My main goal is to build a portfolio of $1,000,000 in 1500 days with no debt*, starting from 1/1/2013. Every month, I provide an update on my status. My goal for 2015 was to get my portfolio up to $874,353. Because we saw exceptional returns in 2013 and 2014, I have already accomplished this. Before we take a look at November, let’s talk real estate and cigarette companies.
Duplex Dreams
Mrs. 1500 and I have been trying to purchase a rental property for several years now. All of our money is in the stock market and we’d like to diversify. The problem is that the housing market in our neck of the woods is incredibly hot. A couple weeks ago, we just failed in our 3rd attempt at buying an income property and our second attempt at buying a duplex.
For those of you who don’t know what a duplex is, it’s two homes connected to each other. Here is a picture of one that I stole from the Internet:
I have a love-hate relationship with duplexes. I’m all for multi-family housing, but why stop at 2 units? Go for 3 or 4 or 8! With duplexes, my thought is that the builder should have just put 10′ of space between the units and made it two separate houses.
Despite my lack of enthusiasm for the duplex design, I really want to buy one. They make great rentals as often the ROI is much better than what you can get for a single family home. Unfortunately, every other real estate investor in my area is aware of this as well.
Mrs. 1500 and I were pleasantly surprised when a really nice duplex went on the market in a neighborhood that we both love.
Mrs. 1500 and I were unpleasantly surprised when we walked over to see it and observed a mini-traffic jam of people that had come out to see the property.
We toured the units and put in an offer, only to get shot down the very next day. The listing agent had this to say:
I received 16 offers on the property, most cash and most over asking price. Some of them were significantly over asking price. I didn’t go with your offer.
Yikes. Our offer was over asking price, but not by much and it also wasn’t cash. We never had a chance. Not even a remote chance. Life goes on.
Index Extremes
My first job post college was in the IT department of a major retailer. I worked with thousands of other folks at the corporate headquarters. One thing that I quickly realized is that a sizable percentage of people in those cubicles were dead weight. There was a core group of folks that made the company work, but many of the others were just along for the paycheck.
Did you know that the stock market is similar? Most stocks don’t do much of anything. Take a look at the chart below from this neat article:
I find it fascinating that just like people, a small percentage of stocks are doing most of the work. The most extreme example of this phenomenon is Altria. Morgan Housel wrote about it recently and the numbers blew my mind:
One dollar invested in this company in 1968 was worth $6,638 yesterday (including dividends). That’s an annual return of 20.6% per year for nearly half a century. No other company comes close to matching its long-term results, according to Wharton professor Jeremy Siegel.
The same dollar invested in the S&P 500 over the same period would be worth $87, or 98% less.
Holy hell; $6,638 versus $87? If you ever invent that time machine, Altria is the one to own:
Index Investing
What do these extremes mean for the index investor? If only a small percentage of stocks do really great, does it make sense to own the whole index? Why should I own all of those dogs too?
The answer is easy; it’s very, very difficult to separate the winners from the dead weight. Even the great ones like Charlie Munger and Warren Buffett who have a strong record of beating the market, make massive mistakes.
It’s worthwhile to hold all of those duds because you own the really great ones too. Over time, those few super performers more than make up for the dogs. The index fund is the right choice for most folks.
Performance Update
Let’s get on with the show. I started the month of November at $1,058,857 and ended at $1,071,646. This gain includes my monthly 401(k) contribution of $5,475.
2015
- Days elapsed: 334
- Days remaining: 31
- 2015 gains: $84,295 (including 401(k) contributions)
- 2015 401k contributions: $49,275***
- Left to go (2015 only): Goal accomplished!
Since the start (1/1/2013)
- Days elapsed: 1063
- Days remaining: 437
- Gains since 1/1/2013: $485,603
- Needed for $1,000,000 (investments and cash only): I’m there, yeah!!!
- Needed to quit work ($1,120,000 in investments): $48,354
- Net worth****: $1,321,646
Building bridges and houses
I made good use of the glorious four day holiday weekend. I brought all of the power tools in the house (Mrs. 1500 loves when I do this) and went to work. I installed casing around all doors and got some of the floor trim done also. This took a good deal of time because I made some of the door casing pieces myself from a 4×8 sheet of MDF board. Although I saved a good deal of money and the results were fine, it wasn’t worth my time.
Luckily, I had some fun too. On Sunday, Mrs. 1500 and I cruised down to Denver with a couple friends and “learned” how to play Contract Bridge. I use learned in loose terms because this is a complex game that takes many years to master.
I knew nothing about Bridge before the class, but loved it. For a guy like me who is always thinking about numbers, this game is right up my alley. Anyone up for a round?
*I still owe something like $120,000 (I’m too lazy to update this every month) on my mortgage. Because I have a low rate, I firmly believe in not paying it off. My compromise is to have enough money put away to pay off the mortgage at time of retirement. So, to retire today, I would need about $1,120,000.
**This is an affiliate link. If you sign up, the blog makes a little bit of money. Personal Capital is a totally free and superior way to keep watch over your investments. It’s worth it for the fee analyzer alone. I would never recommend anything that I don’t personally use and completely believe in, so give it a try. If you’ve already signed up through the link, please know that I think you’re one of the smartest, most beautiful people that I have never met.
***My 401k contributions include my own, Mrs. 15oo’s, and the contributions from my corporation. Self-employment with a solo 401(k) is a very powerful savings tool. I should have done this years ago.
****The numbers on the right side of the page only reflect my investments and cash. Net worth includes, but is not limited to:
- Home equity
- Cars
- Bicycles
- My collection of cacti! This happened a couple summers ago when we attempted to go for a family hike:
Mrs: 1500: Hey Daughter, this is a cactus! Do not touch it!
Daughter then grabbed the cactus. Screaming ensued and the hike was canceled. I probably should not have these plants around the home, but what can I say, I like to live dangerously.
Join the 10s who have signed up already!
Subscribing will improve your life in incredible ways*.
*Only if your life is pretty bad to begin with.
I’m totally up for bridge! I haven’t played in a few years, but I think it would come back pretty quickly. I love card games, they are a family tradition (unfortunately, my husband hates playing cards).
From meeting you in person, it doesn’t surprise me that you’d enjoy bridge. You seem like the type. That is a compliment! #FinCon16???
Double comma club maintain for the month. Nicely done! That looks like a serious Bridge class. I don’t think I’ve ever played, but do enjoy card games.
Brian @DebtDiscipline recently posted…An Open Letter to My Three Children
Yes, maybe I’ll finish the year in the DCC! I hate to speculate on returns, but it would be fun to finish the year strong.
Nice post Mr 1500. Most people don’t talk about those “few” phenomenal stocks that power index returns higher. As the only family I know that has enjoyed investing in 5 different 10-bagger stocks…..I say great work! Good job on the door casings also. They look great. I’ve been needing to get a compound miter saw……..
-Bryan
Income Surfer recently posted…Book Review: Millionaire by Janet Gleeson
Ha, I actually only have four 10 baggers. Amazon is knocking on the door, but I don’t like to count my returns before they compound!
When you travel back in time, remember that Altria used to be called Phillip Morris! It’s actually sad that cigarettes have provided such an excellent return over the years having passed most of the negative externalities of their product on to their customers…
As for bridge, it’s on my list of things to learn someday. My gram used to have her weekly bridge club for decades and I didn’t pay enough attention when she tried to teach me in elementary school, favoring hanging out with Pop in his toolshed instead.
Mrs PoP recently posted…PoP Income Statement – November 2015
Bridge is just great! Take a class though. Our was only $15 and I thought it was by far the best way to learn.
Cool graph.
I need to re frame the doors also. How come it wasn’t worth your time? A royal ball ache?
Mr Zombie recently posted…Unexpected Motivation – Secret Frugality
Making the casing wasn’t painful, it probably took about 3 extra hours though and I save about $50. It just wasn’t worth my time.
Ah I see! Yeah, there’s a better use of your time that’s for sure. Like playing board games
The blogs brilliant. Congrats on smashing your way into the double comma club. Give me a decade Haha.
I haven’t played bridge since my grandparents CRUSHED me at it
Mr Zombie recently posted…Unexpected Motivation – Secret Frugality
Dude, some of those old people are Bridge maniacs! There are no shortage or retirees who devote large portions of their spare time to it. Don’t go up against those folks! Grandma will whip your ass!
A decade, hmmmm… I’ll check in with you in 2025…
Pretty amazing to see how much the index returns are pulled forward by the truly excellent companies. Altria/Phillip Morris has definitely been an awesome investment. If you owned those shares in PMI back in 1968 you’d now own shares of Altria, Phillip Morris, Kraft-Heinz, Mondelez and I’m sure I’m missing something in there as well.
As far as bridge I’ve always wanted to learn but never had the time. Best of luck!
JC recently posted…Has It Really Been Four Years Already?
Yeah, the stock market gets more interesting to me the more I study it. Same with Bridge which I highly recommend if you like thinking about numbers.
Too bad that the duplex did not work out. Maybe its time to expand the horizon and check other areas for investment opportunities? Seems your local market is really hot at the moment. Investing in Europe real estate is very appealing at the moment due to the high value of the US greenback, you can make it a holiday!
To hopefully make you feel better, it took us 5 years to find our investment duplex (patience is a virtue). Paid about 25% less than the asking price, gutted the place and poured about 50% back in to get it ready for renters. Should be cash-flow positive as of next year. Seems to turn into a success story, we keep our fingers crossed.
Nice job on the door trim and learning contract bridge.
Team CF recently posted…Expenses November 2015
Nice work on the duplex!
I’m very weary about investing in an area that I don’t fully understand. If I had someone knowledgeable and trustworthy in the area, I would do it for sure.
Yeah, the dollar is going nuts. Wan’t it the opposite situation a short time ago against the Euro?!!!??
Yup, two years ago we could get $1.37 for each Euro, last year that was down to about $1.23 and now it around $1.06. Europe just become so much more interesting for Americans! But investing in the US for europeans, not so much.
Let us know if you need to start looking for a property for you 😉
Team CF recently posted…Expenses November 2015
Typo, sorry.
“If WE need to start looking for properties for you”…… has been a rough morning.
Team CF recently posted…Expenses November 2015
I agree that Europe and even emerging markets are very interesting! The latter tends to be crazy volatile, but that is of no matter to the long term investor.
I have the same mentality when it comes to duplexes, but hey some of us have to start somewhere. Good job on the casing and it’s great that you’re handy and can do it yourself. Love reading about your investments, for I am so conservative when it comes to my money and need to open my horizons a little bit.
Petrish @ Debt Free Martini recently posted…Melodrama Monday – Finish What You Started…
Hi Petrish- It may not seem like it, but I’m conservative too. Any time I’ve purchased a stock, it’s been after thinking about it for years. With real estate, I have to study a neighborhood for years as well and have a very high level of confidence that the deal will work. With real estate, we may never do a deal and that will be fine. I’d rather be too conservative than get myself in hot water.
Location, location, location. We bought our rental property this summer for $134k, down $25k from the original asking price in the spring. It’s a gorgeous house that I would live in myself. There just weren’t any offers on it! Same goes for all of the other rental properties we looked at. This neighborhood might not be as hot as yours, but we will still have $2k a month in rent once both units are rented out in January.
Norm recently posted…I Went On Vacation And You Didn’t!: Japan, Part 1
Holy cow Norm, is the $2,000/month the return on just the $134,000 place? If so, those are incredible numbers!
Yes, well, $2,000/month before all the expenses like mortgage, insurance, taxes, heat and maintenance, which is like $1,600 in total. Still good.
Norm recently posted…I Went On Vacation And You Didn’t!: Japan, Part 1
Wow, those numbers are really great and sane!
We just cased our doors and windows exactly the same way! And we’re still working on caulking and hole-filling! It’s a good look though. I like it. Your journey is always fun to follow. Thanks for the update (and the warning on hiking near cacti. My kids would do the exact same thing… haven’t they READ Hop on Pop – “No, Pat, No, don’t sit on that!”).
Maggie @ Northern Expenditure recently posted…Northern Expenditure Retirement Soundbite
I LOVE trimming out the door and windows like this! In prior jobs, I did those 45 degree corner cuts and it never looked that great. I’m going it like this from now on.
And watch out for those prickly plants! Not an issue in Alaska, but perhaps in Hawaii…
Nice post, 1500. I hear you on diversifying and looking for rental properties — too bad you failed in securing one. Keep at it, and Im sure you will find something great. I have been thinking the same – but we have the same problem – the real estate market is quite hot – although it seems to have remained flat over the past year.
R2R
Roadmap2Retire recently posted…Outlook for December 2015
Thanks R2R!
Regarding real estate, I don’t lose sleep over losing properties. One reason is that I just don’t have any spare time to deal with a rental property. Along the same lines, my stocks and index funds don’t call me up complaining about leaky faucets.
I call shenanigans, according to my calculations you added 250K to your net worth, I can only assume you inherited money from a Saudi Arabian prince after you sent them your checking account information.
But seriously, I think you went 1,321 on the keyboard to see if we are paying attention. If I’m wrong, I’ll buy you a beer, prob owe you one anyways:)
No games here; this is the same thing I’ve been doing every month. The net worth number includes my home equity and all of the other junk we own outside of investments.
I think I’m being too conservative with the home value too. I’ll have a better idea next year when we get the place appraised.
Oh man, so I lost a beer on the deal. Come to Chicago when your ready!
Even Steven recently posted…Goals for 2016 and Small Business Saturday
Deal!!
That’s it! I’m selling everything and putting it into Altria. I can’t lose! bwahahaha!!!
Seriously though, congrats on the double comma club and better luck next time on the duplex. I’m sure you will find something.
Yeah, who knew cancer sticks were THAT profitable?!??? Insane!
Also it looks like you are about 1 year away from hitting your dollar goal (assuming 0% returns which is unlikely). Assuming you get there 11/15/2016, that will put you at 1414 days just ahead of your time goal. I may have asked before but how do you plan on accessing the money in the 401K (I’m assuming you are contributing pre-tax).?
DGI has an article about doing roth conversions, but if I understood it correctly there is still a 5 year wait period before you can access it.
http://www.dividendgrowthinvestor.com/2015/11/how-earlyretirees-can-withdraw-money.html#comment-form
For now, I’d use after tax investments (about $400,000). The good thing is that as long as Mrs. 1500 works, we don’t have to touch anything!
I have looked at conversions and also SEPP. Both seem like reasonable options should I need them.
Nice Post! Thanks for the update.
In the hot areas of my market I never wait for listed properties. All of my best deals came from 1-1 contact with sellers before they got ready to sell on the open market. I like to drive around, build a list of properties I’d like to own, and periodically drop them letters in the mail. I just track the names and addresses on a spreadsheet, and put follow-ups in my Google Calendar.
Happy hunting!
Chad Carson recently posted…The Annual Review: The #1 Habit of Exceptional People
The really annoying thing is we sent this guy a letter not more than 2 months ago. We even mentioned it to him and he said he didn’t remember getting it. I’m thinking he preferred to take his chances on the open market with everything being so hot.
This one listed for $305,000 and I’m thinking he got $320,000 for it. For comparison, another duplex that was very comparable in specs and condition (on the same street even) sold for $240,000 (listed for $237,000) less than 2 years ago. The market is insane here.
What is the gross rent on the duplex? Or more importantly, what could you net after all operating expenses? Just curious what people are willing to pay for a certain amount of income in that area.
Chad Carson recently posted…The Annual Review: The #1 Habit of Exceptional People
This one is currently getting $2050; $1150 for one side and $900 for the other. Taxes are cheap in our neck of the woods, so that is only about $1200/year. The duplex is in solid condition with newer mechanicals. The windows are old and the roof, while in good condition, had 6 (!) layers.
Those rents are under-market. In the current state, I would have brought the rents up to about $2,500/month. Still not great numbers on something that will set you back $320,000.
With some value-add, I think someone could get close to $2700-$2800 per month.
It all goes back to the debate of whether you should count on appreciation. Our ‘hood is going nuts. Homes that sold three years ago for 300K are now going for 500K. Our town used to be a dump, but is quickly turning around. So,
For this deal, I would have been counting on value-add and appreciation in that order. However, I still would have needed to get reasonably close to 1% for it to have been worth the hassle.
The title was so catchy, I had no choice but to read it.
I fear I missed out on the multi-family homes in my area as well. More payers means less risk for you in terms of rent risk, but it can also lead ot more headaches when you have lots of tenants. I would like to find a small 3/2 house that needs a lot of cosmetic work and curb appeal work. I could do that over a month or two and then get a much higher rental rate. I should probably start looking again!
Vawt recently posted…Amazon Prime- Again
The other problem I find is for some reason, every time we make an offer, there is usually one amateur who is willing to pay a ridiculous price. For example, we’ve seen people pay $250,000 for a property that gets $1,400/month in rent. The numbers just don’t make sense.
We are probably going to lean towards fix and flips. Since those are even more time intensive, they won’t happen until I’m done with the 9-5.
Cactii in the garden? You are a madman!
Financial Velociraptor recently posted…Covered call SunCoke Energy Partners, L.P. (SXCP)
Well, they are in the house. But that may be even worse…
Congratulations – only 31 days left!
I have a wonderful plan for your rental desires. We are in a well known gated Sr. community in Arizona. Close to Colorado – right ? Anyway, there are some wonderful solidly built properties that because they are 30 to 40 yrs old are needing up-dating, and they rent out often for 5 to 6 months at a very decent rate – once some cosmetics are done.
Of course, those over 55 moving to this community often are looking for a permanent rental, so that is the other option.
There are quite a few well priced 3 bed, 2 bath units here and the prices are finally creeping up after a few stagnant years. Good time to invest !
That actually doesn’t sound like a bad idea. I love the idea of renting to retirees. They have the cash to pay the rent and aren’t going to trash the place.
Want to be my property manager? 🙂
Careful Mr. 1500 – that is most tempting. If you are serious, here is some information:
I know of folks who are selling, and will want a 6 month rental in order to stay. You can ask and get $3000+ a month for a decent place. (that is furnished) A retirement community often has estate sales due to the inevitable.
If you advertised a yearly rental, that price per month would go down, I expect.
Monthly cost is an HOA fee, plus your utilities, and T.V./internet. Taxes are $1800 to $2000+/annually. – depending on square footage etc.
You would need someone over 55 to buy the property for you – so count me in ! I have been watching the market here, and the prices hover between $129,000 for a condo – bought “as is” to over $400,000 for a golf course property.
Average house prices are $200,000 to $300,000. This community is a great investment as the facilities are kept up-dated, which does matter.
Great companies here that will do quality work to improve your property. You know how to reach me ! Judy
Very interesting, but this seems like it would be an issue: “You would need someone over 55 to buy the property for you.”
Taxes seem moderate, but I wonder what HOA fees are?
Maybe I need a roadtrip!
Was surprised you answered ! So, I did check and once you reach the “ripe” old age of 45, you can purchase in here. (20% of owners can be younger)
We are residents of Leisure World Arizona. If you think you can stand the name, check it out online, see the properties for sale – the amenities are impressive.
The HOA we pay having only gravel landscaping is $251/mo. This goes up if you have a condo, or property that is cared for by the community. The “buy-in” for new owners will be increased to $3000 in late January, to keep HOA’s from increasing, and still be able to upgrade amenities. I think that might be all you need to know, but I did hear there are 90 names on the current waiting list through the Remax rental office, run internally.
Have a great Christmas with your young family – they do grow up so very fast. Judy
Bummer that you guys missed out on the duplex!
We are looking to add a 3rd piece of real estate to our portfolio in 2016 if we can find the right deal. This one will be with a family syndicate that will help spread the risk and allow us to go for a 2-4 unit piece of property.
But have a feeling it is going to take more time that we think to find the right property.
So when you retiring?
Cheers,
Dom
Dominic @ Gen Y Finance Guy recently posted…Savings Rate – The Most Important Variable to Wealth Building [and the math to prove it]
Not retiring yet, but I did go part time. Woot! See you in a couple weeks maybe???
Yes sir! Looking forward to it.
Dominic @ Gen Y Finance Guy recently posted…Savings Rate – The Most Important Variable to Wealth Building [and the math to prove it]
Hola!
When will you guys be completely done with the home remodeling?
We just installed new double pane windows in our living and dining room. All that’s left is cutting out sliding doors off our master and building a deck! But that is gonna take like 7 months for city approval and stuff. Don’t want to do any expansion anymore!
S
Financial Samurai recently posted…Perpetual Failure: The Reason Why I Continue To Save So Much
Oh man, I hope that we wrap it up in 2016. Without children, I would have finished it in 2014 no problem. I have somewhere between 150 and 200 hours of work to complete.
Seven months for a permit! Yowsers! Nearby Boulder is similar to San Francisco in many ways. Permits there also take 6 months to secure. While it’s great that cities want to ensure quality improvements, they shouldn’t hold back progress either.
I can’t get anything with a decent rent return now in our area. People are over paying by a mile so we have stopped looking at all. Not sure what numbers folks are working with but nothing I show will return a profit anymore.
Lance @ Healthy Wealthy Income recently posted…Investing Part 1: What is Investing and Why Does it Matter?
Sometimes, it is better to stay out of certain markets.
This is why I think people have knowledge across different disciplines. If you just focus on one strategy, you hold yourself back.
I just want the biggest pile with minimal hassle. Whether that comes from growth stocks or real estate, I could not care less.
While I haven’t even started thinking about real estate investments, a duplex does make sense as a good income property, if I were to go that way. Too bad you missed out on that one… Sounds like the markets near you are pretty crazy!
I am sure I’ve read your blog before… but I spent some time exploring today, and I am so impressed with your goals, your plan and how far you’ve come already! Definitely something to aspire to. At this rate you’ll be retired way before your goal date!
ARBM recently posted…November Budget Review & December Budget Preview
Hi ARBM!
Thanks for the kind comments! I’ve had loads of fun documenting my journey here.
I love your part of the world. In my travels, BC is one of the most beautiful places I have eve stumbled upon.
I may be a little biased, but I think BC is pretty awesome too! 😉
I’ve never been to Colorado though, and I hear that the terrain there is pretty epic. It’s on the list to visit someday… but I might have to wait until the Canadian dollar is a bit better.
ARBM recently posted…Goals & Budgets
We both have mountains, but Colorado doesn’t have orca pods! I love the ocean!
Whistler is friggin’ great for snowboarding too!! I need to make it back!
Be careful with those cacti. I had friends in college who had a habit when they were drunk of playing the thrilling sounding game “Slap the Cactus.” I think the title explains it well.
Daniel recently posted…Preaching Class Sermon – The Parable of the Rich Fool
“Slap the Cactus!!!”
I nearly choked on my Cheerios laughing at that! Hilarious!!!
Interesting that you are looking to get into multi-family RE. Have you done much analysis / comparison of rates of return on various REITs (broad or specialized) versus physical property?
Not that you have forgotten, but I like to remind people that it is roughly 2-3% to get in (closing costs, etc) and 5-6% to get out (realtor fees and closing costs). Also, depreciation is paid back at ordinary income tax rates at time of sale (could be better or worse..ymmv)
Not to scare anyone away from RE, it has it’s place and has helped many become wealthy. But, it certainly isn’t the cheapest or most passive asset class one can own.
My unsolicited advice would be to compare your realistic expected rate of return on physical RE and see if you can find a stable REIT that comes close. You just might be willing to forgo a point or two for more liquidity, peace of mind and flexibility.
Wise words JAT!
I do think about all of those things in great detail and this is probably the reason we don’t own any investment property. Mrs. 1500 has her real estate license, so we don’t have to worry about transaction costs. On the buy side, we would get 3% back at closing from her commission, so that works out well.
The bottom line is that we will only buy a property if we feel really confident in the numbers.
I actually feel better, at least in our area, about flipping homes. I can do the work myself and can assess a home with confidence.
As far as REITs, I have about $30,000 VNQ. Any thoughts on that or any other REITs?
That’s cool the Mrs. has a RE license, certainly helps out on the transaction costs.
One thing that I forgot to bring up in the previous post, is to consider the fact that states and communities are continuing to pass laws/ordinances that are more favorable for the residential renter than the landlord…meaning you actually have less control than you think and are liable for more than you think.
In regards to REIT’s, I don’t have any specific recommendations but since you want to essentially be in the residential multi-family space, you can find REITs just for that sector of real estate. VNQ is very broad (not a bad thing) but might not give you the income you are looking for as the yield isn’t too far off of a diversified dividend ETF.
If you like the idea of “monthly rent” I encourage you to look at assets such as preferred ETF’s, HY muni ETF (tax free), O and some others that pay distributions on a monthly basis. You can then take these distributions and do as you see fit…just like a rent check 🙂
In regards to “flipping” RE, by all means…but that is a true operating business and comes with all the good and bad (as you know..you are smart person). However not many tax benefits that come with being a landlord.
Full disclosure: I own physical RE, REITs, preferred ETF’s and HY muni ETFs, dividend ETFs, etc. I am kinda a whore and will try my hand at any asset class once (silver bars, cars, etc).
So my question to you is:
What do you want from diversification? Just some physical assets instead of all paper assets, monthly income stream, another side business to work on, grow your money with as many tax advantages as possible (if this one, then just sell your house, move into a fixer upper…fix it and sell in 2 yrs, rinse repeat until satisfied)?
“One thing that I forgot to bring up in the previous post, is to consider the fact that states and communities are continuing to pass laws/ordinances that are more favorable for the residential renter than the landlord…meaning you actually have less control than you think and are liable for more than you think.”
Oh yeah, I’m totally familiar with our laws. It is very easy and quick to evict someone here. If not, I’d be very averse to being a landlord. Good point to keep an eye on the laws though.
“If you like the idea of “monthly rent” I encourage you to look at assets such as preferred ETF’s, HY muni ETF (tax free), O and some others that pay distributions on a monthly basis. You can then take these distributions and do as you see fit…just like a rent check :)”
Very interesting and this is a whole new world to me, so I appreciate the suggestion.
“Full disclosure: I own physical RE, REITs, preferred ETF’s and HY muni ETFs, dividend ETFs, etc. I am kinda a whore and will try my hand at any asset class once (silver bars, cars, etc).”
Silver bars? Cars!? I’m curious to know if you’re kidding or serious! I keep trying to justify the purchase of an early 90s Acura NSX, but could never justify by saying it’s an investment. Well, maybe I could justify it like 5% that way…
“So my question to you is:
What do you want from diversification? Just some physical assets instead of all paper assets, monthly income stream, another side business to work on, grow your money with as many tax advantages as possible (if this one, then just sell your house, move into a fixer upper…fix it and sell in 2 yrs, rinse repeat until satisfied)?”
I’ve been thinking about this all afternoon. Number 1 is to have some other investments outside of the stock market. For example, it would be nice to have an asset that isn’t directly tied to the stock market. It is all related somewhat, but I believe real estate in my area has a lot of potential for appreciation in the short term while the stock market will be limited since valuations are high.
A side business would be great too. I’d love to have some minimal gig (~20 hours) in retirement to keep me busy
The least thing I’m concerned with is income. I’ve never purchased a stock for a dividend. When a stock starts paying a dividend, I start questioning whether I should still own it. I’m a growth guy 100%.
Oh, and I used to do exactly what you said; live in the flip for 2 years and then sell it, pocketing all gains tax free. It was AWESOME! With kids though, we’re staying put. For now.
Not joking about cars, silver bars, etc.
Bought silver bars back in 2001, 5.50 an oz, because I thought they were cool to have in my safe. Forgot about them and then sold them when silver was at 29.00 an oz. (we aren’t talking lots of oz’s, but as a % return I did good and it taught be that sometimes it better to set and forget versus track, had I tracked it I would have dumped at 12.00 an oz).
Cars, motorcycles, (yup, they are death traps, but just flipped one for a profit of 2,300 bucks), guns (no I am not some weird gun nut…but if there is a dollar to be made, I will go for it).
As far as odd asset classes, I just have fun with it and try to make a few bucks and forces me to learn new things and meet new people. I also learn alot about myself every time.
The best way to make money in these classes, is to focus on the purchase price. So if you can find a way to get an NSX for 15% less than market rate…then boom you got yourself an investment. If you pay market, well then you are hoping like hell growth exceeds cost of ownership.
Ever look at land with timber value, farm land that you can rent out, land with mineral rights (limestone and other aggregates that can be mined and sold)?
By the looks of things, you have worked you ass off to get the net worth you have, take a little fun money and try to grow it in new ways while developing new skills. You have the luxury of buying power and will have more time on your hands soon, so you can be very opportunistic.
Jeez! That is a crazy hot market you are in and that is exactly what happened to me the last time I tried to purchase where I live. 20 bids in a few days, almost all over asking price and all cash offers. There is no way I can compete with that. Its tough when you live in a market like that.
Which of course as you know is why I decided to buy out of state which so far is working out great for me.
I hope you are able to find something, you should consider getting deals from wholesalers to see if they have any better options.
Alexander @ Cash Flow Diaries recently posted…November 2015 Net Worth Update
Hey Alexander; I’ve actually been thinking about your strategy lately. I may be following in your footsteps at some point in the near future. I’ll also be quizzing you for information!!!
It *is* interesting that there are sectors of the economy that outperform other sectors, based on historical data. For example, steel mills are a terrible investment relative to a candy factory.
Why? Steel is a commodity product that has no pricing power beyond what the market is willing to pay for it. It also requires high, ongoing capital expenditures. The only way you can make decent returns is to either buy a steel mill at an extremely cheap price or become the largest player offering the lowest prices on the product to drive revenue and profit.
Now, a candy company that has a loyal following and strong brand recognition has pricing power. One you have See’s peanut brittle and it’s your favorite, you aren’t going to pay down to get a cheaper, no-name product. That means something like See’s can continually raise prices as time goes on. It also doesn’t require much capital expenditure to pump out the candy. Synergies galore. Buffett quipped that his original $25 million investment into See’s has produced over a billion in cash flow for Berkshire. Even adjusting for inflation, that’s a hell of return.
So it is possible to identify the broad sectors where you can experience higher than average ROE, ROA, ROC, etc. Then, you learn about the companies. Then you figure the price you are willing to pay for the asset. Then you sit on your ass and wait for your price.
Or you can just buy a total market index fund.
Kapitalust recently posted…Wal-Mart or Costco: A Comparison in Retail Giants
I’m sticking with the index funds from here on out. Well, maybe SoFi, but that will be less than 1% of my portfolio. Fun money.
In all honesty I’m sometimes tempted to just set and forget it with an index fund. I just find the intellectual challenge and pursuit interesting enough to not go full-index thus far.
Kapitalust recently posted…Wal-Mart or Costco: A Comparison in Retail Giants
So I should move everything to Altria? 🙂
Noooo!!!! Go with penny stocks or gold! Just kidding!
Funny, 20.6% per annum doesn’t sound that astronomical – I had to recalculate the return myself just to make sure!!
So easy to lose perspective on what you can achieve in the stock market over a long period when you see examples like this – good old ‘availability bias’ kicks in when you start imaging future returns you might achieve. I was kidding myself for a while thinking I was a master investor who could do 15% p.a. for years and years!
Jason @ Islands of Investing recently posted…Investment Plan Island Interview with… Eric from Retire29!
15%! Ha!
I’d VERY happily take 8 or 9 percent for the rest of my life!
Nice post.
I really like the piece on a small number of companies generating most of the returns. The first reaction is how do we find those companies? But you summed it up so well that it is VERY VERY hard to do that and a better strategy is to hold the lot and be happy with a lower, but consistent gain.
I’d love to hear a bit more about your budget for month and how you stay lean?
Daniel Clough recently posted…I see what you mean and that’s a very good point Sirous.
Hey Daniel! We get by on about $3500/month. I don’t think we’re super lean, but we have a couple big things going for us:
1) We have a modest home. Payment, taxes and insurance set us back about $1150/month (mortgage is 15 years at 3.25%). It is about 1900 square feet with 4 beds/3 baths.
2) Both cars are long paid for and should last another decade.
So, that leave us with about $2,000/month to spend. It seems ridiculous that we go through that much money every month. I blame the wife.
You sure you don’t live in San Fran? That’s nuts they got 16 offers! Better luck next time.
Fervent Finance recently posted…Why I Don’t Follow My Passion Full-Time
We live near Boulder which is like mini-San Francisco!
Have you considered something like https://fundrise.com/ for real estate instead of buying property yourself?
I’m not an accredited investor so there’s not many opportunities available to me yet. However, FundRise just launched this “eREIT” that seems like a tempting way to invest for income. Their initial interest in that eREIT exceeded expectations and they had to pause new investments for a bit while they complete the processing, but once its open again, I’m interested in tossing some money in. Even if just to blog about it!
I’ll probably never want to own real estate and be a landlord, but I did read that I could purchase a multi-unit home with a VA loan as long as I live in one of the units. Even with that though, I’d probably want to hire a property manager because I wouldn’t want to deal with tenants and I also don’t like being a homeowner! So I prefer as little work with my investments as possible!
Logan @ Millionaires in Ten recently posted…October 2015 Financial Update
Hey Logan, I have signed up for Realty Mogul. I’ve heard of Fundrise, but haven’t signed up for them yet. I will check it out.
I like all of these new, peer funding FinTech companies (Lending Club, Prosper and SoFi are others that immediately come to mine). They are clearly filling a void left by traditional banks.
I totally understand your point about not wanting to be bothered by tenants or leaky faucets. An index fund will never call you in the middle of the night or put holes in your walls. Still though, I wouldn’t mind having a couple properties so I’m a bit diversified. Perhaps a REIT or peer investment is a better idea.
I’ve also considered investing with people. The problem is that the people I’d like to invest with have their stuff together and don’t need my money,
I agree, the peer funding companies are great. Lending Club was my first investment and I’m actually putting more money into LC and Prosper now.
I’ve started tossing some money into KickFurther to try it out (can do as little as $20 per company). You fund inventory for small businesses and some simply need up front money to fund a large PO. Best part? You can use a credit card! So I can earn points and meet minimum spending bonuses while investing. This is a new company based out of Boulder.
I’ve decided to pass on the Fundrise “eREIT” simply because I don’t have enough cash to put in to make it worth it at this time, so that cash is going to P2P lending instead. But I do already have a large exposure to real estate through VNQ.
Great post and wow, the $1M+ club! Congrats. Keep pushing on the real estate front. Early bird gets the worm, so keep looking. Best of luck to you.
Investment Hunting recently posted…Good Reads – Thanksgiving Edition
Thanks!
Great post