What a self made multiple millionaire would do in your shoes to increase your net worth.
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Anonymous
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On a few posts over the last year I have disclosed that i self made a fairly considerable amount by 35. I took many calculated risks, but no rocket science. I'm happy to offer any advice if anyone wants to see what I would do differently than you are doing.
If anyone is interested tell me your age, current job income, and rundown of assets. Significant other too if appropriate. The point of this exercise is only to show you how I think differently and how you could too, if you wanted. I will respond to respectful posts only. And as a heads up, I am a huge fan of real estate, being self employed, and living below your means. |
Anonymous
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OK-I'll bite. Any advice is appreciated.
Me: 40 YO, work PT make $45,000 DH 44 YO-$600,000 1 rental property worth $640,000, owe 460,000 ( in the process of a refi to get into the black) about 100K in stock market saving for 3 kids college education I am thinking about buying some real estate in this area, but don't know what? Multi-family? Any advice is appreciated! |
Anonymous
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Another one who will bite:
Me: 33 yo, work FT make 140,000 - dream of self employment as I have no passion for my job, but no real ideas on the self employment front, so I stick with it DH: 34 yo, work FT make 95,000, somewhat same mindset as me - we are both hard workers, but low innovators it seems 
1 rental property worth 350k, owe 316k. Make approx $300 /month in cash flow and have passive losses after depreciation right at 3k/year, so no forfeited passive losses. Saving for college for one DS. Most of our savings is tied up in 401ks (approx 300k) and about 75 - 100k in various stocks. Our monthly debt (mortgage, student loans, car loan (I love long term low-interest debt)) can be serviced by the 95k salary alone. |
Anonymous
OP here. There is not a ton of information (ie current house value and mortgage balance- with $640K you should frankly have more money or didn't tell me about it). That said, let me give you one piece of a major advice. You have a bad rental property. I would never buy a rental property that doesn't cashflow, under any circumstance. Only people far wealthier than me can afford to gamble by betting on increased value. I rely on cashflow. So long as I make money every month and pay down my mortgage I never have to sell and even if the property decreases sharply in value it doesn't affect me. You need to pick a rate of return that is acceptable for you in rental real estate. When I first started that figure for me was 8% cash on cash return, net of all expenses, preferably with a fixed mortgage. The following is the rough formula I use to assess a property. Take the gross monthly expected rent and multiply time 85%. This affords me 5% for repairs, 5% for management fee and 5% for vacancy factor. You have to make 8% cash on cash return on 85% of the gross income after PITI (principal, interest, taxes and insurance). When I first started I always did my own management (and did until I had about a dozen properties). As a result of managing them myself my true vacancy rate was less than 1%. But, still you shouldn't buy something unless it works at 85% (if you have a property manager that charges more than 5%, you need to lower the 85% number accordingly). And you should never keep a rental property that doesn't make sense to purchase today (absent a very very strong reason to do so). In other words, you have $180K of equity in the current property. If you cannot reach your target return you should sell it and buy a rental property that will give you your target return with the money (even considering transaction costs). I am speculating that this property was a previous primary residence, which is why the cashflow is poor. If so it was a great home, but what you buy for rental should not be the same as what you buy to live in. Incidentally I use 8% as my target cash on cash return, because I figure a decent stock market average will do the same and it wouldn't be worth the headache of managing a property without a return similar to what I can get sitting on my butt. A final word of advice on real estate. I would take the money you get from selling this and buy something else now. 30 year fixed rates are very good today and you will have a massive inflation hedge which should make you a ton of money in the coming few years from appreciation. Single or multi family is irrelevant so long as you get your desired rate of return. It takes some looking at, but I am certain you can find 8% today. It took me years of looking at property, but I won't buy anything today that doesn't net me at least 20% cash on cash. |
Anonymous
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Sounds interesting. Here are our details:
Age 40 Income - about 95k combined Property - our home worth about $600k with remaining mortgage of $190k. Other property out of state value about $300k not rented, currently listed for sale but market is slow. Other assets: retirement = $380k college savings (two kids under 3) about $45k brokerage = 80k money market savings = 40k We live fairly frugally. |
Anonymous
OP here. What do you do? The goal here is increasing your passive cashflow to $95K per year. For you that would be rich, as you truly wouldn't have to work. Let me see if I have some ideas. Lets start with the rental real estate. First, what is your cash on cash return (how much did you put down on the property inclusive of closing costs and repairs before it was rented?) What is your current interest rate? What type of property is it (bedrooms? bathrooms? condo? house?, etc)? What type of mortgage do you currently have? Where is the property located (if DC, be specific as I know it extremely well). Your comment on passive loss worries me. Unless you or your spouse are a real estate professional as defined by the IRS you cannot write passive losses, in excess of passive gain against ordinary income. Moving past real estate. Is your 401K a ROTH? How many 401Ks to do you have? Any IRAs? Any with prior employers? Please provide rough balances for each. How much do you currently contribute annually? (for you and your spouse), what are your company matches? do either of you get discounts in buying employer stock? Based on your answers I will give you more comments. This appears to be where you are weakest and can make the biggest moves. Please describe your education savings plan (it is directly related to 401K contributions). |
Anonymous
Your personal residence: What is your mortgage rate? how many years remaining on your current mortgage? Out of state property: Which state? Is it mortgaged? Please provide details of the loan What would the property rent for (I'm not suggesting that you do that, but humor me for the moment) What price would get this property under contract in 7 days? How long has it been on the market? What commission rate are you offering the buyer's agent? describe the property type. Generally: Are you happy living frugally? (this is not a judgment, but will affect my advice) What is your financial goal? (retire comfortably at 65?) Retirement: How much are you each contributing? Company matches (if so describe)? Does your company offer a Roth 401K? Is any of your retirement money not held by your current employer? College Savings: Is this in a 529? How do the fees in your 529 compare to other 529 plans? Savings: There may be a way to ramp up your yield with a laddered CD strategy. Can you provide me with your current return? How safe are your current jobs? What is the return on the money market, net of expenses. |
Anonymous
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Thanks OP-this is 21:38. You are correct-our rental is a former primary residence.
I appreciate your persepctive. I guess we thought that our rental property was building equity and even though we lost some money, the transaction costs didn't make it worth it to sell. I am doing a refi, and we will end up with a + cash flow, but only a few hundred/month. I get what you're saying. We have about another 300K saved up and I am looking for properties, but am nervous with buying in DC b/c it is so tenant friendly. Do you have any words of advice of where you would buy now? |
Anonymous
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Hi OP-This is 21:38 again. In regards to the fact that we should have a lot more money....well...
After we moved from that house, we bought a house in 2007 (yes, I know) and renovated it and pretty much put in all of our savings (and then some). I have had it appraised 3 times and it has come in about 300K less than what we put into it and I have had realtors come through and they say I can probably sell for 150K less than what I put into it. Yes, this has been VERY depressing for me, but my husband says and cannot dwell on this and we have to move forward. I like the house, don't love it. |
Anonymous
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Hmm. Let's see:
Me & DW both government lawyers around 40 yo, making about 250K combined. $400K in retirement accounts (combination of 401K and TSP) $70K in an inherited IRA $85K in investments ($55K mutual funds, $30K CDs) $70K in cash $35K in 529 plans for two kids, 7 & 3. $815K home (zillow), $600K mortgage at 4.125% $150K rental property out of state, $100K mortgage, rented at $1600/month Go. |
Anonymous
| OP I saw your respnse to 21:38, not sure I understand. Can you run through that with an example? TIA |
Anonymous
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Current HHI is about 300. 220K from one salary, about 75K from the other.
We're both 36. One child. Massive debts. Currently have about 40K saved in cash. Nothing saved for retirement. Trying to pay down our school loans. 35K is at an 8% fixed interest rate, 40K is at a 6.3% fixed interest rate. The remaining $200,000 in school loans (not a typo) is at an interest rate of about 3.5% on average. All loans have already been consolidated at a lower interest rate when possible. We also have a 720K mortgage. Home is valued at 930K. Mortgage is 5/5 arm with rate of 3%. Refinanced this year. Our current plan is to save until we reach 100K in cash (for emergencies) and then work on the 8% followed by the 6% loans. We would like to have another child in the next year or so and want to have enough cash on hand should we need fertility treatments. Because of my age we don't want to wait longer than a year to try for our second baby. We think we need to save for retirement now too and for college for our child, but we've been putting any extra money towards loans and now liquid savings. Not sure if this is the right thing to do. One of us has the option of 401K but is not contributing under the theory that we're better off putting that money towards the student loans with the 8% interest rate. Monthly, after our debts are paid (also have 2 car payments), mortgage and child care, we have little left over. We're not saving for our child's college yet either. He's 9 months old. Thank you. Would appreciate your advice. |
Anonymous
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Thank you for sharing your knowledge and experience.
Husband earns 115K. I recently finished an MA and am looking for work in my new field. We recently relocated and are renting for 2K a month. Drive one old car, paid for. We are 40 yrs of age, 2 kids in elementary, 8 and 6 yrs. We have 140K in a money market, plan to use as house downpayment. 2 529s, Neglected right now at 5K each. 75K in mutual fund. Husband's TSP around 100K. 17K in an IRA. No debt. That's about it. Would like to plan for retirement, also be very wealthy. Advice? Thank you. |
Anonymous
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Anonymous
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New poster here. Thanks for offering to do this.
HHI fluctuates between 400k and over 500k depending on end of year bonus, split evenly between dual salaries (although mine might go down slightly as I transition to a new role). Own a home worth just over 725k but owe almost 650 on it (we bought with little down FHA but are about to refinance with a conventional loan at a lower rate to lower our payment substantially each month). Hoping to buy a slightly larger home in the 1M range to stay close-in with more room. 10k in college savings for one DC. Max out our retirement accounts and have about 275k in those. No other investments or income. Somehow between childcare, life insurance, car payment (honda civic) and life, we only save about 60k a year. Not sure where to go from here. We are blessed (until the last few years we made very little) but seems like we should be further ahead. We have also had to give money to family over the years (extreme circumstances with illness) so money went there too. Thanks in advance. |