Dividend Investing Week 5

Another stable week in the markets.  The weekly dividend estimate remains at $6.31. I am still determined to put emphasis on REIR step 2 of my strategy, so I will have additional funding for the dividend investing.

I made a solid contribution toward my student loan this week, reducing the balance by 4.31%.  Normally a monthly payment reduces the principle by .76%.  So this was a huge gain for both me and the dividend portfolio.  Since this is the last big debt holding me back from contributing to the portfolio, its only a matter of time before things get going.

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets. 

Banks Becoming Landlords, What Should We Do Now?

As I go to shut my laptop down, I notice an article pop up on my screen titled "Bank of America Starts Foreclosure Rental Program".  This states that homeowners at risk of losing their homes to foreclosure will have the titles handed back over to the bank, at that point they become tenants of their current residence....Although very little info is being provided here, I foresee a huge impact this program will have on the average American's future.
With 'bad loans' being written off, and toxic assets will be converted into money making machines, Bank of America will have success here.  This pilot program will start small, but I think it will be expanded exponentially.

This graph was pulled straight from the federal reserve's site, highlighting the correlation between monetary rates and housing prices.....


With interest rates at their all-time lows, there is only one way they can go; UP.  This being said, the rise of interest rates translates to:
1)Loans being even harder to get (since its near impossible to get one now)
2)Loans costing borrowers more (having even a 4% mortgage rate is still a drag, imagine have rates near 20% like in the past....)
3)Housing prices plummeting so current home-owners will either be upside down on their loans or will never be able to afford to purchase property, driving down demand.

I sense Bank of America will set the standard for the 8000+ banks in the US in becoming new owners of rental businesses.  All of the factors above will come together, to make it an easy decision for homeowners to just 'walk away' from their loans and become tenants.  Next thing you know purchasable homes are nowhere to be found, rent artificially being increased across the country, and everyone is miserable.

Maybe I am taking this article the wrong way or just over-thinking the possibilities.  But if the situation above happens, what should we do next?

1)Sell our homes now, pocket the equity, rent for a bit, then throw down cash when the prices of homes plummet?
2) Buy a house now while rates are low, and accept the fact that your future purchase will decrease in value?
3)Invest in Bank of America 'BAC' (or other banks)?
4)Pray the pilot program fails?

I would like to know what my readers think, please email me or comment, thanks.

Dividend Investing Week 4

The average weekly dividend has crossed the 6$ mark.  This increase is attributed to the extra shares in WMT.  Until actual dividends are distributed I believe this portfolio will linger in the 6 dollar range for some time.  For now, I plan on putting an emphasis toward step 2 of my REIR strategy.  That is, eliminating debt.

I believe reducing  debt will eliminate a lot of risk with my personal finance situation.  And at the same time, give me the chance to invest huge amounts of money that otherwise would keep flowing to the banks.

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Cash Vs. Mortgage, and a Scenario

Its easy to debate whether to mortgage rental properties or get them with cash.  With record low interest rates and ever-increasing difficulty of accumulating cash, mortgaging seems to be the only option for most of us.  Using figures from one of my properties. I will demonstrate the differences between the two sides.  I will also throw in a quick scenario to highlight the risk levels associated too.

To make things easier, I will scale up the mortgage on the property to $1000.

With a paid property, assuming this property remains rented all 12 months of the year, you would be taxed on $11504 income generated.  At a 30% rate you would pay the government $3451 and pocket the remaining $8053.

With a mortgaged property, assuming its rented all 12 months of the year, you would be taxed on 4800 in income.  At a 30% rate you would pay the government  $1440 and keep the remaining $3360.

With my experience I can tell you two things: 1)Your rental investments will rarely be filled every month of the year, and 2)Things go wrong.  Yes you do pay less in taxes at the end of the year, but I would much rather give the government 30 cents than to just hand over the banks a dollar....   Plus if you are worried about making too much money on the property re-invest in the house through major improvements.  You could do this with good cash-flow, but you wouldn't make enough if you were barely breaking even.


Lets apply this way of thinking to a possible real-life scenario:
Your property is rented the majority of the year, but is vacant during the months of July, August and September due to lack of tenants in the market and your flooring needs replaced...  The floor job requires $3,000 to tile your property.

Looking at the data above you will now see the danger due to lack of free cash flow from the investment property.  Writing off the 2400 dollar loss on your taxes is always a plus, but paying $1291 in taxes and pocketing $3013 is better any day.  There are numerous tax advantages to acquiring losses with rental investments, that you cannot claim with other investment vehicles.  But the piece of mind and profits you get from having 'paid-for' real-estate outweigh the "tax advantages."

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

OPM and Real Estate Purchases

OPM (other people's money) is a tool to gain serious leverage in real estate investing, often used by Robert Kiyosaki, author of Rich Dad Poor Dad.  The basic principle here is to buy a property with the least amount your personal money, then cash-flow that property via rental agreements.  This has huge advantages and at the same time, can be very dangerous.

When I purchased my Victorian property, I had a very small income and almost nothing in savings.  I managed to dive into this contract for less than $1,000 down and start generating $2,400 cash each year from that initial investment.   With the revisions of modern lending polices in place, it would be impossible to jump into the market like I did.

It was fun reaping the rewards of the big yield when I became a landlord, but one factor kept my profits low and my risk high.... this was the huge DEBT that the deal put on my lap.  If the property becomes vacant I get stuck with a huge bill, thanks to the mortgage.  I find that buying real estate with cash is most sensible option for me now.  Being in my situation back then, OPM was my only choice.

I feel like the main reason I didn't fail was because the houses I purchased were cheap, and never lost value during the declining housing market.  Imagine the others who tried what I did, who were stuck with huge house payments, taxes and declining house values...  From now on if I don't have the cash for it, I wont buy it.  With leverage out of the picture, risks decrease and rewards increase.  This is always a good thing for investors!

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Rental Property - Ranch House 1

Description:  3 bed, 1 bath, roughly 1600 square feet, 1 acre.

Major work completed:
100% floor tiled.
Interior repainted.


Financial Information:
Estimated monthly cash-flow: $74.74
Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

To protect the tenants and their identities, this is only a visual representation of the rental property, not the actual home itself.

Rental Property - Victorian house 1

This property was purchased before the beginning of this blog.  It is a beautiful Victorian home located downtown.

Description:  2 bed, 1 bath, roughly 1650 square feet, 0.6 acres.

Major work completed:
25% floor tiled.
Driveway repaired.
Exterior repainted.
Rear ramp repaired.
Hot water pipes replaced.

Financial Information:
Estimated monthly cash-flow: $251.43
Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

To protect the tenants and their identities, this is only a visual representation of the rental property, not the actual home itself.

Dividend Investing Week 3

The dividend investing portfolio has not changed much this week.  Both the average weekly dividend and the value of the portfolio have remained maintained their levels since the last update.

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Dividend Investing Week 2

A couple quick trades made and the dividend portfolio begins to evolve.

Instead of using Open Office, data was fed to Microsoft Excel.  This resulted higher quality graphs.

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.