Investor insight please.

[ianpadron]

For 25 years I’ve been told I would soon be out of a job due to the internet or some replacement for financial advice. Yet every year my business grows and grows. Weird.

Sounds like you're likely one of the 10%

Most professions are the same, mine included

 

[ianpadron]

Except for the vast majority of Americans, not having immediate access to their retirement funds is actually a good thing.

It’s also hard to make an argument about the importance of liquidity, while at the same time advocating investing in leveraged properties and businesses.

I’m not saying your approach is wrong, as I don’t know you and apparently it works for you, but it’s absolutely not right for everyone. Most people’s idea of a comfortable and stress free retirement has nothing to do with managing businesses and multiple properties. There’s nothing passive about that lifestyle. Especially when you’re in your 80’s.

Can't really think of anything more passive than hiring a property manager at 6% to handle everything at all hours and mail you a check every month.

Note that the combination I mentioned above included lots of $$$ in an indexed brokerage account...as close to cash as you can get.

 

[EdP]

If your financial planner just sticks your money somewhere and takes a percentage, they are not doing their job. What you should be getting for what you pay them is access to their expertise and the expertise of their research department. You apparently make a good salary because you are good at something that is valuable to your employer, but no one can be an expert on everything. Sometimes it makes financial sense to pay an expert.

 

[Throwin Darts]

Going to lay out a typical scenario I help high earning clients through in the real estate world:

Let's assume you're pumping $23k a year into a 401k like OP.

Instead of 401k jail, let's explore the world of real estate investing...and save that cash for a down-payment on some cash flowing property.

After 1 year, you've got $23k, 2 years, $46k, 3 years $69k, of earmarked down-payment money.

$23k will get you a run of the mill single fam in the Midwest that will cashflow a couple hundred bucks a month, but not appreciate much above inflation. Good long term play, the VTIX of the real estate world, set n forget.

$69k gets you into some pretty superb markets where DSCR loan products or conventional mortgages will work on a variety of small multi-fam, STRs, etc...with higher cash flow AND appreciation.

So you've parked some cash, spending a little to leverage a lot...and you've got someone else paying off your debt, while you enjoy the tax benefits and appreciation.

After a decade, or another big market jump, you decide you want to refinance a few of your properties and pull some cash from your equity position to buy more real estate, upgrade your primary, book that 50k sheep hunt, etc .

Guess what you pay in taxes on that cash out refi? Zero. Guess who pays the interest on that cash? Your tenants.

Or you have a big year at your W2 job and don't want your bonus check to go to Hunter Bidens hooker n blow addiction. Park some cash in a cheap property, claim bonus depreciation year one, and pay ZERO in taxes.

Down the road you've fully depreciated a property and need some more tax sheltering...so you locate a larger property with higher cash flow...and 1031 exchange into it.

Guess how much you pay in taxes? Zero. Guess how much your kids will pay when they inherit it? Zero.

I hope this basic illustration opens guys eyes.

Yes real estate involves occasionally costly repairs, humans being humans, etc....but the benefits are unrivaled in terms of combining cash flow and tax advantages that you can use today, and estate planning and wealth building for tomorrow.

Thanks for coming to my TED Talk.

For guys looking to buy real estate to make $$$, I've got connections all around the country that speak the language and can get you dialed in. A GOOD agent is just as valuable as a GOOD wealth manager, they'll make you way more than they'll cost you.

I've been in real estate for 21 years and have a pretty sizeable portfolio and had to laugh at this post. Just put up $69k a few times and kick back! I love me some real estate and the tax benefits are great but there's a lot more to the game than what's laid out here.

 

[ianpadron]

I've been in real estate for 21 years and have a pretty sizeable portfolio and had to laugh at this post. Just put up $69k a few times and kick back! I love me some real estate and the tax benefits are great but there's a lot more to the game than what's laid out here.

Tell me what's laughable.

OP has accumulated over $700k by age 34...how much cash flow could you buy for $700k?

I know how much it'd buy in my market.

 

[HuntHarder]

All this guess work and rules of thumb…Why!!!! There’s a better way. It’s called a Financial Plan! You don’t have to guess. You don’t have to use rules of thumb. You don’t have to just hope for the best. You can KNOW!

Does a home builder build a house without written plans telling him exactly where to put things?

Do you ever really know how many years you need to plan for in retirement?

I am very conservative in my retirement planning but over the last couple years I have loosened up a bit. Having a couple buddies die early in life and never really get to enjoy retirement will do that. Saving too much and not fulfilling your wants in life when you can, can also be detrimental. You only get one body, when it starts to quit, you no longer have chances at things you once wanted to do.
Don't confuse my comments as saying don't save, but more, save enough but also live life!

 

[SDHNTR]

Can't really think of anything more passive than hiring a property manager at 6% to handle everything at all hours and mail you a check every month.

Note that the combination I mentioned above included lots of $$$ in an indexed brokerage account...as close to cash as you can get.

Still gotta manage the manager. Most of my clients own millions in investment RE. Even with a PM in place, it’s far from passive, especially when considering the mental stress load.

I’m glad your way works for you. So does securities investing in retirement accounts too.

 

[ianpadron]

Still gotta manage the manager. Most of my clients own millions in investment RE. Even with a PM in place, it’s far from passive, especially when considering the mental stress load.

I’m glad your way works for you. So does securities investing in retirement accounts too.

Is retirement account investing the optimum approach for fellas like OP trying to retire as quickly as possible? Or for average Joe who wants to work until 59.5?

I've yet to meet anyone independently wealthy in their 40s who did it with a 401k or Roth, just saying. I've met a bunch of folks who did it with RE.

 

[SDHNTR]

Do you ever really know how many years you need to plan for in retirement?

You have a point, but we can actually get pretty close. Like anything else, it’s about risk assessment. The risks of a healthy person with a healthy family history spending their later years broke without proper planning are far greater than the odds of a person dying having never spent their wealth. You plan for the greater likelihood.

 

[CorbLand]

Is retirement account investing the optimum approach for fellas like OP trying to retire as quickly as possible? Or for average Joe who wants to work until 59.5?

I mean it probably is the best approach for OP seeing as he said that he has zero interest in real estate.

 

[ianpadron]

I mean it probably is the best approach for OP seeing as he said that he has zero interest in real estate.

He mentioned an unexplainable reason...my gut tells me that's simply due to unfamiliarity/intimidation.

I see it daily. Guys jump on bogleheads and think water heaters blow up daily, roofs last 2 months, and every tenant has 16 undisclosed dogs and a severe distaste for intact drywall.

Couple conversations with some successful investors usually changes the tune quick.

Again, I've yet to meet anyone who retired early because of their 401k...countless who did it with RE and/or actively managed brokerage accounts.

My 2 cents are as always, worth exactly what you paid for them, however I am a strong proponent on "non-traditional" methods for achieving non-traditional results

 

[ianpadron]

You have a point, but we can actually get pretty close. Like anything else, it’s about risk assessment. The risk of a healthy person with a healthy family history spending their later years broke without proper planning are far greater than the odds of a person dying having never spent their wealth. You plan for the greater likelihood.

Something I do have genuine interest in hearing from a wealth manager is how inflation is worked into current planning after the past few years.

Historically it was pretty easy to average and forecast, but I've become leery of true methodology after seeing the purchasing power of the dollar decrease at such an accelerated rate, and the inability to predict a massive dump of $$$ into circulation by the fed.

As a guy who's barely into his 30s, I wonder if the historical inflation values are worth adhering to at all, or if we should stick closer to the "new normal". The true figure influences what returns are acceptable if in fact inflation ends up trending at a higher clip in the future, especially when the cost of conventional money to buy RE is about 2.5x what it was 2 years ago.

Even as a strong proponent of RE as a hedge for inflation, I'm the first to admit that getting a deal to pencil with zero creativity was way easier when institutional money was available at 3%

 

[Throwin Darts]

He mentioned an unexplainable reason...my gut tells me that's simply due to unfamiliarity/intimidation.

I see it daily. Guys jump on bogleheads and think water heaters blow up daily, roofs last 2 months, and every tenant has 16 undisclosed dogs and a severe distaste for intact drywall.

Couple conversations with some successful investors usually changes the tune quick.

Again, I've yet to meet anyone who retired early because of their 401k...countless who did it with RE and/or actively managed brokerage accounts.

My 2 cents are as always, worth exactly what you paid for them, however I am a strong proponent on "non-traditional" methods for achieving non-traditional results

You're acting like its an all or none approach. You can be a W2 guy, max out your 401k and Roth, have a taxable account, be a boglehead and dabble in real estate. The dabbling in real estate isn't essential for retiring early. I'd argue that the taxable account is the needed piece.

You mention actively managed brokerage accounts. I'm guessing you are a FA? Do you own any investment real estate personally?

I have a funny renter story. I had a rental house with beautiful refinished 90 year old hardwood floors. The tenant had this mega huge bottle of wine. That sucker had to be 3 feet tall and no telling how many liters of wine in it. He left for a two week trip and turned the AC completely off during the Texas summer. To keep the cork on the bottle moist, he turned it on its side before leaving. That house got hot enough to cook that wine and it shot the cork out while be was gone. When he got back, three rooms worth of those hardwood floors were purple with red wine. So much wine spilled that the baseboards sucked up enough to turn purple and warp. That was a fun time to be a landlord.

 

[ianpadron]

You're acting like its an all or none approach. You can be a W2 guy, max out your 401k and Roth, have a taxable account, be a boglehead and dabble in real estate. The dabbling in real estate isn't essential for retiring early. I'd argue that the taxable account is the needed piece.

You mention actively managed brokerage accounts. I'm guessing you are a FA? Do you own any investment real estate personally?

I have a funny renter story. I had a rental house with beautiful refinished 90 year old hardwood floors. The tenant had this mega huge bottle of wine. That sucker had to be 3 feet tall and no telling how many liters of wine in it. He left for a two week trip and turned the AC completely off during the Texas summer. To keep the cork on the bottle moist, he turned it on its side before leaving. That house got hot enough to cook that wine and it shot the cork out while be was gone. When he got back, three rooms worth of those hardwood floors were purple with red wine. So much wine spilled that the baseboards sucked up enough to turn purple and warp. That was a fun time to be a landlord.

My original post specifically mentions both brokerage account + cash flowing assets.

Still haven't seen another way to retire early other than selling a business for a fat windfall.

I'm not an FA. I'm a real estate agent. Yes I own real estate. Yes I'm looking for more. Yes I have a brokerage account. Heck...I even have a Roth from back in the day before I was enlightened

My approach is modeled identical to my clients and mentors in their 40s and 50s who beat the system with RE investing and development, and putting the profits to work in the market.

I enjoy a good tenant story for sure. Just sold my buddy an off-market duplex that was advertised as great shape, "g2g" said seller. Walked into the unit and there were hundreds of cigarettes all over, and an unknown extra tenant living in the covered porch. Fortunately those stories are the exception. And even with a headache... the bonus depreciation he was able to claim to shelter profit from other ventures was more than worth it.

If you ever want to sell part of your portfolio, I'm aggressively targeting seller carry deals rn.

 

[william schmaltz]

Spend about 1000 hours learning about crypto. Listen and read both sides. After you do that, it will be obvious what to do. We do our 5% match, 7% crypto, 7% real estate savings accounts. Although, I’ve been stealing a lot from that real estate account and putting into crypto the last couple years!

I started in 2016. Really educated myself in 2019 and 2020. Early 2020 I cashed out an old 401K I had laying around - separate from our other accounts. For me it a no brainer and was a very low risk move at the time. I gave my advisor the chance to logically talk me out of it. To his frustration, he didn’t have much a leg to stand on. Bought a whole lot of sub $200 ETH and some sub $10k BTC. When the tax bill and early withdrawal penalty came due in 2021, it was laughable compared to what was in the account. Thank God I didn’t listen to that expert, I’d be sick right now! I do plan to cash out some in 8-12 months at the next cycle peak and buy a few duplexes just to realize gains into hard assets. I’ll use the cash flow to buy back into crypto during the bear cycle.

 

[SDHNTR]

Something I do have genuine interest in hearing from a wealth manager is how inflation is worked into current planning after the past few years.

Historically it was pretty easy to average and forecast, but I've become leery of true methodology after seeing the purchasing power of the dollar decrease at such an accelerated rate, and the inability to predict a massive dump of $$$ into circulation by the fed.

As a guy who's barely into his 30s, I wonder if the historical inflation values are worth adhering to at all, or if we should stick closer to the "new normal". The true figure influences what returns are acceptable if in fact inflation ends up trending at a higher clip in the future, especially when the cost of conventional money to buy RE is about 2.5x what it was 2 years ago.

Even as a strong proponent of RE as a hedge for inflation, I'm the first to admit that getting a deal to pencil with zero creativity was way easier when institutional money was available at

We use a Monte Carlo analysis.

 

[ianpadron]

Spend about 1000 hours learning about crypto. Listen and read both sides. After you do that, it will be obvious what to do. We do our 5% match, 7% crypto, 7% real estate savings accounts. Although, I’ve been stealing a lot from that real estate account and putting into crypto the last couple years!

I started in 2016. Really educated myself in 2019 and 2020. Early 2020 I cashed out an old 401K I had laying around - separate from our other accounts. For me it a no brainer and was a very low risk move at the time. I gave my advisor the chance to logically talk me out of it. To his frustration, he didn’t have much a leg to stand on. Bought a whole lot of sub $200 ETH and some sub $10k BTC. When the tax bill and early withdrawal penalty came due in 2021, it was laughable compared to what was in the account. Thank God I didn’t listen to that expert, I’d be sick right now! I do plan to cash out some in 8-12 months at the next cycle peak and buy a few duplexes just to realize gains into hard assets. I’ll use the cash flow to buy back into crypto during the bear cycle.

What are the best sources to educate on crypto?

I was taught if you can't give something an elevator pitch, don't invest in it. I haven't heard a concise short explanation that has made sense yet, although I haven't devoted much time to it either. Lots of slimy crypto bros with courses.

A wondering fella sees the gains and reconsiders frequently though...

 

[EdP]

Do you ever really know how many years you need to plan for in retirement?

Yes, plan to live forever. Make sure your investments pay you enough to fund your standard of living without touching the principle and that your investment income grows with inflation.

 

[SDHNTR]

Is retirement account investing the optimum approach for fellas like OP trying to retire as quickly as possible? Or for average Joe who wants to work until 59.5?

I've yet to meet anyone independently wealthy in their 40s who did it with a 401k or Roth, just saying. I've met a bunch of folks who did it with RE.

The fastest way to get rich is to do it slowly.

 

[HuntHarder]

Yes, plan to live forever. Make sure your investments pay you enough to fund your standard of living without touching the principle and that your investment income grows with inflation.

So just die with millions? Hopefully if this is your plan, you achieved and did everything in your life you ever wanted to.