Author Topic: Alternatives to real estate investment?  (Read 2671 times)

hlflanagan

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Alternatives to real estate investment?
« on: February 15, 2015, 09:00:25 AM »
Hello Mustachians,

About eleven years ago, I bought my first house.  Three years into that, I ended up having to move across country and ended up renting it out (housing market had just crashed in the US and there was no selling at that time).  The rent/taxes ended up break-even for the duration, but I found I really really really dislike being a landlord, even with a property manager to keep a local eye on things.

One of the previous tenants just dropped a very nice offer for the house on my lap out of the blue (YAY!) which will take me out of all debt and give me a six-month emergency fund to play with.  Finally, I can start heavily investing in my retirement so instead of "debt-free by 50" it will be "FI by 50"  (that's in six years, fwiw). 

I am painfully embarrassed that it took me this long to figure out how to be a Mustachian, but let's just ignore the fact that I was an idiot for the first 20 years of my adult life.  My actual question for you is: given my discomfort with being a landlord, what alternatives are there for investment when I max out my various traditional retirement funds?  What would a real Mustachian do?

Thanks!
Heather

waltworks

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Re: Alternatives to real estate investment?
« Reply #1 on: February 15, 2015, 09:24:37 AM »
Um, anything you want?

You can buy stocks, you can buy bonds, you can buy REITs if you want some real estate in your portfolio but don't want to be a landlord. You can buy some of all of them.

If you want set and forget, go find a Vanguard target retirement or other low-cost mutual fund that suits your allocation preferences and just dump any extra money into it in a taxable account.

-W

Bracken_Joy

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Re: Alternatives to real estate investment?
« Reply #2 on: February 15, 2015, 09:55:33 AM »
Probably the same things you choose for your tax-advantaged accounts, but just not in those accounts =) Since you're closer to retirement age, you'll probably want a lower risk approach- a mix of bonds and stocks is popular.

I recommend avoiding ponzi schemes and time shares. ;)

humblefi

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Re: Alternatives to real estate investment?
« Reply #3 on: February 15, 2015, 10:30:30 AM »
I would ask two questions:

1.
What is your tax bracket?
If you are in one of the higher tax brackets, then "normal income" producing assets like REITs may not be a good option..unless you like paying more taxes :-) If you are in a lower tax bracket, I like the other poster's suggestion of REIT as a way to expose your portfolio to real estate. If you are in a higher tax bracket, then you need tax efficient investments. Please refer to http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement and http://humblefi.com/category/personal-lessons-in-investing/tax-related-lessons/. The former is a super reference...the latter has some lessons in a way I could understand it.

2.
When do you need the money back?
If you want the money back at a moment's notice, then cash is the way to go...use online banks for the best interest rate possible.
If you can withstand 10 years without wanting the money back, then a total market index fund like VTSAX may be the way to go.
If you want to distribute the need for money across many years, then take a look at this presentation from Morningstar: http://uwra.wisc.edu/presentations/files/2012/20120918Morningstar.pdf

Hope this helps.

Another Reader

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Re: Alternatives to real estate investment?
« Reply #4 on: February 15, 2015, 11:30:52 AM »
Before you accept an "out of the blue" offer, you need to know what the market value of the property is.  That does not mean looking it up on Zillow.  In your shoes, I would contact two or three agents that work in the area and ask them for the estimated selling price/market value of the property.  They should provide you with the estimate and back it up with recent comparable sales.  If you haven't evaluated the property recently, the market may have appreciated significantly and this unsolicited offer may be well below market value.  Don't let your desire to be rid of the property cloud your judgement and cheat you out of the full value of the property.

hlflanagan

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Re: Alternatives to real estate investment?
« Reply #5 on: February 15, 2015, 04:21:05 PM »
I would ask two questions:

1.
What is your tax bracket?
If you are in one of the higher tax brackets, then "normal income" producing assets like REITs may not be a good option..unless you like paying more taxes :-) If you are in a lower tax bracket, I like the other poster's suggestion of REIT as a way to expose your portfolio to real estate. If you are in a higher tax bracket, then you need tax efficient investments. Please refer to http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement and http://humblefi.com/category/personal-lessons-in-investing/tax-related-lessons/. The former is a super reference...the latter has some lessons in a way I could understand it.

2.
When do you need the money back?
If you want the money back at a moment's notice, then cash is the way to go...use online banks for the best interest rate possible.
If you can withstand 10 years without wanting the money back, then a total market index fund like VTSAX may be the way to go.
If you want to distribute the need for money across many years, then take a look at this presentation from Morningstar: http://uwra.wisc.edu/presentations/files/2012/20120918Morningstar.pdf

Hope this helps.

These are brilliant, thanks!  I'm in a higher tax bracket, and don't expect to need the money back in the immediate future.  And, to answer another poster, the house was recently appraised for a refinance that I chose not to take, so I think I'm doing pretty well there. 

Ah, to be out of debt.  What a marvelous thought.