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Investing in real assets only

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  • legobikes legobikes 
    Participant
    Status: Physician
    Posts: 287
    Joined: 05/25/2017

    No one is going to mention gold?

    #244263 Reply
    White.Beard.Doc White.Beard.Doc 
    Participant
    Status: Physician
    Posts: 936
    Joined: 02/06/2016

    We did all three, invest in paper assets, invest in real estate, and pay down debt.  And all of those things worked out well.

    Our highest returns were on real estate.  But those investments required extra work.  Higher risk, higher reward, more work.

    The paper assets also did well, but not as well as the real estate.  However, there is almost no work involved in investments in paper asssets. Easy peasy.

    Paying down debt also contributed to a growing net worth, but this gave us the lowest yield financially over the years.  However, the psychological yield on zero debt is very high.  So for the peace of mind, also highly recommended.  Lower risk, lower reward (financially speaking), but so worth it.

    If you want to develop extreme wealth, real estate can lead you down that path. But you can lose it all if you don’t know what you are doing.  Like most aspects of investing, the risks tend to balance out with the rewards.

    Click to expand…

    How aggressively did you pay down RE mortgages? Where did it rank above your regular mortgage vs paper assets vs saving for college?

    Click to expand…

    In our younger years, we focused on maxing out all of the tax deferred accounts, which we have also done every year since.  After that, we put 20% down on real estate investments in a market where I had good knowledge and could be fairly certain of quality tenants and positive cash flow.  In fact, our first real estate investment was made two years before we bought our first personal residence.  We did not do prepayment of either personal or investment property mortgages in the earlier days.

    As the excess income and cash started to build up, we started to pay down the mortgage on our home with extra payments and ended up paying off the 30 year mortgage in 15 years or so.  Mid-career we added more investment real estate, again leveraged, because we had experienced the positive returns and positive experience of our earlier investments.

    We did not do specific college savings, but rather timed payoff of investment property mortgages with college for the kids.  With the cash flowing rental income and no mortgage, we planned to cash flow the college expenses and that plan ended up working out well.

    Later career with rising rental income and plenty of extra cash, we did all three.  We continued to max the tax deferred space, bought more real estate, started building up significant taxable accounts, and also accelerated paying off real estate debts both personal and investment.  The total cash on cash yield on the investment real estate goes down when the properties are not leveraged, but the positive cash flows build nicely, adding passive income and increasing financial independence.

    Now in a debt free state, financially independent but still enjoying work (in between the many great trips we take every year), all we fund at this point is tax deferred and taxable.  Although my yields could potentially be better on investment real estate, a primary goal at this point is promoting simplicity.  We already have more than enough.

    #244330 Reply
    Liked by Infinity
    Avatar burritos 
    Participant
    Status: Physician
    Posts: 493
    Joined: 04/23/2018

    We did all three, invest in paper assets, invest in real estate, and pay down debt.  And all of those things worked out well.

    Our highest returns were on real estate.  But those investments required extra work.  Higher risk, higher reward, more work.

    The paper assets also did well, but not as well as the real estate.  However, there is almost no work involved in investments in paper asssets. Easy peasy.

    Paying down debt also contributed to a growing net worth, but this gave us the lowest yield financially over the years.  However, the psychological yield on zero debt is very high.  So for the peace of mind, also highly recommended.  Lower risk, lower reward (financially speaking), but so worth it.

    If you want to develop extreme wealth, real estate can lead you down that path. But you can lose it all if you don’t know what you are doing.  Like most aspects of investing, the risks tend to balance out with the rewards.

    Click to expand…

    How aggressively did you pay down RE mortgages? Where did it rank above your regular mortgage vs paper assets vs saving for college?

    Click to expand…

    In our younger years, we focused on maxing out all of the tax deferred accounts, which we have also done every year since.  After that, we put 20% down on real estate investments in a market where I had good knowledge and could be fairly certain of quality tenants and positive cash flow.  In fact, our first real estate investment was made two years before we bought our first personal residence.  We did not do prepayment of either personal or investment property mortgages in the earlier days.

    As the excess income and cash started to build up, we started to pay down the mortgage on our home with extra payments and ended up paying off the 30 year mortgage in 15 years or so.  Mid-career we added more investment real estate, again leveraged, because we had experienced the positive returns and positive experience of our earlier investments.

    We did not do specific college savings, but rather timed payoff of investment property mortgages with college for the kids.  With the cash flowing rental income and no mortgage, we planned to cash flow the college expenses and that plan ended up working out well.

    Later career with rising rental income and plenty of extra cash, we did all three.  We continued to max the tax deferred space, bought more real estate, started building up significant taxable accounts, and also accelerated paying off real estate debts both personal and investment.  The total cash on cash yield on the investment real estate goes down when the properties are not leveraged, but the positive cash flows build nicely, adding passive income and increasing financial independence.

    Now in a debt free state, financially independent but still enjoying work (in between the many great trips we take every year), all we fund at this point is tax deferred and taxable.  Although my yields could potentially be better on investment real estate, a primary goal at this point is promoting simplicity.  We already have more than enough.

    Click to expand…

    Thank you very much for your answer. Did you do SFHs or multi or both? We have 4 SFH rentals, one paid off. Depending on how hard I want to got, 1-2 years from paying off second. I had intended to use paid off rentals as cashflow for education(like you did), but then FOMO crept in when we heard that other people were superfunding their 529 with the benefit of having tax free returns. So we veered that way for the last 5 years. Could have paid off another rental with those funds, but oh well, back on track with paying off our rentals. Nonetheless, I’m back and forth between maxing our equities and paying off rental mortgage. I know first world problems, but it does waste a lot of my gray matter bandwidth.

    #244340 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8113
    Joined: 01/09/2016

    For most physicians, there is no one “right” answer when it comes to investing excess liquidity in real estate, versus paying down debt, versus putting $ in taxable accounts and so on. You can generally afford to forego higher returns in one category if you prefer another (simplicity v absolute returns, for example). Those are decisions based more on emotion than math, perhaps, but when you are on track to die with multi-millions for heirs and charity, you have that luxury. Couldn’t agree more with this comment by WCI.

    The part that can trip HIPs, though, is letting emotion affect decisions that can have significant impacts on their NW (risk) – liquidating at the bottom of the market, betting millions they can’t afford to lose on a new idea for a medical device, significant lack of diversification (i.e. everything in real estate without enough liquidity when you really need it, investing in single stocks), etc. The risk is highest at the beginning of careers, of course.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #244423 Reply

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