Author Topic: Investment Order - Where do you slot saving for RE investments?  (Read 299 times)

Neo

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Investment Order - Where do you slot saving for RE investments?
« on: December 04, 2017, 08:23:22 AM »
This thread over in the Investor Alley section has some great info regarding how to invest your savings and in which order.
https://forum.mrmoneymustache.com/investor-alley/investment-order/

For those of us building our rental property portfolios, where do you slot after-tax savings for rental property purchases. I had been investing over and above the percentage of my company's match in my 401k, but I just reduced it to only contribute enough to get the full match. I will put the rest toward investment property savings. My business partner and I are working on our 4th purchase of the year right now.

So for me, I guess I would slot RE savings right after 401k up to company match. Where do you all slot RE savings for future investment property purchases?


tralfamadorian

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Re: Investment Order - Where do you slot saving for RE investments?
« Reply #1 on: December 04, 2017, 06:00:24 PM »
I fill all my non-taxable buckets first because there are no properties available where my CoC would be greater than the tax savings.

For example, say I had $50k to save in my budget. Presume my top tax bracket is 25%. Scenarios below-

1) I place those funds in a combination of my solo 401k, HSA and tIRA tax deferred. There is now $50k more in my investment accounts.

2) Instead I choose to hold those dollars for an investment property. After taxes the purchasing power is $37.5k. I purchase a good property with a CoC of 12%.   

Now, you're going- Wait! But future taxes! Yes, you're right- the real estate is going to have tax benefits while the tax birds will eventually come to roost on the tax deferred accounts. But if I play my cards right (roth ladder after FIRE), hopefully the taxes on the tax-deferred will be close to zero. 

Neo

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Re: Investment Order - Where do you slot saving for RE investments?
« Reply #2 on: December 04, 2017, 06:23:36 PM »
I hear you. My hesitation about loading up the tax advantaged accounts is that i want cash flow way before age 59.5. I know about 72t and all that but I see this is another measure of diversification.

Blindsquirrel

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Re: Investment Order - Where do you slot saving for RE investments?
« Reply #3 on: December 04, 2017, 07:01:52 PM »
  We fill the tax deferred bucket by maxing out 401ks, after that it is pretty much real estate for available cash. This year 2018, we are getting ready to exit work so will probably do up to the company match (6%) and then kinda think. Fed and state and local taxes on the top dollars are steep with the state taking the amounts below, School district taking 1.5%, 5% for state, and 33% for the feds, those last dollars are only worth 60 cents after taxes. That kind of makes me want to keep maxing the tax deferred.
3.960% on taxable income between $83,351 and $104,250.
4.597% on taxable income between $104,251 and $208,500.
4.997% on taxable income of $208,501 and above.
 And the feds taking
Taxable Income   Tax Rate
$75,301$151,900   $10,367.50 plus 25% of the amount over $75,300
$151,901$231,450   $29,517.50 plus 28% of the amount over $151,900
$231,451$413,350   $51,791.50 plus 33% of the amount over $231,450
Even a blind squirrel finds a nut once in awhile.

tralfamadorian

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Re: Investment Order - Where do you slot saving for RE investments?
« Reply #4 on: December 04, 2017, 07:27:57 PM »
I hear you. My hesitation about loading up the tax advantaged accounts is that i want cash flow way before age 59.5. I know about 72t and all that but I see this is another measure of diversification.

Exactly. That's why I do both. Load up the tax advantaged first then the rest goes to down payments.