Income Planning for newb - 7 figure guy

[Doneanddone14]

Hi all,

I am a new member here and what I know about normal forum etiquette says that I should be an active member offering whatever tidbits of information to others before asking for some advice/information on my particular situation. That being said, I am excited that I found a place with like minded members to learn from and share some of the goodies I have learned in my quest to FI.

In a nutshell, I have been a self employed guy all my life since college graduation, I am in my late 30s currently. I have a company that I operate out of South Florida that is doing very well.  My business ship items domestically within a specific niche. I wont go into too much detail with it for privacy's sake but that should provide a bit of insight.  I started from 0 and grew the business to a place where it operates on its own with a few staff members and about 15 hours of my time per week. I have been able to do whatever I want to do in life and things have been really accumulating these last years.

I never spent much time learning how to invest because in my mind there was no better investment then in my business and with myself at the helm. All along my journey I have always been a saver and have been able to save large portions of my after tax earnings which have added up. At the moment I have an interested party who wants to acquire my business for a fair price. We are set to close around the end of the year. I am north of 5m with 1 car lease and 0 debt. I live in a condo that's paid for and included in that calculation.

I want to use this money to generate my income obviously. I would like to focus on rental real estate income and some basic index funds possibly but I am not certain just yet. I am in the crafting stages of the plan in all honesty. I wont make any moves without exhausting all outlets naturally.

My goal is to generate a nice income to maintain the lifestyle I am accustom to. My goal is to generate 150k after taxes factoring in support for my mom and dad which are elderly and rely on me.   I will most likely start up another business at some point but I wont count on that at the moment.

On to my questions,

1. What suggestions in terms of a realistic investment strategy "mix" would you employ in this case?

2. Ball parking here - what type of total investment in rental income properties could or should meet my goals approximately? Remove any guarantees as nothing is expected or set in stone.

3. The rental home market in South Florida is expensive. Would you be scared to acquire properties an hour or 2 away from home base?

 

[matchewed]

First of all if it was forum etiquette to contribute before asking then nearly everyone would be guilty here.

Secondly you will probably catch some flak for your anticipated expenses. That will be questioned... hard.

1) Depends on you. My standard advice - Come up with an Investment Policy Statement and Asset Allocation which reflects your timeline and risk tolerance. Then invest accordingly.

2) Not sure what your asking. See #1 and replace stocks and bonds with real estate. Figure out for yourself what type of real estate you want to get into. Any of them can accomplish what you want.

3) Nope. Hop into Real Estate and Landlording to check out this post.

[Doneanddone14]

Matchewed,

Thanks for the info!

I figured my projected expenses would be questioned. I plan on traveling and raising a family so I am factoring in a comfortable scenario for all. I could get by with less if I had to. I also have the parents to consider and their health issues etc.

2. In other words, what would you expect to spend on rental property purchases (1m, 2m or 3m) to achieve my goals?

Ill head over to your link.

[Northerly]

First: Congrats on your accomplishments!

As you'll see by poking around here, 4% is considered to be a safe withdrawal rate (SWR) when invested in the stock market index. 4% of 5,000,000 is $200,000, so you're easily set, even if you only invested in the index. Unless you are willing to actively manage rental real estate and perhaps do some maintenance (because you want to?), rental real estate returns, statistically, are in the 6-8% range. If you're willing to spend the time to look for deals and use leverage, then you can easily crush the average in real estate.

But if you're going truly passive, I'd follow MMM's recommendation on index funds, dividend index funds, reit's, and maybe some low key local real estate.

[matchewed]

Matchewed,

Thanks for the info!

I figured my projected expenses would be questioned. I plan on traveling and raising a family so I am factoring in a comfortable scenario for all. I could get by with less if I had to. I also have the parents to consider and their health issues etc.

2. In other words, what would you expect to spend on rental property purchases (1m, 2m or 3m) to achieve my goals?

Ill head over to your link.

2) Same answer. It all depends on the type of real estate you want to get into. You'll need to do an awful lot more research into landlording. I can't think of a single person that will give you a straight answer on that one because there is no straight answer. It just depends.

[Davids]

Given what you are saying I would stick with index funds and REITs. No need to actively own properties. You are set for life.

[Fishingmn]

I personally think MMM isn't the best forum for your questions and would suggest the following -

www.biggerpockets.com - the internet's best site for real estate investing. Great blog articles, how to guides and a very active forum for investors

http://www.early-retirement.org/forums/ - the early retirement forums would be a better fit for someone with your assets, spending level and for answers regarding investing. This is a place where lots of 30-60 year old people discuss retiring early and it's typically for more traditional retiree's that spend a lot more than MMM readers and also have saved a lot more

I probably fit in both of those sites better but I love coming here to MMM as the forums are full of people who are trying to improve themselves vs. a lot of people that maybe already have it made.

[Doneanddone14]

In terms of the other sites, I have looked around bigger pockets a bit but never early-retirement.org. 
Ill do some digging around to see what can be discovered.

[babysteps]

Congrats!

A few thoughts.  disclaimer: I spent 15 yrs on Wall Street but now live in a low COL area and do real estate investing with my spouse, we call ourselves semi-retired.

1-consider paying a few folks for expert advice (at the start, not on a repeat basis).  Find fee-only advisors, prescreen for 1-2-3 or so that you like, hire them for an hour or two each (send them your details first, for example you may tell them you want 3 different broad-brush-stroke model portfolios in 30/45 minutes and then Q&A)

2-you may have enough assets to not have to worry about "investing", or at least to focus a lot more on safety (capital preservation) than on returns.  For example, you may be choose to build a ladder of TIPS and 'insure' with some options (for example: indexed short funds that go up when the market goes down) and some hard assets (as an inflation hedge) and have plenty of money with *no* planned investment gains

3-find a good tax advisor.  Could you gift your portion of your company to your favorite not for profit, then they sell (so no cap gains to you) and they build you a charitable gift annuity (perhaps including some immediate payout mixed with a second stream that kicks in later in life)?  You can set up your own "foundation" including a lifetime tenancy for yourself.  Etc....  I am sure that there are a bunch of regulations that means these examples couldn't actually work, but you have room to be creative.

Have fun, and good luck.