personal finance
My Research on Crowdfunded Real Estate Investing
I periodically suffer from investment boredom because good investing is boring. Investing in all the world’s stocks and bonds through low cost index funds is effective but not very exciting.
Whenever I get financially bored, I consider adding a 5th asset class to the 4 that are already in my investment portfolio (US stocks, international stocks, US bonds, international bonds)…real estate. While I know for sure that I have ZERO interest in becoming a landlord, crowdfunding real estate investing has opened up a new way to passively invest in real estate.
While I ultimately decided (once again) NOT to add a 5th asset class and keep my financial life as simple as possible, anyone interested in researching this can benefit from my thorough investigation. Here are all of the blog posts I read during my research in outline form. Enjoy!
- Real Estate
- 16 Different Ways to Invest in Real Estate
- Taxes
- REITS
- Assessing the inclusion of alternatives in target-date funds (this Vanguard research is why I don’t overweight REITs like a lot of other people do)
- Real estate crowdfunding
- Crowdfunding Debt vs Equity vs Syndications
- The Best Real Estate Crowdfunding Sites
- Tips For Real Estate Crowdfunding
- Real Estate Crowdfunding vs REITs
- The Best Real Estate Crowdfunding Sites for Non-Accredited Investors
- Is THIS the Holy Grail of Real Estate Investing?
- How to Build a Real Estate Crowdfunding Ladder
- When it Makes Sense to Utilize Private Real Estate Investments
- 10 Things To Know Prior To Purchasing an “Accredited Investor” Investment
- The Guide to Real Estate Syndications, Part I
- The Guide to Real Estate Syndications, Part II
- The Life Cycle of a Real Estate Fund
- Investing in Opportunity Zones: What’s This Amazing Opportunity All About?
- Is Real Estate Crowdfunding in Trouble?
- The Sad Demise Of RealtyShares: What’s Next, Alternatives, And Lessons
- Should I Invest in a Real Estate Syndication or Fund?
- Why It’s So Important to Diversify Your Real Estate Portfolio
- Is It Better to Invest Early or Late in a Real Estate Fund?
- 3 Important Things to Know About a Sponsor Before Investing
- Different Ways to Make Five Million Dollars in Real Estate
- Active vs Passive Real Estate Investing
- 5 Major Things To Look For In a Real Estate Fund
- Your Fear of Investing In Real Estate Is Totally Normal
- 6 Ways to Invest in Apartment Buildings
- Sites that review crowdfunding companies:
- Companies:
TSP Changes and Finance Friday Articles
According to the January/February 2020 Thrift Savings Plan (TSP) Message from the Executive Director, a few important changes are coming:
- 5-year Lifecycle (L) Funds—Later this year, we’ll offer more investment options when we introduce new L Funds in 5-year increments. You’ll be able to pick an L Fund with a target date that more closely matches your intended retirement date. Each L Fund will continue to vary your investments automatically to adjust your exposure to risk as you get closer to retirement and give you the potential for long-term growth. Learn more about our Lifecycle Funds and individual fund options.
- Automatic enrollment percentage increase—Beginning October 1, 2020, new participants will be automatically enrolled in the TSP at 5% of their pay. This change also includes Blended Retirement System (BRS) participants automatically re-enrolled in the TSP on or after January 1, 2021. The increase will allow new participants to get the full matching contributions from their agency or service. If you are currently an active participant and are not contributing at least 5%, then you’re missing out on free money. Increase your percentage today by logging into your agency’s or service’s electronic payroll system and upping your contribution amount.
Here are my favorites this week:
10 things I wish I’d been told in my 20s
Investing Basics for Physicians With Little Time or Experience, Part II
Here are the rest:
A Real Estate Goal Every Investor With Kids Should Consider
Asset Protection for Physicians Through the Life Stages
Banks, Bitcoin, bond funds: Where is your money safe in an era of cyberattacks?
FY 2021 DOD Budget Request Seeks 3% Pay Raise for Service Members
How Real Estate Investments Go Bad
Make Spending Money Music to Your Ears: Spending Equalizer
Not So Common Student Loan Debt Forgiveness Programs
Start of tax season 2020 is prime time for scammers
The 4% Rule, HSAs, and Healthcare Costs in Retirement
Troops would see another big pay raise under White House budget plan for 2021
Three Years Retired from Surgery and all’s Well with my FIRE Life
What You Can Learn From Your 1099 Forms
White Coat Investor Tip on Pensions and Finance Friday Articles
I’m including this tip of the month from WCI’s newsletter (with permission) since it is relevant to just about everyone who reads this (subscribe to his newsletter here).
White Coat Investor’s Newsletter Tip of the Month – Pensions and Your Asset Allocation
A lot of people wonder how to incorporate their various sources of guaranteed income into their asset allocation. These include:
- Social Security,
- Pensions, and
- Immediate Annuities.
They wonder if because of their low risk that they should consider them “bond equivalents” and increase the stock:bond ratio in their portfolio to make up for the presence of these guaranteed sources of income. I believe there is a better way to look at this dilemma.
Rather than including them in your asset allocation and calling them bonds (which they are not), I recommend you leave them out of your asset allocation entirely. That’s right. Just leave them out. But when you go to calculate how much income you need from your portfolio, subtract the guaranteed income first. Let me explain:
Let’s say you need $120K to live on in retirement and are getting $40K from your Social Security. Instead of trying to calculate the present value of your Social Security income stream and adding that to your portfolio, just subtract that $40K from the $120K you need. Now you need your portfolio to provide $80K of income. Using the back of the napkin 4% rule to make the calculation you need a $2 Million portfolio in addition to Social Security. Easy peasy. If you also have a military or other pension or have purchased a Single Premium Immediate Annuity (SPIA) or two, you can subtract those too.
- $120K income need minus
- $40K Social Security minus
- $20K Pension minus
- $10K SPIA equals
- $50K needed from the portfolio. ($50K/4% = $1.25 Million)
So how should the presence of this guaranteed source of income affect your asset allocation? Well, it can go two ways. First, you could decide that now that you have all or most of your fixed income needs covered by these guaranteed income sources that you now have the ability to take on more risk. Or, alternatively, you might decide that since you have guaranteed income sources covering so much of your spending needs that really don’t need as much from your portfolio and can afford to take less risk with it. Perhaps these two factors cancel each other out and it doesn’t change your asset allocation at all.
What about other assets? Should they go into your portfolio? A lot of people wonder about their home and their mortgages in particular. While a mortgage acts like a very safe, very short-term “negative bond” (paying off a mortgage provides a guaranteed return equal to the after-tax interest rate), I wouldn’t include it in the portfolio. Nor would I include the house. Or your practice. And maybe even not your side gig small business. The main reason why is that it really complicates portfolio management. You know, the buying and selling and rebalancing you do periodically. For example, let’s say you included your house. When you are young and relatively poor, that is going to make up a massive portion of your portfolio. And later, when you are older, hopefully it will make up a tiny portion. How’s that going to work with trying to keep percentages equal? Same thing with a mortgage or a small business. And imagine trying to rebalance? What are you going to do when stocks poorly, take out a HELOC? Do yourself a favor–leave that stuff out of your portfolio and just let the presence of those things affect your overall asset allocation only as they change your need, ability, and desire to take risk. Don’t try to actually put them into your asset allocation.
Here are my favorites this week:
Practice Minimalism To Improve Your Financial Health And Quality Of Life
THE BEST CREDIT CARDS FOR ACTIVE DUTY MILITARY
When Does the Federal Deficit Matter?
Here are the rest of this week’s articles:
7 Things I Still Love About Turbo Tax in 2020
Considering a Syndicated Real Estate Investment Opportunity? What You Should Know
Crash Course in the Japanese Stock Market Collapse
How one decision can help you save for retirement
How Should I Save for College? Plus a 529 Plan Hack
How to Generate Over $5,000 Per Month With One Airbnb Property
Important Details Investors Should Know About The Coronavirus
Stop worrying about where the stock market goes from here and read this post
The Worst Money Decisions I Could Make
Top States To Buy Real Estate In The New Decade
What Counts as Compensation (Earnings) for IRA Contributions?
Finance Friday Articles
Here are my favorite articles this week:
7 Ways For Physicians to Make an Extra $1000 a Month
Does Schwab’s growth threaten Vanguard’s domination?
How To Tell If Your Investment Plan Is Reasonable
Here are the rest of this week’s articles:
10 Financial Tips for New Attending Physicians
A Resident Physician on FIRE: How One Doctor Grows His Net Worth in Residency
A Tale of Two Retirements: FIRE and Traditional
AUM versus Flat-Fee: A Financial Advisor’s Perspective
Do You Define Wealth With Your Feelings or a Number?
For The Best Mortgage Rate, Refinance Before These Three Life Events
Go Ahead and Pay – Bonds and Retirement Accounts
My 6 Biggest Fears About Buying My First Rental Property
Owning a Home is Not For Everyone
Paying Yourself First – 6 Ways to Automate Your Financial Life
Questions From Physician Real Estate Investors
Should You Manage Your Own Rental Properties?
Side Gigs for Pre-Med and Medical Students
Strategies for Young Investors
Free Tax Software and Finance Friday Articles
Here’s a blurb about the free military tax software:
MilTax Preparation and e-Filing Software will be available starting Jan. 22 through mid-October. Powered by an industry-leading tax service provider, it’s designed to address situations specific to the military. This easy-to-use, self-paced tax software walks you through a series of questions to help you complete and electronically file your federal return and up to three state tax forms. Calculations are 100 percent accurate – guaranteed by the software provider.
Here is the link to begin preparations:
https://www.militaryonesource.mil/financial-legal/tax-resource-center/miltax-military-tax-services
Here’s an article for military members:
Here are my favorites this week:
Investing Basics for Physicians With Little Time or Experience
Here are the rest of this week’s articles:
2018 vs. 2019 in the Stock Market
7 Paradoxes in Investment Decision Making
Can I Change the Beneficiary of My 529 Plan/Account?
Do Bonds Belong in Your Portfolio?
How to Pay Off Medical School Loans In Less Than 2 Years
Life Goes By Quick: Money Thoughts From A Boomer Retiree With Cancer
Finance Friday Articles
Here are my favorites this week:
Confessions of an Ex-AUM Financial Advisor
The Relationship Between War & The Stock Market
What The White Coat Investor Really Thinks
Here are the rest of the articles this week:
5 Ways Investing Is Like Weight Loss
Achieving Financial Freedom as a Physician is Simple, but Not Easy
A Real Estate Investor’s Guide to the Equity Waterfall
Backdoor Roth IRA 2020: Step by Step Guide with Vanguard
Before Hopping on the BRRRR Bandwagon, Consider This
Determining How Much To Contribute To A 529 Plan: Too Much No Good!
How Do Your Financial Priorities Stack Up With Our Pyramid?
If Only – What a $25 Savings Bond from 1987 is Worth Today
I Own 24 Units But Choose to Rent—Here’s Why
Mr. Money Mustache on Purposeful Work & Life After Financial Independence
Opening the Spigot: Learning to Spend After Decades of Saving
Physician Lifestyle Inflation After The First Big Paycheck
Read the Fine Print (this is particularly relevant to anyone in the BRS…if you fill the TSP too early, you lose out on the monthly 5% match, leaving free money on the table)
Should You Invest in a Roth or Traditional 401(k)?
Top 5 Ways a Virtual Assistant Improves My Life
Updating My Favorite Performance Chart For 2019
Finance Friday Articles
Here are this week’s favorites:
10 Things Investors Can Expect in 2020
How a 28-Year-Old Used the GI Bill to Buy Multiple Rental Properties
Saving Money. How Much is Enough? The 30% Rule
Here are the rest of this week’s articles:
6 Life Laws That Will Make You Rich
7 Ways To Get Your Partner On Board Financially
8 Ways to Automate Your Finances
Are you a service member wanting to sock away $1 million for retirement? Here’s how
Episode #1: How Batching Might Save Your Personal Finances
From Residency to Real Money: Making the Transition as a Couple
How Much Money Do Doctors Make & Why It Doesn’t Matter
The Best Way for Millennials to Start Investing in Real Estate in 2020
The Blended Retirement System Lump Sum – Probably Not a Good Idea
Now that the Blended Retirement System (BRS) is in full effect, it is time to start digging a little deeper on some of its features, like the lump sum payment. Here is a pocket card put out by the DoD Office of Financial Readiness to explain the lump sum feature of the BRS:
Reading through the card, I think it does the best job I’ve seen so far at explaining how the lump sum option works, especially for those who don’t understand what discounting is:
Discounting is the process of determining the present value of a payment or a stream of payments that is to be received in the future. Given the time value of money, a dollar is worth more today than it would be worth tomorrow. Discounting is the primary factor used in pricing a stream of tomorrow’s cash flows.
When discounting future cash flows to determine the present value, you have to use what is very much like a reverse interest rate, called the discount rate:
The discount rate also refers to the interest rate used in discounted cash flow analysis to determine the present value of future cash flows.
The higher the discount rate, the lower the present value of your future cash flows and the smaller your lump sum would be. Some have criticized the DoD for setting the discount rate too high. While adjusted annually, it is 6.75% for 2020.
What I really found interesting about this pocket card I had found, and what caused me to write this blog post, was this part of it:
Note that the DoD Office of Financial Readiness is admitting, “For most Service members, a guaranteed stream of income for life is likely better than a lump sum.”
Yes! One of my biggest beefs against the BRS is that it gives you options like this and the chance to make a mistake. You can’t screw up the guaranteed stream of inflation-adjusted income that comes with the legacy retirement system.
You can screw up a lump sum, reduced by a high discount rate, by blowing it on an expensive car, too large of a house, a weekend in Vegas, or whatever else people like to waste money on. Yes, you could use it productively, perhaps to start a business, buy a franchise, or acquire high-paying skills with further education. But you could just as easily buy one of these:
Do yourself a favor. If you are in the BRS, when the time comes think long and hard before you reduce your future income streams and take a lump sum payment. As the DoD itself admits, “For most Service members, a guaranteed stream of income for life is likely better than a lump sum.”
Make Sure You Snatch the Blended Retirement System Match
Here’s a tip from one of my favorite blogs and authors, Jonathan Clements from Humble Dollar:
SNATCH THE MATCH. Are you on track to contribute enough to your 401(k) to get this year’s full matching employer contribution? If not, crank up your contribution now, so you can spread the required sum over this year’s remaining paychecks. In 2020, the maximum 401(k) contribution is $19,500, or $26,000 if you’re age 50 or older.
For nearly my entire career this wasn’t an issue for those in the military, but it is now due to the new Blended Retirement System (BRS) and its matching Thrift Savings Plan (TSP) contributions. To refresh your memory, if you contribute 5% of your pay to the TSP you get up to a 5% match. If you are in the BRS and you don’t contribute at least 5% every month, you are leaving free money on the table:
Also, you want to make sure you don’t fill up your TSP too early. While many service members will find it hard to get to the 2020 annual limit of $19,500, for those that do they want to space it out over the whole year. If you fill up your TSP in October and can no longer contribute for November or December, you won’t a get a match that month and will lose out on that money.
While I’m not in the BRS, I do a few things with my TSP contributions that I’d recommend everyone do:
- Contribute from your basic pay and not from bonuses or other variable or one-time pays. Your basic pay is the most consistent so use that.
- Spread it out over the whole year. For 2020, I’m contributing about $1625/month so that I come in just at the $19,500 limit in December.
- I see how much of my TSP is left after the November LES is released, and adjust December to get as close to the limit as possible.
Finance Friday Articles
Here is an article about the pay raise we just got:
Biggest military pay raise in years takes effect Jan. 1; check out the complete chart
Here are my favorites this week:
3 Examples of Why Workaholic Real Estate Investors Have It All Wrong
6 Subjects That Should Have Sparked Your Curiosity in 2019
SECURE Act — 8 Things You Need to Know
Here are the rest of the articles:
7 Financial Planning Tips for Locums Docs
11 SMART Financial Goals for Your New Year’s Resolutions
An Unkind Act – The SECURE Act
Donating to a Vanguard Charitable Donor Advised Fund from a Vanguard Brokerage Account
How The SECURE Act Changes Your Retirement Planning
Investing in a Three Fund Portfolio Across Numerous Accounts. Get the Spreadsheet!
Is Buying Stocks at an All-Time High a Good Idea?
It’s So Important to Diversify Your Real Estate Portfolio
Risk Management in Private Real Estate: 3 Types of Uncertainty
SECURE Act And Tax Extenders Creates Retirement Planning Opportunities And Challenges
Thanks for Nothing, Financial Advisor
There are two versions of the S&P 500 index — this is the better investment
The Keys to Financial Success Are Incredibly Mundane (Sorry!)
The SECURE Act: What You Should Know About Retirement Account Reforms
Joel Schofer's Career Planning Blog 