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 Post subject: Overwhelmed
PostPosted: Fri Feb 01, 2013 3:13 pm 

Joined: Fri Feb 01, 2013 2:53 pm
Posts: 3
First, hello everyone. I have had a lot going on in the past couple years, and would love some general guidance. For background, i'm 32, married, and have two kids.

I started a tech company back in 2002 which was recently acquired. Specifically, I will end up receiving 5 million personally from the deal over the next 5 years. Once the 5 million has been paid, I will be retained as a 15% shareholder and basically act as an adviser going forward. I also own a second tech company which we started back in 2009. It does quite well and my salary there is in the 160-180K range. I'm slightly overwhelmed because prior to 2010 I was scraping by on a significantly lower income.

I personally own 1 home which I have as a rental property. It's cash flow positive and inexpensive to maintain.

The home we live in now, we placed solely in my wife's name. It was an older home that we picked up for 180K. I then remodeled the home (using cash), and we currently live there.

In two months we are relocating our current company to a larger city, so we are looking at purchasing a 3rd home solely in my name. This home will likely be in the 350-450K range, and we plan to stay there for some time.

Investment wise, i'm really just starting. I have 22K in stocks, 15K in a Roth IRA that I started when I was 18. We recently opened an HSA, got my wife going with an IRA, and i'm in the process of starting a 401K. I have about 42K in cash.

Right now we are torn as far as what to do with the house we currently live in. On the one hand, we can likely sell it and at minimum walk away with 100K equity. On the other hand, we can keep it, add a second rental property to the mix and bring in more cash flow. If we refi the house, the payment should be around 700 a month with what we owe, and it should easily rent for 1400-1500 a month with no problem.

With interest rates as low as they are, I don't know that it really makes sense for us to focus on paying any of the houses off?

After that, my questions really center around where to put money going forward. From what I have read, I plan to start by putting cash into my tax advantaged accounts like the two IRA's, the 401K, and our HSA. That helps offset my regular income of 160-180K, but what do I look at for the 5 million as that starts to come in?

Thank you in advance. I'm reading and absorbing all I can at this point. I like to fully understand my options when it comes to this stuff.


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 Post subject: Re: Overwhelmed
PostPosted: Fri Feb 01, 2013 3:30 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
I dislike real estate, mainly b/c it is a PITA. Especially owning something long distance. To me, I'd cleanse myself of the rentals. Why do you put things solely in each other's name? From a legal perspective there is an advantage, but tax wise, if filing jointly, there isn't.

Personally, with your future and potential wealth, you'll need to ask yourself what is worth your time. It seems like you've done well with the Techs, and perhaps your efforts are better spent there rather than taking calls about a leaking toilet.

Do you currently have a 401k plan? OR are you doing a SEP-IRA? I think tax advantaged accounts are probably the better bet, but you will need to venture out into the taxable investment world. Also, what about college for the kiddos? Do you want to retire early? All these things play a role on where you should invest your money.

You've done well. Don't screw it up. If you have the time, pick up the Boglehead's investing book (or get it from the library). Perhaps, your wife can take the initiative in this area if you are strapped for time.

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Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Overwhelmed
PostPosted: Fri Feb 01, 2013 3:49 pm 

Joined: Fri Feb 01, 2013 2:53 pm
Posts: 3
I definitely hear what you are saying as far as the rentals go. We've been using a rental agency that handles repairs, management, finding tenants, background checks, etc. It's pretty hands off.

We actually do the houses in one persons name based on some advice we received from a mortgage broker we had when we purchased our first home together (second home, but first married). At the time it was a way to separate the risk. If something happened it would only tank one persons credit instead of impacting both of us. It has worked out well for us, and is the only reason we can qualify for this third home.

I don't have a 401K currently. Our corporate structure is somewhat odd. The company I sold was an S corp with my partner and I as the two sole shareholders. We weren't employees, wages were sent to two sub corps (one owned by myself, and one by my partner). We do the same thing with our newer company. Because of this, I don't have a 401K through either of the parent corporations. I have my IRA and my taxable stock account with sharebuilder, and they offer a 401K plan for sole owners in a business (which my sub corp qualifies as), so that was my next move.

I have has a SEP suggested to me in the past, just haven't put in the research. I started my investing somewhat backwards placing almost all of my current stocks in taxable accounts. I'm starting to realize that while I should still invest there, I should probably do so AFTER maxing out my tax advantaged accounts.

Thank you for the book suggestion, I will definitely pick that up this weekend.

I think you summed it up, I just don't want to screw this up. I have watched my parents blow through all of their money as quickly as it came in, and as a result they likely are going to have nothing come "retirement" age. My first goal is to avoid their mistakes. College for the kids is definitely a concern. A 529 plan for that? I don't know about early retirement. I love what I do and see myself working in some capacity for a very long time, but freedom would be nice. Good short term and long term income coming in, so work isn't such a necessity.

Thanks again


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 Post subject: Re: Overwhelmed
PostPosted: Sun Feb 03, 2013 7:16 am 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
techguy wrote:
I definitely hear what you are saying as far as the rentals go. We've been using a rental agency that handles repairs, management, finding tenants, background checks, etc. It's pretty hands off.

We actually do the houses in one persons name based on some advice we received from a mortgage broker we had when we purchased our first home together (second home, but first married). At the time it was a way to separate the risk. If something happened it would only tank one persons credit instead of impacting both of us. It has worked out well for us, and is the only reason we can qualify for this third home.

I don't have a 401K currently. Our corporate structure is somewhat odd. The company I sold was an S corp with my partner and I as the two sole shareholders. We weren't employees, wages were sent to two sub corps (one owned by myself, and one by my partner). We do the same thing with our newer company. Because of this, I don't have a 401K through either of the parent corporations. I have my IRA and my taxable stock account with sharebuilder, and they offer a 401K plan for sole owners in a business (which my sub corp qualifies as), so that was my next move.

I have has a SEP suggested to me in the past, just haven't put in the research. I started my investing somewhat backwards placing almost all of my current stocks in taxable accounts. I'm starting to realize that while I should still invest there, I should probably do so AFTER maxing out my tax advantaged accounts.

Thank you for the book suggestion, I will definitely pick that up this weekend.

I think you summed it up, I just don't want to screw this up. I have watched my parents blow through all of their money as quickly as it came in, and as a result they likely are going to have nothing come "retirement" age. My first goal is to avoid their mistakes. College for the kids is definitely a concern. A 529 plan for that? I don't know about early retirement. I love what I do and see myself working in some capacity for a very long time, but freedom would be nice. Good short term and long term income coming in, so work isn't such a necessity.

Thanks again


You have some time, so educate yourself. it seems with the $5MM, you should be FI if you play your cards correctly.

It's difficult to make specific recommendations without details. For example, 529. Without knowing what state you live in and what you want to give your kids, it's difficult. some states offer crappy investments with high fees, but you may get a small tax deduction if you live there. But, you can invest in any state's plan, but you don't get tax deduction if you don't file there. so, it can make sense to pass on your state's plan for a state like Utah's.

My guess is, you can't do a solo 401k, but I'm not too savvy in this area.

Ask specific questions as they arise.

_________________
Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Overwhelmed
PostPosted: Sun Feb 03, 2013 11:02 am 

Joined: Fri Jan 18, 2013 7:21 am
Posts: 95
Location: New York
techguy wrote:
I definitely hear what you are saying as far as the rentals go. We've been using a rental agency that handles repairs, management, finding tenants, background checks, etc. It's pretty hands off.


This has been my experience as well. If you manage to stay cash-flow positive even with the management fees and have the cash to withstand the occasional hiccup, I don't see why you wouldn't want to keep it.

Quote:
We actually do the houses in one persons name based on some advice we received from a mortgage broker we had when we purchased our first home together (second home, but first married). At the time it was a way to separate the risk. If something happened it would only tank one persons credit instead of impacting both of us. It has worked out well for us, and is the only reason we can qualify for this third home.


Hadn't thought of that, but it makes a lot of sense.

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 Post subject: Re: Overwhelmed
PostPosted: Mon Feb 04, 2013 11:02 am 

Joined: Fri Feb 01, 2013 2:53 pm
Posts: 3
Bichon, fantastic book suggestion. I read it straight through over the weekend. It makes things so simple, and puts a lot into perspective. I'm going to take some of what I learned and apply it while furthering my reading.


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 Post subject: Re: Overwhelmed
PostPosted: Mon Feb 04, 2013 2:36 pm 

Joined: Sat Jun 16, 2012 8:06 am
Posts: 91
Before you worry about investing your money, some questions:

Do you have a will? Would a trust be better? What insurance do you have? Would an ILIT be helpful in paying possible estate taxes? Do you have a Durable Healthcare Power of Attorney form done that has been updated with the 2009 POLST instructions?

Financial planning is NOT solely your investment ROI. Especially in your situation, you need some good advisors to help you run some numbers on "what if?" scenarios. If your life is as busy and complex as most moderately wealthy people I know, competent independent fiduciaries - legal, tax, and financial - can be of great assistance.

It takes time and effort to find, interview, and discuss your situation/goals fully with such professionals. Do this first, before you worry about what portfolio allocation you need.

Nobody plans on dying or becoming disabled. The better your financial prospects are, the more risk you are letting in your life. Good professional fiduciaries can help to minimize risk in your life....because the more $$$ you have, the more you have to lose.


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 Post subject: Re: Overwhelmed
PostPosted: Wed Feb 06, 2013 8:19 am 

Joined: Fri Jun 25, 2010 3:06 pm
Posts: 81
First thing to do is figure out what your priorities are. Do you want to become a full time landlord? Do you want to grow your 2nd business? Do you want to start a new business? Do you want to retire and spend the rest of your life traveling the world?

From there you can decide where your money is best placed. If you just want to store cash and keep the status quo, a good index fund for stocks and a mix of bonds is pretty standard.


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