rental sale pending- need interest bearing ideas for proceeds

[bearishgurl]

flu, why don’t you give the Piggs your “expert” opinion on my investment rec? I don’t know how to research these things properly …

[spdrun]

Poor baby. I own a condo that makes about a 5% cap if the owner is very lucky. Real question is as follows: how did the OP manage to get only a NYC or SF cap rate in Deeeee-TROIT?

[Coronita]

[quote=bearishgurl]flu, why don’t you give the Piggs your “expert” opinion on my investment rec? I don’t know how to research these things properly …[/quote]

I wouldn’t know. I typically don’t “invest” in mutual funds, beyond passive index funds from vanguard..
The only mutual funds i have are the ones that I have to pick from a 401k company plan, and most of them are managed funds (very little are passive index funds)…
In that case, I just pick everything in the magic 9 quandrants and balance it out every year.

The only one exception this rule was I borrowed $50k out of it this year and applied it torward a rental, because at that point I had already accomplished a 10% return.

And a loan to myself is a guaranteed 4% return (albeit I can’t write off the interest to myself)…

The stock market went down and back up. I guess the return would have been now 13% if I didn’t borrow against it..Oh well. Anyway, I moved 30% of my remaining 401k to money markets recently, and I’m going to sit it out until the rest of the year or unless there’s a 10% or more market correction (unlikely imho)…
My 401k returns have exceeded my objectives, so there’s no point in taking on more risk for the remainder of the year.

[birmingplumb]

Thanks everyone, I do not understand what 5% cap rate is. But that said, I thank Flu for remembering my daughter and her great idea.I should be out there Jan 8 to meet 1st grandchild. Plan on looking at areas only able to see on computer. The builder wants to have me sign a purchase agreement for 246.5k with a contingency to split the property into 2 lots. Claims he needs P.A. signed to take to city for written blessing on split,that will take him 5 days he says, then close in 40 days , all cash he says (why?) then he will give tenant 30 days to vacate. Tenant has no lease and is month to month @1495 and has no idea to my knowledge. I have a vacancy she can move in if need be. That said, I plan on getting a lawyer to review the P.A. and the closing paperwork. But this cash idea scares me , any ideas on how to do this and how to deal with tenant if this gets approved in 5 days (7)?

I can buy more here but do not want to deal with 800 mo tenants. Builder will put 2 500k homes up which will net him aprox 75k ea. I could do this but I would need to involve a bank and that is out of question. No more banks for me. So hopefully I will be a cash buyer out there in January. Motown

[enron_by_the_sea]

[quote=bearishgurl]
It appears the month(s) it lost 80% of value correlates with the time frame of the highest amount of foreclosures all over the nation.

Could it be that the fund invested in subprime mortgages and/or residential mortgage-backed securities that were worthless? If so, does it still invest in residential mortgages today?

[/quote]

This fund invests in preferred stocks (http://en.wikipedia.org/wiki/Preferred_stock) which is a somewhat different animal from normally what people refer to as (common) stocks. The attraction of investing in a preferred stock is usually that the dividend yield is higher than one can achieve in normal stock. Unfortunately, preferred stock usually does not appreciate as much as common stock either …

In theory the preferred is somewhat protected on the downside than regular stock because of its dividend. Unfortunately that is only true as long as the issuer company does not go bankrupt. In bankruptcy both can fall to 0. This is what happened in 2008 because most common issuers of preferred stock were banks (think Lehman, Merrill, Bear Sterns). When they went bankrupt their preferred fell close to 0.

There are additional complexities in investing in a “closed end fund” (CEF) like JHP above and beyond the fact that they invest in preferreds. These CEFs often employ leverage with borrowed money. And the money they borrow for investing is often borrowed on very short term facilities. So when $hit hits the fan like in 2008, their assets fall in value, loans come due and they may have to sell assets at the bottom of the market to delever their portfolio. (Did I say that the market for preferred stock is very small and thinly traded?)

Then there is a third level of complexity because this is an closed ended fund that trades on stock exchange. Depending on its popularity, it can trade above or bellow its net asset value (NAV). I have seens popular CEFs trade 10-20% over NAV when markets are booming and trade 10-20% bellow NAV when times are bad. That is pure loss for the investor if his timing is bad.

So that is how one can fall 80% in one year. Hopefully they learnt something from that period …

[no_such_reality]

I’ll go with Flu’s mortgage thru Bank of Parent idea.

Daughter lives in a better place cheaper, Dad keeps interest, daughter get’s equity upside. Equity downside, daughter get’s Dad showing the landlord ropes when they turn it into a rental.

Don’t quote me, but I think you could structure the mortgage through an LLC, bundle the payments to you as either retained earnings or dividends and then write off of taxes two trips a year to ‘check’ on your investment target market.

Not sure how many wins that is for you and daughter’s family but it looks like a lot.

[Coronita]

[quote=no_such_reality]I’ll go with Flu’s mortgage thru Bank of Parent idea.

Daughter lives in a better place cheaper, Dad keeps interest, daughter get’s equity upside. Equity downside, daughter get’s Dad showing the landlord ropes when they turn it into a rental.

Don’t quote me, but I think you could structure the mortgage through an LLC, bundle the payments to you as either retained earnings or dividends and then write off of taxes two trips a year to ‘check’ on your investment target market.

Not sure how many wins that is for you and daughter’s family but it looks like a lot.[/quote]

If there was a way to have my toddler be a landlord without raising all sorts of flags via Mr. Taxman, I would have already done it.

Remember, the game isn’t always about how to get the maximum returns right now…Part of the game is to figure out how you can pass on stuff to your heirs without Mr. Government wanting decimate it…Since everyone else expects you to take care of them, you might as well take care of one of your own first.

The note MUST be official… For all sorts of reasons. From Mr. Taxman…to also the case in which IF your daughter (if she is married) gets a divorce.Sorry, not to sound pessimistic here.But the last thing you want is for the her significant other to split 50/50 with the property, but your daughter to get stuck with the loan 100% or worse, you just forgive the loan. Speaking of loan forgiveness, I wonder what sort of games one can play with that….
———————————————–

[quote]
Don’t quote me, but I think you could structure the mortgage through an LLC, bundle the payments to you as either retained earnings or dividends and then write off of taxes two trips a year to ‘check’ on your investment target market.
[/quote]

……
Whoa… Wait a minute there. Can you explain this to a layman like me… Say what?

[bearishgurl]

[quote=enron_by_the_sea]~

So that is how one can fall 80% in one year. Hopefully they learnt something from that period …[/quote]

Thanks, enron. I appreciate your detailed explanation.

When tickets were being passed out to the microeconomics classes, I missed the train :=0

[SK in CV]

[quote]
Don’t quote me, but I think you could structure the mortgage through an LLC, bundle the payments to you as either retained earnings or dividends and then write off of taxes two trips a year to ‘check’ on your investment target market.
[/quote]

……
Whoa… Wait a minute there. Can you explain this to a layman like me… Say what?[/quote]

Don’t worry about it. It makes no sense whatsoever.

[no_such_reality]

You may be right, if it’s an offical promissory note, then it’s interest and not wages. I was thinking taxed as wage income. Hence, current tax advantage for dividends instead of income.

If you have an LLC, you can distribute profit as dividends and not wages.

Also, was in an investment business, the expenses related to traveling to said location for checking on the investment/business, are business expenses, reducing the net profit that is then subject to tax. He could also use the LLC to cover other valid expenses related to the investment business and thus have a smaller tax exposure.

AS for retaining the earnings, if he doesn’t need them, then up to certain thresholds, the LLC could retain the earnings, not paying tax now on them, and allow the LLC to use the earnings for business purposes.

But has I intended with the don’t quote me, the specifics are very pertinent and I may be misinterpreting.

[SK in CV]

[quote=no_such_reality]You may be right, if it’s an offical promissory note, then it’s interest and not wages. I was thinking taxed as wage income. Hence, current tax advantage for dividends instead of income.

If you have an LLC, you can distribute profit as dividends and not wages.

Also, was in an investment business, the expenses related to traveling to said location for checking on the investment/business, are business expenses, reducing the net profit that is then subject to tax. He could also use the LLC to cover other valid expenses related to the investment business and thus have a smaller tax exposure.

AS for retaining the earnings, if he doesn’t need them, then up to certain thresholds, the LLC could retain the earnings, not paying tax now on them, and allow the LLC to use the earnings for business purposes.

But has I intended with the don’t quote me, the specifics are very pertinent and I may be misinterpreting.[/quote]

No. Distributions from LLC’s are not taxable. LLC income is taxable (whether or not distributed), in exactly the same way as if the income is recieved directly by the taxpayer. Interest remains interest. Travel expense deductions related to debt obligations would be difficult to defend, whether incurred by an LLC or an individual taxpayer.

[(former)FormerSanDiegan]

[quote=sdduuuude][quote=birmingplumb]Don’t think 1,000 month return is enough on 240k and it’s super high offer for Detroit suburb as I valued it 175k 3 yrs ago. Timing. Motown[/quote]

I would have asked the “what would I do with 200K to make $1000/month” question before selling it. If no answer, then don’t sell. If lots of answers, then sell.[/quote]

I second this point.
But, to properly analyze your situation you would need to understand what a 5% cap rate is. In fact, before getting into the property this should have been understood. Regardless, you are where you are…

You cannot get anything anywhere close to risk-free 6% return on your money. You can (obviously form your example) get that by investing in property.

flu’s suggestion, gets you reasonably close (though you’ll likely net less from your daughter in San Diego than you would in a Detroit suburb)

[Coronita]

[quote=FormerSanDiegan][quote=sdduuuude][quote=birmingplumb]Don’t think 1,000 month return is enough on 240k and it’s super high offer for Detroit suburb as I valued it 175k 3 yrs ago. Timing. Motown[/quote]

I would have asked the “what would I do with 200K to make $1000/month” question before selling it. If no answer, then don’t sell. If lots of answers, then sell.[/quote]

I second this point.
But, to properly analyze your situation you would need to understand what a 5% cap rate is. In fact, before getting into the property this should have been understood. Regardless, you are where you are…

You cannot get anything anywhere close to risk-free 6% return on your money. You can (obviously form your example) get that by investing in property.

flu’s suggestion, gets you reasonably close (though you’ll likely net less from your daughter in San Diego than you would in a Detroit suburb)[/quote]

Dumb question.

What you folks think is typical in SD…say in a not-so-shaddy area?

I’m sure I’m oversimplifying things, but

Hypothetical situation…
Assume a cost of a condo is like $140000, and the monthly rental is $1200 and property tax is $1400/year and HOA is $255/month (assuming repairs are neglible), cap rate is (14400-1200-3060)/140000 or 7.3%…right? I guess a more effective rate would also factor in other costs (like repairs and expected vacancy??)

Again, I’m just an amateur here…So someone school me.

[The-Shoveler]

I think by the time you get insurance etc.. V&R probably closer to 6%, still not bad by historical standards.

[Coronita]

[quote=The-Shoveler]I think by the time you get insurance etc.. V&R probably closer to 6%, still not bad by historical standards.[/quote]

Insurance I forgot about that. Probably around 200-300% for a condo…

Anything else?

[Author]

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