The wealth-building thread

[JeffS7444]

If I'm understanding the "Rich Dad" approach to real estate, the process and rationale is something like this:

• Create a company, and acquire assets under that company
• Let the bank assume most of the risk by buying properties with bank money: His illustrations suggest using 10% of one's own money, 90% bank money
• When income from the property has paid back that original 10% investment and as it continues to generate enough revenue to cover operating expenses + bank loan payments + decent excess, it's essentially "free".
• With the return of his original investment, he likens himself to a gambler who has taken his original money off the table and thus reduced his exposure to risk.
• What to do with that original $10K? Apply it towards the acquisition of another property!

Which sounds great but my own instinct is to wonder what happens if a significant portion of his properties sit vacant, or he winds up in a situation where local ordinances prohibit eviction of deadbeat tenants.

 

[BlackTalon]

Here's another tip on building/ maintaining wealth: Don't lose 20 years worth of savings in a divorce.

12 months left to pay on mortgage, and then will be done forever. It's the only piece of debt we have. Smart people would say to get a home equity loan for as much as we can get and invest it all, but after 25 years I want no more debt tied to my house. Our investment money is in our SEP IRAs/ 401Ks, and that is all in funds except a couple individual stocks. 'Play money' is tied up in a few stocks and a handful or private equity deals.

On paper we are on very strong footing and are lining up well for retirement in another 10 years, but our savings/ checking accounts only contain about a year's worth of salary so we feel poor on a daily basis. We mainly just spend money on our son.

 

[PatentLawyer]

I'm glad it worked out for you. I saw many people sell their homes/property for less than the mortgage between 2008 and 2012. Maybe that event will never repeat? But when I'm adding to stocks or property I would prefer to buy when few are interested and sell when everyone is lining up to buy. Each person has their own strategy.

This is a very, very smart point. But not all markets are equally volatile, or have the same price elasticity. I want to maintain anonymity so I don't want to identify exact markets, but I will note that "luxury" markets behave differently, especially when you are closer to the entry level of that market (another pointer--"entry level" in a luxury market is a great place to be, in our experience).

 

[PatentLawyer]

If I'm understanding the "Rich Dad" approach to real estate, the process and rationale is something like this:

• Create a company, and acquire assets under that company
• Let the bank assume most of the risk by buying properties with bank money: His illustrations suggest using 10% of one's own money, 90% bank money
• When income from the property has paid back that original 10% investment and as it continues to generate enough revenue to cover operating expenses + bank loan payments + decent excess, it's essentially "free".
• With the return of his original investment, he likens himself to a gambler who has taken his original money off the table and thus reduced his exposure to risk.
• What to do with that original $10K? Apply it towards the acquisition of another property!

Which sounds great but my own instinct is to wonder what happens if a significant portion of his properties sit vacant, or he winds up in a situation where local ordinances prohibit eviction of deadbeat tenants.

The bank won't give that company a mortgage unless it has substantial assets, guarantees maintenance of minimum assets, and has a credit history. Otherwise Millionaire Dad has to personally be on the hook for the mortgage.

Step one, unless I'm missing the full story, seems like fantasy, so the rest of the steps crumble--just based on my own investment experience.

 

[levimax]

• Let the bank assume most of the risk by buying properties with bank money.

You are going to have to personally guarantee a bank loan even if you set up a company.

 

[Chromatischism]

That's because you have more common sense than a doorknob.

Anyone who would consider an unsecured, volatile, unregulated construct an "asset" hasn't read their history texts.

Tulips, MDS derivatives, Beanie babies, Bitcoin.

Company CFO's aren't putting billions in "tulips" on their balance sheets for nothing.

On the surface, sure, it looks like nothing. I suggest looking closer. It is a technological innovation and should be considered as such.

 

[HiFidFan]

This has to be the worst time to buy property. It's like buying in 2006. Prices are at new highs, restrictions coming on 1031 tax free exchanges, property tax soaring. The time to buy property was 2009. Maybe in a few years property will see another dip. Until then I would be a seller rather than a buyer.

So you sell your home. Then what?

 

[MRC01]

... Smart people would say to get a home equity loan for as much as we can get and invest it all, but after 25 years I want no more debt tied to my house. Our investment money is in our SEP IRAs/ 401Ks, and that is all in funds except a couple individual stocks. ...

Paying cash for a house is usually a bad idea even for those who can afford it. The opportunity cost of the investments you sell in order to buy the house, is higher than what you earn or save in the house.

But this assumes long-term, minimum 5 - 10 years, and you can weather any short-term downturns. In the shorter term, anything can happen and it might not be the best approach.

And this assumes the money would come from investments. If not, then you've got a different situation that may or may not apply.

Same applies to cars. I'm normally a cash payer but if they have 0% interest that is literally free money. For example, our last Subaru cost about $25k. The opportunity cost of paying cash is what $25k earns over 4 years when invested, conservatively estimated around $8 grand. So yeah, for $8 grand I'll spend an extra 15 minutes at the dealership getting the 0% interest 0-down loan.

 

[HiFidFan]

Paying cash for a house is usually a bad idea even for those who can afford it. The opportunity cost of the investments you sell in order to buy the house, is higher than what you earn or save in the house.

But this assumes long-term, minimum 5 - 10 years, and you can weather any short-term downturns. In the shorter term, anything can happen and it might not be the best approach.

And this assumes the money would come from investments. If not, then you've got a different situation that may or may not apply.

Same applies to cars. I'm normally a cash payer but if they have 0% interest that is literally free money. For example, our last Subaru cost about $25k. The opportunity cost of paying cash is what $25k earns over 4 years when invested, conservatively estimated around $8 grand. So yeah, for $8 grand I'll spend an extra 15 minutes at the dealership getting the 0% interest 0-down loan.

Yup. Money is cheap to borrow. I considered paying cash for our last automobile but financing was 0.3% for 3 years. I'll leave my cash in investments, thanks.

 

[Chromatischism]

And how does one value a crypto token, exactly?

Similar to other companies or assets. James spent many years in the risk management and software industry and has a fantastic method for valuing crypto projects, for example here:

Note that there are many he doesn't recommend as investments.

 

[Jdunk54nl]

Same applies to cars. I'm normally a cash payer but if they have 0% interest that is literally free money. For example, our last Subaru cost about $25k. The opportunity cost of paying cash is what $25k earns over 4 years when invested, conservatively estimated around $8 grand. So yeah, for $8 grand I'll spend an extra 15 minutes at the dealership getting the 0% interest 0-down loan.

It is never 0%. 99% of the time if you choose the 0% offer or the special finance rate offer, you don't get the cashback offers, usually amounting to a few thousand dollars. So you pay more for the car than I would.

Your assessment also doesn't take risk into account. In bad times, no one can repo a paid for house / car. That stress free life is worth well over $8000 to me.

 

[Chromatischism]

What seems to be working for my wife and I is the Dave Ramsey Baby steps. We are in 4, 5, and 6 now.

Dave Ramsay is fine for many things but don't take his advice on mortgages. I understand he has a vendetta against debt but his advice became outdated a decade or more ago. He would have been right in the 80s. Rates are so stupidly low now you'd not do well moving all your money into your principal to save a measly 2-3% when it could be growing much more elsewhere.

Whenever you are making a decision, ask yourself: "what is the opportunity cost"?

 

[Jdunk54nl]

Dave Ramsay is fine for many thing but don't take his advice on mortgages. I understand he has a vendetta against debt but his advice became outdated a decade or more ago. He would have been right in the 80s. Rates are so stupidly low now you'd be a fool to move all your money into your principal to save a measly 2-3% when it could be growing much more elsewhere.

Call me a fool then.

I would love to know people's net worth that is giving advice in this thread.
Edited to remove picture so people would stop complaining….
Mine is close to $700,000 currently and growing each year.

 

[muslhead]

[QUOTE="Jdunk54nl, post: 903576, member: 18566"
Your assessment also doesn't take risk into account. In bad times, no one can repo a paid for house / car. That stress free life is worth well over $8000 to me.[/QUOTE]
Sure they can, just ask the out of work people who couldnt pay their taxes.

 

[muslhead]

Call me a fool then.

I would love to know people's net worth that is giving advice in this thread.
Here is mine. You can see how much it has changed since I joined mint. You can also see how much it has changed since 2017.

Ignore that one blip, that was when we were buying a home, the home was listed but the mortgage wasn't for that time.

View attachment 151972

Just for the sake of clarity, net worth implies all assets - all liabilities, correct?
How do you value your home (Assuming you own one)?
Publicly traded investments are easy to determine, anything private is nothing more than a guess.

 

[Jdunk54nl]

[QUOTE="Jdunk54nl, post: 903576, member: 18566"
Your assessment also doesn't take risk into account. In bad times, no one can repo a paid for house / car. That stress free life is worth well over $8000 to me.

Sure they can, just ask the out of work people who couldnt pay their taxes.[/QUOTE]

If you can't pay taxes, you have other issues besides just being out of work. If you mean income taxes, that is really not being prepared with what you made that year prior to being out of work. If property taxes, you should be able to cover those with a McDonalds job or sell your house.

 

[TulseLuper]

That stress free life is worth well over $8000 to me.

Less stress is the target. We paid off our mortgage early a couple years ago (didn't need the mortgage in the first place but got it for the reasons others have listed here). The banker said "congratulations", which took me off guard because it was not a difficult thing for us to do. Anyway, it's just nice to own and not owe. That said, this works for us because we have enough to not care about the "lost" thousands in the long term.

 

[muslhead]

Sure they can, just ask the out of work people who couldnt pay their taxes.

If you can't pay taxes, you have other issues besides just being out of work. If you mean income taxes, that is really not being prepared with what you made that year prior to being out of work. If property taxes, you should be able to cover those with a McDonalds job or sell your house.[/QUOTE]
No, i mean property taxes. i can see you live in Az, and working at McD's may be able to do what you say due to the low cost housing and taxes. Have you ever look west or far to the east. I have clients that have.

 

[HiFidFan]

It is never 0%. 99% of the time if you choose the 0% offer or the special finance rate offer, you don't get the cashback offers, usually amounting to a few thousand dollars. So you pay more for the car than I would.

Your assessment also doesn't take risk into account. In bad times, no one can repo a paid for house / car. That stress free life is worth well over $8000 to me.

I bought our last car just after the new models were being launched. They want the old inventory gone. I paid less than dealer incentives and got 0.3%. There's timing too, some years dealerships are desperate, other years not so much.

But yes, piece of mind is priceless.

 

[Chromatischism]

This has to be the worst time to buy property. It's like buying in 2006. Prices are at new highs, restrictions coming on 1031 tax free exchanges, property tax soaring. The time to buy property was 2009. Maybe in a few years property will see another dip. Until then I would be a seller rather than a buyer.

The Financial Samurai (who I don't think discloses his real name) is still bullish on real estate for the foreseeable future.

https://www.financialsamurai.com/wh...rket-turned-into-the-canadian-housing-market/

Basically, prices should continue to rise.