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Sounds to me like the people you know using real estate are doing so with debt. Personally, i would never get into real estate unless i could buy it with cash, because it reduces the risk, and increases the profit, since your not paying the bank interest on the investment. I am currently saving money into a money market account so that i can buy real estate when i am financially able to, and not before.
So you are telling me I need to wait til I have enough cash to make investments? I'm 24 years old. There is no way I can even fathom of getting enough money to do cash real estate transaction until I am at least 30. And by then IMO, the market will be much better than now. So I should just sit on my hands and stare at my bank account savings? I have a few thousand in stocks and I'm banking on my area property value increasing. The city I currently live in has had an increasing population for a long time. The market is SoCal is completely different than any other area in the country. It varies greatly within SoCal as well. I didn't just buy some random home and waiting to cross my fingers.
My friends think I'm crazy. They tell me I'm going to regret not investing just a few dollars each paycheck into an IRA. I also do not believe in life insurance, I think that is a complete waste of money at my age...I'm 24.
I believe in investing but I like investing for the short term. I think there is alot more money to be made with short term stocks. There are plenty of old people who did the right thing by saving up so they can retire. Many of them were hit hard with this recession. For the most part, there is a solid recession every 25-30 years. I also think inflation exceeds the interest made on an IRA.
Someone tell me I'm an naive young man? I just think there are much better ways to ensure stable living conditions when I get older without throwing money into a 30+ year account I can't touch without a massive fee.
You'll probably be struggling poor when you're older - unless you plan to work until you die. Simple math would tell you that your strategy is not sound.
Do some calculations on what your costs of living are likely to be...and factor in the pernicious effect of inflation and increasing statistical longevity. You'll find that you really need millions to have a decent upper middle-class standard of living that you may be used to when you go into retirement.
Now consider the power of compound interest - compound growth works exponentially. That means that when you forego a long-term investment of several thousands now at your age, you are actually sacrificing many multiple factors of that in terms of future return.
Now consider the fact that to get that kind of compound growth, you need time - if you wait to age 60 to invest 10 x of what you would invest now under normal market return rates, you'll not even get a fraction of the return that you would have had.
Finally consider risk. Short-term investments can be great, but you're making income now and can (presumably) handle it if one of your short-term investments blows up. And you need to load up on plenty of risk to make a short-term investment pay off. Will you be able to handle that kind of day-to-day risk when you're old? Unlikely. You'll have done better with a diversified portfolio that doesn't put all of your eggs in one basket.
so... Lots of money need + power of compound interest + time needed for compound interest to work + consideration of risk = you're increasing your chances of getting really screwed when you get old.
I can't wait til 60 to enjoy my money. My family track record doesn't support a long life. I'll probably only have 10 years after 60. Save 80% of my life to enjoy the last 20% with less mobility and poorer health? Most older people I know like to stay home alot. My aunt has several hundred thousand and a 600k home paid off...she stays at home doing nothing.
I thnik that OP is looking at those that had high debt and were taking high risk in people close to retiremnt that loss so much. Most were younger in the high riak ;short term investments on growth prodcuts. I frnkly have never seen so mnay that are retirng early as now days and at even earlier ages.All has retioerment plannig or they wouldn't have been able to.Thsoewhpo didn't or could because of income level are the one posting the retiring on a limited budget at older ages or saying they wouldn't be able to. Shoet term investing menas short term planning leving the future to pure chance.
This is not accurate, increased leverage (i.e., debt) in real estate increases the profit. That is the point.
The interest paid is in a sense irrelevant (its deductible), what matters is your return on investment. If interest rates are reasonable then the return on investment is going to be higher if you use a mortgage than with cash.
Interest paid is not irrelevant. It's a leech on profit and adds considerable risk if you are leveraging to invest.
If you occupy the home as your personal residence, its also foolish to pay interest if you can afford not to. Interest is only deductable if you itemize at tax time. If you carry a low debt load to begin with and minimize your deductions, you wont have to itemize.
Paying 10 dollars to save 2 which is what most of us do when we take a "deduction" isn't necessarily a good thing. It's been engrained into our culture that a deduction is somehow better than having the money in the first place.
Don't get me wrong, I understand the concept of leveraging to make a buck. I'm admittedly a bit of a pansy when it comes to risk.
I can't wait til 60 to enjoy my money. My family track record doesn't support a long life. I'll probably only have 10 years after 60. Save 80% of my life to enjoy the last 20% with less mobility and poorer health? Most older people I know like to stay home alot. My aunt has several hundred thousand and a 600k home paid off...she stays at home doing nothing.
Then and go out and have a good time! Don't wait. Life is short. Get out of these forums and post about music (I like indie music also).
This is to the point. Let those of us in the financial forums who enjoy helping others spend a little more spend time reading relevant posts. I'm not gonna get the time back!!
Now consider the power of compound interest - compound growth works exponentially. That means that when you forego a long-term investment of several thousands now at your age, you are actually sacrificing many multiple factors of that in terms of future return.
You seem to be missing the fact that inflation also works exponentially, and the inflation reported by the government is rigged to underreport the true rate.
Unless you can beat the actual rate of inflation (after taxes), compounding interest only adds to your future tax liability without adding to your bottom line.
Interest paid is not irrelevant. It's a leech on profit and adds considerable risk if you are leveraging to invest.
I stated that what mattered was your return on investment, not the debt itself. When you are using debt to leverage, debt is not a "leech on profit". Rather it allows you to generate more profit while taking on more risk.
Quote:
Originally Posted by Spraynard Kruger
If you occupy the home as your personal residence, its also foolish to pay interest if you can afford not to. Interest is only deductable if you itemize at tax time.
I'm talking about investing in real estate, not purchasing a personal residence. Most people use a mortgage for a personal residence because it would take decades to save for it and they are already paying rent. Paying rent on someone's residence or paying rent on someone's money is really the same thing, though the latter makes more sense as its currently deductible and it will decline over time where as the former does the opposite.
Long term investing is vital for your future. The earlier you start the better. Unless you have enough cash to self insure, a good term life insurance policy is needed, if you have a family. The goal is to replace your income if you die, so your spouse and kids are not hit with your death and a financial hardship to boot. You also need life insurance on your spouse. This is just advice for you and your family. I am not in the insurance business.
My friends think I'm crazy. They tell me I'm going to regret not investing just a few dollars each paycheck into an IRA. I also do not believe in life insurance, I think that is a complete waste of money at my age...I'm 24.
I believe in investing but I like investing for the short term. I think there is alot more money to be made with short term stocks. There are plenty of old people who did the right thing by saving up so they can retire. Many of them were hit hard with this recession. For the most part, there is a solid recession every 25-30 years. I also think inflation exceeds the interest made on an IRA.
Someone tell me I'm an naive young man? I just think there are much better ways to ensure stable living conditions when I get older without throwing money into a 30+ year account I can't touch without a massive fee.
all i can say is forbes magazine is still awaiting a short term market trader to join the ranks of the forbes 400..
only thing i can tell you is i still remember everyone panicking in 1987 when we crashed to 1635 on the dow.... today we panick at 10,000.. long term investing works for me!
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