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Anyone who is building a plan like this needs to seriously consider whether 7% is yield realistic in the long term. I would contend that for that yield you are

Anyone who is building a plan like this needs to seriously consider whether 7% is yield realistic in the long term. I would contend that for that yield you are taking some risk which in this plan you can't afford. A very commonly quoted "safe" yield assumption is 4%. Yes you can earn more, but in many cases for more yield you are taking more risk. For example the author mentions private loans and syndications, which carry a significant risk of loss of capital. Since they are planning to live on the proceeds of that capital, a loss would be a big problem, because your retirement income may not be easy to supplement (lots of older people find they can't work or can't easily get a job).

texasbigdata 5y ago
Abstracting away your concept, any number could be too high even 4%. Assuming a build up method of risk, which is a practical/theoretical way you can categorize returns across asset classes, you start with the "risk free rate" which often could be the US short term borrowing rate. Currently it's pegged artificially at 0.25%. From there you add risk. So a municipal bond backing a school would earn a 2% "spread" or risk premium for a 2.25% return, and your "Uber but for XYZ" would be significantly higher. Rather than picking arbitrary cutoffs it's helpful to think about returns in terms of where they sit relative to GDP growth. From 1750 to 2010 the equity and certain real markets track GDP growth (not in any particular year but in inflation adjusted terms). Which makes sense conceptually since asset markets should be a exchange rate adjusted money supply expression of GDP growth conceptually. Why does this matter? Germany, for example, has negative rates. Rules of thumb absolutely break as you tangentially approach 0% base rates. 1 . https://www.bankrate.com/rates/interest-rates/federal-funds-rate.aspx https://www.bankrate.com/rates/interest-rates/federal-funds-... 2. https://www.bea.gov/data/gdp/gross-domestic-product https://www.bea.gov/data/gdp/gross-domestic-product
foobar1962 5y ago
> Anyone who is building a plan like this needs to seriously consider whether 7% is yield realistic in the long term. Funny you mention that... I was looking at my bank accounts yesterday and noticed that one of the non-transaction "saver" accounts offered 0.1% interest for deposits over $10,000 and 0% for less. (This is a major bank in Australia.)
badpun 5y ago
I am assuming 0% yield (in real terms). I worry that it might be too optimistic still.
Bradlinc 5y ago
I wonder if there is a way to hedge the potential losses by picking an underlying asset that follows the rental market more closely? The best I can come up with is to own and rent a similar property to the one you would be renting via AirBNB. Unfortunately this seems unappealing to me, as in this scenario I still have many of the same trappings of owning a house (which is is the reason I wanted to live in AirBNBs in the first place!) The second solution I have thought about is to invest in a REIT that invests in residential real estate. I believe this can work but 7% would still feel too high for me. Also, one would have to pay tax on the income from either of these scenarios, which wouldn't be necessary if you owned your house outright.
- foogazi 5y ago
  Maybe own a property in LCOLA - earning income but also having a place to live during a downturn
ProjectArcturis 5y ago
He's ignoring taxes as well.

texasbigdata 5y ago

Abstracting away your concept, any number could be too high even 4%. Assuming a build up method of risk, which is a practical/theoretical way you can categorize returns across asset classes, you start with the "risk free rate" which often could be the US short term borrowing rate. Currently it's pegged artificially at 0.25%. From there you add risk. So a municipal bond backing a school would earn a 2% "spread" or risk premium for a 2.25% return, and your "Uber but for XYZ" would be significantly higher. Rather than picking arbitrary cutoffs it's helpful to think about returns in terms of where they sit relative to GDP growth. From 1750 to 2010 the equity and certain real markets track GDP growth (not in any particular year but in inflation adjusted terms). Which makes sense conceptually since asset markets should be a exchange rate adjusted money supply expression of GDP growth conceptually. Why does this matter? Germany, for example, has negative rates. Rules of thumb absolutely break as you tangentially approach 0% base rates. 1 . https://www.bankrate.com/rates/interest-rates/federal-funds-rate.aspx https://www.bankrate.com/rates/interest-rates/federal-funds-... 2. https://www.bea.gov/data/gdp/gross-domestic-product https://www.bea.gov/data/gdp/gross-domestic-product

foobar1962 5y ago

> Anyone who is building a plan like this needs to seriously consider whether 7% is yield realistic in the long term. Funny you mention that... I was looking at my bank accounts yesterday and noticed that one of the non-transaction "saver" accounts offered 0.1% interest for deposits over $10,000 and 0% for less. (This is a major bank in Australia.)

badpun 5y ago

I am assuming 0% yield (in real terms). I worry that it might be too optimistic still.

Bradlinc 5y ago

I wonder if there is a way to hedge the potential losses by picking an underlying asset that follows the rental market more closely? The best I can come up with is to own and rent a similar property to the one you would be renting via AirBNB. Unfortunately this seems unappealing to me, as in this scenario I still have many of the same trappings of owning a house (which is is the reason I wanted to live in AirBNBs in the first place!) The second solution I have thought about is to invest in a REIT that invests in residential real estate. I believe this can work but 7% would still feel too high for me. Also, one would have to pay tax on the income from either of these scenarios, which wouldn't be necessary if you owned your house outright.

foogazi 5y ago
Maybe own a property in LCOLA - earning income but also having a place to live during a downturn

ProjectArcturis 5y ago

He's ignoring taxes as well.