Stallion
Join Date: Feb 2006
Location: Milwaukee
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The average American is in debt. This is bad. Accumulating wealth is good.
Many people don't know the tips of trade. Let's have a discussion on the topic. Feel free to ask any questions to those who have lived through it before. Retire At 40: Here's how Quote:
This is a really interesting article even though retiring at 40 does not seem like a very wise thing to do if you'd like to be able to be wealthy and completely secure in your older years. One thing it neglects that generally the biggest factor in wealth accumulations is how to handle purchasing a property and more importantly the mortgage. It would be very difficult to continue to invest 20% of your money while paying a mortgage off in a reasonable amount of time. If anything, I would take that 20% and throw every penny of it at my mortgage until it is completely paid off. This will free up even more for investing, and while the compounding interest won't have as grand of an effect, if you buy a reasonable house you should be able to pay it off in 5-7 years. ...and calling/e-mailing/texting ex-girlfriends on the off-chance they'll invite you over for some "old time's sake" no-strings couch gymnastics... |
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Veteran Member
Join Date: May 2004
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Couple of things regarding property ownership and mortgages (speaking as a non-owner, but as someone whose family has done a considerable amount of real estate investment successfully)...
Contrary to the gut feeling of 'pay off mortgage as soon as possible', consider the following. Instead of getting a short mortgage, minimizing your interest paid, get the longest one you can. 100 year mortgages are common in real estate investment. Why? So you can minimize your monthly payments. Why? So you can take that extra money and drive it into a higher-risk, higher-yield investment. Real estate is 'safe', long-term. Property is finite, population isn't, people gotta live somewhere, ergo, long-term, property will inflate at a fairly constant rate, given enough time. Take that extra cash each month and invest it aggressively, and you can do much, much better than you would if you waited until you paid off that mortgage. The property will appreciate, it's not going anywhere. Of course, the trick is to actually *invest* that money, instead of blowing it. If you can beat your mortgage interest rate (and property appreciation rate) with your ROI on the extra cash, you've made money. Meanwhile, you still have a roof over your head for less each month. Last edited by Kickaha : 2007-07-26 at 23:47. |
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Stallion
Join Date: Feb 2006
Location: Milwaukee
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As mortgage lengths go up, so do interest rates. Assume 8% for 100 years or so. Putting down 10-20% is still going to result in paying a massive amount of interest without making nearly as much interest by putting your money in the stock market. Assuming it is a commercial property and worth 5,000,000. That is a lot of money. With 20% down, over the course of 100 years @ 8% you would be paying $32,011,032. At the reduced interest rate of 7.5% for taking a 10 year mortgage, you would only be paying $5,697,685.2 for the exact same property. With the 100 year mortgage, you're paying about 5 times more for the building!! However, after doing a ton of math for the past hour, since the numbers are so large you'd end up making the difference back over 100 years because of the compound interest. In a real-world non-commercial application such as purchasing a house, if you don't have the money sitting in stocks, it is always better to pay it off as fast as you can. If you have the money earning interest at 10%, then there really is no reason to pay off the property. Ultimately, you have to balance your long-term earnings by calculating the compound interest from the mortgage versus what you have in savings and find a happy medium. EDIT: That is super-duper wordy. If you have the money to pay for something in full in the bank/stocks/etc, then it is almost always better to let the money sit as an investment and stretch out paying your property off for as long as you can. However, if you can only afford to make a small down payment on the property and don't have very much money in the bank, then you should pay it off as soon as possible. If you have enough in savings for a 50% down payment, you would be best advised to play around with a compound interest calculator for a few hours and figure out the amount to pay each month so you can pay your property off as quickly as possible while still keeping enough in the bank to be making plenty of money on interest ...and calling/e-mailing/texting ex-girlfriends on the off-chance they'll invite you over for some "old time's sake" no-strings couch gymnastics... Last edited by Partial : 2007-07-27 at 00:59. |
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9" monochrome
Join Date: May 2004
Location: 🇦🇺
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Kick - interesting perspective on the property angle. Good food for thought.
Re: investing - I may have been in a similar position to that 20 year old and for a long time I "squirrelled" away a good portion of my savings each month and invested it successfully. Only thing is, having returned to study and moved to China, this has put the brakes on my original plan. Damn, I miss it! I actually loved the discipline and growth of my regular savings/investment plan. Anyway, having done that then meant that I was free to take these opportunities now. However, I am interested to hear people's thoughts on options. I have a margin loan that is well under the "call" limit, but I'm really keen to learn more about options. Ideally I want to take a chunk of the margin loan, that I am comfortable to play with and can afford to lose, and put it into play in the US market. *** I'll be away for the weekend, so won't reply for a while, but I look forward to reading more in this thread when I return. *** |
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Veteran Member
Join Date: May 2004
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I think the take-away lesson is that the conventional or gut wisdom isn't always right. Do the calculations, you might be surprised. I know I was. When my wife and I were looking at buying a house, our plan was exactly as you say: pay it off ASAP. My family's advice was 180deg from that, and it took us a non-insignificant amount of time crunching numbers to realize they were right. It feels 'wrong', but the numbers are correct. If you have the liquidable assets, *and have the discipline to invest*, longer mortgages (which, btw, you can generally get stupid low rates on) are better in the long run. (Then there's the issue of whether you're holding on to the property for 5 years as an investment vs. 50 years as a family homestead, etc, etc, but that's another ball of wax.) |
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is the next Chiquita
Join Date: Feb 2005
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I wasn't even aware there were such thing as 100 year mortgage. Is this like for business purposes only or something? I've never heard of it within the homebuyer market...
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Veteran Member
Join Date: May 2004
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Yeah, generally you're only offered them for commercial real estate transactions, but if you're persistent, you can sometimes get them for home mortgages. If not 100, try 75. If not 75, try 50. The point is, get that monthly payment down as low as you can, then aggressively invest the difference.
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Veteran Member
Join Date: Aug 2006
Location: Melbourne
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You can get interest-only loans here, where you don't reduce the principal, you just pay the interest each month.
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Banging the Bottom End
Join Date: Jun 2004
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Banging the Bottom End
Join Date: Jun 2004
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You can also get negative amortization loans where you don't even pay off the full interest amount every month and the principle grows with every payment (talk about scary )!
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Senior Member
Join Date: Oct 2005
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No thanks, I'll continue to pay my fixed 6% mortgage each month so that I actually own a piece of my home.
All these funny loans are going to result in a lot of foreclosures and depressed home prices - all thanks to irresponsible people. |
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Banging the Bottom End
Join Date: Jun 2004
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Going to? Big companies are already taking hits due to sub-prime lending. Still, I'm buying my next home in a couple of years so I don't mind prices going down a bit.
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Senior Member
Join Date: Oct 2005
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Veteran Member
Join Date: May 2004
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Which ought to be about the time we'll be seriously looking at buying, so... huzzah.
While you own your house, and it's market value is flat or, god forbid, actually dropping, I'm taking the savings and investing like mad. (Alright, so given what we pay for rent in NY, it's not exactly savings... hell, our rent is 30% higher than most mortgages elsewhere in the country. :P OTOH, compared to local mortgages, we're saving tons.) I think what it comes down to is: do you own a house as an investment, or do you own a house as a home? If the former, then the bottom line is all that matters... what *disciplined* approach is going to get your the highest ROI after X years? If the latter, then ownership is psychologically powerful, and not to be underestimated. OTOH, if you're shooting for the former, but don't have the discipline, you're just shooting yourself in the foot, and it's best to go the conservative route. Last edited by Kickaha : 2007-07-27 at 09:48. |
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Stallion
Join Date: Feb 2006
Location: Milwaukee
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Pay it off ASAP and you are on your way to financial freedom. The key is to buy a modest home you can pay off in 5 years, and if you need a bigger home, then you sell the modest one and use all of the proceeds for a down payment on the bigger one.
...and calling/e-mailing/texting ex-girlfriends on the off-chance they'll invite you over for some "old time's sake" no-strings couch gymnastics... |
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Stallion
Join Date: Feb 2006
Location: Milwaukee
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...and calling/e-mailing/texting ex-girlfriends on the off-chance they'll invite you over for some "old time's sake" no-strings couch gymnastics... |
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Veteran Member
Join Date: May 2004
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The point was that 'conventional wisdom' is a starting point, not a hard and fast rule. Sometimes if you flip it on its head, new opportunities arise. It's not for everyone, certainly. Also, take into consideration sale of the house - are you planning on being there for 5 or 50 years? If 5, then your strategy is likely to be quite different than if 50. Just saying that the standard "pay it off NOW NOW NOW" is indeed a way to financial freedom, where freedom is defined as "money is available for other things", but it's not necessarily, always, in every case, the best approach for investment. If it were, don't you think successful professional real estate investors would do it? And yet they go for those long-term mortgages... |
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Stallion
Join Date: Feb 2006
Location: Milwaukee
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My best advice to everyone here, especially those in the college years are to save your money and live inexpensively. Don't go out to eat a lot, don't buy an hdtv, don't buy the latest greatest gizmo, etc. The key is to graduate college with some money in the bank(rather than paying back loans) because down payments on homes, engagement rings, cars and their insurance(get a low maintenance, older used car w/o collision insurance and drive it until you have your house paid off), weddings, etc all cost a lot of money and if you cannot make payments above and beyond what your mortgage calls or invest 500-1000 a month at least you will have a much harder time becoming wealthy.
Saving money at 20 is the key to being very, very well-off at 50 even if your career doesn't pay the big bucks. Rather than going out and wasting a 1000 dollars a year on several gizmos and late-night fast food after going to the bars, put that money in a roth-IRA and let it sit for 45 years. $45,000 turns into $790,795.32 by the time you're ready to retire. This will allow you to go sit on the beach and do whatever you want. ...and calling/e-mailing/texting ex-girlfriends on the off-chance they'll invite you over for some "old time's sake" no-strings couch gymnastics... |
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Senior Member
Join Date: Oct 2005
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5 years? and where exactly do you live?
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Veteran Member
Join Date: May 2004
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The sooner you invest wisely, the sooner it returns. |
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Stallion
Join Date: Feb 2006
Location: Milwaukee
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...and calling/e-mailing/texting ex-girlfriends on the off-chance they'll invite you over for some "old time's sake" no-strings couch gymnastics... |
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Veteran Member
Join Date: May 2004
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Of course, my wife and I both drive beater cars, we live in a 3rd floor walk up apt, our furniture is almost exclusively hand-me-downs, our TV is a 1992 19" Sony... but what the hell, right? We still have fun and can buy goodies when we feel like it without having to worry every day about whether we can make the mortgage. OTOH, we're both so damned cheap that a Wii was a serious discussion... |
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Stallion
Join Date: Feb 2006
Location: Milwaukee
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I don't own a house. It is very, very hard to do today. Especially with our economy in the state that it is right now.
It isn't a strategy for everyone but buying and paying off the home in 5-7 years is just about the best way to set yourself up to be comfortable no matter what. Personally, after reading tons and tons of articles and punched figures after figures into a calculator, I have determined I wouldn't ever even consider buying a home unless I could: A. Put a 25% down payment minimum, 35% if possible. B. Buy something that I can pay off in 5 years If I wanted something bigger, I could sell that house and use all that money as a down payment on the next, bigger house. Likewise, you could repeat the process and eventually pay for a mansion. ...and calling/e-mailing/texting ex-girlfriends on the off-chance they'll invite you over for some "old time's sake" no-strings couch gymnastics... |
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Stallion
Join Date: Feb 2006
Location: Milwaukee
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...and calling/e-mailing/texting ex-girlfriends on the off-chance they'll invite you over for some "old time's sake" no-strings couch gymnastics... |
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Veteran Member
Join Date: May 2004
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Awww, shucks.
Naw, we're just cheap. |
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Banging the Bottom End
Join Date: Jun 2004
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When we buy a new house in a couple of years I plan on renting out my current dwelling. At current rental rates I could pocket a couple hundred a month easy and that's including the extra principle I pay each month. I figure the only problem would be convincing the mortgage company of this as credit rules will probably be much tighter in '09 due to the subprime lending implosion. Once my first house has paid itself off (7 years from now at most) then revenues can pay off the second one. Combine that with whatever we're throwing down on it I figure it could get paid off pretty quickly although I'm not sure it would be 5 years quickly. |
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Senior Member
Join Date: Oct 2005
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Unless you live in the middle of no where I seriously doubt you can pay off a home in 5 years. Besides, mortgage debt is good debt as you can write off the interest you pay. I paid $530k for my place with 22% down to avoid a jumbo mortgage and the rates they come with. So I financed $417k at 6%. I'll let you do the math on paying that off in 60 payments. I did the math out of curiosity, would be looking at 60 payments of over $8,000 plus my 14k a year in proprty taxes, and then some money thrown in for homeowners insurance. I might save money in interest on my loan but being in the top tax bracket I'd pay more in taxes than folks in some states make. |
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Senior Member
Join Date: Oct 2005
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Renting homes out isn't all fun and games, I know a few folks who got fucked over badly going this route. |
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is the next Chiquita
Join Date: Feb 2005
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Faust, did they rent as proprietor? If so, that's why. Had they rented out as a corporation, no personal assets would have been at risk.
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Senior Member
Join Date: Oct 2005
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