Have $150K in cash. Good passive income ideas...??

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Have $150K in cash. Good passive income ideas...??

Postby tuttibs » Mon Nov 14, 2011 12:27 pm

Hi guys, I'm a noob.

Just finished medical training. Got a great sign on bonus and live in small size city with decent cost of living. I DO NOT want to work for the rest of my life. I think I will burn out soon and need to start investing in passive income streams now so I can retire in 10-15 years. Medicine is going down the tubes and I won't be making this money for much longer.

What are your guys ideas for good passive income streams that does not require me to quit my current job.

I was thinking about franchising (have family members that will manage store for me)
What about rental properties?

I have $150K right now and will have $300K total in a year.

Have about $120K in student loans, but currently at 3% interest. Should I pay that off first and forget about anything else? We also don't even have a house yet, just renting (about $1500 a month).

Should I stop dreaming and just buy a house, pay off my loans and invest the rest in the bank, stocks?

Thanks for the advice!
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Re: Have $150K in cash. Good passive income ideas...??

Postby chaz » Mon Nov 14, 2011 12:53 pm

Read the wiki. Pay off debt. Invest in Total Stock Market fund.

Good luck.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page
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Re: Have $150K in cash. Good passive income ideas...??

Postby redlbj01 » Mon Nov 14, 2011 2:23 pm

I can certainly understand your concerns about burning out, but to be honest if your fresh out of medical training, the road has just started for you. Many people would kill for the type of income you are earning fresh out of school.

I'm not a doctor, nor am I in medicine, so take everything I state with that in mind. You might get better suggestions from those who have been in your shoes.

(1) Pay off your debt, BUT still allow yourself an emergency fund of 6 months of expenses. (This also assumes that you have a high interest on that student loan debt. If it's lower or management you may better served by putting that cash in the market. I personally prefer simplicity, so I'd just pay it off).
(2) Purchasing a Home can be a good idea IF:
a. You are planning on staying in the area for at least 5+ years
b. Planning on having a family that makes a apartment/condo living less than ideal
c. Have 20% down payment
d. You will have the time and energy (after an already demanding job) to maintain the home.

(3) Franchising can be a wonderful income generator BUT a couple of thoughts:
a. You spent 150k to finish your medical training, seems a shame to spend all of that money (and time/energy) and not get some use out of it.
b. Everything I've heard about franchising is that nothing is "passive" about them. It takes A LOT of work to get them up and profitable off the floor (2-3 years is average). Thats one reason I've been hesitating to open as I'm the primary bread winner in my family.
c. Mixing your family with this might cause some inter-personal issues if the business flops or doesn't perform to your expectations. A franchisee needs to be heavily involved with the business (because it's yours) at first, and it doesn't sound like you will have the free time yet. Don't mix family with business, it always leads to drama, because where is the line drawn from employee to employer to family?

My end suggestion is to focus on your current career (very well paying one at that), and give yourself a time horizon (say 3-5 years) that you hoard up cash to start the franchise of your dreams with minimal to no debt. You might find that you enjoy medicine and the burn out factor is no longer an issue. You will also see how much free time you actually do have.
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Re: Have $150K in cash. Good passive income ideas...??

Postby PreserveCapital » Mon Nov 14, 2011 2:34 pm

Pay off the loans at $10k/month. In 12 months you will have paid them off and have $180,000 saved.

Your interest will roughly be about 1.5% on the entire $120k since the loan balance will steadily decline from 120 to zero. So it's about $1800 interest to maintain the liquidity.

Start looking around for a house.

You don't want to pay off the loans all at once since that will bring your cash down to $30k which is not enough for a sufficient emergency fund AND a house downpayment.

Keep your money for the next twelve months in CD's, I-Bonds, short term treasury, maybe a municipal bond fund (based on your high income). Stay liquid until you have your house and have a better idea of where you are headed.
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Re: Have $150K in cash. Good passive income ideas...??

Postby john94549 » Mon Nov 14, 2011 8:17 pm

I know retirement seems a long, long, way off, but the best investment when you are young is real estate. Example: Buy a reasonably good rental condo in a nice beach location. It throws off a tad, but mostly it's a loss. That loss, plus depreciation, builds up, year after year. Then, when you hit retirement, and your MAGI falls below $150K, all that booked loss appears as a "negative" on Form 1040, line 17. Just ask your CPA.

PS: Social Security payments don't figure into MAGI. It's magic. Poof! They disappear.
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Re: Have $150K in cash. Good passive income ideas...??

Postby Wannaretireearly » Mon Nov 14, 2011 8:35 pm

john94549 wrote:I know retirement seems a long, long, way off, but the best investment when you are young is real estate. Example: Buy a reasonably good rental condo in a nice beach location. It throws off a tad, but mostly it's a loss. That loss, plus depreciation, builds up, year after year. Then, when you hit retirement, and your MAGI falls below $150K, all that booked loss appears as a "negative" on Form 1040, line 17. Just ask your CPA.

PS: Social Security payments don't figure into MAGI. It's magic. Poof! They disappear.


Hi John, is there a site that explains rentals (pros/cons) how to win long term as you mention in your post?
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Re: Have $150K in cash. Good passive income ideas...??

Postby john94549 » Mon Nov 14, 2011 8:45 pm

Wannaretireearly wrote:
john94549 wrote:I know retirement seems a long, long, way off, but the best investment when you are young is real estate. Example: Buy a reasonably good rental condo in a nice beach location. It throws off a tad, but mostly it's a loss. That loss, plus depreciation, builds up, year after year. Then, when you hit retirement, and your MAGI falls below $150K, all that booked loss appears as a "negative" on Form 1040, line 17. Just ask your CPA.

PS: Social Security payments don't figure into MAGI. It's magic. Poof! They disappear.


Hi John, is there a site that explains rentals (pros/cons) how to win long term as you mention in your post?


Not of which I'm aware. We basically stumbled into this magical tax harvest by accident.
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Re: Have $150K in cash. Good passive income ideas...??

Postby chicagobear » Tue Nov 15, 2011 12:17 pm

I wouldn't prepay 3% fixed rate debt myself. That might be quite a bargain in a few years. I'd rather invest in stocks and real estate (and hold some cash as liquidity) and figure I can do better than a nominal 3% over the long run.
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Re: Have $150K in cash. Good passive income ideas...??

Postby TRC » Tue Nov 15, 2011 8:24 pm

john94549 wrote:I know retirement seems a long, long, way off, but the best investment when you are young is real estate. Example: Buy a reasonably good rental condo in a nice beach location. It throws off a tad, but mostly it's a loss. That loss, plus depreciation, builds up, year after year. Then, when you hit retirement, and your MAGI falls below $150K, all that booked loss appears as a "negative" on Form 1040, line 17. Just ask your CPA.

PS: Social Security payments don't figure into MAGI. It's magic. Poof! They disappear.


Is this an investment or a strategy to avoid paying taxes 35 years down the road?

I'd be curious to see how real estate appreciation has tracked against the S&P since it's inception.
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Re: Have $150K in cash. Good passive income ideas...??

Postby CaliJim » Tue Nov 15, 2011 8:59 pm

john94549 wrote:That loss, plus depreciation, builds up, year after year. Then, when you hit retirement, and your MAGI falls below $150K, all that booked loss appears as a "negative" on Form 1040, line 17. Just ask your CPA.
'

What do you mean by "all that booked loss appears"? By "all" do you mean 'accumulated depreciation' or something else?

My understanding is that annual depreciation shows up as an expense against income in the year that you book the depreciation, and accumulated depreciation shows up as a reduction in the basis of the asset, increasing capital gains, when you sell, not when MAGI falls below a threshold.

This is off topic - if you want to start a new thread and answer this question there - that would be best.

-jim-
Last edited by CaliJim on Wed Nov 16, 2011 2:14 am, edited 1 time in total.
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Re: Have $150K in cash. Good passive income ideas...??

Postby CaliJim » Tue Nov 15, 2011 9:06 pm

Anyway - as we have discussed elsewhere - investing in individual rental real estate is a BUSINESS - a JOB - it requires effort - with commensurate reward for those who are good at it - and has it's own set of risks (think about the guy who invested in New Orleans rentals before Katrina, or the guy who invested in Detroit real estate before GM crashed).

There is a lot of survivor bias in real estate investing narratives. Only the winners talk about it. The losers have moved on, tail between their legs.

The historical returns of passive real estate investing can be found here: http://finance.yahoo.com/q/pm?s=VNQ+Performance, and the volatility can be seen here: http://finance.yahoo.com/q/bc?s=VNQ&t=m ... z=l&q=l&c=
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Re: Have $150K in cash. Good passive income ideas...??

Postby Boglemama » Tue Nov 15, 2011 10:11 pm

Have you paid taxes on that 150 yet? If not, I'd talk to an accountant before making any plans with it.
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Re: Have $150K in cash. Good passive income ideas...??

Postby TN_INVEST » Tue Nov 15, 2011 10:18 pm

tuttibs wrote:Should I stop dreaming and just buy a house, pay off my loans and invest the rest in the bank, stocks?

Thanks for the advice!


Don't be such a downer. :D
Buying a house, being debt free and having a nice, diversified portfolio ain't too shabby. Some might even consider it to be the American dream.

You said passive income ideas. I don't think I've ever known a franchisee that would categorize his franchise as a passive investment. Same for real estate investing.

You like franchises? Why not invest in the quintessential franchise company: McDonald's. Buy yourself a few hundred shares of that company. If real estate is more your thing, look in to a nice real estate investment trust (REIT). McDs pays a 3% dividend (it'll most likely increase since they are "printing" money) and there are plenty of REITs that throw off >3%.

Boring can be beautiful.
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Re: Have $150K in cash. Good passive income ideas...??

Postby bertie wooster » Tue Nov 15, 2011 10:46 pm

I think you're getting some mixed advice here, here's my two cents:

As someone above said, going into business with family has a very good chance of ruining your relationship with family members. I would avoid it like the plague. In general I would avoid discussing the details of your financial life with your family (ie. "I just got $150k!"). Also as someone said, running a franchise is hardly passive, it's a lot of work!

I don't think you should invest it in a rental property either, unless you want to do the work. It can be very financially rewarding, but as said above, property management is NOT passive.

I would also avoid investing in individual stocks or REIT's that have a high yield. Investing in individual stocks can be risky and requires a lot more work than it seems you want to do. If you're going to start a taxable investment account I recommend tax efficient mutual funds (Total Stock Market Index, Total International Index, Intermediate Term municipal, and perhaps a state specific muni if you have one). Direct all dividends to Prime Moneymarket and rebalance as needed with this and new money.

What I would do in your shoes:
1. Figure out how much of this will be taxed and set that aside for next years taxes.
2. Set aside enough for a 6 month's expenses for an emergency fund.
3. Set aside $5k for a trip (you've earned it!).
4. Put the rest towards your loans.
5. Pay off loans as soon as possible with that big new monthly paycheck you'll be getting.
6. Read the books on the recommended reading list, set up an asset allocation you like, and start investing your tax-deferred and taxable moneys accordingly.

Congrats and best wishes!
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Re: Have $150K in cash. Good passive income ideas...??

Postby Outer Marker » Wed Nov 16, 2011 7:56 am

Should I stop dreaming and just buy a house, pay off my loans and invest the rest in the bank, stocks?


Yes. A relative of mine ran a very lucrative dental practice going back to the 1980s. Unfortunately, he had an entrapeneural bent for all sorts of things he was not trained for, invested in small businesses of sorts, commercial real estate, and followed stock tips. Had he just done the above, he'd have a paid off house and seven figures in retirement accounts. As it is, he still owes money on a modest house, has limited savings, and is practicing dentistry in his 70's. Not that he's unhappy with that. Just sayin' ...
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Re: Have $150K in cash. Good passive income ideas...??

Postby kenyan » Wed Nov 16, 2011 5:50 pm

tuttibs wrote:Hi guys, I'm a noob.

Just finished medical training. Got a great sign on bonus and live in small size city with decent cost of living. I DO NOT want to work for the rest of my life. I think I will burn out soon and need to start investing in passive income streams now so I can retire in 10-15 years. Medicine is going down the tubes and I won't be making this money for much longer.

What are your guys ideas for good passive income streams that does not require me to quit my current job.

I was thinking about franchising (have family members that will manage store for me)
What about rental properties?

I have $150K right now and will have $300K total in a year.

Have about $120K in student loans, but currently at 3% interest. Should I pay that off first and forget about anything else? We also don't even have a house yet, just renting (about $1500 a month).

Should I stop dreaming and just buy a house, pay off my loans and invest the rest in the bank, stocks?

Thanks for the advice!


Well...you could read "Rich Dad, Poor Dad" by Kiyosaki. He provides very few specifics (other than to sign up for expensive seminars such as those he offers), but his book is all about dreaming and taking huge risks to escape wage slavery.

Of course, you will find very few on this board who espouse his views. You have serious human capital as a physician, positive net worth, and could probably retire early without huge risks as long as you don't need a fancy standard of living.

One thing about real estate (landlord) income streams - they are not passive. Don't buy an apartment building thinking you can just sit back and sign the checks; real work is required.
Retirement investing is a marathon.
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