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Money System - What Are You Investing That's Getting 5% Return?

Discussion in 'Investing/Trading/Cryptocurrency/Altcoins' started by Bobby-H, Jul 29, 2015.

  1. unaided
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    unaided Contributor Read Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass

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    Anyone using home equity loans at sub 5% to leverage higher returns elsewhere?

    As for the AC/Roof examples...I do not own any rentals, but I was under the impression that if you have enough equity somewhere, you can use it to fund that AC/roof repair and now you're spreading that expense out into a loan and your cashflow can generally stay positive. If you're already getting 10-15% returns on a property, you would have the wiggle room to pay 5-8% with leverage rather than just cleaning out cash reserves. It still necessitates making 10-15% on the "buy".

    In other cases, it may wash out some of your returns but not give you a full-on loss or clear you of your cash reserves. Also it goes to show that if you're going to own rentals, you kinda need to own like 10 units so as to diversify against these things. If you want 10-15% returns, there's gonna be risk somewhere.
     
  2. EvanOkanagan
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    EvanOkanagan Gold Contributor FASTLANE INSIDER Speedway Pass Summit Attendee

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    It definitely differs from person to person. I personally cannot stand having "bad debt" which I consider debt that isn't paying for itself. If I'm ever in this kind of debt, I'll do whatever it takes to get out of it.

    As far as "good debt" which I consider debt that's paid for by others, it's practically never on my mind.

    I guess I don't get stressed out by it because I haven't over-leveraged myself and I know multiple exit strategies from being in the biz.

    -----------------------

    One more thing to ponder about Real Estate debt...

    Say you've accumulated a sizeable portfolio over the years that all cash flows at a healthy level and you're not over-leveraged.

    You know that over time these assets will continue to appreciate...

    You could essentially take out equity (refinance) from the properties that had low loan-to-value ratios (for example: a property is now worth 600k and you owe only 200k). You refi 200k in this property to fund your lifestyle for a couple years (which still doesn't over-leverage you--now you owe 400k on a 600k home)... and since this is considered "debt" you're not taxed on it like income.

    Your properties continue to appreciate over the years... and you continue to take out non-taxable money (debt) from the properties that are under-leveraged. Rinse and repeat.
     
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  3. JScott
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    JScott Legendary Contributor FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR

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    Good investors factor EVERYTHING into their proforma -- maintenance, capex, vacancy, rent loss due to non-payment, legal fees for evictions, etc. One big expense (like a roof) could wipe out a year's worth of income, but if you saved the other 14 years' worth of income, you should be fine, and should have a nice return if you bought intelligently.

    My rentals all return 10-12% unleveraged, fully managed by third-parties. I spend about 20 minutes/month doing accounting/paperwork and probably answer an average of one email a month from my management company. If I leveraged, it would increase to about 15-17%, but I prefer the lower risk, lower returns for these specific investments. I document all the numbers for one of my rentals on my website. Updated every year with the gory financial details.

    As for appreciation, that's gambling. In most parts of the country, real estate values will track inflation over the long run. Just because things have been going up, up, up for 6 years doesn't mean they always will -- just ask those investors who owned real estate back in 2007-2008. I bought all their inventory back in 2009-2011 for pennies on the dollar...
     
    Last edited: Jun 2, 2017
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  4. V8Bill
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    V8Bill Gold Contributor Read Millionaire Fastlane Speedway Pass

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    I agree with this. It depends what you want from your money. If you want to grow a larger return, you have to add risk. If you want to lower risk you need to accept a lower return. Obvious, I know but for me, when I'm looking for safety and relaxation I look for 5% in a solid safe bank that will just keep giving without any risk (at least not here in Australia with one of the government backed deposits guaranteed big 4 banks). When I deposit spare money into my 5% forever account I'm doing it to build a never ending lifetime supply of cash that I never have to worry about. I can go on a 12 month road trip and that money will still come in.

    If I'm looking to grow my money I'll add more risk. I can make hundreds percent per day if I want to just by adding enormous amounts of risk (e.g. Forex day trading). 5% is my final resting place for all excess money. My ultimate goal is to have enough money producing 5% (almost entirely) risk free in the bank for me to pay my all my essential expenses and have an equal amount left over for fun and luxury spending. If my 5% can do that (I'll need a few million - not impossible) I'm done with hunting for money forever and I'm out. Drop mic.
     
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  5. illmasterj
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    illmasterj Bronze Contributor Read Millionaire Fastlane Speedway Pass

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    @V8Bill if you can't get 5% in a safe bank in Australia, what countries are you choosing to use? Have you priced in the currency risk? (I'm also an Australian, interested in what you've found).
     
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  6. V8Bill
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    V8Bill Gold Contributor Read Millionaire Fastlane Speedway Pass

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    Can't get 5% at the moment - could before, will again. Current walk in rates are about 3% and climbing. Not sure what you mean by "what countries I'm choosing to use" Excuse my obvious ignorance (educate me) but how do you see currency playing a part? I make the money and will put it in the bank and live off the interest forever. Maybe we're talking about different things?

    Edit: I mis-read your post. I read "if you CAN" get 5% in Australia. At the moment I wouldn't rest my money anywhere but Australia. The government won't guarantee millions but they'll guarantee $250,000 per person per bank. I think I can go to the four banks and have 1 million guaranteed but I haven't fully read up on how it works and if someone can have 4 accounts; one in each bank. However I'm not a conspiracy theorist and I believe if that Australian banks go under I'll have more serious problems to deal with. Plus, not everything will be in the bank - obviously. But while they're paying interest that gives me 2X I'll be off enjoying my stress free life.
     
    Last edited: Jun 6, 2017
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  7. illmasterj
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    illmasterj Bronze Contributor Read Millionaire Fastlane Speedway Pass

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    Thanks for the reply - I thought you were banking abroad to get that 5% yield, that's why I was asking about currency.

    I no longer live in Australia and tax is low here, so I'm building a "dividend growth" portfolio with the goal of covering my cost of living. I figure it's good to learn this stuff while in the business building phase so when it sells I know where to put the cash. I know a lot of others are interested in capital gains as you effectively defer the tax, but as MJ and others point out, that's speculating those assets will be worth more in the future, which I can't control.
     
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  8. V8Bill
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    V8Bill Gold Contributor Read Millionaire Fastlane Speedway Pass

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    Yeah, as soon as I read your question correctly it made sense. The whole 5% rest account for me isn't for growth. It's a final resting place. There are many ways to speculate and gamble for growth. I learned many years ago that anything that doesn't guarantee a return is gambling no matter what people want to call it. That's ok and normal business is based on gambling and I'm a gambler but eventually once I have enough I like to bank and forget. I realise it's not a popular view.
     
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  9. illmasterj
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    illmasterj Bronze Contributor Read Millionaire Fastlane Speedway Pass

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    It's a fair view - after your "asset accumulation phase" you want to focus on asset protection and spin off some income from it. I think most people hold that view, it just looks different depending on the individual. Some like bank interest/CD's, others REITS, others money market funds, bonds, dividend "moat" stocks, etc, etc.
     
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    I'll write in an in-depth post about this, but I've currently made a fair amount of profit from this new crypto social media platform called Steemit. It's great for bloggers and content creators. It's funny how now with the YouTube ad blocks and all that, you're able to make like 10x more on Steemit for the same style of posts. Definitely a nice 5% (or actually way more) each month :)
     
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    I have been a full time investor for almost 2 decades and have enjoyed solid returns of well above 5% in equities and real estate.

    Look at the S & P 500 index fund. The S & P 500 has had a historical return on investment of 11% and that is without counting dividends. Anything with that long of a track record is safe if your time horizon is at least 7 years plus.

    Also, I purchase real estate directly from homeowners in preforeclosure. This allows me to acquire homes at a 20–25% discount to market value. This insures a profit if I flip it even if the market is going down because even in the last housing crisis it took many years for homes to lose a quarter of their value. Also, if I hold it as a rental property, even if a downturn occurs, if I hold it long term I will still earn more than a 5% ROI annually.
     
  12. illmasterj
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    You haven't read the book, right?

    These are fine ways to make money, but this thread is all about a money system that generates 5% income each year. Yield vs a capital gain.
     
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    FX/currency trading...this is active trading though not a buy & hold strategy
     
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    Over what period of time? Within the month? Within the year? Within the next ten years?

    If it is within the next year, your safest bet is yourself - find 5% to cut out of your current spending.

    If you are seeking an average return of 5% over the long-term, a low cost index fund tracking the S&P 500 should average 5%+.
     
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    Mckenzie Contributor Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass

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    Hi @V8Bill , the bank interest here for Term Deposit is still very low of about 2.3% here Down Under! I wonder if you've found anywhere that have higher and more excellent rates? for short term say 1-2 years Term deposits? Thanks
     

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  16. V8Bill
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    V8Bill Gold Contributor Read Millionaire Fastlane Speedway Pass

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    I haven't checked for a few months but last I checked CBA has a walk in over-the-counter-rate of around or nearly 3% and a CBA banking manager I met a few months ago said she could improve on that and to contact her when I'm ready with more than a million and she can get a better rate for me.

    It's still not quite 5% but I can get a solid 5% with a mortgage lender but that's not as "finally secure" as an Aussie "pillar" bank.

    I'm not so worried, even at 3.5% I'd be happy. I might need to hold a larger balance if I want a larger lifestyle though. That'll be up to me.
     
  17. GoGetter24
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    GoGetter24 Bronze Contributor Speedway Pass

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    Is it wise to be putting money in debt at 2 to 3%, against official inflation of 2%? Doesn't seem particularly 'fast lane'. Surely there are better risk adjusted yields elsewhere.
     
  18. V8Bill
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    I'm not sure about others or if you've read the thread in my signature but I'm not talking about borrowing money to put in the bank to collect interest (pretty sure that would never make money anywhere in the world), I'm looking for a "final, secure, end-of-the-fastlane-road, resting place" for the money I created once I get to the end of my money hunting expedition.

    Then again, I'm a freak who doesn't think like normal people.
     
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  19. GoGetter24
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    GoGetter24 Bronze Contributor Speedway Pass

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    Yes putting money in the bank is a debt instrument.
    I think the standard advice for securing money is diversification. Mix of gold, debt, stocks, real estate etc.
    The problem with viewing cash or debt as a secure asset is all the times people who were in cash or debt got wiped out (defaults, currency devaluations, inflation, etc). Those who had a mix may have suffered somewhat during crashes & booms, but they didn't get wiped out.
     
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    Oh, I see what you're trying to say. Well, I suggest perhaps not choosing a Greek bank. Australian banks are somewhat safe from total collapse. Spending too much is way more of a problem than inflation which is at historic lows at the moment anyway. Not having enough to earn enough interest to cover both my essential expenses as well as enough for some fun and luxury could be a problem I guess but having plenty of cash and therefore plenty of interest flowing in will solve those issues easily and simply.

    For example, if I had $20,000,000 in the bank earning 5% that's $20,000 a week forever which is as close to a lifetime supply of cash that I'm going to ever need. Inflation won't ever eat enough into that (in my lifetime) to be of a concern to me. And if it is, then I'll just put more in until I'm well covered...or I"ll make sure that I spend/need less. Those that fly very close to the line (barely having enough interest to cover their "2X") might feel concern for inflation after a few decades though. As for total financial collapse of our banking system/society/all hell breaks loose...I'll worry about that if it happens and keep my money out of weak banks/countries.
     
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    Ah I see, you're mostly concerned with long term nominal yield certainty.

    Have you considered government bonds then? 15 year is at 3% yield in your country:
    Australian Rates & Bonds

    Compared to a term deposit: you can sell it at any time pre-maturity (but if interest rates go up, it's price will go down accordingly). If you want to push up closer to 5% (obviously with a higher default risk than the government), you could consider mixing in corporate bonds too.
     
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    Found a dividend that pays out at 6.9% - though their stock is a rollarcoaster: CLCT
     
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    Do you have any recommendations on which companies to start studying?
     
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    Check out https://1.simplysafedividends.com/welcome-to-simply-safe-dividends/ There are some solid articles there to learn more about div paying stocks, REITs and MLPs.( I have no affiliation with the site, just sharing a resource I found helpful)
     
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    How / where are you finding properties with returns like that? In my market (Colorado) rentals only return about 6-7% **gross**, before any expenses. And that's buying fairly carefully, but not bargain-hunting out of foreclosure &etc.

    If I could get 15% fully managed, I would dump most of my net worth into those properties and retire very comfortably!!
     
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