Investing 102

[Vegas69]

I see what you're saying Greg. I'm basically dong exactly what you recommend investing X amount in the market every month with a 30 year. I pay a little extra every month on the house as well.

One variable that hasn't been mentioned is interest rates. I'm 35 and when I'm your age, are interest rates going to be 4% on a 30 year fixed? I seriously doubt it. Since we are talking history here, 30 years ago rates were 20%. To me, that's a major game changer in this discussion and a variable that can't be ignored. At that point, I guess the decision can be made to cash out the stocks and pay off the house. However, that would be a major tax burden.

My game plan is to secure 4-5 single family homes at these low prices/rates in the next 2-3 years max. Cash flow them and have 4-5 free and clears in 15-20 years for residual income and continue to invest X amount into the market in meantime. I can play the primary mortgage by ear.

[Bucketlist2012]

^^^^^^

Exactly what Todd says..

Anyone who thinks that interest rates will be this low forever, better re think their strategy..

I paid credit card rates for a home loan once.. Never again..

I have a 4% loan now, and I am about to purchase another life changing property for 3.5%.

This is historically low, and down the road , this will put you in a position to be comfortable in a fixed loan when the Sh-t hits the fan..

Once you have the low rate home loan, you can then concentrate on Investing..

But we must live somewhere, so why not lock in historically low rates...

[GregWeld]

Originally Posted by Bucketlist2012

^^^^^^

Exactly what Todd says..

Anyone who thinks that interest rates will be this low forever, better re think their strategy..

I paid credit card rates for a home loan once.. Never again..

I have a 4% loan now, and I am about to purchase another life changing property for 3.5%.

This is historically low, and down the road , this will put you in a position to be comfortable in a fixed loan when the Sh-t hits the fan..

Once you have the low rate home loan, you can then concentrate on Investing..

But we must live somewhere, so why not lock in historically low rates...

TOTALLY AGREE WITH THIS STATEMENT!!


BUY LOW - FINANCE EVEN LOWER. FIXED RATE ONLY.


THEN GET THE HOUSE ='s AN ATM thoughts OUT OF YOUR HEAD!

[Bucketlist2012]

Originally Posted by GregWeld

TOTALLY AGREE WITH THIS STATEMENT!!


BUY LOW - FINANCE EVEN LOWER. FIXED RATE ONLY.


THEN GET THE HOUSE ='s AN ATM thoughts OUT OF YOUR HEAD!

Amen Greg..

Fixed rate, House is HOME and not an ATM , and buy low..


The prices are rock bottom, and the rates are rock bottom...When do you EVER see BOTH of these happening together ?

Maybe never again....The time is now...

Just to get a HOME at these prices would be killer, or just to get the LOAN rate at 3%, would be life changing, but BOTH ????? OMG... 10 years from now, you will be KING.... It truly will change your life..

Being smart and lucky, are the tickets to success..

[glassman]

Sooooo true.....so many people did this the last ten years or so. No friggen common sense, like houses are really go up 30% a year forever....

[GregWeld]

So I was looking at McDonalds (MCD) this morning... and I did my usual look back at the chart and dividend etc.

The reason I'm writing about it this morning is because of our recent housing discussion. Which brought up a couple of key points I was trying to get people to at least think about.

Since 2008 MCD has DOUBLED it's dividend from .38 per share to .70 per share... and while doing that it also grew in price by 68%


Since 1990 it has price growth of 971%


How's your house done since then??


Which one of these investments would help you retire? 100K invested in your house or 10K invested in 1990 in McDonalds?

In 1990 a share of MCD was 7.00 and paid .02 dividend... it has split 2 for 1 twice since then so for every one share you bought you now have 4....

10K / 7.00 = 1428 shares -- now after splits = 5700 shares paying .70 per quarter or annually $16K.... Monthly that is $1300


AND I'M NOT CALCULATING REINVESTED DIVIDENDS --- I'm just doing the bare minimum net math - and that you've taken the cash dividend and pissed it away -- OR maybe you used it to pay down your house each quarter? LOL


Figure the extra 100K in your home equity would have saved you maybe $400 or 500 a month now? I don't want to do all the math -- I'm just putting this out there for "thinking" purposes... not a detailed breakdown of which is better etc just LOOK at it is all I'm saying. One is an investment that is now real NET WORTH and CASH FLOW one is just where you live. My thinking is that $1300 a month now is looking pretty good.

Oh -- yeah -- and your 10K investment is now worth 500K

[Bucketlist2012]

Greg...

Great points...Especially on a down day for Mickey Dee's...Long term it has been great.

And to your point of Housing vs. Investing...

My recent test was Buying a HOME in 2009, and adding six figures to my Investments , the same year.

Since I bought the HOME at the bottom, it hasn't gone down, but it sure hasn't gone up.

The money that I added to my Portfolio ? Haha, It pays my house payment and more...

My Wife in 2009 wanted to throw more money at the Home to increase the equity..We had long talks on why we shouldn't.

Thankfully she agreed with me, but she still gets nervous but knows we did the right thing Investing the money.

Sure at times the market has been up, down, and sideways, but it has and will outperform my HOME value..

Also I don't think of my Home as an Investment for profit, but a place to live, and I won't ever be taking money out of it..I am 52 with 27 years left on my loan..just like I want it..

I had friends that were able to buy their home for cash because they were afraid of the Market....Now they want to cash re-fi out...The bank won't let them..

They bank with chase , and they have their Investments with chase..Fools..

And they cannot get money out to pay off student loans, ect...I told them in 2009 , to get the house loan and to invest more....

They told me that their home was a guaranteed return....Yet now they struggle to work to pay the mortgage...

My Dividends pay mine...

[GregWeld]

Todd -- good discussion...

So here's the thing I think most folks "miss" when we're discussing a primary residence....

This is NOT an investment. It's simply OVERHEAD... it's your home. It generates no real return because in order to do so - you'd have to sell (cash out) and if your home has risen in price -- so has everything else. We don't live in a vacuum so the same inflationary % is generally on EVERYTHING including whatever new place you buy.. so that is TRADING DOLLARS.

Now -- if you choose to downsize when you're older... and take out some equity fine... but you'd have had far more equity if you'd invested. Far more as in triple or double... and if truth be really discussed... had you invested wisely and gotten just the normal historical return - you won't NEED to downsize.

I don't care where anyone gets their facts from -- HISTORICALLY the stock market has outproduced real returns on real estate.

A quickly done search and cut and paste:


....over the long run stocks win easily. A new study by Jack Clark Francis, a finance and economics professor at Baruch College in New York City, and Yale's Roger G. Ibbotson compared the annual returns of real estate from 1978 to 2004 compared with those of 15 different "paper" investments, including stocks, bonds, commodities futures, mortgage securities and real estate investment trusts (REITs).

The results? Housing delivered a solid but unimpressive annualized return of 8.6%. Commercial property did better at 9.5%. The S&P, however, delivered a crushing 13.4%.

Other studies argue that real estate's returns are much worse. Yale finance and economics professor Robert Shiller, author of Irrational Exuberance, who looked back to 1890, contends that only twice has real estate produced truly outstanding returns: after World War II, when returning troops were starting their families, and from 1998 to 2005, a period he thinks is a bubble.

Housing's rate of return, he argues, has to trend back to the mean of about 3% a year - barely above the inflation rate. If that's starting to happen now, he says, we could be facing many years of losses.


Here's my point in all of this.... A house is just a home - it's NOT an investment in the true sense. We like to talk ourselves into thinking that it is - but in reality it's not. The fact that we might sell at a higher face value than we paid -- doesn't really crunch the actual numbers.

So let's separate INVESTING which returns real cash you can SPEND and a cost/overhead expense cash eater.

Having a plan and sticking to it --- get a LOW COST FIXED mortgage not a variable... then DO NOT EVER use your home as a cash machine. GET THE SOB PAID OFF. Once you do that - you reduce your overhead expense and put real cash back into your pocket.

BUT at the same time people need to invest - regardless of how you make that happen that needs to have TIME and we've done that exercise numerous times in this thread.... so the same discussion we're having about saving interest expense and the amount of savings between a 15 and a 30 year mortgage. That's the very same math that needs to be applied to your dividend and interest compounding on your investments. Investments GENERATE cash... and they should also incorporate GROWTH for a real TOTAL RETURN. It's the TOTAL RETURN that people under appreciate and I'll take 100% T/R over a savings of 2 or 3% in a tax savings argument. Most are overlooking the T/R of a good investment for the short term monthly savings of a house payment. I think that's why Americans are broke. The only "investment" they think they have is their house... and sadly... it's why they're greeters at Wal-Mart when they're 70+ years old.