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Help with passive income once rich and busy?

Discussion in 'Investing/Trading/Cryptocurrency/Altcoins' started by e_fastlane, Apr 21, 2017.

  1. e_fastlane
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    e_fastlane Contributor Read Millionaire Fastlane FASTLANE INSIDER

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    I've had this same problem for years now and it's only increasingly getting bigger and bigger.

    1. I've been making more and more money, which means my cash fund has been growing fast
    2. I don't trust investors or financial advisors. If they were anything but charlatans and actually knew how to beat the market, they wouldn't need me.
    3. No free lunch and No pain no gain. I recognize that if I don't learn investing (whether in realty/stocks/etc.) myself or put in time myself then I won't be rewarded.
    4. My time is much better spent MAKING my money than dividends that could be expected by spending it learning about investing.
    5. Even if I was to learn an investment strategy, my time is still much better spent making the money in the first place than managing whatever the strategy is. I'm not interested in the possibility of worrying about my renters AC/roofing problems for a possible extra XX,XXX a year.

    At first it wasn't too big of a problem, but lately I feel like it's starting to become almost irresponsible to just have this much liquid assets and not be making money on it.

    The only thing I have come up with that I might end up doing is throwing most of it in an index fund. But as we all know, thats a very very long term and minimal return (when accounting for all the crashes and not knowing if you timed the market right when you put in the money).

    Any advice?
     
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  2. biggeemac
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    biggeemac Silver Contributor FASTLANE INSIDER Speedway Pass

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    Have you looked into doing hard money lending? I've been at the borrowing end of hard money. It seems like a pretty decent investment provided you get with a reputable broker.
     
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  3. MJ DeMarco
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    MJ DeMarco Raving Lunatic Staff Member Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    You in the states?
     
  4. e_fastlane
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    e_fastlane Contributor Read Millionaire Fastlane FASTLANE INSIDER

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    I only did minor research into it, so forgive me if I'm missing something, but what you are suggesting seems like literally a full time business. On top of that I would need to know the business and area really well to make good loan choices. It might be a good route for someone that's looking for ways to make money once their business dries up, but that kind of time investment is not right for me.

    Yep, enjoying the great phoenix weather!
     
  5. lowtek
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    lowtek Platinum Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass Summit Attendee

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    If you're an accredited investor (sounds like you should qualify) then aren't there a world of opportunities available?

    You don't want to deal with renters (makes perfect sense), but could you just be the guy fronting a chunk of the cash for a group of investors? Seems like getting in on a big apartment complex with dedicated management staff would be pretty hands off, and a reasonable return. Certainly not risk free, but doesn't seem to require a full time energy commitment.

    Just my $0.02 - I know f*ck all about managing a huge pile of cash. Just tossing out ideas.
     
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  6. ravenspear
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    ravenspear Bronze Contributor Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass

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    I would definitely recommend looking into real estate as well. You only need to give up about 10% of the rent for property management costs to eliminate this worry entirely and make it almost completely passive. If there are maintenance problems they handle it all and all you do is write a check (which shouldn't be a problem since you have a big pile of cash).
     
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  7. 100k
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    100k Gold Contributor Read Millionaire Fastlane Speedway Pass

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    Have you looked into REITs? You get exposure in real estate without needing to worry about managing the stupid renters.

    Another thing worth looking into are retail bonds / corporate bonds on the AIM (alternative investment market). You can borrow money to well establish brands like Vodafone, Tesco, B.T, HSBC, Lloyds Bank and get 5-8% return annually.

    Advanced bonds search - London Stock Exchange
     
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  8. Mcfroggin
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    Mcfroggin New Contributor

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    The problem you have is that big money is made in developing companies, but you do not have time.

    You should consider networking to find/finance new companies with people in your community. Not only can it be profitable, but it is also gratifying to know you are bettering your community.
     
  9. jlwilliams
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    jlwilliams Bronze Contributor Read Millionaire Fastlane Speedway Pass

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    Honestly, if you are making good money and don't want to get distracted with management, an indexed fund may not be a bad idea. What you are talking about doing is as much a savings vehicle as an investment vehicle. The best return with the lowest risk and lowest attention required from you might be just to park it in indexed funds and ignore it while you continue to make more money to pack into the account.
     
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  10. Camaro68
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    I would second the index fund if you want a hands off, set and forget way to grow the extra capital. Reinvest dividends and send all your money there to be invested in the index.

    You've stated that your energy is best put into making more money. That means you don't have the time to eat, breathe, sleep another endeavor and often, especially in its infancy, that is what is required of a venture to get it off the ground and functioning.

    If you're unable to do that and make the commitment, then I'd set it and forget it. Historical returns in the market over large time periods (assuming you're relatively young and not nearing retirement) are fairly good. View any market corrections, or even recessions as a blue light special on stocks since you have a long runway to retirement.

    Google a compound interest calculator. input your yearly investable income contributions and your timeline and play with assumed earning interest numbers. If you are socking enough away it doesn't take a large yearly return averaged out to provide significant and sometimes surprising end results.

    I'm basically in the same boat. When choosing an investment vehicle in the market, I was looking at 1% differences in funds and trying to find the absolute best return, once I used the compound interest calculator I quickly realized that even if I only achieved a 4-5% compound return over a "working" life that it would blow any reasonable retirement stash I would have hoped for away, because I'm socking so much away each year.

    If you're saving $5k/year and want a comfortable retirement in 20 years, you've got to hope for some pretty healthy returns sustained. If you are socking enough away, you can afford to take "average" or even slightly below and still be very, very well off. That's the luxury of large amounts and the reason that many ultra high net worth individuals can afford to park significant sums into Bonds rather than stocks. John Q Public would never reach retirement by generating ROI a percentage point above inflation, but if you have 10's of millions and you are unable to spend the interest generated at these rates, you just don't care.

    Not assuming you have 10's of millions (if you do, rock on!) but the principle is the same. Focus on what you can control, how long you let the money "soak" and how much you add to the account each year....let the ROI cards of the market fall as they may year-to-year, but history shows that over an extended period and with yearly contributions you'll do very well.
     
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  11. The-J
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    The-J Legendary Contributor Read Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    I disagree. Time spent learning about investing can mean time dividends in later years. Your business(es) won't last forever.
     
  12. illmasterj
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    illmasterj Bronze Contributor Read Millionaire Fastlane Speedway Pass

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    This is one area where I strongly recommend taking the time to learn. Everyone in this thread, financial advisors, internet bloggers, journalists, your friends and family will all have opinions and as you're clearly aware, a lot of that advice is bad. Some while good, can also be misguided, especially if you aren't looking for "average".

    I am not from the US, but the following has served me well as largely "mindless" investments allowing my assets to grow while I build my business:
    • government bonds
    • index ETFs
    • REITS
    On face value, this is what most people look at but years of travelling has helped me to see opportunities in other regions. I'm currently building up a foundation of assets, with this in place and hopefully by then accredited/sophisticated investor status, there will be more private/alternate investments open to me.

    Thing is, even in the above everyone will debate with you about which bonds, which ETFs, which REITS, etc. Take a holiday from work at some stage and read some financial literature, or read some of the books summarized by Derek Sivers on investing.

    Something to keep in mind being in the states is dividends/distributions - I believe you'll be taxed on them, so you'd want to be in funds that reinvest them rather than pay them out. Combined with investments that have a low or no management fee, those 2 tips alone may add up over a lifetime.
     
  13. MTF
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    MTF Never give up Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR

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    I'm in the same boat. In the last few months I've spent dozens, if not hundreds of hours reading about various investment ideas. Here are some of the things I've considered:
    • P2P lending - I invested some money in P2P lending sites with 10-12% ROI. Most of the investments are collateralized, but I don't feel entirely comfortable about putting a lot of money into it and probably won't invest more. It's as passive as you can get, but risk-adjusted return is lower here than with other options.
    • short-term rental properties for Airbnb, etc. (@GlobalWealth's process) - after reading a lot about it, I think it's too big of a headache for me (still not entirely sure, but that's what I'm leaning towards). Even with a property manager, I feel it's too stressful and more like a business than an investment. This post (and other posts in this series) was eye-opening. It all comes down to the final paragraph: "The money I’ve earned as an Airbnb and VRBO host is better than what I’d collect as a traditional landlord. But that comparison is apples-to-oranges. One is active; the other is passive. One is hospitality; the other is real estate. They’re not the same industry."
    • traditional rental properties (apartments) - explained later.
    • stock market investing focused on dividends - decided against it because I have zero control over it. Dividends can change, companies can go bankrupt, interest rates can influence returns, etc. Rents generally don't fluctuate that wildly (and since I'd be buying and holding the properties for a long time, I wouldn't care much about the fluctuations in the property's price anyway). Moreover, since I found stock market investing too complicated and time-consuming to be able to pick individual stocks, I'd have to focus on index investing. The dividend yield from the best low-cost funds is about 3-4%, and that's too low considering that even if I hire a property manager, I can get 6-7% in my area.
    • REITs - as above, can't control them and if you don't know how to properly research them, it'd be better to invest in a REIT ETF (that generates about 4%, so it's too low).
    • bonds and stuff like that - get low returns borrowing to broke governments. No thanks.
    • buying digital assets/passively-managed websites - returns can be great here, but my primary business is also digital, so I'd rather diversify and own something more tangible.
    • forestry - I investigated the possibility of investing in land for forestry (managed by a professional forestry company). Returns were too low (4%) and the investment is too illiquid.
    • collectibles - returns can be incredible, but there's no cashflow so no, thanks.
    In the end, I think I'll focus on rental properties and hire a property manager. Here's my reasoning:
    • if you buy at the right price and find a good long-term tenant, your returns are stable.
    • real estate protects you from inflation, and often appreciates beyond the inflation rate (though my focus is on cashflow, not capital appreciation).
    • it's very scalable, particularly if you hire a good property manager.
    • it's just a good retirement plan. Buy 10 or so good properties with cash and if your living costs are reasonable, you're set for life.
    • lower tax.
    I'm going to take my time to figure it out and make sure it's the right path for me, but everything indicates that out of all the options I've considered, it's the best route for me.

    Please keep us updated and let us know what you decided to do.
     
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  14. MJ DeMarco
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    MJ DeMarco Raving Lunatic Staff Member Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    I'm privy to municipal bonds which are tax-free, great if you're in the high income tax bracket.

    Also many governments and municipalities have to operate at balanced budgets, unlike our printing press government.
     
  15. Jakawan
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    Jakawan We Buy Houses Read Millionaire Fastlane Speedway Pass

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    I also suggest lending your money to real estate entrepreneurs. There's tons in Phoenix and really everywhere. Single family house flippers and landlords need fast money and they're willing to pay for it.

    Example: Let's say they are buying a 3 bed 2 bath 2 car brick house..
    After repaired value: $100k
    Repairs needed: $20k
    Purchase price: $50k
    Bank lends 70% of appraisal at 6% interest with 1.5% origination fee.
    But the real estate investor usually has to document every repair and show proof so they can get draws of $5k-$10k and extra hoops and maybe 2 weeks to close..

    They would rather pay you 10% interest and 2-4 points because.. you may lend them 65%-70% of appraisal but you don't require draws or hand holding. So the rehabber gets the $18k up front and has less hoops to jump through. Also you could fund the deal in 2-3 days rather than 10-15.

    And you make the rules. You could do short term or long term lending. They usually refinance or sell within 6-12 months. Or you could offer 10-15 year amortized notes if you want long term interest with less management. Short term notes you get the benefit of charging points though, but a little more hands on.

    You hold a first position mortgage and note, you only lend 70% or less of appraisal. Your money is collateralized by real estate. Worst case scenario you break even by selling the house if your lendee defaults.
    You can also require that they pay the 2-4 points up front. Thousands of dollars!!
    You can also vet them out with referrals, tax returns, past deals, financial statement. Etc

    You could hire one person to handle this type of investing for you. Running applications, create a relationship with an honest appraiser, and basically you just say yes or no and sign checks and watch the payments come in!
     
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  16. Tiger TT
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    Tiger TT Bronze Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass

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    A website that's getting traffic and selling ebooks/digital products or getting passive income using adwords?

    I would really appreciate if you gave a few examples on this one.
     
  17. EvanOkanagan
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    As a couple people mentioned before, managed rental properties.

    The largest time spend will be before & during the deal, but once you've bought it, especially with having a good property manager, it can be a great mix of high returns and little management.

    I have only 3 of my 11 rental units managed for me, and even then I spend less than an hour per month thinking/focusing on my investments. If I had them all managed this would make this less of course. Also, returns of 10%+ ROI/ROE are not uncommon.
     
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  18. ravenspear
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    ravenspear Bronze Contributor Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass

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    REITs are a good option if you want something in real estate even more passive than managed rentals but it should be noted that owning and managing actual property has some additional benefits over REITs. With REITs you only get one growth component, which is how much the fund appreciates per year. If it's a dividend paying REIT then it's really two counting the dividend. But with real property you get:

    1. The appreciation on the asset (house/apartment whatever)
    2. Monthly income above your expenses if the property is cash flow positive (which it should be or you shouldn't buy it)
    3. If you use any leverage, the principal component of an amortized loan paid down by the tenant is a monthly profit
    4. You get extra tax advantages including the ability to depreciate the purchase price of the investment property and any improvements made to it and the mortgage interest deduction if you have any debt on the property

    If you look at the total return combining all of these it can often be 20% or more depending on the amount of leverage used. The price you pay for this is that your investment is quite a bit less liquid than it is with a REIT which can be sold in a day if you need liquidity where it might take you months to sell a house or apartment.
     
    Last edited: Apr 24, 2017
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  19. MTF
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    MTF Never give up Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR

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    Reputable brokers sometimes sell such sites. Example: https://feinternational.com/buy-a-website/

    One example from their current listings (it's an affiliate site so it's obviously not the most Fastlane idea, but you'd be buying it to diversify your investments and get additional cashflow, not to use it as your primary Fastlane vehicle):

     
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  20. Tiger TT
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    Thanks MTF. I didn't know any brokers that are reputable. I will definitely follow this one.
     
  21. MTF
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    MTF Never give up Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR

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    I might change my thoughts about this. Just got back from a meeting with a local real estate agency that manages everything for you - from preparing the property for short-term rental to putting it up online (using their own accounts) to marketing it, managing bookings, cleaning, etc. As a passive investor you only put up the money and then cash checks (revenue sharing or a fixed amount). Might be exactly what I've been looking for.

    As far as I know https://empireflippers.com/marketplace/ are also reputable.
     
    Last edited: Apr 25, 2017
  22. SteveO
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    It can be a full time job if you want to invest in the more aggressive notes. You can purchase the more stable ones as well. I don't know how much money you are looking to invest but a note can be purchased in quantities of one a year. A performing note with a low risk borrower on a solid property may be a lower return but not a lot of work either.
     
  23. BradD
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    Interesting, did they happen to quote you on how many pts they'll charge for the management? Wondering if they'll include the cleanings in the fee etc

    I've been looking at Guesty for Airbnb management- fees ~3-4 %, they manage cleaners (i.e. they book, you pay), and all the guest communications. My property is in Vegas and I'm in Canada so the automation is critical, particularly for this to scale to 3-4 + units
     
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  24. MTF
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    25% for them + 3% for Airbnb fee, 12% for booking.com fee, etc. Cleaning is included in their fee (I believe they simply add a cleaning fee to each booking).
     
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  25. MJ DeMarco
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    Am I reading this right? 40% in cumulative fees?
     

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