Investing megathread extravaganza

[DaFace]

A place to talk about investing stuff.

[Hog's Gone Fishin]

My frame of thought has always been to use other peoples money. if you put a big down payment on a property then you have all that money tied up when it could be used to generate more income.

[Bugeater]

That's true. I could be using it to start my own hog farm.

[scho63]

Originally Posted by Hog Farmer

Rentals can be tough if you only have 1 or 2 and the reason is they normally don't generate enough cash flow. A hot water heater replacement can cost you $1000 and if you're clearing $50 /month on a rental after Principal/Interest/Taxes and Insurance well then two rentals will pay for that one water heater in a year. My break seemed to have come at 10 rentals to cover itself without having to pull money out of my pocket. but keep in mind I was at 100% financing too.

You answered an important question here for someone thinking about getting into the rental home game, I think Buehler for tax reasons.

You NEVER want to buy a rental for tax reasons, you want to buy it to make money and positive cash flow even if it's $25 a month. Taking money out of your pocket every month to pay for someone else to live in your home is ludicrous.

Great summary!

[Bugeater]

That was me. Thinking about all the potential headaches certainly has me leaning towards just dumping the money in the 401k.

[scho63]

Originally Posted by Bugeater

That was me. Thinking about all the potential headaches certainly has me leaning towards just dumping the money in the 401k.

Nothing wrong with a great rental property. Just buy it for the right reasons.

Location is paramount no matter how cliche

[O.city]

I'm looking to eventually get into the commercial real estate side of things. Right now, I rent my dental office. It's the same price as the tenant has paid there since 1981, so I'm not in a hurry to move. But I would eventually like to own my building I think.

My plan is to eventually have a little 3 offie strip mall, with my office on the end and rent out the 2 next to me.

[wutamess]

Originally Posted by DaFace

Yeah, it's really does just depend on the core purpose. If you want her to "have investments," safe funds are the way to go. If you want it to be a learning experience, throw it in a brokerage account and have her pick a couple of stocks for companies she likes and see how it goes. Even if she loses most of it, it'll be a good lesson that will pay off down the road.

And that's all I was really trying to do.

[Rain Man]

Originally Posted by O.city

I'm looking to eventually get into the commercial real estate side of things. Right now, I rent my dental office. It's the same price as the tenant has paid there since 1981, so I'm not in a hurry to move. But I would eventually like to own my building I think.

My plan is to eventually have a little 3 offie strip mall, with my office on the end and rent out the 2 next to me.

If it's for your own business, that might be great. But in the long run, I think commercial real estate is going to be a declining market. Retail sales places are in a slow race toward bankruptcy as shopping continues to move online, and I think even service businesses are downsizing due to things like telecommuting and offshoring. I don't see much indication that commercial real estate demand is going to go up in the long term.

[Buehler445]

Originally Posted by Bugeater

Yep, getting past that $12,600 mark is the problem. I'm hoping a rental could help with that. And as far as the fraud part...let's just say I have experience with that from when I was running my painting business.


We caught a huge break that unfortunately involved the death of family member. But yeah, it's nice, and it opens the door to a lot of other possibilities for us. Right now we're basically just blowing the extra money, we need to be more smart with it.

Ok. Don't look at a rental as an opportunity to take itemized deductions.

You report rent income on a schedule E. All your expenses are account ted for on the schedule E so you're taxed on the net. If you finance a rental don't put the interest A (itemized deductions). Unless you can get a far better rate on your house than a rental but even then you risk losing the deduction for the rental at all if you don't get to the standard deduction.

RE: paid off house. Does t matter how it happened, it's still a big deal.

[Bugeater]

Originally Posted by Buehler445

Ok. Don't look at a rental as an opportunity to take itemized deductions.

You report rent income on a schedule E. All your expenses are account ted for on the schedule E so you're taxed on the net. If you finance a rental don't put the interest A (itemized deductions). Unless you can get a far better rate on your house than a rental but even then you risk losing the deduction for the rental at all if you don't get to the standard deduction.

RE: paid off house. Does t matter how it happened, it's still a big deal.

Ah hell. Should've known it wasn't that simple. Apparently the only way to itemize deductions is to have a giant mortgage and a shitload of kids.

Something else occured to me, lewdog mentioned that the max we can put in the 401k is $18,000/yr, and the Mrs' pension buyout will well exceed that. So her idea of putting it all in 401k won't work then. Maybe we should just take the tax hit and buy a Corvette. /shrug

[Buehler445]

Originally Posted by Bugeater

Ah hell. Should've known it wasn't that simple. Apparently the only way to itemize deductions is to have a giant mortgage and a shitload of kids.

Something else occured to me, lewdog mentioned that the max we can put in the 401k is $18,000/yr, and the Mrs' pension buyout will well exceed that. So her idea of putting it all in 401k won't work then. Maybe we should just take the tax hit and buy a Corvette. /shrug

Can you roll the pension into a 401 or IRA? Typically rolls are not taxable unless you're rolling from traditional IRA to Roth. Then you have to pay tax on the amount to make it after tax contributions.

[Bugeater]

Originally Posted by Buehler445

Can you roll the pension into a 401 or IRA? Typically rolls are not taxable unless you're rolling from traditional IRA to Roth. Then you have to pay tax on the amount to make it after tax contributions.

I don't know, you're the accountant here. I fix toilets for a living.

[Rain Man]

Originally Posted by Buehler445

Can you roll the pension into a 401 or IRA? Typically rolls are not taxable unless you're rolling from traditional IRA to Roth. Then you have to pay tax on the amount to make it after tax contributions.

If it's a pension payout, you can definitely roll it over into an IRA without any taxes or penalties. You have to do within a certain amount of time after receiving the payment, though.

I would definitely go that route. If you use it to buy rental property, it's the equivalent of paying 45 percent above the asking price since you're going to get taxes and penalties.

It is possible to buy a rental from within your IRA, but it's really hard to do. I looked into it once.

[DRU]

Originally Posted by Bugeater

Ah hell. Should've known it wasn't that simple. Apparently the only way to itemize deductions is to have a giant mortgage and a shitload of kids.

Something else occured to me, lewdog mentioned that the max we can put in the 401k is $18,000/yr, and the Mrs' pension buyout will well exceed that. So her idea of putting it all in 401k won't work then. Maybe we should just take the tax hit and buy a Corvette. /shrug

Create a small business out of your hobby. Now you're itemizing, and many of your personal expenses can become business expenses, so you get an above-the-line deduction on lots of stuff you aren't right now.

Also, with a small business with no employees (other than you and your spouse) you can each contribute up to $18k like you said, but then the business can also contribute 25% of your salary up to $38k, giving you a total contribution limit of $56k. That's for each of you, too, so that's $112k contribution you could make to a traditional or ROTH 401k if you so choose to (many would argue there are better investment opportunities with that much cash.)

Also, with a small business you can hire your kids if you have any and get all sorts of tax breaks there, too. I've gone into detail about some of these things in threads under DC.

Nothing beats owning a business when it comes to keeping your money in your own pocket. Keep working your job, start a small business on the side, and you will get to keep a LOT more of your earned income from both the job and your small business. This extra money can be used to get out of debt more quickly, and then start buying more assets that generate more cash flow...sending you on lovely journey of wealth building.

[O.city]

Originally Posted by Rain Man

If it's for your own business, that might be great. But in the long run, I think commercial real estate is going to be a declining market. Retail sales places are in a slow race toward bankruptcy as shopping continues to move online, and I think even service businesses are downsizing due to things like telecommuting and offshoring. I don't see much indication that commercial real estate demand is going to go up in the long term.

Hadn't thought of that. Good stuff man.

Although, my plan is to avoid retail stuff if I can. An insurance agency, maybe a pharmacy etc.