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Post by Deleted on Mar 26, 2011 8:44:33 GMT -5
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RoadToRiches
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Post by RoadToRiches on Mar 26, 2011 8:57:12 GMT -5
Funny thing.. I was going to start a "Phil" thread too! lol
That is one of the reasons, if not the biggest reason for me, to finally snap out of this consumer debt that I have. I am missing out on so much right now! I can't wait to get rid of this debt and start playing smart with my money. I could then take advantage of these opportunities.
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cronewitch
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Post by cronewitch on Mar 26, 2011 10:50:35 GMT -5
Some people aren't cut out to be landlords, so are and some could learn to be. First thing most of us do is be soft on the tenants, don't pick based on things other than feelings then feel sorry for them if they have trouble making the rent. Some will not raise the rent when it is time so the tenants that don't move end up paying half what a new one would. They might care that the tenant is fixed income and would be homeless if not for low rent. They are good people just not good landlords.
The next is not understanding landlord tenant laws so they might do something illegal like not renting to people with kids.
They might pick the wrong properties or maintain them too well for the rental conditions. My brother decided not to be a landlord because he knows he would always be doing things like painting for them. His SIL owns several and he doesn't do anything to the properties unless he needs to do it. He views the rentals as business property to collect the most rent with the least investment in money and time. He got mom's old house it is smurf blue with old carpet. If he was going to live in it he would paint it and change the carpet but as a rental he doesn't care what color it is and people will rent blue houses. When they don't pay the rent they are evicted, they aren't friends and he isn't their parent, if they and their family don't care about making the rent he doesn't care if they go live in the car.
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phil5185
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Post by phil5185 on Mar 26, 2011 11:46:21 GMT -5
When they don't pay the rent they are evicted, they aren't friends and he isn't their parent, It's OK to care, just don't show it. The First Law - you need an arm's length agreement with a stranger, never rent to a coworker, a coworkers kid, an acquaintance, a friend, and never ever to a relative. And never let anyone 'work for rent'. Japan freaked me out. I've worked so hard for so long for so little.....i'm afraid to risk it in an uncertain world. I have never seen a time when this was not true - the Bay of Pigs, Kennedy Assassination, the Cold War, Nixon's Watergate, Jimmy Carter hyperinflation, the Great Crash of 1987, the fear of Y2K, the Tech Crash of 2001, 9-1-1, yada. IMO you have to 'just do it' - if I had waited for the perfect time I'd still be waiting. If you look back on all of the world crises, none of them really had the effect that we feared - and sometimes the effect is the opposite (after WW2, thousands of troops came home to rent / build houses). IMO, John Eiler has it right with 8 units and renting out 7. Except for putting $12k/yr into equity - I would do the opposite and use that capital for seed money. And as for taking out $9600/yr of income - does he really want $9600 more taxable income? He makes $90k.
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TD2K
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Post by TD2K on Mar 26, 2011 12:04:12 GMT -5
Some people aren't cut out to be landlords
I was going to say that also. I personally would not want to do that so I have a more passive investment style. Phil, Dondub and Pat all have investment properties and all the more power to them, it's just not something I would want to do.
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createmyown
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Post by createmyown on Mar 26, 2011 12:37:17 GMT -5
Karma to you, OP, for aiming high and creating your own destiny.
I also like Phil ;D and I love the idea of rental income, especially during retirement. But I'm so glad you started this thread!!! Phil has great advice. The one thing I'd always remember is to keep the tenants at arm's length. It makes sense and will be easier emotionally and financially.
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createmyown
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Post by createmyown on Mar 26, 2011 12:37:17 GMT -5
Karma to you, OP, for aiming high and creating your own destiny.
I also like Phil ;D and I love the idea of rental income, especially during retirement. But I'm so glad you started this thread!!! Phil has great advice. The one thing I'd always remember is to keep the tenants at arm's length. It makes sense and will be easier emotionally and financially.
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createmyown
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Post by createmyown on Mar 26, 2011 12:37:48 GMT -5
Sorry for the double post I'm a newbie
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RoadToRiches
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Post by RoadToRiches on Mar 26, 2011 12:39:57 GMT -5
So Phil, how do I get started? I know I have looooonngg way to go. I am trying to pay off my credit card debt. It will be done by the end of this year, hopefully. After that, I will have only living expenses to take care of (my mortgage, food, utils, groceries, car fuel etc.) Let's say my income will not change, I will have around $1400 a month left for me. This is without any contributions to any retirement accounts.
My plan is:
1. Pay off debt - 2011, maybe until February of 2012 if something crazy happens. 2. Save up for 6 months living expenses - This should be done by the end of 2012 3. Setup to max out my 401k whatever is maxium (I think 16k? per year?) - 2013?
Then what?
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TD2K
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Post by TD2K on Mar 26, 2011 14:47:04 GMT -5
Sorry for the double post I'm a newbie
Don't worry about it, the boards have been wonky lately, you aren't the first to double post. Some are triple or even more posting thinking the first one didn't go through.
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swamp
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Post by swamp on Mar 26, 2011 15:02:31 GMT -5
Sorry, you spent too much on your wedding to be like Phil.
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phil5185
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Post by phil5185 on Mar 26, 2011 15:29:46 GMT -5
My plan is:
1. Pay off debt - 2011, maybe until February of 2012 if something crazy happens. 2. Save up for 6 months living expenses - This should be done by the end of 2012 3. Setup to max out my 401k whatever is maxium (I think 16k? per year?) - 2013? I would not prepay the $5500 loans that have 0% interest, that money could be put to better use elsewhere. Use the $1400/m to payoff the $11,000 loans in 8 months. Then start putting $1200/m into your 401k. That will result in about a $4000/yr tax break, use that to fund a Roth IRA. So - that will be about $18,500/yr going into investments, plus the 'match' if you company has one. (If the match is 4%, another $2600/yr will go into your 401k.) That would be $21k/yr. If you invest it in 10/yr to 12%/yr products, it will be about a million in 17 yrs, $2M in 23 yrs, $3M in 26 yrs, $5M in 31 yrs. Fund a $5000 EF, no more. Set up a taxable account at a no-load company such as Vanguard or Fidelity and have some money auto-deposited monthly and invested in an Index Fund - this will be a backup EF, car fund, etc. Like Auto Millionaire said, auto deposit. I put everything on hold. I was going to remodel my bathroom which really needs it. It's on hold. I will do my bathroom next year. CASH MONEY and buy what I like, instead of skimping on stuff because I don't have enough saved for it. You are missing the point - paying CASH does not make the expense go away, it merely avoids the 8% or 10% interest. And putting the expense on hold simply defers it a yr or two. In either case, if you spend $4000 on a bathroom, that is about $90,000 gone from your wealth account in 30 yrs. Same with cars - saving up $25,000 and then paying CASH for a newer car doesn't help, the $25,000 is gone. And so is about $550,000 of your wealth account. When you are on-track with a $5,000,000 Plan, don't let anything throw you off. Don't prepay 0% debt just to be able to say Debt-Free. And don't pull money from the Plan to prepay your mortgage. And so on.
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RoadToRiches
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Post by RoadToRiches on Mar 26, 2011 15:44:14 GMT -5
I see you took some stuff from my other posts I like that. Those two 0% debts are on credit cards which interest will kick in soon. One is on the "Payment Plan". Well, actually both of them are. One is on permanent 0% until paid off, so I could just pay what I pay now. But the first one, is just "hardship" thing that they gave me (Citi cards) I get the $5000 -no more. Makes sense. I understand putting off bathroom remodel as well. I know that if I put that 4k or whatever into investments then in the long run it will pay off. But the thing is, where do I get the money to do it then? Let's say I use 0% card to fund it. Let's say that the card is ALWAYS at 0%. What if I loose my job? I am then stuck with payments on a card without income coming in. Ok, I guess I could take it out of the mutual fund to pay it. That would be emergency. Same with a car. Let's say I get 0% loan on a car. Fine. But what if I loose my job? How will I make payments? I think the biggest gap is, that YOU already have the money, so you can just go out and take that 0% loan and you have nothing to worry about because you are covered if you had to. Know what I mean? So first, I need to get to the point where you were, when you started and I think that involves SAVING money first so you are covered in case all hell breaks loose. I really understand the math you are doing. It makes sense. But it's only good when you are covered. So for example. The card at 0% from Chase that I have is until paid off. It's $57 bucks a month until paid off. There is a 2600 balance on it I think. My monthly debt payoff plan right now is at $1200 a month or something like that (would have to check out my spreadsheet). I am totally fine with just continuing paying $57 a month on that card and put the other $1143 into no load fund. That Chase card is last on my list to pay off. All the rest have interest rates. But I do get what you are saying. The thing is, getting to that point where I can play the 0% game. BTW, my company matches 50 cents on every buck up to 6%.
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phil5185
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Post by phil5185 on Mar 26, 2011 16:04:22 GMT -5
Same with a car. Let's say I get 0% loan on a car. Fine. But what if I loose my job? How will I make payments? If you save $25,000 to pay cash for your next car, and then DON'T pay cash, you will still have your $25,000 in your account. So if you lose your job you can make a $500/m car payment for 50 months. (I'm guessing it won't take you 4 years to find a new job?)
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SVT
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Post by SVT on Mar 26, 2011 16:18:19 GMT -5
Yeah I don't get what people are thinking when they ask that type of question. "What if I lose my job and have those loans?" Usually Phil advocates saving up for something but then just don't use that money as long as the interest on the loan you can get is low and fixed. If it's invested and you need the money, you can take it out if it's in a brokerage account and only pay capital gains tax, if there is a gain. The greater risk is in the beginning, the first few years. As time goes on, it becomes more likely that you'll come out ahead.
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DVM gone riding
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Post by DVM gone riding on Mar 26, 2011 16:50:54 GMT -5
Phil--I thought you should now I am starting a word documnet for "philisims" in case these boards go bye bye like the old ones. Or you ever want to write a book ;D You should know too that over time we really do listen to you. I pulled the over 5k amount out of my EF mid last year and in the last 6mos it has gained several 100 dollars vs the roughly 80 the other 5k did!! And I stopped pre-paying most of my other "cheap" debt. Somehow I just can't resist throwing a little extra here and there at debt, probably because I am also a captain on WIRR! But none of that derails the plan to have 2 mil in 30 yrs in stock accts, and RE on top of that!! So thanks for all you do to help us along.
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DVM gone riding
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Post by DVM gone riding on Mar 26, 2011 16:50:53 GMT -5
Phil--I thought you should now I am starting a word documnet for "philisims" in case these boards go bye bye like the old ones. Or you ever want to write a book ;D You should know too that over time we really do listen to you. I pulled the over 5k amount out of my EF mid last year and in the last 6mos it has gained several 100 dollars vs the roughly 80 the other 5k did!! And I stopped pre-paying most of my other "cheap" debt. Somehow I just can't resist throwing a little extra here and there at debt, probably because I am also a captain on WIRR! But none of that derails the plan to have 2 mil in 30 yrs in stock accts, and RE on top of that!! So thanks for all you do to help us along.
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DVM gone riding
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Post by DVM gone riding on Mar 26, 2011 16:55:21 GMT -5
ok I swear I only hit the button once!
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phil5185
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Post by phil5185 on Mar 26, 2011 17:11:58 GMT -5
I am starting a word document for "philisms" in case these boards go bye bye like the old ones. Cool!
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RoadToRiches
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Post by RoadToRiches on Mar 26, 2011 17:23:34 GMT -5
SVT, it's not that I don't understand the concept. I do..I really do lol...it's all numbers, that is not hard.
Bottom line, it comes down to paying off the high interest cards, and then saving up 25k. Once those 2 steps are done, THEN one can play with money and use the 0%.
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TheOtherMe
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Post by TheOtherMe on Mar 26, 2011 17:31:13 GMT -5
My BIL is too soft hearted to be a landlord. He did finally serve eviction papers on tenants that were a couple of years behind and they paid up and are required to pay in cash. Now he has a couple in the other dilapidated farm house that hasn't paid a dime in rent for over a year. My DN wrote up the eviction notice, but BIL still hasn't had it served.
He does hire the first guy to help him on the farm. He didn't do that when he had his own sons living at home to help him. He just can't do some things and he finds evicting these people very difficult--much to my sister's dismay.
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RoadToRiches
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Post by RoadToRiches on Mar 26, 2011 17:32:32 GMT -5
I am missing out on so much with this stupid credit card debt. I can't wait when I can actually do things that you guys advice on here.
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RoadToRiches
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Post by RoadToRiches on Mar 26, 2011 17:39:08 GMT -5
so tell me Phil. I have 1200 in my EF right now. I have $670 balance on one of my Amex cards which is due to be paid off on May 15th in full. Should I transfer that 670 from my EF to pay that thing off tomorrow and get it over with? This would leave me with little over 500 in my EF this month, then it would be 700 end of April and then 900 in May.
I have 200 a month going to my EF. Twice a month, 100 bucks from my paycheck.
Worth it?
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phil5185
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Post by phil5185 on Mar 26, 2011 18:17:27 GMT -5
17% of $670 for 2 months is $19 - I wouldn't purposely add risk to a situation for only $19. But it's a personal call, your coin may flip differently than mine.
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RoadToRiches
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Post by RoadToRiches on Mar 26, 2011 18:38:35 GMT -5
...see.. I want my coins flip like yours though! ;D
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Post by debtheaven on Mar 26, 2011 18:53:02 GMT -5
I would like to say that while I too LOVE Phil's wisdom, you're talking about high-interest credit cards, so you are right to be wanting to pay those off. That CC debt is not in the same league as the low-interest car debt or SL debt that Phil thinks shouldn't be paid off early. How about you keep your EF at 1000 for now, and accelerate the debt payoff? I'm pretty sure you don't own a home and you're really enthusiastic. 1000 will pay for most "bumps in the road". So I'd put that "extra" 200 from your 1200 EF to the CC, redirect the 200 you're paying to your EF to it. Between that and what you were planning on paying on it, you'll probably be done with that CC next month! ETA: My bad, you DO have a mortgage. I'm thinking you are young. Per Swamp's comment I see that you are married too. But depending on the size of your home, could you rent out a bedroom for a short while? If you are living in a 1BR condo with your wife, please ignore. And stop beating yourself up! You are incredibly pro-active about this, with your attitude you'll be in great shape in no time!
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SVT
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Post by SVT on Mar 26, 2011 21:29:00 GMT -5
Phil--I thought you should now I am starting a word documnet for "philisims" in case these boards go bye bye like the old ones. Or you ever want to write a book ;D . I've already done this. I have one 72 page Word Document and one 38 page Word Document with his good posts. I stopped adding to it about a year ago as the information started to be redundant...110 pages later LOL Anyone can PM me with their email address if they want and I'll send both documents. Even though all the posts are from a year ago or longer, it's all the same information that he posts today. There are hours and hours of reading from these two documents.
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hcj
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Post by hcj on Mar 27, 2011 0:25:50 GMT -5
Phil,
Do you have your real estate license? I'm curious from a tax perspective of the active vs passive losses. I've been thinking I should get my license and make at least $100 with it so that we can go to active and deduct the full "loss" on our rental property.
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phil5185
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Post by phil5185 on Mar 27, 2011 11:47:45 GMT -5
Yes, I have a RE license. But I don't think a license will affect your taxes. Since Congress enacted the Tax Reform Act of 1986, in general, all real estate investment transactions are now considered passive investments. The Act introduced what are now referred to as "passive activity rules". As a result, losses arising from those passive investment activities can no longer be deducted from active income earned (salaries, wages, dividends and the like). The tax reform was enacted to deal with what was considered wide spread abuse of tax shelters at the time. The IRS defines a real estate professional as follows: a taxpayer who performs in excess of 750 hours of personal services during the tax year in real property trades and businesses and over half of her/his personal services performed during the year were in real property trades and businesses. If you actively participate in a passive rental real estate activity, you are able to deduct up to $25,000 of the loss of the activity from your non-passive income. This rule is referred to as the '$25,000 exemption'. There is a difference between "active/passive" and "actively participate". Maybe you fall into the "actively participate" category, most of us do - that allows you to deduct a $25k Schedule E loss from your W2 income, etc. What kind of real estate losses are you talking about?
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SVT
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Post by SVT on Mar 27, 2011 16:49:59 GMT -5
I've had a few people PM me so far for the Word documents with Phil's posts. I'll gladly send them to anyone who asks for them. I have 110 pages worth
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