Kimiko is dismayed that the asset allocation books she’s read led her down a path to an underperforming portfolio heavy in ex-US stock investments. Where should she go from here?
Julie and her husband dream of owning a vacation rental in the Denver area even though the math doesn’t add up. It seems like everyone around can make it work though. What’s missing?
Casey is excited to build his real estate portfolio and purchase his third rental property. He’s also worried that his plan to fund the purchase with his 457 Plan is flawed. What should he do?
Former financial planner Joe Saul-Sehy and I tackle these three questions in today’s episode.
Enjoy!
P.S. Got a question? Leave it here.
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Kimiko asks (at 02:07 minutes): On episode 501, you spoke about the differences between the US and ex-US stock market since 2008. Can you elaborate on that?
I was stunned to discover that my ex-US stock investments only gained 25 percent since 2010. Heeding the advice of a number of books, I’d put a sizeable chunk of savings in these indexes.
Conceptually, I understand that underperforming asset categories have a better chance of doing better than overperformers in the future. But I feel burned by the history of the past 15 years.
What are your current recommendations regarding foreign asset allocations, especially in light of projected growth due to AI? My financial institution recommends 35 to 55 percent.
What’s your approach to this in your own portfolio? And what are others in the personal finance community doing with their holdings?
Julie asks (at 27:20 minutes): My husband and I want to buy a second home as a vacation home and rental in the Denver area. The math seems to work for everyone but us. What’s missing?
We’re 45 and 42 and our three kids are aged 15, 14, and 10. For 10 years, we’ve tried and failed to figure out how to make a vacation home purchase a wise financial investment.
We’d love a mountain house to use over the summer and some weekends, and rent it out short-term for the rest of the year.
But the math just doesn’t add up, especially when HOA fees are factored in. In our area, HOA fees range anywhere from $500 to $1500 or more per month.
This typically includes trash, cable, heating, etc. but doesn’t include special assessments and other one-time fees or major expenses.
We’re confused because we know a lot of families our age or older who own these kinds of places. We imagine that somebody has to be making money.
Can you help us understand how they’re making it work? Are these people paying cash for their properties and as a result they can cover the HOA fees using their rental income?
From our calculations it seems like you could probably break even if everything goes perfectly, but there isn’t much room for error.
We don’t have $500,000 cash to put towards a property like this so we’d have to make it work with a mortgage. Even if we did, would that make a difference in the calculation?
How do we make this a good investment for us?
Casey asks (at 48:41 minutes): (References Episode 484)
I’ve been getting my foot into real estate over the past five years and recently had the itch to buy a third property. Should I tap into funds from my 457 to finance my next purchase?
I bought my first single-family rental property a year ago. It’s a long-term rental with a solid tenant so far. The rent on the property easily pays the mortgage and then some.
I also live with a roommate as a house-hack and their rent effectively pays the monthly mortgage on my condo.
I’d like to buy a vacation condo on the coast in Florida for my third property. The cost ranges from $150,000 to $200,000. I’d rent it out short-term and use it as a vacation pad for myself.
I can access $50,000 in a line of credit on my primary residency and $50,000 in a 457 plan through my employer. My parents would also be willing to lend me $50,000 to $100,000,
This would give me $150,000 to $200,000 to purchase a property in cash. I’d then get a mortgage on the property to repay the HELOC and my parents.
However, I’m hesitant to use the $50,000 in my 457 plan to accomplish this goal. On the one hand, this isn’t money that I plan on using for retirement and there’s no early withdrawal penalty.
On the other hand, I’d be giving up a tax shelter and I’d be taxed on the withdrawal based on my marginal tax bracket of 35 percent.
Is this a good idea? What are the key points I should consider as I think through this dilemma?
Resources Mentioned:
Morningstar Portfolio Visualizer | Website
IRC 457b Deferred Compensation Plans | Website
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