very good read Greg, thanks......:thumbsup:

Okay - So I was re-reading my latest posts -- to make sure the verbage was generally correct...

I want to add some info - because this whole discussion also involves RETIREMENT --- some of you are young bucks with TIME on your side. Some of us - sadly - are far older and or already retired. Personally I'm 58 "already".... so I have an equal amount of investment in TAX FREE MUNI BONDS. That is a separate account - and is professionally managed. I don't understand the bond market - I don't want to learn it - it's BORING - but takes some skills to understand all the nuances. I have a LADDERED bond portfolio - it's laddered out 5 years. There is NO GROWTH in the capital (if you're not trading them - which I'm not). There is RELATIVE SAFETY in a bond portfolio - if a bond is held til "term" you get your investment back 100% - and in the meantime you collect an INTEREST PAYMENT (usually every 6 months on bonds). So this portfolio is - to me - SUPER SAFE - and just throws off income that is tax free. For the tax free part - I get LESS income than I could get if I bought stocks or something else... but that is where the pro comes in - he'll do the math and let's say you could make 7% TAXABLE -- then 4% TAX FREE is the same "net". WHAT BONDS DO NOT DO is they don't grow the capital. AND they can lose big time if interest rates are against you. THAT is why I'm only out 5 years and I'm LADDERED. Each year 20 % of the portfolio comes due so we re-invest that cash in the next one year out. EXAMPLE

1,000,000 invested in bonds due 2012
1,000,000 invested in bonds due 2013
do this out til 2015

The bonds due in 2012 will be re-invested in bonds due in 2016
The bonds due in 2013 will be re-invested in bonds due in 2017

and so on.

I just checked -- there are 81 individual bonds in my account and 13 "preferred" stocks (preferreds pay a higher interest rate but are really just like stocks and are taxed - not tax free).

Bonds are what you vote on -- say -- They want to build a new school and there is a SCHOOL BOND on the ballot - authorizing your county to issue "X" amount of bonds at "X" rate - Due "X" time (maturity)... you voted YES -- so the county sells the bonds - I buy some... and they pay me interest and give me back my principal when they "mature".

What happens to the "FACE VALUE" of a bond if interest goes UP? The face value of your bond goes DOWN. SO a bond that pays 5% and you have 100K in it - and now interest rates are 6%.... and I want to SELL my bond. I'd have to discount the price til the buyer gets a return of 6% on that same bond - even though the "issuer" is only paying 5%. But that 5% coupon was on the original 100K -- if the guy only pays 90K for it - it's like he's getting 6%.

I don't buy and sell bonds -- some do. I actually have a nice gain on almost every single one of them in my account - but THAT is not why I bought them - I bought them for the income they produce and I'm happy with that. SO I'll sit on them and do as I said above.

OLDER people need some bonds in their accounts -- they're safe (unless they're issued by Greece or Italy! LOL)... and usually will "counter" the stock market. So on big down days in the stock market - my bond account will be UP. And vice versa. Not dollar for dollar - but it HELPS balance out your total investment. I've never owned bonds until last year. Never felt I needed them. I was apartments - and stocks. But now - I've actually come to see that they "fit" what we're doing NOW.

I don't think anyone needs bonds until they're really quite well set. Stocks will get you where you need to be over the long run. Even if you're 64 you're not going to cash out "what got you there" (stocks) and suddenly go into all bonds. People with big incomes need bonds - remember that tax free status - that really helps bring down a high earners "income tax" liability -- but now we're getting into that whole 1% vs 99% thing and it's just a lot more complicated than that. If there wasn't a bond market - you wouldn't have new schools or fire stations - or stadiums - or streets.... but we digress. :cheers:


And I said I wasn't going to write a book!! :willy: :lol:

I sure hope this helps some folks understand what is "scary" to them. Because it shouldn't be. The problem is - people are reluctant to discuss finances and they shouldn't be. Everybody is different - some guys like SBC and some guys like Mopars = it's all good - and just like cars - finances need to be tailored to suit each persons requirements and what they're comfortable doing.

I have a buddy that has been in bonds for 30 years -- in my opinion -- he's lost his ass and could be so much more wealthy had he invested even half in stocks... but it's what he's comfortable with - so I don't try to make him see the light. The MAIN POINT is that he's doing SOMETHING - and anything is better than nothing.

Now is a good time to get in theres a lot of undervalued stuff out there.

If you have cash then buy real estate while its cheap and rent it out. I try to find major fixers and remodel them myself then rent them. These are usually foreclosed homes or REOs.

Example:

2 bdr/2 bath condo with flood damage. Worth 130-140K
Purchase price $80K
Escrow fees $1500
Remodel cost $12K

End Result $93,500

Rents for $1550
HOA/Prop Tax/Ins -368
Net Result Cash flow $1182

Thats a 16-17% Return on Investment. The problem is you need to search MLS everyday and make offers as soon as they get listed. This only works with cash deals. If you are getting mortgage loans to do this then you probably will not be positive since you have to pay interest up front.

You can definitely do it with a mortgage, and I'm no expert, just getting started in this area myself but look at the same example property, but financing it and you can see how you can put your money to work.

If instead of paying cash outright for an 80k property (then 12k in repairs), you can buy four places @ 20% each (64k total), and then do say 10k or less in repairs each, and you would end up making very similar monthly cashflow (1295$), but you would build equity four times faster, aka putting your money to work for you. That is assuming 45% expenses and 8% vacancies.

Buying one outright is much lower risk, but buying four with a mortgage is not as risky as it may sound depending on an individuals circumstances. If a single house is unrented, you lose all of the cash flow, where if you have 4, you need two houses unrented at the same time to break even (the cash flow from one, covers the mortgage on an empty one).

I'm not in a position personally to get 4 places, so I'm looking at a triplex to get the same benefit of reducing my risk. The numbers from one example are like so:

List price: 144k
Down: 36k (my lender prefers 25%), 40k out of pocket total to purchase
Rent: 1800 (600x3)
Gross (minus 8% vacancy): 21,528$
- Expenses (50%): 11,808$
Net operating Income: 9,720$
- Mortgage (P&I): 6,470$
= Cash Flow before taxes: 3,250$

This results in a 9% return on the money I invest which is actually lower than what most people would desire for investment property.

I have a friend that lives in a 12 million dollar house -- he started (years ago) buying and fixing up single family rentals - while he and his wife owned and operated a restaurant. They worked their asses off late nights and burning the candle at both ends... After awhile they worked into duplexes and fourplexs...
Now they own HUNDREDS of apartment units - most in a the LLC style - where "investors" buy shares and get semi-annual interest payments - the investors all together own 49% and Ray owns 51% plus gets management fees etc.


The problem for "most" buying this type of property -- they don't have the skills or time to do the work themselves. That really complicates things -- or adds to the cost basis if you have to pay a pro - but LONG TERM - this is a great way to build wealth and cash flow. Pound that profit back into the next project - or pay off a couple early (20 years instead of 30) and you've got instant retirement savings and income. :cheers:

Wow..lots of good reading here!

I'm curious as to what the best way to save for college is. My wife and I have a little one on the way and want to start right away saving for their college fund. I'm wondering if a 529 plan is better or should I just buy big company stable stocks?

A 529 plan is definitely the way to go. Look at Utah's, it was one of the best when I was researching them a while back. Neveda's was also pretty good if I recall. You don't have to live in the state to invest in their plan either. If you do happen to live in a state with a good plan and invest in it, you get a state income tax deduction on your contributions but this is not a good enough reason to invest in your home state if another state has a better plan. A nice benefit to these plans is once they are set up, anyone like other family members can make conributions to the plan directly. Most of them also have automatic plans where the money gradually makes it's way into bond funds as the child gets closer to college age, or you can manage your choices yourself within the plan. Check out this link, and the entire website:

http://www.savingforcollege.com/intr...-529-plans.php

A measure I like to use for rental property when borrowing money to pay for it is it's CAP rate . (see here:http://en.wikipedia.org/wiki/Capitalization_rate). Basically, if you can borrow the money at a lower interest rate than the cap you are earning interest on the borrowed money. This in itself doesn't automatically make it a good investment though, it's just a starting point.

Example:
Property CAP rate 8%
Mortgage Interest Rate 6%

This 2% spread is what you are effectively earning on the borrowed money. The CAP rate is based on the current market value of the property though, not necessarily what you pay for it. Therefore, if the property goes up in value but the rents don't increase the CAP rate goes down which could mean less potential buyers if you want to sell. The flipside to that is if you are able to raise the rents and the market value doesn't increase the CAP rate goes up! Also, the higher the CAP rate, the more risky GENERALLY the property is. Upscale fancy Class A properties usually have a lower CAP rate but a more stable tenant base as well as "pride of ownership" and often times less risk than a Class C or D property which might have a higher CAP rate and cash flow every month but probably isn't something you want to show off to your Lat-G buddies :D

I live in CA and have 2 little ones (2 and 5). I set up 529s out of Utah when they were born (Utah has one of the lowest fee structures and there are no tax benefits using a CA 529). There are some limitations and/or penalties with 529s if the funds are not used and/or withdrawn (like if you overfunded the acct, kid decides not to go to college, life throws you a major curveball and you end up needing those funds due to illness, etc). You can roll any unused funds over to another family, but frankly, I am setting this bucket up for my kids' education. I am currently targeting a balance of ~$100k for each when they are 18. However, $25k per year may not be enough to cover an education when they are ready. So, I am supplementing the 529s with CA muni bond ladders. Personally, I would rather be underfunded in the 529 and have the flexibility of the bond ladder if needed. Just my 2 cents.