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How to retire at 30 on $1 million

175 points by ryanwaggoner 16y ago

jacquesm 16y ago
You forgot to factor in capital gain taxes on the original sales price. Depending on where you live that could put a substantial dent in your 'take home'. And leveraging (to use a popular word) that money to obtain a much larger property by financing is actually a fairly risky strategy, especially if you are going to put the rest of your money in to different investments.
- ryanwaggoner 16y ago
  You forgot to factor in capital gain taxes on the original sales price. I believe Tony already took that into account in his article? Leverage increases the risk, yes, but that doesn't make it "risky". It's very much the norm in the real estate world, which has a pretty stellar track record for creating wealth, once you get out of the levels where soccer moms are flipping houses. Buying commercial multifamily real estate isn't about the value of the property; it's about the value of the cashflow stream that you're buying. For certain markets and with long-term demographic trends and forecasts being what they are, I'm very comfortable with that level of risk. If it makes you feel better, run the numbers where you put $2mm or $3mm down, which reduces your return, but also decreases your risk.
  - jacquesm 16y ago
    It makes it risky in the sense that if you only buy what you can pay right off the bat that you will reduce your income, but if the market tanks and you have to sell for whatever reason that you won't suddenly be working for a bank. Tying yourself up like that might come back to bite you and if something unforeseen happens you're back where you started or worse.
    - ryanwaggoner 16y ago
      You do raise a good point, in that you're in some sense risking your other assets as well. You can secure nonrecourse debt for real estate like this, though this is harder to do than it was a few years ago. But the other way to look at this is that you're going to risk the money one way or the other: either you risk it as indirect collateral by guaranteeing a loan at 80% LTV or you risk it directly by buying the property outright. The advantage in the first scenario is that you get a higher return. YMMV, but again, I'm comfortable with this level of risk.
      - jacquesm 16y ago
        I think that's why any investment advise or plan should always start with an analysis of the risk profile of the person doing the investing. And some of the risks are not always evident.
      - gfunk911 16y ago
        The point is that it's disingenuous to say you're only using ~25% of your money to buy the property, when in reality all of your money is at risk, because you're leveraging. If you invest 25% in the stock market, you won't lose more than 25%. The returns on the real estate is higher, because you are leveraging. Just because 20% down payment real estate loans are common doesn't change that fact. I agree with the idea that real estate can be a good investment, but this article has very little to do specifically with investing after a startup exit. The article should be called "Why to invest in real estate."
        jacquesm 16y ago
        s/pay/say/
        jholman 16y ago
        > this article has very little to do specifically with investing after a startup exit. The article should be called "Why to invest in real estate." Or, perhaps it should be called "A plan for generating retirement-suitable income using approximately $1mm of capital". Oh, hey, that's what it _is_ called (modulo some aggressive rounding). I agree with the first paragraph, though, that if it does turn out that you have $5mm, and if it does turn out that you can't secure nonrecourse debt, then it is true that you're also taking on extra risk.
smackfu 16y ago
Is this really retirement though? Or just using your retirement assets to fund a career change to apartment management?
- ryanwaggoner 16y ago
  You're definitely not managing the property in this scenario; part of the operating expense is hiring professional managers. REITs and other institutional investors own and operate properties like this from a distance all the time. EDIT: I should mention that I own several smaller properties in another state that are managed and I spend maybe an hour a month on them. I'd spend more on larger properties like this, but it's hardly a full-time job.
  - endtime 16y ago
    > part of the operating expense is hiring professional managers. I don't think smackfu meant to imply you'd be replacing lightbulbs yourself. But if you have employees who provide a service, and if they screw up it can affect your future income (and you therefore need to do some degree of management, minimal though it may be), well, that sounds a lot more like a job than retirement to me. It might not be 40+ hours a week in an office, you might not be writing code, but that doesn't make it retirement.
    - davidu 16y ago
      Most property management companies are actually just managing the contractors who fix the sprinklers... those people aren't on your payroll. Usually property managers just take a fixed % of all the rental revenue.
      - endtime 16y ago
        I understand that, though I agree that my comment didn't make it clear. But you have to manage the property managers, no?
        16y ago
rwebb 16y ago
oh yeah that's a sure thing. no one has ever gotten fucked owning B grade multifamily housing. slam dunk.
- ryanwaggoner 16y ago
  There are no sure things in investing. If you have some specific quibble with my scenario that you can back up with data or experience, please post it.
  - Super_Jambo 16y ago
    The basic problem I see with this scenario is the tail risk. You're probably going to be just fine. However there is a non-zero (and impossible to calculate) risk that you're going to lose the entire income stream. Equities / ETFs allow much greater diversification. The bit which bugs me though is why are you spending 200k a year. Countless studies show that greater income is not linked to happiness above a fairly low level. I refuse to believe the USA is so expensive that this level is $200k per annum. Reductions in living expenses are far easier to guarantee than increased returns.
    - noodle 16y ago
      > The basic problem I see with this scenario is the tail risk. you don't think that there's a similar risk in the market? sure, you pick how much risk you take when you invest, but i'd say that you're doing the same when investing in this type of real estate -- making a choice to exchange some safety for higher returns. > The bit which bugs me though is why are you spending 200k a year. i don't believe this was point of the article.
      - jacquesm 16y ago
        It's not like real estate and stocks are your only options.
        noodle 16y ago
kloncks 16y ago
Great article and well-thought out argument! But when I see this I think: why the hell would I want to retire at 30 when I can just start another company?
jaxn 16y ago
Ryan, would you need to "love" real estate for this to work? Going back to the initial article, don't do it if you don't love it because you may end up spending a lot of time on it and doing something you hate is a pretty crappy retirement. It sounds like you have a passion for real estate now, but maybe not when you started. The same is true for me and retail (I have a couple of franchises).
- ryanwaggoner 16y ago
  I'll have to reflect on this. It's true that I do love real estate, but I'm not sure you'd have to. My sense is that you'd have to enjoy it to some degree, perhaps more than the stock market, but less than a job. Acquiring properties is time-consuming, but holding them long-term just really isn't, both from my experience and from what I've seen from larger investors.
  - jaxn 16y ago
    I guess that is a key difference in real-estate and retail. The margins in retail aren't high enough to hire a management company to handle all of the details. Sure, there are store managers, but they have to report to someone. And there is turnover. I am going to keep the multi-family unit idea in mind for the future.
hippich 16y ago
sell one business, which you know really well (if you got offer - i think you are successful and know business well), and replace it with another business (real estate), which you do not know yet and probably loose money during initial period... doesn't make sense for me.
- ryanwaggoner 16y ago
  That's a fair point, but unless you're going to roll it all back into the same type of business that you just sold, you're going to have to learn something new, either the stock market or real estate or something.
  - hippich 16y ago
    Ah. Then it's good when you want to learn new skill. I actually want to do this, but I believe retirement is something different. =) Probably, we need to define what is retirement. =)) If it's doing nothing (business wise) - probably it's too boring anyway and learning new skills is good idea.
dabeeeenster 16y ago
My dad spent 30 years in private banking for a big swiss bank, investing money long term for rich people. His advice to me when he retired: The only way to invest money long term and relatively risk free is through property - everything else is just bullshit.
- thibaut_barrere 16y ago
  I really believe this is true, from what I've seen around me. That said, bankers and advisors know that this is somehow assumed to be common sense, and quite often use that as an argument to get you onboard investments that are not interesting at all in most cases (apart for them :-).
  - dedward 16y ago
    THe key point in there is "long term" .... as in youth to retirement... .and that fit the lifestyle of people who are old retired bankers now. It's still true - real-estate, by it's nature, is probably a good long-term investment when compared to anything else.
    - thibaut_barrere 16y ago
      It may be true depending on your context - but don't depend too much on "probably" :)
- pchristensen 16y ago
  This is assuming stable economic and population growth. There are lots of rural and inner-city property owners who could provide a cautionary tale to this theory.
  - mattmanser 16y ago
    Unless he retired 20 years ago he's also talking in the context of the biggest property boom in history. Even after the current crash they're still significantly overvalued compared to their historic prices, once you take into account inflation.
sdz 16y ago
Not so fast on those tax benefits. Yes, you can depreciate your real estate and not pay taxes on them that year. However, if you later go on to sell that property for a gain, there is something called recaptured depreciation [1]. In essence, you will pay taxes on those gains at the orginary income tax rate until all the depreciation you reported is covered. Only the remaining gains can be taxed at the much lower capital gains rate. [1]: http://en.wikipedia.org/wiki/Depreciation_recapture http://en.wikipedia.org/wiki/Depreciation_recapture
- ryanwaggoner 16y ago
  Yeah, I decided to avoid getting into that because the article was already long, but it's a good point. However, to be fair, you should also point out 1031 exchanges, which allow you to defer those capital gains taxes even further down the line: http://en.wikipedia.org/wiki/1031_exchange http://en.wikipedia.org/wiki/1031_exchange
jeffepp 16y ago
A better way to invest your money in real estate is to purchase a primary residence and (with some cosmetic improvements) sell the house (after 2 years) for a tax-free gain. You get the obvious mortgage deduction, while living there as well. I am on my 2nd house (I bought #1 in Metro Detroit in '08) with no experience fixing up houses, so it can be done. Have to be willing to be patient and study the market. Generally, you make your money on the "buy"
- ryanwaggoner 16y ago
  This can be a better way to start in real estate, but it's also highly dependent on the specific market, timing, and your skills. It also doesn't scale very well.
  - jeffepp 16y ago
    True. Just one way most people could accumulate wealth in order to purchase a commercial or multi-unit property.
  - jeffepp 16y ago
    You can make the market timing argument for any property. Like I said, I bought in Detroit area in Jan '08. Look at the numbers, the timing was awful. The purchase itself, was not.
    - ryanwaggoner 16y ago
      True, though buying for appreciation is much more speculative, in my opinion, as opposed to buying for the return of a stream of cashflow.
      - mechanical_fish 16y ago
        buying for appreciation is much more speculative, in my opinion We need to say this louder and stronger. Examine the chart at the bottom of this article: http://motherjones.com/kevin-drum/2010/08/chart-day-housing-prices-wwii http://motherjones.com/kevin-drum/2010/08/chart-day-housing-... Then try, as hard as you can, to realize that if you've been paying attention to house prices over the last decade you've been training yourself to think that this epic once-in-a-lifetime bubble is "normal" behavior for real estate prices. It isn't.
GBKS 16y ago
This seems to be a somewhat common practice. A pro football player (A.J. Hawk) just bought the apartment complex next door (bank shortsale). I was told he has bought several properties, fixes them up and rents them out to pay for his retirement.
djm 16y ago
I didn't see Tony Wright's article the other day, but I've just read it and the article linked here. I have a few comments. First, for the rest of this comment I'll define income as 'what you've got coming in' and wealth as 'what you keep or what you grow'. Most people fail to make this distinction (If you ask somebody if they are wealthy they will start talking about how much they get paid), but it's important, especially when thinking about how to optimize your tax situation. Tony's article makes several assumptions: (1) That you want to live a high consumption lifestyle. The $200k p/a first class lifestyle he quotes isn't necessarily what everybody wants. Even people with some wealth have to live within their means or they'll (as he correctly pointed out) lose it eventually. I'd actually take a guess that a typical family wouldn't be able to spend $200k in a year if they did not make purchases whose primary purpose was to display status. (2) That you would invest your $4m in a low-return investment. (3) That you would invest the money in such a way that 100% of your income is realisable (subject to income tax). The best strategy, imo, for somebody with a freshly minted $4m to play with is to put as much as possible into an investment where growth in their wealth is not realisable (which usually means buying property because appreciation is not taxed whilst it's happening [1]). They have a balancing act to play because they want to invest as much in this way as possible whilst leaving enough in an investment that will provide them with an income substantial enough to live on. As for Ryan W's article, I'd basically agree with what he said other than the part about buying a property with a mortgage. It would be better to buy a smaller property you could afford outright or partner with some other investors to buy the apartment complex (which has it's own set of problems). [1] I might actually be wrong about this. I know I've read somewhere that there have been attempts to tax wealth directly in some US states. I've no idea how the govt would be able to do this in a workable way though - how to you value the appreciation in somebody's house when the only meaningful way to value a property is to sell it?
- gyardley 16y ago
  I've no idea how the govt would be able to do this in a workable way though - how to you value the appreciation in somebody's house when the only meaningful way to value a property is to sell it? A bureaucrat called a 'tax assessor' makes an assessment - which may or may not be fair - of your property's current value. You're then charged a percentage of this assessed value in taxes. That's how property tax works across America today.
mark_l_watson 16y ago
When I was 24, one of my best friends who was two years younger starting researching the issue of how to invest for the long term and he also came up with the rental property plan. We both bought condos that we lived in ourselves for a few years and we have both had about 30 years of rental income from. He bought another couple small units, and he quit working as a programmer when he was 40, he and his family live very frugally, and he has done nothing but property management since then. My problem with the article: taking on a lot of debt. Bad idea, in my opinion. It is best to own much less property and have no debt on it. Of course, who wants to completely retire? I think that the trick is to make small income property investments, try to pay them off within a decade, and always work on what gives you pleasure, and don't concentrate on money.
- jimbobimbo 16y ago
  "Debt is bad idea" - it is not as long as your income is sufficient to cover payments and pay yourself. It's always better to have only 20% of the skin in the game rather than 100%.
- rphlx 16y ago
  The point of debt is that when the real estate market drops, you declare bankrupcy and let the lender eat most of the loss. Donald Trump has done this like 5 times. If you own outright, you eat the entire loss yourself. Basically -- debt increases upside and reduces downside risk. And inflation helps you pay it off. No wonder we're addicted?
MikeCapone 16y ago
I'd like to hear what people think about REIT ETFs to invest in real-estate more indirectly. Do they bring most of the same potential returns as owning a building yourself, with the added benefit of diversification, or are they a completely separate thing? What if that million was invested in a low cost REIT index?
- pchristensen 16y ago
  They are indexes (REIT) and funds (ETF) so you get diversification at the loss of control. Kind of like buying an S&P Index or investing in a mutual fund as opposed to investing in specific company stocks.
  - jaxn 16y ago
    An REIT is a Real Estate Investment Trust. Not an index. I have a small investment in an REIT and while the trust owns multiple properties, it is far from an index. An REIT is more like buying an individual stock, you are investing in a company that will use your money to purchase, improve, and maintain real estate in exchange for a share of the company. (That may not be technically accurate, but it is essentially what is going on)
- mattmaroon 16y ago
  Here's a good list of REITs I was looking at recently: http://www.forbes.com/forbes/2009/0316/056_reit_stuff.html http://www.forbes.com/forbes/2009/0316/056_reit_stuff.html They've unsurprisingly been hammered over the last year or so. In the long run investing in focused REITs (like apartment rental, etc.) will give you similar exposure to investing in their target market yourself. Of course, you pay the standard laziness premium. The REIT takes a fee, and sometimes their incentives are not aligned with yours. Perhaps they have $x they are incentivized to invest, forcing them to buy and run properties without top-tier ROIs and you, with a tiny fraction of $x, could do better. Perhaps you could just flat out do better than them by knowing your market and running your properties better. But REITs are probably not a great way to go as a solo investment. Most that I've found have underperformed the S&P 500 over the last decade. I'd use them more to hedge though as we've seen recently, it's entirely possible for both the stock market and the real estate one to nosedive together.
hammmatt 16y ago
It seems like a matter of philosophy. There are going to be distinct advantages and disadvantages with any investment philosophy you wish to make your own. The real question is what are your long term goals? This is how I see real estate investment. PROS - After paying off the mortgage you can still sell the house for its current value. If you select wisely, this is an additional investment. - Monthly income that is generated as safely as possible. Since you can select a good market to invest in, and even select who is moving in. You have as much security as in a monthly payout as you are ever going to get. - Can be used to leverage other investments. Equity can be an incredible tool. - Makes your credit score and personal financial statement look amazing. If profitable, of course. - You can invest money to make continued improvements on the property. And potentially increase it's value. - Can live there is your significant other kicks you out (haha) CONS - Limited mobility. If you invest in real estate with are with it for a while. - High initial cost. Unlike investing in stocks, it is difficult just to buy 10 shares google. You have invest quite a bit of personal capital. - Ties your investment to the community. Which may be a positive if you don't like the swings of the investment market. To say that an investment can be unsafe, or it is changing from a way you know how to make money to a way you don't, is an invalid reason not to do it. Any investment can be unsafe. Business lose value all the time. General Motors has lost value consistently, buying there stock doesn't mean that Google Stock isn't going to be a great idea. As for a learning curve, there was plenty to learn about stocks while learning to invest in those. There was plenty to learn about your startup before you could make it profitable. There will be plenty to learn about real estate as well. Ultimately, what are your investment goals? How much money do you need, and how are you comfortable spending? Do you need money for huge investments, or are you content to have a steady safe income? I love the idea of real estate investing just because it seems like it could replace the income from my job. Therefore, I would not have to work. Also, it gives you a base of credit to allow massive loans for massive expansions in business. Also, if you don't screw it up, it can be multi-generational income. Which is something you can not say for capital style investment.
- dedward 16y ago
  I think a good read of "Rich dad, poor dad" would do many good on the philosophy end of things. His point is to define "rich" as having your assets (which he defines as investments that produce income) produce enough income to cover your expenses. As soon as you reach that point, you can quit your day job and focus on managing your assets. The point about redefining the meaning of asset is a good one - real-estate is his thing too - but he points out that the cycle joe average has been playing (at least, pre-crash) where he gets a mortgage, waits for the market to go up, then sells, then just goes out and mortgages a bigger/better place and keeps doing that...... he chooses not to define this as an Asset in this context because it's not generating income for you - it's a constant liability and bill you have to pay.
deleted 16y ago
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marze 16y ago
Apparently, Florida Senate candidate Jeff Greene made a billion dollars doing just this, over and over again.
- zanek 16y ago
  Not really : "Greene began investing in real estate while in business school, and continued to build a successful real estate business. Greene went from being a bus boy at the Breakers Hotel in Palm Beach to being one of the most successful businessmen in the world. [8] In mid-2006, Greene, worried about the possible collapse of the real estate market, spoke with John Paulson, a fellow investor who discussed with Greene his investing strategy. They agreed that the real estate market was unstable and a bubble might be forming in housing. After the meeting, Greene engaged in a similar investing strategy to that of Paulson, which involved a series of unconventional investments trading credit default swaps. The return on Greene’s investments ultimately saved his business, and even put him on the Forbes 400 list."
  - ryanwaggoner 16y ago
    To be fair, he did get to somewhere around a half a billion before he started doing the credit default swaps. I can live with that :)
illumin8 16y ago
Seriously? You want to get into real estate in the middle of the biggest depression we have ever seen? When property values are still way over-inflated? This is only the start of the article's problems. The next thing he advocates is putting 20% down on a $6.5 million apartment complex, effectively leveraging 5 to 1. Leverage has no place in any retirement account, period! This entire article is a recipe for disaster.
- malloreon 16y ago
  Flippant reply: I'd rather buy during a depression than during a boom.
- someone_here 16y ago
  You could invest in Canada. Property values have been stable.
  - heycarsten 16y ago
    http://www.greaterfool.ca/2010/08/24/market-update-6 http://www.greaterfool.ca/2010/08/24/market-update-6 (Granted, Garth Turner is extreme, but he does not make things up.)
  - hugh3 16y ago
    Currencies, on the other hand, have not. If you shift your $1 million USD across to Canadian dollars, and the Canadian/US exchange rate returns to its historical norm, then you can (effectively) lose 30% of your money quite rapidly, assuming USD is what you typically spend.
- ryanwaggoner 16y ago
  "Be fearful when others are greedy and greedy when others are fearful." ~Warren Buffett Do you have any personal experience with multifamily real estate? It's valued based on the income stream, so unless the income stream is inflated, it's not really overvalued. And increasing population + more single-member households + fewer people buying houses now = more renters. Where the hell do you think all the people losing their homes right now are going to live? Avoidance of the kind of knee-jerk reaction that you're espousing is what makes good real estate investors incredibly wealthy. The leverage thing I'm more willing to concede, but the numbers aren't terribly different if you just buy the property outright. And let's be honest: this isn't a true "retirement account".
oceanician 16y ago
Damnit. I'm too late. Is anyone else over 30?
webwright 16y ago
I think Ryan's missing my point. When I talk about income %, I'm talking about across an entire portfolio (that real estate should certainly be a part of). So you're putting 25% of your cash down on a $5m property for $110k per year. Nice! How many such properties do you think the banks are going to let you buy? With the future values of these properties a bit murky, I imagine that someone with 4-5m in the bank ISN'T going to get the green light to buy $21m in properties (4 difference loans to service). People keep bringing up INDIVIDUAL investments that can net a great return (in this case, 9%). That's missing the point. With big piles of money, you have diversified holdings. You're not going to drop 90% of your cash in real estate down payments. Nor are you going to drop it all in stocks. You're going to (generally) do a reasonable asset allocation to minimize the risk. While I did mention the S&P500's performance for comparative purposes, I wasn't advocating for a pure stock portfolio (any more than you're advocating for a pure real estate portfolio). As he says, real estate has plenty of risk. You're betting on a local economy, construction pace, population growth, etc. But anyone with millions ought to be playing in real estate.
- ryanwaggoner 16y ago
  I really enjoyed your article, so I apologize if you felt like I was attacking you. That said, I think I disagree on a few points: 1) Commercial real estate underwriting much more heavily weighs the fundamentals of the property as opposed to the borrower. As a result, it's possible that you could have a lender who would be comfortable with you carrying several times your net worth in loans, provided the underlying collateral fundamentals are strong. 2) I'm skeptical that a long-term diversified portfolio will only return 5%, before inflation is taken into account. This would correspond to a real return of 2%, which seems overly-conservative. Don't wealth managers advise safely withdrawing 4% per year to protect your principal and keep pace with inflation? I may be mistaken here. 3) I'm not as gung-ho about diversification as you are. I think it can make sense, but as Buffett has said, it's a hedge against ignorance. If you sell a startup for $20m, you were highly under-diversified before the sale, but that doesn't make it a bad idea. Nor would it be a terrible idea to roll a significant portion of that capital back into a business that you knew well enough that the risk profile was low for you. This probably requires more work and self-assessment than most people are capable of or willing to engage in. Anyway, thanks for your original post and your comment here. Food for thought, as always :)
revorad 16y ago
That's hardly retirement. You should re-title this to "How to invest $1 Million in multifamily real estate at 2010 prices". Doesn't quite have the same ring to it, but it's a lot closer to the truth. It's a shame that even intelligent and knowledgeable people like Ryan and Tony choose to write articles with linkbait titles. There is clearly some interesting and valuable stuff in these articles, but they would be better if written more honestly without a pre-determined conclusion.
- deleted 16y ago
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c00p3r 16y ago
Buy a land somewhere in a developing world (a sharing with a native) and build an apartments for rent (hotels, flats, depending of location). In some areas of China or Brasil it is too late (too expensive), but the developing world is really big. Several projects, $100k+ each. World's population is growing exponentially. Tourism (flights) becoming cheaper, etc. In each small town in Himalayas I visited there were a lot of opportunities.
ww520 16y ago
It's difficult to obtain 20% downpayment financing on a commercial loan. 30% is the usual limit lenders would allow. 40% is more typical. But real estate is a very good way in general for ordinary people to become financially independent or even rich.
- rphlx 16y ago
  Maybe it was historically. But "Past events do not guarantee future results". Athough, people never really seem to believe that.
shin_lao 16y ago
Ah! If I made $4 millions I would use that to make another company. No need to worries about investors before a loong time.
ivankirigin 16y ago
I would never want to retire. This whole series of articles is silly. Let alone that if you're the kind of person that wants to do nothing for the rest of your life there is an even smaller chance of making it in building a startup.
- jat850 16y ago
  Why can't someone interested in a future in philanthropy, volunteerism, family building, etc., succeed at building a startup? None of them are likely to be income-generating ventures, meaning for all intents and purposes, it's a life of retirement. Retirement does not imply doing "nothing" for the rest of one's life.
leot 16y ago
The major difference financially between the stock market and real estate seems to stem from the fact that real estate is costly to manage, and doesn't scale, and thus investment banks and major market players are unable to participate in a big way. My knowledge of the stock market, even if I get a fancy MBA and specialize in finance, still won't be able to compete profitably with institutional investors that have massive pools of capital, inside knowledge, aggregated expertise, and highly optimized trading algorithms. As an individual investor I have no competitive advantage, even if I'm savvier than 99% of other individuals, because all the spread will be grabbed en masse by the big players. By contrast, the number of non-experts buying and selling real estate, along with its relatively high transaction costs and necessarily local nature, means that even if I were only smarter than, say, 90% of people, I'd be able to do quite well because the spread wouldn't be gobbled up by the 99.999999th percentile financier. As soon as electronically-managed liquidity is thrown in, and transaction costs become substantially lower for an elite subset, then it becomes much less "worth it" to participate. Thus, even REITs, by their very nature, are going to yield a lower return (pre-fees) than clever, well-managed individual real estate investments.
joehn 16y ago
but you are leveraging up with the large mortgage. so it is very risky. a better solution is to buy tax free municipal bonds.
korch 16y ago
all [he] ever did was smash up things and creatures and then retreat back into their money or their vast carelessness. —Fitzgerald, The Great Gatsby I think I recently drove by a sign on the road that said this too. It was right next to another sign that read "Make Money Fast", and another sign that said "Get Rich Working from Home." However, a much wiser man than I once said: TANSTAAFL. Now I know this is gonna get nuked, but I don't care because I can prove my point if you can understand me. Money is all you guys ever talk about here. Can we get more up votes on articles about oh say, extravagant assembly code or hardware hacks, instead of the daily echo chamber of TC driven $pablum? IMHO everyone here, or at least the most vocal minority, is far, far too obsessed with making money. And the kind of money amount always being talked about is literally winning the lottery. Fools! You want to know why the American Empire has hollwed out and is about to fall? Everybody is a fucking true-blue believer that they deserve to be rich,at the expense of everything and everyone else! Why can't people just be happy with enough to get by? Spend time with your friends and family, stop chasing the bullshit ideology of conspicuous consumption which much richer and much more powerful individuals want you to believe in order to trap you into their completely distorted mentality, a simulacrum of un-reality! And those biggest fish only benefit themselves by getting everyone else to chase their white rabbit btw. Here's my one "TED" wish: instead of the pursuit of money and winning the lottery, I want more of you super-smart, elite, "WEIRD", technophiles to spend the same amount of time & effort doing something intrinsically meaningful, creative, in the pursuit of knowledge for yourself or others, or sacrificing & helping those people in your communities who are disadvantaged, oppressed and less fortunate, or the noble purpose of doing something(anything!) because it is Right and nobody else seems to be doing that thing. What kind of ignorant fuck truly wants to live the hollow lifestyle of a wealthy young aristocrat? You might think you're making sacrifices now for freedom from money later, but I, and every single philosopher going all the way back to Thales would warn the pursuit of wealth, for it's own sake, or for the sole sake of being "freed" from money, ends up becoming a tragic, inescapable anchor you will be permanently chained to in your life, and it will fully consume and ruin whatever goodness and potential you might have started with. There is another way. Take only what you need, don't need much, give generously without regard, and redirect all your newly found free time & energy into efforts that truly matter. Fuck you, Money!
- 16y ago
plq 16y ago
this is not retirement, this is good and old fashined work: investigating investment options. i.e. you network, look for best deals, best people, less risk, better roi, etc. etc.

175 points by ryanwaggoner 16y ago

You forgot to factor in capital gain taxes on the original sales price. Depending on where you live that could put a substantial dent in your 'take home'. And leveraging (to use a popular word) that money to obtain a much larger property by financing is actually a fairly risky strategy, especially if you are going to put the rest of your money in to different investments.

ryanwaggoner 16y ago
You forgot to factor in capital gain taxes on the original sales price. I believe Tony already took that into account in his article? Leverage increases the risk, yes, but that doesn't make it "risky". It's very much the norm in the real estate world, which has a pretty stellar track record for creating wealth, once you get out of the levels where soccer moms are flipping houses. Buying commercial multifamily real estate isn't about the value of the property; it's about the value of the cashflow stream that you're buying. For certain markets and with long-term demographic trends and forecasts being what they are, I'm very comfortable with that level of risk. If it makes you feel better, run the numbers where you put $2mm or $3mm down, which reduces your return, but also decreases your risk.
- jacquesm 16y ago
  It makes it risky in the sense that if you only buy what you can pay right off the bat that you will reduce your income, but if the market tanks and you have to sell for whatever reason that you won't suddenly be working for a bank. Tying yourself up like that might come back to bite you and if something unforeseen happens you're back where you started or worse.
  - ryanwaggoner 16y ago
    You do raise a good point, in that you're in some sense risking your other assets as well. You can secure nonrecourse debt for real estate like this, though this is harder to do than it was a few years ago. But the other way to look at this is that you're going to risk the money one way or the other: either you risk it as indirect collateral by guaranteeing a loan at 80% LTV or you risk it directly by buying the property outright. The advantage in the first scenario is that you get a higher return. YMMV, but again, I'm comfortable with this level of risk.
    - jacquesm 16y ago
      I think that's why any investment advise or plan should always start with an analysis of the risk profile of the person doing the investing. And some of the risks are not always evident.
    - gfunk911 16y ago
      The point is that it's disingenuous to say you're only using ~25% of your money to buy the property, when in reality all of your money is at risk, because you're leveraging. If you invest 25% in the stock market, you won't lose more than 25%. The returns on the real estate is higher, because you are leveraging. Just because 20% down payment real estate loans are common doesn't change that fact. I agree with the idea that real estate can be a good investment, but this article has very little to do specifically with investing after a startup exit. The article should be called "Why to invest in real estate."
      - jacquesm 16y ago
        s/pay/say/
      - jholman 16y ago
        > this article has very little to do specifically with investing after a startup exit. The article should be called "Why to invest in real estate." Or, perhaps it should be called "A plan for generating retirement-suitable income using approximately $1mm of capital". Oh, hey, that's what it _is_ called (modulo some aggressive rounding). I agree with the first paragraph, though, that if it does turn out that you have $5mm, and if it does turn out that you can't secure nonrecourse debt, then it is true that you're also taking on extra risk.

smackfu 16y ago

Is this really retirement though? Or just using your retirement assets to fund a career change to apartment management?

ryanwaggoner 16y ago
You're definitely not managing the property in this scenario; part of the operating expense is hiring professional managers. REITs and other institutional investors own and operate properties like this from a distance all the time. EDIT: I should mention that I own several smaller properties in another state that are managed and I spend maybe an hour a month on them. I'd spend more on larger properties like this, but it's hardly a full-time job.
- endtime 16y ago
  > part of the operating expense is hiring professional managers. I don't think smackfu meant to imply you'd be replacing lightbulbs yourself. But if you have employees who provide a service, and if they screw up it can affect your future income (and you therefore need to do some degree of management, minimal though it may be), well, that sounds a lot more like a job than retirement to me. It might not be 40+ hours a week in an office, you might not be writing code, but that doesn't make it retirement.
  - davidu 16y ago
    Most property management companies are actually just managing the contractors who fix the sprinklers... those people aren't on your payroll. Usually property managers just take a fixed % of all the rental revenue.
    - endtime 16y ago
      I understand that, though I agree that my comment didn't make it clear. But you have to manage the property managers, no?
      - 16y ago

rwebb 16y ago

oh yeah that's a sure thing. no one has ever gotten fucked owning B grade multifamily housing. slam dunk.

ryanwaggoner 16y ago
There are no sure things in investing. If you have some specific quibble with my scenario that you can back up with data or experience, please post it.
- Super_Jambo 16y ago
  The basic problem I see with this scenario is the tail risk. You're probably going to be just fine. However there is a non-zero (and impossible to calculate) risk that you're going to lose the entire income stream. Equities / ETFs allow much greater diversification. The bit which bugs me though is why are you spending 200k a year. Countless studies show that greater income is not linked to happiness above a fairly low level. I refuse to believe the USA is so expensive that this level is $200k per annum. Reductions in living expenses are far easier to guarantee than increased returns.
  - noodle 16y ago
    > The basic problem I see with this scenario is the tail risk. you don't think that there's a similar risk in the market? sure, you pick how much risk you take when you invest, but i'd say that you're doing the same when investing in this type of real estate -- making a choice to exchange some safety for higher returns. > The bit which bugs me though is why are you spending 200k a year. i don't believe this was point of the article.
    - jacquesm 16y ago
      It's not like real estate and stocks are your only options.
      - noodle 16y ago

kloncks 16y ago

Great article and well-thought out argument! But when I see this I think: why the hell would I want to retire at 30 when I can just start another company?

jaxn 16y ago

Ryan, would you need to "love" real estate for this to work? Going back to the initial article, don't do it if you don't love it because you may end up spending a lot of time on it and doing something you hate is a pretty crappy retirement. It sounds like you have a passion for real estate now, but maybe not when you started. The same is true for me and retail (I have a couple of franchises).

ryanwaggoner 16y ago
I'll have to reflect on this. It's true that I do love real estate, but I'm not sure you'd have to. My sense is that you'd have to enjoy it to some degree, perhaps more than the stock market, but less than a job. Acquiring properties is time-consuming, but holding them long-term just really isn't, both from my experience and from what I've seen from larger investors.
- jaxn 16y ago
  I guess that is a key difference in real-estate and retail. The margins in retail aren't high enough to hire a management company to handle all of the details. Sure, there are store managers, but they have to report to someone. And there is turnover. I am going to keep the multi-family unit idea in mind for the future.

hippich 16y ago

sell one business, which you know really well (if you got offer - i think you are successful and know business well), and replace it with another business (real estate), which you do not know yet and probably loose money during initial period... doesn't make sense for me.

ryanwaggoner 16y ago
That's a fair point, but unless you're going to roll it all back into the same type of business that you just sold, you're going to have to learn something new, either the stock market or real estate or something.
- hippich 16y ago
  Ah. Then it's good when you want to learn new skill. I actually want to do this, but I believe retirement is something different. =) Probably, we need to define what is retirement. =)) If it's doing nothing (business wise) - probably it's too boring anyway and learning new skills is good idea.

dabeeeenster 16y ago

My dad spent 30 years in private banking for a big swiss bank, investing money long term for rich people. His advice to me when he retired: The only way to invest money long term and relatively risk free is through property - everything else is just bullshit.

thibaut_barrere 16y ago
I really believe this is true, from what I've seen around me. That said, bankers and advisors know that this is somehow assumed to be common sense, and quite often use that as an argument to get you onboard investments that are not interesting at all in most cases (apart for them :-).
- dedward 16y ago
  THe key point in there is "long term" .... as in youth to retirement... .and that fit the lifestyle of people who are old retired bankers now. It's still true - real-estate, by it's nature, is probably a good long-term investment when compared to anything else.
  - thibaut_barrere 16y ago
    It may be true depending on your context - but don't depend too much on "probably" :)
pchristensen 16y ago
This is assuming stable economic and population growth. There are lots of rural and inner-city property owners who could provide a cautionary tale to this theory.
- mattmanser 16y ago
  Unless he retired 20 years ago he's also talking in the context of the biggest property boom in history. Even after the current crash they're still significantly overvalued compared to their historic prices, once you take into account inflation.

sdz 16y ago

Not so fast on those tax benefits. Yes, you can depreciate your real estate and not pay taxes on them that year. However, if you later go on to sell that property for a gain, there is something called recaptured depreciation [1]. In essence, you will pay taxes on those gains at the orginary income tax rate until all the depreciation you reported is covered. Only the remaining gains can be taxed at the much lower capital gains rate. [1]: http://en.wikipedia.org/wiki/Depreciation_recapture http://en.wikipedia.org/wiki/Depreciation_recapture

ryanwaggoner 16y ago
Yeah, I decided to avoid getting into that because the article was already long, but it's a good point. However, to be fair, you should also point out 1031 exchanges, which allow you to defer those capital gains taxes even further down the line: http://en.wikipedia.org/wiki/1031_exchange http://en.wikipedia.org/wiki/1031_exchange

jeffepp 16y ago

A better way to invest your money in real estate is to purchase a primary residence and (with some cosmetic improvements) sell the house (after 2 years) for a tax-free gain. You get the obvious mortgage deduction, while living there as well. I am on my 2nd house (I bought #1 in Metro Detroit in '08) with no experience fixing up houses, so it can be done. Have to be willing to be patient and study the market. Generally, you make your money on the "buy"

ryanwaggoner 16y ago
This can be a better way to start in real estate, but it's also highly dependent on the specific market, timing, and your skills. It also doesn't scale very well.
- jeffepp 16y ago
  True. Just one way most people could accumulate wealth in order to purchase a commercial or multi-unit property.
- jeffepp 16y ago
  You can make the market timing argument for any property. Like I said, I bought in Detroit area in Jan '08. Look at the numbers, the timing was awful. The purchase itself, was not.
  - ryanwaggoner 16y ago
    True, though buying for appreciation is much more speculative, in my opinion, as opposed to buying for the return of a stream of cashflow.
    - mechanical_fish 16y ago
      buying for appreciation is much more speculative, in my opinion We need to say this louder and stronger. Examine the chart at the bottom of this article: http://motherjones.com/kevin-drum/2010/08/chart-day-housing-prices-wwii http://motherjones.com/kevin-drum/2010/08/chart-day-housing-... Then try, as hard as you can, to realize that if you've been paying attention to house prices over the last decade you've been training yourself to think that this epic once-in-a-lifetime bubble is "normal" behavior for real estate prices. It isn't.

GBKS 16y ago

This seems to be a somewhat common practice. A pro football player (A.J. Hawk) just bought the apartment complex next door (bank shortsale). I was told he has bought several properties, fixes them up and rents them out to pay for his retirement.

djm 16y ago

I didn't see Tony Wright's article the other day, but I've just read it and the article linked here. I have a few comments. First, for the rest of this comment I'll define income as 'what you've got coming in' and wealth as 'what you keep or what you grow'. Most people fail to make this distinction (If you ask somebody if they are wealthy they will start talking about how much they get paid), but it's important, especially when thinking about how to optimize your tax situation. Tony's article makes several assumptions: (1) That you want to live a high consumption lifestyle. The $200k p/a first class lifestyle he quotes isn't necessarily what everybody wants. Even people with some wealth have to live within their means or they'll (as he correctly pointed out) lose it eventually. I'd actually take a guess that a typical family wouldn't be able to spend $200k in a year if they did not make purchases whose primary purpose was to display status. (2) That you would invest your $4m in a low-return investment. (3) That you would invest the money in such a way that 100% of your income is realisable (subject to income tax). The best strategy, imo, for somebody with a freshly minted $4m to play with is to put as much as possible into an investment where growth in their wealth is not realisable (which usually means buying property because appreciation is not taxed whilst it's happening [1]). They have a balancing act to play because they want to invest as much in this way as possible whilst leaving enough in an investment that will provide them with an income substantial enough to live on. As for Ryan W's article, I'd basically agree with what he said other than the part about buying a property with a mortgage. It would be better to buy a smaller property you could afford outright or partner with some other investors to buy the apartment complex (which has it's own set of problems). [1] I might actually be wrong about this. I know I've read somewhere that there have been attempts to tax wealth directly in some US states. I've no idea how the govt would be able to do this in a workable way though - how to you value the appreciation in somebody's house when the only meaningful way to value a property is to sell it?

gyardley 16y ago
I've no idea how the govt would be able to do this in a workable way though - how to you value the appreciation in somebody's house when the only meaningful way to value a property is to sell it? A bureaucrat called a 'tax assessor' makes an assessment - which may or may not be fair - of your property's current value. You're then charged a percentage of this assessed value in taxes. That's how property tax works across America today.

mark_l_watson 16y ago

When I was 24, one of my best friends who was two years younger starting researching the issue of how to invest for the long term and he also came up with the rental property plan. We both bought condos that we lived in ourselves for a few years and we have both had about 30 years of rental income from. He bought another couple small units, and he quit working as a programmer when he was 40, he and his family live very frugally, and he has done nothing but property management since then. My problem with the article: taking on a lot of debt. Bad idea, in my opinion. It is best to own much less property and have no debt on it. Of course, who wants to completely retire? I think that the trick is to make small income property investments, try to pay them off within a decade, and always work on what gives you pleasure, and don't concentrate on money.

jimbobimbo 16y ago
"Debt is bad idea" - it is not as long as your income is sufficient to cover payments and pay yourself. It's always better to have only 20% of the skin in the game rather than 100%.
rphlx 16y ago
The point of debt is that when the real estate market drops, you declare bankrupcy and let the lender eat most of the loss. Donald Trump has done this like 5 times. If you own outright, you eat the entire loss yourself. Basically -- debt increases upside and reduces downside risk. And inflation helps you pay it off. No wonder we're addicted?

MikeCapone 16y ago

I'd like to hear what people think about REIT ETFs to invest in real-estate more indirectly. Do they bring most of the same potential returns as owning a building yourself, with the added benefit of diversification, or are they a completely separate thing? What if that million was invested in a low cost REIT index?

pchristensen 16y ago
They are indexes (REIT) and funds (ETF) so you get diversification at the loss of control. Kind of like buying an S&P Index or investing in a mutual fund as opposed to investing in specific company stocks.
- jaxn 16y ago
  An REIT is a Real Estate Investment Trust. Not an index. I have a small investment in an REIT and while the trust owns multiple properties, it is far from an index. An REIT is more like buying an individual stock, you are investing in a company that will use your money to purchase, improve, and maintain real estate in exchange for a share of the company. (That may not be technically accurate, but it is essentially what is going on)
mattmaroon 16y ago
Here's a good list of REITs I was looking at recently: http://www.forbes.com/forbes/2009/0316/056_reit_stuff.html http://www.forbes.com/forbes/2009/0316/056_reit_stuff.html They've unsurprisingly been hammered over the last year or so. In the long run investing in focused REITs (like apartment rental, etc.) will give you similar exposure to investing in their target market yourself. Of course, you pay the standard laziness premium. The REIT takes a fee, and sometimes their incentives are not aligned with yours. Perhaps they have $x they are incentivized to invest, forcing them to buy and run properties without top-tier ROIs and you, with a tiny fraction of $x, could do better. Perhaps you could just flat out do better than them by knowing your market and running your properties better. But REITs are probably not a great way to go as a solo investment. Most that I've found have underperformed the S&P 500 over the last decade. I'd use them more to hedge though as we've seen recently, it's entirely possible for both the stock market and the real estate one to nosedive together.

hammmatt 16y ago

It seems like a matter of philosophy. There are going to be distinct advantages and disadvantages with any investment philosophy you wish to make your own. The real question is what are your long term goals? This is how I see real estate investment. PROS - After paying off the mortgage you can still sell the house for its current value. If you select wisely, this is an additional investment. - Monthly income that is generated as safely as possible. Since you can select a good market to invest in, and even select who is moving in. You have as much security as in a monthly payout as you are ever going to get. - Can be used to leverage other investments. Equity can be an incredible tool. - Makes your credit score and personal financial statement look amazing. If profitable, of course. - You can invest money to make continued improvements on the property. And potentially increase it's value. - Can live there is your significant other kicks you out (haha) CONS - Limited mobility. If you invest in real estate with are with it for a while. - High initial cost. Unlike investing in stocks, it is difficult just to buy 10 shares google. You have invest quite a bit of personal capital. - Ties your investment to the community. Which may be a positive if you don't like the swings of the investment market. To say that an investment can be unsafe, or it is changing from a way you know how to make money to a way you don't, is an invalid reason not to do it. Any investment can be unsafe. Business lose value all the time. General Motors has lost value consistently, buying there stock doesn't mean that Google Stock isn't going to be a great idea. As for a learning curve, there was plenty to learn about stocks while learning to invest in those. There was plenty to learn about your startup before you could make it profitable. There will be plenty to learn about real estate as well. Ultimately, what are your investment goals? How much money do you need, and how are you comfortable spending? Do you need money for huge investments, or are you content to have a steady safe income? I love the idea of real estate investing just because it seems like it could replace the income from my job. Therefore, I would not have to work. Also, it gives you a base of credit to allow massive loans for massive expansions in business. Also, if you don't screw it up, it can be multi-generational income. Which is something you can not say for capital style investment.

dedward 16y ago
I think a good read of "Rich dad, poor dad" would do many good on the philosophy end of things. His point is to define "rich" as having your assets (which he defines as investments that produce income) produce enough income to cover your expenses. As soon as you reach that point, you can quit your day job and focus on managing your assets. The point about redefining the meaning of asset is a good one - real-estate is his thing too - but he points out that the cycle joe average has been playing (at least, pre-crash) where he gets a mortgage, waits for the market to go up, then sells, then just goes out and mortgages a bigger/better place and keeps doing that...... he chooses not to define this as an Asset in this context because it's not generating income for you - it's a constant liability and bill you have to pay.

deleted 16y ago

[deleted]

marze 16y ago

Apparently, Florida Senate candidate Jeff Greene made a billion dollars doing just this, over and over again.

zanek 16y ago
Not really : "Greene began investing in real estate while in business school, and continued to build a successful real estate business. Greene went from being a bus boy at the Breakers Hotel in Palm Beach to being one of the most successful businessmen in the world. [8] In mid-2006, Greene, worried about the possible collapse of the real estate market, spoke with John Paulson, a fellow investor who discussed with Greene his investing strategy. They agreed that the real estate market was unstable and a bubble might be forming in housing. After the meeting, Greene engaged in a similar investing strategy to that of Paulson, which involved a series of unconventional investments trading credit default swaps. The return on Greene’s investments ultimately saved his business, and even put him on the Forbes 400 list."
- ryanwaggoner 16y ago
  To be fair, he did get to somewhere around a half a billion before he started doing the credit default swaps. I can live with that :)

illumin8 16y ago

Seriously? You want to get into real estate in the middle of the biggest depression we have ever seen? When property values are still way over-inflated? This is only the start of the article's problems. The next thing he advocates is putting 20% down on a $6.5 million apartment complex, effectively leveraging 5 to 1. Leverage has no place in any retirement account, period! This entire article is a recipe for disaster.

malloreon 16y ago
Flippant reply: I'd rather buy during a depression than during a boom.
someone_here 16y ago
You could invest in Canada. Property values have been stable.
- heycarsten 16y ago
  http://www.greaterfool.ca/2010/08/24/market-update-6 http://www.greaterfool.ca/2010/08/24/market-update-6 (Granted, Garth Turner is extreme, but he does not make things up.)
- hugh3 16y ago
  Currencies, on the other hand, have not. If you shift your $1 million USD across to Canadian dollars, and the Canadian/US exchange rate returns to its historical norm, then you can (effectively) lose 30% of your money quite rapidly, assuming USD is what you typically spend.
ryanwaggoner 16y ago
"Be fearful when others are greedy and greedy when others are fearful." ~Warren Buffett Do you have any personal experience with multifamily real estate? It's valued based on the income stream, so unless the income stream is inflated, it's not really overvalued. And increasing population + more single-member households + fewer people buying houses now = more renters. Where the hell do you think all the people losing their homes right now are going to live? Avoidance of the kind of knee-jerk reaction that you're espousing is what makes good real estate investors incredibly wealthy. The leverage thing I'm more willing to concede, but the numbers aren't terribly different if you just buy the property outright. And let's be honest: this isn't a true "retirement account".

oceanician 16y ago

Damnit. I'm too late. Is anyone else over 30?

webwright 16y ago

I think Ryan's missing my point. When I talk about income %, I'm talking about across an entire portfolio (that real estate should certainly be a part of). So you're putting 25% of your cash down on a $5m property for $110k per year. Nice! How many such properties do you think the banks are going to let you buy? With the future values of these properties a bit murky, I imagine that someone with 4-5m in the bank ISN'T going to get the green light to buy $21m in properties (4 difference loans to service). People keep bringing up INDIVIDUAL investments that can net a great return (in this case, 9%). That's missing the point. With big piles of money, you have diversified holdings. You're not going to drop 90% of your cash in real estate down payments. Nor are you going to drop it all in stocks. You're going to (generally) do a reasonable asset allocation to minimize the risk. While I did mention the S&P500's performance for comparative purposes, I wasn't advocating for a pure stock portfolio (any more than you're advocating for a pure real estate portfolio). As he says, real estate has plenty of risk. You're betting on a local economy, construction pace, population growth, etc. But anyone with millions ought to be playing in real estate.

ryanwaggoner 16y ago
I really enjoyed your article, so I apologize if you felt like I was attacking you. That said, I think I disagree on a few points: 1) Commercial real estate underwriting much more heavily weighs the fundamentals of the property as opposed to the borrower. As a result, it's possible that you could have a lender who would be comfortable with you carrying several times your net worth in loans, provided the underlying collateral fundamentals are strong. 2) I'm skeptical that a long-term diversified portfolio will only return 5%, before inflation is taken into account. This would correspond to a real return of 2%, which seems overly-conservative. Don't wealth managers advise safely withdrawing 4% per year to protect your principal and keep pace with inflation? I may be mistaken here. 3) I'm not as gung-ho about diversification as you are. I think it can make sense, but as Buffett has said, it's a hedge against ignorance. If you sell a startup for $20m, you were highly under-diversified before the sale, but that doesn't make it a bad idea. Nor would it be a terrible idea to roll a significant portion of that capital back into a business that you knew well enough that the risk profile was low for you. This probably requires more work and self-assessment than most people are capable of or willing to engage in. Anyway, thanks for your original post and your comment here. Food for thought, as always :)

revorad 16y ago

That's hardly retirement. You should re-title this to "How to invest $1 Million in multifamily real estate at 2010 prices". Doesn't quite have the same ring to it, but it's a lot closer to the truth. It's a shame that even intelligent and knowledgeable people like Ryan and Tony choose to write articles with linkbait titles. There is clearly some interesting and valuable stuff in these articles, but they would be better if written more honestly without a pre-determined conclusion.

deleted 16y ago
[deleted]

c00p3r 16y ago

Buy a land somewhere in a developing world (a sharing with a native) and build an apartments for rent (hotels, flats, depending of location). In some areas of China or Brasil it is too late (too expensive), but the developing world is really big. Several projects, $100k+ each. World's population is growing exponentially. Tourism (flights) becoming cheaper, etc. In each small town in Himalayas I visited there were a lot of opportunities.

ww520 16y ago

It's difficult to obtain 20% downpayment financing on a commercial loan. 30% is the usual limit lenders would allow. 40% is more typical. But real estate is a very good way in general for ordinary people to become financially independent or even rich.

rphlx 16y ago
Maybe it was historically. But "Past events do not guarantee future results". Athough, people never really seem to believe that.

shin_lao 16y ago

Ah! If I made $4 millions I would use that to make another company. No need to worries about investors before a loong time.

ivankirigin 16y ago

I would never want to retire. This whole series of articles is silly. Let alone that if you're the kind of person that wants to do nothing for the rest of your life there is an even smaller chance of making it in building a startup.

jat850 16y ago
Why can't someone interested in a future in philanthropy, volunteerism, family building, etc., succeed at building a startup? None of them are likely to be income-generating ventures, meaning for all intents and purposes, it's a life of retirement. Retirement does not imply doing "nothing" for the rest of one's life.

leot 16y ago

The major difference financially between the stock market and real estate seems to stem from the fact that real estate is costly to manage, and doesn't scale, and thus investment banks and major market players are unable to participate in a big way. My knowledge of the stock market, even if I get a fancy MBA and specialize in finance, still won't be able to compete profitably with institutional investors that have massive pools of capital, inside knowledge, aggregated expertise, and highly optimized trading algorithms. As an individual investor I have no competitive advantage, even if I'm savvier than 99% of other individuals, because all the spread will be grabbed en masse by the big players. By contrast, the number of non-experts buying and selling real estate, along with its relatively high transaction costs and necessarily local nature, means that even if I were only smarter than, say, 90% of people, I'd be able to do quite well because the spread wouldn't be gobbled up by the 99.999999th percentile financier. As soon as electronically-managed liquidity is thrown in, and transaction costs become substantially lower for an elite subset, then it becomes much less "worth it" to participate. Thus, even REITs, by their very nature, are going to yield a lower return (pre-fees) than clever, well-managed individual real estate investments.

joehn 16y ago

but you are leveraging up with the large mortgage. so it is very risky. a better solution is to buy tax free municipal bonds.

korch 16y ago

all [he] ever did was smash up things and creatures and then retreat back into their money or their vast carelessness. —Fitzgerald, The Great Gatsby I think I recently drove by a sign on the road that said this too. It was right next to another sign that read "Make Money Fast", and another sign that said "Get Rich Working from Home." However, a much wiser man than I once said: TANSTAAFL. Now I know this is gonna get nuked, but I don't care because I can prove my point if you can understand me. Money is all you guys ever talk about here. Can we get more up votes on articles about oh say, extravagant assembly code or hardware hacks, instead of the daily echo chamber of TC driven $pablum? IMHO everyone here, or at least the most vocal minority, is far, far too obsessed with making money. And the kind of money amount always being talked about is literally winning the lottery. Fools! You want to know why the American Empire has hollwed out and is about to fall? Everybody is a fucking true-blue believer that they deserve to be rich,at the expense of everything and everyone else! Why can't people just be happy with enough to get by? Spend time with your friends and family, stop chasing the bullshit ideology of conspicuous consumption which much richer and much more powerful individuals want you to believe in order to trap you into their completely distorted mentality, a simulacrum of un-reality! And those biggest fish only benefit themselves by getting everyone else to chase their white rabbit btw. Here's my one "TED" wish: instead of the pursuit of money and winning the lottery, I want more of you super-smart, elite, "WEIRD", technophiles to spend the same amount of time & effort doing something intrinsically meaningful, creative, in the pursuit of knowledge for yourself or others, or sacrificing & helping those people in your communities who are disadvantaged, oppressed and less fortunate, or the noble purpose of doing something(anything!) because it is Right and nobody else seems to be doing that thing. What kind of ignorant fuck truly wants to live the hollow lifestyle of a wealthy young aristocrat? You might think you're making sacrifices now for freedom from money later, but I, and every single philosopher going all the way back to Thales would warn the pursuit of wealth, for it's own sake, or for the sole sake of being "freed" from money, ends up becoming a tragic, inescapable anchor you will be permanently chained to in your life, and it will fully consume and ruin whatever goodness and potential you might have started with. There is another way. Take only what you need, don't need much, give generously without regard, and redirect all your newly found free time & energy into efforts that truly matter. Fuck you, Money!

16y ago

plq 16y ago

this is not retirement, this is good and old fashined work: investigating investment options. i.e. you network, look for best deals, best people, less risk, better roi, etc. etc.