All Forum Posts by: Tom Smart

@Scott Eisenmann

I am buying new builds, and using a property management company.

@Scott Eisenmann,

Like you, I got interested in real estate later than many.

I'm 55, and bought my first property 2 years ago.

I'd like to buy two properties per year or so for 8-10 years and replace a big chunk of my income.

Seems like I may have gotten started at just the right time, for me.

I also deal with the challenge of buying in the US while living overseas. We all have our challenges.

Like you I'm excited about the prospects in the real estate world. And I suspect that like me, you're not afraid of anything.

I say go for it.

Sincerely,

Tom Smart

@Greg Guiltner

My rentals are new construction, but through a local builder. It makes RE investing very straightforward for me by eliminating much of the traditional work of finding deals and managing rehabs.

Message me if you want to chat.

Hey, go ahead and criticize....

..my plan for retirement, not my parenting skills. After all this is an investment blog right?

Really, I'd like to know what's really wrong with my plan, but I haven't heard anything significant yet.

If fact I'm quite shocked that on a real estate investment blog I'm getting advice to part with my real estate for retirement and do what the financial advisors say to do and invest in stocks and bonds and settle for 4%.

 If this was a financial planning blog that's what I would expect. Where are all the buy and hold investors? Do they really all plan to sell their real estate at retirement because they don't want the hassle of property management?

Come on guys, please tell me I'm nuts for buying a new house as an investment. And give me a good reason why.

Why shouldn't I take money out of my 401k at age 59 1/2, pay off a rental, and live off of the 6% return?

Please tell me why I'm crazy for planning to retire in this way, because this is my plan.

Tom

Thanks for the feedback.

Two writers seem to think I have misinterpreted the 3-4 % rule. Steve K explains this often given example of the standard method espoused by the financial community as the way to generate an income from a retirement nest egg once in retirement. He explains it in more detail than I did, but explains it exactly as I understand it. He explains that the returns are greater than 3-4 % but in order to account for the fluctuating stock market, a retiree should plan on withdrawing 3-4 % per year. So my idea is to be able to have an income greater than 3-4% annually, by using real estate, which I believe is possible, with very low risk.

Then he talks about getting greater returns on a real estate investment portfolio using leverage. I don't disagree with this, which is why I mentioned using financing to purchase the real estate.

Maybe I wasn't clear but what I have described is two different strategies during separate time frames. During the next ten years or so I plan to acquire properties, using financing, either 30 year, 20 year, or 15 year mortgages.

Then when nearing and in retirement, I plan to use a large portion of my 401k balance to pay off mortgages, in order to have an income in retirement.

As an example, suppose I am able to purchase x single family homes, financed in a way that each generates a small positive cash flow. I won't have income sufficient to retire. But if I have a million dollars in mortgages and I take a million from my 401k and pay off those mortgages, my cash flow will increase by approximately 60k per year. So I have turned my 1 million dollars into a steady cash flow of 6%, which seems to be 50-100% more income than if I follow conventional wisdom and keep my money invested in stocks and bonds.

Finally, I have been criticized for focusing on leaving an inheritance, even criticized for my parenting. That was not my point, or my focus. My point was that using my strategy, I will generate a 6% income forever, unlike the other strategy which seek to provide an income for 30 years or so while assets dwindle to zero or near zero.

So far I haven't heard any reason to alter my strategy. I was hoping someone would have an opinion as to what amortization schedule for financing might make best sense based on my overall strategy.

Also I thought I would get some feedback on the strategy of buying new homes since this is rarely if ever discussed by the real estate investors.

Retirement Plan.

I used to have a 401k. That was before I lost my job. My search for another job landed me in another country, working as a contract employee through a third party.

I got interested in real estate because I want a vehicle to invest in for retirement.

I have two reasons for choosing real estate. First, because I no longer have a 401k that I can contribute to, and second because I don't like the conventional wisdom that says in order to generate an income during retirement, take your nest egg and allocate percentages to stocks, bonds, and cash. Then withdraw 3-4 percent per year, and if you're lucky, you die when your money runs out 30 years later. If you're not so lucky you outlive your money and live on social security your last few years of life. Either way you die broke and leave nothing to heirs.

My plan is to buy some rental real estate, financed to cash flow positive for the next ten years or so, then some time after age 59.5, tap my 401k funds to pay off the mortgages; my hope is that the result will be a steady stream of income that returns about 6% of the funds invested, which is quite an improvement from the 3-4 percent rule typically quoted by the financial planner types. And the entire nest egg (invested in real estate) remains intact to be passed down to heirs after I'm gone.

The process includes all of the challenges of investing from far away. I've looked at turnkey operations, and I have looked at single family homes in neighborhoods near the home I still list as my permanent address in the U.S., and I've looked at multifamily properties. I have decided to pursue Single Family homes, for what are probably typical reasons, and I have focused on simply buying a new home from the same popular builder in my area who sold me my permanent residence, and renting it using professional property management. The advantages to this method for me as I see them are:

1. The process is known to me, and not difficult to implement from far away.

2. Eliminates the difficult task of evaluating MLS properties, including hiring someone to perform inspections, and hiring someone to repair and rehab to get a property ready to rent.

3. Reduces maintenance risk by allowing me to plan for long term maintenance based on typical life expectancy of new equipment.

I am interested to know if others have implemented strategies similar to my idea, and how well it has worked for them.

I am open to suggestions seeing that I have virtually no real estate investment experience, no financial planning credentials, and I just made this whole thing up.

Thanks in advance for your helpful comments.

Sincerely,

Tom Smart

I have inherited a property with 3 siblings. It must be sold. It is a riverfront home on 12 acres, built in 1975. It is a custom built, with a local architect. Five bedrooms, 3300 sq. ft. Here is the problem: The riverfront has a bulkhead that has been all but destroyed by flood, causing severe erosion. A new bulkhead will cost 100-150k. The home appraised at 1.2M. The agent suggests a listing price of 1.4M.

Here is the question: Should we fix the bulkhead or sell as is?