What Are Your Investment Goals?

15 Replies

I live in Southern California where we're lucky to have a number of long-running investment groups. No matter the topic, I enjoy attending meetings to meet other investors face to face. This week I've been busy - attending meetings the last two nights and planning to attend FIBI in Pasadena tonight. 

People often ask one another what they do, or what they invest in. While interesting, I find I can get to know someone better by asking about their investment goals. Are you passive or active? What's your time horizon? Do you seek current cash flow, long term appreciation, or both? What's your risk tolerance and how do you manage it? What's your tax strategy?

Personally, I wear two investor hats:

1. I have a Solo 401K where I know I won't touch the funds for at least 10 years. Hopefully longer. Here I invest passively in commercial syndication deals where often there may be short term cash flow, but ultimately I underwrite for long term capital appreciation. My 401K  also holds a small portfolio of performing and non-performing notes. The performers are often formerly banged up assets where there may be higher risk, but also the potential for higher returns. The non-performers are assets where the timelines could stretch out. I don't have a problem being patient because I don't need the cash immediately.

2. I also have a fully taxable (kills me to write those words) entity where I acquire assets meant to put a roof over our heads and food on the table. Much different priority than the retirement account. In notes, this endeavor looks for shorter timelines and less risk. My first note purchases here were performers whos "job" was to cover the business's overhead. Rentals mix in well here because of tax savings. This is my ATM machine. Speaking of ATM machines, this entity recently invested in an ATM fund where we fully depreciate the ATM machines over the first several years. As investors, we expect monthly cash flow combined with tax savings from deprecation. Happy-Happy.

One other thing... I have goals and milestones set for both endeavors. I invested in the stock market for years without this. That was a mistake.

So... that's me. 

I would love to learn about other's goals. 

Whatever it takes for me to NOT work without being on welfare. 

I find rentals acquired through defaulted notes to be a nice way to do that. However, with pricing the way it is these days, sometimes it's better just to buy the REO. With the IRAs, we buy into other companies and commercial multifamily syndications.

I have a Solo 401k (created but not funded yet) and a Self Directed ROTH IRA that owns rental houses. I try and buy 1 or 2 next properties in the tax free account every year. I am currently generating about 50K/year tax free. Want this to be over 100K tax free for when I retire. This is about 10 year mark for me too. If I keep tracking the way I have been I will substantially overshoot this number.

I also have the taxable LLC that owns Rental properties. I have a good income from these that is double what I earn as an electrical Engineer.

My goal is to make plenty of passive cash flow so that I can retire early and have plenty of money to go where I want and do what I want without any concerns over income. I'll still keep investing in real estate because it is fun for me.

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@John Underwood - The "Solo-k" should be a great tool for rental properties b/c you can buy using non-recourse leverage. That was the thing that first caught my attention vs. a standard self-directed IRA. I'd say you're going to kill your goals.

@Adam Adams - I hear you. My girlfriend is a Geriatric Case Manager who sees first hand what it costs to grow old. Costs for care facilities and health care are rising much more quickly than inflation. In fact, that was a motivating factor for me turning to real estate investing. So no to welfare, and able to support me in my old age. 

@Marco Bario

Well thought out. Too many people have no plan, they’re just buying a property here or there, investing money on a whim, no thought to taxes or after tax return.

The one thing I’d add is that I keep investments with high current income, like high yield notes in my tax deferred or tax free retirement accounts, while keeping assets that throw off tax benefits and that have a probability for long term capital gains in taxable accounts. While this isn’t always possible, I’m successful at accomplishing this 95% of the time.

We own a few rentals for passive (taxable) cashflow, but the majority of our income is from P&I payments on mortgage notes. My Solo 401k is participating as the manager on currently 18 joint ventures on both performing and distressed residential mortgages. My Roth SDIRA is partnered with family member's SDIRA and we have both performing notes and some NPLs going to foreclosure in that LLC.

I also have some of the soloK funds invested in cryptocurrencies, a few stocks thru Schwab (mostly Canadian cannabis), and some gold coins stored in a safe deposit box with our bank. 

All of the above is earned as Roth characterized income, tax free, other than the rentals. 

I'm also the founding member in 2 Reg D 506 private equity funds which acquire and reposition distressed mortgage debt. These throw off income to the management LLCs from profits above preferred return distributions and acquisition/disposition fees earned on the assets in each fund's portfolio. Income on these operations is taxable.

Other than that, not much else going on........

Originally posted by @Marco Bario:

@John Underwood - The "Solo-k" should be a great tool for rental properties b/c you can buy using non-recourse leverage. That was the thing that first caught my attention vs. a standard self-directed IRA. I'd say you're going to kill your goals.

I agree the Solo 401k has huge benefits. Luckily I am able to pay cash for houses in my Self Directed IRA and since it owns houses the rent coming in keeps building up to buy more houses!

I will use leverage in my solo 401k once I have it funded. Been busy with other real estate projects, but I'll get to it soon.

I wonder if I can transfer property from a self directed ROTH IRA to a solo 401K with ROTH component? Kind of like doing a rollover except with property. I think I just might have to have an appraisal done on the asset? I'll have to research this.

Here is a diagram of my setup that I made for a presentation at the Papersource conference earlier this year:

I also separate the retirement funds vs what I need to put a roof over my head. Although I still have some residual SDIRA note investments, going forward everything is allocated to completely passive stock and bond index funds with Vanguard.

Everything in taxable entities is real estate or note related. Eventually, I want to 1031 my rental condos into something requiring less mental maintenance or just minimize the tax hit and feed the proceeds into my note business. I get asset diversity through my combination of retirement and taxable activities.

Immediate goal: Do the things I need to do in order to raise $5 M for my current and future note funds. Once I get that flywheel up to speed, I'll have reached my main financial goal, which means stability and more freedom for myself and my family.  

Love this - here's my approach: 

I invest for the long-term, looking for the most sustainable path to consistently high returns. For me, this means looking for a market with a high probability of average annual long-term (30+year) appreciation rates in excess of 4%, generating a sustainable cash flow (cash such that I can either dividend income to myself, or at minimum such that I have no to low risk of needing to contribute additional cash to operate my business). This is why I invest in my place of residence - Denver, CO. 

I use enough leverage such that the portfolio can get a real multiplier and make the most of the long-term hoped-for appreciation rates, but not so much that I risk needing to commit more and more capital to operate the business - I also maintain a cash cushion, which reduces my risk of ruin, but hurts my returns. 

I basically plan to never sell or realize the gains, other than those from income generated through ordinary operations. At the end of the hold, I will either releverage (tax-free) or 1031 exchange. This will defer my gains practically forever so long as the current tax code does not change. My taxable income from this strategy will probably never be more than 10% of the equity value of the porfolio, and my total taxes should not be more than 1-5% of my total equity position, really ever, unless I realize a gain, hold too long (such that accelerated depreciation and/or general depreciation fall off and my taxable income increases), or make a blunder. 

I plan to operate this way for 25-75 years, and believe that within the first ten years, I will be generating $100K per year in passive income, and on track to create an eight or 9 figure sum if long-term market averages hold by the time I die, even if I stop contributing capital after the first 10 years. No getting better, just continuing to be average during the hold. 

Risk tolerance will decrease over time, so the returns as a percentage will on average slow relative to the early years as I gradually deleverage over time and am slower to releverage. Also suspect that the cash cushion will grow, and that I will incur additional costs in the form of increased asset protection and structural moves to reduce operating risks. 

@Bob Malecki - Love the chart. I keep one similar in my estate plan binder (sorry to be so morbid). Mine has far fewer pieces, but it's still going to be complex to take over when I'm not here to ask questions too. For good or for bad, taking over assets that don't sit in an E*TRADE account is less complex than what I've got.

@Adam Adams and @Andy Mirza mentioned putting things on autopilot. I left that part out of mine. When I turn 60 in ten years, my plan is for mine to be as low maintenance as possible. I think the ratio of passive vs. active is an important aspect. I'll be willing to earn less with new investments made after the point I transition toward more passive goals in exchange for free time. 

@Scott Trench - I'm guessing you aren't turning 60 ten years, and that's amazing. "25-75 years" - Amen Brother! This is a notes forum. Although you aren't holding notes, your debt strategy is a big part of your plan. speaking the language of many of us here. The more I learn about debt, the more I feel understand money and investing. 

Thanks, everyone for your replies. I feel like this would make a great compilation book. 

@Bob Malecki - That is a great chart!

For me I have high yield performing notes in my retirement accounts. Although I also have a legacy 401K account with more of my net worth still in stocks than I would prefer. Then on the taxable side I do JV's on non-performing notes in my LLC.

I am doing what I call “reverse retirement”.

I am building money in my retirement accounts as well as an LLC investing in real estates primarily on mortgage notes. My goal is not to leave my full time job as I love what I do but to build additional wealth and cash flow. Every year my LLC makes X it is cash that reduces my retirement age by Y.

Some people want to grow and build funds etc, or own hundreds of units. That's not for me. Maybe if things lined up perfectly but otherwise it sounds like too much work and responsibilities.

I'm just looking for lifestyle investing. I want to go play golf at 2pm on a tuesday and not be stuck in an office. My goal is 10-12k passive per month. I was getting pretty close but have had a few big setbacks over the past 18 months.

Unfortunately I'm not able to invest my retirement account in mortgage notes due to cross border regulations, however I have it 100% invested across a myriad of private equity funds, primarily real estate related. Yes, this may sound risky, and at least one is going off the rails but across the board is at least a 20% IRR. For years I dabbled in the stock market, and thought I was a genius up to the run-up in technology stocks until 2000 until I took a 80% hit, but the portfolio was mostly paper gains anyway.

The remainder of my non-registered funds, along with investor capital from various sources invested through my company, are invested in mortgage notes, both non and performing, and a few flips here and there.  It took some time to build, but the cashflow from the performers covers business and personal expenses so everything above that is gravy.