Thursday, February 28, 2019

Moving Money Around


I'm in the process of buying/selling a home, which will hopefully be completed by the end of March.  Some things I've done I'll list here.

Selling:  I'm moving closer to my job.  With the advent of Uber and Waymo, owning a car isn't as big of a deal.  Our family may downsize to one car if this current one dies ($4k convertible which I've owned for over 7 years and 100k miles - not a bad deal) and I'll just use the trendy transportation so I don't have to worry about maintenance, insurance, registration, etc.  I will miss the fun of a convertible though, so this may not happen.  One thing I've learned is don't own a large house.  You limit your market to only large families with limited lending abilities.  Whereas a smaller home will work for families, singles, couples, and the seniors.  Less upkeep, lower taxes, and better investment returns.  Our home has been paid off for quite a few years, so that helps.

Buying: In many cases, older is better.  A late 70's and 80's home will have a settled foundation, won't have issues with asbestos and lead, and usually won't be an "assembly line" home (i.e. quality construction).  We will be paying cash for the home using the income from the home we are selling, and will go in and tear up the place, replacing and installing flooring, cabinets, and the niceties our HOA will let us get away with (fireplace?).  We also opted for one of those "planned community" homes, that has activities and recreation and pools I won't have to take care of personally.  We plan on turning it into a long-term rental in 6+ years, and perhaps long-term vacation rental in 3-4 when we go on vacation.

How does this affect my investments?  Well, other than a home that will not cost me any loan interest, I am able to borrow against my 401k for "home purchase".  This allows me to borrow more for a longer period (less monthly payments) once again paying interest to myself only for a $50 origination fee.  I am able to allow the cash flow to the dividend stock account to go uninterrupted, and not pull from my account for anything.

However.

My taxable 401k dividend income has been reduced, since part of it was cashed out for the loan.  While I was able to compensate (and then some) with non-401k stock purchases, this may or may not be detrimental to my overall net worth.  I think it will be ok, as I am "selling" while the market is at a high, and I will look to repaying much of it when the market dips.  I am trying to just have cash on hand for closing costs and upgrades, but if I have money left over after all of that (end of March or April), I'll probably pay down my original 401k loan that I used to start my dividend investing adventure over a year ago.  This will reduce my total repayment amount each paycheck, and recoup much of the taxable dividends I am currently depriving myself of.  I also see this is a way to not have all my dividend eggs in one basket, since a huge amount of my dividend income (from a single source) is this 401k holding.  Loyal readers will notice I do not count the worth of the 401k stock to my cost/profit, since it is not really a liquid asset.

I also incorporated a double-blind LLC in New Mexico for under $200.  The reason for this is two-fold.  Primarily, it is to mask my identity from public records (I'm not keen on being searchable) by using it to purchase my home (easier when you pay cash vs. funding).  Secondly, when i do decide to start renting the property out, I can merely transfer the LLC to a tax friendlier state like Nevada or Delaware and already be in business.  It will be instrumental if I decide to really upgrade the rental via a ROBS (Roll-Over Business Startup) with my 401k.

That being said, let's look at February in the rear-view mirror:

February Dividends Received: $290.59
GIS 36.74
T 55.58
MA 5.27
APD 17.39
OKE 37.83
NNN 35.49
ABT 5.43
O 10.14
HRL 8.6
MAIN 21.99
ABBV 16.04
PG 30.1
FAST 9.88
Interest 0.11

February Purchases:
T         10
ADM    5
GIS     20
QCOM 4
WSO  15
HD       3
OKE     2

February Sales: (surprise!)
ETN     4

I sold off Eaton (industrial) and bought WSO.  Why?  Laziness, mostly.  ETN, while a good company, changed their HQ to Ireland from USA, and in doing so, causes my broker to report earnings LATE in the tax season.  I can't wait around for my refund, especially this year with the home purchase, to file, so I opted for a higher yielding US company.  I don't want to waste time re-doing my taxes over a few dollars in dividends.  

Watsco is renown for passing profits onto shareholders, so they have a very high dividend payout percentage.  However, they have raised their dividend twice in the past year, so I though I would take the chance.  They are an HVAC parts company.  While i don't expect any major sales going forward, I am aware of what happened to KHZ last week, and this could happen to any company, not just Buffet's.  

Keep them dividends coming!