Should I Trade My Stable Index Funds for Cash-Flowing Rentals?
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- Опубликовано: 27 июл 2024
- Index funds and rental properties are at opposite ends of the investing spectrum. On one side, you have highly diversified, almost entirely passive index funds. On the other, you have cash-flowing, yet far more hands-on, rental properties. Both of these beloved types of investments belong in (almost) every investor's portfolio, but how much should you have of one or the other?
Today’s guest Cecilia has built a strong net worth while keeping her income high and expenses low. She bought at the bottom of the market in Southern California, so while home prices rise all around her, she’s sitting comfortably with her rock-bottom mortgage payment. Thanks to all the housing expense-related savings, Cecilia has been able to dump a lot of her extra cash into the stock market. But, she’s longing for a more travel-focused life, where she can take sabbaticals in any corner of the world she chooses.
Part of her plan to wealth-gaining greatness is buying a short-term rental in a city she loves, so she can still vacation on the cheap. In order to do this though, she may need to sell off some of her investments or swap her strategy entirely for cash-flowing rental properties in cheaper parts of the United States. Which path will set Cecilia on a fast track to FI?
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Episode 294
Show notes at: www.biggerpockets.com/blog/mo...
00:00 Intro
02:56 Income and Expenses
12:14 Assets and Liabilities
16:45 Financial Goals
29:49 How Much Cash Do You Really Need?
24:04 Stable Index Funds or Cash-Flow Reliable Rentals?
44:36 Automating Your Business for Maximum Flexibility
47:09 Prepping Her Primary to Become a Rental
53:59 Wrapping Up Cecilia's Investment Plan
What I did not hear from Scott was the cost of his 50/50 real-estate investment plan, because the 50% of "leverage" on $750k, is debt of $750k so there will be loan fees on investment property. Also, you then have $0 equity in that real-estate, but a monthly nut under all situations. You'd also need an investment safety fund for expenses like insurance, repairs etc. Finally, unlike other types, it's not flexible or liquid if things go bad in other parts of life, you can't just sell it tomorrow.
I live by what Buffett says about using leverage for investing:
"If you don't have leverage, you don't get in trouble. That's the only way a smart person can go broke, basically. And I've always said, 'If you're smart, you don't need it; and if you're dumb, you shouldn't be using it.'"
Love that the episode was posted super early today !
Fantastic episode. So much food for thought. Also strategizing about the endgame and working backwards is such good advice. Writing a book now and working on the end so I can work backwards and fill in the middle… this is similar. Great advice!
Great conversation!
Another great episode. I too get stuck thinking like she did in the video. Love Scott’s feedback about define where you’re going and back into your goals!
Agreed with real estate. Not everyone can do real estate and not everyone needs to do it.
I personally prefer “click click”investment. Most of it is automated anyways in auto DCA into various accounts.
Consider syndication
She could for sure invest in NNN National Tenant commercial real estate and be totally passive. Just a check every month
All non necessary money in the businesses should be sitting in a business HYSA to earn 4%
Index funds are no work no trouble no problems NO RISK.
Sounds like my wife who owns a small business as it relates to holding $$ in the business instead of taking the draw. It's her $$ so by the end of the year it's taxed as hers.
The multiple"bucket" accounts is purely psychological because all $$ is fungible. It's all mathematically irrelevant, but makes her (and my wife) feel "safer."
Car = HUGE liability!
1500 including taxes?
She stated that the $1,500 was for a 20-year mortgage on a 268k mortgage for her condo (calculates as a 3.1% interest rate).
@@chris-sc property taxes I mean. I don’t think it’s included.
@@HappyPenguin75034 Agree, most likely not included. At the same time, in California, property tax runs at about 1%, and adjusts upward no more than 2% per year. So that would be about $300 per month in property tax.
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I guess I didn't she her problem, seemed like she was doing everything right.
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I don’t understand why talk about moving. This is just wasting time.
Exchange all your "stable" index fund stock for TESLA today. Thank me later
haha, no thanks. Im not insane. Putting everything in one bucket is idiotic.
@@Bigboss-xe6lm yeah lol
No thank you. Research what P/E ratio is
Bad move. But buying now was better.
that’s called gambling 😂