All Forum Posts by: Bruce W.

2 more things: 1. Renting out "your" house to strangers takes an emotional toll. If you plan to move back into it at some point, you must consider the inevitable small changes and damage done by your tenants and how that will make you feel. 2. You should have someone nearby who can manage the rental for you. I had to evict some tenants from cross- country some years ago and it was tough. While we're on this topic don't rush the tenant screening process. If you're in a hurry to move, you may make a bad call.

2 more things: 1. Renting out "your" house to strangers takes an emotional toll. If you plan to move back into it at some point, you must consider the inevitable small changes and damage done by your tenants and how that will make you feel. 2. You should have someone nearby who can manage the rental for you. I had to evict some tenants from cross- country some years ago and it was tough. While we're on this topic don't rush the tenant screening process. If you're in a hurry to move, you make a bad call.

Ellis, thanks for arranging this. Do you have an agenda or list of topics?

Steve, I think the poster is actually pre-paying PI in escrow, rather than making principal only payments as a means to avoid making regular payments. BTW, the original poster misspelled "principal" as "principle" which may explain the lack of search results. We make a large principal- only payment each month, but it must follow our regular payment to be valid; it does not replace the regular payment, mosy of whic is appiled to interest. Unless your loan agreement has a pre-payment penalty, making lump- sum principal payments is an excellent way to reduce debt and build equity because the excess payment is entirely applied to principal reduction, no interest.. There's a calculator at this website which is useful to determine how quickly a principal balance will be reduced by making lump-sum payments.

http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx

Michael, we are in a similar situation to you. We bought our investment condo 12 years ago and had to pay $200/month over and above the rental income to meet all expenses. Finally, rents increased to where we have positive cash flow, and we also paid the loan off. Now we're at a 10% cap rate and are looking for another property. Understanding debt is a great skill. With interest rates so low right now, i'd say that most debt is good debt. We're struggling to choose between a 3.75% fixed for 15 or a 4.125% 30 due in 15, which is the classic cash flow vs. equity choice. In the SoCal area, a large down payment would seem to be the only way to obtain good cash flow, which is contrary to many strategies. Much depends on your timeframe; I have good income from my day job, so can choose to lose something now and end up better later on.

Good investing,

Bruce

David that's great wisdom there. There are two short-term concerns: 1. Another debt ceiling debate in February and 2. Possible Fed tapering in late January.

I no longer understand the debt ceiling issue at all. If they're just going to keep raising it, why not extend it to infinity and avoid the periodic turmoil? As for tapering, I see it as necessary to avoid higher inflation and further devaluation of our currency, but it will really shake things up, especially in housing.

These two items don't include a generic correction like what you describe. Bubbles are inevitable these days, because there's just so much money being invested. We may be seeing a bull market bubble about to pop!

Having said all that, I think 12 more years is long enough to recoup any short-term losses, although no one likes to lose money. Our housing market is experiencing a mini-correction right now due to reduced demand, so it seems nothing is safe.

After reviewing my math, I realized that $85,466 growing to $271,514 in 12 years is actually 9.67%, not 3.15%. I now plan to continue contributing the max to my 401k account and will just have to wait a little longer for my savings to reach critical mass before I make my next RE investment.

I have been contributing the maximum to my 401k account, including the catch-up contribution for those over age 50. My contribution far exceeds that needed to get the maximum company match.

I wondered if this was the best idea, so modeled how the account would grow in two cases:
1 - Continuing to contribute the maximum ($23,000 per year currently)
2. Contribute the minimum needed to get the full company match (5% contribution in my case ($7,500)).
The model uses these assumptions:
$400,000 current balance
$150,000 annual salary, paid monthly.
25% federal tax bracket
6% state (CA) tax bracket
12 years until retirement
stock investments earning 6% annual returns (very conservative)

As the chart below indicates, option 1 accumulates $271,514 more dollars. Not surprising, huh? But wait, there's more-

How much of that difference stems from the larger contribution?
$85,466, leaving $186,048 due to growth.

What's the yield on $186,048 growing to $271,514 in 12 years?
3.15% APR.

So, if my thinking and my math are correct, if I can find another investment exceeding 3.15% APR, I should be better off, right?

There's one other detail - the loss of pre-tax savings. According to the calculator on my 401k fund manager's website, I'm going to lose $401 per month in tax savings. But I will still be getting $891 more per month which I could save and devote to other investment activities.

Please share your thoughts and affirm or refute my thinking.

Thanks for your gracious welcomes, Ellis and Mehran. Ellis, I would like to attend your meetup, so please keep me in mind.

Hi folks,

This is Bruce W., landlord of a nearby condo for over 12 years now. My wife and I recently managed to pay this property off, so we are starting to look around for other opportunities. I am employed outside of the RE market, but have little job security. Nearing age 55, I am looking for a safety net. We are not looking to get rich, just prepping for a comfortable retirement.

We are blessed with 5 grandchildren who live within a few miles of us here. Relocation is not in our future.

I found this site after a web search for info to determine what our ROI is. I am excited to join up and learn from all of you. I have more questions about ROI, 1031 TIC exchanges and Delaware Statutory Trusts (DST) as well as potential opportunities to find a new career in REI. I'll search first and ask later.

Thanks for listening. I'll catch you all later!

Best regards,
Bruce