Category: leaseSpread

[21]U.S.home: too many inflexibilities #w1r2

Posted on by tiger40490

See also

— livelihood vs FOMO
[L=a livelihood concern] This blogpost was written a few weeks after I defined the 6+ elements of livelihood . Grandpa and Jack.He would agree that Home ownership is not a necessity. The less affluent can stay rented long-term, so heavy rental burden is a livelihood concern.

[f/F=FOMO-related or FOMO-driven] Most of the items below are FOMO-related. The pTax, HOA and mtg burden are part of the “deal” when you join the exclub, and maintain your status … high maintenance !

== Given the multitude of constraints, we want to show (and posses) flexibility. It’s crucial to identify your points of inflexibility, i.e. your unique priorities (half-ranked) compared to peers.
— constraint: CC1 [commute] .. am not flexible. Arguably my #1 inflexibility
Sugg: favor connectivity
As explained elsewhere, long commute is not a livelihood issue
— [L] constraint: high rent in the U.S. .. am flexible
am flexible to keep renting long term, whereas my peers may prefer buying a home ASAP.
am flexible due to my Asia rental income
am flexible with half unit in small home
am flexible with lease spread including sublease
— [f] constraint: oversized price tag .. am flexible with small or old homes
Sugg: avoid big homes or top SDXQ
Sugg: buy small unit and lease spread
— [f] constraint: pTax .. am less flexible, due to my limited income + location requirements
Sugg: 43R lease spread to offset pTax
— [F] constraint: SDXQ .. am flexible with average schools.
Sugg: live rented in a reasonable SDXQ, and move if needed
— [L] constraint: CC2 [Chinese community] .. wife and I are less flexible
Possibly a livelihood issue for wife
— constraint: car-dependency .. I can reduce my inflexibility. This inflexibility severely limits my choice of location.
Sugg: favor walkable neighborhood

— constraint: resale liquidity … in a low-cost, low-growth location such as Bayonne or South Edison
Am less flexible because I hate losing money on rEstate.
“Appreciation” is related word.
— [f] constraint: mtg burden .. am less flexible, due to income
Sugg: lease spread .. pay mtg on rental property while renting
Sugg: pay down the outstanding
— [f] constraint: HOA .. am not flexible when condo location is perfect for family
am also less flexible, due to my limited income
====
— the ffree Q: The constraints listed in this blogpost highlight the limits to … my exclub status or my barebones ffree?

Jolt: If you retire early, then you would probably move to (a cheaper, more Chinese country or ) less expensive locations. Commute would be a non-issue.

You may want to cash out your residential properties and stay rented, with subleasing. Sales proceeds, invested in a “shrinking nest egg”, would pay your net rental for 30 years.

However, some affluent people would want to retire AND still keep their homes. They could use lease spread to retire somewhere “nicer”.

In any case, I don’t think CC1, CC2 are real limits to ffree.

— compared to my Chinese cohort

  • am flexible with 1) SDXQ, 2) renting forever 3) home-sharing/sublease,
  • we are inflexible with 1) CC1, 2) CC2,

— compared to a 10Y younger guy in a comparable profession

  • my #1 advantage: overseas rental income(s), substantial enough to defray the heavy burden of rental.
  • my advantage: bigger portfolio, producing a growing current income
  • my advantage: less sensitive to peer pressure, more mellow at my age
  • my advantage: semi-retired (if I so choose) .. less earn-more/move-up pressure
  • my advantage: I figured out a dev-till-70 plan, in my niche position
  • my weakness: slower adapting to daily driving

Who has more dependents? a 10Y younger guy may have 2 or 3 kids too.

usReit as initial form@ U.S.lease_spread

Posted on by tiger40490

Lease-spread has 2 legs. The income leg is based on leasing my property, which could be Reits.

The more sunshine it gets, the faster this seed grows into a full fledged plan.

Q: What if I build up a 300k Reit portfolio to generate 5% dividend [i.e. 15k/Y] and remain a renter indefinitely? When time is right, I can incrementally liquidate it to buy a rental property.

Ignoring “external” rental incomes (other housing units) but considering subletting, what’s my expected net rent outlay? $2k/M or $24k/Y. At 6% DYOC, a 400k Reit portfolio would take care of this outlay.

For the same amount of capital, how does this portfolio compared to 43R or my Asia rental properties? Fundamentally different assets but still comparable.

  • benefit: no lock-down to one location
  • benefit: incremental acquisition/liquidation
  • benefit: diversification. Lower location-specific risk
  • benefit: liquidity
  • benefit: transaction fee very good when I buy or sell
  • drawback: NRY is less deterministic than rental property
  • drawback: NRY (net) is probably much lower than 43R

— #1 drawback: no windfall appreciation. No ownership of a rental property. See https://tanbinvest.dreamhosters.com/wp-admin/post.php?post=11629&action=edit

As Brian@RTS pointed out, in most U.S. locations inflation-adjusted appreciation is insignificant. However, JC and other parts of NJ might be exceptions.

— active management legwork and emotional costs of delinquency, repairs, vacancy .. is not reflected in my rental yield. I am willing to pay the Reit operator to handle them. Reit management fee is higher than ETF, but not always disclosed.

—-

Need to reduce the mReits , and limit myself to old-fashioned lease operations. I think equity-Reit is similar to that.

##[19] G11 progress]PFF plann

Posted on by tiger40490
  • MOETF with firewall, 3Y BnF, 3min due diligence
  • exp recon process improvement

No oth please.. I feel proud of my independent thinking and progress. I feel these items are remarkable and visible signs of progress. New and better ideas for the next 1~30Y.

I guess many of my U.S. and Singapore peers don’t have such a /progressive/, continuously refined financial plan.

Even though some of them (YW.Chen, Shuo, Ash.S,…) have multiple properties; some (Venkat?) more successful with U.S. equities, I feel most of them follow the bandwagon with fewer bold departures.

  1. [aU] bold decision to stay rented on lease spread, without U.S. home ownership — lower cash flow burden than buying 700k. 700k is like Ivy League plan among the Chinese immigrants.
  2. [AU] bold decision on college fund — discussed with grandpa, Kyle etc , and more convinced than ever to avoid the rat race to branded colleges … insider.
  3. [AU] bold decision to accept average school districts and focus on conducive learning environment instead of test scores
  4. [u] surprise discovery of current income /vis-a-vis/ windfall far out
    1. analyzed three ffree scenarios, based on my detailed burn rate record
  5. deeper conviction and belief in U.S. equities, /vis-a-vis/ other regions
  6. surprise discovery of SG elderly healthcare as more efficient and accessible than feared. No driving required as in U.S.
  7. [a] incisive researched on U.S. burn rate and figured out it’s much higher than SG due to Melvin3
  8. [u] more firm than ever before on my bold decision to work till my last day
  9. bold decision to include 43R model in my default plan, rather than the conventional 2FH model
  10. [AU] singled out Bayonne and South Edison as my bold yet viable choices

Above are progresses made since mid 2018. Below are Earlier progresses, roughly ranked by importance :

  1. bold investment in a 3rd shop unit, despite the concentration risk and lower NRY guarantee than before.
  2. bold decision to choose lower CPF-LIFE payout, since I don’t need the higher monthly payout or bequest.  This decision has implication on my savings rate now.
  3. [u] tried out dividend stock investing on Robinhood
  4. [au] bold idea of sending kids to Singapore universities, avoiding the mad rat race
  5. bold idea on MYS retirement — need more evidence and research
  6. [u] bold decision to stay as contractor
  7. [u] tracked family burn rate for years
  8. [a] passive income added up
  9. [u] bold and unconventional decision to favor walkable locations, to reduce car dependency
  10. new plan on HDB jumbo unit
  11. [a/A=high leverage i.e. high impact at low effort, low distraction, low laser dispersion]
  12. [u/U=unconventional among my Chinese peers. Back bone required]

luxury(+special) Edu: unaffordable to 中产华裔

Posted on by tiger40490

opening eg: In the U.S. context, medical school is for the upper class, as Tao.Chen of RTS told me.

In the U.S. branded college is comparable to top MBA schools or Joseph Schooling’s expensive training.

Similarly, top schools (in all countries), top colleges, private tuition, enrichment programs… can be considered as luxuries that lower middle class (like me) can’t afford easily.

I would have to struggle, sacrifice, endure a lot to afford them…

My barebones ffree is insufficient for this level of luxury. Before college phase, I think luxury education could be 70% of the annual family burn rate. This luxury alone can derail my carefree life.

Similar experience — the prospect of a 700k home (with pTax + mortgage) became a threat to my cashflow carefree /position/, until I devised the lease-spread idea/plan.

XR and YH have kids attending special-needs schools. My son is smart, but to protect him from bad influences, I may need to consider expensive school districts or charter schools. These choices can increase my burn rate by 40%. However, there’s a risk —

Some of the additional spending on education may have /unimpressive/ ROI, and waste my limited resources. This would be similar to SG government spending past reserve on the wrong covid19 rescue areas — wasting limited reserve.

Therefore, before I commit to spending the money, I need to weigh the cost and benefits.

  • top school districts cost me hugely in commute, pTaxes etc
  • private schools have high fees but may not help my son grow better

 

[19]2phase strategy2cope+multiple inflexibilities: rental income

Posted on by tiger40490

Previous title: two-phase strategy to cope with multiple inflexibilities

See also U.S.home: too many inflexibilities

Buying a family home has a huge impact on comfort, street safety, confidence/financial_security, school, commute, Chinese community, car dependency, resale liquidity, burn rate (heavier than renting) … Too many concerns. It would be great if I can put off half the concerns to a later phase.

Sugg: stay rented indefinitely so I can focus on the first concerns and not worry about commitment and cash flow pressure due to a big buying decision.

The first small purchase is really a rental property to defray my rental outlay. A 250k 1st rental property promises to provide positive NRY of 0~2k/M. 2-3K/M would enable my family to enjoy the flexibility of renting indefinitely.

With enough [1] NRY, I could solve commute, school, and car dependency problem by renting as a family in Jersey City for 2~3k/M. Commute would be by bike if working in JC, or by train to NYC. There are many good public and private schools in JC. I could lease a 4k/M house and sublet rooms in other floors to recover 2k/M.

[1] 3k is realistic as of 2019.

Compared to me as a student, my son is more influenced by classmates, so he needs a suitable school. Better stay rented and flexible to accommodate his schooling needs.

Similarly, overseas NRY of 1-2k/M also enables the family to enjoy the flexibility of renting indefinitely. A 4th property in Cambodia would increase the NRY by about $1k/M… a huge boost. However, don’t assume Cambodia investment is as safe as a Singapore investment!

Actually, I will have at least 3k/M overseas rental income. Still, I WANT (not “need”) to own a rental property in U.S. while paying U.S. rental.

[17]2phase: relieve rental burden #steps

Posted on by tiger40490

All my life, I have felt very uncomfortable with big rental burden (debt too .. another topic), so I always find ways to reduce it.

  • in Newport, I was paying $2000, then increased to $2200 ! (I just hated the hike) So I quickly subleased the big room for $800 and felt much better.
  • In Fort Hamilton and Bushwick, I had to sublet one room to /reach/ an affordable rental cost level.

When my family finally comes over, I will need to find quick relief. A questionable relief is buying a home as it will further aggravate the cash-flow burden, and sink me to cash flow lower ground ! My default plan:

  1. Try to save up USD 100k (discussed below) in advance. Convert SGD if needed.
  2. give family a feel for the different parts of Bayonne. Bayonne is low-rental town. Hopefully we narrow down to 2 or 3 locations.
  3. locate the best rental home. There should be many reasonable choices so won’t take too long.
  4. Get family prepared for downsizing, potentially challenging.
  5. Pick a place up to $1500-2000/M. If too many rooms and too expensive, I will consider sublease part of it.
  6. construct a div stock (Reit) portfolio.. low volatility, to be liquidated in the next step
  7. Within 2 years (hopefully 12 months) buy a first rental property 200k-350k like 43R, with NRY to help defray my rental expense
    • It could be a pure rental property but I can still use the basement for storage.
    • If acceptable, my family could use it, reducing various risks

In the long horizon (no timeframe), I could buy a 2FH for family use, and sublet one unit. However, 2FH creates heavier cash flow burden including pTax

Q: USD 300k war chest for rental relief? How would it change my life?

  • I could stay in SG forever
  • I could target JC jobs, and spend $1.5k/M net rental in Bayonne/JSq forever. Or $2k in JC/Hob.

Q: USD 100k war chest for rental relief?

  • This amount means a lot to rental home comfort [size..]. $1k/M additional rental will exhaust this amount in 8 years !
  • This amount is insignificant for branded colleges .. not worthwhile
  • This amount is insignificant for a SDXQ home .. not worthwhile
  • This amount is easy to squirrel away, esp. in SG
  • This amount as a target bonus, is brutal and unforgiving. I won’t accept such a target. I will reject such a target.
  • To relieve work stress, I can realistic consider giving up $30k/Y salary over 10Y. USD 300k lost_pretax_income is no big deal to me. (After-tax, it would become a 200 lost income.)

owner-occupy^lease-spread #Jack.He #lease3spread

Posted on by tiger40490

https://tanbinvest.dreamhosters.com/2017/03/08/sell-a-unit-to-finance-u-s-home-purchase/ is the opposite suggestion.

My friend Jack He gave an unconventional tip about lease spread: “Buy your 1st property as investment, and don’t need to think so much about how suitable it is as a family home. Better rent a family home.” I replied “Yes, when we live in the city for a while, and figure out what we want, we can then buy a long-term home.”  Jack pointed out that if you rent, you can move very easily. When your kids go to high school, you can simply pack up and move with them. However, look at the various risks in ##U.S.home buy:don’t rush #sticky. In the scenario of disappointing rental income, it would be much better if my family can use the home. Therefore, to play safe I can’t follow Jack’s unconventional tip.

In reality my wife is unlikely to choose that. The practical benefits of staying in our own home are overwhelming:

  • can renovate the way we want __but__ DIY is painful
  • can buy nice furniture
  • tax rebate. Assuming 25% marginal tax rate, a $1k mortgage interest (not the full installment) you pay could save $250 on tax.
  • Some pTax amounts are also deductible from your income tax? See https://turbotax.intuit.com/tax-tools/tax-tips/Home-Ownership/Claiming-Property-Taxes-on-Your-Tax-Return/INF29463.html
  • some sense of ownership and security __but__ my (4+) overseas properties already provides it.
  • — Jersey City realtor Zak wrote 8 reasons to give up renting. Here are some of his pointers —
  • lower cost-variability than renting over longer horizon, assuming you take a fixed-rate mortgage. no worry about rent increase, lease termination etc __but__ the stability also ties you down

Many non-Chinese families really prefer renting indefinitely, with benefits:

  • can minimize commute
  • no tie-down, as Jack He said
  • no maintenance burden
  • no DIY home improvement dilemma
  • sublease, if your property is too big
  • less worry about bad neighbors
  • no worry about damage to the property
  • no risk of unexpected poor liquidity… hard to sell
  • easy move when you find out the neighborhood is dirty, has drugs …
  • easy move when you find out the daily commute is too long
  • when your kids graduate to a higher-level school ..
  • If you don’t like the school ..
  • If mom or dad gets a new job ..

Sugg #1: As a first milestone, buy a rental property for rental income, and stay rented with family indefinitely (perhaps with a sublease tenant[3]). Jack He felt this is a good idea. To maximize rental yield, consider 43 Rockledge hotel model

Sugg #2 : buy a smaller home for the family, and stay alone rented near office half the days for a few months, just like John, Shanyou, Alok and Deepak did at RTS

[3] lease3spread .. involves 3 rental _payments_

rental prop family sub-tenant
             2FH
typical $2000 -$3000 $1000
payer – me –
receiver me – me
owner me – –