retirement savings in OC

[pisa]

.

Why the deletion?

I wrote: " I love Pisa. If I delete this and he asks why, I'll know he loves me, too."

I recall the post specifying what % of gross you save.

 

[scubasteve]

I feel like I'm 401k poor at the beginning of the year. My wife doesn't have a company match since she has a pension plan so we contribute 70% (max alllowed) of salary until she hits $18k.  I max out mine and get a 4% match.

The 401k is just one vehicle to save for retirement.

yea but its the easiest way to save on taxes

Save now, pay later.  You can never avoid the tax.  Uncle Sam always gets his due.

According to panda if u set an SCorp you don't have to worry about taxes

the idea is to be in a lower tax bracket later

 

[Arman]

anyone know what the average person in Orange County puts away into their retirement account every year?  Id love to see some stats showing actual numbers and percentage of income that goes to retirement accounts.

Why is this thread in Irvine Real Estate?

 

[eyephone]

anyone know what the average person in Orange County puts away into their retirement account every year?  Id love to see some stats showing actual numbers and percentage of income that goes to retirement accounts.

Why is this thread in Irvine Real Estate?

Should be in finance.

 

[irvinehusky]

The bulb is slow to turn on up there. 

Is this a TI joke that some people (living in certain areas) pay too much Mello Roos and don't have enough to max out their retirement accounts?  Or, is this a tax thing?

why wouldn't you contribute the maximum every year?

2 words.  Mello and Roos.

 

[YellowFever]

.

 

[nyc to oc]

I have looked at the progress my 401k has been making.  The fees for many of these funds are quite high (0.6-1.01% expense ratio).  At the same time, the 401k gives me an average return since I started contributing in 2007.  That's about 8 years and the return seems quite dismal in my opinion.

To me, Susie Orman said, first, get up to the employer match first, 6%, then max out the Roth IRA, then go back and max out the 401k to the IRS maximum.
I realize this is too conservative.  To effectively get the best return, it seems like we should do everything she said up to step 2, but instead of maxing out the 401k (if there were any funds left over), I would put down money aside for a down payment on another house.

I think using down payments to buy multiple houses is leveraging.  Since you guys are putting in $17,500 a year, that means you can save up $120,000 after 8 years (post tax).  Assuming you do this 4 times in your life time, 4 x $120,000 down payment.  Assume that you are 40 years old and you retire at 70.  That's four homes that cost you $600,000.  Now rent them all out.  Each of those homes, assuming by the time you retire, you sell them at $800,000, that's $800,000 x 4 = $3.2 million.  (Again, you'll likely sell it for more than $800k, but I'm being super conservative)

So effectively, you've turned $480,000 into a conservative $3.2 million. 

I think that's a better return than the 401k in my opinion.  What do you guys think?

there's a lot of costs associated with maintaining property. plus property taxes. plus labor/time spent managing properties or paying someone to do it for you.  plus lack of liquidity. plus no guarantee of always going up in price. plus associated costs of selling. plus the risk of getting the nightmare tenant and litigation should anything happen on your property. Put your rental properties in separate LLCs if you're seriously thinking of doing this. You could hedge your bets and put half your retirement contribution to 401ks and other passive investments, and another portion into real estate. But you would do better to build this real estate empire outside of Orange County given the current prices.

 

[AW]

Yes, but you'll have to make sure the property cash flows.  It won't be in Irvine. Probably nothing in OC. 
Need to go inland.

And then you'll run into banks not going to lend you money to buy investment properties base on your financials.  That's when you need creative financing, maybe seller financing, rates would be higher making cash flow more difficult. 

I agree on the idea, diversifying your investments.  Especially in real estate.

 

[ChasingRainbows]

I have looked at the progress my 401k has been making.  The fees for many of these funds are quite high (0.6-1.01% expense ratio).  At the same time, the 401k gives me an average return since I started contributing in 2007.  That's about 8 years and the return seems quite dismal in my opinion.

Does your 401k offer index funds? These have lower expense ratios.

 

[irvinehomeowner]

Yes, but you'll have to make sure the property cash flows.  It won't be in Irvine. Probably nothing in OC. 
Need to go inland.

Or like Larry... bet on Vegas.

 

[panda]

Qwerty,
Correction. If you setup an S Corporation and the company is profitable, the SCORP can be one of your best tax shelter investment vehicle next to your real estate investments. Just by opening up an SCorp and doing nothing with it, won't help you one bit.

I feel like I'm 401k poor at the beginning of the year. My wife doesn't have a company match since she has a pension plan so we contribute 70% (max alllowed) of salary until she hits $18k.  I max out mine and get a 4% match.

The 401k is just one vehicle to save for retirement.

yea but its the easiest way to save on taxes

Save now, pay later.  You can never avoid the tax.  Uncle Sam always gets his due.

According to panda if u set an SCorp you don't have to worry about taxes

 

[panda]

As someone who has been purchasing buy and hold investments (SFRs) for the past ten years, the key is finding good tenants. By selecting good tenants, this will remove 95% of most of the problems that the landlord will face. After having experienced more than a 100 leases, I've gotten pretty good of figuring which tenants to lease to and which to avoid. Also my advice would be not to speculate on appreciation alone, and look for solid cash flowing properties with 20-25% down and potential for capital growth in an emerging area with high growth potential (population, jobs, demographics etc.). Another thing to mention is that you can also investment in real estate with your solo 401k via Self Directed IRA.

One of the best real estate investing sites I have found 7 years ago is www.biggerpockets.com. All the information is free and I highly recommend you guys to listen to some of their podcasts which features real stories of some very successful real estate investors.

If you guys are into reading books. Here are some recommendations on some of the best real estate books I have read.

1. The Millionaire Real Estate Investor - Gary Keller
2. Building Wealth One House at a Time - John Schaub
3. Real Estate Investments and how to make them - Milt Tanzer
4. Investing in Real Estate - Gary Eldred
5. HOLD How to Find, Buy, and Rent Houses for Wealth - Steve Chader
6. The Savvy Landlord - Steve VanCauwenbergh
7. NOLO Every Landlord's Tax Deduction Guide - Stephen Fishman
8. Tax Free Wealth - Tom Wheelwright CPA
9. The Book on Flipping Houses - J Scott
10. The Every real estate investor needs to know about cash flow. - Frank Gallinelli

If any other good books I've read comes to mind I will update the list.

Panda 

I have looked at the progress my 401k has been making.  The fees for many of these funds are quite high (0.6-1.01% expense ratio).  At the same time, the 401k gives me an average return since I started contributing in 2007.  That's about 8 years and the return seems quite dismal in my opinion.

To me, Susie Orman said, first, get up to the employer match first, 6%, then max out the Roth IRA, then go back and max out the 401k to the IRS maximum.
I realize this is too conservative.  To effectively get the best return, it seems like we should do everything she said up to step 2, but instead of maxing out the 401k (if there were any funds left over), I would put down money aside for a down payment on another house.

I think using down payments to buy multiple houses is leveraging.  Since you guys are putting in $17,500 a year, that means you can save up $120,000 after 8 years (post tax).  Assuming you do this 4 times in your life time, 4 x $120,000 down payment.  Assume that you are 40 years old and you retire at 70.  That's four homes that cost you $600,000.  Now rent them all out.  Each of those homes, assuming by the time you retire, you sell them at $800,000, that's $800,000 x 4 = $3.2 million.  (Again, you'll likely sell it for more than $800k, but I'm being super conservative)

So effectively, you've turned $480,000 into a conservative $3.2 million. 

I think that's a better return than the 401k in my opinion.  What do you guys think?

I have looked at the progress my 401k has been making.  The fees for many of these funds are quite high (0.6-1.01% expense ratio).  At the same time, the 401k gives me an average return since I started contributing in 2007.  That's about 8 years and the return seems quite dismal in my opinion.

To me, Susie Orman said, first, get up to the employer match first, 6%, then max out the Roth IRA, then go back and max out the 401k to the IRS maximum.
I realize this is too conservative.  To effectively get the best return, it seems like we should do everything she said up to step 2, but instead of maxing out the 401k (if there were any funds left over), I would put down money aside for a down payment on another house.

I think using down payments to buy multiple houses is leveraging.  Since you guys are putting in $17,500 a year, that means you can save up $120,000 after 8 years (post tax).  Assuming you do this 4 times in your life time, 4 x $120,000 down payment.  Assume that you are 40 years old and you retire at 70.  That's four homes that cost you $600,000.  Now rent them all out.  Each of those homes, assuming by the time you retire, you sell them at $800,000, that's $800,000 x 4 = $3.2 million.  (Again, you'll likely sell it for more than $800k, but I'm being super conservative)

So effectively, you've turned $480,000 into a conservative $3.2 million. 

I think that's a better return than the 401k in my opinion.  What do you guys think?

there's a lot of costs associated with maintaining property. plus property taxes. plus labor/time spent managing properties or paying someone to do it for you.  plus lack of liquidity. plus no guarantee of always going up in price. plus associated costs of selling. plus the risk of getting the nightmare tenant and litigation should anything happen on your property. Put your rental properties in separate LLCs if you're seriously thinking of doing this. You could hedge your bets and put half your retirement contribution to 401ks and other passive investments, and another portion into real estate. But you would do better to build this real estate empire outside of Orange County given the current prices.

I have looked at the progress my 401k has been making.  The fees for many of these funds are quite high (0.6-1.01% expense ratio).  At the same time, the 401k gives me an average return since I started contributing in 2007.  That's about 8 years and the return seems quite dismal in my opinion.

To me, Susie Orman said, first, get up to the employer match first, 6%, then max out the Roth IRA, then go back and max out the 401k to the IRS maximum.
I realize this is too conservative.  To effectively get the best return, it seems like we should do everything she said up to step 2, but instead of maxing out the 401k (if there were any funds left over), I would put down money aside for a down payment on another house.

I think using down payments to buy multiple houses is leveraging.  Since you guys are putting in $17,500 a year, that means you can save up $120,000 after 8 years (post tax).  Assuming you do this 4 times in your life time, 4 x $120,000 down payment.  Assume that you are 40 years old and you retire at 70.  That's four homes that cost you $600,000.  Now rent them all out.  Each of those homes, assuming by the time you retire, you sell them at $800,000, that's $800,000 x 4 = $3.2 million.  (Again, you'll likely sell it for more than $800k, but I'm being super conservative)

So effectively, you've turned $480,000 into a conservative $3.2 million. 

I think that's a better return than the 401k in my opinion.  What do you guys think?

there's a lot of costs associated with maintaining property. plus property taxes. plus labor/time spent managing properties or paying someone to do it for you.  plus lack of liquidity. plus no guarantee of always going up in price. plus associated costs of selling. plus the risk of getting the nightmare tenant and litigation should anything happen on your property. Put your rental properties in separate LLCs if you're seriously thinking of doing this. You could hedge your bets and put half your retirement contribution to 401ks and other passive investments, and another portion into real estate. But you would do better to build this real estate empire outside of Orange County given the current prices.

 

[eyephone]

There's too much admin work for an scorp. Just do an LLC and elect scorp status.

Qwerty,
Correction. If you setup an S Corporation and the company is profitable, the SCORP can be one of your best tax shelter investment vehicle next to your real estate investments. Just by opening up an SCorp and doing nothing with it, won't help you one bit.

I feel like I'm 401k poor at the beginning of the year. My wife doesn't have a company match since she has a pension plan so we contribute 70% (max alllowed) of salary until she hits $18k.  I max out mine and get a 4% match.

The 401k is just one vehicle to save for retirement.

yea but its the easiest way to save on taxes

Save now, pay later.  You can never avoid the tax.  Uncle Sam always gets his due.

According to panda if u set an SCorp you don't have to worry about taxes

 

[panda]

I've heard that the franchise tax to just own a SCorp is around $875/year in California. That is pretty crazy. Here in Georgia the annual fee is $50/year to maintain a LLC which you can elect as an S-Corp status.

 

[irvinehusky]

How common is it to have a brokerage account component to a 401K?  Ours allows up to 25% of the total 401K amount into a brokerage account like Fidelity, etc. (company decides which one but has changed a few times over the years but no biggie).  From that account, you can pretty much buy any stock, bond, options and mutual funds. 

 

[YellowFever]

.

 

[YellowFever]

.

 

[YellowFever]

.

 

[AW]

Yes, but you'll have to make sure the property cash flows.  It won't be in Irvine. Probably nothing in OC. 
Need to go inland.

And then you'll run into banks not going to lend you money to buy investment properties base on your financials.  That's when you need creative financing, maybe seller financing, rates would be higher making cash flow more difficult. 

I agree on the idea, diversifying your investments.  Especially in real estate.

I'm not sure why you mention that Irvine doesn't bring in cash flow for rentals.  Is it because of high competition with TIC or is it because of the turn-over of hiring/layoffs ?

The advantage of being a landlord with a fixed 30-yr mortgage is that you can compete with other large property landlords like TIC, because your payments are fixed for 30 years, but TIC is sure to jack up rates every year.  That is an incentive to tenants who want to stay with you longer in that he knows you won't increase rent as much as TIC.

I was skimming what you wrote, and you've mentioned leveraging via buying a lot of properties assuming lowest down payment possible to buy an investment property.

20% down in Irvine to positive cash flow is virtually impossible unless you have some great insider connections via distressed seller and pre MLS/pocket listings. 

Have to run the numbers to factor in property management, vacancy rates, umbrella insurance, mortgage payment, tax, Hoa, Mello roos, etc, and the number may run you towards >50% (guesstimate) to net positive cash flow

 

[Bullsback]

Yes, but you'll have to make sure the property cash flows.  It won't be in Irvine. Probably nothing in OC. 
Need to go inland.

And then you'll run into banks not going to lend you money to buy investment properties base on your financials.  That's when you need creative financing, maybe seller financing, rates would be higher making cash flow more difficult. 

I agree on the idea, diversifying your investments.  Especially in real estate.

I'm not sure why you mention that Irvine doesn't bring in cash flow for rentals.  Is it because of high competition with TIC or is it because of the turn-over of hiring/layoffs ?

The advantage of being a landlord with a fixed 30-yr mortgage is that you can compete with other large property landlords like TIC, because your payments are fixed for 30 years, but TIC is sure to jack up rates every year.  That is an incentive to tenants who want to stay with you longer in that he knows you won't increase rent as much as TIC.

Irvine properties don't cash flow because of the overall expense associated with them vs. the expected rental income. Highly unlikely if you put 20% down on a rental property (even pretending it will be a personal property and thus getting more favorable financing) that you will cash flow that property (after factoring in the mortgage payments, property taxes, HOA, property management & maintenance). As a result, you'll likely be going negative (given current pricing) which also than throws out your other wild card of doing it all over again (as you will be going negative and thus that minimizes cash flow that can be leveraged for future properties). 

My personal opinion is diversify your holdings but your strategy to minimize the market and focus more on real estate (and SFR's in Irvine, especially given current pricing is a tough sled). I also am a big proponent of index funds and I don't think you should prematurely exit them because 15 wasn't a good year (presuming you are in the right index funds and not all index funds are created equal, unfortunately) as my view are index funds are a fantastic long term investment (they do obviously come with additional volatility / risk so if you can't handle the short-term fluctuations, something to consider).