-of-the-worlds-millionaires-have-become-ri

 

[2177V]

There you go again. Throwing out something that is totally absurd as a statement of fact. Do you have support for that statement other than that turn of the century quote of Andrew Carnegie that has been debunked?

I'm one and know a number of millionaires.... in my experience nowhere near 90% even had real estate other than their homes... IME more often than not they were self-employed and developed businesses or high-income people that LBYM and saved and invested well (mostly in stocks and bonds but sometimes also in real estate).

One anecdotal survey: 37% got wealthy on real estate

Source: https://www.businessinsider.com/how-millionaires-manage-money-interviews-2018-12

Another study indicates:



The above is pretty constent with my experience.

Source: https://richhabits.net/rich-habits-study-background-and-methodology/


Finally:


Source: https://money.stackexchange.com/que...-99-of-the-worlds-millionaires-have-become-ri

OP is a multi millionaire and he has a chunk of his assets in real estate. I am a multi-millionaire since I have been buying properties for my college age children with 100% cash. I do this so they will never have to pay a mortgage payment in their life and this makes it easy for them to be FIRE.

This disagreement does not help OP. Let OP decide if it is better to sell his property or not. That is his personal decision and not yours or mine. All we can do is point out the merits of our difference of opinions for him to decide...and not try to attack someone who's opinion differs from yours.

I am just saying that it is my opinion to "buy and hold" and it is my opinion that you can make money in real estate. Please respect this opinion and I will respect your opinion.

You can come up with links of opinions that differs from mine. I am OK with that since OP can read both.

FYI I cut and paste below something that they are teaching in college (www.collegeinvestor.com). What they are teaching in college appears to support my position.

_________________Cut and Pasted_______

90% of the World’s Millionaires Do This to Create Wealth

Last Updated On December 27, 2017 Jonathan Yates 10 Comments

This article contains references to products from one or more of our advertisers. We may receive compensation when you click on links to those products. For an explanation of our Advertising Policy, visit this page.

Over the last two centuries, about 90 percent of the world’s millionaires have been created by investing in real estate.
For the average investor, real estate offers the best way to develop significant wealth. As with any and all forms of investing, it is best to get started early with real estate so you can put time on your side. A good way to begin is to buy your first primary residence.

 

[pb4uski]

....Over the last two centuries, about 90 percent of the world’s millionaires have been created by investing in real estate. ....

Ok, given the qualifier of over the last two centuries (1820-2020 or thereabouts) I guess it may be plausible..... but not if you asked today's millionaires the principal sources of their wealth.

 

[HI Bill]

^vchan2177. Comments to the link you posted stated "It was said by Andrew Carnegie at the turn of the century. (http://www.tnj.com/archives/2004/october/real-estate). It makes sense though if you consider that 1 in 300 Americans is a millionaire, and most make it from their home value. Same applies world wide".

A unsubstantied statement made by Andrew Carnegie at the turn of the (previous) century (around 1900) may have little to no correlation with where today's millionaires made their money. A millionaire in 1900 equates to about $31M today. And considering that most people (presuming today) "make it from their home value", which you can't spend without selling (and still needing some place to live)....the statement is misleading at best.

Anyway, a lot of people leverage real estate, and make a lot of $ over the long run. Counting depreciation, which you have to 'pay back', tax write-offs, and not counting all of your costs (insurance, propety taxes, maintenance, mortgage interest, etc.)...can give one an unreastic idea of your actual rate of return, especially after you sell and pay taxes. If you buy in the right place at the right time, and if you can have close to a neutral cash flow (or just get lucky), the you can rake in the $ in real estate. But it's also subject to sudden drops in many markets.

 

[pb4uski]

...it is my opinion that you can make money in real estate. Please respect this opinion and I will respect your opinion.....

To be clear, I never said that you couldn't make money in real estate. I just said that for the individual investor that is it hard to avoid geographic and/or property-type concentration risk investing in properties.

What I objected to more recently is your posting absurdity framed as facts... like "90% of the millionaires made their fortune in real estate" and "consult a professional Financial Advisor who is licensed and certified by the FTC" when the FTC doesn't certify financial advisors and it is just untrue that 90% of today's millionaires made their fortune in real estate (though I guess if you go back 200 years then it is allegedly true )

I'll make you a deal..... you stop posting absurd things as facts and I'll stop posting rebuttals.

 

[BeachOrCity]

You're really advocating speculation, not investing, in real estate.

While RE investors use depreciation to offset other income they do their best to avoid being stuck with properties with a negative cash flow.

And 2.4% is a sub-par return for rental real estate...OP should redeploy that capital.

+1

 

[2177V]

To be clear, I never said that you couldn't make money in real estate. I just said that for the individual investor that is it hard to avoid geographic and/or property-type concentration risk investing in properties.

What I objected to more recently is your posting absurdity framed as facts... like "90% of the millionaires made their fortune in real estate" and "consult a professional Financial Advisor who is licensed and certified by the FTC" when the FTC doesn't certify financial advisors and it is just untrue that 90% of today's millionaires made their fortune in real estate (though I guess if you go back 200 years then it is allegedly true )

I'll make you a deal..... you stop posting absurd things as facts and I'll stop posting rebuttals.

OK deal. However, what is absurd to you...may not be absurd to me or other people. I will try to do my best. I do object in the manner how you disagree. Let me cut and paste the community rules:
__________________________________________________

Be Courteous and Appropriate! We aim to ensure that the forum is an enjoyable place that you want to visit time and time again. Our underlying philosophy is that the strength of the member relationships we build here is what sets us apart from the other boards. Treating each other with respect and kindness, and thinking before you speak will go a long way towards making this an enjoyable place.

• Do not engage in personal attacks. Challenge others' points of view and opinions, but do so respectfully and thoughtfully. Excessive sarcasm, extreme belligerence, insults, profanity, extreme anger, offensive comments about race, gender, sexual orientation, religion, and national origin, are not acceptable.

____________________________________________

I suggest you re-read your posting number #39 to Another Reader which states "put up or shut up". That does not fall into the respect or kindness category.

We both violate the use of profanity so both of us should restrain in the use of profanity.

As far as your proposed deal: I WELCOME your rebuttals as long as you comply with the community rules. I also intend to comply with the community rules as well. I am surprised that Another Reader has not notify a mediator on your comment number #39.....which is a more serious violation than my absurd comment. My absurd comments does not violate the community rules except for my one use of profanity in a poor attempt to inject some humor.

My observation: ut2sua read your comment #39 and Another Reader comments and ut2sua discovered it was getting out of hand and he was extremely diplomatic in his comment #40. ut2sua deserves a standing ovation.

This posting is about utzsua and not about me or you. If you read his original posting: He appear to seek help in bonds. In response to utzsua's request regarding bonds, here is a link below which may be helpful to ut2sua.

https://obliviousinvestor.com/what-happens-to-bonds-in-a-stock-market-crash/


IMO....Investors need to know how investment vehicles behaves in a bull market and a bear market. The bull market behavior is more easily obtained and that identifies the reward part. The link above identifies the risk part. You put both together you have your reward/risk. If you want to write a rebuttal, ut2sua and I will welcome that.

 

[HI Bill]

pb4uski is one of the most knowledgeable and consistent contributors to this site. I respect his opinions and analysis, nearly above all others here. pb4uski's posts are almost always based on facts, detailed analysis and extensive research and knowledge of subject matter, and not on baseless opinions.

While his response in Post #39 was a bit on edge, I don't think he actually passed the line with regard to "Excessive sarcasm, extreme belligerence, insults, profanity, extreme anger, offensive comments about race, gender, sexual orientation, religion, and national origin, are not acceptable."

FWIW.

 

[2177V]

pb4uski is one of the most knowledgeable and consistent contributors to this site. I respect his opinions and analysis, nearly above all others here. pb4uski's posts are almost always based on facts, detailed analysis and extensive research and knowledge of subject matter, and not on baseless opinions.

While his response in Post #39 was a bit on edge, I don't think he actually passed the line with regard to "Excessive sarcasm, extreme belligerence, insults, profanity, extreme anger, offensive comments about race, gender, sexual orientation, religion, and national origin, are not acceptable."

FWIW.

That is really up to a moderator to decide. However, I will not to get a moderator involved. I think we can handle this situation ourselves. You know me...my first priority is surfing and the girls in bikinis in Waikiki. All of this stuff is secondary. BTW Raheem Mostert of the 49'er is a surfer dude. If you watch his videos, he pops up a lot faster than I ever can.

 

[MichaelB]

Why don’t you all take a step back and quit the bickering. You can disagree without being disagreeable.

If anyone thinks a post is out of order, please report it using the post report function.

 

[ut2sua]

OP here, thanks all for your inputs/comments. It is great to learn the different view points. I realized very quickly after joining this forum that I am a highly uneducated investor especially regarding bonds and bond funds (on top of being highly uneducated on many RE related topics). After getting many helpful guidance from everyone on this thread and other threads, and after reading a couple of books recommended by folks in this forum ("Why bother with bonds" and "The four pillars of Investing"), I feel a lot more comfortable with bond investing now. As I improve from highly uneducated to slightly-less-highly uneducated, I would like to share with the beginner bond investors one interesting thing I learned about bond funds in the last few days:
If you buy a bond or bond fund, and interest rate goes higher, your principle will go down *bad* (how much it goes down is determined by a math equation, as bp4uski pointed out to me in another thread), but if you hold your bond or bond fund for a period as long as the bond duration and reinvest all dividend, you will effectively get all you $ back *not too bad*. I got this understood for a single bond before, but I didn't know a bond fund will also follow this math.
The above is good to the first order, I am not discussing opportunity cost and other lost here. I want to share the above because that was one thing I wanted to understand, but couldn't before.
FWIW, I believe Vchan2177 was trying to help me with his personal view point. His message got across to me fine. I asked for input, and I thank you all for providing them.

 

[2177V]

Why don’t you all take a step back and quit the bickering. You can disagree without being disagreeable.

If anyone thinks a post is out of order, please report it using the post report function.

OK. I do not intend to report that a post is out of order. I hope the other members feel the same way. In the future, my preference is to have me and the other members exchange personal emails to discuss the issue privately.... rather than do it publicly. This is because when one party feels insulted or challenged by another party in public, it escalates and it ends badly.

 

[2177V]

OP here, thanks all for your inputs/comments. It is great to learn the different view points.
FWIW, I believe Vchan2177 was trying to help me with his personal view point. His message got across to me fine. I asked for input, and I thank you all for providing them.

Another standing ovation from me.

 

[SpinDoctorTX]

I'm no crack investor but I've done well with Pimco bond funds for many years- diff ones (I had more options after turning the Fidelity 401k into an ira). I'm 60/40 and plan to stay with that ratio for now.

PONAX has been paying me nice returns for several years, and I currently have my eye on 3 other bond funds to invest about 50k in cash (I sold some losers) once triggers are hit by one or more of them.

I could ride out a downturn (I've bridged from now until 65 with other $ & will take SS @70), but I don't want to see a massacre between now and 2030. Ya can;t time the market. Well, I can't.

 

[ut2sua]

Update: I was able to convince DW to FIRE this year. Her work is currently not enjoyable with extra stress (on top of her being a workaholic). After showing her our numbers, and making my promises that we will be fine, she has set a date of 5/15/2020 as her last day. Her only request was to keep our rental properties, so I agreed to not touch those. My work is a lot easier and the $ is good so I plan to FIRE 2 years from now (get to 55 to have access to my 401K). I am in the process of consolidating our scatter IRA accounts and move them to 401K accounts so I can do some backdoor ROTH conversion (have none right now because of the pro-rata issue). I will also move toward a 60/40 AA for the $ in IRA/401K while not touching the after tax cash. I realized we need the cash to control our MAGI during the early RE years. Thanks all for your valuable inputs