Author Topic: New MMM reader- Investment advice for FI  (Read 1548 times)

MoneyMike

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New MMM reader- Investment advice for FI
« on: August 22, 2015, 09:38:04 PM »
I'm new to MMM, but I'm very glad I found this website and blog. A few quick things about me - 25years old, about 20k in savings, no student loans, no debt, I'm an independent contractor that makes about 65k/year after expenses, single, no kids. (Please let me know if you need any other information)

I want to start investing for FI. My accountant told me to make a SEP IRA and he said don't put more than 10k in it for now. That's the easy part I also wanted to double check and make sure I can open a Roth IRA, the only reason I think a Roth would be best for me is because I plan on buying a large amount of real estate and might need to pull some out for opportunities before I'm 59.5. But as far as the stocks go from what I've read I think I'm just going to put all of my money into the vanguard VTSMX and forget about it.

 I have a uncle that is 77 and manages 20 of his own rental properties in another state, he is getting old and wants to sell them all.The average value is about 20k/property and range from SFH's to duplexes and triplexes. I'm hopping to buy them all from him in about 2 years, or buy about 2-3 properties/year. If things with my contract go bad I will move there and manage them myself otherwise I plan to have a property management company do everything and I will stop by a few times a year to check the properties.

I think I have always been a pretty frugal person I don't really spend a whole lot of money- id say on average about $1,400/month (which is currently going down). I don't have Cable anymore, I'm starting to cook and now I walk to work and only drive once per week. I know I can cut down on food expenses also, but the main thing I want to know is if I'm going about investing right.

1. All VTSMX in a SEP IRA and then maxing a Roth IRA($5,500) because I can't have a traditional IRA along with those right?

2. After I max out the IRA's where should I put the money I plan to use to buy the real estate in the next couple years with? Bettermint, or regular vanguard taxable account?

3. What do you think is my best strategy in buying the rentals from my uncle. Buy one by one cash, or buy 5 at a time with mortgages?( he says I can take over the mortgages and have them transferred into my name if I give him 5k as down payment on a 20k property- there's only about 10k left on the 15year mortgages(with 5years remaining); he's giving me a good deal on the property) these numbers are estimates

Or if buying these properties from him is a bad idea in the first place. I do want to have a large portion of my portfolio In real estate and I think this would be a great start.

I will really appreciate any advice. By the way I made this with my phone and I don't have the best writing skills so please let me know if you need anymore information or need me to be more specific with some of the numbers, Thanks in advance.

BCBiker

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Re: New MMM reader- Investment advice for FI
« Reply #1 on: August 23, 2015, 12:06:32 AM »
This will take a  lot of study but I think it could be a good option for you. You could load up your SEP IRA every year ($52k a year if you can really cut your expenses and increase income a bit) and invest in real estate using a self-directed IRA. When you FIRE, you could do a Roth conversion ladder of the real estate into a self-directed Roth.

There are a TON of rules associated with this and you don't want to get killed with the self-directed IRA management fees. For example, I've heard you cannot manage or work on your own properties in IRAs because that would be "sweat-equity" which they would not be able to tax accurately. 

If you could pull this off you could pay no/very little taxes prior to 59.5 and potentially own millions of dollars in real estate, tax-protected in a Roth! That could be really sweet! Maybe not worth the hassle but I would look into it.

If you are serious about real estate, listen to every biggerpockets pod cast.

To learn more about Roths and Roth conversion ladders, go to madfientist.com.  Also consider radical personal finance podcast for more ideas.

good luck!

Scarter

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Re: New MMM reader- Investment advice for FI
« Reply #2 on: August 23, 2015, 01:08:26 AM »
In terms of real estate investment, purchase as many as you can from your uncle.  Maybe not all, but certainly ask about the ones that made him the best profit with limited problems.  Evaluate the location, school and walk score for each property.  If you can get about twice your mortgage for rent, that is a fabulous start. 

In terms of financing, yes finance as much of your property as you can without jeopardizing your cash flow.  Investment properties are a business, so you want to profit each month on them.  Because each property is a business, you can write off expenses and maintenance.  Keep a comfortable cushion in your account for those occasional repairs or replacement costs.  When you have enough properties netting you equivalent to your salary, the only question remains is do you still need to have your current job?   Investment properties are great because your expenses are very low.  If managing is not your cup of tea, then look into REIT.  It does the similar thing, but not the day to day management.