Author Topic: Investment Advice - Real Estate or Index Funds  (Read 6641 times)

maddiecarr

  • 5 O'Clock Shadow
  • *
  • Posts: 4
Investment Advice - Real Estate or Index Funds
« on: February 06, 2016, 09:30:31 AM »
My husband and I (and 8 month old baby) are SUPER happily living with my parents in the DC-metro area.
We are sitting on ~95k in the mattress, 30k in VTSAX   and ~35k in his student loans (at 3.5%, variable).

Looking for input on what to do with assets...
We love living with my parents and are in no rush to move out (next 5 years)
Planning on holding loans unless they reach 5% or greater.

1. Should we invest more into VTSAX or is this just a weird time? (I know..market timing, blabla)
2. Should we look into buying a townhome/condo to rent out?

WHAT WOULD YOU DO?

(Also, any input on what to do with 28k in the baby's name would be appreciated - going in the mattress or CDs unless someone has a genius idea - want it to be usable/accessible by us before she is 18 for enrichment purposes...)

FINate

  • Handlebar Stache
  • *****
  • Posts: 1993
Re: Investment Advice - Real Estate or Index Funds
« Reply #1 on: February 06, 2016, 10:29:08 AM »
Real estate investing is very dependent on location, not just by metro area, but neighborhood by neighborhood. You should compare the return you can get on individual properties vs bonds vs. index funds.

I would only invest in RE if you can make it cash flow positive including: property taxes, maintenance, mortgage, HOA, etc. And you should plan to keep an RE investment for the long term - flipping can be lucrative, but risky because it is basically speculation on future appreciation and the transaction costs are high. If you can make more on RE (after all expenses) than index funds and bonds, and you want to invest for the long term, and you want to do the work of being a landlord then go for RE.

If not RE, and you really don't need the cash for 5+ years then I would put it in VTSAX knowing that it will go up and down, but over 5+ years it will appreciate. My gut feeling, just my opinion, based on the little bit of info you provided is that you should be building up your index funds at this point and not worry about RE investing yet. There is nothing magical about RE and I didn't get into it until I was in a place that I felt it made sense to further diversify my portfolio.

Just because I'm so debt adverse, the first thing I would do is pay off that student loan. Save on the interest (3.5% is higher than gov 5 year bond yield) and being debt free can make it less stressful to ride out market volatility.

As for the baby, I would not leave 28k around for enrichment purposes. This sounds like a good way to have money burning a hole in your pocket (at least it would be for me). I would invest that money in a 529 college fund (assuming you plan to help pay for college for the kid) and let it grow tax deferred/free (for qualified edu expenses).

Bearded Man

  • Handlebar Stache
  • *****
  • Posts: 1138
Re: Investment Advice - Real Estate or Index Funds
« Reply #2 on: February 09, 2016, 12:35:06 PM »
You and your husband may be happy to be living there, but are the parents? Or are you guys financially imposing on them? Not to mention their privacy.

I'd buy a place to live so that the parents can have a life of their own, otherwise pay them rent (if not already) so they can benefit from the shared living arrangement as well and you are not leeching off them, then invest in index funds.

Zoot Allures

  • Stubble
  • **
  • Posts: 205
  • Age: 50
  • Location: Western Massachusetts
Re: Investment Advice - Real Estate or Index Funds
« Reply #3 on: February 09, 2016, 01:59:34 PM »
You and your husband may be happy to be living there, but are the parents? Or are you guys financially imposing on them? Not to mention their privacy.

I'd buy a place to live so that the parents can have a life of their own, otherwise pay them rent (if not already) so they can benefit from the shared living arrangement as well and you are not leeching off them, then invest in index funds.

The OP wasn't asking for your opinion about her relationship with her parents. I suggest you concern yourself with your own life, which clearly needs work.

zoltani

  • Guest
Re: Investment Advice - Real Estate or Index Funds
« Reply #4 on: February 09, 2016, 02:05:04 PM »
Have you looked into any real estate to see if you could make the numbers work? Personally I am invested in stocks and RE, and am looking for RE but the market is not allowing me to find the return I want compared with just a year or two ago, so more is going into stocks at the moment. I am not sure what you mean about weird time in VTSAX...

The OP wasn't asking for your opinion about her relationship with her parents. I suggest you concern yourself with your own life, which clearly needs work.

Wait, where was BeardedMan asking for your option of his opinion of the OP?

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3620
  • Age: 42
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: Investment Advice - Real Estate or Index Funds
« Reply #5 on: February 09, 2016, 02:47:06 PM »
Have you looked into any real estate to see if you could make the numbers work? Personally I am invested in stocks and RE, and am looking for RE but the market is not allowing me to find the return I want compared with just a year or two ago, so more is going into stocks at the moment. I am not sure what you mean about weird time in VTSAX...

The OP wasn't asking for your opinion about her relationship with her parents. I suggest you concern yourself with your own life, which clearly needs work.

Wait, where was BeardedMan asking for your option of his opinion of the OP?
Where did Zoot Allures ask for your assessment of BM's interest in ZA's opinion of... fuck, I'm confused.


////////////////////////////////////BREAK////////////////////////////////

People like OP confuse me, $95K in the mattress... I always knew what I wanted to invest in, was just an idiot and never had the cash until the last few years. How do you get to $10K, and $20K, etc, and not have this thought process until now? But anyway....

OP,

I second the 529 recommendation for the baby money. With any luck at all, it'll be worth a whole college education 18 years from now.

As for allocating this magical nearly-six-figures that's currently inflating away to nothing, and desperately needs to go to work for you, I can tell you what I'd personally do with it, which is leverage the biggest multifamily I could qualify for, using this as a down payment, and complete my FIRE portfolio in the process... but I don't suggest starting there.

First of all, read a lot about RE investing before you commit to anything. Second of all, think long and hard about your values and priorities. Third, think about the long term, and I mean the really long term. Philosophies vary, but I don't buy real estate I'm not willing to hold till I die. Disposition is never guaranteed. Hot markets collapse, even cheap markets can fall, etc.

Finally, as a first-timer... I would suggest having management identified before you buy, and find one that will help you with evaluations. Just a suggestion though, not a hard-set rule. If I were doing it again starting today, I'd do less self-management and not more. I have a PM lined up for our future buys who does market rent analysis to help investors make good decisions. They should all do that... it comes back to them via higher and more reliable commissions.

Crazydude

  • 5 O'Clock Shadow
  • *
  • Posts: 90
Re: Investment Advice - Real Estate or Index Funds
« Reply #6 on: February 09, 2016, 07:55:14 PM »
I would argue most people on here would say this is a "good time" to invest in the market, if you're timing anything at all. The fact that a lot of stock is down can make it a good time to buy.

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3620
  • Age: 42
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: Investment Advice - Real Estate or Index Funds
« Reply #7 on: February 10, 2016, 07:49:23 AM »
I would argue most people on here would say this is a "good time" to invest in the market, if you're timing anything at all. The fact that a lot of stock is down can make it a good time to buy.
That reminds me, DW has $1200 in her IRA that I need to log in and allocate.

Bearded Man

  • Handlebar Stache
  • *****
  • Posts: 1138
Re: Investment Advice - Real Estate or Index Funds
« Reply #8 on: February 24, 2016, 07:57:49 AM »
You and your husband may be happy to be living there, but are the parents? Or are you guys financially imposing on them? Not to mention their privacy.

I'd buy a place to live so that the parents can have a life of their own, otherwise pay them rent (if not already) so they can benefit from the shared living arrangement as well and you are not leeching off them, then invest in index funds.

The OP wasn't asking for your opinion about her relationship with her parents. I suggest you concern yourself with your own life, which clearly needs work.

And I didn't ask you for your opinion either, but yet you gave it to me, huh tough guy? Clearly your brain needs some work. My life is fine. I'm rich, and I did it standing on my own two feet since I was 18 years old.

The fact of the matter is I gave advice that was asked for (buy a house and invest in index funds) and advice that would be fair to all parties. Unless you are one of these people also living with your parents at their expense well into adulthood for your own financial gain at their expense, which I suspect by your illogical response, you are. Grow up.

[MOD NOTE: Forum Rule #1.]
« Last Edit: February 24, 2016, 03:31:38 PM by arebelspy »

nereo

  • Senior Mustachian
  • ********
  • Posts: 14207
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: Investment Advice - Real Estate or Index Funds
« Reply #9 on: February 24, 2016, 08:15:26 AM »
WHAT WOULD YOU DO?

(Also, any input on what to do with 28k in the baby's name would be appreciated - going in the mattress or CDs unless someone has a genius idea - want it to be usable/accessible by us before she is 18 for enrichment purposes...)

I'm going to stick to answering the question.  Note that this is only what I would do.

I would immediately invest the majority of that $95k into low-cost index funds, leaving 3-4 months as an ER fund (how much that is depends on how much you spend each month).  I would put the money into my tax-advantaged accounts FIRST (tIRAs, 401(k)/403(b)/TSA and HSA accounts) and then put whatever was left into the VTSAX account.

Then, I would invest all $28k in the baby's name into a 529, which could easily cover four years of college in 17 years.  Again, I would put this money into a low-cost index fund like the VTSAX (I'd probably set up a 529 with Vanguard just to keep things super-simple).  I would NOT leave it in "the mattress" or bonds since there's a very long time horizon.  Any money that isn't needed for at least 5 years goes into the market; to keep it in cash virtually guarantees it will loose to inflation and therefore is much more risky than putting it into the market.

Then, I would spend the next several months reading up and studying real estate in my area to decide if it's something I really want to get into.  RE can be a great addition to a portfolio, but I would only get into it after taking care of my tax-advantaged accounts and after doing a lot of research.

This is what I would do.  It's not to say what anyone else should do.

Sarnia Saver

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Investment Advice - Real Estate or Index Funds
« Reply #10 on: February 24, 2016, 09:41:10 AM »
I would pay off those student loans first and foremost.  Variable interest loans should be scary for most people.  That frees up a large chunk of money to be invested.  For your whole family I agree that any real estate investment should be around finding a place of your own.  I will steer clear of the personal attacks that others have stated, but having your own space, privacy and home will be a great return on investment in of itself for your family.

**EDIT** After re-reading your OP it is clear you are very happy in your current living arrangement, what about buying a house nearby to maintain the benefits of living close to parents.  I think it would be a big job to go from living in your parents home, to being a landlord.  Homeownership can be a lot of hard work and a bad tenant can be a gigantic drain on your home value.  The risk in real estate can be greater than index funds due to the large cost and time required when you want to sell, and the potential cost of vacancy.  Index funds likely make the most sense for you and your family, particularily in tax sheltered accounts.  With real estate, unless you are willing to do a lot of research on properties, I'd argue a lot of people are better off to invest in REITs if they want a hand in real estate.  Let the professionals manage it, you take home your share of the rents.

Put the money into a 529 as has been suggested by many others.  I'm not certain what happens in USA if the child doesn't go to college, but tax free growth for 18 years is win.
« Last Edit: February 24, 2016, 09:47:07 AM by Sarnia Saver »

nereo

  • Senior Mustachian
  • ********
  • Posts: 14207
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: Investment Advice - Real Estate or Index Funds
« Reply #11 on: February 24, 2016, 09:55:22 AM »
I would pay off those student loans first and foremost.  Variable interest loans should be scary for most people.  That frees up a large chunk of money to be invested.  For your whole family I agree that any real estate investment should be around finding a place of your own.  I will steer clear of the personal attacks that others have stated, but having your own space, privacy and home will be a great return on investment in of itself for your family.

Why do people keep suggesting that the OP does something they've clearly stated they don't want to do?  They say they are SUPER happy living with parents and are not in a rush to move out.  I understand not everyone feels the same way, but in some cultures living with your parents when you have a small child is very accepted.  In fact, it provides a level of community and family that's often lacking in our society. As long as the parents are accepting of this arrangement, why suggest changing it?*

As for the variable rate loans - those don't worry me.  It appears the OP has a firehose of cash right now, indicated by the $120k in cash and investments amassed at a fairly young age. The OP set a reasonable threshold (5%) when they'd consider paying down the SLs.  For now I think letting interest eat away at the payments is a sensible strategy.

(*sorry, I just couldn't stay out of it).

FINate

  • Handlebar Stache
  • *****
  • Posts: 1993
Re: Investment Advice - Real Estate or Index Funds
« Reply #12 on: February 24, 2016, 10:37:14 AM »
Why do people keep suggesting that the OP does something they've clearly stated they don't want to do?

Because OP asked "WHAT WOULD YOU DO?" which makes all points of discussion fair game IMO. Besides, all the posts here are just opinions and suggestions, and sometimes the best feedback you can get is from people who look at things in a totally different way.

RE student loans: These are one of the only debts in the US that are generally not dischargeable in bankruptcy. Sure OP has a hugely positive cashflow now, but sometimes stuff happens. Debt has a way of making us feel like we have more money than we really do - "look at all this cash we have!" when in fact it is offset by a bunch of debt, and this can easily encourage us to spending more and get into even more debt.

So WHAT WOULD I DO? I would get ride of that debt ASAP. There are too many horror stories of people losing control of their student loans. The lenders are predatory IMO, they love to add on fees and charges, and I've heard too many stories of "payments getting lost" and such. I just don't trust them. Apparently they're saving a ton of money every month so paying off a 35k loan should be relatively easy.

nereo

  • Senior Mustachian
  • ********
  • Posts: 14207
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: Investment Advice - Real Estate or Index Funds
« Reply #13 on: February 24, 2016, 11:29:37 AM »
Why do people keep suggesting that the OP does something they've clearly stated they don't want to do?

Because OP asked "WHAT WOULD YOU DO?" which makes all points of discussion fair game IMO. Besides, all the posts here are just opinions and suggestions, and sometimes the best feedback you can get is from people who look at things in a totally different way.

RE student loans: These are one of the only debts in the US that are generally not dischargeable in bankruptcy. Sure OP has a hugely positive cashflow now, but sometimes stuff happens. Debt has a way of making us feel like we have more money than we really do - "look at all this cash we have!" when in fact it is offset by a bunch of debt, and this can easily encourage us to spending more and get into even more debt.

So WHAT WOULD I DO? I would get ride of that debt ASAP. There are too many horror stories of people losing control of their student loans. The lenders are predatory IMO, they love to add on fees and charges, and I've heard too many stories of "payments getting lost" and such. I just don't trust them. Apparently they're saving a ton of money every month so paying off a 35k loan should be relatively easy.

yes, but you clearly didn't read the post very carefully EDIT: removed language because clearly poster did read questions in an earlier thread.  apologies.  The OP laid out two very clear questions:
Quote
1. Should we invest more into VTSAX or is this just a weird time? (I know..market timing, blabla)
2. Should we look into buying a townhome/condo to rent out?

Your first post was great, and I really wasn't responding to you, but to toher posters who chose to ignore those two questions and instead focus on the living situation.
Your point on SL is a valid one.  Personally I would consider paying off the loans too risky, but everyone has a different opinions on the matter.
« Last Edit: February 24, 2016, 11:35:21 AM by nereo »

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28286
  • Age: -998
  • Location: Seattle, WA
Re: Investment Advice - Real Estate or Index Funds
« Reply #14 on: February 24, 2016, 03:34:07 PM »
These two paths are VERY different.

Investing in real estate involves more work, more risk, and requires a lot more knowledge.  If done right, in the right market, it can also have a lot higher returns.

Index funds require a lot less work, and less knowledge. They're passive, and can have great returns as well, but perhaps not as much as if you're putting a lot of thought and sweat equity into RE.

It's not a question random forum people should be deciding for you, it's a matter of learning about both types of investing, weighing the pros and cons, investigating real estate markets you might invest in, running the numbers, discussing it with your SO, and deciding which is the best path for you guys.

Our opinions on it don't mean *.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Ricky

  • Pencil Stache
  • ****
  • Posts: 842
Re: Investment Advice - Real Estate or Index Funds
« Reply #15 on: February 25, 2016, 04:27:10 AM »
Pretty much what ARS said, except I think random internet strangers can at least point you in the right direction to learning about RE. You need to do your research. If nothing else, definitely pay off the loans, my god. I have no idea how long you've been accumulating cash but what's the point of working if you're not going to either spend it or invest it? I agree with another poster that I've never understood that mentality. Sorry, I'm not trying to be rude, only hopefully trying to push you in the right direction.

I'll start by saying that there are as many different styles of investing in RE as there are pairs of underwear in your dresser. One size does NOT fit all. Some people like rehabbing. Some accept lower returns but less headache by having everything all ready to go. Some people focus on structure. Some people focus on location. You get the idea. The more hands on you are, the more your chances of success go up, thus the more attractive RE can be to stocks. You just have to sit down and do the research and figure out if it's worth it or not. Start with Biggerpockets. Download their podcast, read their guides, introduce yourself on the forum. That's the single greatest resource I can recommend. Sure, there are tons of good books, but you'll find them through recommendations on the podcast or other places on the site. I've heard "The Millionaire Real Estate Investor" is good but I've never read it.

I'll also say that it can all get very confusing very fast, especially when you start to learn all the napkin math that's out there - rule of thumbs. I think most people go through severe analysis paralysis at first because the ideas are so intangible. There is NO way to know how it will turn out until you just start. I guarantee that starting and losing money is far better than never starting out at all - but people just fear choosing the wrong property too much and never get started.

Marvel2017

  • 5 O'Clock Shadow
  • *
  • Posts: 99
  • Location: Southeast U.S.
Re: Investment Advice - Real Estate or Index Funds
« Reply #16 on: February 25, 2016, 01:09:21 PM »
Chances of getting your real estate investments stolen by hackers is very low.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28286
  • Age: -998
  • Location: Seattle, WA
Re: Investment Advice - Real Estate or Index Funds
« Reply #17 on: February 25, 2016, 01:16:00 PM »
Chances of getting your real estate investments stolen by hackers is very low.

Chances of getting your stock investments stolen by hackers is very low.

This doesn't seem to be a differentiating factor.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

nereo

  • Senior Mustachian
  • ********
  • Posts: 14207
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: Investment Advice - Real Estate or Index Funds
« Reply #18 on: February 25, 2016, 01:49:19 PM »
Chances of getting your real estate investments stolen by hackers is very low.

Chances of getting your stock investments stolen by hackers is very low.

This doesn't seem to be a differentiating factor.
Just to add to this - chances that your real estate property will be vandalized/burglarized/damaged in some way are much higher.  Roughly 2% of homes/year are burglarized.  Most landlords have at least one story of their property being damaged either by tenants or 'acts-of-god'.
I'm unaware of how many people have had their stock investments stolen by hackers, but I'm certain as a percentage it's orders of magnitude lower.

FIPurpose

  • Handlebar Stache
  • *****
  • Posts: 1510
  • Location: WA
    • FI With Purpose
Re: Investment Advice - Real Estate or Index Funds
« Reply #19 on: February 25, 2016, 02:39:48 PM »
Chances of getting your real estate investments stolen by hackers is very low.

Chances of getting your stock investments stolen by hackers is very low.

This doesn't seem to be a differentiating factor.
Just to add to this - chances that your real estate property will be vandalized/burglarized/damaged in some way are much higher.  Roughly 2% of homes/year are burglarized.  Most landlords have at least one story of their property being damaged either by tenants or 'acts-of-god'.
I'm unaware of how many people have had their stock investments stolen by hackers, but I'm certain as a percentage it's orders of magnitude lower.

It's just more painful because it is more direct and obvious. Stocks are harmed by frivolous lawsuits and theft as well.

Ricky

  • Pencil Stache
  • ****
  • Posts: 842
Re: Investment Advice - Real Estate or Index Funds
« Reply #20 on: February 26, 2016, 06:31:09 AM »
My wife and I are considering investing our money in RAWAI VIP villa in Phuket. Our financial advisor assures us of its profitability. We have already contacted Phuket real estate company (http://phuket9.com/phuket-property-for-sale/rawai-vip-villas-new) and its agents made us the attractive offer.


clarkfan1979

  • Handlebar Stache
  • *****
  • Posts: 2238
  • Age: 41
  • Location: Pueblo West, CO
Re: Investment Advice - Real Estate or Index Funds
« Reply #21 on: February 26, 2016, 11:38:55 PM »
If you have to ask, my answer is going to be index funds. The people that go for real estate are very passionate, willing to read books and love the game. They can actually lose a little on their first couple of deals and that does not stop them. They are passionate and keep going.

The United States is very individualistic and the culture values independence. Other people may frown upon living with your parents. However, if you and your parents are happy about it, then don't let other people bother you.