Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
I know someone who in 2009 bought a home for $600,000 and he put $400,000 down on it at the time and took out a mortgage for $200,000. The 400k represented most of his savings and the only other investments he had to his name were his 401k which had around 150k. He was 38 years old at the time. He still thinks that was the best decision as he had a mania of having a house paid off.
In retrospect I see that if he had invested the $400k in the market he would've tripled it by now to $1.2 million. His home is currently valued at $800k so it's gone up a bit but not as much as the market.
If you were in his shoes how would you do this differently?
Used leverage. 20% on $600k is $120,000. He could have purchased 3 houses with $120,000 down on each. These could have been rented out over the past 8 years. Figure each of the 3 houses would have $100,000 paid off mortgage by the tenants. So there is $300,000 in profit. Each house would have also gone up in value by $200,000 which is $600,000. That's $900,000 total profit, plus the original $400,000 would give him a value of $1.3 million.
But I more than likely would have purchased like 2 multi-unit places instead. Having 8-10 units that actually come with positive cash flow each month.
People can argue that real estate is not a good investment, but the fact is something like 80% of self made millionaires have done so with real estate. And there really isn't a more tried and true way to retire early than acquiring multiple properties with the right cash flow each month after figuring vacancies, repair, management, etc. Is it easy? Of course not, if it was everyone would do it.. but like most things its also probably not as hard as you think either.
there is a big difference between real estate that is an investment property vs one you consume and pay for yourself .
home appreciation tends to track inflation over all over long periods of time , not great . but for an investment property you are not paying for it, the income generated is so returns can be very diiferent and far far greater .
I was fortunate, I cashed out the equity from my investment properties and bought our retirement home before the recession hit.
After we lost our tenants, we eventually lost an apartment building, the profits we had made all of those years we held onto.
That's nice but in a scenario in which you are touting how great real estate is from your personal experience you should also disclose you had to file for bankruptcy because of it
Used leverage. 20% on $600k is $120,000. He could have purchased 3 houses with $120,000 down on each. These could have been rented out over the past 8 years. Figure each of the 3 houses would have $100,000 paid off mortgage by the tenants. So there is $300,000 in profit. Each house would have also gone up in value by $200,000 which is $600,000. That's $900,000 total profit, plus the original $400,000 would give him a value of $1.3 million.
But I more than likely would have purchased like 2 multi-unit places instead. Having 8-10 units that actually come with positive cash flow each month.
People can argue that real estate is not a good investment, but the fact is something like 80% of self made millionaires have done so with real estate. And there really isn't a more tried and true way to retire early than acquiring multiple properties with the right cash flow each month after figuring vacancies, repair, management, etc. Is it easy? Of course not, if it was everyone would do it.. but like most things its also probably not as hard as you think either.
With zero leverage purchasing 400k of SPY on 1/1/09 would as of yesterday had a total value of 1.28mm if you reinvested the dividends 1.2mm if you did not. That's with no other work involved
With zero leverage purchasing 400k of SPY on 1/1/09 would as of yesterday had a total value of 1.28mm if you reinvested the dividends 1.2mm if you did not. That's with no other work involved
For argument sake, you could have probably purchased 20 homes at $100,000 each with 20% down back in Jan of 2009. The housing market has rebounded very well across many parts of the country. By now each one of those houses could easily be worth $200,000 and a good chunk of the mortgages would be paid off. So I'd argue the person with 20 homes would have $2,000,000 worth equity from property appreciation and probably another $500,000 from rents paying down the principle. If they wanted to, they could do a refinance with everything back to 30 year mortgages on much lower principle balances, demanding higher rents, with huge amounts of cash flow. This person could be 28 years old and retire tomorrow with $150k a year for the rest of their lives.
If I had $1.3 million at 60 I wouldn't think I had enough to retire
For argument sake, you could have probably purchased 20 homes at $100,000 each with 20% down back in Jan of 2009. The housing market has rebounded very well across many parts of the country. By now each one of those houses could easily be worth $200,000 and a good chunk of the mortgages would be paid off. So I'd argue the person with 20 homes would have $2,000,000 worth equity from property appreciation and probably another $500,000 from rents paying down the principle. If they wanted to, they could do a refinance with everything back to 30 year mortgages on much lower principle balances, demanding higher rents, with huge amounts of cash flow. This person could be 28 years old and retire tomorrow with $150k a year for the rest of their lives.
If I had $1.3 million at 60 I wouldn't think I had enough to retire
My scenario is much more realistic and feasible. You can't in good conscience say you would have been able to obtain 20 mortgages in 09 for your example but it would be relatively easy to have purchased SPY and left it alone. Let's also not leave out the huge difference between landlording 20 properties and logging on to your vanguard account
If we get to use the "way back" machine, then just invest in housing by purchasing shares of Home Depot. That would have been a lot easier, and more profitable, than owning houses. There was a company Director who put a huge sum of his own cash in the company back then.
$400K invested at the market open of 2009 would be worth over $3.3M, plus dividends paid of more than $300K.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
