Thank you for all your suggestions!
Some things to clarify:
Reason for living on my income: We targeted to live on the lesser of the two incomes and found that we saved better when we didn't touch the "other" pile. Keeping the saving money separate just works for us. No "marital" issues here :) but of course the burden is on the person trying to convince the other until we are both on the same page. For context, getting into Real Estate/Apartments etc was my idea as well - we went to see many properties together, I built the first spreadsheet to compare properties, we made all decisions together, its only over the past year I stepped away due to some medical issues I was dealing with. See update below for "good" progress!
I read out all your answers to him last night! And we had some constructive conversation and criticism around the various points made here.
The points he thought were valid: (let me know if my understanding on any of these are wrong!)
- Diversification is intended for preservation more than rapid "growth"
- Tax implications of hard money might bring down the returns to levels that previously seemed less attractive
- He understands reducing "tax liability" now by contributing to a 401k but he does not believe his tax rate in the future will be lower than his tax rate today.
- Agrees there is an element of "greed/arrogance" in the I can get "better" returns.
- 401k and IRA are safe from "potential lawsuits" on our RE side of the business
- We are already working aggressively on tax reduction strategies (however suggestions made here about solo 401K and defined benefit plan, apply less since our taxes are so high, mostly based on current W2 incomes. The RE we hold with depreciation and capex losses, dont contribute much to the tax basis. We 1031 all our properties, so taxes are deferred on those sales.
Based on my understanding I dont think I can put W2 income in either a solo 401k or a defined benefit plan.
- We are working with these guys
http://provisionwealth.com/ to reduce our tax liability for next year.
-He liked all of Bbub's answers (ha ha!).
We downloaded this spreadsheet from NYU and worked on some of the stock market returns/numbers.
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.htmlHe felt better, though not fully convinced (baby steps!)
The good news!We have agreed to put in the next accummulated $100K into index funds (needs more work on convincing him about the 401K)
Since today is Friday, I am starting to write out the tax benefit math on the 401K to illustrate my point, and play around with tax rates in our future.
We will continue to explore other options over the next year, and might consider new opportunities in non RE businesses.
He has agreed to not channel any more money into RE (only play with existing money+equity).
He already tried to partner with another Hard money lender (who refused our money since its a family business) but we got some insight to suggest that unless you are playing with 1M+ in cash in rotation, it will take more time and effort to get "established" among RE agents and mtg brokers. Might be something for the future, definitely not right now.