Investing

Crazily_sl said:

Anyone have any real estate investing advice? I am 35, debt free and have about 600/month to do whatever I want with. I want to try and make my money...make me money....

Click to expand...

I started investing in real estate tax certificates, also called tax liens or tax deeds depending on the state, seven years ago with much less capital than you're talking about. I purchased eight tax certificates at the second sale that I went to for about $3,500 total, and paid about $7,000 over the next three years in subsequent taxes due. Of the eight, five were redeemed, netting an average return of 17%. Three were not redeemed and I filed suit to quiet the tax title and subsequently sold each. The rate of return on the sales was in the 100-200% range.

Tax certificate investment is not safe and is not easy. At the first tax sale I attended I purchased three certificates that were completely worthless, losing about $1,500. Before purchasing tax certificates research the laws and procedure regarding them in your state and research every certificate before bidding or purchasing. The investment is highly illiquid because your money is tied up until redemption or suit to quiet title, so anywhere from a day to five years.

Can someone comment on using 10-month Simple Moving Average as a rudimentary market indicator to buy/sell ETFs?

I read about it inthisarticle. Relevant part quoted:

Forbes Article_sl said:

Faber looked at five asset classes: U.S. stocks, foreign stocks, real estate, commodities and the U.S. 10-year Treasury bonds. He used a simple buy rule, holding the asset only when it was above its 10-month moving average.

The moving average is designed to look beyond the short-term trends within price data and help investors spot the longer-term trend. Faber?s study assumes you only own the asset class when it is on a buy signal. When prices fall below the 10-month average, you move to cash for that portion of the portfolio. The results are impressive, an average annual return of 11.27% from 1973 through the devastating bear market of 2008.

Click to expand...

Thissite lets you backtest a few ETFs with this strategy. Results for SPY spoilered below due to image size:


Basically it seems like while it doesn't necessarily create extra profit opportunities, it helps to shield from market downswings. The reason I ask is I'm generally a buy and hold type person but looking to reduce my exposure a bit using this strategy. I pretty much only own large Vanguard ETFs (VOO, VXUS, etc). I'd like to keep a balanced portfolio and use this or a similar strategy. Thoughts?

Tmac47_sl said:

If I'd invested all of my high school graduation money into Apple stock instead of a computer I used for 4 years, I'd be sitting on $30k... Hindsight is expensive.

Click to expand...

Microsoft went public the year I graduated. If I had put my graduation money into it today it wold have been over $1.4 million lol. I did buy some other long term stocks with it but nothing like that.

Keep in mind, investing in a single stock (or even 20 stocks) is really just gambling. You might buy the next Google, and you might buy the next Blockbuster.

Unless you have a minimum of $100k, forget about real estate. Even if you have $100k, forget about real estate. Very few people are successful in real estate, and those who are usually have millions and invest in commercial properties. Or some other niche, like buying distressed properties and flipping them, which is a job, not investing.

If you have something like $600 a month, do yourself a favor and put it in a Vanguard Roth IRA. Pick a simple fund like a target retirement fund or the total market index. You can put in up to $5,500 a year and withdraw the contribution (not the interest) at any time, tax and penalty free, assuming it isn't lost. Once you hit $5,500, you can look at taxable accounts, though really you should be looking at tax sheltered options like a 401k ($17.5k limit annually for most of us) if you have that option. Taxable accounts are best used after you tax exempt or tax deferred options are maxed. If you anticipate needing the cash in the short term, CDs, money markets, or I-bonds are better options than the stock market.

The thing to remember about investing for 99% of us is its not for today, next year, or even 5 years from now. Its for retirement. You aren't getting rich anytime soon. The trick is to contribute as much as you can, shelter taxes, avoid expenses, not withdrawing early, and not panicking when the market goes down.

aegdaien_sl said:

Can someone comment on using 10-month Simple Moving Average as a rudimentary market indicator to buy/sell ETFs?

I read about it inthisarticle. Relevant part quoted:



Thissite lets you backtest a few ETFs with this strategy. Results for SPY spoilered below due to image size:

Spoiler

Basically it seems like while it doesn't necessarily create extra profit opportunities, it helps to shield from market downswings. The reason I ask is I'm generally a buy and hold type person but looking to reduce my exposure a bit using this strategy. I pretty much only own large Vanguard ETFs (VOO, VXUS, etc). I'd like to keep a balanced portfolio and use this or a similar strategy. Thoughts?

Click to expand...

Market timing is more or less a crap shoot. Have people done it successfully? Of course. Have people failed miserably? Many more.

If you want to try to time the market, my best advice is to set your asset allocation to what you're comfortable with, and rather than rebalancing to try and market time, simply increase your contribution rate when you feel the market is undervalued.

nate_sl said:

Unless you have a minimum of $100k, forget about real estate. Even if you have $100k, forget about real estate. Very few people are successful in real estate, and those who are usually have millions and invest in commercial properties. Or some other niche, like buying distressed properties and flipping them, which is a job, not investing.

Click to expand...

Gadrel_sl said:

Click to expand...

Care to explain? Why would you invest in a market that has been in shambles for the last five years? Your chances of making money in real estate are decidedly less than the stock market. This is a fact.

The inflation-adjusted growth rate of residential real estate over the last century is about 0.2% per year. The inflation-adjusted growth rate of the Dow index over those same 100 years is about 1.5%. Compounded over 100 years, that difference is a stock portfolio 5 times greater than the real estate portfolio.

And that doesn't even factor in mortgage expense, home repairs, or taxes.

And please don't point to a specific property or region that has experienced huge growth, as I will just point at Apple, Google, Microsoft or countless others.

Also, if you don't have at least $100k (and likely even if you do) a property or properties will represent too large a percentage of your total portfolio to be properly diversified. This is gambling, not investing.

If you absolutely must invest in real estate with something like $600/month, buy shares in a real estate ETF. However I don't recommend this either.

If you were properly invested in the market during 2013, you've already gained over 20%, after expenses.

*Edit: after doing some reading about tax lien investing, I'm willing to concede you can make money doing it. However, if you have $600/month to invest, you will not be properly diversified, you are investing in illiquid and risky investments (as you stated), and this is an extremely active form of investing. It's more like a secondary or even primary job, and takes a lot of knowledge and luck. If you want that headache, be my guest, I'll stick with VTSMX.

There is more than one way to invest in real estate, just as there is more than one way to invest in securities. The minimum rate of return for my investment property purchases, and the minimum that my former employer stuck to, is 10%. I.e., the net return after all expenses is projected to be at least 10% of cash down per year. Check the growth of rental prices over the past five years, or 100 years if you can, and you'll see why.

Sure, investing in real estate is illiquid and requires work, but one receives a much higher rate of return in trade.

Your example regarding residential real estate growth over the last 100 years is silly. I don't know any real estate investors that buy residential property and hold it for any longer than is necessary. Illiquid commodities like real estate often present price point opportunities that liquid investment vehicles rarely do.

For example, when is the last time that a margin investor went belly-up and you bought his portfolio at auction? Never. When is the last time that someone went belly-up and I bought his house at auction? Two weeks ago. 40% below market price.

Gadrel_sl said:

For example, when is the last time that a margin investor went belly-up and you bought his portfolio at auction? Never. When is the last time that someone went belly-up and I bought his house at auction? Two weeks ago. 40% below market price.

Click to expand...

It was 2008, when mom and pop sold their 401ks off because the market dropped 40% while the long term investors who stuck to their fundamentals furiously increased their contribution rate.

If you're getting 10% annually, I applaud you. Clearly you understand the rules and processes for these types of investments and have made good business decisions.

That doesn't change the fact that this is not a good investment for John Doe who has $600/month to invest and doesn't have any knowledge of how tax liens work.

You engage in a high risk investment, your money is illiquid, and you hope to return 10% which is (shocker) the annualized return of the stock market. Which can be passively invested in. Why you working so hard, bro?

nate_sl said:

It was 2008, when mom and pop sold their 401ks off because the market dropped 40% while the long term investors who stuck to their fundamentals furiously increased their contribution rate.

Click to expand...

It's been shown repeatedly that timing security market investments is a fool's game. If you bought during this period, then I applaud you.

nate_sl said:

That doesn't change the fact that this is not a good investment for John Doe who has $600/month to invest and doesn't have any knowledge of how tax liens work.

Click to expand...

I don't just invest in tax liens, although that's how I started since the capitalization requirements are low. I also purchase properties at sheriff's auction (foreclosures, judgments, and blighted auctions) and, every once in a great while, I buy a good deal off the market.

nate_sl said:

You engage in a high risk investment, your money is illiquid, and you hope to return 10% which is (shocker) the annualized return of the stock market. Which can be passively invested in. Why you working so hard, bro?

Click to expand...

Tax liens are, with a couple of exceptions (state/federal income tax liens), a first priority lien. I.e., they generally amount to between 1%-10% of the equity of a property and are paid first. I don't know of any other investment with a guaranteed return on principal secured by 10x-20x the value of the principal investment. When you buy a security, do you get a guarantee that, worst case, in three years, you can take title to 10x-20x the initial investment?

The 10% figure I cited is a minimum annual return on principal for rental properties. Keep in mind that most investors leverage such properties, so that return is calculated on the down payment for the note, which is usually 20-40% of the purchase price.

Regarding tax liens my average annual rate of return for a redemption is in the 9%-17% range, depending on the sale. Redemptions require no work: I purchase the lien, sometimes I pay up any subsequent taxes assessed, and the taxing authority handles all of the paperwork when the tax debtor redeems.

Occasionally the redemptive period expires and I have to file suit to quiet title. The rate of return usually ends up in the 100%-200% range, but a lot of work is involved.

I have a securities portfolio. It contains a bunch of random ETFs that I purchased a couple of years ago. I'm up a whopping 2% on it.

Gadrel_sl said:

It's been shown repeatedly that timing security market investments is a fool's game. If you bought during this period, then I applaud you.

Click to expand...

I agree with you, and I even said as much above. Trying to predict when the market is at its high point and re-balancing to bonds or selling stock is market timing. I am not doing this, I am simply increasing my contribution rate when the market goes down. I still had an unrealized loss on my existing portfolio. When the market dips, I just buy more, to capture more of the market rebound. I do not re-balance.

Gadrel_sl said:

I don't just invest in tax liens, although that's how I started since the capitalization requirements are low. I also purchase properties at sheriff's auction (foreclosures, judgments, and blighted auctions) and, every once in a great while, I buy a good deal off the market.

Click to expand...

Again, not applicable to someone with $600/month. If you take out loans to buy properties, you take on a huge amount of personal risk, way more than simply loss of principal.

Gadrel_sl said:

Tax liens are, with a couple of exceptions (state/federal income tax liens), a first priority lien. I.e., they generally amount to between 1%-10% of the equity of a property and are paid first. I don't know of any other investment with a guaranteed return on principal secured by 10x-20x the value of the principal investment. When you buy a security, do you get a guarantee that, worst case, in three years, you can take title to 10x-20x the initial investment?

Click to expand...

No, but your expected returns are much less. After doing some research, typical returns are likely in the 4-7% range. If you've done better, congratulations, you beat the market. People can also beat the market picking stocks, with a lot less leg work. Am I saying investing in tax liens is not a legitimate part of a well diversified portfolio? No, I am not... assuming you are well educated on the risks, know the laws and regulations, and again... have more than $600/month to invest.

Gadrel_sl said:

The 10% figure I cited is a minimum annual return on principal for rental properties. Keep in mind that most investors leverage such properties, so that return is calculated on the down payment for the note, which is usually 20-40% of the purchase price.

Click to expand...

Being a landlord is a job. It is not investing. It has inherent risks like every other business, and is a highly competitive market. You may do great, you may go bankrupt.

Gadrel_sl said:

Regarding tax liens my average annual rate of return for a redemption is in the 9%-17% range, depending on the sale. Redemptions require no work: I purchase the lien, sometimes I pay up any subsequent taxes assessed, and the taxing authority handles all of the paperwork when the tax debtor redeems.
Occasionally the redemptive period expires and I have to file suit to quiet title. The rate of return usually ends up in the 100%-200% range, but a lot of work is involved.

Click to expand...

You are either highly skilled at buying tax liens, extremely luck, or full of shit. These are not typical returns. Typical returns are 4-7% after expenses. Some guys from a magazine called Forbes have their own opinion on tax lien investing:http://www.forbes.com/sites/morganbr...for-tax-liens/

Gadrel_sl said:

I have a securities portfolio. It contains a bunch of random ETFs that I purchased a couple of years ago. I'm up a whopping 2% on it.

Click to expand...

As good as you are at buying tax liens, you're horrible at investing in the stock market. The Dow Jones is up over 27% this year. I highly doubt someone who can't figure out how to assemble a decent portfolio of ETFs is some kind of real estate all-star.

Personal attacks aside...

I began investing in tax liens with less than $600/month. I dropped about $500 on the first tax sale that I went to and about $1500 on the one the year after.

Tax liens vary, dramatically, between states. I am familiar with the process in Florida, where bidders bid down the interest rate of return on the lien. My state follows a different process with a fixed rate of return: 17% for the first year and 12% a year thereafter, prorated.

Being a landlord is as much of a job as you make it. All of my rental properties are under contract with a management service that charges 10% of the gross rent. I factor this calculation into my financial projection. They collect rent, find tenants, field all calls, and make repairs; this lessens the workload substantially.

Gadrel_sl said:

Personal attacks aside...

I began investing in tax liens with less than $600/month. I dropped about $500 on the first tax sale that I went to and about $1500 on the one the year after.

Tax liens vary, dramatically, between states. I am familiar with the process in Florida, where bidders bid down the interest rate of return on the lien. My state follows a different process with a fixed rate of return: 17% for the first year and 12% a year thereafter, prorated.

Click to expand...

I'm surprised that if these are indeed guaranteed returns that institutional investors aren't buying tax liens up in bulk. What are your returns after expenses like? What is keeping "the smart money" out of these types of investments?

nate_sl said:

I'm surprised that if these are indeed guaranteed returns that institutional investors aren't buying tax liens up in bulk. What are your returns after expenses like? What is keeping "the smart money" out of these types of investments?

Click to expand...

Some of the larger cities around the state have started holding their tax sales online. The competition for those tax liens is fierce and institutional investors buy a large chunk of them. A few years ago, when those sales were still held in person, representatives of several regional and national banks would appear to buy liens. I've been able to get a few decent liens from these sales now that they're online, but I have to watch the auction and bid like an Ebay beanie baby fiend.

Several smaller towns in the suburbs still hold their auctions in person and I do well at those.

You have to understand that not all tax liens are created equally. I.e., there are bad purchases at tax auction. Properties that are worth less than the tax lien, for example, or erroneous tax bills. These are easy ways to lose money, and I see someone purchase these types of liens at every tax sale.

I didn't want to create a new thread, and I need some advice on whether I'm better off cleaning out my investment portfolio to pay off student loans, or keeping my money in the market and continuing to make student loan payments.

I'm 25 years old, I make around $50k/yr. I have three student loans totaling $8,984, at a combined interest rate of 6.04%. My monthly loan payment is $126 and I pay an additional $15 each month, bringing my loan payment to $141. If I continue to pay at this rate, I'll have my loans paid off in July 2020. Under that payment plan, I'll wind up paying $2,322 in interest between now and July 2020.

I have approximately $9,600 in an investment account that I consider to be my "Fun Money" account. This is separate from my retirement account and I just pick a few stocks I follow and like. This investment account represents a large portion of my non-retirement savings. If I were to liquidate this portfolio and pay off my student loans, I wouldn't have much non-retirement savings left.

That's the background, now here's my question:
I'm torn between two schools of thought:
1) The idea of liquidating this investment account to pay-off my student loans in order to be free and clear of high interest debt (I have a car loan at 1% interest that I'm not concerned with). I could then rebuild my investment account with the $141/month I'm no longer paying on my loans

2) The idea that it's more important to have some fall-back savings in the form of the money in this investment account to rely upon in case I suddenly lost my job. I could keep the investment account open and continue to increase what I pay on my loan each month as my earnings increase. Plus, while I understand that past performance does not guarantee future results, I've earned about 8%/yr on this investment account.

tl;dr: Am I better off excising myself of ~$9k in debt at 6% interest, or am I better off making payments on that debt and continuing to grow a small nest egg? Am I making this seem like a harder decision than it should be: that it's obvious I should pay-off the debt if I have the ability? Having read this Investment thread for some time, I value the opinions of the people that post here. Thanks in advance.

Could you up your monthly payments to have the student loans paid off within 2-3 years?

Gadrel_sl said:

Could you up your monthly payments to have the student loans paid off within 2-3 years?

Click to expand...

This might be my best option.

If I bump up my payment by $125/mth to $245 total, I can have the loans paid off by February 2017. That's probably doable with a bit of financial belt tightening. My goal would be to get the loans paid off even sooner through reduction of my own monthly expenses.

I'm cognizant of the fact that there are quick and easy changes I can make to my lifestyle to reduce expenses: I buy lunch at work too often instead of packing, and I need to cook more dinners at home. Looks like the girlfriend is going to find out we're not going out to eat as often!

I appreciate each response as it has been quite helpful just to write this all out and come up with a real plan. I'm also glad to hear that I'm not crazy to think that while a 6% loan should be a priority, it's not a "Let's drain my savings to get rid of this bitch" priority.