posted
"You have to buy real estate!" Now how many times do you hear that during a real-estate bubble? If you take this advice, it may be wise to ask yourself if you have too much money tied up in your home and not enough in savings. With all the talk of a diminishing social security system, the need to save more for retirement seems inevitable. So, let’s look at some of the options for building that million you need to retire in style.
Where Are Our Savings? If you have a great deal invested in your house, remember, listed homes and other property can take anywhere from two weeks to more than a year to sell. Ask any agent who sold homes back in the 1980s, when prime interest rates were averaging over 11%! Still, property seems to be priority. In 2004, the household savings rate averaged a meager 0.8% of disposable income (the rate was 7% over the three previous decades). This 0.8% is the lowest level since the Great Depression (Business Week Online, "Our Hidden Savings", Jan 2005). Is this because Americans are putting too much of their savings into their homes or are we just bad at saving money?
So exactly how much should you save annually for your retirement? Although there is no correct answer here, most financial planners will tell you that you should be saving around 15-20% of your annual gross income. This figure may sound unattainable for many, but suppose your employer matches contributions of up to 6% of your salary - now you need to save only 9%!
Sizing up the Options Let's look at how some retirement savings vehicles can help you reach your goals:
401(k), 403(b) and Other Company Retirement Plans These are perhaps the best savings vehicle for most of the working population. You need to take advantage of your company plan if one is available. Not only do the earnings in the account grow tax-deferred, but a simple contribution of 6% can help reduce your tax bill since employee contributions are not reported as gross income for income tax purposes.
Traditional, SIMPLE and Roth IRAs Individual retirement accounts are available to those individuals with qualified compensation. Traditional and Roth IRAs are funded with after-tax dollars, and if your income level qualifies, you can receive a tax deduction for your contributions. The major difference between the two IRAs is that earnings in the Traditional IRA grow tax-deferred, while those in the Roth IRA grow tax-free. The SIMPLE IRA is a tax-favored retirement plan that certain small employers (including self-employed individuals) can set up for the benefit of themselves and their employees.
Simplified Employee Pension (SEP) These are plans that can be established by the self-employed or those who have a few employees in a small business. The SEP lets you make contributions to an IRA on behalf of yourself and your employees. The SEP IRA is popular because it is simple to set up, requires little paperwork and allows investment earnings to grow tax-deferred.
Taxable Brokerage Accounts These allow you to invest additional funds after you have maximized all of your retirement account options. Brokerage (cash) accounts can serve also as good savings vehicles for a particular goal such as a home or yacht. Be aware, you’ll need to pay taxes on the income generated in these accounts in the year that it is paid.
Getting Disciplined So you know about some of the powerful savings tools, but you may be wondering where you get the extra cash to invest. Well, there can be a number of places - it first starts with your budget. Match up your monthly income with your expenses for the month. Can you cut back on your dining out? Do you really need that manicure once a week? Can you save money on your current insurance? Try shopping around for other carriers for better rates. Do you really need permanent life insurance (whole or universal life) when you could be saving hundreds with term insurance?
After you’ve skimmed down the budget, there are three keys to making your million dollars. First, as we already mentioned, you must take advantage of any type of employer match program. If you have a 401(k) plan at work and the employer matches up to 6% of your pay, you should contribute at least 6% of your pretax income to the plan. Second, set your accounts up on automatic investment plan, so each month income goes to forced savings. And lastly, invest in the best savings plans first and weed out the bad.
Reaching $1,000,000 with Ease To take full advantage of your retirement savings vehicles, try to contribute the maximum limit. In 2005, you can contribute up to $14,000 to a 401(k) plan ($18,000 if you are over age 50); you can also contribute $4,000 to a Traditional or Roth IRA of your choice ($4,500 if you are over age 50). (Keep in mind that the eligibility to contribute to a Roth IRA has some income limitations).
Let's take a look at how an average person, let's call him Joe, can reach this million-dollar goal by the time he retires at age 67 (27 years from now). Joe (single, age 40) has an annual gross income of $50,000, and his employer has a 401(k) plan and matches contributions up to 5% of Joe’s salary. Joe is also committed to saving $4,000 a year in a Roth IRA. We'll assume his investments have a 10% return.
Joe takes full advantage of the employer match and defers 5%, or $2,500, of his salary each year. His employer will then contribute $2,500 each year as per the matching agreement. (Assume Joe’s salary remains the same until retirement) Here's the breakdown of his savings over the 27 years.
401(k) Roth IRA Annual contributions of $5,000 Annual contributions of $4,000 Compounded at 10% for 27 years Compounded at 10% for 27 years Equals $605,500 Equals $484,400
Grand Total of $1,089,900. Welcome to the Millionaire Club!
If Joe had started his plan at different ages, here's what his results would look like:
Starting Age Annual Investment Annual Return Value at age 67 25 $9,000 10% $4,838,732 30 $9,000 10% $2,970,355 35 $9,000 10% $1,810,239 40 $9,000 10% $1,089,900 45 $9,000 10% $642,624 50 $9,000 10% $364,902 55 $9,000 10% $192,458
At younger ages, you still have the time to be a little more risky with your investment selections and seek out investments that have the potential to get you that 10% return or more. If you're looking at certificates of deposit and money-market investments think again - you need to consider other investments such as equities to achieve returns that can outpace inflation.
The chart above also demonstrates the value of compounding interest, one of the most valuable tools to accumulate significant wealth - the key is to start while you’re young and stay disciplined. Stick to your plan! The ride may be slow and boring at times, but you’ll be pleased with the long-term results.
posted
yeah but i wanna be a millionaire.. now.. when i can still use the money to have fun with, not just give 90% of it away after i die 7 years later..
-------------------- "Gentleman, you have come sixty days too late. The depression is over." Herbert Hoover 1930 Posts: 678 | From: currently in hiding due to investigation | Registered: Oct 2004
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Own 7 properties: Collect rent on all 7 of them lets say for $1000.
$1000 x 7 = $7000 per month. After 15-30 years when the mortgage is paid off, that $7000 a month is pure profit! Not to mention the value of the property which you can sell for a lump sum.
Now 95% of people say, "well you need money to invest in real estate". ABSOLUTELY NOT!!
I bought all my properties with nothing coming out of my pocket. Not many 31 year olds can say they own 4 properties.
I found a lender who was willing to give me 100% financing plus incorperate the closing costs into the loan. My hard part was to find a seller that was willing to accpet an offer from me.
Key: offer asking or more. Get "approved", tell seller you can close in 3 weeks. DONE.
So nice to have my tenants pay for my mortgage every month!
-------------------- Charts are like artwork, it's the same painting to everyone but each person see's something different. Posts: 3026 | Registered: Apr 2004
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posted
Ok, the above was not a way to become a "millionaire" but dam close. In fact, sell 2 or 3 after years go by and there's your million.
That $7000 a month is cash and you get many tax breaks owning real estate.
I'll be selling one of my properties next month. Bought last year for $80,000, accepted an offer last week for $132,500. $52,500 profit!
BUT WAIT......... the mortgage was being paid down every month so it's not $80,000 that I owe, it's more like $75,000...so it will be $57k cash profit, FOR DOING NOTHING.
-------------------- Charts are like artwork, it's the same painting to everyone but each person see's something different. Posts: 3026 | Registered: Apr 2004
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posted
Tyria. Everyone needs to be looking for earnings being posted this week for 2004. They have had incrememtal sales in numerous products. This is a very strong buy before the release. I have been following this stock for 4 months. I am buying up to .031. It an beauty ready to soar. I am very confident this stock will hit a teen at some point this year. There are too many big names working with Trey. Early Merry Christmas!!
-------------------- Tom Jones Posts: 14 | From: Jacksonville Gl | Registered: Feb 2005
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quote:Originally posted by BT: Great post Brad. In a simplified way:
Own 7 properties: Collect rent on all 7 of them lets say for $1000.
$1000 x 7 = $7000 per month. After 15-30 years when the mortgage is paid off, that $7000 a month is pure profit! Not to mention the value of the property which you can sell for a lump sum.
Now 95% of people say, "well you need money to invest in real estate". ABSOLUTELY NOT!!
I bought all my properties with nothing coming out of my pocket. Not many 31 year olds can say they own 4 properties.
I found a lender who was willing to give me 100% financing plus incorperate the closing costs into the loan. My hard part was to find a seller that was willing to accpet an offer from me.
Key: offer asking or more. Get "approved", tell seller you can close in 3 weeks. DONE.
So nice to have my tenants pay for my mortgage every month!
good stuff, but the hard part is ok lets say you have 7 properties all with mortgages, what if you have two vacancies and have to pay them out of your own income, this can eat you up fast if you are unable to get them rented. You may have to lower your rents to remain competitive, and this can be a downer. Im not saying that its a bad idea because i currently am a landlord but i only have 1 house on a lease option contract, so far no problems but if the renter didnt pay i would be hard pressed to cover my current mortgage and the other mortgage at the same time. thats the tough part because ive been tryin to think of a way to expand into more rentals but i couldnt cover the mortgage in the event of a vacancy. BTW i just turned 23 and am renting to a family that is older than my parents.. how many people can say that.
-------------------- "Gentleman, you have come sixty days too late. The depression is over." Herbert Hoover 1930 Posts: 678 | From: currently in hiding due to investigation | Registered: Oct 2004
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posted
Renting is a tough business so much headaches and worries. Sometimes its not worth it. It also depends on location too. Not too many banks will give you 7 mortgages. Too much of a risk. What about the taxes! lol
Just put 90% of you cash into step latter cds. Use the remaining 10% to invest/gamble in penny stocks. Each time you make money use half of the profits to buy a long term cd. Low risk = cd and high risk = peny stocks a perfect balance. You'll make millions! lol
posted
BT i'm with you on the real estate option. I'm 29 and have a home in VA and a Condo in FL. Right now I'm renting the condo at break even and gaining 9% a year appreciation...so that one's working out nicely.
How did you find such a sweet deal on the lender? I'm in the market now for another property and am having a little trouble with the lending situation--I don't have 20% to put down.
Feel free to PM me if you have any tips. Thanks!
Posts: 722 | From: Richmond, Va , USA | Registered: Mar 2004
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quote:Originally posted by Art: Big bubble bust coming in housing.
People have been buying houses as investment, they may need to sell off soon.
Values may drop.
Sell now and buy later.
Anothing thing too...I work with tons of ppl who bought houses that they really can't afford using 5 or 7 year arms. In 5 or 7 years they will all be crying.
Posts: 722 | From: Richmond, Va , USA | Registered: Mar 2004
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posted
Ever wonder why people just dont do it? They end up having more excuses not to then excuses why they should.
The tax advantages of owning a piece of property is phenominal. Did you know you can write off your gas mileage? How about interest you are paying the bank? How about maintence fees? Or points paid per mortgage? Or even depreciation. The list goes on and on.
Of course real estate all depends on the area you live in. Example. Bought a condo for $242k in 2003. Now appraised at $325k. A 35% increase and that's AFTER the market was in full bloom. That condo was worth $200k in 2001!!
So lets forget the fact that your property is appreciating while you're going about your everyday routine. As your tenant is paying for a place to live (your mortgage), your in turn building equity and in turn owe less to the bank over the years.
Now,... want to get technical? If you don't plan to own the property for more then 5 years and want to flip it for the quick thousands... Get either an interest only loan, or a 5/1 arm.
Rate & monthly payments are lower. So in turn the rent should cover and then some. Remember, all interest is a tax write off. The lower your monthly payments, the more profit you can have per month, or the easier it is for you to maintain.
Quailfy your tenants and you'll be glad you did down the line.
-------------------- Charts are like artwork, it's the same painting to everyone but each person see's something different. Posts: 3026 | Registered: Apr 2004
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posted
My problem is that for most banks you need 20% down to buy and investment property. I don't have that much cash. I have decent income and a low debt/income ratio, just not a "chunk" of cash to up front. I'm looking for a lender that will work with me. The search goes on...
Posts: 722 | From: Richmond, Va , USA | Registered: Mar 2004
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posted
100% Financing on investment properties. Take an 80% first and ask the seller to hold a 20% second. You may even be able to get a seller's concession if the appraisal comes in high enough. I do this all the time myself and for my clients.
Posts: 798 | From: Malverne, NY, United States | Registered: Jan 2004
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posted
realestate is difficult, i got a notice on one of my properties where i am going to be fined like 100 or 1000 bucks a day... over some things...
and another one of my houses my mortages is 1800 bucks per month and i get 1500 in rent..
and i dont always get that...
so realeaste is really tough...
daytrading is much better.
Posts: 1070 | From: louisville,ky,usa | Registered: Oct 2004
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posted
real estate is difficult but if you are going to rent you have to make sure you get a good deal on the property in the first place. If your renting out $500,000 dollar homes odds are you are going to be vacant and never get your mortgage covered. The fact is you have to rent cheaper homes because most renters are either young people just starting out or old jokers who have no idea how to manage money and will probably rent forever. Either way they cant afford 1500-2000 rent payments.
-------------------- "Gentleman, you have come sixty days too late. The depression is over." Herbert Hoover 1930 Posts: 678 | From: currently in hiding due to investigation | Registered: Oct 2004
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posted
7000 dollars a month in 30 years is pretty conservative don't you think? Economic growth + inflation can easily bring that number up.
30 years a lot can happen but I don't see it out of the question to get 20K a month from 7 houses in 30 years.
Posts: 93 | Registered: Oct 2004
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posted
the most successful realestate deal i ever saw was a trailer park... i helped a fellow build one and he did it one lot at a time and within a year he was taking home 40k a month...he gave them each a half acre and charged 200 bucks a month lot rent...
Posts: 1070 | From: louisville,ky,usa | Registered: Oct 2004
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quote:Originally posted by blueranger: the most successful realestate deal i ever saw was a trailer park... i helped a fellow build one and he did it one lot at a time and within a year he was taking home 40k a month...he gave them each a half acre and charged 200 bucks a month lot rent...
Hey, I'm just wondering about the start up cost on at trailer park, mainly septic? Tell me about the ****! Realestate is very different from region to region, I don't see it dippin to much here in Tampa simply because of the surroundings (Ocean, lots to do and growing population). I'm wondering if you personally go with the 15yr/30yr? I've read up a lot on this and many go with 30 and keep payment down and just move the rest into 403b/401k.
Posts: 138 | From: FLORIDA | Registered: Dec 2004
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posted
I was in the navy and there was a guy retiring as a first class looking forward to about 600 bucks a month... he was despondant and had no idea what to do... So i told him he had his health and wife and i started listing the good things he had and then he told me he owned 100 acres upon the york river in virginia...probably around newport news..
and I said you could build house and so on and he said he did not have any money... so i said what about a trailer park...
so we devised a plan to put in lots one at a time.. and so he put in one plowed and dug and did most of the work himself and started a road all for very little money...
I came back and saw him at the end of the summer and he had 200 trailers on this piece of land and each one had a 1/2 acre lot... and he was making 40000 big ones a month..
the trick is to get into a rural county that is probably 30 minutes away from a large city.
Posts: 1070 | From: louisville,ky,usa | Registered: Oct 2004
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posted
Awesome story Blue Ranger. So basicly your friend did a lot of the work on his own??
My father grew up during the time when 401ks just did not exhist as they do today. He was an excellent carpenter, he would move into an older home, fixer up and move onto another and in the process rent out the home he moved from. When it got time for him to retire he got tired of dealing with bull from renters so he started selling off the homes. It's an awesome income for him. I think he ended up with 7 homes and a farm, and lots of land.
We did deal with some dirtbags time to time, youngins Motley Crue style living..people that would throw garbage down into the cellar instead of taking it to the corner and rats would come out of the wood work! We had the druggies that would trash the house get in trouble and move and leave all belonging behind. Some poor people that where way out of control with stupid spending, actually some of them he helped.
I think more than anything he got tired of people that would want him to fix small things that they could fix in a second..ohh the fawcet drips funny, light bulbs need changing, etc. They would always call on a friday night when we were heading out the door to get some grub.
Getting rid of the bad people was difficult with the nasty winter, you just can't throw someone out in the cold but at least my dad had a cane he could wackem with if they got too far outta line.
Now I seen all this and was always hesitant about accumulating and renting but now hmm, maybe a trailer park?? That would work. Just rent out the land.
Now I wish I could make the money I make working in Tampa and live in Upstate Ny, housing can be found cheaper up that way and the fixer upers I'd feel more good about fixing. Maybe someday soon with the computer advancing and people dialing in to work from home. That would be awesome and I could pay off a home rather fast and maybe build up a trailer park. Awesome idea.
Posts: 138 | From: FLORIDA | Registered: Dec 2004
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posted
i own a house right now the city is going after me and some sort of daily fine which could be 1000 bucks a day... I also own one I am struggling with the mortage...
I think the best way to make money is right here in these stocks.... look at siris and the stun gun company...
but the trick is not to become a long...
Posts: 1070 | From: louisville,ky,usa | Registered: Oct 2004
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posted
buy cnes right now at its low... 1000 bucks..
then it will pop to .003 and sell...
then rebuy and just keep doing that... learn the charts and understand when a stock is going to fall off.... make money on the cycles...
Posts: 1070 | From: louisville,ky,usa | Registered: Oct 2004
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posted
Blue, why are you investing in penny stocks. First clear up your problems with the city fines and mortages. You should not be investing at all!!!!!!!!!!
Honest advice :-)
Great story about your friend. Why didn't you invest with him and become his partner. You made him rich so ask him to help you now.
Joe
blueranger Member
Rate Member posted April 08, 2005 20:12 -------------------------------------------------------------------------------- i own a house right now the city is going after me and some sort of daily fine which could be 1000 bucks a day... I also own one I am struggling with the mortage...
[ April 11, 2005, 11:28: Message edited by: JoeMillion ]
Posts: 4337 | Registered: Dec 2003
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posted
Joe, the problem around here is that you all don't like to here the truth... everyone thinks realeste is easy and will make you rich quick but there are tons of problems associated with it as well.. and you will be in court every week... once you have 40 or 50 houses you will have to learn how to do sit outs.. and of course its a lot of fun praying every week "oh God I need 50,000 bucks by friday" at best landlording is a get rich slow scheme if you can survive the vacancies...i don't invest in penny stocks i gamble with them...no body in there right mind would call this investing
Posts: 1070 | From: louisville,ky,usa | Registered: Oct 2004
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I agree with you that real estate isn't easy. I should know since Im a lic. real estate salesperson. lol imho the real estate boom is about to burst. Im advising my clients not to buy houses now.
However on the long run real estate is the best investment out there other than the stock market. People should invest in both real estate and stocks to beat inflation.
glta
Joe
[ April 13, 2005, 10:09: Message edited by: JoeMillion ]
Posts: 4337 | Registered: Dec 2003
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posted
Blue, you said it yourself, these pennies are gambling. Investing in real estate is not. Year over year on a national aggregate real estate has never gone backward.
Last year my rental condo appreciated $2,500 renting at a break even expense level. I'm down $1,000 on pennies in the last 9 days.
Posts: 722 | From: Richmond, Va , USA | Registered: Mar 2004
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I found a lender that will let me buy an investment property as a "second home", which has differenct rules. Basically, with decent credit I can buy a second home with 5-10% down. They don't seem to care If I rent it out during the times I won't be there, which in this case I'll never be there.
Posts: 722 | From: Richmond, Va , USA | Registered: Mar 2004
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posted
I personally thin that dealing in pre-forclosures is the way to go. Buying a house for under market value and quickly re-selling it for a profit(flipping). This way you dont have to deal with collecting rents and all the other stuff you have to deal with while being a lanlord. There have even been 2 occasions where i have taken a house to double closing. Buying and then selling the house in the same day for quick 40k and 65k profits.
Posts: 174 | From: suffolk county,NY | Registered: Mar 2005
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posted
you have to go to the countly clerks office(or their online website...although only a few countys have the info available online) and search the computers for lis pendens. When a lis pendens is filed it means that that property currently has a lawsuit against it.
Posts: 174 | From: suffolk county,NY | Registered: Mar 2005
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