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Portfolio Update: New Subtraction (PEP, ABT, COP, PG, NSC, MCD, and WMT; January 22, 2013)

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dome

When it rains, it pours. Today was a day of even more selling, as the fire sale continued. Due to new information from my lender, I found out that I won’t be allowed to borrow money from a friend/relative to help me fund the downpayment.

Details

As a result, 100% of the downpayment funds must be under my name. They won’t accept cash either. Lending is very strict these days, especially for investment properties. So, the only way for me to meet the deadline is to liquidate more stocks. Here is what I sold today:

41 shares of PEPSICO INC (PEP) for $72.41/share
51 shares of ABBOTT LABORATORIES (ABT) for $32.66/share
29 shares of CONOCOPHILLIPS (COP) for $59.27/share
80 shares of PROCTER & GAMBLE CO (PG) for $69.87/share
100 shares of NORFOLK SOUTHERN CORP (NSC) for $66.87/share
23 shares of MCDONALDS CORP (MCD) for $92.77/share
25 shares of WAL-MART STORES INC (WMT) for $69.54/share

Today’s Total: $22,466.88

Total Cash in Brokerage Account: $39,665.76

Conclusion

The good news is that I won’t need to come up with 25% for the downpayment. The lender will accept 20%, at a slightly higher interest rate. That’s just fine with me, as I don’t want to eliminate my entire portfolio! So, I now need 20% of $290,000, or $58,000.

I am getting closer to the final target! I’ll admit, I truly hate the idea of selling stocks. It’s a painful process to go through, but I know this is something I must do for the long-term benefit.

By securing two rental properties, I should be able to generate enough cash flow each month from both properties to cover all of my own monthly rent. In other words, I’ll be able to live rent free from here on out!

Moving forward, this means I should have more disposable income to invest in dividend stocks. So, hopefully this is just a short-term setback. Once this ordeal is complete, it’s back into the dividend investing game, with full force! 😉

{ 26 comments… add one }
  • LeighNo Gravatar January 22, 2013, 11:05 pm

    Living rent-free is a pretty cool idea! I should be living mortgage-payment-free in another 4-5 years, which isn’t a bad option, but much further away than your next few months.

    How many rental properties do you plan on accumulating? Just the two for now and then a primary residence after you get married?

    • FI FighterNo Gravatar January 23, 2013, 7:26 pm

      Leigh,

      You’re doing an awesome job. Although I’ll hopefully be rent free soon, I won’t have a paid off property anytime soon. So, your ways ahead of me in that regard.

      In terms of rental units, if everything goes to plan, I’d like to have a total of 3 plus my own residence. In order for this to be possible, I will need one of the rentals to appreciate greatly over the next few years. Hopefully I’ll be able to sell it in the future and move to an area with a much lower cost of living. I hope do a two for one trade, sometime after I reach early FI.

      Best wishes!

  • JC @ Passive-Income-PursuitNo Gravatar January 23, 2013, 6:19 am

    I sure wish we could be living rent free that quickly, but that time will eventually come. Hate to see you have to unload even more stocks, but the opportunity sounds really good and if the 2 rentals can provide enough profit to pay your rent you’ll be money ahead very shortly. Great to follow your progress on the 2nd rental purchase.

    • FI FighterNo Gravatar January 23, 2013, 7:34 pm

      JC,

      Yeah, it was difficult to part ways with so many holdings, especially some of the ones I thought I’d never sell. The very real possibility of not having to pay rent anymore, well, that’s just a little too good to pass up.

      In the end, the numbers (and circumstances) favored the rental property. Hopefully I’ll be able to add back many of those holdings on the next big dip. With rental property, this isn’t so easy to do. The market has rebounded, and who knows when it will dip again? I know many folks who lost on offers throughout last year. They still aren’t winning anything now. I’d hate to be priced out, and if I keep waiting, the returns might not be so favorable for much longer.

      It isn’t an easy decision, by any means, but ultimately I know I want a balanced mix of stocks and properties. Since I was lucky and located a great property in a fabulous location, I knew I had to pull the trigger now.

      Best wishes!

  • Dividend Growth InvestorNo Gravatar January 23, 2013, 8:40 am

    After Apple pops after reporting earnings after the market closes today, you should sell it. Apple is not a dividend growth stock 😉

    • FI FighterNo Gravatar January 23, 2013, 7:39 pm

      DGI,

      Apple didn’t pop after earnings today. Doh! Selling AAPL was my plan all along, and I was hoping for one final rebound after today. Well, so much for that idea. I’m sitting very much in the red now…

      Yeah, I know AAPL isn’t a real dividend growth stock. It may well be in the future. At the time I got in, I rode the wave up, and bought into the hype. My mistake was not cashing out sooner… Well, live and learn. No more sexy stocks for me, next time 😉

      • Dividend Growth InvestorNo Gravatar January 24, 2013, 6:58 am

        Haha, I am Dividend Growth Investor, not market timer 😉 I did believe however that AAPL will bounce off lows. Long-term i think AAPL will follow the likes of fallen starts like Motorola, Nokia, RIMM.. Technology is such a competitive industry, where moats are just too hard to justify..

        • FI FighterNo Gravatar January 28, 2013, 10:06 pm

          DGI,

          Yeah, I agree. I think AAPL will bounce back (it looks too cheap right now), but long-term, it’s a risky play. You’re right, tech is inherently volatile and unstable, especially consumer tech. AAPL really has nowhere to go but down…

  • Brick By Brick Investing | MarvinNo Gravatar January 23, 2013, 9:35 am

    Ugggh I know that burns! Those are some great stocks too! Let’s thank the Dodd Frank Act for this. When we applied for our loan the loan officer was asking all these VERY personal questions and requiring all sorts of documentation that was absolutely ridiculous. After I inquired why they were doing so she informed me it was due to the Dodd Frank act to ensure I was not receiving funds from else where. This makes no sense to me! If you can provide the down payment and show rental history for the area couples with your financial portfolio that’s all that should matter.

    Another reason why I believe in paying cash for a house and all other items. You don’t have to play by these idiotic rules.

    Of course determination like yours could result in finding a great investment and be able to live rent free! I hope it all works out thanks for keeping us updated.

    • FI FighterNo Gravatar January 23, 2013, 7:44 pm

      Marvin,

      Thanks for sharing your story. I actually feel a little better knowing that I’m not the only one whose had to go through this painful process 😉

      It really is ridiculous. I even told my loan officer that and she just smiled. My agent has been trying to locate another lender who isn’t so strict, but according to him, it’s basically like that everywhere (if you go with the big name banks).

      All cash is always the best option to go, if you have all cash. You can even close in less than a week, which is why all cash usually wins. No loan or appraisal contingencies to deal with either.

      In the end, I was fortunate to land a great deal. Even if I don’t like the process, or agree with it, I’ll gladly put up with all the nonsense if it helps me secure the win.

      Cheers!

  • Compounding IncomeNo Gravatar January 23, 2013, 10:23 am

    Phew, that must have been difficult! Sounds like the rental property is going to be a huge win for you. Keep us updated!

    • FI FighterNo Gravatar January 23, 2013, 7:45 pm

      CI,

      It sure was difficult. I liken it to pulling off a band aid. You just gotta do it and get it over with. Although it will sting a bit.

      I’ll do my best to keep the updates going. I anticipate there will be more news before all is said and done.

      Best wishes!

  • Dividend MantraNo Gravatar January 23, 2013, 4:27 pm

    Although it must be incredibly difficult to sell so much of your stock portfolio, it sounds like you’ve worked the numbers out and this is the best for the long-term for you. The good news is that you’re so wealthy at a young age that what you sold today alone would actually be a really nice complete portfolio for someone your age.

    You’re doing great. By the time you’re in your mid-30’s you’ll have two rental properties and a dividend stock portfolio worth hundreds of thousands of dollars. Great to know that’s on the horizon. Keep up the great work.

    Oh, and I’m with DGI. Unloading Apple would get you a little closer to that target amount and it’s not really a dividend growth stock anyway.

    Best wishes.

    • FI FighterNo Gravatar January 23, 2013, 7:51 pm

      DM,

      It wasn’t easy, but I did run the numbers and the move makes sense. My portfolio was about $70k before the sell-off. Projecting out the 2013 dividends, I would have received about $2300.

      For the property, the same $70k (assuming 25% downpayment) will return about $5400 ($450/month in cash flow, not counting equity/principal contributions).

      So, more than double. The fact that the property is located in a prime location made this an easy decision.

      Thanks for the support! I’ll do my best to rebuild the dividend portfolio once the dust is settled.

      Yeah, in the perfect world, AAPL would have shot up $50 today and I would cash out first thing tomorrow morning. I took a gamble, and didn’t win. When this whole loan process started, AAPL was the first stock that came to mind when I thought of what to sell…

      Take care!

      • MartinNo Gravatar January 24, 2013, 9:11 pm

        … and also you may get a better appreciation…

        • FI FighterNo Gravatar January 28, 2013, 10:07 pm

          Martin,

          True, that’ll be icing on the cake 😉

  • MartinNo Gravatar January 24, 2013, 9:08 pm

    Fighter, I totally feel your pain. And I told you, the bank rampage would be better and I will be your driver.

    For the same reason I decided to create a new account (this time opened with Scottrade) in which I am now saving for my investments and goals and which was created for that reason so I am completely OK with liquidating it if needed.

    I know it is not your case, but your example made me do it for the case I will be, one day, in your shoes.

    • FI FighterNo Gravatar January 28, 2013, 10:09 pm

      Martin,

      I’ll take you up on the offer if the bank loan gets denied 😉

      Good idea on creating separate accounts for different purposes. I tried doing that once before, but ended up just consolidating everything. I guess I’m not too good with managing too many accounts… I like to have everything all in one place, if possible. I can appreciate the idea though.

      Best wishes!

      • MartinNo Gravatar January 29, 2013, 2:47 pm

        I may spend more than what I have available for the particular purpose if I have everything in one account, so I have separate accounts and just mirroring the main one, so I do not have to consolidate 🙂 So far it works for me. I had everything in savings accounts, but wasn’t happy with the yield, so I decided to put some money into stocks as savings account. I still have some emergency available in savings account for the case I need money faster than liquidating investments, but the rest will be sitting in stocks making better yield. Hope it will work.

  • MartinNo Gravatar January 24, 2013, 9:09 pm

    BTW, continue writing this story up, it is developing into a thriller and interesting to read it. Once you are done, post some pictures of your new property.

    • FI FighterNo Gravatar January 28, 2013, 10:11 pm

      Martin,

      Will do! I’m glad you enjoy the story. I hope it continues to be a “boring” one, as I don’t want the end result to be unexpected/suspenseful! This deal needs to go smoooooooth!

      Cheers!

  • The Keichi OneNo Gravatar January 25, 2013, 11:43 pm

    Hi FIFighter!

    Looks like your having to take a hit but in the long run this will pay off for you. It sounds like your next property is a great investment!

    I’m going to actually go against the grain and say not to sell your AAPL stock. At least not until it is at a place you are comfortable selling it. I have a small position on Apple now and although it is down it’s certainly not out. Apple is a good company and I think in the long run is going to pay off big.

    I do completely agree that it does have a strange place in portfolios like ours that are made of dividend growth stocks.

    • FI FighterNo Gravatar January 28, 2013, 10:14 pm

      Keichi,

      I agree with you that now would not be a good time to sell AAPL. Exiting out now would be selling right near the bottom.

      Actually, AAPL looks so cheap right now, I would probably buy some more if I had extra funds. Yes, AAPL doesn’t look like your traditional dividend growth stock, but at 2.4% yield, it’s not too bad either. Further, AAPL has 100+ billion in free cash, which is a “problem” any company would love to have. AAPL is certainly down but not out. The stock may be down, but they had a fantastic earnings report. I really don’t see all the doom and gloom that everyone is reporting. It’s true that they will eventually need something new/innovative to win back wall street, but they are still selling a record number of iphones/ipads. Plus if/when the China Mobile deal goes through, the stock should have a nice pop back up.

      Happy hunting!

  • IntegratorNo Gravatar January 27, 2013, 12:53 pm

    Wow FI Fighter,
    I’ve just been following your last couple of posts and looks like you’ve divested a large chunk of your portfolio for property!. The good news is that you can always incrementally add to your dividend growth portfolio over time. That was a solid collection of stocks that you had to sell off today.
    To echo the point of some of the others above, Apple could be an interesting dividend growth stock, but its very much dependent on the company hitting the mark with consumers with its gadgets. Not to say they can”t do it, is just a very hard thing to do over a sustained period of time, consumers tend to be a fickle bunch. Technology stocks can be dividend growth stocks , but I favor those with business to business models such as IBM and Cisco, rather than something like Apple thats business to consumer.

    • FI FighterNo Gravatar January 28, 2013, 10:21 pm

      Integrator,

      Yeah, unfortunately I had to liquidate a large percentage of my portfolio to fund the new rental property. I do look forward to rebuilding the dividend portfolio over time. My rationale is basically, stocks go up and down all the time. It’s easy to buy back in, b/c there are so many shares outstanding for each company you would like to own. Worst case, you pay a little more to buy back your dividend blue chips.

      For real estate investing, if the market keeps surging, and you don’t buy now, you can be priced out for good. In some markets, real estate just isn’t as volatile as the stock market. Worse, inventory is scarce, so you have to compete with others each and every time. It’s no fun and consumes a great deal of time. I’d rather win now (when prices are still cheap), and stop having to think about beating out 30+ other investors for each new deal. Also, If you lose, it’s back to the drawing board….

      I completely agree with your point about AAPL. Being tied as a consumer brand makes it very, very risky. If they do re-invent themselves down the road and adopt a model like IBM/CSCO, then things should become a lot less volatile. Consumers are a fickle bunch… AAPL is high risk/high reward. I definitely wouldn’t make it a core holding in a dividend portfolio…

      Best wishes!

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