How much cash do you have in your bank accounts? (1 Viewer)

[Chemical X]

Sorry, coming in sort of mid convo here. But this is a low volatility fund that helps out with taxes? I have NO state tax, so only looking at Federal. I was going to put a bit in some CDs, but wondering if this might be a better option.

yes, federal exempt.  my fund is >5k, but they have admiral shares <5k.  you’ll have no state tax obviously.

 

[Rattle and Hum]

Can you explain these a little more?  I assume the high return is due to the risk that the home buyer just flakes out on the mortgage?

9% on $70k note is $6,300/year. If one buys that note for $59k, that $6300 represents almost 11% of the $59k. Odds are that home buyer will pay that $70k note off in 5 years which is another $11k gain (18% kicker). However, they could take the entire 30 years. We have done 3 of these. One refinanced to take us out. Another sold the house to take us out. The 3rd is making payments on a 7 year amortization. They all put $5k down and would pay 35% more per month to rent the same property...that is the motivation for them to keep paying.

 

[matuski]

9% on $70k note is $6,300/year. If one buys that note for $59k, that $6300 represents almost 11% of the $59k. Odds are that home buyer will pay that $70k note off in 5 years which is another $11k gain (18% kicker). However, they could take the entire 30 years. We have done 3 of these. One refinanced to take us out. Another sold the house to take us out. The 3rd is making payments on a 7 year amortization. They all put $5k down and would pay 35% more per month to rent the same property...that is the motivation for them to keep paying.

Who is selling that $70k note for $59k?

eta - Ok, the buyer of the home comes to you offering a $70k in note for the $59k up front to pay whatever it is they are struggling with?  You get the deed, they get it back when paid up?

 

[Rattle and Hum]

This note seller's name of this example  is Justin at  http://landcontractnotes.com . A typical discount for LC purchase is 20% but West Michigan market tightened up the past couple years. Requires a signup. Only Kalamazoo props on his site right now. PM an email address if you just want a screenshot of this one as this happens all over the country. Again, not a liquid investment.

 

[bucksoh]

I remember writing $3 checks for a 12-pack of Goebel ...delivered.  So I had that much.  

ETA:  I might have bounced a couple.  

Hope that was in high school.  That was the beer of choice because of it being so cheap.

 

[DallasDMac]

yes, federal exempt.  my fund is >5k, but they have admiral shares <5k.  you’ll have no state tax obviously.

Ah, min investment $50k. Guess the VWITX is the lower investment min version.

 

[Tiger Fan]

This note seller's name of this example  is Justin at  http://landcontractnotes.com . A typical discount for LC purchase is 20% but West Michigan market tightened up the past couple years. Requires a signup. Only Kalamazoo props on his site right now. PM an email address if you just want a screenshot of this one as this happens all over the country. Again, not a liquid investment.

Again, what's the risk...property value decline....default on payment?  I'm sure I'm missing something, but sounds too good to be true.

 

[RUSF18]

Ah, min investment $50k. Guess the VWITX is the lower investment min version.

Yeah he had that reversed. Vanguard "investor" shares have the lower minimum. "Admiral" shares charge lower fees in exchange for the higher minimum investment.

 

[Rattle and Hum]

Again, what's the risk...property value decline....default on payment?  I'm sure I'm missing something, but sounds too good to be true.

The risk is two-fold as I see it:

1) that the buyer never sells or refis so you are collecting payments for 29 years. Not the worse case scenario as you can always sell the note or lower the payoff to entice them to refi. You could probably even borrow against the deed if you needed the cash.

2) That they stop paying and/or trash the home diminishing your collateral value. With the three I did with this note seller, all three home buyers improved the properties substantially which only increased our collateral position.

LC foreclosure is quicker than warranty deed foreclosure (home buyer does not hold the deed; the note owner owns the deed). Clean it up and sell on LC again. There is a huge demand for homes selling on LC.

You might be asking why this guy does this. He probably bought the home for $24K; had $5K in expenses; collected the $5K from home buyer as down payment; then sells the note for $59K... netting $35K in a relatively short period of time.

Just google "Note Exchange" to find sites for the secondary note market.

 

[DallasDMac]

Yeah he had that reversed. Vanguard "investor" shares have the lower minimum. "Admiral" shares charge lower fees in exchange for the higher minimum investment.

Yea, that part I knew. My wife's IRA and a couple other mutuals we have at Vanguard are Admiral Shares. Either way, even the "higher" 0.19% fee is pretty incredible. Still, recent returns haven't been much better than the current 5 year CD rate. So probably stick with those for now.

 

[Judge Smails]

Too much but will start some CD laddering in the next month.  Haven't paid enough attention probably because savings rates were so low. Have a small first with 8 years left at 2.75%.  2nd will be paid off in full with upcoming bonus.  All kids college paid for, no car notes, no other debt.  So just in money run and need to be smarter with cash or start some other passive streams.

 

[Binky The Doormat]

Hope that was in high school.  That was the beer of choice because of it being so cheap.

college.  I had no checking account in high school.  

 

[Doctor Detroit]

Enough to buy a house in Detroit and feed and sex myself for 14 months. 

 

[xulf]

Enough to buy a house in Detroit and feed and sex myself for 14 months. 

Now that's what i call an emergency fund 

 

[dkp993]

Cool.  Market isn't cheap now.  Have you considered putting that money into the market in a few chunks over the year, rather than all at once?

I started my own investment on the side by creating an account at Vanguard.  I think I decided to invest in VFIAX, which is their S&P 500 Index fund.  You need to invest $3,000 to get the "Admiral" shares, which have the reduced expense ratio of 0.04% (basically zero - you keep your own money).  If I had to do it all over again I would have instead put it in VTSAX, which is their total stock market index fund.  Not much difference really.  A little broader.

A long time ago I tried investing in a few individual stocks.  I don't bother with that any more, other than dabbling in a few stocks my wife is interested in (CGC yo!).  I have long since concluded that I am not good at stock picking.  THAT is risk that I can't deal with.

As I’m just dipping my toes in these waters, max’ing my 401k but nothing else, this seems like a great starting point to park some money just sitting in my saving account. A few quick questions, if I were to put some money into one of the accounts you mentioned above (VTSAX or VFIAX) how easy is it to pull some back out if I wanted too and are there any fees associated with doing so? (I assume taxes are paid at the end of the year via capital gains?).  Thanks for all your help!

 

[proteus126]

As I’m just dipping my toes in these waters, max’ing my 401k but nothing else, this seems like a great starting point to park some money just sitting in my saving account. A few quick questions, if I were to put some money into one of the accounts you mentioned above (VTSAX or VFIAX) how easy is it to pull some back out if I wanted too and are there any fees associated with doing so? (I assume taxes are paid at the end of the year via capital gains?).  Thanks for all your help!

I have yet to pull money out, but I went online just now and went as far as I could through the process without clicking submit.  Sale of mutual funds occurs at COB same day or next day, depending on time of day.  (Stocks and ETFs you are selling or buying on the market move when you click the button).  Then it is a day or two before it shows up in your checking account.  If you do a wire of the proceeds it moves faster, with a $10 fee.  If you do an ACH transfer there is no fee, but it takes an extra day or two.

In terms of ease, it is a 3-step process that takes a minute or two.  FYI - you can also do limit orders.  Vanguard's website has good writeups on all the various kinds of transactions, their fees, and how they work.

I don't recall any fee to buy mutual funds.  Buying/selling stock had something like an $8 fee per transaction.

Your brokerage account will have something called a "Settlement Fund" if you are buying/selling individual stocks.  It is just a money market.  You buy stocks using cash in the settlement fund, or by having Vanguard pull from your checking account.

Once you have invested in mutual funds with Vanguard, you can exchange some of one fund you own for another fund you want to own, without having to park the money in the settlement fund, and without feeds I believe.  If you straight-up sell anything, proceeds can go into the settlement fund, or to your checking account, or to you in the form of a check I believe.

During tax season Vanguard makes your 1099 forms available online.  All the info you need to pay taxes on interest, dividends, and capital gains is provided.  They also provide monthly, quarterly and annual statements.

Neither VTSAX nor VFIAX produce those pesky December capital gains distributions, just a quarterly dividend of about 2%, which you will pay taxes on the following April no matter whether you take them as cash or have them automatically reinvested.  VFIAX produced 100% qualified dividends in 2018, and I imagine the same is true of VTSAX.

 

[RUSF18]

I ended up putting about 75% of our cash into one of the Vanguard tax exempt funds that was discussed. Chose the NJ fund to get the state tax benefit as well. Thanks for those who mentioned it.

 

[dkp993]

I have yet to pull money out, but I went online just now and went as far as I could through the process without clicking submit.  Sale of mutual funds occurs at COB same day or next day, depending on time of day.  (Stocks and ETFs you are selling or buying on the market move when you click the button).  Then it is a day or two before it shows up in your checking account.  If you do a wire of the proceeds it moves faster, with a $10 fee.  If you do an ACH transfer there is no fee, but it takes an extra day or two.

In terms of ease, it is a 3-step process that takes a minute or two.  FYI - you can also do limit orders.  Vanguard's website has good writeups on all the various kinds of transactions, their fees, and how they work.

I don't recall any fee to buy mutual funds.  Buying/selling stock had something like an $8 fee per transaction.

Your brokerage account will have something called a "Settlement Fund" if you are buying/selling individual stocks.  It is just a money market.  You buy stocks using cash in the settlement fund, or by having Vanguard pull from your checking account.

Once you have invested in mutual funds with Vanguard, you can exchange some of one fund you own for another fund you want to own, without having to park the money in the settlement fund, and without feeds I believe.  If you straight-up sell anything, proceeds can go into the settlement fund, or to your checking account, or to you in the form of a check I believe.

During tax season Vanguard makes your 1099 forms available online.  All the info you need to pay taxes on interest, dividends, and capital gains is provided.  They also provide monthly, quarterly and annual statements.

Neither VTSAX nor VFIAX produce those pesky December capital gains distributions, just a quarterly dividend of about 2%, which you will pay taxes on the following April no matter whether you take them as cash or have them automatically reinvested.  VFIAX produced 100% qualified dividends in 2018, and I imagine the same is true of VTSAX.

Great info.  Thank you!