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August 03, 2012

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@Apex

Thanks for spending the time to respond!

I'm going to hold onto any other questions I have and save it for a later time.

Thanks a lot Apex, very informative. I'll do some more research on that. I am also in the same boat as you with location of the rentals - mine are all in the same city about 80 miles from home, slightly more than an hour's drive on a Saturday morning. My own area does not have the kinds of economics that make the rentals such a great deal.

Can't wait for the rental property articles!

I've been buying properties for a few years, and have been weighing off how much of my investments to go into real estate. It is interesting how much things are changing, first Warren Buffet says he would buy 10,000 houses if he could, yesterday a private equity firm in Atlanta started up that will buy $1 billion in single family properties for rental, and now today FMF is actually buying rentals!

For those of you that want to get into rentals, but hate the thought of the hassle, there are lots of companies now that do "turnkey rentals". Check out Personal Real Estate Investor magazine, there are lots featured and advertising all across the country. They usually will find the property, rehab it, find tenants, and property manage for you. These outfits seem to be growing and the larger ones are buying up the smaller ones. The downside of course is that you can get better results on your own. And when I have called them, they did not want to let me have any of their deals with financing, which I had all lined up, they wanted cash only. That may not be with all, but it was with the few I called.

I have already bought a small apartment for cash inside my IRA, just got it all rehabbed and rented, now cash flowing $2200/month true net, no mortgage payments, and all profit is tax free because it is inside a Roth IRA!

Considering cashing out other IRA investments to continue buying, but don't want to get to over invested in real estate. I'm also buying on the outside, buying my 5th financed, it is not too bad, your IRA investments count 70% towards the reserves. Buying 10 year old houses for $50k, $10k down, they rent for $1100, just got 4.2% 30 yr fixed investment, payment $196/mo. Then using cash flow from properties to save up down payments for the next one. Outside IRA has some tax benefits, you can deduct SOME of the income, but inside the IRA ALL INCOME is tax free, plus whatever that income grows to is tax free, not tax deferred, tax free.

I typically see real estate guys, and non real estate guys/gals. I am interested in weighing off the two, leveraging expertise in both, vs the time invested with a crazy full time job.

So bring on the rental property articles.

As I said in my Reader Profile back on April 26, 2011, I, like other posters here, believe the day of reckoning is approaching...although it is very hard to predict when that will happen. Japan's financial outlook keeps getting worse, but they've muddled through much longer than many thought possible. Europe, however, is already showing what can happen when a nation accumulates too much debt. Financial crisis can come very swiftly. Things can be fine one day and be a disaster the next.

I think the bottom line is that very vew people are going to be able to protect themselves financially if we have a true financial disaster (worse than 2008). Our government's finances are much weaker than they were prior to 2008, so it really wouldn't take that much to put us over the edge.

@CoolMouseLuke,

Would you be willing to describe the details of how you bought your property inside your Roth IRA. I have avoided exploring this option but would be interested in hearing how it has worked from someone who actually is doing it.

1. You used a self directed IRA so who is managing the self directed IRA for you.
2. Where there any special rules you needed to follow to make that work.
3. Is it difficult to get the money out to buy a property? Any verification needed to ensure it is being used for a valid purpose?
4. Presumably all the finances and expenses for any property in your Roth IRA have to be kept separate from any other properties you have.

I think SR summed it up pretty good earlier on..

"How do you prepare for this? You maintain liquidity, stay out of debt, and diversify. You want good rental property or real estate, commodities (oil or something of actual industrial value), and stocks."

Having rental properties is great.. but there is still risk if they are financed.. and that risk is what needs to be minimized or accounted for in worst case scenarios.. ideally if can do paid for rental properties i think would feel a lot sounder at night.. also diversifying in global markets??

I have to agree with a lot of the grimmer outlooks.. when an individual person hits this kind of financial trouble, they have to make a dramatic turn around or face nasty consequences, being sued bankruptcy etc.. etc..
It doesn't appear that the U.S. has addressed the cause of the problem.. which is always the first step..

@CoolMouseLuke

Where are you buying houses for $50K and then renting for $1100/month? That sounds like a steal.

Apex:
Since the taxable interest I earn in our IRAs from corporate bonds and some CDs yielding 5.15% to 4.80% is all tax deferred - the more the better as far as I'm concerned. However we have regular IRAs and are both well over 70 1/2 so the minimum required distributions are the biggest contributions to our taxable income and there's no way around it. I move the money from the distributions into our taxable account and use it to buy more munis. I bought some more munis on August 1st. from income received and was able to get 5% coupons in the secondary market and in my daughter's account I was able to get some with 5.05% coupons. I try to get munis that are also free of California tax whenever I can.

As for our annual tax bill, little guys like me have no choice other than paying up. The only attorney I have ever used was the guy that drew up our wills and living trust. Many giant companies and multi-billionaires pay a smaller percentage than I do, I'm not complaining but that's the way the system works.

What's with all the anger?

FMF, any way to report offensive posts like the ones from the wordsmith above?

Noah -

I just saw them - and deleted.

Diolated-how is manipulating reserves and interest rates diferent from printing money. Is not the end result the same?

@W. Matthews...I was thinking the exact same thing. They have a more convoluted way to print money than in times past, but the end result is exactly the same.

@W.Matthews,@mysticaltyger

Think of it like this: if apples aren't selling, the grocer doesn't increase demand for more apples by putting more apples on shelf. Just like the grocer, the Fed doesn't increase demand for loans, by making more loans available, which is essentially what they are doing with bond purchases, reserves changes, and the discount window. These actions are "printing" money because that money made available by the Fed never actually goes out into the real economy when no one is borrowing and/or lending.

These actions are NOT "printing" money because that money made available by the Fed never actually goes out into the real economy when no one is borrowing and/or lending.

@Diolated...Yes, I'm familiar with this argument, but it still doesn't inspire confidence. And how do we know it won't have consequences down the road? To me, it just shows how maniupulated our economy really is.

I'm not an economist either...

I think we need to consider "inflation" and "devaluation of the dollar" as two different things.

I see our future having deflated dollars. As our dollar goes down, it takes more of them to buy widely available commodities (oil, corn, etc). These things then go on to affect the prices of manufactured goods (Pop Tarts, paper, etc). So, I don't know as if inflation is in our future, but perhaps some rising prices on goods.

I also think long term interest rates will rise. With this rise, long term bonds will fall in value.

I think this will also affect the value of dividend stocks as well. Today's 2% yield isn't so attractive when interest rates go up -- people will go to debt instruments rather than dividend stocks. Many dividend stocks are at pretty pricey PE ratios now... I think dividend stock prices will fall.

Further, I think a lot of states and cities are going to fall on hard times. With this comes increased muni bond rates and defaults. Again, existing bonds will lose value as a result.

My best friend Warren and I have been saying for several years now, "short the long term treasury". Warren's hardly ever wrong... but on this one he hasn't been right yet.... I think he will be, but I'm not exactly sure when.

So, how to prepare? Cash to put in to an asset that crashes, don't hold any long term debt, consider commodities and hold non-dividend paying stocks. Remember, this advice is worth every penny you paid for it.

DB

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