Investing 102

[Vegas69]

I certainly hope to leave my family in great financial shape when I'm gone, but I'll have no problem living off the money I spent my whole life accumulating if need be.

Personally, the older I get, the simpler I like to live. I like choices, not shackles. Living WELL below your means is a good place to start and a hell of a good way to grow wealth rapidly. I find it amazing how fast you can grow wealth when you live below your means and invest heavily every month. My wife and I have tripled our net worth in only 5 years carrying little to no debt and investing in real estate, IRA's, 403b's, and individual stocks.

We are certainly blessed and grateful that we made major changes around 35 to our spending habits and strategy. It's put us well ahead of where I dreamed I'd be at 40. I think it becomes harder as we age to change our ways and let's be honest, passion and energy can begin to wane. Those long hours get tougher to handle as you realize you'd rather be with your kids, racing, or taking a nap than pushing so damn hard all the time.

Dave Ramsey says: Live like no-one else now, so you can live like no-one else later.

I think you have to have a period in your life where you really hunker down and stock it away to set yourself up and take advantage of that great magician, compound interest. I still think it's important to save a large chunk of your income every month. We save 15% of our gross income, personally. You can only do that if you live well below your means or increase your income to offset your expenses. We've done both.

[GregWeld]

I hope everyone owns Amazon (AMZN) and Microsoft (MSFT) and Google - now under that asinine name of Alphabet - and with two different stock symbols Goog and GoogL (sorry -- so stupid and confusing).

I own a whopping 200 shares of AMZN.... zero of the other two.

If we were smart we would have bought Steve McQueen's Rolex years ago -- someone just paid 17.8 million for it at auction. (seriously are you kidding me!). His house here, with acreage (500), was struggling to find a buyer in the $7.4MM range.

[SSLance]

Originally Posted by Vegas69

I think you have to have a period in your life where you really hunker down and stock it away to set yourself up and take advantage of that great magician, compound interest. I still think it's important to save a large chunk of your income every month. We save 15% of our gross income, personally. You can only do that if you live well below your means or increase your income to offset your expenses. We've done both.

I agree completely, and we have done much the same. Some of the things that have been said to me by friends during this move process have been interesting. One friend in particular has to have a brand new high end 3/4 ton 4x4 truck every few years...but said to me disparagingly "it must be nice to be able to retire and move West so young". He has spent more out of pocket money on just trucks the last 15 years than we did on the new house. BTW, I daily drive a 15 year old truck with 220,000 miles on it.

[Vegas69]

It's the little tweaks that result in a major difference over time. Owning a car outright and investing the payment is a solid place to start for anyone.

I leased brand new BMW's and Audi's for nearly a decade at over $900 a month. That's over $100,000 in payments, not to mention the high insurance and registration costs. We woke up and smelled the coffee over 5 years ago and won't ever have a car payment again. I drive a 2007 Tundra with 117k on it. My wife has a 2015 Acura we bought certified.

But you can write off the car payment for business. Would you spend a dollar to get .25-.33 cents(tax bracket)? I used to be that bad at math too.

[SSLance]

Originally Posted by Vegas69

But you can write off the car payment for business. Would you spend a dollar to get .25-.33 cents(tax bracket)? I used to be that bad at math too.

Same with rental homes... "you can write off the depreciation and save a ton on taxes..." What they neglect to tell you is if you EVER sell the property, you reclaim all of said depreciation as regular income at whatever tax bracket you happen to be in at the time, and any extra gain is taxed as Capital Gains.

Everyone I know that got into the rental home racket has either claimed bankruptcy and lost them all or is still holding onto them and dealing with tenants daily because they can't afford to sell them.

This is where all of the accounting classes I took in school helped me to avoid certain investments...

[CJD Automotive]

Originally Posted by SSLance

Everyone I know that got into the rental home racket has either claimed bankruptcy and lost them all or is still holding onto them and dealing with tenants daily because they can't afford to sell them.

This is where all of the accounting classes I took in school helped me to avoid certain investments...

I have a few commercial and residential rentals/leases, and feel like they are solid investments. The trick is picking your target market. I will only buy 30-50K brick or block homes in "the not so good areas". Although I buy them outright, my strategy is they pay for themselves in 2.5-3 years. I invest very little in them for upkeep, pay little to nothing in taxes, and rent them through the section 8 program. I'm guaranteed my money, my tenants will never leave, and I get above average rent for the areas they are located.

[SSLance]

That strategy is different than the "owning rentals for the tax break" strategy that was all the rage years ago. You are using the smallish investment to create monthly income and as long as you buy properly and keep expenses in check, it works fine.

If you were financing these homes and relying on the depreciation fa for to make them cash flow, the results are vastly different.

[Vegas69]

I've had really good luck with real estate in Las Vegas and Phoenix, but there have been lucrative opportunities twice in 15 years.

While I'm building my new house, I'm living in home we rented for a few years to convert it to a primary residence. I will still need to pay taxes on the forced depreciation while it was rented, but I'll escape capital gains. My accountant said they probably wouldn't catch it, but I don't play games with the IRS. I pay what I owe them.

I do agree though, the forced depreciation really hurts if you hold long term. You get in a place where you are almost forced to 1031 exchange to avoid taxes. I wonder if the taxes must be paid on the depreciation when it's passed on to your estate?