All Forum Posts by: Paul Vail

Quote from @Alex Forest:

@Dave SkowI looked into it some and there are CDs at 3.5%. Better than nothing but still not with a whole lot . I use checking functions to keep accounting separate for the LLCs (and personal) and each checking account has a minimum of a $2,500 balance to avoid a slight monthly fee. Which across several LLC accounts means there is cash sitting there.

Im stating to rethink the setup and perhaps holding in an S&P index enough reserves is a better way to think about it. I liked the idea of 'cash' in addition to other stock holdings, but theres got to be a better place for the sitting cash.  I need the functions of a checking account (checks and separate accounting) but maybe need to rethink it and use a single account and then push the 'cash reserves' somewhere else like the stocks....if I think the minimum will likely be there for many years as a safety which I do.
Thanks for sharing your thoughts.

Alex, I've been in equities in some form or another since the Reagan recession years.  I think I have a pretty solid understanding of them, and I do promote (index funds) as being part of one's investment life in a variety of vehicles.  However, for cash, if this is money you absolutely need to park for legal or ethical reasons, then CDs or I-Bonds are really the way to go.  Scratch that -- I use I-bonds for MY money.  I'd use CDs for tenant cash and/or the 'Oh-Sh*t' maintenance fund for properties.

E.g., you are holding some tenant's security deposit while they rent.   That money should go into a dedicated note (CD, etc) where it's otherwise untouchable.   Your lease agreement may or may not stipulate an interest rate paid, but I personally feel a fiduciary responsibility in that scenario to do all I can to protect THEIR money.  I wouldn't mind making 3% or 9% on their money, but I don't ever want to go to some other funds to refund THEIR money when they properly vacate.   Being fiscally a bit shy about things, I'd also probably use CDs for the water heater/carpet/paint/etc. emergency fund for a property.  These CD instruments can be cashed out immediately from online resources like Ally, and the interbank xfer achieved in a day or three.  So they are very liquid.  Sure the interest isn't double-digits, but I'd much rather make 3% than 0.2% in a money market for literally 3 minutes more computer effort.   I'll take a 2.8% raise any day.

I wouldn't put the emergency fund into any index fund -- choose an FDIC tool for money that absolutely, positively needs to be there regardless of world affairs.

Quote from @Lane Kawaoka:

I put money into the 401k/roth options from 2007-2014. Despite what everyone says it never made much sense to me because when you invest in that vehicle you are stuck with only garbage options. Think for yourself and take the money out once you get proof of concept with alternatives. If you need any help me know.

A 401k plan is devised by your employer.  Mine offered Vanguard target date funds that doubled in value from 2014 to 2021 (VTTSX).  I also benefitted from a 4.25% match to my 6% contribution -- free raise, there.  A 73% gain over 7 years.  10%/yr gain?  It didn't suck.

Katrina -- as with all of the rest of life, it depends...

$70k is a lot of money.  Geez -- where to start.  

Do you have debt beyond the condo/rentals mortgages, what some of us might refer to as 'evil debt'?   If so, what are your interest rates on those evil debts?  If evil debt interest pain exceeds 3%, pay them off.  Car loans are usually evil debt, but depends on your financing. 

Do you have an emergency fund to cover 6-12 months' of expenses set up (can be a CD ladder, I-bonds, etc.)  A CD at Ally.com currently pays 3%.  An I-bond pays >9%.   These numbers are useful to compare against debt obligation math.

Are you and spousy contributing to a TSP?  If not, why the heck not -- doesn't the mil still match your first 5%.  Redirection of that immediate income into a TSP might require using some of the $70k for meeting monthly bills. 

Back to not-as-evil debt: Will paying off your condo save you a lot of interest in the future?   If your mortage interest is greater than inflation or significantly above what you can make investing in an index fund such as VTI, then paying down that mortgage could make economic sense.  Or, if mort interest on principle home or investments results in a personal or business writeoff that compensates for the not-as-evil debt, maybe leave it alone.    But if you have a loan at 25% for some reason, that $70k could be useful to staunch the bleeding there.  Otherwise -- if your $70k can net you better % gains after taxes/costs than your mortgage int -- let that interest ride and deploy the capital elsewhere.   I have a few ideas below.

I personally believe most folks should diversify investments widely -- so yes, the stock market isn't scary.  Want to get into it and hit two birds/one 50cal round?   Do you and spousy have Roths?  If not, do you qualify (based on income)?   If so, each of you young folk can toss up to $6k into a Roth each year if you have qualified income (active mil does count :)  ).  Become an old geezer like me with active income and ya get to toss another generous $1k in.  I'm lazy -- I don't try to beat the market or time the market or even whisper sweet nothings to the market.  I simply AM the market.  It'll go up, it'll go down, and it might dang well flatline for the next five years.  But overall, a passive index fund like VTI held in a simple account at Ally.com or eTrade or a thousand other options will track pretty well over time.  I think most analyses show after subtracting inflation, the market does ~7%/yr in gains.  That's over the past 100 years or so (include all the scary wars, depressions, recessions, obsessions, regressions and so forth).  Rule of 72 suggests you'll double your money every decade or so.  Some thickheaded people like me aren't fond of individual stocks - but play a little and find your comfort zone.   Folks who say 'stay out of the market' may need to get out more.  Unlike what Kiyosaki thinks, there is a much bigger colorful world available to investors -- we're not all one stripe.      

As you are likely covered under the mil VA plans, I don't think you have an option to get a HDHP that permits opening/funding an HSA account.   If I'm wrong, look into that -- even better equity investment tool than Roths.  And if/when you get your DD214s, you may need to explore healthcare plans -- who knows that vets will have to put up with in the future.  HSAs rock in the private sector.

Now that I've spent a little of your cash, I'm going to gang on to the others and suggest y'all keep rolling with more properties.   You'll find your balance between real estate, paper investing, running your own businesses and living a large life.  No one of the rest of us can work out that formula for you.  Have fun doing it!

Quote from @John Dersoe:

Good assessment. I am 47. I just can't get my head around using this money to generate more income to "give" away 20+% of it after paying 15-20% taxes. I'm already paying thousands a month in child support.. and I'm currently financially stable. So eliminating debt might be where it goes. It sucks to have to think "I shouldn't make more money because she'll take 20+% off the top".. and believe me, it's not being spent on the kids.

Reframe this: you aren't giving her/them 20% of the 350K, only 20% of what it NETS for you.  You get to keep 60% (if we go along with the earlier math that taxes may take another 20%) of the NET.   You are 3/5s ahead.  Do nothing and you (all four of you) are 0/5s ahead.

Let's assume you currently have a job. And your takehome pay covers all of your monthly expenses, maybe with a small bit left over -- i.e., you are not going into debt. If you pay off the house and the car (see my other note on car), how much do you have left over? Enough to buy some property, maybe BRRRR your way into more properties, or invest in notes or loans or fix/flips or whatever you expect to do in real estate? How long will it take to build that nest of properties (I'm asking what is your end goal here with real estate)? Or, if you elect not to pay off the house (we don't know your bank loan interest rate, but let's pretend it is at or under inflation) -- how many more deals could you do in the same time frame to build your end goal? How much more quickly will your real estate side hussle get you to FI (financial independence of a W2 gig)? And yes, even with the spouse's 20% tax on you, we can calculate that it will take 20% longer to achieve that end.

If all other financial cash streams are net positive every month from your day gig, figure out you goals, and do the math on whether being 'debt free' or using the whole of the $350k nest egg will get you to those goals faster.  

Quote from @Bjorn Ahlblad:

@John Dersoe I am guessing that you are fairly young probably around 40 in which case I'd pay off the house and car and enjoy that security. You have plenty of time and can invest later.

I fully disagree.  Time is the only aspect of life that has value.  And it is Time alone that allows current investments of any form to compound.  Being 'debt-free' is a wonderful feeling, but if your investments bring in positive cash flow that allows you to both live and pay down obligations, then the investments for the future are more valuable than the warm-n-fuzzy of not 'being owned by the man'.  

Don't like being owned?   Why is there a car payment?   Put that ego on a shelf, sell the expensive toys, buy a cheap car outright and make it make do.  

The OP is upset about paying taxes.  Taxes happen, even in a no-income state like FL.  Gotta pay for your infrastructure somehow, unless we elect to have a society without schools, libraries, transportation, first responders, etc., etc.    Libertarian wet dreams don't live in reality, and couldn't take the chaos of the results if their dreams came to pass.   Regardless of how you make a living, how are you NOT going to pay taxes in some form or another?  So set THAT fussing aside, too.

Thirdly, yes, so the relationship didn't work out.  I feel for both you and the spouse.   I REALLY feel for the kids - because they are the ultimate victims here.  The adults should feel proud to provide for those kids -- whether directly by making an income that allows you to pay for their needs or indirectly by making an income that helps the spouse provide for their needs.  Choosing to make less in some alternative-universe way of 'punishing' the spouse by denying 1/5th of what more you could make seems ... to not be in the best interest of anyone in the equation.   

You have some resources that could set you up for success going forward.  Are you really NOT going to do that because someone else is going to get only 1/5th of your efforts.   Every EXTRA dollar you make by investing now and into the future means you get to keep 3/5ths of that EXTRA dollar.  Denying yourself that EXTRA dollar means YOU lose out on 3/5ths of an opportunity and the spouse loses out on only 1/5th.   Let's redo the math: you'll lose 100% of your EXTRA opportunity if you do nothing, she only loses 20%.  Of course, those kids ages 5 and 7 will lose out on a portion of that fraction you are electing to deny her AND a fraction of what you are denying yourself.  

You were hurting when you wrote your OP.  We get that.  Might be time to step outside your skin to try to reframe your opportunities.  But TIME matters.  Your kids will have but once chance to see their dad remake himself into the best possible model of a human he can -- it starts now.

Are you using a Lowes credit card (one of their pro cards, or the consumer card)?   Or is this a Discover, V, MC tool?   My experience with the Lowes Pro card (LAR or AmEx) is that breaking down costs, tags for categories of expense and such is vastly different for each credit card tool.   Might be a great job for a high school kid paid minimum wage to data entry for you.

Oh, and if you want a different cash parking place, check out i-bonds from TreasuryDirect.   These are 30 yr savings bonds that can be cashed early (you must hold them for 12 months, and if you cash out between one and five years, you'll surrender 3 months of interest as a fee).  Note the very attractive interest rates associated with Series I bonds.   https://treasurydirect.gov/

Ally.com presently offers a 60mo CD at 3%, and a general savings account at 2% that automatically fluxes with the Prime.  Cashing out the CD early will cost a few months' of interest only (dependent on term of CD).  So, you could build a CD ladder, and when a particular owned CD's interest falls below the savings account interest rate, break the CD and roll into a fresh one at a higher rate.

For comparison, my local credit union, NCSECU, offers 0.85% on a 60mo note, and 0.10% on savings.

@Michael Watterson - I'm in the same boat here in Raleigh, NC. I have been looking into this for weeks, hoping to work with a highly recommended atty locally. Unfortunately, they seem to be phenomenally busy, so I've started sniffing around here on BP. As I want not just an LLC, but to set up a self-directed retirement account to shift some assets from existing retirement accounts, my needs may be a little more niche than yours (unless there's a way to use your TSP :) ). There are a LOT of resources, including two really helpful folks like Dmitriy Fomichenko and Brian Eastman that contribute decent content. And other custodian options from resources like this: https://selfdirectedira.nuwire...   

I'd love to see if there's a similar resource here on BP or elsewhere on the 'net for real estate attys and real estate-focused CPAs for more general needs. My only useful thought for you would be to reach out to whatever REIA may be in the Memphis area. Those local folks know their turf and will likely share info with you, even if you're out of state or stationed somewhere else.

Ramsey is fine for debt management and budgeting. He kinda loses me with overly optimistic equity returns (claiming 12%/yr averages whereas after inflation it may be closer to 6-7%) and can be religiously in the wee hours. Overall, learning to budget and tackling debt should be lessons #1 and 2 for anyone over the age of 15, so thumbs up to Dave there. After that, it depends on your mentality. Deep dives with Financial Independence (the Mad Fientist), Journey to Launch (Souffrant), Money for the Rest of Us (Stein), Optimal Daily Finance, Stacking Benjamins, Big Picture Retirement, and Radical Personal Finance (Sheets) all have great information. As with any podcast, you kinda have to give them three to 5 episodes (and start from the earliest you can) to gain a vibe for what appeals to you. Some go into greater life-lesson detail (do you have a Will, Living Will, POA for medical and legal, and a ton of tangently-financial topics). Some or more serious or academic while others go for the fun.

I do think getting out of the silo mentality is important, so mix it up.  Kiyosaki has opinions - some good, some whackadoodle. Just like the rest of us.  However, when anyone says 'my way' is the only good way and everything else is vastly inferior -- that's ego, not healthy advice.  Knowing and understanding paper asset investing fundamentals, real estate fundamentals, and small business fundamentals are all valuable and each of these wealth-building tools should be in our shed.