Real estate question

[backbreaker]

I've never in my adult live had a mortgage. when i was living in little rock and knew i wasn't going to live there forever i rented a town house. when i moved to del mar i rented a house. when i settled down and we found the house we want i wrote a cashiers check for the deed to the house.


I say that to say, I really don't know how to answer this question so I turn to the board. I have a friend, who is looking to buy a house. they 1. have a wedding this year, 2. just, like yesterday lol, dropped 20k in savings to pay off their student loans and they have like 25k left over that has to be spent between a wedding and a down payment for a house.

To top all that off they have a business that requires a level of liquidity to buy products and stuff.


In my mind, I value the liquidity more than i value "owning a house". I would rather have 30k in the bank and rent a house than have 3k in the bank and own a house.


does this make any sense to anyone?

 

[Tenacity]

It makes a lot of sense. For example I run an Independent Agent Office which requires continued investments in marketing, data, leads, etc. I have some student loans outstanding but they were mainly taken out just to bulk up my bank account for reserves, all of the tuition was paid in full.

I could easily pay off all outstanding debts right this minute, but have decided to instead keep a certain level of cash reserves on hand.

Buying a house is just NOT what it used to be in terms of an investment. A lot of people swear that you aren't a "success" unless you own real estate, but when you factor in the fact that you might need to be mobile due to the lack of job security today, the fact that the value of your investment can drop without anything that "you did" to affect that value, along with other things, a house is just not that attractive as it used to be.

But if I were this couple, I would continue to rent efficiently (that's finding a quality rental that has all amenities and includes some of the utilities paid, all at a low price) while keeping the amount of cash I have on the side for reserves to continue growing the business.

Whether they might realize it or not, you have four main types of high risk/high return potential investments....they are Stocks, certain Bonds, Real Estate, and Owning a Business. Of these four types of investments, the one that in my opinion provides the BIGGEST return is owning a business. It's the only one, give or take, where you can invest $10,000 this year into the business and if you have everything working efficiently, produce revenue of $50,000 let's just say. That's a $40,000 profit in one year (400%), something you will NEVER get from Stocks, Bonds or Real Estate.

My investment strategy is to invest for high risk/high returns into my "business" with at least 100% annual returns, and then take those profits and place them in conservative with "some growth" vehicles such as CDs and certain Bonds that between both the CDs/Bonds they come in about a 4% average annual return.

 

[SmooveMooves]

It makes a lot of sense. For example I run an Independent Agent Office which requires continued investments in marketing, data, leads, etc. I have some student loans outstanding but they were mainly taken out just to bulk up my bank account for reserves, all of the tuition was paid in full.

I could easily pay off all outstanding debts right this minute, but have decided to instead keep a certain level of cash reserves on hand.

Buying a house is just NOT what it used to be in terms of an investment. A lot of people swear that you aren't a "success" unless you own real estate, but when you factor in the fact that you might need to be mobile due to the lack of job security today, the fact that the value of your investment can drop without anything that "you did" to affect that value, along with other things, a house is just not that attractive as it used to be.

But if I were this couple, I would continue to rent efficiently (that's finding a quality rental that has all amenities and includes some of the utilities paid, all at a low price) while keeping the amount of cash I have on the side for reserves to continue growing the business.

Whether they might realize it or not, you have four main types of high risk/high return potential investments....they are Stocks, certain Bonds, Real Estate, and Owning a Business. Of these four types of investments, the one that in my opinion provides the BIGGEST return is owning a business. It's the only one, give or take, where you can invest $10,000 this year into the business and if you have everything working efficiently, produce revenue of $50,000 let's just say. That's a $40,000 profit in one year (400%), something you will NEVER get from Stocks, Bonds or Real Estate.

My investment strategy is to invest for high risk/high returns into my "business" with at least 100% annual returns, and then take those profits and place them in conservative with "some growth" vehicles such as CDs and certain Bonds that between both the CDs/Bonds they come in about a 4% average annual return.

This is really sound advice.

 

[Starwolf]

Tenacity,

What kind of businesses are good to start/invest in?

 

[speed dawg]

Buying a house is just NOT what it used to be in terms of an investment. A lot of people swear that you aren't a "success" unless you own real estate, but when you factor in the fact that you might need to be mobile due to the lack of job security today, the fact that the value of your investment can drop without anything that "you did" to affect that value, along with other things, a house is just not that attractive as it used to be.

While I agree this is true to an extent, I have made good money on real estate just by buying houses where my job is located. I have owned 4 different houses (I lived in all 4), and have not lost money on any of them. The first two I may have gained a little, but mainly it's because they were in a town that was growing. The third, I rolled the dice and bought in a market that was severely depressed, but the neighborhood had a chance to rebound. It did, and I made bank 4 years later. The house I am in now is a little more of a crapshoot. I've been continuously rolling my gains over into the next house, so I have effectively moved up into a house I could not typically afford, but lowered my mortgage payment. Go figure.

Location, location, location. You can change a house, but you can't change a location. If you're going to be in a location over 2 years, you're better off buying and investing. Just don't buy anything stupid. And don't buy anything overpriced. Avoid those 2 things, you're almost guaranteed to keep the value of your investment.

In my mind, I value the liquidity more than i value "owning a house". I would rather have 30k in the bank and rent a house than have 3k in the bank and own a house.

does this make any sense to anyone?

Cash money decreases in value, so....no, it doesn't make sense. You want as little cash on hand as possible, basically just what you need to have an emergency fund or whatever. Personally I'd rather have a Line of Credit or Credit Card for emergency money, so I can invest the hard cash.

 

[Tenacity]

Tenacity,

What kind of businesses are good to start/invest in?

Depends honestly on what you are good at (skill supply side) and the opportunities in the market (demand side).

People out there in the Investment Community might disagree with me (trust me I've been into it with a lot of them) but I believe you should only invest in what you know. The concept of just handing your money over to some "fund manager guy" and saying, "make it grow Billy," has always been stupid to me. Even if you are going to have someone else manage your investment, you should STILL be somewhat of an expert in that area, otherwise, why are you investing?

If you have very low capital, try some low capital businesses such as consulting related work. If you have a decent level of capital, maybe you can look at starting some type of retail shop? Whatever you do, the first thing you should do is craft an efficient Business Plan.

Your Business Plan should first detail what the opportunities are in the market, i.e., you would target XYZ sector and here's the list of issues, challenges, etc. going on for prospective customers/clients in that sector. From there, you determine who are your competitors in that space currently offering services/products to address said issues. Then you need to determine what is your UVP, or what services/products would you bring to solve the issues more efficiently? Finally, you need to determine the cost of operations (marketing, data, calls, etc) to make sure that you will obtain an ROI and IF that ROI is worth obtaining. If it requires you to spend $10,000 to only make $500 at the end of the day, is it worth it? But if it requires you to spend $5,000 to make $50,000 then that makes sense.

 

[Tenacity]

While I agree this is true to an extent, I have made good money on real estate just by buying houses where my job is located. I have owned 4 different houses (I lived in all 4), and have not lost money on any of them. The first two I may have gained a little, but mainly it's because they were in a town that was growing. The third, I rolled the dice and bought in a market that was severely depressed, but the neighborhood had a chance to rebound. It did, and I made bank 4 years later. The house I am in now is a little more of a crapshoot. I've been continuously rolling my gains over into the next house, so I have effectively moved up into a house I could not typically afford, but lowered my mortgage payment. Go figure.

Location, location, location. You can change a house, but you can't change a location. If you're going to be in a location over 2 years, you're better off buying and investing. Just don't buy anything stupid. And don't buy anything overpriced. Avoid those 2 things, you're almost guaranteed to keep the value of your investment.

I understand, here's my question though, what is the profit that you are gaining from owning the houses? Are you turning them into a business by renting them out, or are you just holding them and reselling them to gain on the increase of the purchase price?

I will also state that Real Estate nor Stocks are my "expertise" areas. I have studied both of them and I can understand how Real Estate might workout in the long run as long as the location doesn't go to hell, and I manage the property well. I still to this day don't understand Stocks, even with an Accounting Degree. To me, the people who make the REAL money with Stocks (Equity) are not those who are buying stocks on a market, it's the people who invested in the company that eventually went Public.

 

[Bible_Belt]

The issue I see is the fantasyland real estate values in California. Where I live, $25k will buy you a house outright, and probably a wedding too. Even in Tampa, I lived in a nice condo valued at about $50-60k. My buddy moved to LA and bought one just like it...for $250K.

 

[speed dawg]

I understand, here's my question though, what is the profit that you are gaining from owning the houses? Are you turning them into a business by renting them out, or are you just holding them and reselling them to gain on the increase of the purchase price?

For me personally, the only value I get is living in a bigger house in a better area for cheaper, and then yes obviously the resale. No, it's not tangible money but it does count towards your net worth. After my house, my retirement account, and a few other savings accounts, I can pretty much feel good about spending the rest of my money.

If you are living in houses, at some point to really realize the value you either have to sell, or stop moving 'up', ie buying more expensive houses. I did that on the house I'm in now. It's bigger, but about the same price, as the one I sold before that and made good profit. That resulted in about $300/month off my mortgage payment. But yes the real value is in resale. It's just a steady nest-egg for you, unless you're dabbling in volatile property, in places like Florida or California.

The only real value you gain is the profit, or the appreciation. And the small tax break. And the thing is, you have to live somewhere, so you will be making payments no matter what. May as well be putting it towards something that MAY make you money, rather than rent where you definitely won't.

 

[backbreaker]

250k Will put u in a crack house in la lol

My house was is right smack dab at one million and I mean I got nice ass house but its just a regular 4 bed 2 bath house u can ggetin Arkansas for 300-400k

My little cousin in Dallas has a 250k house and its damn near nice as mine it's newer but not as big

 

[backbreaker]

On top of that their price range is 300k or less. The house she lives in now is a 700k hhouse she won't keep what she buys for more than a few years and even boe it won't be enough space

 

[speed dawg]

when i settled down and we found the house we want i wrote a cashiers check for the deed to the house.

My house was is right smack dab at one million

Yeah OKAY

So you are a millionaire yet you are here on SS worrying about 25-30K in the bank.

Somebody's full of sh*t.

 

[Tenacity]

Man I wish I was a millionaire at 31 lol. I'm a solid 200 Thousandaire right now, if I keep going I should be there in my early 40's. To be a Millennial though, we are WAY ahead of our Generation as the average savings rate is NEGATIVE 2% and the average net worth is $10,000. This is mainly due to the student loan situation.

 

[backbreaker]

that's what i was trying to tell her. she's 27 she's ahead of the game. i don't see the rush man i really do not

 

[Oxide]

Was there a question in the OP lol?


What Tenacity said is solid, ONCE you figure out how to make $2 out of $1, you put $1000 to make $2000, etc. If they don't see it within their business, then I can understand why they'd pay off the student loans instead.

but anyway they'll do what they do, who cares?

 

[Tenacity]

Being a millionaire in your mid 40s, based on net assets is very achievable.

Let's say you graduate college at 22.

Let's assume you were able to pay off your tuition fees due to being frugal and working during university.

You get a decent job paying $40,000 a year and you're able to save $2,000 in your first year. Let's say your salary rises by 10% each year on average and you save half of that extra rise in salary (in addition to the $2k you're already saving each year). So an extra $2k in your 2nd year, $2.2k in your third year and so on. If you can generate about 10% returns each year on any money you save then you will be a millionaire by 40.

And if you are in an in demand sector like computing, medicine, consultancy, law (top end) or accounting that is a very achievable rise in salary. The key is to save early and take advantage of compound interest.

Easy to say but much harder to have the discipline to do.

Yeah, this is spot on. I tell people make sure to efficiently manage the Income Side, Expenses Side, Taxes Side and Investing Side.

Income - You need to be in a STEM related field which is one that is in high demand within the economy to get to making let's say $50k - $65k in a low COL area and $80k - $95k in a high COL area.

Expenses - Live below your means while still maintaining a decent quality of life in a suburb area. I prefer low COL areas. If you are going to make kids please make them with a chick making at or above what you are making so there's no chance of excessive child support per say. Don't get married, but if you must, again do it with a chick making at or above what you are making to avoid Alimony and financial ruin. Have a budget and account to where EVERY SINGLE dollar is going, this allows you to buy in bulk or negotiate discounts to further reduce the costs. Get a Rewards Card to get cashback of 1% - 20% and pay it off at the end of every month.

Taxes - Try to open a home based business to turn more personal expenses to business expenses, thus, increasing your deductions.

Investing - No matter what mix you use for high risk/high return potential and low risk/low return, just make sure that you get 10% net average per year and invest at least $7,500 a year for at least 30 years (can be age 30 - 60, age 35 - 65, etc). This produces almost $1.5 million and makes you a Self Made Millionaire.

Note that the reason I talk about Expenses and Taxes is because you have to make sure you are managing the money going OUT just as important as you manage the monies coming IN. If you are making $75k but spending $85k you won't really have a lot of money to invest/save. If you are financially ruined by a divorce, it will make it hard to get to your goals. If you are paying excessive child support, it will make it hard to get to your goals. If you spend money like a drunken sailor, it will be hard to get to your goals.

 

[Oxide]

Why are we mentally mastubating?




"Let's assume you were able to pay off your tuition fees due to being frugal and working during university. "

No, that's not how it works.

"If you can generate about 10% returns "

You can't unless you're in RE or own a biz.
.

"Easy to say but much harder to have the discipline to do."

As is anything.




I don't have first hand experience as I can't do this in my business, but the fastest way to real money is acquisition. Build a business that does 20-25k a month and get acquired. 20k a month is NOT a lot of money, once you can get that through your head and see that it's just a number of orders x margin.



Forget 10% savings for 40 years. Go for it within 10.

 

[dasein]

The decision would depend on part of the country and specific neighborhood IMO. There is no "one size fits all" answer to "should I buy a house or not?"

 

[hansol]

10% returns? What planet are you guys on? We are in negative interest rate territory right now - you are basically paying the bank for the privilege of having them loan out your money. I'm all for doing well, but realistically people are lucky to have made 4% a year since 2008...

 

[Tenacity]

10% returns? What planet are you guys on? We are in negative interest rate territory right now - you are basically paying the bank for the privilege of having them loan out your money. I'm all for doing well, but realistically people are lucky to have made 4% a year since 2008...

Depends on how your investing strategy is, there are a number of funds that are doing very well and have been over the last couple of years:

http://news.morningstar.com/fund-category-returns/

10% average return per year should be the goal over a long period of time, I say every 10 years. So from 2015 - 2025 you want at least 10% on average per year, that could break down to some of the years negative, some positive, with maybe one year that's a monster positive.

Note though, this 10% average return is in relation to dealing with stocks, bonds and the markets in general. If you own a business, you ought to be seeing much higher returns than that on an annual basis if you are operating the business properly AND if you have chosen the right business to operate.

Me personally, I have always believed that operating a business was a much better high risk/high return vehicle than dealing with Stocks because you actually have hands-on control of your returns for the business, but your returns with Stocks are really out of your hand.