Investment Options

[PricklyPete]

b]Update in post #37... condo purchased[/b]

So we are going to sell our "accidental" investment property as it is not worth the hassle of managing a rental property across the country. The sale should net us a decent sum and I am starting to mull what we want to do with it. Couple of points to give context:

- We have no debt other than mortgage and have a healthy rainy day fund
- We are on track with our retirement investments (401K/IRA/etc.)
- I am gainfully employed and am not worried about my job (can land another job with relative ease due to skillset)
- My wife is pregnant with twins (first kids) and will stop working. We will adjust lifestyle accordingly (she never made much to begin with)


Ok, given that, our current thoughts are:

1) Plow the money right into another longterm rental opportunity nearby (or possibly several smaller opportunities). Being a landlord on longterm leases is not my favorite "hobby", but I can manage. This is likely the best return on investment over the long haul, but the least fun/most work.

2) Start looking for a vacation condo up in the mountains. We woudl use it as a vacation rental to cover costs at a minimum (hopefully be net positive). This is certainly doable (I have friends who do so) and is probably the most fun option as we will get usage of the condo when not being rented out. It is some work, but a little easier to stomach knowing the benefit you get out of the purchase (plus my wife can be responsibe since she will now not be working a regular job). I will certainly take my time purchasing to ensure it has income potential. One negative that I can think of is that in bad economic times, there is a reasonable chance I will have to carry the rental if people are vacationing less. I realize this is probably the worst investment finacially speaking, but I am looking at it more as a "life investment".

3) Increase retirment investments outside of current investments. This is nice, but by far the most boring and I am currently not worried about our retirment position.

4) With twins on the way, I could just put this money directly into investments for their education down the road. As long as the investments pan out in the long run, I probably would never have to save another dime toward their education.

5) Pay down the mortgage on our current primary residence. I hate debt, so this is really attractive to me, but with our current rate of 3.25%, this does not seem prudent financially. We have already invested about 30% equity into the house and this would only push us to about ~43% depending on the final sales number. That being said, it would be really nice to be closing in on the "half paid off" mark on the house this early in the game (only owned new house 1 year). I doubt we will make as much progress paying it down over the next few years with my wife out of work.

So what other options are we not thinking about that would be worthwhile? We are leaning toward option 2 above, but realize that it is probably not our best financial move. It does fit very well with our lifestyle (snowboarding, mountain biking, hiking, trail running, fishing, etc.), but likely puts us at more financial risk with the least financial benefit in the long run. Bad idea? Other thoughts?

Update in post #37... condo purchased

Update in post#72:
Just thought I'd update this thread since I went against most of the advice given. Well we have owned the condo for a year and a couple months and so far it has been a great investment. Financially it has been "ok". It pays for itself (HOA dues/electricity/taxes) with bookings from just the weeks around Christmas. The rest is just gravy. Similar condos in the complex have sold for closer to $300k in the last 6 months and new ones hitting the market are being listed for $315-325 (I think a bit hopeful). From a lifestyle perspective, it has been priceless. With the twins being 18 months and another baby showing up in just a few weeks, we don't get to travel as much as we used to and a lot of vacation seems to be used up visiting (or being visited by) family. By having the mountain condo, we are able to regularly "get away" from our normal lives for a long weekend of relaxing (as much as that is possible with kids). We really couldn't be happier with our decision even if I could have made a better financial decision.

 

[apac]

Regarding #2, I'm not a big fan of trying to rent out a place before living in it, or rent it out when you're not using it. You'll have too much emotion about the place. When renting out a dedicated rental unit, and the renters do something stupid, there is just some money and time that goes into fixing it. When you go on vacation and discover that the tenants broke something, or left standing water in the bathroom, etc, it can ruin your vacation.

I think you'd be better off just buying a place and acknowledging that this is the cost for fun (and not renting it), or participating in some sort of time share. Being a landlord in that scenario just doesn't sound very fun.

4) With twins on the way, I could just put this money directly into investments for their education down the road. As long as the investments pan out in the long run, I probably would never have to save another dime toward their education.

Personally, I think this is the best and most fiscally responsible option. You'll have plenty of "play money" down the road if you keep saving, and this way you never have to worry about that future expense.

Alternatively, I don't see any problem throwing that money into a heftier "rainy day fund" with some conservative investments, like a 70% bond / 30% stock portfolio.

 

[Vdubchaos]

Wait

Once the kids are here your entire perspective and desire will change completely.

Your time after work will also be completely consumed and you will probably have very little time for anything else.

Experience it for few months and see how your life changes.

THEN make your decision

 

[PricklyPete]

Wait

Once the kids are here your entire perspective and desire will change completely.

Your time after work will also be completely consumed and you will probably have very little time for anything else.

Experience it for few months and see how your life changes.

THEN make your decision

I am not planning on making a decision until summer/fall. I am just planning ahead per my normal behavior.

I realize my perspective will change, but I do not believe that my activities will completely change. I have numerous friends in the area with newborns/infants that successfully integrate their children with an active lifestyle. There is a give and take (and a new balancing act between spouses), but I am confident we can follow the lead of our friends.

I do agree I should not make any final decisions until "the dust settles".

 

[Sho'Nuff]

1) Plow the money right into another longterm rental opportunity nearby (or possibly several smaller opportunities). Being a landlord on longterm leases is not my favorite "hobby", but I can manage. This is likely the best return on investment over the long haul, but the least fun/most work.

This could be a decent option, but is highly dependent on where the rental unit would be located. Real estate is pretty volatile right now . . . not necessarily the best option. There are some hot markets and some awful markets. Not saying don't do this. . . just tread carefully. You don't want to end up upside down. Particularly when you man make more money investing (note- I'm assuming you would rent the place for slightly more than the mortgage on it . . . which is not a great rate of return)

2) Start looking for a vacation condo up in the mountains. We would use it as a vacation rental to cover costs at a minimum (hopefully be net positive). This is certainly doable (I have friends who do so) and is probably the most fun option as we will get usage of the condo when not being rented out. It is some work, but a little easier to stomach knowing the benefit you get out of the purchase (plus my wife can be responsibe since she will now not be working a regular job). I will certainly take my time purchasing to ensure it has income potential. One negative that I can think of is that in bad economic times, there is a reasonable chance I will have to carry the rental if people are vacationing less. I realize this is probably the worst investment finacially speaking, but I am looking at it more as a "life investment".

Same concerns as #1 as far as the rental goes. Also - having a family vacation spot can be a huge plus AND minus. On the plus side, you have somewhere to go with your kids every year and build memories. On the negative side - you will probably feel obligated to vacation at THAT spot every year. Not a huge deal, but you might want to go somewhere else at some point.

3) Increase retirement investments outside of current investments. This is nice, but by far the most boring and I am currently not worried about our retirment position.

Why put it into a retirement product? Why not consider "shorter" term investment options? There are tax implications relative to the IRA, but you retain access to the money and carry about the same risk.

4) With twins on the way, I could just put this money directly into investments for their education down the road. As long as the investments pan out in the long run, I probably would never have to save another dime toward their education.

You cannot set up a 529 account for the twins until they are born. At least not in any state I am aware of. Believe me, I tried.

Putting some money towards the kids education is not a bad idea. . . but my personal view is that kids should be made to personally invest in their education so that they appreciate it and give real thought the outcome of their educational choices. My wife and I could pay for our kids education outright, but we have actively decided NOT to do that and to put money into a general investment fund.

5) Pay down the mortgage on our current primary residence. I hate debt, so this is really attractive to me, but with our current rate of 3.25%, this does not seem prudent financially. We have already invested about 30% equity into the house and this would only push us to about ~43% depending on the final sales number. That being said, it would be really nice to be closing in on the "half paid off" mark on the house this early in the game (only owned new house 1 year). I doubt we will make as much progress paying it down over the next few years with my wife out of work.

I hate debt too, and like you I would find this option very attractive as having no home debt would be an incredibly good feeling. But, at 3.25% it just does not make sense when you (should) be able to easily beat that in the market. You sound like you have some investment intelligence, so calculate the value of the proceeds from the sale compounding at 6% interest for the remaining life of the mortgage, and compare that number to the amortized cost of the mortgage. You already know how it will come out, I suspect, but it helps sometimes to actually see the numbers.

So what other options are we not thinking about that would be worthwhile?

I think the only major option you missed would be non-retirement investment options. That said, speak with a financial advisor - they will be able to give you some good ideas. Depending on the amount of money involved there may be other investment opportunities that you can participate in.

Word to the wise - do not let a financial advisor talk you into whole life insurance . . . it is a BAD option except in very rare circumstances (e.g., it can be used as a tax shelter in instances where there are very few tax advantaged investment options available).

Ultimately - my general advice is to think of #1 first, but to be pragmatic with regard to spending. Spending some of the money and investing some of it might be the most pragmatic option, as opposed to sinking it all in one avenue.

Good luck.

 

[KB]

I certainly wouldn't pay down the mortgage. At only 3.25% it won't be long before the 10 year treasury yield is higher than your mortgage, meaning you would make more profit investing in t-bills than in paying off the mortgage. Plus you can deduct mortgage interest. I would certainly open college funds for the kids and get as much compounding interest as possible (earlier the better).
I, too, want a nice vacation rental I can visit, but the added costs of additional insurance, winterizing, utilies does add up. Unless it is likely to be rented often (check the surrounding area) it doesn't seem worth it.

 

[DaveSimmons]

I'd much rather have my boring index funds / ETFs in my brokerage account than manage rental properties. Buy, hold forever, zero effort. Free time after work is for enjoying life, not giving myself more work. Taxes are also much simpler -- your brokerage sends you the information once a year and there's no work in tracking expenses.

So 3) - 4) get my vote, if by 3) you mean opening a regular brokerage account at Schwab or similar to buy and hold index funds. Boring but safe and easy. FYI, Schwab has some good no trading fee ETFs now with expense ratios as low as Vanguard's.

Stay away from annuities and other complex sales-driven investment schemes. Just get stock funds and leave them alone.

 

[MistaFreeze]

Start a business?

 

[PricklyPete]

Regarding #2, I'm not a big fan of trying to rent out a place before living in it, or rent it out when you're not using it. You'll have too much emotion about the place. When renting out a dedicated rental unit, and the renters do something stupid, there is just some money and time that goes into fixing it. When you go on vacation and discover that the tenants broke something, or left standing water in the bathroom, etc, it can ruin your vacation.

I think you'd be better off just buying a place and acknowledging that this is the cost for fun (and not renting it), or participating in some sort of time share. Being a landlord in that scenario just doesn't sound very fun.



Personally, I think this is the best and most fiscally responsible option. You'll have plenty of "play money" down the road if you keep saving, and this way you never have to worry about that future expense.

Alternatively, I don't see any problem throwing that money into a heftier "rainy day fund" with some conservative investments, like a 70% bond / 30% stock portfolio.

As for the vacation rental, I know what you are getting at, but my hope would be to keep it as an investment with the side benefit of us using it occasionally when the opportunity arises. It is certainly more work, but not the level of being a regular landlord. Just talking to friends who do something similar, the short term vacationers surprisingly treat the residences better than their longterm tenants. Your points are certainly valid though regarding the emotional connection.

I do think that the education investment might become more attractive once the twins arrive and my perspective alters somewhat. It will also free up cash flow that will make the transition to my wife not working a bit easier.

 

[highland145]

Start a business?

This. How about a daycare?


:whiste:

 

[PricklyPete]

This could be a decent option, but is highly dependent on where the rental unit would be located. Real estate is pretty volatile right now . . . not necessarily the best option. There are some hot markets and some awful markets. Not saying don't do this. . . just tread carefully. You don't want to end up upside down. Particularly when you man make more money investing (note- I'm assuming you would rent the place for slightly more than the mortgage on it . . . which is not a great rate of return)







Same concerns as #1 as far as the rental goes. Also - having a family vacation spot can be a huge plus AND minus. On the plus side, you have somewhere to go with your kids every year and build memories. On the negative side - you will probably feel obligated to vacation at THAT spot every year. Not a huge deal, but you might want to go somewhere else at some point.







Why put it into a retirement product? Why not consider "shorter" term investment options? There are tax implications relative to the IRA, but you retain access to the money and carry about the same risk.







You cannot set up a 529 account for the twins until they are born. At least not in any state I am aware of. Believe me, I tried.



Putting some money towards the kids education is not a bad idea. . . but my personal view is that kids should be made to personally invest in their education so that they appreciate it and give real thought the outcome of their educational choices. My wife and I could pay for our kids education outright, but we have actively decided NOT to do that and to put money into a general investment fund.







I hate debt too, and like you I would find this option very attractive as having no home debt would be an incredibly good feeling. But, at 3.25% it just does not make sense when you (should) be able to easily beat that in the market. You sound like you have some investment intelligence, so calculate the value of the proceeds from the sale compounding at 6% interest for the remaining life of the mortgage, and compare that number to the amortized cost of the mortgage. You already know how it will come out, I suspect, but it helps sometimes to actually see the numbers.







I think the only major option you missed would be non-retirement investment options. That said, speak with a financial advisor - they will be able to give you some good ideas. Depending on the amount of money involved there may be other investment opportunities that you can participate in.



Word to the wise - do not let a financial advisor talk you into whole life insurance . . . it is a BAD option except in very rare circumstances (e.g., it can be used as a tax shelter in instances where there are very few tax advantaged investment options available).



Ultimately - my general advice is to think of #1 first, but to be pragmatic with regard to spending. Spending some of the money and investing some of it might be the most pragmatic option, as opposed to sinking it all in one avenue.



Good luck.

Thanks. Yes, paying down the mortgage makes no financial sense if I just look at the gains my current investments have made over the long haul... There is just that sense of security not having a mortgage that has a non-mathematical attraction to it.

As for retirement investments, I would have to entertain other options than IRA/401k as I max them out currently.

I will need to talk some more with my wife about the education and try to solidify our position on what we feel is best regarding our investment in the education of our children.

The sum of the sale should be pushing 6 figures. I had already planned on putting some of it to bolster the rainy day since my wife will no longer be working, so I was already planning on the two avenue approach to some degree. Putting more into a less liquid rainy day might be worthwhile for peace of mind as we star a new family.

 

[PricklyPete]

Start a business?

I have always had this in my mind, but haven't come up with an idea that I am comfortable betting on. Also, this seems like too volatile am option for this stage in my life with so many variables.

 

[PricklyPete]

This. How about a daycare?


:whiste:

Tell me more! ;-)

Let's be honest, with two newborns, I'm practically bankrolling a daycare at the house.

 

[JM Aggie08]

Does CO have an equivalent to the Texas Tomorrow Fund?

 

[soulcougher73]

Thanks. Yes, paying down the mortgage makes no financial sense if I just look at the gains my current investments have made over the long haul... There is just that sense of security not having a mortgage that has a non-mathematical attraction to it.

As for retirement investments, I would have to entertain other options than IRA/401k as I max them out currently.

I will need to talk some more with my wife about the education and try to solidify our position on what we feel is best regarding our investment in the education of our children.

The sum of the sale should be pushing 6 figures. I had already planned on putting some of it to bolster the rainy day since my wife will no longer be working, so I was already planning on the two avenue approach to some degree. Putting more into a less liquid rainy day might be worthwhile for peace of mind as we star a new family.

I enjoy piece of mind. Assuming the house you are in now is your so called "forever home" then i can see the appeal to be debt free. That would free up your current mortgage payment to be invested into index funds. Youd still be investing and be debt free at same time were something unforseen happen.

I like the option but i can see the appeal to the others as well.

 

[PricklyPete]

I certainly wouldn't pay down the mortgage. At only 3.25% it won't be long before the 10 year treasury yield is higher than your mortgage, meaning you would make more profit investing in t-bills than in paying off the mortgage. Plus you can deduct mortgage interest. I would certainly open college funds for the kids and get as much compounding interest as possible (earlier the better).

I, too, want a nice vacation rental I can visit, but the added costs of additional insurance, winterizing, utilies does add up. Unless it is likely to be rented often (check the surrounding area) it doesn't seem worth it.

Just a note on the rental, mountain rentals here in CO are rented out nearly all 4 seasons if you are near a popular resort. We would use it as a weekend getaway when it is not being rented. If we go down this route, the place will be chosen more on its rental capacity than our preference on the area (at least this condo). The hope would be to slowly build equity in the property and upgrade down the road as the finances permit.

 

[PricklyPete]

I'd much rather have my boring index funds / ETFs in my brokerage account than manage rental properties. Buy, hold forever, zero effort. Free time after work is for enjoying life, not giving myself more work. Taxes are also much simpler -- your brokerage sends you the information once a year and there's no work in tracking expenses.

So 3) - 4) get my vote, if by 3) you mean opening a regular brokerage account at Schwab or similar to buy and hold index funds. Boring but safe and easy. FYI, Schwab has some good no trading fee ETFs now with expense ratios as low as Vanguard's.

Stay away from annuities and other complex sales-driven investment schemes. Just get stock funds and leave them alone.

Agreed, this is certainly the least work to just invest. Don't worry, I am well versed on avoiding annuities and the like.

 

[Dirigible]

With twins about to hit, I would absolutely not do #2 for a while. Your wife will be busy enough without property management tasks. You'll get less use and benefit of it at first.

Before kids my wife and I loved snowboarding and cycling. I was doing decently in endurance mtn bike races. We were getting like 30 days on the slopes a year.

Kids hit and that all stopped for a while. After a few years and the time and energy for active hobbies is coming back, but infants are tough.

I'd do index funds. Then when your kids are a bit older and you can all enjoy it, think of a vacation/investment property.

 

[PricklyPete]

Does CO have an equivalent to the Texas Tomorrow Fund?

Will have to research. What are some of the benefits of the "tomorrow fund"?

 

[PricklyPete]

With twins about to hit, I would absolutely not do #2 for a while. Your wife will be busy enough without property management tasks. You'll get less use and benefit of it at first.

Before kids my wife and I loved snowboarding and cycling. I was doing decently in endurance mtn bike races. We were getting like 30 days on the slopes a year.

Kids hit and that all stopped for a while. After a few years and the time and energy for active hobbies is coming back, but infants are tough.

I'd do index funds. Then when your kids are a bit older and you can all enjoy it, think of a vacation/investment property.

Maybe that is my best bet. Do some investing now with the intent to invest in a rental home a few years from now.

 

[JM Aggie08]

Will have to research. What are some of the benefits of the "tomorrow fund"?

Depending on the plan of choice:

Tax-free growth
Tax-free withdrawls
Locking in tuition prices.

http://www.texastomorrowfunds.org/

 

[PricklyPete]

Depending on the plan of choice:

Tax-free growth
Tax-free withdrawls
Locking in tuition prices.

http://www.texastomorrowfunds.org/

Thanks, will have to research further.

 

[Hugo Drax]

sell short the Jun 19, 2015 SPY 185 puts.

collect 16.32 per contract (mid point of bid/ask)

profit.

 

[dr150]

I'd much rather have my boring index funds / ETFs in my brokerage account than manage rental properties. Buy, hold forever, zero effort. Free time after work is for enjoying life, not giving myself more work. Taxes are also much simpler -- your brokerage sends you the information once a year and there's no work in tracking expenses.

So 3) - 4) get my vote, if by 3) you mean opening a regular brokerage account at Schwab or similar to buy and hold index funds. Boring but safe and easy. FYI, Schwab has some good no trading fee ETFs now with expense ratios as low as Vanguard's.

Stay away from annuities and other complex sales-driven investment schemes. Just get stock funds and leave them alone.

Lots of wise advice here.

I tend to agree with your take on investment properties. I own some.

...They're always a hassle....either from the existing renter side, finding good new renters side (i.e. that won't trash the place & pay on time) or house upkeep side......Always, always a hassle that robs leisure time away.

I know it'll pay off more handsomely in the end when mortgage is paid off, but I can also see myself selling it all for piece of mind/less grey hair and using less prosperous investment vehicles.

 

[EPCrew]

Does Colorado offer tax incentive or benefits for 529?