Investing for Monthly Income

[cmrocks]

Hey,

I was hoping some of the financial savvy guys on the forums could help me out here. I graduated from university last year with a degree in geology. I just finished paying off my student loans. I have a steady job and I earn about 75,000 a year currently. I've just started in my career and it will go up steadily for the next several years.

Now that I'm entirely debt free, I'd like to start investing to support my passion in life which is traveling. Geology is a great career for this because I tend to work in blocks of 4-6 weeks in remote areas then have time off in which I can travel. I'd like to invest in a way that generates monthly income; that way, when I'm not working, I'll still have some sort of income stream to pay the bills and support my expenses while I'm traveling.

I'll admit that I know very little about finances. What would be the best way to go about this? I'll say right now that I'm not really into high-risk stuff. I'd only like a small part of my portfolio to be reserved for playing around with small-cap stocks. Other than that, I'd like to invest in safer things that will help supplement my income.

Thanks

 

[the shah]

according to CE standards you are poverty-stricken. Perhaps the Business subforum would be a better place for this question, although I'm going to keep checking to see if there's any sound advice.

 

[boo]

There isn't any safe income these days, at least not meaningful income. A Vanguard Barclays Aggregate Index fund, which consists of investment grade credit, governments, and agency MBS is only yielding 3% (net) these days. I like bank loan funds, which currently yield 5%-6% and will rise along with interest rates. The thing is, if there's another credit-market dislocation, be prepared for roller coaster ride. There's always mortgage REITs, which are yielding 15%-20%, but of course there's a damn good reason the yields are high. When the Fed starts raising rates, it could get ugly.

 

[Hombre Secreto]

An apartment will give you monthly cash flow.

 

[HgaleK]

Originally Posted by Hombre Secreto

An apartment will give you monthly cash flow.

There are a ton of headaches to be aware of with particular venture, though.

 

[nootje]

Originally Posted by HgaleK

There are a ton of headaches to be aware of with particular venture, though.

there arent organisations that can deal with that crap for you? I know there are several in these parts.

 

[Mr Herbert]

even still, rentals are rarely complete hands off.

but they can be - all the luck of the draw (who your tenant is)

 

[Mr Herbert]

in fact, property is probably one of the quickest ways - assuming you buy in an area with a robust rental market and can make good progress on the mortgage repayments in the first 5 years.

 

[Don Carlos]

Can you really not afford to live on your $75k? Despite what people here will tell you, $75k is quite high for an entry-level salary. Plenty of young-20s kids get by on half of that, or even less, and still manage to travel pretty extensively. I see no reason why you would even need a supplemental monthly cashflow, unless you're planning to quit your job, or start a business, or buy a lot of drugs.

How much traveling are you really planning on doing here? And does your salary come in irregular bursts or something? I'll confess that I don't know much about your job or its particulars, but even still, $75k seems like plenty for someone your age. I assume you work for an energy company?

 

[Mr Herbert]

i read it to mean he wanted to take extended breaks from work

a dream i also had when i started work until i got used to the extra money

 

[HgaleK]

Originally Posted by nootje

there arent organisations that can deal with that crap for you? I know there are several in these parts.

They cut in to profit margins deep. It's one thing if you've got the time, experience, and connections to make an empire, but it's otherwise more hassle than not. He'd probably be taking on a mortgage and hoping for rent to cover that and a little for himself.

Some of the issues that arise from real estate, even with a manager:
-Loss of liquid capital with down payment
-Managers tend to charge between 4-12% of rental income for a property. This cuts heavily in to any income that he may derive from the property
-Additional management fees (see here for some basic info)
-Irresponsible/unethical managers
-Your mortgage doesn't go away when your manager can't find you renters (if they offer renter finding services at all)
-Finding renters if the management company won't assist
-Landlord insurance
-Additional legal bullshit

Even if everything goes well, he still ends up with a **** ton of money tied up in an immobile, illiquid asset.

A good family friend of ours own several million in real estate. He's done apartments, houses, and gas stations.

Just a few things from him:
-After trying several management companies that were all sub par, he only uses his own people
-He won't do anything other than gas stations now. People die, sell drugs, buy drugs, go nuts, don't make payments pull guns on you when you say it's time to gtfo, and then wreck **** as much as possible when the cops come for them.
-Don't do it for your own money. He won't make most of his returns in enough time to enjoy them himself. The properties are being split between the kids. His wife is the bread winner.
-Millions of dollars of property don't mean **** when you can't turn it in to millions of dollars cash when you need it

 

[Piobaire]

Have you considered hiring some muscle and running a book or starting a game? Remember, vig is all tax free.

 

[Charley]

One thing that might work for you is an investment in some of the pipeling MLPs. that is somewhat related to your field of work so you should be able to roughly gauge the upside from looking at their areas of operation. They have had a strong run up in the last 18 months or so, but still give fair yields, even if pretty fully valued. They don't generally own the product, just charge a toll for the transport.

There are also a couple of Canadian apartment REITs with fair yields. Low vacancy and reasonable operating costs.

 

[Valproate]

You can get 4%-5% these days in MLP's and some REIT's. If inflation goes up, these assets will get crushed, though.

 

[Charley]

Originally Posted by Valproate

You can get 4%-5% these days in MLP's and some REIT's. If inflation goes up, these assets will get crushed, though.

Actually the distributions on the MLPs can be in the range of 6% to 7% with some modest annual growth in the range of 6% or so. Getting crushed is a market price consideration, not an income consideration. After a few years of 6% increases the original 7% return on cost becomes 10% return on cost. At that point the unit value should have followed along with some gain. The best thing about the MLPs is that energy useage is not very likely to decline and throughputs are more likely to increase. The income is based upon the throughput units and generally there is some increase in the transportation charge. The business risk is relatively small compared to most investments. If there is inflation then the value of real useable assets will also increase if replacement costs are considered.

Most utility type companies face the rath of the consumer at the various state regulators. The MLPs are completely off that radar screen and collect the agreed fees from the producer, not directly from the consumer.

As to the inflation question and residential REITs, can you expect that there will be high inflation without rental price increases? Sure, it may not be perfect but it would sure beat holding a CD or treasury bond. It may be time to invest in postage stamps.