Positive Carry and Some Explanations

D
David_S_Meng
楼主 (文学城)

Sorry, I did not make some things clear in my post yesterday.  Our refi took about three months. It was slow.  And I got denied by two other lenders, because my wife and I have 15 properties with sizable loans.  The third loan officer kindly was willing to do it.  The time that I personally spent on it was only a few hours.  But the entire process took about three months.

Thank you for reading my post.  I saw quite some feedback.  I share a method that I myself am using and it is lucrative, hoping that some other people may also benefit from it. 

If you have good methods, please share.  I am very willing to learn.  However, on this platform, name-calling and personal attacks are inappropriate.  We should have the decency to share and discuss with dignity and respect.

Regarding our investment returns:

[1]. In 2011, my wife and I had a total of about $800,000.  It was mostly in 401k and our primary residence, not investable.  Our investable fund in 2011 was about $150,000.

[2]. In my area, the housing value appreciation from 2011-2019 has been about 3-4% annually.  It is slow.  If our houses had appreciated rapidly like in CA or Seattle, we estimate that we would have had a few million dollars more in total wealth.  For investors in CA and other booming areas, congratulations to you.  But those high appreciation rates cannot be reproduced in many other places in the US.  However, our area of 3-4% is similar to the historic US housing appreciation in the long-term.  Therefore, it is more reproducible by ordinary people.  Furthermore, our 3-4% appreciation, similar to the historic US average, indicates that my neighborhood is unlikely to crash in the near future.

[3]. I am not handy and cannot do repairs, and do not have much time. My wife and I have full time jobs and three kids. I spend only a few hours per week on investing.  Other investors who are handy and have more talents and more time can buy broken houses and then renovate and repair them.  Their rate of return will be higher.  My investment is limited by my willinness to spend only a few hours per week.

[4]. We sent three kids to college with no student loans. We send money to parents and relatives.  We give to church.  So, we did not use all the bullets in investing. Otherwise, our wealth would be a little more.

[5]. The positive carry method that I posted yesterday basically means that you borrow money from the bank at a low interest rate, then you give it to SP 500, and it pays you a 10% return.  You pocket the difference as your positive carry.  Passive.  Very little time and effort.  It works.  The key is (1) dollar cost averaging, and (2) long term. 

[6]. There are safeguards such as “Tell me where I am going to die so that I will never go there.” And “Protect the down side, and the up side will take care of itself.”  The safeguards and minimizing the risks are described in my book.

By David Meng, author of book “$5 Million in 8 Years: Real Estate Investing on the Side.”

 

喜喜哈哈
(1) dollar cost averaging, and (2) long term are not new. :-)

I believe most of people here know that.  I'm glad that it works out for you.

Actually it is easy to say and hard to do.  Greed and Fear always play a big role in the stock market. 

I totally agree with you about DCA and the long term investment, But I don't encourge people to borrow money

from the houses to do so. That's risky.  That's it.

We are doing also very well in the investing by DCA and the long term investment. But we also "diversify" our investments.  

 

D
David_S_Meng
My method is not the best.
D
David_S_Meng
If you have a better method, please share.
D
David_S_Meng
We should learn from each other, 共同致富。
D
David_S_Meng
Yes you are right. I still remember the day when I was about to

do the clicks on my computer to push in nearly half a million into SP 500, I was nervous.  I was afraid that tomorrow it would crash.  I clenched my teeth and did it.  It turned out to be OK and our net profit is more than $200,000 so far this year, but I was nervous.  You are right; it is a fight between fear and greed.

 

D
David_S_Meng
I told myself: 饿死胆小的,撑死胆大的。:)
D
David_S_Meng
When I clicked, I had to remind myself 清华北大,不如胆大 :)
D
David_S_Meng
海外華人需要团結,团結才有力量。
D
David_S_Meng
海外華人要多学习討論多做投资理财
D
David_S_Meng
打下经济基础,才有发言权
D
David_S_Meng
Money talks
D
David_S_Meng
Also, knowing that long-term it returns 10% helped me.
D
David_S_Meng
My plan is to hold for decades, so it's relatively safer.
D
David_S_Meng
We have > $100k cash flow, providing some safety too.
D
David_S_Meng
The key is long-term, dollar cost averaging, passive, patience.
D
David_S_Meng
For short-term investors, this positive carry is not suitable.
P
Progressive
你这说的不是明摆着是赌赢的而不是DCA做赢的。一下投半米的DCA,你投多少次track of DCA?这实在不是一般人可以做的

DCA呀!你教别人做DCA 而自己却做all in moment去赌赢。那你all in 赌输了呢?

D
David_S_Meng
The plan is, 2020, cashout refi, invest in SP500, then

The plan is, 2020, cashout refi, invest in SP500, then

2021, cashout refi, invest in SP500, 

2022, cashout refi, invest in SP500, etc.

Because money is put in over the years, it is dollar cost averaging.

It still takes courage to execute.

The math is clear.  It should work long term, for a decade or longer.  The idea is simple.  But to actually execute it, as I found out while doing the clicks to invest, it still requires courage.

 

D
David_S_Meng
Courage is needed in investing. If you read articles by老朽兄:

in the 1990s he sometimes even used credit card.  He used up all his bullets.  It took a lot of courage.  And 老朽兄 is very successful.  Someone may not feel the need for courage until he or she actually tries to do it.  My positive-carry math made sense.  The long-term plan should work out fine.  But to actually execute it, I was nervous when I did the clicks.  It was courage that helped me to execute it.  I had to remind myself to focus on the math and ignore my emotions.

 

喜喜哈哈
Do you even know what is called DCA? :-)

"do the clicks on my computer to push in nearly half a million into SP 500,"

 What kind of DCA is that? :-)

 

喜喜哈哈
常人一般长期投资也不会一下五十万买S&P的。。

You are abusing dollar average cost concept.

b
biglakes
problem with the plan is, when housing market crash and stock pr
P
Progressive
你的问题还是只看到赢面 没有意识到高风险的存在。good luck。
D
David_S_Meng
Please see my response:

We did refi in 2020 on houses and put the cash into the SP 500.

We hope to do another refi in 2021 on other houses, and put the cash into the SP 500.

We hope to do another refi in 2022 on some other houses, and put the cash into the SP 500.

We hope to do another refi in 2023 on other houses, and put the cash into the SP 500.

Etc.

Because money is invested year after year after year, we put money into the SP 500 via dollar-cost-averaging (DCA).  Some people think that DCA is only monthly.  But actually DCA can be weekly, monthly, and yearly.  This example of mine is about yearly DCA.

 

D
David_S_Meng
Please see my response:

Thank you for your warning.  Your point is well taken.  My weapons for risk-control include dollar cost averaging and holding for the long term, and my properties spit out $100k to $150k annual positive cash flow.  My LTV is about 65%.  The lenders would not give me more loans beyond that.  So we wait for house value apprecation and principal reduction, then do refi.  Then we wait again for house value apprecation and principal reduction, and then do refi.  And then repeat.  So, these are some of my safeguards.  There are entire chapters in my book on these, including "Tell me where I am going to die so that I will never go there", and "Protect the down side and the up side will take care of itself."  I appreciate your point of risk awarenees.