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Moved to Holland; contemplating a stateside return?

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plush
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Moved to Holland; contemplating a stateside return?  Reply with quote  

I'm hoping for some general advice/someone's ear. My wife, daughter and I moved to the Netherlands in August of this year and I'm a bit homesick. There is a lot this country has to offer, and life is considerably better in many ways that matter to us, but home is home and I want to be prepared in the event that we do decide to move back. Truth be told I'm feeling a bit lost and paralyzed.

I gave up my work as a realtor when we moved and took a massive pay-cut with my new business (providing support services to other realtors), though a majority of my real estate clients don't know we're gone. The new work is easy and we're covering our expenses, but I no longer have an active role in building wealth. If we stayed here permanently, I would be able to join the workforce once I'm naturalized in 5 years, which means I'd be guaranteed a pension by law and building wealth wouldn't be as critical to our survival as it would in the US--but the 'merican in me wants to do more and sees some value in the risk and joy in the effort. I can't help it. We sold everything when we left, except for our houses and some furniture in storage, but we're low maintenance and could get re-established fairly easily.

I'm 31 years old and I own two houses in the US. Between them I earn about $500/mo in cash flow from great renters and have an equity value of $153,000 (both leveraged, total real estate value of $585,000). I have $70k in the bank and no other investments to speak of. My wife and I owe $37,000 on our graduate student loans which eats up our rental cash flow. For now we are taking the interest deduction on them, though that's slated to go away in 2018. I'd like to have a plan around paying them off as they're at 6.8%.

At minimum we will be here for another 8 months (the remaining term of our lease). By then we should be able to tick a dozen countries off of our wishlist, which was one of the primary goals to moving abroad. I'm still committed to doing that.

If we do move back, I'm wondering what we should do first. I've played with the idea of keeping my two other houses and buying a condo in cash, and occupying it until my business picks up steam. The condo, or owning anything outright, represents stability to me. Alternatively we could sell one of our houses and take the $100k equity tax free, add some cash, and buy something more suitable for our growing family, either outright or with a small mortgage. I believe I can earn approximately $180k net once I'm fully back in the swing of things (12-18 months), though I want the option to step away for extended periods for domestic and international travel, time with family, health, hobbies, etc, so keeping our debt service low is extremely important to me. It's an emotional desire as I know I could earn enough handle payments on something ideal for my family without ever going belly up, but owning the entirety of my residence would likely make me a better, more systematic investor and less of a worry-wort.

I guess I'm just curious what would be a good action plan if we did move back. What would you do?
Post Mon Dec 18, 2017 1:45 pm
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oldguy
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quote:
. plush said - I'm ready to purchase VFINX (I am starting with $5000 and will bump to $10,000 by the end of this month,


I hope you got this done last year, it's a 26% return. Very Happy

You've had a very exciting year, Holland is a fun place to visit. I s'pose you hit the Coffeeshops? And you're located such that you can easily take trains to most European spots of interest - w/o exposing your family to the not-so-nice spots.


quote:
My wife and I owe $37,000 on our graduate student loans which eats up our rental cash flow. For now we are taking the interest deduction on them, though that's slated to go away in 2018. I'd like to have a plan around paying them off as they're at 6.8%.


Check - but I think you are wrong about the deductibility of business expenses in 2018. The change to mortgage interest applies to a residence.
As for prepaying 6.8% capital - I would probably keep the loan, retain the use of capital, and place it where you get a >11%/return.

Re keeping your rentals and paying cash for a condo - I would pay about 10% 'down' on the condo and get a 30 yr fixed rate ~4% loan. Residence loans are about 4%, rental loans require about 25% 'down' and >5% interest. So max the residence loan, that is inexpensive capital.

quote:
but owning the entirety of my residence would likely make me a better, more systematic investor and less of a worry-wort.


No. lol, but you find yourself in the same camp with most Americans. But you'll have a way higher probability of being a multi-millionaire if your learn a to manage risk & debt.
Post Mon Dec 18, 2017 5:07 pm
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plush
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Thanks oldguy, I know I can always count on you to slap some sense into me. Laughing

Guess I've got some thinking to do. After posting that I ran some numbers regarding a stickbuilt SFR purchase (rather than a condo), assumed an average 3% annual property value growth and 100k down on a $350k purchase (arbitrary number and arguably too high on a low interest mortgage, but bear with me), and I saw our equity position across those properties hit $750k at year 10 between equity growth and debt paydown, assuming we buy no additional rentals. Assuming we pick up a couple more rentals in that period and find a way to sock additional capital into mutual funds, I think hitting $1MM within 7-10 years is very doable given the income and prospective equity growth. I chose that number because financing $250k would result in a payment that our other rentals cover about half of. But I know the inverse way of looking at it is borrowing capital against myself at 4% to invest in higher returning assets. I get it.

Here's a question: If I put 10% down on a $350k purchase, I'm leveraging quite a bit more, which results in a higher payment but more capital left over to invest elsewhere. Since property value moves fairly consistently across price ranges (e.g. a condo doesn't typically jump 15% in one year while a detached SFR loses 5% in the same market), how do you reconcile buying the appropriate amount of house that will provide substantial equity growth with a manageable payment? Do you have a golden rule for your primary residence, rather than what the lender will offer you in terms of max DTI?

One of my more affluent past clients bought a $610,000 house (very expensive for our market) in 2014. I comped it out recently at $825,000. In 3 years, his equity has grown $215,000, (or $71,000 + per year) not counting debt paydowns and tax deductions. That's a solid job for most people, earned tax free. I would NOT want his payments, especially at 10% down, but that is enviable equity growth and seems like it could accelerate wealth building (albeit at more risk).

Thoughts on those ramblings?
Post Mon Dec 18, 2017 7:45 pm
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oldguy
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In 3 years, his equity has grown $215,000, (or $71,000 + per year)


And if he put down only $61,000, he got a return of more than 100%.
But, as you say, you wouln't want his payments. OTOH, if it was a rental, and the rent was more than the payments - then it looks pretty good.

As for putting more down on a rental house to get positive cash flow - I do the opposite, I don't want extra taxable income, I prefer to build tax-deferred equity. (your client with the $215,000 gain owes no tax).
Post Mon Dec 18, 2017 9:32 pm
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plush
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Very true, oldguy.

I'm not sure how this stint abroad will affect my ability to qualify for a new mortgage if we return in the fall of 2018. My 2017 income was good, but 2018 won't compare if I'm not selling real estate from January - September (first commission check likely in November if we return in Sept), so an income verification/bank statement review will show income from a new source (my current, new business) rather than from selling, which I've done since 2011. It'll be much lower, and considerably newer, too.

Under any circumstances would you finance via private money at 8-10% on a short term loan (maybe even interest only) with intention to refinance after 1-2 years if it meant not renting or buying something in cash? Or would you advise buying the condo in cash, then using it as a source of capital to refi/sell and fund the future home down payment with?
Post Tue Dec 19, 2017 6:23 pm
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oldguy
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I probably wouldn't use a shortterm loan w/ the intention of doing a refi later. In the 1970s/80s that caused a major bubble, rates suddenly jumped to 14%, 15%. That virtually stopped all elective real estate transactions - and the people that needed to move (for a job) were screwed. House values plummeted so you were under-water, couldn't sell. And if you did sell, then you were forced to pay 15% for your new loan.

As for the IO loan - I liked those - for a landlord, it is nice to not have to spend your capital on principal. I refi'd my rentals whenever they built up equity and re-invested elsewhere (sometimes more houses). The IO loans were essentially "automatic" refi's, I didn't need to refi as often.
Post Tue Dec 19, 2017 6:59 pm
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slope game  Reply with quote  

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Post Thu Dec 21, 2017 3:21 pm
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plush
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quote:
Originally posted by oldguy
I probably wouldn't use a shortterm loan w/ the intention of doing a refi later. In the 1970s/80s that caused a major bubble, rates suddenly jumped to 14%, 15%. That virtually stopped all elective real estate transactions - and the people that needed to move (for a job) were screwed. House values plummeted so you were under-water, couldn't sell. And if you did sell, then you were forced to pay 15% for your new loan.

As for the IO loan - I liked those - for a landlord, it is nice to not have to spend your capital on principal. I refi'd my rentals whenever they built up equity and re-invested elsewhere (sometimes more houses). The IO loans were essentially "automatic" refi's, I didn't need to refi as often.


Thanks again. This is probably not the time to get all hot and bothered about buying a 3rd property. Maybe we should just re-occupy our last house, make some minor comfort changes to it, re-establish the real estate brokerage business, and get on an investment routine like we talked about before ($1000 per month into VFINX or equivalent until we can increase it). Maybe the same dollar amount going into a savings account concurrently for a future down on a future home or rental property? Thoughts on that?
Post Thu Dec 21, 2017 5:41 pm
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oldguy
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quote:
($1000 per month into VFINX or equivalent until we can increase it). Maybe the same dollar amount going into a savings account concurrently for a future down on a future home or rental property? Thoughts on that?


If one of the rentals is available and suitable (location, size, quality), that sounds like a good solution. But if it needs any changes/updates I would avoid it. In general, upgrades add very little to the appraisal of a house - eg, you spend $40k to upgrade a kitchen and add only $10k to your NW.

As for the VFINX and a Savings account - I would put it all in VFINX. We seldom use a traditional EF (savings, CD, etc). I use a brokerage account instead. And sell some if I need a 'down' for another house. (but that seldom happens, I almost always negotiate a near-zero 'down'.
The risk is that I could get caught in a market sell-off and be forced to sell VFINX at a low price. But, after about 45 years of doing this, I can tell you that the 11%/yr return FAR out-weighs any loss due to forced sales.

We use that same brokerage account for such things as new cars - I never pay cash for a car. To pay cash I would sell about $34k of VFINX, spend $4k on cap gains tax and $30k on the car. Instead I make a zero 'down' and leave our money in the VFINX where I expect that $34k to double to $68k in 6 or 7 years, on average.
Post Thu Dec 21, 2017 7:46 pm
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plush
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quote:
Originally posted by oldguy

If one of the rentals is available and suitable (location, size, quality), that sounds like a good solution. But if it needs any changes/updates I would avoid it. In general, upgrades add very little to the appraisal of a house - eg, you spend $40k to upgrade a kitchen and add only $10k to your NW.


Good point and good advice. I think the only things we would want to do are small issues that nagged us while we were living there. There's no off-street parking as it's a very downtown location, so cutting a driveway and paving a small pad would be a cheap fix that could also potentially help with value for not much $. My father, a collector of all things unnecessary, has a cement mixer and access to material for pretty cheap from a lifetime of work in that field. Probably a few hundred bucks and an afternoon or two. But I get your point and would not sink money into the house to modernize the kitchen (it's fine and reasonably updated), lay new flooring, etc. Nothing else needs to be done; it's not really lacking in any other ways.

quote:
As for the VFINX and a Savings account - I would put it all in VFINX.


If my goal was to get $50k in the VFINX in 2018, would you advise a dollar-cost averaging strategy starting on January 1 (put a little over $4k in a month, set it up on auto-pilot to protect me from myself), and then do the $1000 per month scheme once we're back in the US and earning more money? Or would you just do a lump sum purchase of it right away/when we get back?

Thank you; I always appreciate your advice and wisdom.
Post Fri Dec 22, 2017 2:41 pm
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oldguy
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In theory, you do better by lump-sum investing. That's because the Market always goes up, how else could it have gotten to 24,000 points (from 1000 about 35 years ago)?

But whenever I sell a house, etc, and have a 6-figure 'lump', I chicken out and DCA into 2 or 4 lumps and spread it over a year or so. And I've been WRONG every time, lol.
Post Fri Dec 22, 2017 3:40 pm
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plush
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quote:
Originally posted by oldguy
In theory, you do better by lump-sum investing. That's because the Market always goes up, how else could it have gotten to 24,000 points (from 1000 about 35 years ago)?

But whenever I sell a house, etc, and have a 6-figure 'lump', I chicken out and DCA into 2 or 4 lumps and spread it over a year or so. And I've been WRONG every time, lol.


Good to know! The initial $50k investment is really just a beefy emergency fund for us that we won't have to touch unless the sky falls. In theory, even if the fund had an unlikely loss of 40% of its value at a time we needed it most, we'd still have plenty of cash to pick up the pieces from a tragedy, I'd think. Especially if we keep feeding it in the interim. I've always kept EFs in my savings account, where it has promptly done nothing but sit there, and I can see how little sense that makes once you have beyond a few thousand bucks to your name.

Since the market is so consistent over the long-haul at the 11% you mention, would it be advisable to sell our 70's built rental (likely coming due on expensive maintenance--a fence, possibly a roof, HVAC work etc--over the next 5-7 years) and plop the sale proceeds in the VFINX (about $90k?) Or should we hang onto it and refi cash out for that purpose in a few years? It cash flows a few hundred per month, which I know you're not a fan of but I thought I'd mention it, and is about 67% LTV. The max we'd be able to pull out right now is $30k or so if my math is correct (to keep under 80% LTV). At that rate it would probably still break even against itself (mortgage $1190, under rented at $1495). Since we're not occupying it I'm sure the rate on a HELOC/cash-out refi would be a bit higher and make it less enticing. What do you think?

P.S.
I should also mention we bought the home at 5% down in 2014 for $205k with seller paid closing costs. It's worth between $275k - $285k at the moment, and we owe $185k on it. As a realtor I'd save on the listing commission if we needed to sell it, and 2.5% is pretty much the going rate for buyer agent commission in our market.
Post Fri Dec 22, 2017 10:14 pm
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oldguy
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quote:
Since the market is so consistent over the long-haul at the 11% you mention


Here's a site that displays the history in an easy format -
http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html#.Wj5XtjdG2Ul

You can pick most any 30-year-block of time and check the longterm average.
(I liked the 18-year block from 1981 to 1999, money was doubling about every 4.5 years - Rule of 72)
Post Sat Dec 23, 2017 1:24 pm
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plush
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Thanks for the link, oldguy. I played around with several periods and see that you're right. Hopefully historical returns continue to show up in the future. Smile

If we relocate to the states, we'd occupy property #2 which is maybe 75% LTV based on current values, so not much equity to tap. Even though the equity position is higher, I don't think occupying property #1 would be appropriate (bad location, small, dated, etc).

Did you ever have trouble doing cash out refinances on your investment properties? I'm hearing it's difficult to go higher than a 60% LTV since it's seen as higher risk in the mortgage world. Did you refi while occupying to pull out cash for investment, or were you able to do it as a non-occupant? Any recommendations or thoughts on that?
Post Wed Dec 27, 2017 2:37 pm
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oldguy
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quote:
Did you ever have trouble doing cash out refinances on your investment properties?


Seldom had trouble - and it was usually easy to shop it around and find a lender. Sometimes, the govt puts up some restrictive hurdles that over-correct a previous problem (such as the foreclosure explosion after 2008) . You might run into a young underwriter who suspects that you want to grab the cash and buy a new car or boat (cuz that's what he would do?). They normally ask what you are going to do with the cash - so it is good to know the answer. In my case it was to re-invest - and I could show a track-record. I also had a long work history (engineer) & a string of W2's.
I sometimes combined houses to build up the LTV - eg, a second loan on our home, a car loan, etc. to rearrange our NW to meet some requirement.

Lenders need to place whatever capital that they have - as well as earn a commission on how many 'good' loans that they can place. So they use more than just the numbers, they form an opinion of your character based on their judgment of your history. Some will look at you move to Europe and say "I wish I had done that, what a great experience for a young family, and now it's out of their system, will be a solid earner for life." Others will say "this guy is a flake, he could skip out on a loan and hide in russia for life." But not a problem, find the one who thinks it was a great move.

quote:
Hopefully historical returns continue to show up in the future.


Yup - an age-old generational question. I agonized that one back in the 1960's - I went to the stacks a the Library and ground thru old WSJ's - no computers, no google, lol. Fortunately I picked the right answer - and stayed the course for 40 or 50 years. But as backups, I took the state test and got my RE license - and I kept up my chauffeurs license from when I drove 18-wheelers as a summer job in college. So if the engineering profession had ever cratered, I would have driven a truck or sold houses.
Post Wed Dec 27, 2017 4:44 pm
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