$600,000. Now what?

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brownsfan2k5
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$600,000. Now what?

Postby brownsfan2k5 » Wed Jan 11, 2017 3:14 am

Hello all

I am 27 and started heavily investing in stocks when I was 23. I have been successful and currently have $600,000 in my brokerage. I have been considering taking on some real estate. But I have a few issues:

1. My income is mainly from dividends. I receive $43,000 annually. Will the bank accept this as income? I currently own 2 other property rentals, but only make $150 each month per rental. Although I recently refinanced both properties and received $40,000 (essentially a 100% return in 5 years).
2. I was considering branching out into buying a 10-20 unit apartment complex that's undervalued and renavatibg and fixing up. I've also considered opening up my own limited partnership and selling shares of the partnership to friends and using the cash flow to invest, as I've returned around 16% over the last 5 years, and my friends are always asking for help.

Thoughts?

yoni_w
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Re: $600,000. Now what?

Postby yoni_w » Wed Jan 11, 2017 4:14 am

I'm no help to you, but I am curious how you managed to amass such a fortune in such a short time. Can I assume this is from stock picking and not from Boglehead-style passive investing?

Congrats on your success thus far.

mac808
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Re: $600,000. Now what?

Postby mac808 » Wed Jan 11, 2017 4:26 am

Do you have a day job/reliable W-2 income stream or did you just YOLO your allowance on some micro caps and hit the jackpot?

brownsfan2k5
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Re: $600,000. Now what?

Postby brownsfan2k5 » Wed Jan 11, 2017 4:46 am

I just separated last year from the military. I used my income while in to invest in stock picks, found the stock NRZ and made $100,000 over last few months with them. But now just living off my dividend and investment income, still on track to make 1 million by 30. Hope the bank can recognize this, and give me the loan?

malabargold
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Re: $600,000. Now what?

Postby malabargold » Wed Jan 11, 2017 6:25 am

$600,000 yielding over 7%?
Watch out for a value trap.

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InvestorNewb
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Re: $600,000. Now what?

Postby InvestorNewb » Wed Jan 11, 2017 6:54 am

How are you making a 7% dividend return? That is the elephant in the room. It doesn't sound sustainable.
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)

markettracker
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Re: $600,000. Now what?

Postby markettracker » Wed Jan 11, 2017 7:09 am

Having just gone through a mortgage approval, I think stocks and dividends are seen as assets, but not income. The rules may be more flexible for a veteran, however.

ERISA Stone
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Re: $600,000. Now what?

Postby ERISA Stone » Wed Jan 11, 2017 11:10 am

Not my field of expertise but my anecdote - we had enough cash sitting in our bank account to buy the last house we purchased in 2013. In fact, our total net worth (disregarding equity in real estate) was at least double the purchase price of the house. We had to go through a lot of hoops, including letters from my accountant to confirm certain financial transactions, in order to get them to approve the loan because they insisted our incomes weren't enough.

bigred77
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Re: $600,000. Now what?

Postby bigred77 » Wed Jan 11, 2017 11:31 am

OP,

What you are describing is a very unsustainable approach to finance where you have A.) been lucky enough to invest solely through a tremendous bull market run and, on top of that, B.) managed to make some extremely successful stock picks (through sheer luck) which has left you in a really great position.

I would implore you to really read up on the boglehead method of investing. At 27 with 600k in the bank? That's unbelievably advantageous. You are so far ahead of the game. Just don't make any foolish decisions and throw away your head start.

Hopefully you know that 16% year over year returns is not sustainable. Hopefully you realize you can't live on 7% of your portfolio indefinitely at age 27. Hopefully you know that when your assets are bearing as much risk as necessary to generate these types of returns over the short term will inevitably lead to a sharp downturn. Please research as much as you can now, before it's too late.

onthecusp
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Re: $600,000. Now what?

Postby onthecusp » Wed Jan 11, 2017 11:52 am

I see that NRZ has an 11% yield and is on a tear upward. Everything is going to be great :D until it is not :shock: :( :oops: . Been there done that. For me it was internet/tech stocks.

So you are now highly exposed to real estate through NRZ, your plan is to buy real estate rentals.

Now what? Diversify! It won't be easy because it has worked so well, but start and keep going. Get more than half into the kind of assets that are recommended here. Three fund portfolio. Then you can ignore that while you renovate the apartment building with one eye on your risky assets.

And if you just can't accept this advice right now, as long as you stay highly concentrated in RE watch it like a hawk and get out more and more on every top and diversify some more. You're rich, keep your riches! :sharebeer

Tamalak
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Re: $600,000. Now what?

Postby Tamalak » Wed Jan 11, 2017 12:06 pm

Holy crap. NRZ looks amazing.

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HomerJ
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Re: $600,000. Now what?

Postby HomerJ » Wed Jan 11, 2017 12:33 pm

brownsfan2k5 wrote:Although I recently refinanced both properties and received $40,000 (essentially a 100% return in 5 years).


You still owe that $40,000.

You have been very lucky. You invested in real estate at the right time, and you picked a very good stock.

But nothing lasts forever. You cannot count on these kind of dividends or returns continuing for the next 20 years, or even the next 6 months.

You've been gambling at Vegas, and you've won big. Do not stay another week thinking you can double your money again.

I've also considered opening up my own limited partnership and selling shares of the partnership to friends and using the cash flow to invest, as I've returned around 16% over the last 5 years, and my friends are always asking for help.


Oh boy, this is a recipe for losing all your friends. You may have some skill, but until you invest through some BAD times as well as good times, you really don't know how good you are. Do not start betting your friends money as well.

The stock market has returned 14% a year over the past 5 years. Your 16% is good, but not amazing considering the entire market has done very well. The advice you should give them is to invest in a low-fee stock index fund like Vanguard Total Stock Market.

Investing in individual stocks is a dangerous game.
Last edited by HomerJ on Wed Jan 11, 2017 12:34 pm, edited 1 time in total.

MikeG62
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Re: $600,000. Now what?

Postby MikeG62 » Wed Jan 11, 2017 12:33 pm

bigred77 wrote:OP,

What you are describing is a very unsustainable approach to finance where you have A.) been lucky enough to invest solely through a tremendous bull market run and, on top of that, B.) managed to make some extremely successful stock picks (through sheer luck) which has left you in a really great position.

I would implore you to really read up on the boglehead method of investing. At 27 with 600k in the bank? That's unbelievably advantageous. You are so far ahead of the game. Just don't make any foolish decisions and throw away your head start.

Hopefully you know that 16% year over year returns is not sustainable. Hopefully you realize you can't live on 7% of your portfolio indefinitely at age 27. Hopefully you know that when your assets are bearing as much risk as necessary to generate these types of returns over the short term will inevitably lead to a sharp downturn. Please research as much as you can now, before it's too late.


+1. Could not have said it better myself.

mckaydw
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Re: $600,000. Now what?

Postby mckaydw » Wed Jan 11, 2017 1:27 pm

As another military member I thought I'd add my $0.02.

brownsfan2k5 wrote: I am 27 and started heavily investing in stocks when I was 23. I have been successful and currently have $600,000 in my brokerage.


I'm assuming that you started as a 2LT at age 23 and separated as a Capt 4 years later. This means you started out around $50k total compensation and ended around $85k total compensation. I'm also guessing that you served several tours oversees, significantly adding to your pay and reducing your taxes at the same time. Even including several deployments, $600k is a huge amount of money to amass in 4 years, which tells me that you've been both 1) frugal and 2) made high risk/reward bets that happened to turn out very favorably. You probably could have just as easily been frugal and risky and ended up with $200k in total assets.

As far as I can tell, your investments continue to be allocated in high risk assets, including significant holdings in individual stocks and 2 highly leveraged pieces of real estate.

"You've got to know when to hold 'em Know when to fold 'em
Know when to walk away And know when to run
You never count your money When you're sittin' at the table
There'll be time enough for counting When the dealin's done."

If you spend enough time reading through the information on this website, you'll begin to see 1) how lucky/fortunate you've been so far and 2) how rare it would be for your luck to continue. If you come to understand this soon enough before high risk assets "revert to mean", you can set up a diversified portfolio with appropriate risk that will bless you and your family for the rest of your life.

All the best as you move on after your military service.

dspencer
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Re: $600,000. Now what?

Postby dspencer » Wed Jan 11, 2017 1:28 pm

brownsfan2k5 wrote:Hello all

I am 27 and started heavily investing in stocks when I was 23. I have been successful and currently have $600,000 in my brokerage. I have been considering taking on some real estate. But I have a few issues:

1. My income is mainly from dividends. I receive $43,000 annually. Will the bank accept this as income? I currently own 2 other property rentals, but only make $150 each month per rental. Although I recently refinanced both properties and received $40,000 (essentially a 100% return in 5 years).
2. I was considering branching out into buying a 10-20 unit apartment complex that's undervalued and renavatibg and fixing up. I've also considered opening up my own limited partnership and selling shares of the partnership to friends and using the cash flow to invest, as I've returned around 16% over the last 5 years, and my friends are always asking for help.

Thoughts?


As others have pointed out, your investing approach seems to directly contradict with the Boglehead philosophy. I'm curious, what draws you to this site in particular? Please don't take that in a negative way. Honestly, I think you are really lucky to have found this site now. I would encourage you to consider the overall Boglehead approach as you are in a great position to take advantage of it.

Regarding your questions: Rental property can be a great source of income. It can also be a huge amount of work. I know several people who have followed the same trajectory when buying properties. They run the numbers and get excited about the potential passive income returns. They start buying properties and the money starts rolling in. They keep buying properties until the banks say "no more credit for you". Then the inevitable problems arise. A tenant stops paying rent, another accidentally floods the top floor of a duplex, an entire property burns to the ground. Suddenly they start to question whether it was worth all the effort in the first place.

That's not meant to say that you're doomed to fail. And if this will be your primary job that puts you in a better spot than the people I know who are looking for above market returns with little extra work. But at 27 you are the perfect age to have a distorted view of markets steadily rising for many years. Don't let good luck and perfect timing lead you to believe you can't lose a lot of money on stocks and real estate. I strongly advise against using your friends as a funding source for this type of project.

IHateCasinos
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Re: $600,000. Now what?

Postby IHateCasinos » Wed Jan 11, 2017 2:47 pm

you are SO lucky. but ONLY because you have found this site at your early age and with cash in pocket.
Step away from the table NOW. its gambling, nothing else!
The guys on this site, are all jealous -that you found bogleheads so early and with cash to invest - , not because you picked ONE winner (but we all know have that fantasy). the endorphin high of it....

step away NOW.Keep your riches.

Also, dont invest for your friends. YET. Instead - Read the John Bogle book "The little book of common sense investing" *tonight*. Then give THAT to your friends. it changed my world!

Make good choices,
Marc.

brownsfan2k5
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Re: $600,000. Now what?

Postby brownsfan2k5 » Wed Jan 11, 2017 4:21 pm

All


Thank you so much for the honest feedback! I truly appreciate each and everyone taking the time to comment on my post. We are all here for the same purpose, to give and receive honest feedback, so once again, thanks!

Now to answer some of the questions asked to me:

1. I was not an officer in the military, I actually enlisted as an E-2 at 20 years old. I deployed twice, and during my first deployment in the Middle East I had some down time and started reading Saving for Retirement (Without Living Like a Pauper or Winning the Lottery). I fell in love with index funds and investing in general. I started saving every dime I had (to include wife's salary, she was also military-same rank). We initially saved around $1000 monthly into our Roth IRA. As the year went on, I started learning how to evaluate a company, to include income statements, balance sheets, ROI etc. and quickly found that with a good eye and some due diligence you can find some winners out there. I started investing in individual companies I thought to be undervalued and before I knew it, my money had tripled and then quadrupled. I actually posted on another forum explaining this about 2 years ago, and got similar responses. Everyone said to take my money and run (about $250,000 at that time). Although, I kept my eyes open and found a few more companies undervalued. I then decided to buy a property to diversify and hedge from inflation. I found a property on the market for 1 year and told the guy i'd give him $120,000 cash for his home (value was $150,000) and once I bought it, I refinanced it through the bank for $112,000 at .75 LTV. So essentially I got the home for a 100% loan. My tenants pay the full mortgage plus about $150. I then bought another property with a down payment and refinanced this past year and got my full down payment back. All this time my tenants still pay my mortgage, plus some extra. I then use the proceeds to invest more in undervalued companies.

2. I asked this forum for advise because I do like to hear the other side of things. I do agree with everyone, as I have been riding a bull market for awhile now. Although, maybe I'm wrong for this, and you can all correct me, but if we told everyone who ever tried to swing for the fences to calm down and just hit guaranteed singles, there would be no Hank Aaron's in this world.

I do listen to what everyone says and I do have about $100,000 invested in safe retirement account with Vanguard. I just think you can always find winners if you look hard enough and stay focused.

thoughts?

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FreeAtLast
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Re: $600,000. Now what?

Postby FreeAtLast » Wed Jan 11, 2017 4:37 pm

brownsfan -

I accept the possibility that you are the next Warren Buffett. I ask you to ponder the possibility that you are not and have just been lucky so far. I recommend that you put another $300,000 into "safer" accounts (index total stock and bond funds, long-term CDs). That will leave you with $200,000 to play with. One way or another in the next 5-10 years you will discover how good you really are at stock picking. And - I mean this sincerely - I wish you the absolute best of luck and hope you are very successful in your future investments. Keep in touch and let us know how it goes. :D :beer

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Tal-
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Re: $600,000. Now what?

Postby Tal- » Wed Jan 11, 2017 4:59 pm

First, congrats. I'm sure that much of how you got here is luck, but much of it is also hard work, frugal living, and research. It's not a path that I would advocate, but it has worked out for you thus far. So, an honest congratulations for being off to a good start on a long journey.

Now, to your questions.

No - I don't think that you will be able to use your dividends to support the financing of additional real estate. I could be wrong about this, but I kinda doubt it.

Your question about moving into a small multi-family is tricky. First, financing for these will be commercial financing, and not the conventional financing that is typically used in real estate. This means that the requirements are different, the interest rate is higher, the term is shorter, and so on.

Multi-families are also very risky - especially if you're trying to buy below market.

And finally, I would not suggest creating a limited partnership and selling shares of yourself. That's just a bad idea for several reasons...
Debt is to personal finance as a knife is to cooking.

ERISA Stone
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Re: $600,000. Now what?

Postby ERISA Stone » Wed Jan 11, 2017 5:17 pm

brownsfan2k5 wrote:
there would be no Hank Aaron's in this world.

thoughts?


As long as you realize Hank Aaron had a physical skill, and not just a good eye for seeing a baseball.

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Bulldawg
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Re: $600,000. Now what?

Postby Bulldawg » Wed Jan 11, 2017 5:26 pm

OP:

Thank you and your wife for serving !
" IN GOD WE TRUST " ( official motto of the United States )

corysold
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Re: $600,000. Now what?

Postby corysold » Wed Jan 11, 2017 5:34 pm

Hank Aaron is in the Hall of Fame for hitting a lot of home runs.

But Tony Gwynn and Ty Cobb are in for hitting a lot of singles.

Many ways to skin a cat.

And remember, Hank hit 755 home runs, but he didn't hit a home run in the other 11,609 at bats. How many outs can your portfolio take?

Biglaw Investor
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Re: $600,000. Now what?

Postby Biglaw Investor » Wed Jan 11, 2017 6:06 pm

brownsfan2k5 wrote:there would be no Hank Aaron's in this world.


I genuinely wish you success as well. I think you'll find most people here are trying to help and not in any way jealous because you've done so well at such a young age (great for you!).

In your analogy quoted above, I'd ask you to consider Warren Buffett's story where he imagines everyone in the United States gets involved in a coin flipping contest. Imagine everyone wagers a $1 and the winners get to take the money from the losers, who drop out and never come back to the game. After 10 days, there's about 215 people left (who have correctly guessed each coin flip) and they each have around $1M each. That group goes on to write books about their excellent skills at coin flipping. People pay to see them speak.

The question you have to ask yourself is whether you're a lucky coin flipper or whether you really do have specific insight into the market. If it's the former, you should stop gambling. If it's the latter, pretty soon you're going to be famous and flooded with people who want you to manage their money. Let us know how it goes!

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foosball
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Re: $600,000. Now what?

Postby foosball » Wed Jan 11, 2017 9:38 pm

Thank you for your service. Congrats on the phenomenal success so far. :sharebeer

Let's dig into the REI a little. In many areas, SFR valuations have now risen back to or surpassed the peak set before the housing bust, in nominal dollars. At $150k for an SFR, are you in a smaller town, or a low income area of a big city? 75% LTV could be a reasonable maximum if it's an accurate ARV. Are you expecting significant appreciation?

How durable is that one fiddy per month net? E.g. what percentage are you budgeting for total (opex + capex) expenses including vacancies, before the mortgage payment? Does that include a property manager, or DIY?

If you buy a 20-unit apartment complex with leverage, will you manage it yourself? B class? D class?

I'm not trying to pick at you, just exploring how much risk you would be taking.


Cheers

Gropes & Ray
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Re: $600,000. Now what?

Postby Gropes & Ray » Wed Jan 11, 2017 10:16 pm

There is balance in the universe: you are very good and/or very lucky at picking stocks, but you are a Browns fan...

renue74
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Re: $600,000. Now what?

Postby renue74 » Wed Jan 11, 2017 10:51 pm

You'll need some W2 income or previous income from landlording to get mortgages.

A couple years ago, I started buying rental property. In 2013, I did some monkeying around on my W2 (I own a small business) and after showing the banks my 1040, they wouldn't loan me $50K for a rental property. Our net worth is close to $2M. Even the bank loan manager was stunned, but the new banking regulations are killer.

Later years, I amped up my W2 income and had some extra capital gains....so last year, banks were more friendly.

The W2 income seems to be key because they look at your "Debt to Income" (DTI) level.

Slacker
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Re: $600,000. Now what?

Postby Slacker » Wed Jan 11, 2017 11:00 pm

Hi,

Amazing job on building your stash so far.

I do have some questions about your rentals:
Is the $150 cashflow per rental:
a) only including PITI
b) after PITI + vacancy reserves + maintenance reserves?

If a) then you may want to re-evaluate your rental property (is the rent properly set to market rates?).
if b) then I think it is an okay investment.

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whodidntante
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Re: $600,000. Now what?

Postby whodidntante » Wed Jan 11, 2017 11:34 pm

I've had four mortgages in my life, and not one of them really cared how much stock I own. The last loan officer I dealt with left my stock assets off the application, something about not wanting any hang-ups with verifying. Maybe she didn't believe me. :P

You can borrow against your stocks at reasonable interest rate. Schwab, IB, and others will set you up. With portfolio margin and a "diversified" portfolio from a margin requirement point of view, it's less likely that you will be sold out in a downturn, but still possible.

But what you need is financing for your real estate investment. Get over to bigger pockets, read, and ask. They also have a podcast.

But my main advice is to slow down. Wealth doesn't come because you want it, and taking risks with leverage might just get you broke. It is much easier to get rich slowly.

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HomerJ
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Re: $600,000. Now what?

Postby HomerJ » Thu Jan 12, 2017 10:57 am

brownsfan2k5 wrote:if we told everyone who ever tried to swing for the fences to calm down and just hit guaranteed singles, there would be no Hank Aaron's in this world.


You really need to think more about this analogy. If everyone swings for the fences, and only 1% are Hank Aarons, then 99% of people strike out. Which means they GO BROKE.

So I think it's very wise to tell people to calm down and just hit guaranteed singles.

When you make large bets on one or two stocks, you can make a lot of money very fast. You can also lose a lot of money very fast. There are thousands of PhDs out there who have spent years studying a lot more than just "income statements, balance sheets, ROI etc." and very few of them can consistently pick winning stocks.

Look, there are only three possibilities here.

(1) It's real easy to pick winners after learning some basic screening methods, and using due diligence, but no one else does it because we all hate money.
(2) It's hard to pick winners, but you got lucky.
(3) It's hard to pick winners, but you are a natural genius at this, better than 99% of the professional money managers out there.


It MAY be (3), but quite likely is (2).

You're in great shape. Top 0.1% of all 27-year olds I'd imagine. I would sell most of your speculative stock holdings, and put at least $300,000 into vanilla index funds. I like the idea of you diversifying into rental properties, especially as way to generate income... Sell some of that stock and use cash to buy properties.

Because it's possible that (3) above is the correct answer, I do think you should keep $100,000 in a brokerage account and continue to trade and see if you can duplicate your previous success.

But you have to promise yourself that if you lose it all, you can't dip back into your "guaranteed single" money to try for another home run. And you WILL want to. If you make a couple of bad bets, you WILL tell yourself that you were just unlucky. That's human nature. Anything that goes well, that's our skill. Anything that goes bad, that was just bad luck.

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HomerJ
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Re: $600,000. Now what?

Postby HomerJ » Thu Jan 12, 2017 11:12 am

I went to Vegas when I was in my early twenties. I had read a couple of card-counting books for black-jack, and how to get the best odds at craps, and I had read an excellent book on money management when gambling (the most important skill for not letting a couple of bad runs at the tables ruin you).

Anyway, I went with a buddy and we each took $1000. (Edit: I should note this was the early 90s, when you could still find $1 and $2 blackjack and craps tables).

We spent 3 days there, ate and drank, and partied, and we couldn't lose. I mean the methods worked perfectly. We had a couple of bad tables, but we were disciplined and moved on, and won later that night at other casinos. We paid for our entire trip, AND came home with around $2000 each.

We seriously talked about becoming professional gamblers on the trip home.

So we went back to Vegas about 6 weeks later taking another $1000 and lost it all in two days. We both then took out another $1000 from the ATM machine, and proceeded to lose all that money too.. Cards and dice were stone cold.

The trip home was NOT much fun...

But we still weren't cured. We went back AGAIN 6 months later with $1500, determined to play smart and careful. We lost that entire $1500 as well.

That cured me from gambling. I've been to Vegas a few times since then, and I still enjoy playing blackjack or craps now and then, but I just play for fun, and with small amounts.

All in all, it was a cheap lesson (Although it was a lot of money at the time to me).

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Meg77
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Re: $600,000. Now what?

Postby Meg77 » Thu Jan 12, 2017 11:37 am

Hi there, congrats on your success! I won't pile on regarding whether it's sustainable, but I can answer your original question. Without knowing all your specific details, as a banker I can tell you it's very unlikely you would qualify for any mortgage right now.

1. Regulations require us to verify borrower "stability" which requires a 2 year look back. Ideally a borrower has had no income or employment changes over the last 2 years. If they have changed jobs, we have to document that it was a move within the same industry. You have moved from employed to unemployed. This is the biggest of red flags and will be nearly impossible to make an exception for unless you have a verifiable alternate source of reliable income (social security, disability wages, etc.). Dividends would count, but only if you've had enough dividend income over 2 years to support your personal expenses plus the new loan debt service. It sounds like your dividend stream is fairly new and unlikely to be high over 2015-2016 (they'll take the average).

2. Income ratios. Even if you can live off your dividend income, there is not enough excess income leftover to service a loan of any large size. Again, lenders like to see a 2-3 year history and generally look at the average income - or sometimes the worst year out of the last 3 if you are self-employed.

3. Experience. When it comes to commercial real estate (more than 4 unit buildings), lenders can do customized underwriting that may enable them to make exceptions to the above two traditional mortgage metrics. That's because banks don't sell off commercial RE loans the way they do 1-4 family mortgages. So they can make their own standards. But in that case they will look more closely at things like your real estate investing history and whether you have any partners or education that will enable you to successfully manage a multi-family property.

4. Down payment. Most commercial loans require 20-25% down. That takes a chunk out your liquidity and simultaneously also diminishes your income stream. And at that price point it also gets you a VERY small/old multi-family property that may require a lot of work. Such an investment could go well in the hands of an experienced manager, but it could also be a money pit that wipes out the rest of your investments/income and sets you back financially.

All in all, I'd suggest selling your winner (or some of it at least) and diversifying into other stocks and funds. If you want more real estate, consider buying another $150K rental property in cash. You'll probably want to have around double what you currently do in savings/investments before dipping your toes into commercial RE, simply because even on the low end it will require well into the 6 figures down. Since you're living off your portfolio, that's a concentration risk that may not be possible for you - especially if you want bank financing.
"An investment in knowledge pays the best interest." - Benjamin Franklin

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Meg77
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Re: $600,000. Now what?

Postby Meg77 » Thu Jan 12, 2017 12:00 pm

brownsfan2k5 wrote:2. I was considering branching out into buying a 10-20 unit apartment complex that's undervalued and renavatibg and fixing up. I've also considered opening up my own limited partnership and selling shares of the partnership to friends and using the cash flow to invest, as I've returned around 16% over the last 5 years, and my friends are always asking for help.


If you can get your net worth up over $1M, you will be an accredited investor and can access these types of investment opportunities without being the one to purchase and borrow for them yourself. My husband and I have invested $100K (or less in some cases) in several multi-million dollar apartment rehab projects over the last year, along with about a dozen other investors. This lets you build up your experience with multi-family properties indirectly - you learn about them, watch what the managers and principals do, see all the financial statements and what they look at, etc.

Alternately, you could BE the principal who puts the deal together and raises the down payment funds from other investors rather than put it down and own the property yourself. Of course having a track record helps with raising money, but a bank will be a lot more amenable to issuing a commercial loan if you have a fat down payment, good credit, and good liquidity, even without a solid ancillary income stream. If there is one other major investor with better income who is willing to guarantee the note as well, all the better. You won't profit from the whole deal as much - you'd probably just get a set fee and a percentage of the profits once the investors are repaid, for example, but you'd get experience and some upside without risking your own capital.
"An investment in knowledge pays the best interest." - Benjamin Franklin

MrKnight
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Re: $600,000. Now what?

Postby MrKnight » Thu Jan 12, 2017 12:14 pm

You've done great! Congratulations!

Personally, I'd advise to take your winnings and invest it into passive index funds, and perhaps leave a sum to continue playing with (maybe $100K?) and see what happens... no need to continue risking it all.

How much do you save monthly now. You said you started at $1K, surely it must be more now.

RockStopper03
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Re: $600,000. Now what?

Postby RockStopper03 » Thu Jan 12, 2017 1:41 pm

This is a really good analogy of my prior life experience.

OP, I was in your similar position though on a smaller scale earlier in life. When I was 22-25, I definitely rode a streak where I received rapid work promotions that boosted my pay from $51k to $66k. I then parlayed the 65% savings rate from my job and my $30k savings stash into a peak of $200k in my brokerage from first trading stocks, then trading leveraged 2X, 3X ETFs, and even escalating into naked options trading.

Like a budding gambler feeling invincible riding a streak of beginner’s luck, I thought I could do no wrong. I disregarded risk management (despite majoring in finance and risk management in undergrad) and continued climbing higher on the leverage cliff.

Then in 2009, the floor dropped from under me. First I got laid from my $66k job. Which allowed me to daytrade full time over a span of 9 months while halfheartedly job hunting and collecting the $1600/month unemployment that covered all my living expenses. Unfortunately, right around then I reverted back to the mean and the gambling tables turned cold. Over that 9 months in 2009, I eventually gave back all my winnings and then some, dropping my brokerage balance to $25k.

Like a true addict, even when I later successfully got another job with good pay and continued saving 65% of my take home pay so I rebuilt my savings to $100k, I jumped back into leveraged ETFs and options trading to “win back my losses” and honestly to regain some of the winner’s high. I used supposedly tighter risk management … peaked at $175k before the stock market table turning cold again and I then giving back all my gains yet again.

4 years ago I discovered Bogleheads and since then, I’ve followed the 3 fund passive index funds approach and turned all my attention to improving in my professional space. It turns my stomach thinking back how much more money I would have today if had cashed out at the top or even if I just stuck to 3 fund index investing from the beginning. Today I still have over $100k in carried over cap losses I been writing off in my tax returns $3k at a time for many more years to come and I consider that tuition from the school of hard knocks and reminders of my hubris.

It’s not easy to have an unbiased viewpoint while riding the peaks of the winners high. My advice is to get out while you’re ahead. Keep a small slush fund for play money to indulge in personal active trading but try to safeguard the bulk of your winnings. Sooner or later, 99% reverts back to the mean.


HomerJ wrote:I went to Vegas when I was in my early twenties. I had read a couple of card-counting books for black-jack, and how to get the best odds at craps, and I had read an excellent book on money management when gambling (the most important skill for not letting a couple of bad runs at the tables ruin you).

Anyway, I went with a buddy and we each took $1000. (Edit: I should note this was the early 90s, when you could still find $1 and $2 blackjack and craps tables).

We spent 3 days there, ate and drank, and partied, and we couldn't lose. I mean the methods worked perfectly. We had a couple of bad tables, but we were disciplined and moved on, and won later that night at other casinos. We paid for our entire trip, AND came home with around $2000 each.

We seriously talked about becoming professional gamblers on the trip home.

So we went back to Vegas about 6 weeks later taking another $1000 and lost it all in two days. We both then took out another $1000 from the ATM machine, and proceeded to lose all that money too.. Cards and dice were stone cold.

The trip home was NOT much fun...

But we still weren't cured. We went back AGAIN 6 months later with $1500, determined to play smart and careful. We lost that entire $1500 as well.

That cured me from gambling. I've been to Vegas a few times since then, and I still enjoy playing blackjack or craps now and then, but I just play for fun, and with small amounts.

All in all, it was a cheap lesson (Although it was a lot of money at the time to me).

aristotelian
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Re: $600,000. Now what?

Postby aristotelian » Thu Jan 12, 2017 1:58 pm

MrKnight wrote:You've done great! Congratulations!

Personally, I'd advise to take your winnings and invest it into passive index funds, and perhaps leave a sum to continue playing with (maybe $100K?) and see what happens... no need to continue risking it all.

How much do you save monthly now. You said you started at $1K, surely it must be more now.


Exactly. If you are as good as you think, that 100K slush fund will turn into 600K again in no time. If you aren't as good as you think, you still have 500K left to invest with less risk.

Hukedonfonix4me
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Re: $600,000. Now what?

Postby Hukedonfonix4me » Thu Jan 12, 2017 2:22 pm

brownsfan2k5 wrote: I've returned around 16% over the last 5 years


Congratulations. While that's great, keep in mind Warren Buffet's annualized return has been somewhere around ~20% and that lead him to become one the richest people in the world. Think you will be able to sustain such a high return indefinitely? Good luck to you in your future endeavors but please, please give consideration to these other posters and take some risk off the table


P.S.- Thank you for your service :beer

Derby
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Re: $600,000. Now what?

Postby Derby » Thu Jan 12, 2017 2:41 pm

If you are interested in owning multi-family RE, I suggest you go over to www.biggerpockets.com and read everything you can, including their blogs, introductory materials, and the forums. You will find a wealth of eye-opening information.

I second everyone's advice to take about $500,000 off the table and put in in a lazy portfolio, and see if you can maintain your growth rate with the remaining $100,000.
Carpe Diem.

IHateCasinos
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Re: $600,000. Now what?

Postby IHateCasinos » Thu Jan 12, 2017 3:04 pm

HomerJ wrote:
brownsfan2k5 wrote:if we told everyone who ever tried to swing for the fences to calm down and just hit guaranteed singles, there would be no Hank Aaron's in this world.


You really need to think more about this analogy. If everyone swings for the fences, and only 1% are Hank Aarons, then 99% of people strike out. Which means they GO BROKE.

So I think it's very wise to tell people to calm down and just hit guaranteed singles.

When you make large bets on one or two stocks, you can make a lot of money very fast. You can also lose a lot of money very fast. There are thousands of PhDs out there who have spent years studying a lot more than just "income statements, balance sheets, ROI etc." and very few of them can consistently pick winning stocks.

Look, there are only three possibilities here.

(1) It's real easy to pick winners after learning some basic screening methods, and using due diligence, but no one else does it because we all hate money.
(2) It's hard to pick winners, but you got lucky.
(3) It's hard to pick winners, but you are a natural genius at this, better than 99% of the professional money managers out there.


It MAY be (3), but quite likely is (2).

You're in great shape. Top 0.1% of all 27-year olds I'd imagine. I would sell most of your speculative stock holdings, and put at least $300,000 into vanilla index funds. I like the idea of you diversifying into rental properties, especially as way to generate income... Sell some of that stock and use cash to buy properties.

Because it's possible that (3) above is the correct answer, I do think you should keep $100,000 in a brokerage account and continue to trade and see if you can duplicate your previous success.

But you have to promise yourself that if you lose it all, you can't dip back into your "guaranteed single" money to try for another home run. And you WILL want to. If you make a couple of bad bets, you WILL tell yourself that you were just unlucky. That's human nature. Anything that goes well, that's our skill. Anything that goes bad, that was just bad luck.


OP thanks for the extra detail, and thank you for your service.

Following this discussion, lets separate the forest from the trees. i believe that you face TWO SEPARATE questions. They are:

Question A) Should my market investing continue as-is ? Just chose between (2) or (3) Above. You will know in the next few years with hindsight.
Question B) Should I ALSO use some of my capital, get some finance somewhere and invest in Real property. Reasonings: "I believe: I can/like property/want something hands-on etc etc"

TWO SEPARATE Questions.

(An Expansion of (B)):
If/when your real estate portfolio grows large enough, THEN will be allowed to join the >1M real estate players. simultaneously exit the investing market mostly and put most of your money to work in property projects.
Property developers with real depth, [usually] only invest their money in their own projects/next project.They feel much safer with land and buildings they can visit, with their own 2 feet.
Sometimes they do bet the farm, and sometimes they protect themselves & use mostly the banks money.
[usually] any market investments they make is just emergency+nest Egg cash into very low risk stuff.




Kind regards,
Marc.
Last edited by IHateCasinos on Thu Jan 12, 2017 3:06 pm, edited 1 time in total.

boglephreak
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Re: $600,000. Now what?

Postby boglephreak » Thu Jan 12, 2017 3:05 pm

wow, NRZ dropped from 24 to 12 in a week (October 10-17, 2014).

IHateCasinos
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Re: $600,000. Now what?

Postby IHateCasinos » Thu Jan 12, 2017 3:12 pm

boglephreak wrote:wow, NRZ dropped from 24 to 12 in a week (October 10-17, 2014).

it was a 1:2 split.

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Sandtrap
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Re: $600,000. Now what?

Postby Sandtrap » Thu Jan 12, 2017 3:40 pm

Utilize everything you have to your advantage (you have many):
1
Nail down a long term income stream that will weather the storms to come. Vet points will get you into Gov't/state/fed job with retirement w/COLA and medical. That's a long term foundation to protect everything you've gained thusfar.
2
Set aside a percentage of your current assets to long/mid term solidity and gains in a sound portfolio strategy.
3
Utilize the remaining percentage to stay the course in investment finance that you've been so good at and have a passion for (swing for the fences).
4
Utilize your GI Bill to continue education, even if part time, to "level up".
5
Resist leveraging and speculation in R/E. Pay cash, go slow, one step at a time. Resist the R/E book/seminar concepts. At this point you have far more to lose (everything) than to gain by leveraging.

I've done okay over 3-4 decades as a building contractor and R/E investor/landlord/drain unplugger/tenant rent collector/abandoned rental unit cleaner upper.(100's of units) It is a very tough and demanding (24/7) career path with no pension, no COLA.

The Boglehead forum has many wise (not me) and profoundly experienced individuals with an unselfish desire to "help". Welcome.

boglephreak
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Re: $600,000. Now what?

Postby boglephreak » Thu Jan 12, 2017 4:06 pm

IHateCasinos wrote:
boglephreak wrote:wow, NRZ dropped from 24 to 12 in a week (October 10-17, 2014).

it was a 1:2 split.

ah, that changes things.

ilovedogs
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Re: $600,000. Now what?

Postby ilovedogs » Thu Jan 12, 2017 5:40 pm

Brownsfan,

When I got to the same level, real estate got my attention.

There is an excellent banker/mortgage person in Rochester, NY whose name I got at Bigger Pockets, a real estate forum. He looks at all income and he looks at leases. His name is Jerry Padilla. I had a good experience with him.

Good luck.

Ilovedogs

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HomerJ
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Re: $600,000. Now what?

Postby HomerJ » Fri Jan 13, 2017 1:24 am

Interesting thread got resurrected from 2014 recently...

https://www.bogleheads.org/forum/viewtopic.php?f=10&t=148446

Here's a comment from that thread that might be of interest to the OP...

GTAT investor here... I lost $160k - a huge chunk of my portfolio. The only saving grace for me is I'm still young and have a stable tech job. I can just earn it back if I'm careful.

I've been a stock picker with tech stocks in the past few years, even before I had a real job. I got high double digit gains every year, and then this got me back to ground zero. I even have a spreadsheet to track the stocks I've picked - and all of them are still showing double digit or even triple digit gains - except GTAT. I was one of those TSLA winners last year (only got double digit gains because I was diversified among a few stocks back then) - which greatly increased my risk appetite. And then this one single stock got me.

There's no excuse for this.. I could have explained it away with GTAT's dishonest quarterly filings, but crooked CEOs and emotions do happen and are outside of my control. I'm probably still going to do stock picking for a small part of my portfolio - tech industry is still something I'm familiar with. But 80% of my money will be index funds plus rebalancing.

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slow n steady
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Re: $600,000. Now what?

Postby slow n steady » Fri Jan 13, 2017 9:59 am

I am of a similar age but have about half the net worth that you do.

I was lucky an inherited a decent amount of money. I have always been into indexing so I've never had huge gains like you.

I think the question you need to ask yourself is do you want to have a chance at getting a pretty high net worth like around $50M?

If you do, then continue doing what you are doing and you have a shot at making it. You also would have a shot at losing most of your money but you are young and have time on your side.

Is your aspiration to hit $1-4M and retire or at least have choices? If this is what you are striving for, then I believe it makes sense to start playing it safe. You will be financially independent within 5-15 years if you go down the boglehead path.

If you swing for the fences, you could lose everything in a few years and delay your financial independence by over a decade. If you swing and hit the home run, it will only get you freedom 5 years earlier at the most.

Unless you desire hitting the $50M number, I can't understand why you would risk almost everything for just a few extra years of financial independence. The joy of "winning" early is easily outweighed by the pain of "losing".

Good luck with whatever you choose. Let us know where you think you are headed!

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Sandtrap
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Re: $600,000. Now what?

Postby Sandtrap » Fri Jan 13, 2017 11:50 am

slow n steady wrote: . . . . . . . .
Unless you desire hitting the $50M number, I can't understand why you would risk almost everything for just a few extra years of financial independence. The joy of "winning" early is easily outweighed by the pain of "losing".
Good luck with whatever you choose. Let us know where you think you are headed!

+1

MrKnight
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Re: $600,000. Now what?

Postby MrKnight » Fri Jan 13, 2017 3:41 pm

Not to steal the OP's thunder, but my Vanguard retirement account has generated 15.5% annualized returns over the past 5 years with a 100% equity allocation to Small Cap Value index + Total Market index, and a pure vanguard small cap value index fund has generated returns in excess of 16% annualized over the past 5 years. Is 0.5% boosted returns worth the risk (and fees if that is not included)?

brownsfan2k5
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Re: $600,000. Now what?

Postby brownsfan2k5 » Sun Jan 15, 2017 2:37 pm

All,

Thank you so much for all the advice! I really appreciate you taking the time to help me out, you all rock!

After logging into my brokerage (which i actually use Vanguard for), the numbers showed: 16% return from last 5 years and 28.5% return from the last year. This has mostly come from finding NRZ, and OCN. They have both nearly doubled (NRZ including dividend) over the last year. I still believe NRZ will return around 25-30% this year (including dividend).

Now, I am taking your advice! I am going to put $400,000 into the Vanguard 500 or total market index, which one is better?(already have $100,000 in Vanguard 500).

I only want to invest for my friends because 99% of the time, even if I told them about Vanguard's index funds, they won't take the time to do it! They either are lazy, or just want me to do it for them. So why not have a win/win?

Lastly, for all its worth, I encourage all of you to watch NRZ this year, they are a severely undervalued company and will actually profit from the interest rate hike (if you actually understand their business model).

Thanks again from the bottom of my heart,

Your friend,

Brownsfan2k5

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FreeAtLast
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Re: $600,000. Now what?

Postby FreeAtLast » Sun Jan 15, 2017 3:41 pm

brownsfan2k5 wrote:All,

Now, I am taking your advice! I am going to put $400,000 into the Vanguard 500 or total market index, which one is better?(already have $100,000 in Vanguard 500).



Hurrah! Good for you and your future!
Most Bogleheads would probably recommend TMI.....but, as to results, it has tracked almost identically with Index 500 (of course, can't guarantee that will continue)......Also, many would tell you to get 10-20% of your total portfolio invested in a bond index fund, like Total Bond Market, or into long-term, vanilla CDs.

Free
Illegitimi non carborundum.

mudphudstud
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Re: $600,000. Now what?

Postby mudphudstud » Sun Jan 15, 2017 9:34 pm

Hitting home runs in the big leagues is hard.

Hitting singles in the big leagues is also hard.

I'd rather own the concession stand. Not flashy, not sexy, but pretty soon I'll own the gift shop too...


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