#protecting me in rental arbitrage

[freelancerpalash]

How My Lease Addendum Is Protecting Me In Rental Arbitrage I am sharing my recent experience with an HOA and a city that don’t understand midterm rentals. Click Here:- https://youtu.be/p3csZefyYSU

[seat-safety-switch]

My city has a whole new electric scooter rental thing going on. These Silicon Valley cyborgs came down from the Cloud. In their weird binary moon language, they handed down their commandment to us. They decided that what we needed to do was to ride tiny, unpredictable electric motors with no suspension at high speed on city sidewalks.

Of course, nobody wore helmets, because helmets are for dorks. Just like condoms, seatbelts, safeties on handguns and assless leather chaps. Fads are bad for my city; my fellow townsfolk don’t deal well with change. On that first glorious week, the sidewalks were slick with blood. Gristle and teeth flowed along the gutters and into the sewer. All the corpses reminded me of when rolled ice cream briefly became “a thing.” I looked upon the piles of the dead as I tooted past on my French moped, and scoffed.

Although my oh-so-chic Italian half-helmet would do barely anything to protect me in the case of literally any accident, I knew that I was a Responsible Road User. This stood me in stark contrast to the gangs of half-feral businessmen who were now riding a torquey children’s toy to and from their important foreclosures.

Turning the corner towards my temp job, I put my knee down in the pattern that I had learned from my favourite Moto GP stars. For a brief moment, I felt that exhilarating rush of perfect dynamic balance, clipped the apex, the perfect racing line. Then I saw it. I stood on the brakes and jerked my posture upright - too quickly - and lowsided the moped, both it and I tracing separate arcs as we skidded across the harsh tarmac of the Economic Crimes Exclusion Zone.

My then-boss was there, atop a mountain of stolen rental scooters, caked with gore and mats of hair. On his head was an improvised crown made of men’s clavicles. Seeing all this carnage must have broken something deep inside him. He was no longer a man: in this apocalypse, he had become Lord Arbitrage.

[shandragdotson]

The Value Of A Property After Experiencing A Tragic Death

https://www.financialsamurai.com/wp-content/uploads/2017/12/The-value-of-a-property-after-a-tragic-death.m4a

On one of my winter open house rounds I stumbled upon a beautifully renovated Edwardian with three bedrooms and two bathrooms on the top floor, a full bathroom on the first floor, and a bonus room on the bottom floor. It looked a lot like my rental house I sold this summer, but brand new.

At 2,500 sqft, I thought the house would list for ~$1.8M and sell for closer to $2M. But instead, it was listed for $1.49M and had been on the market for several months already. I immediately wanted to buy the place given the ~$500,000 pricing discount.

Upon further investigation, however, I learned from the new listing agent there was a terrible fire back in September 2013, hence the gut remodel. That’s fine, so long as the new construction was done up to code. But then the listing agent went on to tell me there was not one, but three deaths as the result of the fire: a 33-year old father, his one year old daughter, and her grandfather.

As a new father, my heart sank to the deepest depths of the ocean. I could not imagine losing my son so early. My only wish for the Grim Reaper is that my son outlives both his mom and I, 25 years from now. 

Buying A Property That Experienced A Tragedy

Even with a 20%+ discount to fair market value, I would never buy a home that experienced such tragedy. Call it superstition, but I would always wonder whether their ghosts would haunt us because we had taken over their home. Maybe the house is cursed and would consume all of us in the future as well with a new fire.

When the firefighters got there at 1:30am, they said all the fire alarms were blaring. I’d like to think that if I smelled fire and heard the alarms, I would have the calmness to wake up my wife, pick up my baby, and walk 20 feet out the door. Even if a fire was blocking my way, I’d walk through the flames protecting my little one knowing that short-term burns would be better than death. But such disasters often happen too quickly to react.

The only way I would ever consider buying a property with such a tragedy, even at a steep discount is if it was for a rental. In San Francisco, you have to disclose if there has been a death on the property within the past three years. The owners waited until the fourth year to list, which may or may not have been on purpose. But as a landlord, you don’t have to disclose, but you probably should just in case.

In the end, I decided even if the property was free I wouldn’t be willing to own the home. It would be like owning a dog that mauled to death three children. The constant association with such a tragedy would be too difficult to bear.

Other Types Of Deaths In A Property

Based on my research, it seems like the average discount to market for a tragic death on the property is somewhere between 15% – 25% in America. Tragic deaths include: homicide, suicide, death by fire, death by electrocution, death by falling.

For nontragic deaths, the discount is anywhere from 0% – 10%. Nontragic death is considered death by a natural cause e.g. old age, organ failure, disease.

If you are a home buyer, let me offer up a guide to how much of a discount you should argue for during negotiations if you are OK with buying a property that experienced a death. It’s always good to anchor low in the beginning and move towards the middle.

Now that I think of it, perhaps there’s an arbitrage opportunity for buying new construction homes in places that are extremely superstitious about home deaths or areas with a much older demographic. Surely there are plenty of people willing to pay a premium knowing they are the first and only person to create new memories in a new home.

Let’s embrace everyday as if it were our last.

Note: There is a poll embedded within this post, please visit the site to participate in this post's poll.

Related:

The Real Estate Investing Rule To Follow: BURL

Insurance For Natural Disasters: Fires, Earthquakes, Hurricanes Oh My

Is there a certain percentage discount that would entice you to purchase a property? The house that was listed for sale in this post didn’t receive an offer at their offer due deadline. 

Note: Thanks to reader feedback, I’ve created a Financial Samurai iTunes channel for those who enjoy listening. I’m still trying to figure out how to get the channel to list all the podcasts published. In the meantime, I’ve created a Financial Samurai Podcast page that has every single podcast I’ve published, including the links to the respective posts. Feels good to highlight a problem and take action. 

The post The Value Of A Property After Experiencing A Tragic Death appeared first on Financial Samurai.

from Finance https://www.financialsamurai.com/value-of-property-after-experiencing-tragic-death/ via http://www.rssmix.com/

[samuelfields]

The Benefits Of Owning Stocks Over Real Estate For Certain Investors

I was expecting much more backlash from coastal city folks in my article, Why Real Estate Will Always Be More Desirable Than Stocks, but instead, I got heat from folks who live in the Midwest. The general feedback was that Midwesterners never felt anti-housing rage and that I’m a fool for preferring real estate over stocks since they’ve made more money in the stock market.

Well obviously you aren’t going to feel a lot of anti-housing rage if you can buy a beautiful house for $280,000 a couple years out of school! And obviously you have a better chance of making a larger absolute return on your investment with stocks since housing is so cheap. We already know that in the long run, stocks outperform real estate, un-levered.

What I do predict with great confidence is that 20-30 years from now, the anti-housing rage will have spread to the Midwest. Money is fungible. It will go where the returns are highest. Residents from San Francisco, LA, Seattle, New York, Washington DC, and Miami will bring their bags of cash and either buy up non-coastal real estate directly through REITs or through real estate crowdfunding deals.

Making a fortune is about predicting long-term trends, and I’m certain diversity will continue to spread across America. Technology will make paying $4,600 a month for a two bedroom in a congested city like San Francisco no longer necessary because you no longer need to work in an office. By 2030, there will be more freelancers than W2 workers because today already ~35% of the American workforce are freelancers.

Every opportunity will eventually be arbitraged away. Thankfully, such trends can take decades to play out. Face reality or get left behind.

Why I’m Always Going To Own A Good Amount Of Stocks

After selling my SF rental house and reinvesting the proceeds, I’ve got roughly 30% of my net worth in stocks. Although stocks give me zero pleasure, they are a necessary component of my asset allocation because history has shown that stocks outperform inflation by 3-5X.

Here are some reasons why stocks may be more attractive than real estate.

1) Higher rate of return. Over the past 60 years, stocks have historically returned ~7-10% a year compared to 2-4% for real estate. You can also go on margin to boost your stock returns. However, I don’t recommend this strategy given your broker will force you to liquidate holdings to come up with cash if things go the other way. With real estate, your bank can’t force you to come up with cash or move out so long as you continue paying your mortgage.

2) Much more liquid. If you don’t like a stock or need immediate cash, you can easily sell your stock holdings. If you need to cash out of real estate you could theoretically take out a home equity line of credit, but it’s costly, needs getting approval, and takes at least a month to open up a new account. I tried unsuccessfully to sell one property in 2012. It took a stressful 45 days to finally sell the same property in 2017. With stocks, it’s so nice to be able to simply click a couple buttons and be done.

3) Lower transaction costs. Online transaction costs are under $5 a trade no matter how much you have to buy or sell. The real estate industry is still an oligopoly which still fixes commissions at a ridiculously high level of 5-6%. You would think with the growth of companies like Zillow and Redfin transaction costs would significantly decline, but unfortunately they’ve done very little to help lower expenses for the consumer.

Check out this detailed breakdown of how much it would cost to sell a $1,850,000 home.  If they charged a 6% commission fee, the cost would be $18,500 more!

The cost to sell real estate is still absurd

4) Less work. Real estate takes constant managing due to maintenance, conflicts with neighbors, and tenant rotation. Stocks can literally be left alone forever while paying out quarterly dividends. Without maintenance you’re able to focus your attention elsewhere such as spending time with family, your business, or traveling the world. If it made you feel more comfortable, you could hire a money manager for a fee of under 1% to manage your investments. Or you could just track and manage your portfolio yourself for free like I’ve done for the past 22 years.

Log onto dashboard and click Investing -> Holdings to get an overview of all accounts

5) More diversification. Unless you are super rich, you can’t own properties in Honolulu, San Francisco, Rio, Amsterdam and all the other great cities of the world. With stocks you can not only invest in different countries, you can also invest in various sectors. A well diversified stock portfolio could very well be less volatile than a property portfolio. People forget that buying property is a highly concentrated bet, often with debt, in a single asset.

6) Invest in products you care about. One of the most fun aspects about the stock market is that you can invest in what you use. Let’s say you are a huge fan of Apple products, McDonald’s cheeseburgers, and Lululemon yoga pants. You can simply buy AAPL, MCD, and  LULU. It’s a great feeling to not only use the products you invest in, but make money off your investments as well. As soon as we started actively using Netflix in 2011, we bought some shares that have done well (wish I put my life savings in the stock in 2006 when Reed Hastings, the founder spoke at my Berkeley MBA commencement!). As soon as my wife signed up for Amazon Prime in 2016, we also bought some shares.

7) Tax benefits. For capital gains and qualified dividends, the maximum tax rate is 15% for taxpayers in the lower tax brackets. For those in the highest tax bracket, the tax rate is 23.8%, including the 3.8% Net Investment Income Tax, associated with the Patient Protection and Affordable Care Act. Short-term capital gains tax (<1 year holding period) will be taxed at the normal marginal income tax rate.

Although these tax rates are quite reasonable, they can’t compete with the $250K/$500K tax free gains for singles/married couples who sell their homes after living in it for 2 out of the last 5. Now that’s some great tax savings!

8) Protecting your investment in a downturn is easier. If you think the end is near you can easily sell a stock or short it. But if the real estate floor gives way, there will be no reasonable offers as vultures will start swarming. If you think the real estate market is about to implode, you can short homebuilder stocks like KB Homes, a homebuilding ETF like XHG, a real estate play like Home Depot, a REIT like O, or mortgage backed securities. But these hedges are inefficient. At least with physical real estate, you can buy insurance. But is buying insurance really a benefit when no insurance is required to buy stocks?

9) Less taxes and fees. Holding property requires paying property taxes usually equal to 0.5 – 2.5% of the value of the property each year. In 40 – 200 years, you’ll have paid for the full value of your property in taxes alone. Then there’s maintenance costs, insurance costs, property management costs, and transaction costs to deal with. With stocks, you can build a portfolio of ETFs for free on Fidelity. Or you can have a digital wealth advisor build and maintain your investment portfolio for just 0.25% a year.

From a property tax perspective, the only states that seem reasonable to own property are Hawaii (0.28%), Florida (1.06%, no state income taxes), Washington (1.09%, no state income taxes), Wyoming (0.61%), Colorado (0.61%), Utah (0.68%), South Carolina (0.57%), Louisiana (0.51%), Arkansas (0.62%), Alabama (0.43%), and Nevada (0.86%, no state income taxes).

Property taxes by state

Characteristics Most Suitable For Real Estate

* Believe wealth is made up of real assets not paper.

* Know where you want to live for at least five years.

* Do not do well in volatile environments.

* Easily spooked by downturns.

* Tend to buy and sell too often.

* Enjoy interacting with people.

* Takes pride in ownership.

* Likes to feel more in control.

Characteristics Most Suitable For Stocks

* Happy to give up control to those who should know better.

* Can stomach higher levels of volatility.

* Have tremendous discipline not to chase rallies and sell when things are imploding.

* Likes to trade.

* Enjoys studying economics, politics, and researching stocks.

* Don’t want to be tied down.

* Have a limited amount of capital to invest.

The Main Reason Why I Own Stocks Today

Real estate is a younger person’s asset class. I had all the energy in the world in my 20s and 30s to buy and manage real estate. Now that I’m in my 40s and have a wife and son to take care of, I simply do not have enough time or desire to manage real estate. The same thing goes for buying and selling cars. I had 10 cars between 22 – 34 because I was a car addict. I loved meeting up with people on Craigslist to haggle. Now, I’m happy to own one car for 10 years if it lasts that long.

If you want to own real estate build your empire when you’re young. You won’t have the energy once you’re middle-aged. I’m thankful the 2/2 condo I bought in 2003 is fully paid off. We’re thankful we got through remodeling hell at our current residence before our son was born. Now, we just want to own stocks, bonds, REITs, and real estate crowdfunding with our incremental investments.

A simple life is a happier life!

Readers, what are some other reasons why I prefer stocks over real estate? How is your net worth composition currently?

Related: Recommended Net Worth Allocation By Age Or Work Experience

The post The Benefits Of Owning Stocks Over Real Estate For Certain Investors appeared first on Financial Samurai.

from Finance https://www.financialsamurai.com/benefits-of-owning-stocks-over-real-estate/ via http://www.rssmix.com/

[ronaldmrashid]

The Benefits Of Owning Stocks Over Real Estate For Certain Investors

I was expecting much more backlash from coastal city folks in my article, Why Real Estate Will Always Be More Desirable Than Stocks, but instead, I got heat from folks who live in the Midwest. The general feedback was that Midwesterners never felt anti-housing rage and that I’m a fool for preferring real estate over stocks since they’ve made more money in the stock market.

Well obviously you aren’t going to feel a lot of anti-housing rage if you can buy a beautiful house for $280,000 a couple years out of school! And obviously you have a better chance of making a larger absolute return on your investment with stocks since housing is so cheap. We already know that in the long run, stocks outperform real estate, un-levered.

What I do predict with great confidence is that 20-30 years from now, the anti-housing rage will have spread to the Midwest. Money is fungible. It will go where the returns are highest. Residents from San Francisco, LA, Seattle, New York, Washington DC, and Miami will bring their bags of cash and either buy up non-coastal real estate directly through REITs or through real estate crowdfunding deals.

Making a fortune is about predicting long-term trends, and I’m certain diversity will continue to spread across America. Technology will make paying $4,600 a month for a two bedroom in a congested city like San Francisco no longer necessary because you no longer need to work in an office. By 2030, there will be more freelancers than W2 workers because today already ~35% of the American workforce are freelancers.

Every opportunity will eventually be arbitraged away. Thankfully, such trends can take decades to play out. Face reality or get left behind.

Why I’m Always Going To Own A Good Amount Of Stocks

After selling my SF rental house and reinvesting the proceeds, I’ve got roughly 30% of my net worth in stocks. Although stocks give me zero pleasure, they are a necessary component of my asset allocation because history has shown that stocks outperform inflation by 3-5X.

Here are some reasons why stocks may be more attractive than real estate.

1) Higher rate of return. Over the past 60 years, stocks have historically returned ~7-10% a year compared to 2-4% for real estate. You can also go on margin to boost your stock returns. However, I don’t recommend this strategy given your broker will force you to liquidate holdings to come up with cash if things go the other way. With real estate, your bank can’t force you to come up with cash or move out so long as you continue paying your mortgage.

2) Much more liquid. If you don’t like a stock or need immediate cash, you can easily sell your stock holdings. If you need to cash out of real estate you could theoretically take out a home equity line of credit, but it’s costly, needs getting approval, and takes at least a month to open up a new account. I tried unsuccessfully to sell one property in 2012. It took a stressful 45 days to finally sell the same property in 2017. With stocks, it’s so nice to be able to simply click a couple buttons and be done.

3) Lower transaction costs. Online transaction costs are under $5 a trade no matter how much you have to buy or sell. The real estate industry is still an oligopoly which still fixes commissions at a ridiculously high level of 5-6%. You would think with the growth of companies like Zillow and Redfin transaction costs would significantly decline, but unfortunately they’ve done very little to help lower expenses for the consumer.

Check out this detailed breakdown of how much it would cost to sell a $1,850,000 home.  If they charged a 6% commission fee, the cost would be $18,500 more!

The cost to sell real estate is still absurd

4) Less work. Real estate takes constant managing due to maintenance, conflicts with neighbors, and tenant rotation. Stocks can literally be left alone forever while paying out quarterly dividends. Without maintenance you’re able to focus your attention elsewhere such as spending time with family, your business, or traveling the world. If it made you feel more comfortable, you could hire a money manager for a fee of under 1% to manage your investments. Or you could just track and manage your portfolio yourself for free like I’ve done for the past 22 years.

Log onto dashboard and click Investing -> Holdings to get an overview of all accounts

5) More diversification. Unless you are super rich, you can’t own properties in Honolulu, San Francisco, Rio, Amsterdam and all the other great cities of the world. With stocks you can not only invest in different countries, you can also invest in various sectors. A well diversified stock portfolio could very well be less volatile than a property portfolio. People forget that buying property is a highly concentrated bet, often with debt, in a single asset.

6) Invest in products you care about. One of the most fun aspects about the stock market is that you can invest in what you use. Let’s say you are a huge fan of Apple products, McDonald’s cheeseburgers, and Lululemon yoga pants. You can simply buy AAPL, MCD, and  LULU. It’s a great feeling to not only use the products you invest in, but make money off your investments as well. As soon as we started actively using Netflix in 2011, we bought some shares that have done well (wish I put my life savings in the stock in 2006 when Reed Hastings, the founder spoke at my Berkeley MBA commencement!). As soon as my wife signed up for Amazon Prime in 2016, we also bought some shares.

7) Tax benefits. For capital gains and qualified dividends, the maximum tax rate is 15% for taxpayers in the lower tax brackets. For those in the highest tax bracket, the tax rate is 23.8%, including the 3.8% Net Investment Income Tax, associated with the Patient Protection and Affordable Care Act. Short-term capital gains tax (<1 year holding period) will be taxed at the normal marginal income tax rate.

Although these tax rates are quite reasonable, they can’t compete with the $250K/$500K tax free gains for singles/married couples who sell their homes after living in it for 2 out of the last 5. Now that’s some great tax savings!

8) Protecting your investment in a downturn is easier. If you think the end is near you can easily sell a stock or short it. But if the real estate floor gives way, there will be no reasonable offers as vultures will start swarming. If you think the real estate market is about to implode, you can short homebuilder stocks like KB Homes, a homebuilding ETF like XHG, a real estate play like Home Depot, a REIT like O, or mortgage backed securities. But these hedges are inefficient. At least with physical real estate, you can buy insurance. But is buying insurance really a benefit when no insurance is required to buy stocks?

9) Less taxes and fees. Holding property requires paying property taxes usually equal to 0.5 – 2.5% of the value of the property each year. In 40 – 200 years, you’ll have paid for the full value of your property in taxes alone. Then there’s maintenance costs, insurance costs, property management costs, and transaction costs to deal with. With stocks, you can build a portfolio of ETFs for free on Fidelity. Or you can have a digital wealth advisor build and maintain your investment portfolio for just 0.25% a year.

From a property tax perspective, the only states that seem reasonable to own property are Hawaii (0.28%), Florida (1.06%, no state income taxes), Washington (1.09%, no state income taxes), Wyoming (0.61%), Colorado (0.61%), Utah (0.68%), South Carolina (0.57%), Louisiana (0.51%), Arkansas (0.62%), Alabama (0.43%), and Nevada (0.86%, no state income taxes).

Property taxes by state

Characteristics Most Suitable For Real Estate

* Believe wealth is made up of real assets not paper.

* Know where you want to live for at least five years.

* Do not do well in volatile environments.

* Easily spooked by downturns.

* Tend to buy and sell too often.

* Enjoy interacting with people.

* Takes pride in ownership.

* Likes to feel more in control.

Characteristics Most Suitable For Stocks

* Happy to give up control to those who should know better.

* Can stomach higher levels of volatility.

* Have tremendous discipline not to chase rallies and sell when things are imploding.

* Likes to trade.

* Enjoys studying economics, politics, and researching stocks.

* Don’t want to be tied down.

* Have a limited amount of capital to invest.

The Main Reason Why I Own Stocks Today

Real estate is a younger person’s asset class. I had all the energy in the world in my 20s and 30s to buy and manage real estate. Now that I’m in my 40s and have a wife and son to take care of, I simply do not have enough time or desire to manage real estate. The same thing goes for buying and selling cars. I had 10 cars between 22 – 34 because I was a car addict. I loved meeting up with people on Craigslist to haggle. Now, I’m happy to own one car for 10 years if it lasts that long.

If you want to own real estate build your empire when you’re young. You won’t have the energy once you’re middle-aged. I’m thankful the 2/2 condo I bought in 2003 is fully paid off. We’re thankful we got through remodeling hell at our current residence before our son was born. Now, we just want to own stocks, bonds, REITs, and real estate crowdfunding with our incremental investments.

A simple life is a happier life!

Readers, what are some other reasons why I prefer stocks over real estate? How is your net worth composition currently?

Related: Recommended Net Worth Allocation By Age Or Work Experience

The post The Benefits Of Owning Stocks Over Real Estate For Certain Investors appeared first on Financial Samurai.

from https://www.financialsamurai.com/benefits-of-owning-stocks-over-real-estate/

[samuelfields]

Financial Samurai 1Q2018 Investment Update And Outlook

Hopefully everyone got some laughs this April Fool’s! It’s always good to poke fun at yourself once in a while to stay grounded. Yes, Twitter is indeed like high school where there are gang ups, non-stop gossiping, and outbursts of hormonal rage. One of the main reasons why Disney decided to back out from their purchase of Twitter was due to the fear that all the hate would spill over and tarnish its reputation.

Anyway, I stand by my belief that if you are a happy person with a healthy dose of self-esteem, it’s hard to tell others to f off once you have f you money. Money simply magnifies who you already are. Let’s show empathy to the ones who dislike us the most.

For 2018 and beyond, I’ve decided to do things a little differently by taking away the absolute dollar amounts I invest. Given that there’s been so much rage against the middle class in expensive coastal cities, I don’t want the numbers to be a distraction. Only my family cares about how much we invest anyway.

1Q2018 Investment Update And Outlook

Stock Market

After rising as much as 7.22% in January, the Dow and S&P 500 closed down ~4% for after April 2. The initial ascent was unsustainable since such continued performance would lead to an annualized gain of over 100% for the year after a strong 20% in 2017.

Unfortunately, the government is no longer a tailwind, but a headwind with the start of trade wars with China and other countries. It’s now all about protecting special interest groups and asserting one’s dominance over others. It will be interesting to see if Trump can survive full-term if the stock market continues to falter.

Tech is out of favor at the moment after a huge data breach at Facebook, Uber’s self-driving car killing a woman in Arizona, another Tesla crash on autopilot with negative talks about Model 3 production, and Trump going after Amazon for not paying enough taxes (Financial Samurai pays more corporate income tax than Amazon).

With the S&P 500 down about 11% from its peak and having tested its bottom again in March, the market is trading at about ~16.8X 12-month forward estimated earnings. Prior to the selloff, the S&P 500 was trading at 18.2 times expected earnings, pricey compared to its 10-year average of 14.5. In December, the S&P 500’s forward PE reached as high as 18.9 before analysts began to increase their estimates for companies reporting their fourth-quarter results.

Therefore, even at ~16.8X forward P/E, the S&P 500 is not cheap compared to historical averages. However, if earnings grow by an estimated 18.4% over the next four quarters, you’ve got a P/E to Growth (PEG) ratio of less than 1X, which seems reasonable if the world can get along.

Source: Thomson Reuters I/B/E/S

Source: Thomson Reuters I/B/E/S

The best way I see the stock market regaining its footing is by companies reporting solid 1Q2018 results in 2Q. We’ve been whiplashed around by news and government rhetoric. If the majority of companies in the S&P 500 can meet or beat earnings expectations, then the expectations for an 18.4% S&P 500 earnings growth estimate will become stronger. If this happens, confidence will return to the stock market since stocks trade on earnings fundamentals at the end of the day.

I deployed a fourth of my remaining house sale proceeds at the beginning of the year, another fourth in February after the meltdown, and another fourth at the end of March when we hit a “double bottom.” I invested the rest of my house proceeds + cash flow into the bond market, which we’ll talk about next.

Stock Market Outlook At Current Levels: 7/10. I estimate 10% further downside at most and 15% upside if everything falls into place. I always look at investments with a risk / reward ratio.

Bonds Market Overview And Outlook

With fiscal stimulus and tax cuts, the market decided that such moves would be highly inflationary. Bonds sold off as a result, causing bond yields to rise and stocks to fall.

My line in the sand for the 10-year bond yield is 3% for 2018. It came close to breaching 3% when we got up to 2.94% on February 21. But yields have since come back down to around 2.73% with all the turmoil going on in the stock market.

Although the Aggregate Bond Market Index is down about 1.2% for the year, that’s better than being down 4% in the S&P 500. We might be in a situation this year of what asset classes loses me the least. But it’s too early to tell. Even if bonds end up down 2% for the year, you’re still up 0.75% if the yield is 2.75%.

I’m sticking with my belief that the 10-year bond yield does not breach 3% for 2018. Even if we do, it won’t be for very long (less than a couple weeks). In other words, the yield curve will continue to flatten if the Fed does not slow down its rate hikes, providing an ominous sign that a recession is coming.

Given the Fed isn’t stupid, I’m confident they will adjust their rate hike count and amount if the labor market weakens, inflation comes under expectations, and the stock market continues to correct.

I bought California muni bonds and some longer term treasury ETFs at the end of February after the 10-year yield broke 2.9%. A 3% muni bond yield is equivalent to a 4.3% gross yield if you have a 30% effective tax rate. A 4% gross yield has always been my post-work retirement target return.

Bond Market Outlook At Current Levels: 6/10. 1-2% downside, 3%-4% upside. When the 10-year yield was at 2.94%, I would give the bond market outlook a 8.5/10, but the yield has since come down.

Real Estate Market Outlook

One of the good things about global uncertainty is that investors seek the security of bonds, thereby lowering bond yields. With the 10-year bond yield coming off its highs, the real estate market may not get squeezed as hard as it could. That said, we are still ~45 basis points higher than we were in December 2017, so debt servicing is more expensive.

I continue to be very cautious about expensive coastal city real estate. Unless you are super bullish about your career prospects, have a massive liquidity event, have at least 30% of the value of the house you want to buy in cash (20% down, 10%+ cash buffer), or are starting a family plus at least one of the things I just mentioned, I would not be buying coastal city real estate, especially if you don’t plan to own the property for 10+ years.

See: It Feels A Lot Like 2007 Again: Reflections From The Previous Top Of The Market

Pricing pressure generally starts at the top and works its way down. Beware.

The risk reward for leveraging up at current valuations is unwise for the average person. Rents are falling in places like New York City, San Francisco, and Honolulu. With more supply in Seattle coming online than any other time in the past, Seattle rents are also starting to soften.

Please read BURL: The Real Estate Investing Rule To Follow, if you haven’t done so already.

If earnings fundamentals are important to you, as they should be, the price you decide to pay for your property should be equivalent to the price from the record month MINUS the rental price change since that time period. In other words, if you are planning to buy a 2-bedroom apartment in Honolulu this year, look up what the price of a comparable apartment was in January 2015 and subtract 25%. That price will give you a rough idea of where you should offer or counter offer.

Now is the time to be picky and negotiate, not be the foolish winner of a manic bidding war.

As for non-coastal city markets, they’ve got farther to run due to lower valuations and stronger demographic trends. That said, each market is different, and eventually, their waves will also crest. Focus on demographics because some places like Denver and Dallas have gone bonkers.

The stock market should give real estate investors some insight into the future. Look at sectors that are heavy in the city and state you want to buy and see how they are doing. Stocks reflect future earnings, and if earnings are at risk, so is job growth, wages, and housing demand.

Geo-arbitrage within the United States is going to be a multi-decade trend, which is why I’m investing in the heartland of America.

Housing Outlook For Expensive Coastal Cities: 3/10

Housing Outlook For Non-Coastal Cities: 7.5/10

Alternative Investments

Even though many investments are struggling in 2018 so far, there’s one investment that has struggled the most: cryptocurrencies! It was absolute carnage in the space. Names like Bitcoin, Ethereum, and Ripple are all down 50%+ for the quarter, so don’t feel bad if you’re down single digits in the stock market.

The collapse of cryptos is a great reminder to keep your alternative investment exposure limited to what you can afford to lose. For me, I keep all alternative exposure to no more than 10% of net worth.

One interesting note, I did have a long conversation about cryptos with a multi-billionaire a couple weeks ago who believes the crypto space will be completed diluted with an endless supply of new cryptos, partially because his company will easily enable all his customers to create their own.

Elsewhere, I was surprised to get a $2,623 payout from RealtyShares in February, since I’ve been modeling only ~$9,600 for the entire year in my 2018-2019 passive income estimates. I haven’t received any notification yet for March as it usually takes a couple weeks after month end to update, but I’ll update the chart once the numbers come out.

At the moment, investing $300,000 in real estate crowdfunding in December 2017 looks like the right choice. I’ve got a total of 17 different investments, the large majority of which I like. But it will take years to find out how well they do given all my investments are equity deals.

With the sale of my SF rental house and the sale of my private gin investment to Campari in 2017, I tried to keep my income as low as possible since the sales shoved me into a higher marginal tax rate before expenses. For 2018, I don’t expect to see another large windfall, hence I’m more open to earning more this year, especially since taxes have declined.

I’ll update this chart once March figures hit

Risk Control Is Paramount

You must go through your net worth asset allocation and do an honest assessment of your risk exposure. Do not be caught with your pants down at a highway rest stop. Predators come out. So long as you know how your money is being allocated and have a plan for what to do in different scenarios, you will go through life with much less financial stress.

As for me, I still feel good reducing ~$815,000 (mortgage) worth of risk exposure in 2017 and diversifying the house proceeds into various other investments. I’m actually considering selling my remaining SF rental given the last piece of avoidable stress in my life is dealing with a power-tripping HOA that has hired a terrible property manager as its minion. They hate landlords.

After verifying with my Personal Capital dashboard, I’ve got about $295,717 in cash left. It’s a little deceiving because $185,000 of the balance is from a CD which is coming due at the end of April. The CD was paying 3%, and I’m sad to see it go. At the same time, given asset prices are finally pulling back and interest rates have also moved up, the timing for reinvesting the proceeds is better.

Further, I’ve got to pay tens of thousands of dollars in extra taxes to support this great country of ours! Once I pay my tax bill I’m going to come up with a cash accumulation + investment game plan once again. This year is too tricky not to be on point.

Cash balance history since home sale

I’d love to hear your thoughts about the stock market, bond market, and real estate market. Would you be happy with a 3% – 4% return in 2018 given all that’s gone on so far? Please invest at your own risk. Every investment decision you make is yours to keep. Related: Things To Do Before Making A Single Investment

The post Financial Samurai 1Q2018 Investment Update And Outlook appeared first on Financial Samurai.

from Finance https://www.financialsamurai.com/financial-samurai-1q2018-investment-update-and-outlook/ via http://www.rssmix.com/

[samuelfields]

The Value Of A Property After Experiencing A Tragic Death

https://www.financialsamurai.com/wp-content/uploads/2017/12/The-value-of-a-property-after-a-tragic-death.m4a

On one of my winter open house rounds I stumbled upon a beautifully renovated Edwardian with three bedrooms and two bathrooms on the top floor, a full bathroom on the first floor, and a bonus room on the bottom floor. It looked a lot like my rental house I sold this summer, but brand new.

At 2,500 sqft, I thought the house would list for ~$1.8M and sell for closer to $2M. But instead, it was listed for $1.49M and had been on the market for several months already. I immediately wanted to buy the place given the ~$500,000 pricing discount.

Upon further investigation, however, I learned from the new listing agent there was a terrible fire back in September 2013, hence the gut remodel. That’s fine, so long as the new construction was done up to code. But then the listing agent went on to tell me there was not one, but three deaths as the result of the fire: a 33-year old father, his one year old daughter, and her grandfather.

As a new father, my heart sank to the deepest depths of the ocean. I could not imagine losing my son so early. My only wish for the Grim Reaper is that my son outlives both his mom and I, 25 years from now. 

Buying A Property That Experienced A Tragedy

Even with a 20%+ discount to fair market value, I would never buy a home that experienced such tragedy. Call it superstition, but I would always wonder whether their ghosts would haunt us because we had taken over their home. Maybe the house is cursed and would consume all of us in the future as well with a new fire.

When the firefighters got there at 1:30am, they said all the fire alarms were blaring. I’d like to think that if I smelled fire and heard the alarms, I would have the calmness to wake up my wife, pick up my baby, and walk 20 feet out the door. Even if a fire was blocking my way, I’d walk through the flames protecting my little one knowing that short-term burns would be better than death. But such disasters often happen too quickly to react.

The only way I would ever consider buying a property with such a tragedy, even at a steep discount is if it was for a rental. In San Francisco, you have to disclose if there has been a death on the property within the past three years. The owners waited until the fourth year to list, which may or may not have been on purpose. But as a landlord, you don’t have to disclose, but you probably should just in case.

In the end, I decided even if the property was free I wouldn’t be willing to own the home. It would be like owning a dog that mauled to death three children. The constant association with such a tragedy would be too difficult to bear.

Other Types Of Deaths In A Property

Based on my research, it seems like the average discount to market for a tragic death on the property is somewhere between 15% – 25% in America. Tragic deaths include: homicide, suicide, death by fire, death by electrocution, death by falling.

For nontragic deaths, the discount is anywhere from 0% – 10%. Nontragic death is considered death by a natural cause e.g. old age, organ failure, disease.

If you are a home buyer, let me offer up a guide to how much of a discount you should argue for during negotiations if you are OK with buying a property that experienced a death. It’s always good to anchor low in the beginning and move towards the middle.

Now that I think of it, perhaps there’s an arbitrage opportunity for buying new construction homes in places that are extremely superstitious about home deaths or areas with a much older demographic. Surely there are plenty of people willing to pay a premium knowing they are the first and only person to create new memories in a new home.

Let’s embrace everyday as if it were our last.

Note: There is a poll embedded within this post, please visit the site to participate in this post's poll.

Related:

The Real Estate Investing Rule To Follow: BURL

Insurance For Natural Disasters: Fires, Earthquakes, Hurricanes Oh My

Is there a certain percentage discount that would entice you to purchase a property? The house that was listed for sale in this post didn’t receive an offer at their offer due deadline. 

Note: Thanks to reader feedback, I’ve created a Financial Samurai iTunes channel for those who enjoy listening. I’m still trying to figure out how to get the channel to list all the podcasts published. In the meantime, I’ve created a Financial Samurai Podcast page that has every single podcast I’ve published, including the links to the respective posts. Feels good to highlight a problem and take action. 

The post The Value Of A Property After Experiencing A Tragic Death appeared first on Financial Samurai.

from Finance https://www.financialsamurai.com/value-of-property-after-experiencing-tragic-death/ via http://www.rssmix.com/

[ronaldmrashid]

The Value Of A Property After Experiencing A Tragic Death

https://www.financialsamurai.com/wp-content/uploads/2017/12/The-value-of-a-property-after-a-tragic-death.m4a

On one of my winter open house rounds I stumbled upon a beautifully renovated Edwardian with three bedrooms and two bathrooms on the top floor, a full bathroom on the first floor, and a bonus room on the bottom floor. It looked a lot like my rental house I sold this summer, but brand new.

At 2,500 sqft, I thought the house would list for ~$1.8M and sell for closer to $2M. But instead, it was listed for $1.49M and had been on the market for several months already. I immediately wanted to buy the place given the ~$500,000 pricing discount.

Upon further investigation, however, I learned from the new listing agent there was a terrible fire back in September 2013, hence the gut remodel. That’s fine, so long as the new construction was done up to code. But then the listing agent went on to tell me there was not one, but three deaths as the result of the fire: a 33-year old father, his one year old daughter, and her grandfather.

As a new father, my heart sank to the deepest depths of the ocean. I could not imagine losing my son so early. My only wish for the Grim Reaper is that my son outlives both his mom and I, 25 years from now. 

Buying A Property That Experienced A Tragedy

Even with a 20%+ discount to fair market value, I would never buy a home that experienced such tragedy. Call it superstition, but I would always wonder whether their ghosts would haunt us because we had taken over their home. Maybe the house is cursed and would consume all of us in the future as well with a new fire.

When the firefighters got there at 1:30am, they said all the fire alarms were blaring. I’d like to think that if I smelled fire and heard the alarms, I would have the calmness to wake up my wife, pick up my baby, and walk 20 feet out the door. Even if a fire was blocking my way, I’d walk through the flames protecting my little one knowing that short-term burns would be better than death. But such disasters often happen too quickly to react.

The only way I would ever consider buying a property with such a tragedy, even at a steep discount is if it was for a rental. In San Francisco, you have to disclose if there has been a death on the property within the past three years. The owners waited until the fourth year to list, which may or may not have been on purpose. But as a landlord, you don’t have to disclose, but you probably should just in case.

In the end, I decided even if the property was free I wouldn’t be willing to own the home. It would be like owning a dog that mauled to death three children. The constant association with such a tragedy would be too difficult to bear.

Other Types Of Deaths In A Property

Based on my research, it seems like the average discount to market for a tragic death on the property is somewhere between 15% – 25% in America. Tragic deaths include: homicide, suicide, death by fire, death by electrocution, death by falling.

For nontragic deaths, the discount is anywhere from 0% – 10%. Nontragic death is considered death by a natural cause e.g. old age, organ failure, disease.

If you are a home buyer, let me offer up a guide to how much of a discount you should argue for during negotiations if you are OK with buying a property that experienced a death. It’s always good to anchor low in the beginning and move towards the middle.

Now that I think of it, perhaps there’s an arbitrage opportunity for buying new construction homes in places that are extremely superstitious about home deaths or areas with a much older demographic. Surely there are plenty of people willing to pay a premium knowing they are the first and only person to create new memories in a new home.

Let’s embrace everyday as if it were our last.

Note: There is a poll embedded within this post, please visit the site to participate in this post's poll.

Related:

The Real Estate Investing Rule To Follow: BURL

Insurance For Natural Disasters: Fires, Earthquakes, Hurricanes Oh My

Is there a certain percentage discount that would entice you to purchase a property? The house that was listed for sale in this post didn’t receive an offer at their offer due deadline. 

Note: Thanks to reader feedback, I’ve created a Financial Samurai iTunes channel for those who enjoy listening. I’m still trying to figure out how to get the channel to list all the podcasts published. In the meantime, I’ve created a Financial Samurai Podcast page that has every single podcast I’ve published, including the links to the respective posts. Feels good to highlight a problem and take action. 

The post The Value Of A Property After Experiencing A Tragic Death appeared first on Financial Samurai.

from https://www.financialsamurai.com/value-of-property-after-experiencing-tragic-death/

[ronaldmrashid]

Net Worth Optimization Exercise: Don’t Neglect Valuable Assets

Please call me to come over so we can hang!

My tenants don’t know this but I enjoy coming over to hang. I’m cooped up in my house working from 6am – 10am every morning, so it’s a pleasure when real human beings reach out to see if I can take a look at a problem. While I’m there, I enjoy asking to see how they’re doing.

One 26-year-old tenant told me he just hated his job, couldn’t stand his micromanager, and wanted to be free. Well what do you know! Same here when I was your age buddy. Months later, he actually quit his job to become a deep sea fisherman up in Alaska. Anybody want to go with? I got the hookup.

The closer the relationship I can develop with my tenants, the less likely they’ll screw me over. Don’t all tenants want to just spend time with their landlords on a Saturday morning? Of course not! I’m a little crazy that way because I’m always looking for a story to uncover to share with all of you. It’s sort of like being an investigative report, or Chip, from The Cable Guy.

Besides knowing how to fix things myself, there’s a big reason why I’m always down to visit my rentals. I feel bad spending so little time thinking about my rental properties proportionate to their value. Yes, I killed myself when I was younger for the privilege to take some risk. But once you get on the right side of inflation, building wealth gets easier over the long run.

Rental property makes up around 30% of my net worth (40% if you include my primary residence), yet I often forget I even have rental properties because no attention is needed most of the time. Only when I get a rent check or a text to fix a leaky dishwasher valve do I realize, “Oh yeah! I got me some rentals. Sweet!”

Net Worth Optimization Exercise

I’d like everybody to list out their assets from most valuable as a percentage of net worth to least valuable. Now assign a percentage of time you spend thinking, maintaining, or getting smart about the asset class per week, month, or year. Finally, take the time you spend on each asset class and subtract its percent of total net worth. Wherever you are short, consider spending more time on that asset class.

Here’s an example of my net worth optimization exercise, with corresponding thoughts.

Real estate (30% short): Real estate is a large portion of my net worth since real estate is the asset class I was most focused on accumulating in my 20s and 30s. Given the appreciation since the downturn and the decision to purchase a fixer in 2014, the overall weighting has hit a limit. Coming up 30% short is a big spread that needs narrowing, especially since we’re so far into the recovery.

I plan to spend more time thinking about how I can better manage my risk during a downturn, while also diversifying my real estate holdings into cheaper, higher yielding areas in the heartland through real estate crowdfunding. So far I’ve been regularly paying down the highest interest rate mortgage while also building up a cash hoard. Prices are weakening in SF, and I want to be prepared to maybe buy another property before another major IPO.

Online business (30% Over): I’m spending most of my time on the online business because it’s the most fun and has the most upside. If I didn’t believe in the upside potential, I’d lower the time spent closer to 30%. However, blogging is the best business in the world with a high correlation with effort and reward. What other business is there that costs so little to run, can be done anywhere in the world, and doesn’t require you to have to sell anything?

Public equities (6% Over): I’m spending more time thinking about public equities because I’m not bullish on stocks. The S&P 500 is expensive and I’m doubtful that Trump will be able to deliver on all his promises regarding healthcare and tax reform. Therefore, I’ve been busy trying to prudently reduce exposure, even though stocks are a small percentage of my net worth (~12%). Right now I’ve got a ~48% weighting in stocks in my public investing portfolio.

Public fixed income (Equal): I went from spending 0% of my time on fixed income with 0% exposure to spending 10% of my time and having 10% of my net worth in fixed income since the 2016 presidential election. I just love being able to return a highly probable 4% – 6% gross yield until maturity since my net worth growth target is only 4% a year. To earn a higher yield compared to my mortgages is a fantastic arbitrage I’m willing to play for as long as possible. Every week I’m looking for new California municipal bonds to buy. Related: The Case For Buying Bonds

One of several stock/bond allocation models. Click to see more.

Private investments (4% Short): After spending lots of time researching each private equity or private fund investment before investing, I tend to forget all about them until there is a quarterly performance update. Since I can’t do anything about the funds due to a 5-10 year lock up, I spend my time on things which I can control, which is mainly my online business. I should probably spend a little more time thinking about new private investments since they fit my desire to protect myself from myself.

CDs (2% short): I used to love CDs given they were paying 4%+, 7+ years ago. Now, the best CDs are only paying ~2.5%. They should go higher as interest rates rates, but they aren’t as tax efficient as municipal bonds, which are already yielding higher rates. I’m spending more time thinking about how to redeploy capital when my CDs expire. Related: CD Investment Alternatives

One of several net worth allocation models. Click to see more.

Never Neglect Your Most Valuable Assets

You don’t have to find parity with the value of your assets and the time spent on each asset. You just need to make sure your asset allocation is risk appropriate. If you’ve got one asset class that is dominating your net worth, then it’s a good idea to spend more time getting smart about what’s going on, especially since times are so good. When times turn bad it may be too late.

I’m a big proponent of tracking your net worth due to neglect. When we have a child to raise, elderly parents to take care of, a job to suffer through, a business to run, or a world to see, it’s easy to lose track of our wealth. Once a quarter, go through the exercise of analyzing your net worth and time spent with each asset class. You might not end up taking action, but at least you’ll become more aware of what you have.

Related: The Average Net Worth For The Above Average Person

Readers, are you spending a commensurate amount of time on your most valuable assets? How often do you perform a net worth optimization exercise? Which asset are you neglecting the most?

from http://www.financialsamurai.com/net-worth-optimization-exercise-make-sure-time-spent-is-commensurate-with-each-assets-value/