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Most people have a portion of their investment portfolio - if they actually have one of those - in investments that aren't truly liquid and have a slow but steady ROI. Never once have I encouraged anyone to only invest in their home, or to have most of their funds tied up in ANYTHING that's not liquid. Just for the record.
i agree with you , but what i disagreed with was your attempt at the poor mathematical comparison and mis-information about mortgages being front loaded ..
no investments over the short term can ever be compared for results whether it is real estate or markets as that is just the luck of the draw. portfolios are structured to meet long , intermediate and short term needs or they are done wrong . but even so , as the actual outcomes show us , over time , even if someone was 100% equities in RETIREMENT .. it really made little difference , even spending down in an an occasional bear market at a loss to raise cash because the up years were so much greater without the weight of bonds and cash ... 50/50 has a 96% success rate over the 118 30 year cycles to date ..100% equity has a 94% success rate ..
once again this big argument people give for getting out of equities in retirement or fear of spending down at a loss is really unfounded
Look, I am not saying to choose to "either" invest in real estate or invest in other vehicles. I am saying that real estate is a legitimate PART of a diversified portfolio, so if a person can avoid paying interest, and their real estate is appreciating at a decent rate, then it's a good choice for part of a diversified portfolio.
And I've freely admitted that part of the benefit of that choice is that there is great peace of mind in going into retirement without a payment on a mortgage or rent, either of which typically, if one is going to be comfortable, is a pretty big chunk of one's generally reduced retirement income.
I would never counsel someone to pay off their house and be house rich and cash poor. I would only say do so if there was plenty of liquidity elsewhere.
Real estate can be an investment but for most people their primary home should be treated more as a place to live than an investment. They may choose to buy in an area with a good job that does not have a history of strong home appreciation and it still makes sense. Here in CT homes have declined over the past decade yet rents have soared. Investors have made money with rentals but home owners have hedged against rising rents.
A smart move here is to own a modest home in a quality community if you are committed to the area long-term. High end homes have seen the greatest losses and carry with them the largest property tax burdens which are now limited in deductibility due to SALT restrictions.
Owning a modest home free and clear as one enters retirement often affords retirees the option of retiring in place versus a move to a cheaper location.
Right now everyone is enamored with equities. It has almost become a mantra for everyone to move the majority of their future retirement savings to a broad-market index in stocks. If everyone in the country moved all their money to the stock market I am skeptical that a group of assets based primarily upon the same 2800 or so companies would support the growth necessary to meet all the investors future needs.
A balance of assets, including rental/investment properties, is a good thing.
we held substantial real estate investments as well as i have been an equities investor since 1987 ...but over the last decade we have sold off as much real estate as we could , as we don't want to be landlords in retirement , plus we no longer want investments that are not liquid in retirement ... we want to be able to move money with the click of a mouse now that we are retired .
real estate can be a one way funnel unless you sell or take loans to get back your own money . even a reverse mortgage is a loan . so we prefer liquidity in retirement .
while we rent , we could buy a co-op similar to our apartment and we could actually save 6k a year buying ..but that money we would spend would stop bringing in a minimum of 15k a year and cash flow would actually be less . the fact i would have the 300-400k tied up in equity at this stage does us no good ... so we prefer having a larger income from our investments and slightly higher housing costs renting .
Last edited by mathjak107; 05-31-2019 at 07:04 AM..
Real estate can be an investment but for most people their primary home should be treated more as a place to live than an investment. They may choose to buy in an area with a good job that does not have a history of strong home appreciation and it still makes sense. Here in CT homes have declined over the past decade yet rents have soared. Investors have made money with rentals but home owners have hedged against rising rents.
A smart move here is to own a modest home in a quality community if you are committed to the area long-term. High end homes have seen the greatest losses and carry with them the largest property tax burdens which are now limited in deductibility due to SALT restrictions.
Owning a modest home free and clear as one enters retirement often affords retirees the option of retiring in place versus a move to a cheaper location.
Right now everyone is enamored with equities. It has almost become a mantra for everyone to move the majority of their future retirement savings to a broad-market index in stocks. If everyone in the country moved all their money to the stock market I am skeptical that a group of assets based primarily upon the same 2800 or so companies would support the growth necessary to meet all the investors future needs.
A balance of assets, including rental/investment properties, is a good thing.
Right - you bring up another set of variables, which is why I said every situation is different. What works well for one person in a particular location and time in their lives differs from what works for someone else.
Location: Formerly Pleasanton Ca, now in Marietta Ga
10,351 posts, read 8,569,440 times
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Quote:
Originally Posted by KathrynAragon
First of all, I don't know the particulars but around here if a place costs $1600 a month to rent, the cost is probably around $225,000 to buy. I think that if someone made $360,000 on a $225,000 investment in three years that's pretty darn amazing. And unlikely. So like I said, every scenario will differ greatly. But let's compare apples to oranges. I have no idea how much money you invested or in what to get a $360,000 return in three years. But if it was a $225,000 investment all I can say is WOW and congratulations!
As I posted, I invested 300k and paid rent instead of buying a 300k house with all cash. The point was I ran the numbers of having a 300k house and paying it off versus holding a mortgage on it and investing the money instead showing the difference. Also showing the roi on the appreciation you talked about and how it’s higher when the house is leveraged holding a mortgage versus having paid it off, even taking away the interest paid.
As I posted, I invested 300k and paid rent instead of buying a 300k house with all cash. The point was I ran the numbers of having a 300k house and paying it off versus holding a mortgage on it and investing the money instead showing the difference. Also showing the roi on the appreciation you talked about and how it’s higher when the house is leveraged holding a mortgage versus having paid it off, even taking away the interest paid.
Wow, on a $300,000 investment you more than doubled it in three years? Because here's what you said:
Quote:
Years ago I had a choice of buying a house outright or taking the money and investing. I rented for 1600 a month which comes out to 19, 200 per year or over three years 59, 400 . The profit from investing came out to
About 360k. That covered the three years of rent plus an extra $300k
Location: Formerly Pleasanton Ca, now in Marietta Ga
10,351 posts, read 8,569,440 times
Reputation: 16698
Quote:
Originally Posted by KathrynAragon
Wow, on a $300,000 investment you more than doubled it in three years? Because here's what you said:
yep the numbers are correct. The money was invested in cheap rentals, several bank owned, then fixed up. The total was from three years of net profit from the rents after expenses paid and forced appreciation. On two of the houses I cash out refinanced after 3 years and got back every penny I put into the houses plus a few thousand extra and still had a cash flow to this day. I still had 30% equity in each house after the cash out refinance. I used the money to but two more houses and repeat the forced appreciation.
See this is a perfect example of why every situation is so different.
With a paid off mortgage, we are not house rich and cash poor. As I said before, our home is about 1/3 or maybe even 1/4 of our total investments. It's a nice house and certainly as nice as we ever want, but it is not an "awesome" house in the sense that it is nowhere near "what the bank said we could afford" when we applied for the mortgage. And I really can't foresee "having to get the money out" but it could happen I guess - if the market crashed and there was a catastrophe of epic proportions - in which case we'd probably be in the same boat that just about everyone else was in - oh well. Into every life some rain must fall, I guess.
Never would I ever say that a person should sink all their money into a house like your scenario you relayed - running your own company, with only $5000 in the bank, and the rest tied up in real estate which isn't really a liquid investment. Oh my gosh, there is no way I'd do that either.
But that's nowhere near our situation. I'd only recommend a paid off mortgage under some circumstances - 1) the person already had a lot of liquid investments and cash, 2) the property had a long history of steady appreciation, and 3) the person would invest what would have been the mortgage into something more liquid with a decent return. I mean, there are other variables too but those are the biggies to me.
And most real estate would be considered a conservative investment with a slow, steady ROI - not something to make money off of quickly or move around quickly. Use other funds for that sort of investing.
Yeah, exactly, and there's no way that should have happened basically. Because of family investments, a lot of my free cash was rolled into new investments basically without any discussion. I signed the paperwork, it's my fault, I made the mistakes, but I wish we had sat down and figured out a more sensible plan because in your 20s you don't necessarily know what's a good asset allocation and I wish that the people who I trusted had kind of went over a better long-term plan. I even made an extremely risky investment with $150,000 that I probably should have just kept in cash, or at least reduce to $100K, because my dad was bullish on this startup tech company and I put in money too. That was in 2012, they were purchased by another company in 2014 I believe, and they're still around, gaining momentum, apparently doing well in 2019, but it's still a 4-5 year window before they would either consider an IPO or sale to a larger company most likely. IF it hits, it'll probably be a home run, like 5-10x return on investment, but if it misses you probably lose your entire investment. Very high risk, very high reward, but a family friend worked for the company, we thought maybe worth the risk, and it's increasingly looking like at least they're going to survive and do well over the long haul.
My house equity is not a substantial portion of my net worth either, but it was basically ALL of my cash until recently and I wouldn't have need the money out for the next house except for the fact that I can't qualify for a traditional mortgage since every tax year recently shows a loss, so I couldn't have put down 20% (which I had in the bank) and gotten an 80% mortgage, otherwise I would have definitely considered that option although I wouldn't have carried such a large mortgage as it just makes me uncomfortable. Instead, we ended up figuring we need to sell this house to make the closing on the next one. That ended up not being the case as this investment cashes out in June, but I sold the house anyway (we are pending) so we just basically executed the plan "as is" without altering it because of the new information.
Also, leverage is actually bad... you owe that money. A stock purchase is fully funded and that is 100% yours. If you lose your job you can just hold your stocks but if you don't pay your mortgage you lose your house and everything you have put towards it. Also, you can't just sell part of your house like the kitchen. You could get roommates but that can have it's own issues. Housing is just a very very inflexible and illiquid asset compared to equities. Selling a home is difficult in a bad market and is super expensive, stocks are free to sell and have demand even in bad markets.
It's crazy how many people think that once they "get in" their house is going to make them rich! Biggest myth out there.
to compare apples to apples , if using a mortgage then to really even things up you need to buy those stocks on margin .. so they would not be paid for either 100% ..the comparisons we tend to do where we leave our money invested and take a mortgage would not be an apple to apple comparison because you are really using your own money plus the borrowed money in effect .
. the only accurate comparison would be paying cash for the house or buying the equities with the same dollars..
with a mortgage you have your mortgage money working for you in the house capturing any appreciation or loss as well as leaving your own money invested capturing any appreciation or loss in other investments ....this is why it is likely that taking a mortgage will almost always produce better long time wealth growth .
Last edited by mathjak107; 06-01-2019 at 03:48 AM..
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