Abe wrote:Thanks RenoJay for your post. You and a couple of others on this site show some interest in private money lending, but for the most part everyone else is negative about it. I have been doing it for many years and have been successful with it getting returns much higher than traditional investments. I thought that there would be more interest in it here, but I was wrong. What bothers me is a lot of people here just automatically assume it's too risky or it's too illiquid or you can't do it here or whatever. I'm not saying it's for everyone or that one should just jump into it without some knowledge. I've said this before and I'll say it again, you need to know what you are doing it you are going to do this. It is not passive, it is hands on investing You can't just turn your money over to someone else and expect them to look out for your best interest. It takes time, knowledge and some work, but it is lucrative. As far as risk, all investments have some risk. A lot of the risk in private money lending can be mitigated if you are knowledgeable. I agree with Boglehead type investing, especially since I have gotten older, but it not the only road to Dublin, as Taylor would say. All I'm saying to others on this board is keep an open mind; don't automatically assume something won't work until you at least look at it. Back when I first started doing private money lending I was skeptical. I am basically conservative, but after I did a few and got some experience I was glad I did. I think a lot of people miss out on a lot of good investments because they have a preconceived idea that it is bad. I may post this on a couple of other threads that I have posted on regarding private money lending.
I agree with you completely. I have also done private lending and I actually find it the second best investment that I have besides holding income producing real estate. I have purchased notes and real estate in my self-directed IRA's. I favor new single family homes that I can buy at wholesale that will require very little maintenance. I have been doing this for a few years but I read my first article about this a few weeks go in the wall street journal.
I have heard all the excuses about real estate. I have never fixed a toilet or had any dealings with tenants. They do not even know who they are renting from. A good property manager and renting to working class professionals goes a long way to protecting the investment. I am like you, I believe in the boglehead philosophy but only for my assets that are shorter term. I wrote this in another post recently: 1. Income producing real estate and trust deeds are for long term investment-----Stocks and bonds are for liquidity!!
2. Don't confuse "Income" with "Cash Flow". They are not the same.
Cash flow is created when you sell stock to pay your bills. A well diversified stock portfolio after management fees and expenses provides very little dividend income. Stock investors need to rely on growth to maintain the stock portfolio. If growth does not materialize due to low returns, sequence of returns, and inflation, they are forced to sell off more and more of their principal. Rental income provides a predictable monthly income and does not force you to liquidate your principle to create "cash flow" to pay your bills.
My personal portfolio consists of 75% real estate and trust deeds, and 25% in a 50% stock(index) and 50% short term interest income(401K option) portfolio. The 75% portion has returns that range from 8-14% paid monthly. The overall average of the 75% portion returns a steady 11-12%. The trust deeds are at 12%. The returns are very steady but do vary because when I add additional properties they may be leverage and have a non recourse loan from 25%-70%. In addition, my rents for the very same houses vary by $100 due to length of lease and demand at time of rental. No big deal. What is amazingly powerful about this type of portfolio is the sequence of return is very steady which is very powerful when compounding.
It is actually funny that on this website taking a portfolio at retirement and giving( I say giving because the insurance company wins big time) 1/2 or more to an insurance company as an annuity paying out 4-6% is highly acceptable with no return of principle for passing along to family. On the other hand, owning trust deeds and real estate is not highly acceptable and frowned upon. In the small town I live in the wealthiest individuals I know have made their money in small businesses and real estate. They are also the ones who love private lending and trust deeds because they understand it and they really do not want to deal with the banks. Rental property for me is a long term annuity that pays a highly predictable return and passes to my family. I enjoy yours and RenoJay's comments and philosophy. Count me as a big fan of private lending, trust deeds, self directed IRA's, and income producing real estate using a good property manager.http://online.wsj.com/news/articles/SB1
New Homes Get Built With Renters in Mind
Investors Snap Up Finished Single-Family Homes, Develop Vacant Lots, for a Hot Market
Nov. 3, 2013 8:01 p.m. ET
More single-family homes across the nation are being built for renters, a shift that mirrors a steady decline in homeownership in the years since the housing bust.
Until recently, real-estate investors had focused primarily on scooping up tens of thousands of foreclosed homes, at a sharp discount, and converting them into rental properties. Now that the pool of these properties has declined and prices have risen, these investors are...