Perils of retirement

[ultrarunner]

No way would I use an investment advisor, nor buy any kind of funds looking to get a good return. I have no time for retirement savings plans. I make money in one thing and one thing only. Real estate. And it has done far better than anything I could've done through other investments.

My single best financial decision ever was buying my first fixer home at age 22... it was against all advice and my Step Grandfather told my Grandmother he didn't have the heart to tell me I had just flushed my life savings because I was so enthusiastic owning a single family home outright at 22.

The home was scheduled for a city condemnation hearing... the asking price was 36k... 600 square feet of 1910 cottage on a 25 x 100 East Oakland Lot with boarded up homes all around... I reluctantly offered 11,500 because the Broker kept fishing for a price... never expecting to get it... but in 21 days it would have been razed.

I offered 11,500 and the next day the Broker called to congratulate me... now I had 10 days to come up with the money... sold my prize restored 1968 Z28 stock Camaro and what was left of my life savings after graduating Engineering School... always worked since age 12 paying into Social Security.

Anyway, for 10 years I kept buying, fixing, and new getting my equity out to buy the next... did that for 10 years.

In a moment of weakness, I accepted a job to be Engineering Director for a local Hospital... got them out of a jam... it was Great back in 1991 with all the benefits expected... profit sharing, great match, ESOP, Sabbatical, etc...

Over the years that has pretty much disappeared... BUT... the day I accepted a REAL job was the happiest I had ever seen my Dad... he was overjoyed that I had a Real Job!!!

All I can say is the corp world isn't what my parents thought it to be...

Thank God I kept my rentals and have expanded and exchanged into Commercial Properties...

The rentals have far exceeded my wildest plan and I did have a plan... work, not so much and this is an understatement...

The one thing about managing East Oakland Rentals is that it is very Hands On... it is a JOB and one that can be demanding... the commercial property with NNN leases are a breeze by comparison.

By the way... that first home I bought has only had two renters since I moved... 35 years and two renters... I have not raised the rent in a decade and I have the best no headache tenant ever... replaced a water heater in ten years... that is it.

That $11,500 home plus 20k in materials I spent plus my free labor is worth about 350k... today.

 

[California]

My single best financial decision ever was buying my first fixer home at age 22...The home was scheduled for a city condemnation hearing... offered 11,500 because the Broker kept fishing for a price... never expecting to get it... but .. in 21 days it would have been razed.

Likewise. I asked a broker to find me a starter house. 6 months later his first question was 'do you have any objection to buying where there are some black families? What about a high school right across the street? This little duplex was in an estate where he had sold the more valuable home but found this duplex unsalable after many months on the market.

Fine, if it pencils out as economically rational. He arranged a 3% down FHA loan, I put in a month part-time of sweat equity to pass FHA inspection, and we owned it. $15K for a building in nice condition, just a 'white flight' neighborhood that was becoming 100% absentee landlord. (Not investors, heirs who couldn't sell). As I had hoped we bought at the bottom. Latest sale of that property long after we owned it was $285k. Living there, the rental covered all our housing expense and we were able to start serious savings deposits.

I just put a better description of that property over in the 'Jehovah Witnesses on your doorstep' thread yesterday if anyone is interested.

The same broker came back months later and had an unusual deal. He had sold a 5-unit rental. Buyer started remodel then walked abandoning his down payment. All the carpets, toilets, etc were in a moldy pile in the yard. I was offered no money down (because the buyer had already kept that initial down payment), just sweat equity to get the place on its feet if I signed a 'contract of sale' - an agreement to buy it at today's negotiated distress-sale price at a future date. Seller should have asked for a fresh down payment but all he asked was somebody to make the payments on what he still owed on an old small loan so he could forget he ever owned it. Fine by me, a month's sweat equity had four of the 5 units rented and the grounds looking respectable. That's the only time I've ever bought anything on credit, 4 air conditioners on my MasterCard. I paid that off with the second month's rental income.

Later I sold the rentals after years of inflation had multiplied their value and carried the financing, converting active rental management income into passive investment income that is still serving me well 40 years later.

 

[Old Red]

My thoughts for me personally is to diversify. I like how you guys did so well in real estate, but at 43 I cannot put all of my future dependent solely on real estate. That is why I am doing both. Like I said, built my first triplex this summer. Rented all 3 units within a week. Also, real estate is not the greatest thing where I am from. Properties do not appreciate much around here. We are in a declining economy and a shrinking population. So the same opportunities here do not exist like they do in other areas of the country. I have some friends who have started investing in growing real estate markets like Clarksville TN, Nashville, TN etc. Where you can make return on rental income plus appreciation.

I built my brick triplex for $80 a square foot with custom cabinets and 2 bedroom 2 bath in April 2017. Very nice units that that was all in at $195,000 including the lot. I get $650/mo rent. I contemplated self financing (which I did for construction) but ended up letting the bank finance 80% of it. These units are a part of my 20 year plan. I plan to build a couple more when I find the right spot, but I do not expect to cash these things in one day for a significant gain on the value just based upon where we live. It is also nice to be able to finally have some sort of way I can depreciate 50% of the value of some of my stuff like the kubota bx that I mow over there with and do snow removal, dirt work etc.

The second thing is I use all the tax advantaged plans to the max allowed by law. I believe (unless brackets changed by government) that the wife and I will be in the highest tax bracket we will ever be in now and over the next 20 years...... in retirement I think it will be less because we both won't be working our jobs. The gentleman earlier who said he wished he didn't save is the first person I have ever heard say that.

We both put back the max allowable amount in our 401k plans. Our employers match 5% of our salary. Plus we have a family medical plan that allows us to contribute to an HSA (health savings account) and we max that out at $6,700 annually. My employer puts in $1,750 of that. Right now we are banking every cent of that HSA account and have the funds invested in 5 different vanguard mutual funds. This little portion of my retirement/health savings account is growing nicely.

Lastly to those of you talking bout not deferring your taxes now and waiting until later.....I figured something out this past spring actually to assist us with that. It is called a backdoor roth. Very slick how this works. The government says the wife and I make too much money to invest in a roth IRA, but we figured out a "backdoor" method of investing in one of these roth accounts where your earnings grow tax free and in retirement both principal in earnings can be taken out with no taxes withheld or owed. The backdoor roth basically works like this. We each purchased a $5,500 traditional non deferral IRA..meaning we contributed to an IRA after tax. The government allows you to rollover any type of IRA into a roth IRA. So that same day or the very next day we roll it over into a traditional Roth IRA....there are no gains when you do it the same day or open it in a cash account. So slick. When we found out about this in March of this year we both did one for 2016 & 2017. We now plan all year to be able to invest in one in January each year. So I have the $11,000 saved up (half for her and half for me) for when January 1 rolls around we will do the same thing.

So a few rental units, tax deferred savings plans (401k, HSA), and after tax plans (Roth IRA) is what we have going on to prepare for retirement. There are lots of smart, older folks on this forum than me. Does this sound like a good plan? Any thing you can look back at from your early 40s until now and give me some advice on? I have a 5 year old son and the wife....that's it. Been married for 20 years. She was a teenage bride (19) and I was 23. I had just finished school and we put her through school and waited several years before having the kiddo. I obsess (probably too much on) on planning for retirment...or anything really. But I also try to balance, work, life, spending etc. Hopefully with a few breaks of luck I can join in on the perils of retirement and get chewed out by my wife for just simply being around LOL.

 

[ultrarunner]

I don't want to mislead on the story of my first rental...

Had 35k in it when I made it a rental... 35 years ago.

It had appreciated to 200k and then the bottom of the market fell out and it was 65k... but the rent was consistent...

Today, with the crazy run up it is about 350k... but my taxes are quite reasonable at about $1000 per year.

If someone where to pay 350k the tax would be over 4k per year...

Real Estate Values have bounced all around... but even at the worst of times the rents remained steady...

My hobby for retirement which is seeming less and less likely is to restore some of the 50 vehicles I have... only 23 are restored, licensed and insured... the rest are projects...

The dream was to have the 5000 to 6000 square foot shop/display hall... doubt that will happen but that was the plan for the last 40 years...

 

[goeduck]

I don't want to mislead on the story of my first rental......

However you slice it, you did GOOD

 

[newbury]

<snip>
The dream was to have the 5000 to 6000 square foot shop/display hall... doubt that will happen but that was the plan for the last 40 years...

Don't rule it out. My dream for a shop was at least 20x30.
I've now got that, plus :

 

[Doofy]

This Forum is a Hoot! My original "Toast crumbs in the Butter" post has evolved and has become very informative and eye opening. Excellent, thought provoking dialog. Thanks to all posters, as this is much better info than found on TV or the internet. Please continue!

 

[California]

My thoughts for me personally is to diversify. ... built my first triplex this summer. Rented all 3 units within a week.... Properties do not appreciate much around here. ... declining economy and a shrinking population. So the same opportunities here do not exist like they do in other areas of the country.

...my 20 year plan...

The second thing is I use all the tax advantaged plans to the max allowed by law. ...
We both put back the max allowable amount in our 401k plans. Our employers match 5% of our salary. Plus we have a family medical plan that allows us to contribute to an HSA (health savings account) and we max that out at $6,700 annually. My employer puts in $1,750 of that. Right now we are banking every cent of that HSA account and have the funds invested in 5 different vanguard mutual funds. This little portion of my retirement/health savings account is growing nicely.

... backdoor roth. Very slick ... We each purchased a $5,500 traditional non deferral IRA..meaning we contributed to an IRA after tax. The government allows you to rollover any type of IRA into a roth IRA. So that same day or the very next day we roll it over into a traditional Roth IRA....

So a few rental units, tax deferred savings plans (401k, HSA), and after tax plans (Roth IRA) is what we have going on to prepare for retirement.

There are lots of smart, older folks on this forum than me. Does this sound like a good plan? Any thing you can look back at from your early 40s until now and give me some advice on?

You are doing everything exactly right. You've made an accurate appraisal of appreciation potential for your region and responded appropriately. Most important you have worked up a realistic plan! Few do that, then later wonder what happened to them. You're on the right path. I don't see any overlooked opportunities.

Kinda related - another kind of backdoor IRA: I read of a NYC single who started a tax deferred college savings plan for whatever relative might be born in the future. She claimed if she never designated a beneficiary then the whole tax deferred account could be distributed back to her eventually. Not possible, or just clever? I don't know.

 

[Old Red]

You are doing everything exactly right. You've made an accurate appraisal of appreciation potential for your region and responded appropriately. Most important you have worked up a realistic plan! Few do that, then later wonder what happened to them. You're on the right path. I don't see any overlooked opportunities.

Kinda related - another kind of backdoor IRA: I read of a NYC single who started a tax deferred college savings plan for whatever relative might be born in the future. She claimed if she never designated a beneficiary then the whole tax deferred account could be distributed back to her eventually. Not possible, or just clever? I don't know.

Thank you. If it doesn't work out for us, at least I will know that I tried and left it out all on the field.....

 

[Looking4new]

I was involved in a RRSP* scheme through my employer. I put in a minimum of 5% with the option of increasing it to 10% and the employer put in 5% as well. There were some years that I made a killing wage wise and increased my portion to 10%. You had to hold it for 12 years to be able to get the employers 5%. It was tied up in mutual funds. After 12 years I got pissed at the employer and quit. When I quit I moved the RRSP to a 'self directed RRSP' and bought bank stocks. Those stocks split 2 for 1, I held onto them and continued working. (I went back to the very same employer after 360 days so didn't lose my seniority) but could never again get into the employer funded pension plan. Such is life.
The stock dividends were reinvested in a DRIP* plan up until I could draw on them at age 65. At which time I stopped the DRIP plan and let the dividends pay into what I call a cash cow. Basically a cash account within the stock account. Those stock dividends paid for a drilled well, $12,000.oo plus a $10,000.oo down payment on my Kioti (paid off as of last July) and I have still never touched the principle.
CPP* and OAS* pay me about $1200.oo/month and that is more than enough for me to live on and then there sre the stock dividends after that which are pure gravy.
I am not 'loaded', but I do live comfortably.

If I had to do it all over again, I would have started at age 21 instead of age 39. My Uncle the retired accountant for Imperial Oil told me to save for my retirement starting at 21, but I was way too busy partying to do that.

*RRSP = Registered Retirement Saving Plan
*DRIP = Dividend Re Investment Plan
*CPP = Canada Pension Plan
*OAS = Old Age Security

That is my story and I am sticking to it.