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Owner held mortgages can easily give a 5% return. There are some risks, but not a whole lot compared to the market as a whole.
Banks are being super-picky about who they lend to now, after the big burn. The housing market is also depressed. The combination is an absolute winning strategy for someone with smarts and a good eye for property.
First - like ANY investment, NEVER put all your eggs in one basket. With 30% or so of your money, find a foreclosed or other cheap property in a good neighborhood that has growth potential or will at least be relatively stable. I can find homes for sale that fit this category in Birmingham AL for $50K or less, sometimes MUCH less. Other cities will vary.
Buy the home outright if possible. Immediately put it on the market again for about the price you paid, but with the promise of new appliances to the buyer. Builder grade appliances are cheap. You don't want to put anything new IN the place before it is sold, to prevent making it a thief magnet.
Offer a six month or one year lease with option to buy. Why? You don't want the place unoccupied and you want someone to go through the hassle of moving so that is no longer part of a buying decision. You can also charge twice the amount of a mortgage payment and count that towards a down-payment. Example - your mortgage payment will be $500, you charge $1,000 in the lease to buy for a year. You can get away with a slightly higher than normal lease fee because you are supplying new appliances and giving the lease to buy option. As far as the tenant/buyer is concerned, at the end of the year lease, that extra $6,000 that would go towards a down-payment is lost if they move, along with the losses from any moving expense. A mortgage at that point seems like a no-brainer.
Here is the catch. You are offering a person who would otherwise not have a down-payment a chance. Banks will look at such a small mortgage and untested borrower and go "No thanks." You then can charge a 10% rate on the mortgage because of your risk.
However... your risk is actually minimal. You have bought at rock bottom prices, and the chances of value decreasing are slim, if the person defaults you have the physical property back and you can just start the process over again. By having it not as a rental, you don't have to worry about taxes or insurance or upkeep, other that to verify that the owner is keeping up with those.
You could go into a REIT, but then you lose direct control and have to accept an average rather than something you have cherry picked.
And it's also exactly where it was on October 1, 1998. That's a big deal.
At the macro level, yes. But many stocks are way above where they were in 1998. And often historical prices are deceptive if one doesn't take into account stock splits and dividends.
Apple closed at $80 on 10-1-98. It closed at $396 yesterday. 30% avg annual return over 13 years.
Kohl's was $38 in 10-98, split once after that (making the $38 become $19) and closed at $53 yesterday. 16% avg annual return.
Exxon traded at $75 in 10-98 and split once (doubling value) and is at $75 today. Looks like the same price, but is really 2X the 1998 value. Plus, don't forget the $17/share dividends paid over the past 13 years, too!! 8% avg annual return, plus dividends.
5% at such a decent chunk of change (at least it would be for me) isn't too much to ask for, but chances are it isn't going to happen in terms of a "safe" investment. It is time for folks to have a long hard look at what they want out of life, thru the end of their working years to retirement. If you want to do it all, the only thing left to do is bet big and hope you win, if you do, great, if you lose, retirement may consist of going to the movies two or three time a year, taking a vacation every so many years, etc..
I encourage everyone to start living frugal lifestyles now. I know a lot of people in this country just have to gain pleasure by fulfilling costly needs. The era of making easy, safe returns on money is over, meaning that there is only one other choice if one wants to accumulate wealth: Save it. So either life life to the fullest now and have a homebody lifestyle in retirement, or be a homebody now so you can pack away more cash/gold/silver/whatever for a gang busters retirement lifestyle, or try to equalize your current lifestyle today with what you want in retirement. I think the era of having it now, and having it in retirement is over.
Owner held mortgages can easily give a 5% return. There are some risks, but not a whole lot compared to the market as a whole.
However... your risk is actually minimal. You have bought at rock bottom prices, and the chances of value decreasing are slim, if the person defaults you have the physical property back and you can just start the process over again. By having it not as a rental, you don't have to worry about taxes or insurance or upkeep, other that to verify that the owner is keeping up with those.
Another thing to remember is that the government has gotten mostly out of the government housing building. They may partner and back some funding % for new developments, but the days of large government owned and ran housing seems to be ending to some extent. Enter Section 8 voucher programs. A co-worker rents a house he owns on Section 8 and get a HUD check of almost $700. For my area, that isn't too bad. So if worse comes to worse, you can always Section 8. Here is a hint he told me though, as a % of Section 8 renters are trashy and poor and will trash your home: Interviews. Once you get the list, go and interview the person without calling ahead. See what their standards of living are like. If they are clean people, they will have a clean home/apartment. Those are the types of Section 8 renters you want.
I'm getting very frustrated with the ups & downs of the market. I'm 43 and have nearly $200k in my 401. Is there an investment offering out there that "guarantees" a 5% annual return? I know that may be ambitious and I know the guarantee part will probably make this impossible, but wondering if anyone has any thoughts.
My feeling at this point is if I can find a relatively risk free investment that offers this kind of return, I would move all of my retirement savings to this.
It's pretty much impossible to create a risk-free security that'll guarantee a 5% return.
It's possible to create a portfolio using a combination of an index ETF (i.e. SPY for S&P500) and Put Options that'll limit its downside. So if the index crashes, its downside will be limited but the company will still have to take a small loss on it. To offset that risk, the company might collect a performance fee that's a % of the profits (i.e. if S&P500 up 10% a year from now, they might only pass a portion of the gains to you but enough gains so that you get an effective return of at least 5%)
I agree with those who stated there's no guaranteed 5% annual return. Many people have lost money investing in guaranteed returns.
Assess your risk level, and invest accordingly. If you can't decide, then put money in a money market, bonds, stocks, mutual funds, and/or real estate to hedge your bets.
If we knew where 5% was guaranteed, we'd all be there.
Take advantage of the volitility by dollar cost averaging - such a basic investing concept but so many forget about it... being in my 40's I love the volotility and dropping market - since we are buying in our 401ks...
Get a self directd IRA, buy houses, duplexes or condos and manage your own real estate. I'm doing it now. I get 5% on my investement. If you buy in better areas your real estate will grow in value and you'll make more money.
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Self direct IRA
