First time poster : feedback on my investment decisions?

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xtec82
Posts: 2
Joined: Tue Jan 29, 2013 1:24 pm

First time poster : feedback on my investment decisions?

Post by xtec82 »

Been visiting the forums but posting it for first time.

Me and my wife (31/30) are fortunate to have stable jobs, currently gross around ~190k and are expecting our first baby.

Finances at the moment:
401k's - 96k
Traditional IRA - 10.5k (wife since contributes to her 401k, so we are not making contributions anymore)
Stocks & Bonds- 80k
Home equity - ~100k (Mortgage - 300k at 3.87%)
Cash - 220k

No other debts (car's and student loans are paid)

I am planning to invest in 2 condo apartments. Here is how I plan to fund it :

a) Condo1 : 93k (cash)
b) Condo2 : 86k (cash)

I expect 3.5k expense/condo(7k total) before I can put it for rent. In all, 187k. That should leave me with:

Cash: 33k
Stocks & Bonds: 80k

Condo investments should return me net of atleast 7.5% (assuming it is rented 10 months/year). I understand becoming a landlord has it's pitfalls, but I am up for it.

We manage to save ~50k/year. For next year 65% of it would be contributed towards stock and bond (portfolio allocation would be a separate post), 10% will be towards college fund for our child and rest 25% to shore up the emergency fund (cash-on-hand). Later years, would be around 80/10/10

I am wondering what you think about :
a) choosing to invest in real estate (considering our age and financial position) and/or
b) paying cash rather than looking to finance it?

My reasons : I decided against loans as thought I could get equity loan later if I needed money for some other investment, opportunity or unexpected expense. My asset allocation is aggressive (~80% stocks) but I was more concerned with size of the portfolio and what it could grow to be if everything stays same next 2-3 years. If I was ever going to dabble into real estate for rental income to diversify, I thought right now may be the best time. It is very competitive market with multiple offers on such condo's; it took me 6 months to find 2 decent condo opportunities. If prices of these condos (sold at around 240k-250k during peak) increase in future, they won't provide the same return I can get if I purchase them right now at this price.

Did I do ok? Any feedback? Thanks for reading!
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linuxuser
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Joined: Mon Jan 24, 2011 8:15 pm

Re: First time poster : feedback on my investment decisions?

Post by linuxuser »

$33k cash remaining is roughly 2 months emergency fund.

I think it is over aggressive, but it's your money.
Topic Author
xtec82
Posts: 2
Joined: Tue Jan 29, 2013 1:24 pm

Re: First time poster : feedback on my investment decisions?

Post by xtec82 »

linuxuser wrote:$33k cash remaining is roughly 2 months emergency fund.

I think it is over aggressive, but it's your money.
It is more like 4 month emergency fund(monthly exp avg 7-8k) but I do agree that it is aggressive; I plan to shore this up within next 3-6 months.

On one hand I can allocate the money in stock funds/bonds where i can expect decent return in the long term and many posters of my age have done it. On flip side I may not find such attractive opportunity to invest in real estate in future; so I decided to take it and now plan to build my portfolio in stock/bonds over next few years.

As such I am commited to closing the real estate transactions but am wondering if my investment thesis is seriously flawed.
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zebrafish
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Location: Inside the tank

Re: First time poster : feedback on my investment decisions?

Post by zebrafish »

Why not buy just one of the condos and see how it goes rather than purchasing two and spending so much of your net worth and cash on real estate?

Then if it works out and you're happy being a landlord, save up a little more cash from the first rental, and buy the second condo. You'll have more buffer, and you might use the experience to make a different purchase.
Last edited by zebrafish on Tue Jan 29, 2013 11:05 pm, edited 1 time in total.
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zebrafish
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Re: First time poster : feedback on my investment decisions?

Post by zebrafish »

Oh, and I would definitely pay cash for the condo. I would not finance it. Others on this forum will tell you to leverage yourself and invest the cash, but I personally think this is unwise and puts you at risk for major problems if everything doesn't work out as planned (which it frequently doesn't).
vtanzi
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Joined: Sun Jan 13, 2008 9:58 am

Re: First time poster : feedback on my investment decisions?

Post by vtanzi »

Buying 2 Condos does not make sense when you have 100K in a Home Equity Loan---if you want financial freedom pay off your debts--I do not get keep 220K in cash but having a 100K Home Equity and a 300+ mortgage. Have you taken into account HOA fees, property tax, repairs, etc etc etc.
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linuxuser
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Re: First time poster : feedback on my investment decisions?

Post by linuxuser »

vtanzi wrote:Buying 2 Condos does not make sense when you have 100K in a Home Equity Loan---if you want financial freedom pay off your debts--I do not get keep 220K in cash but having a 100K Home Equity and a 300+ mortgage. Have you taken into account HOA fees, property tax, repairs, etc etc etc.
I think you misunderstand what he has. I read it as he has $100K equity in his home and has $300K mortgage remaining.
He plans to use $197K of the $220K cash to buy the condos leaving him with just $33K in cash which he claims will last him 4 months.

He is banking that he will be able to rent out the condos 10 months of every year and that the rent will pay for all expenses/taxes/repairs on the condos.

Reminiscent of people before the crash who were highly leveraged.
vtanzi
Posts: 40
Joined: Sun Jan 13, 2008 9:58 am

Re: First time poster : feedback on my investment decisions?

Post by vtanzi »

linuxuser wrote:
vtanzi wrote:Buying 2 Condos does not make sense when you have 100K in a Home Equity Loan---if you want financial freedom pay off your debts--I do not get keep 220K in cash but having a 100K Home Equity and a 300+ mortgage. Have you taken into account HOA fees, property tax, repairs, etc etc etc.
I think you misunderstand what he has. I read it as he has $100K equity in his home and has $300K mortgage remaining.
He plans to use $197K of the $220K cash to buy the condos leaving him with just $33K in cash which he claims will last him 4 months.

He is banking that he will be able to rent out the condos 10 months of every year and that the rent will pay for all expenses/taxes/repairs on the condos.

Reminiscent of people before the crash who were highly leveraged.
I think you are right--my apologies---
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linuxuser
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Re: First time poster : feedback on my investment decisions?

Post by linuxuser »

vtanzi wrote:
linuxuser wrote:
vtanzi wrote:Buying 2 Condos does not make sense when you have 100K in a Home Equity Loan---if you want financial freedom pay off your debts--I do not get keep 220K in cash but having a 100K Home Equity and a 300+ mortgage. Have you taken into account HOA fees, property tax, repairs, etc etc etc.
I think you misunderstand what he has. I read it as he has $100K equity in his home and has $300K mortgage remaining.
He plans to use $197K of the $220K cash to buy the condos leaving him with just $33K in cash which he claims will last him 4 months.

He is banking that he will be able to rent out the condos 10 months of every year and that the rent will pay for all expenses/taxes/repairs on the condos.

Reminiscent of people before the crash who were highly leveraged.
I think you are right--my apologies---
No apologies needed.

He is also expecting a baby. If his wife expects to return to work fulltime, then their monthly expenses will rise to pay for daycare. If she decides to remain at home or return to work parttime, their monthly income will decrease accordingly.
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