Investment

[knome]

I think the most reasonable way to do this without either risking too much or too little is to get into an income property for a few years while saving money and working hard, as well as fitting out. Tailor your situation such that your investment meets the -subsistance- needs of your cruising budget (this so you never have to make decisions for only $$) and stop from time to time to make money for the luxury and tour bus kitty. Get a reliable Real Estate management firm to handle th eproperty for you in absencia.

Most cruisers are spending about 12-15k per year on liquid expenses.

That translates to about $1500 per month in income (remember taxes?) . If you can subsist on less, which Pete and Annie hill did for years (they lived on $50 per week for awhile) then shave off that number until you figure out what your comfortable subsistence level is. That will tell you what your investment goal is.

If you went REALLY safe, like Bonds or just CDs etc, you are talking a 5% return , and 12,000 is 5% of 240,000.. you can see how real estate looks better?

Anyway, my double penny

--T

[Skylark]

The big problem is that you want income that does not require you to "be there" or "take care of business". I think residential rental has a very high hassle factor and a maintenance company is going to be very expensive.

I would like to know about some less maintenance intensive ways to get a regular income. For example, a friend of mine built a billboard and rents that out with a long term lease. Its not enough to live on but it is pretty low maintenance. Commercial real estate with long term leases is lower maintenance unless you have a tenant that goes out of business or has a fire or something. But it is a little risky as well, if your area no longer is desirable for tenants you lose big time.

Obviously stocks and bonds are the ultimate in low maintenance, although you have to watch the stocks.

Anyone know of other ways to build up an income from a low maintenance investment? It doesn't have to be a big income, just have a low hassle factor.

[Troubledour]

I've been considering this issue myself lately & can share my thinking.

First, I rented my current home more than 3 years ago from a couple that own more than forty income producing properties. These holdings represent a wide range of the rental market, houses full of sleeping rooms, apartment buildings, single family houses (like mine) and some commercial property as well.

When I first leased my house we both put some effort into getting to know each other, for the first few months delivering a rent check turned into dinner on the back deck or just a visit of an hour or so. While we no longer make it a point to visit like that, we still take the time for it whenever we happen to bump into each other.

During these visits they've talked quite a bit about their business, it wasn't at all difficult to draw them out on this. They have wild stories about tenants and while they're good about masking the identities of the insane, they do love to tell these stories.

Something that I picked up on early is that their best stories were about sleeping room occupants & apartment dwellers, or the high turnover portion of their business. I asked about this specifically & they very frankly shared what they've learned in a couple of decades of property management.

The sleeping rooms, of course, are wild. People that live at that level ... well, they live at that level. They are far and above more trouble than any other class of tenant ... however, they're cash flow heaven. A house that would otherwise rent at little more than a grand a month in this market, when broken up into rooms, will yield at least three times that income, literally thousands per month.

The next general class is apartment dwellers ... more stable but perhaps still more entertainment than an absentee landlord needs. With careful screening & tight management apartments also make money but they do require active management.

The above two options pretty much require close attention & that might take them out of consideration for an absentee owner ... but it might not. With a property manager on-point locally to manage turnovers it could work. You just have to run the numbers on any given property and make that decision on a building by building basis.

The next class is what my landlord considers a sub-class ... duplex dwellers. He insists that they're apartment dwellers at heart & move around a lot but his wife will point out that, like single family housing dwellers, they're little if any trouble. She adds that the income from a duplex is invariably more positive than it is with single family dwellings & that this enhanced profit far outweighs the (apparently debatable) extra attention required.

And that brings us to single family housing. According to my landlords they typically rent a house & rarely talk to the renter again. They both agree that this segment of their business can be the most challenging financially (tight cash flow) but that it's very stable & predictable. Tenants in this class tend to stay long term, take better care of the property & have their acts together when they do move on.

Then of course there's commercial, which I know little about & haven't really discussed with my landlords. Commercial is something that they've just recently started getting into & what little I do know about it leads me to believe that they did it right, that is ... they waited until they had considerable resources behind them before taking a chance in such a volatile market.

The house next door to me recently went vacant & my landlords spent a couple of weeks here working on it before immediately renting it again. This was after nine years with the same tenant & they had the money coming in again in a mere twenty days.

While they were here we had a couple of good visits like we used to have pretty much monthly. I had them over for a burger burn one evening & made them sit down & rest a couple of other afternoons when it was just too hot to do otherwise. During these visits we started talking about the possibility of my buying out their holdings in my area (they also own property in Florida).

I am very seriously considering this option. On their next trip up from Florida we're going to sit down & talk hard numbers on a contract purchase with a three to five year balloon. This was their own offer & it would allow me ample time to establish a track record of cash flow for the bank's mortgage officers. It would also give me time to simply sell off the units house by house, if I change my mind in the meantime, without ever paying points, loan origination fees, etc.

Based on what I know about real estate myself, & adding what they told me when I was just the latest tenant to cough up cash (& not the guy that's never failed to pay all the rent, on time every time for 40 months in a row) ... I believe that this is something that I can do without tying myself down. In fact, seeing as how my own income has been pretty restricted in recent years, I think this would free me up considerably, even allow me to find that distressed old cruiser that I've wanted since I was a boy reading Huck Finn, & then make good use of her.

Long post, & my first one, but I thought this subject might be worth a few minutes. Bottom line, I wouldn't reject real estate out of hand as being "too much trouble". Like anything else, it would take some work, foresight & perhaps a bit of courage but it could well be a strong option for those that have better things to do than show up at a job & try to behave themselves 9 - 5, 50 weeks per year.

Comments Welcome. Troubledour

[Quinta]

Whilst I do not blame anyone from taking a predatory bite of the pie when it's waved about under our noses so to speak. However, To my mind, the whole deal here is your freedom at the expense of someone else's. I'm talking about exploitation of artificially high rent levels in much of 'first' world. Firstly you can't afford to rent because the property prices have been driven up by people buying up space to rent. Then, through rents that exceed mortgage repayments, you're kept under, unable to gain the financial buoyancy to float free. It's the same with any system of fundamentally making money from money, it doesn't create anything, it just exploites basic necessities.

Sorry, I guess I was dissapointed looking for some creative possibilities out there...

[GordMay]

The creation of wealth is dependant upon three essential resources, none of which can be absent:
Labour
Natural Resources
Capital

and

There is no absolute freedom - as you said ("...your freedom at the expense of someone else's ...). You cannot own, what I own. My specific freedom of ownership denies yours. Unbridled freedom is mere anarchy., and democracy is the "dictatorship of the majority". So what?

I think that any discussion of the moral, ethical, philosophical, or even practical implications of modern capitalsim won't lead to any useful conclusions on how a cruiser can earn investment income.

Income from investment implies profit. While you & I may agree that profit is a somewhat 'dirty' word, I would suggest that it's a 'neccessary evil'.

[Troubledour: You've got to be a commie, pinko, pervert like me, to 'get' the connection twixt profit & evil .]

Respectfully,
Gord

[Troubledour]

I’m sorry, I’m missing the inherent connection between evil & profit. Many people manage to create a connection between the two & exploit it to their advantage but does that make it an inevitable feature of profit ?

As a toolmaker & designer I’ve always expected to profit from the time that I invest in those activities … as a plastics injection molding specialist I believe I have reason to question whether or not I’ve ever been paid for real “value”, but I did indeed get paid & paid well.

Real estate & the “exploitation” thereof is cited as an example above. I’ve owned & sold a number of homes, once took a gaggle of rental trailers in trade for a home I sold & am currently negotiating a substantial purchase of multiple & varied rental units. I’ll submit that it’s not the landlord that creates the market for rentals, but the tenant. I’ve also rented & currently rent. I certainly don’t fault any landlord for the personal financial circumstances that led to my decision to rent at any given time.

I think we can all see that there is a significant portion of any population that simply will not meet the standards of property ownership. We could even agree that there are many reasons for this, some of which do us as a people no credit, but primarily for the simple fact that many don’t want to own their homes.

Many, many people don’t want to live at a lesser percentage of their own means & save money (down money). They don’t want to develop & maintain the level of responsibility required to budget money at a home ownership level. Many don’t want to be credit worthy (if they did they wouldn’t borrow what they can’t pay back). Many don’t want to have to deal with maintenance issues & related expenses. Many don’t want the risk of carrying unsold property … many, many people simply do not want to own their homes.

Without renting, where are they to live ? Should those of us that do strive for & meet the financial requirements of property ownership give them their housing ? Of course not.

If not for investors buying property to meet the demand of the rental market, how many homes would sit unsold because no qualified buyer can or will step up to make the purchase ? Not all rentals are hovels, I’ve personally sold a couple of very nice, large & expensive homes to investors that immediately rented them. One was a lake house that rented over night at a monthly rate of twice my presale payment, or enough to continue making the payment along with a healthy hunk of the payment on the next house. Make no mistake about it, this gave me much to think about in future dealings with real estate.

Like just about any other human endeavor, I think the relative or social value of property ownership lies in the details of management. Is the property properly maintained ? Are tenants treated fairly & respectfully ? I can assure you that in this market, if they’re not, the landlords in question will not survive as landlords … the market is tenant driven & there really is no such thing as "artificially" high rent.

Here’s the bottom line for me, it wasn’t decades of toolmaking that put me in a financial position above & beyond month to month subsistence, it was investing as much of the yield as I possibly could. It wasn’t a paycheck that put me ahead of the curve, it was capital gains & compound interest … return on investment. I intend to intensify that activity & do it to my advantage.

My tenants have not been & will not be coddled or supported at my expense but they have been & will be treated fairly, their homes have been & will be maintained for their benefit & my own. Further, any tenant that wants to take a crack at buying their home can cough up the cash (borrowed or otherwise) or accept favorable contract terms consistent with the many realities of property ownership. Should it be any other way ? I think not.

Have I profited from my efforts ? Yes, I have & I will continue to profit. If that’s exploitative or evil, so be it. I personally believe it to be a far more positive contribution than 25 yrs of building the tools that spew out apparently endless streams of plastic stuff.

Troubledour

[GordMay]

Obviously, not my field of expertise, so I have to ask:

What do you call those properties that are owned by individuals, operated & maintained by professional management organizations, and rented to tennants - often vacation types? Time-share condominiums?

Whatever - this type of income property seems to offer the income benefits of a rental property, absent some of the landlord's obligations (maintenance etc) of normal rental ownership.

Am I wrong in assuming that higher income producing investments must (generally) also be higher maintenance - that is requiring more active participation (of some sort) from the investor? High(er) income and less effort seem (to me) to be mutually exclusive.

Regards,
Gord

[Troubledour]

Generally speaking, more owner involvement can reduce expenses (provided you're not Tim Taylor). The landlords that do most of their own chores, books, taxes, cleaning, repairs & improvements, showing properties, lay-level legal action (small claims court), etc are no different than those that maintain their own boats, they keep those dollars that might go to another.

Managed properties could be anything, & I'm not clearly following your above question. I would think, generally speaking, that apartment complexes, time shares, corporate type rentals (residential units for corporate travelers & transfers) ... that kind of thing that's typically managed by fulltime "professionals", might be good for often absentee owners.

The other side of that is that such investments are typically big buck investments with high expenses, minimal yield & high exposure to risk. Further, management problems could blow your cruise right out of the water, forcing a return to home plate to get "the house" back in order.

My own plan is to buy the units being offered, a mix of single family housing, apartments & sleeping rooms. I will find out for myself which properties make trouble, which make money & which I want to hold on to long term. Those that don't make the cut of predictability will be disposed of, hopefully for decent profit.

I have little doubt that the sleeping rooms will ultimately go, they're simply too much trouble for an absentee landlord. They are also simply too profitable to cut out while I'm still here to deal with them. There are a couple of small apartment buildings that may or may not go, and a number of houses but those decisions will be made after I've had a chance to apply aggressive management.

My own opinion, but I believe that success here, much like elsewhere, has a lot to do with working whatever market you choose well. Do it right. When a furnace needs to be replaced, don't skimp, get it right. When a unit comes vacant don't panic & place the first chump that comes by with cash, screen the applicants & find the right tenant. When a tenant does go bad, get him out of there & try again (an eviction in this jurisdiction can be accomplished in a matter of days, literally).

Basically, I plan to use up some time on tailoring that collection of properties to more or less run themselves with lightweight local management. I have a friend that's in a good position to collect rents, do the books & answer the phone. What's more, I trust her implicitly & she'll do that much for an agreeable reduction on her own rent.

I've been around here long enough to know who the good HVAC guys are, which plumber to call (& more importantly, who not to call) & who can actually lay a good roof. My attorney is a lifelong friend with a good paralegal staff that handles a surprising range of work for reasonable money. These are all things that I can handle myself, but I can also phase in all of these options & test & tune them while I'm still here.

Because my ultimate goal is to cut myself free, I wouldn't even consider this if I didn't believe that it would do just that. If it turns out that I'm wrong, it won't be the first time that I listed property & made money doing that. Bottom line, it may or may not go as well as I hope, but I don't think I'll get hurt either. Worst case, I drop back (again) & punt (again).

Troubledour

[irwinsailor]

I made my money in real estate. We are now trying to figure out what do do with the property while cruising. I'll let you all know what we do.

[Troubledour]

Development ? Commercial ? Residential ? Sounds like you might have interesting things to say about this.

Still struggling here for a mutually agreeable value on the property that I'm trying to buy. They're looking at a lump transfer & are trying to base value exclusively on cash flow, I'm looking at the actual value (and potential costs) of each unit. Several are going to require serious expenditures in the next few years.

I did manage to slice off the commercial, they weren't thrilled about that but I know for a fact that two of the tenant businesses are in trouble & probably won't last out their leases. For me it was a deal killer, separate out the commercial or move on.

Troubledour

[Quinta]

Gordmay
Maybe freedom was a bad choice of word-unqualifyable like evil -something is more or less evil in the dichotomised mind, nothing is inherently anything (I'm confusing myself already). I guess what I'm talking about is peace of mind.
'Mere' and 'Anarchy' together I don't know, Kropotkin will be turning in his grave, gawd bless 'im. As for democracy, doesn't that rely on voter's being fully cognisant of what they're voting for, let alone a healthy majority even partaking (you call that a mandate!).

Troubledour
Now toolmaking is something I can dig, but maybe not endless spew of plastic stuff (especially when it's floating around my waterline). Housing is one of GM's natural resources (it's primary necessity is land). The day's of staking your claim are gone forever. The worlds natural resources are owned by the minority. The people I'm talking about don't rent out of choice because it suits them in the way you describe. My first and second hand experience, is of landlords in this lower market bracket exploiting the low expectations of the majority of these types of tenant. Far from providing a social service with good management they positively expect to have to do nothing for the profit they enjoy. It never ceases to amaze me just how little people seem to be able to exercise or realise choices in order to force these market forces you describe to execute change.

Anyway, I can't see a simple game like housing as much of a challenge for you guy's. For me profit or no, it's got to be more fun than that to be 'evil'.

[Quinta]

Oh yeah, GM, by the way, on the subject of as to whether my particular choice of input, um, tonality, shall we say, into this open forum thread would/will yield any 'useful conclusions': If I'm enjoying it, it sure is useful to me old chap. Not to mention the learning oppurtunities and general mental stimulation on offer for free here and in other threads (can you tell I'm hurting from this blow to my confidence to speak out). As for ownership, well I guess I'm with Robin Hood and other petulant mavericks in just not accepting can't. And I'm with KM's cute and irrefutable, pithy maxim; 'all property is theft'. How would you feel if the sultan of Brunei bought all the sea and stated charging us to be on it, well obviously just the bits he'd let us... ok somebody stop me it's happening again, I'm turning into a lizard...

[GordMay]

Here's another view on investing:

If you had bought $1,000 of Nortel stock one year ago, it would now be worth $49.00.
With Enron, you would have $16.50 of the original $1,000.
With WorldCom, you would have less than $5.00 left.
If you had bought $1,000 worth of Budweiser (the beer, not the stock) one year ago, drank all the beer, then turned in the cans for the 10 cent deposit, you would have $214.00.

Based on the above, my current investment advice is to drink heavily and recycle. This is a new retirement program, it's called the 401 Keg .
Gord

[delmarrey]

Good one Gord,
Mathematicly this makes more cents* then any one of the other posts I've seen. Just hope it doesn't cause a weight gain. I say, if you can't take it with you, you don't really own it!
.................................................. ......_/)

[Troubledour]

I like a good joke as much as the next guy but I think we're neglecting the costs involved in replacement livers.

FYI, I closed my deal on Weds & am currently negotiating the sale of units that I can do without. The objective is to shed myself of units that I don't want & recover some cash while maintaining the income necessary to service the new debt.

I'll do quite a bit of the work myself, initially, but will soon start gravitating toward allowing others to cover the day to day stuff. I want to get that down while I'm still in the area & available to tune it up as required.

What I'm doing might not work for others but for me it's a slam dunk no-brainer & too good to even consider passing up. It will of course require time, attention & quite a bit of work but the ultimate cash flow & asset growth is & will indeed be positive. Better yet, it won't require me to basically live in the head or just give it up & install a catheter with a drain bag.

Troubledour