Author Topic: Passive Income  (Read 3784 times)

malbec

  • Apprentice
  • *
  • Posts: 2
  • Karma: +0/-0
Passive Income
« on: May 12, 2019, 05:39:08 PM »
Hi Financial Samurai Community,

I love the ranking on passive income but I would love to see more about how each strategy is different for high income tax payers. For example, investing in real estate is great passive income and a great asset class to diversify from the financial market. However, real estate is taxed as ordinary income and for someone in top bracket may not be so good return for your  $$.

Does anyone have a good adjusted passive income strategy for high income payers.

Thank you!!

AdamJane

  • Apprentice
  • *
  • Posts: 15
  • Karma: +7/-0
Re: Passive Income
« Reply #1 on: May 13, 2019, 06:36:38 AM »
Malbec,

Sam wrote a great post on passive income which is listed on the main site.

https://www.financialsamurai.com/ranking-the-best-passive-income-investments/

My wife and I only buy NY individual muni bonds which are State and Federal tax free so IF your state is financially strong then you may consider buying them.

For 2019, our munis will generate a bit over 100K tax free.

Adam
« Last Edit: May 13, 2019, 11:36:51 AM by AdamJane »

Sam

  • Shogun, Administrator
  • *****
  • Posts: 523
  • Karma: +87/-3
  • Always curious
Re: Passive Income
« Reply #2 on: May 13, 2019, 11:07:04 AM »
 I should probably update the post with a sixth factor: taxes.

 But taxes really depend on your current income and whether you want to work or not.

I have A LOT of muni bonds and muni ETFs like CMF and MUB. Check them out.

The reason is bc California is one of the highest income tax states and I currently generate active income from my website.
Regards,

Sam

malbec

  • Apprentice
  • *
  • Posts: 2
  • Karma: +0/-0
Re: Passive Income
« Reply #3 on: May 14, 2019, 06:03:50 PM »
Thank you both for your reponses.
Yep I saw what Sam published and that's what trigger me to publish this post. Thank you AdamJane.

I live in NYC so yep I am paying a lot of federal and state tax since my wife and I both work and we are in the highest income bracket.
Muni are great for taxes and I agree those two etfs from iShares are great.

Right now I have saving account with Ally Bank paying us ~2.1% (apart from the typicall citi/chase accounts) and then our portfolio is a concentrated equity portfolio of 10 names (value investor but with some growth names).

anyway what I am looking is to diversify in RE; however I found that right now for us is very inefficient in term of taxes or I am going to pay too many taxes which would reduce my yield or passive income significantly

I am curious to learn more on how you see RE as a passive income in terms of taxes
thank you!


AdamJane

  • Apprentice
  • *
  • Posts: 15
  • Karma: +7/-0
Re: Passive Income
« Reply #4 on: May 14, 2019, 07:16:49 PM »
RE with tenants is NOT passive income. My parents have 2 houses in Queens, NY with 5 tenants. My brother manages both properties and tenants. There are up keep and maintenance issues. One tenant has fallen on hard times and has not paid rent in over 5 months. Think carefully what you wish for. Both homes were purchased in the 1970’s and my brother and I used to follow my dad to the houses to address issues. I knew at a very young age that I NEVER want deal with a rental property. In NYC, RE property tax is high. Gas for heating, electric and water are expensive with tenants. If you are lucky to find good tenants then they will be able to paid off your mortgage. My parents houses cost around 65-75K each back then and now they are worth about 1 to 1.5mil each. After expenses and taxes, my parents don’t have that much income. I like my tax and stress free munis over RE rentals. Many people invest in REIT and RE crowdfunding for truly passive income BUT look at Realtyshares posts on this forum. There are many people who invested with Realtyshares and have concerns about getting their investments back.

My wife and I have a single family house in Queens that we live in. Purchased in the 90’s for 260K and now worth 900K to 1mil so I like RE to live in and not to deal with rentals. Just make sure you purchase in the right location in NYC.

Adam
« Last Edit: May 14, 2019, 07:26:02 PM by AdamJane »

david123

  • Apprentice
  • *
  • Posts: 37
  • Karma: +9/-0
Re: Passive Income
« Reply #5 on: August 14, 2019, 06:11:27 AM »
This is a great topic, and one I am very interested in.  At 50 years old I'm finally coming to the conclusion that is not how much you make, but how much you can keep.  Taxes are a killer.  My wife and I are both w2 employees, so other than 401ks there are not many tax shelters available.  I've been looking at investment real estate - but even the depreciation is pretty minor.  I've been looking into self directed IRAs (and Roths), and solo 401ks, but you need to be self employed.  That is where the real estate or AirBnBs come in.  Seems like high risk for relatively low reward and lots of restrictions.

I'm open to other ideas.  Muni's seem interesting.  I'm in Illinois and our state taxes will be going up soon, but betting on Illinois finances is probably not a good idea.  Any muni's worth considering?

Sam

  • Shogun, Administrator
  • *****
  • Posts: 523
  • Karma: +87/-3
  • Always curious
Re: Passive Income
« Reply #6 on: August 14, 2019, 08:37:37 PM »
This is a great topic, and one I am very interested in.  At 50 years old I'm finally coming to the conclusion that is not how much you make, but how much you can keep.  Taxes are a killer.  My wife and I are both w2 employees, so other than 401ks there are not many tax shelters available.  I've been looking at investment real estate - but even the depreciation is pretty minor.  I've been looking into self directed IRAs (and Roths), and solo 401ks, but you need to be self employed.  That is where the real estate or AirBnBs come in.  Seems like high risk for relatively low reward and lots of restrictions.

I'm open to other ideas.  Muni's seem interesting.  I'm in Illinois and our state taxes will be going up soon, but betting on Illinois finances is probably not a good idea.  Any muni's worth considering?

Muni bonds and bonds in general have been on FIRE this year as rates have plummeted. I wouldn't be piling in here.

I would be stockpiling cash earning 2.3%. Recession indicators are everywhere.

But I'd also look at real estate since lower rates should boost demand.
Regards,

Sam