How are people dumber than us going to make out with their 401(k)s?

[no_such_reality]

And let’s not forget, 3 houses is a half a million dollars, give or take. If you’re buying $150-$175K houses. Probably $500-$600K if you’re targeting just sub-$200K houses.

At the moment, looking at most of urban San Deigo south of Oceanside, I see 32 houses listed at below $175K. (that’s not much).

So what is realistic rent and what’s realistic expenses? And if you finance, don’t forget those expenses of closing the purchase and fixing up, and rental refurb. Or will you allow the property to slowly spiral in the rental slum so many landlords allow happen?

[sdrealtor]

How does someone who buys 7 day old bread expect to pay cash for a few rental properties in SD?

[Arraya]

[quote=harvey]You really need to understand what a Ponzi scheme is before you say stupid stuff like that..[/quote]

http://theautomaticearth.blogspot.com/2008/11/debt-rattle-november-26-2008-from-top.html
Everyone has heard of pyramid, or Ponzi, schemes. In their simplest form they are short-lived deliberate frauds where a small number of existing members are paid from the buy-in of a larger number of newer members until the supply of newer members is exhausted, whereupon they collapse. Typically, the founders, and perhaps a few others who got in early and out before it was too late, end up making a lot of money at the expense of later entrants, who end up holding the empty bag. There are always many more losers than winners. What most do not realize, however, is that Ponzi dynamics are far more pervasive than people think. There are many human systems that ultimately rest on the buy-in of new entrants, and every one of them will ultimately meet the same fate, although it can take far longer for complex constructions than for simple pyramid frauds.

[dumbrenter]

401ks are not Ponzi schemes because:
1. They are not deliberate frauds. Anybody who can read can figure out the fees and risks involved.
2. Buy in of new entrants is practically infinite, so the Ponzi dynamics do not really apply here.

And ultimately, folks have an option of putting their 401k in cash and choose not to participate in the markets.

It is true the most big companies have ended up with healthier balance sheets after doing away with the pension plans for new employees in 1990s. However, those new employees also benefited because they now have job and retirement portability instead of having to stay with a single employer for a dozen years or so.

[dumbrenter]

I do not understand the often repeated claim about 401Ks and IRAs being tax heavy come distribution time.

If I put money in 401K now, I am saving money on taxes I would have paid today (of which I have no choice in matter of taxes).
However, when I draw money when I am old, I could CHOOSE to draw as much to manage my tax bill.
Assuming we still have a progressive tax system 40 years from now, I can draw as much to keep me in a very low tax rate at that time. So why is this option bad?

[no_such_reality]

Because you can’t draw how little you want. The IRA and 401K rules stipulate that you have to meet minimum dispursements based on your age in retirement.

http://www.bankrate.com/finance/money-guides/ira-minimum-distributions-table.aspx

Starting at 70.5 years of age, you must take a minimum distibution based on the balance. If your balance is $1 million, you’ll need to take out $35K whether you need it or not and have it be income. As you get older it goes up faster.

If you are 65, your life expectancy is 85 as a woman. At 80 you have to take out at least $53K if you have a million balance. 85 you need to take out $67K. and on.

The income will be counted as income. If you have Social Security, it will be additive on top of social security.

[Anonymous]

[quote=Arraya]There are many human systems that ultimately rest on the buy-in of new entrants, and every one of them will ultimately meet the same fate, although it can take far longer for complex constructions than for simple pyramid frauds.[/quote]

Wow! You found a link on the internet that makes profound comparisons between ponzi schemes and, well, damn-near everything.

Every plan for the future assumes growth (except those that involve killing your neighbors for their food supply.)

The assumption of growth does not imply fraud.

Labeling any plan that relies on growth as “ponzi” is trite, intellectually shallow, and outright lame.

[bearishgurl]

[quote=flu]Well ok great. So how long have you been trying to do this, and how long do you think it will take before you can start generating income from this strategy.?I ask because it sounds great as a plan, but if it takes like 10+years for one to just get started, I can’t wait that long. There comes a point when I don’t want to start doing this in my golden years. I want it done well before then so that in my golden years, everything is on auto-pilot more or less.

The other question I have is if someone needs to sell, how do you figure they aren’t going to try to put in on the market and try to get the best offer possible ,but rather sell to you directly?[/quote]

flu, I don’t understand why your “rental home” can’t be up and running and producing income within 60 days of purchasing it (assuming it needs SOME rehab upon purchase). I would be buying with an equity partner and likely paying cash, thus closing costs would be low. I’ve only approached some of these owners for a friend who was looking for investment properties a few years back and at that time, none of the owners wanted to sell. Things change as people move on up into their eighties and beyond. Sometimes it takes a few years for their kids to successfully talk them into selling non-productive rental properties, ESP if they will need the money for assisted living.

Most all of these properties need more work than lenders will approve (esp for the FHA 203b program). The work isn’t that expensive if you can do most of it yourself (no structural problems) and have ways of getting some work done cheaper. These owners aren’t likely to get multiple offers above what someone off the street would privately offer them considering they would be saving the sales commission. As a principal or co-buyer, I would obviously have to disclose to them that I am a licensee in my or “our” offer to purchase.

These properties are DEFINITELY not ready to compete with the vast majority of listed properties on the MLS today and their owners won’t undergo any cleanup/rehab. A few of them have the owners stuff stored in them.

There are a LOT of houses all over SD County that may have a “porch swing” in front and furniture inside. This is no way means anyone lives there … or has even lived there in the last decade. If the owner bought it for $5K to $32K, it has been paid off for decades and its property taxes are $368 year, WHO CARES? Just store your stuff and turn off the utilities. Get your grandson out there in the front yard once a month with the weedwacker (to appease city/county officials). You have a nearly “free” indefinite storage unit. DONE :=D.

[Coronita]

[quote=no_such_reality]Because you can’t draw how little you want. The IRA and 401K rules stipulate that you have to meet minimum dispursements based on your age in retirement.

http://www.bankrate.com/finance/money-guides/ira-minimum-distributions-table.aspx

Starting at 70.5 years of age, you must take a minimum distibution based on the balance. If your balance is $1 million, you’ll need to take out $35K whether you need it or not and have it be income. As you get older it goes up faster.

If you are 65, your life expectancy is 85 as a woman. At 80 you have to take out at least $53K if you have a million balance. 85 you need to take out $67K. and on.

The income will be counted as income. If you have Social Security, it will be additive on top of social security.[/quote]

Oops. Didn’t see your post. Although you didn’t mention the 50% penalty if you don’t take the RMD… But I think most people end up doing the RMD….IRS always wins, you know…

[ltsddd]

[quote=bearishgurl]
Most all of these properties need more work than lenders will approve (esp for the FHA 203b program). The work isn’t that expensive if you can do most of it yourself (no structural problems) and have ways of getting some work done cheaper. These owners aren’t likely to get multiple offers above what someone off the street would privately offer them considering they would be saving the sales commission. As a principal or co-buyer, I would obviously have to disclose to them that I am a licensee in my or “our” offer to purchase.

These properties are DEFINITELY not ready to compete with the vast majority of listed properties on the MLS today and their owners won’t undergo any cleanup/rehab. A few of them have the owners stuff stored in them.

There are a LOT of houses all over SD County that may have a “porch swing” in front and furniture inside. This is no way means anyone lives there … or has even lived there in the last decade. If the owner bought it for $5K to $32K, it has been paid off for decades and its property taxes are $368 year, WHO CARES? Just store your stuff and turn off the utilities. Get your grandson out there in the front yard once a month with the weedwacker (to appease city/county officials). You have a nearly “free” indefinite storage unit. DONE :=D.[/quote]

So how are these houses compared to the ones being sold by the so-called “scumbag SS”? How much rehab and how long do you think it’s going to take FOR YOU to get the house ready to rent it out? I hope it doesn’t take “a truck” and nowhere near “a year-plus” to get the place ready. I hope you do own a truck and a lot more handy than me because it took me a whopping two weekends and another $400 for a contractor to finish the garage and have got tenants moved in in less than 3 weeks. Oh, and here’s the kicker, I don’t own a effing truck. Damn, those SS!

http://piggington.com/who_will_win_the_stand_off?page=1

[no_such_reality]

BG, be vary cautious of homes that have sat with the utilities turned off for extended periods.

flu, what your uncle did is doable, provided you hit the timing right, have the right marital situation, and are willing to move every two years and live in the areas the rentals are at.

It’s good rule of thumb, never by a rental you would be unwilling to live in or in an area you wouldn’t want to live in.

[Coronita]

[quote=dumbrenter]I do not understand the often repeated claim about 401Ks and IRAs being tax heavy come distribution time.

If I put money in 401K now, I am saving money on taxes I would have paid today (of which I have no choice in matter of taxes).
However, when I draw money when I am old, I could CHOOSE to draw as much to manage my tax bill.
Assuming we still have a progressive tax system 40 years from now, I can draw as much to keep me in a very low tax rate at that time. So why is this option bad?[/quote]

Because if you don’t plan your taxes accordingly, it could be that you are forced to withdraw from your 401k a large amount (and taxed accordingly)… Some folks I know of relatives are running into this issue just now.

http://www.irs.gov/retirement/article/0,,id=96989,00.html

There is a minimum withdraw (required minimum distribution RMD) you are required to make after after 70 1/2, based on the amount in the account and life expectancy specified by the IRS. That withdraw is taxed accordingly to your income rate at that point.

If you don’t take your RMD…take note:

If an account owner fails to withdraw a RMD, fails to withdraw the full amount of the RMD, or fails to withdraw the RMD by the applicable deadline, the amount not withdrawn is taxed at 50%. The account owner should file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with his or her federal tax return for the year in which the full amount of the RMD was not taken.

It should be noted the 50% penalty is on top of the taxes you own on the RMD amount….Ouch…

[ltsddd]

[quote=no_such_reality]
It’s good rule of thumb, never by a rental you would be unwilling to live in or in an area you wouldn’t want to live in.[/quote]

+1.

I wouldn’t buy a rental in an area that I wouldn’t want to take the family out for a nightly walk.

[Coronita]

[quote=bearishgurl]
flu, I don’t understand why your “rental home” can’t be up and running and producing income within 60 days of purchasing it (assuming it needs SOME rehab upon purchase). I would be buying with an equity partner and likely paying cash, thus closing costs would be low. I’ve only approached some of these owners for a friend who was looking for investment properties a few years back and at that time, none of the owners wanted to sell. Things change as people move on up into their eighties and beyond. Sometimes it takes a few years for their kids to successfully talk them into selling non-productive rental properties, ESP if they will need the money for assisted living.

Most all of these properties need more work than lenders will approve (esp for the FHA 203b program). The work isn’t that expensive if you can do most of it yourself (no structural problems) and have ways of getting some work done cheaper. These owners aren’t likely to get multiple offers above what someone off the street would privately offer them considering they would be saving the sales commission. As a principal or co-buyer, I would obviously have to disclose to them that I am a licensee in my or “our” offer to purchase.

These properties are DEFINITELY not ready to compete with the vast majority of listed properties on the MLS today and their owners won’t undergo any cleanup/rehab. A few of them have the owners stuff stored in them.

There are a LOT of houses all over SD County that may have a “porch swing” in front and furniture inside. This is no way means anyone lives there … or has even lived there in the last decade. If the owner bought it for $5K to $32K, it has been paid off for decades and its property taxes are $368 year, WHO CARES? Just store your stuff and turn off the utilities. Get your grandson out there in the front yard once a month with the weedwacker (to appease city/county officials). You have a nearly “free” indefinite storage unit. DONE :=D.[/quote]

So let me ask you again. Are you actively doing this right now, and have you been successful purchasing a property like this recently, and it is producing income right now? If not, and if it’s this easy why aren’t you doing it versus blogging about it? That’s my question. Because it seems like it’s a no brainer, why wait? Is there an inventory available from these described “sellers” who are interested in selling within the short period of time. Or do we have to wait 10,15+ years for people to start croaking before this happens? And again, why wouldn’t these people be putting the home on the market where it could fetch top dollars?

[Coronita]

[quote=no_such_reality]BG, be vary cautious of homes that have sat with the utilities turned off for extended periods.

flu, what your uncle did is doable, provided you hit the timing right, have the right marital situation, and are willing to move every two years and live in the areas the rentals are at.

[/quote]

But that’s what everything is about though….Everything is about luck and timing…Do we really think anyone else really has an edge over everyone else???
Everyone’s looking for the sure thing. There is no sure thing. Everything has risk, and opportunities for failure.

[quote]
It’s good rule of thumb, never by a rental you would be unwilling to live in or in an area you wouldn’t want to live in.
[/quote]

My lowly requirement is just never buy a rental you think you would get shot at getting there…But doesn’t necessarily mean that I need to feel like I would live there. A CV townhome for example, is something I could live in, but not something I would try make a rental (unless I occupied it as a primary for a few years)…

[Author]

Posts