Looking for a great personal finance plan that will make me wealthy in 30 years

[innova]

This thread is hilarious.

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Everyone has to believe for something to be true?

Actually, thats how real estate pricing pretty much works...

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I am not sure what the final # would end up being. People have always said real estate cant continue to go up but those people have been proved wrong time and time again. Oh and the same people that are knocking honobob are investing in the stock market. Like that only goes up ?

By your name I'm assuming you are into RDPD. Hardly an adequate manual for much of anything, though lets not digress.

RE doesn't go 'up and up'. It moves in cyclical fashion, not unlike any other market: commodities, financial, etc. There is nothing special or magical about RE.

Nothing wrong with investing in RE provided you don't expect appreciation to continue at a long-term rate of 5+%. Rents are driven by supply and demand, but demand is driven by wages. Therefore, wages must ultimately drive the appreciation rate of RE. Long-term data suggests that 2-3% is the national average. There will be booms and busts also - look back to the 90's for your Bay area example.

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Income to mortgage ratio. I'll see if I can explain your theory to the lady in my office that just sold her $1.8M place. She's never made over $100K a year.

A clueless, gross oversimplification. Nobody making $100k per year can buy a place for 1.8M. She of course bought in years ago before a large price runup, duh.

[kombat]

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Originally Posted by honobob Income to mortgage ratio. I'll see if I can explain your theory to the lady in my office that just sold her $1.8M place. She's never made over $100K a year.

Since you've apparently ignored my entire post, let me try and make it simple for you. I would like you to answer one simple question:

Do you believe that in 30 years, banks will routinely approve mortgages for 47 times someone's household income?

A simple 'yes' or 'no' will suffice.

[honobob]

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Originally Posted by innova This thread is hilarious. Actually, thats how real estate pricing pretty much works... By your name I'm assuming you are into RDPD. Hardly an adequate manual for much of anything, though lets not digress. RE doesn't go 'up and up'. It moves in cyclical fashion, not unlike any other market: commodities, financial, etc. There is nothing special or magical about RE. Nothing wrong with investing in RE provided you don't expect appreciation to continue at a long-term rate of 5+%. Rents are driven by supply and demand, but demand is driven by wages. Therefore, wages must ultimately drive the appreciation rate of RE. Long-term data suggests that 2-3% is the national average. There will be booms and busts also - look back to the 90's for your Bay area example. A clueless, gross oversimplification. Nobody making $100k per year can buy a place for 1.8M. She of course bought in years ago before a large price runup, duh.

Actually she will be buying a replacement property in the upper one millions.
But, you proved my point!!! She did exactly like my contention that you want to deny of where someone today of average means buys a $500,000 condo today and in 30 years are sitting in a $10,000,000 condo but are still only making median income. Demand driven by wages? The last 25-30 years are different from the next 25-30 years because?

Bay Area in the nineties? I was here. Value doubled in 2 years and NEVER went more than 9% below the highest value but who cares if I'm happy with 11% annual compounded appreciation over long term? And why are you throwing rents in there? I've never said that SF residential property is valued by rental income. It may be in the the areas where they enjoy only 2-3% appreciation but where is that? My mothers house in CIncinnati appreciated 5.1% annualy over 40 years. Some one must have not had any appreciation at all to average your figure. so what were wages there $0 ?

If I hadn't heard all the same rationalizations over and over again over the last 30+ years I might think you've got some new information to consider but it's same old same old flat earth thinking.

[kombat]

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Originally Posted by honobob Quote: Originally Posted by innova Nobody making $100k per year can buy a place for 1.8M. She of course bought in years ago before a large price runup, duh. Actually she will be buying a replacement property in the upper one millions.

Yes, because she'll be making a massive downpayment with the windfall from her hugely-appreciated property you said she just sold!

Here's a summary:

• Bought property for $xx,000 many years ago.
• Property appreciated much faster than her salary, but since she left the equity in her home, her mortgage was still very reasonable, based on the original purchase price.
• Sold the property for way more than she paid for it, bought comparable property elsewhere, using the proceeds from the sale for a down payment in the 80%-90% range.

Thus, her new mortgage is still reasonable for her <$100k income. She may be moving to an "upper one millions" property, but her mortgage most certainly will not be anywhere near that much, will it.

The question is, who bought her old place? And where did they get that kind of money?

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Originally Posted by honobob The last 25-30 years are different from the next 25-30 years because?

*sigh* This is pointless.

You've convinced me. Past performance really are a promise of future gains. Gold and oil have had a huge runup over the past 2 years, so I see no reason why that wouldn't continue for at least 2 more. I'm moving my entire portfolio into gold and oil. 50%/year gains, here I come!

[innova]

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Actually she will be buying a replacement property in the upper one millions

Of course she will, thats because she has a 1.8M downpayment. DUH. You're not getting the point.

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She did exactly like my contention that you want to deny of where someone today of average means buys a $500,000 condo today and in 30 years are sitting in a $10,000,000 condo but are still only making median income.

That is certainly POSSIBLE, I'm not sure I'd bank on using my home as an investment (its not). I would bet that when SHE bought her property years ago, the wagerice was much more favorable that it is now. Example:
Lets say 20 years ago her 2M property (for ease of numbers)sold for 200k. She was making 50K at the time. Hence, 1:4.

Now, her property has skyrocketed to 2M, but is she making 500K per year? NOPE. Wages haven't kept up.

Whats the lesson for buyers today, that don't have 1.8M to put on a downpayment? Expensive condos will be POOR investments, period. Even for someone with 100K income, payments on an 500K condo will be a larger portion of their income than is prudent to pay.

In the end, it comes to this: What is the prudent decision? It is never to buy a property for your personal residence with the false hopes of striking it rich. That kind of thinking is reserved for RDPD types.

[armor99]

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Originally Posted by honobob There ya go again making a fool out of yourself pretending to talk for everyone. Have your people call my people. Anyway to make you happy I'll put you in the category of 100% of all Whiz con sins who don't believe $500K SF condo's can be worth $10M in 30 years. Dude, you're king of that category. Soooo.. what will they be worth? Nevermind. Too hard of a question for you. Everyone has to believe for something to be true? I think that was overworked in Peter Pan. But hang on to your childish beliefs if you wish.

Well this has been interesting entertainment from you so far. But I have not seen such an adolescent, immature, inarticulate, A.D.D. fueled rant in quite some time. You could be the most advanced real estate genious of our age. But the reality is, that in the business world, your tone would just get you laughed out of the room.
Just so you understand, we all know you are quite young. I am guessing 23 or under. No one who is older and more mature uses multiple "!!!!!!!", or refers to others as "Dude" in their postings. Unless humor rather than idea exchange was actually the point. I think that as a rule, most here in the forum are very polite, even when we might disagree. It is a sign of respect to others. But actually I am curious... I will certainly call "your people", whoever those people might be, and hear them out. After all, I certainly do not want to pass up a good oppotunity. What company should I call, and whom shall I ask to speak to?

[honobob]

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Originally Posted by armor99 Well this has been interesting entertainment from you so far. But I have not seen such an adolescent, immature, inarticulate, A.D.D. fueled rant in quite some time. You could be the most advanced real estate genious of our age. But the reality is, that in the business world, your tone would just get you laughed out of the room. Just so you understand, we all know you are quite young. I am guessing 23 or under. No one who is older and more mature uses multiple "!!!!!!!", or refers to others as "Dude" in their postings. Unless humor rather than idea exchange was actually the point. I think that as a rule, most here in the forum are very polite, even when we might disagree. It is a sign of respect to others. But actually I am curious... I will certainly call "your people", whoever those people might be, and hear them out. After all, I certainly do not want to pass up a good oppotunity. What company should I call, and whom shall I ask to speak to?

Did you have anything to say concerning the OP or did you decide to use your first and only post in this thread to attack me now that you feel there is safety in numbers? I would encourage you to review the thread. I responded appropriately to the OP and tried to provide support for my beliefs. I did get a little snarky by post #47 but if people are going to attack like a bunch of hyenas I don't think they should act so shocked when someone defends theirself.

[kombat]

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Originally Posted by honobob Did you have anything to say concerning the OP or did you decide to use your first and only post in this thread to attack me now that you feel there is safety in numbers? I would encourage you to review the thread. I responded appropriately to the OP and tried to provide support for my beliefs. I did get a little snarky by post #47 but if people are going to attack like a bunch of hyenas I don't think they should act so shocked when someone defends theirself.

I notice you still haven't answered my one, simple, yes-or-no question:

Do you believe that in 30 years, banks will routinely approve mortgages for 47 times someone's household income?

[honobob]

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Originally Posted by kombat I notice you still haven't answered my one, simple, yes-or-no question: Do you believe that in 30 years, banks will routinely approve mortgages for 47 times someone's household income?

Well, I didn't see where it had much to do with my point. Honolulu and SF have very high percentage of cash purchases. I'm talking about appreciation in select areas that I have knowlege. I'm not in the banking business and am not portending to have an informed prediction of their business practices over the next 30 years.

Someone here has posted about historical lending on real estate and I believe most purchases were made for cash and early mortgages were made for shorter than 30 years. Forty year loans are not completely uncommon. When I bought my first car I had a one year loan. three became common and I believe 5 year loans are pretty common and I read recently about 8!! year car loans. Financial institutions adapt. You said this was pointless. Why is my answer on the future of loan to income ratio so important to you? It has so little to do with the appreciation rate here.

So my answer is, sure it's possible. Happy

[Kronk]

No one could afford that type of mortgage.

Take a $1 mil mortgage. 5% interest, 40 year mortgage, very low taxes. Overall, that's around 5k per month -- and that's nearly a best case scenario. If someone had no other expenses at all, they'd need $60k per year, which is under a 17 times earnings multiple. With an interest-only mortgage, that's still $50k, so a multiple of 20.

[Milton]

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Originally Posted by Razor OK. Lets see who is clueless. Anyone here agree with BOB that a $500k condo in San Fran will be worth $10 million in thirty years? Anyone? Anyone?

Anything is possible. But I suspect that it would require widespread inflation and we would also be paying $25,000 for a set of spare tires.

That said, it's a free world, and he is welcome to believe whatever he likes.

[spideyrdpd]

Ok Lets say Kombat is right. He makes a good argument. So what would the home be worth? Using your 5x the salary it would around 2.5 million dollars. Not sure where the others are being so negative. You do have to buy two cause your going to need some place to live. Oh and since the market is so bad you should be able to get a discount.....Its not like he is going to get that investing in his 401k......
Rob

[spideyrdpd]

RDPD says your home is not an investment
Doh
Did you even read the book

[DblDoc]

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Originally Posted by spideyrdpd Ok Lets say Kombat is right. He makes a good argument. So what would the home be worth? Using your 5x the salary it would around 2.5 million dollars. Not sure where the others are being so negative. You do have to buy two cause your going to need some place to live. Oh and since the market is so bad you should be able to get a discount.....Its not like he is going to get that investing in his 401k...... Rob

Actually assuming $15,500 per annum increasing at 3% for inflation and compounded at 9% over 31 years I get $2.4million...

Add in an IRA and some taxable and your in excellent shape. And much more likely then putting all your nest egg in one basket. Remember time is your biggest ally if you are young.

DD

[innova]

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You do have to buy two cause your going to need some place to live. Oh and since the market is so bad you should be able to get a discount.....Its not like he is going to get that investing in his 401k......

Problem there is that no renter on earth will pay your other mortgage for you, and all the money you spend pissing away on mortgage payments could have grown to some REAL money in the financial markets.

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Did you even read the book

Yes. I credit RDPD with 'opening my eyes'. Its great for creating enthusiasm on becoming interested in finances, horrible from a practical advise standpoint. I've found far better teachers now.

[kombat]

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Originally Posted by DblDoc Actually assuming $15,500 per annum increasing at 3% for inflation and compounded at 9% over 31 years I get $2.4million...

Wow. Please, do tell me where I can get 9%/year for 31 years in a row.

EDIT: Actually, I just ran the numbers and I got $3.3 million.

[innova]

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Wow. Please, do tell me where I can get 9%/year for 31 years in a row.

A nicely-crafted AA should be able to achieve a CAGR (compound annual growth rate) of 9% for 31 years.

Most important thing you can do as a young investor is focus on your contribution rate.

[honobob]

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Originally Posted by innova A nicely-crafted AA should be able to achieve a CAGR (compound annual growth rate) of 9% for 31 years. Most important thing you can do as a young investor is focus on your contribution rate.

Unfortunately with this plan you have to make the $15,500(inflation adjusted) payment EVERY year. With the $500,000 condo you should have positive cash flow within just a few years so your potential $10,000,000 payday is being supported by a tenant, The $15,500 AND the extra cash flow is invested in the market or better yet another 11% earning property (OK OK not all the eggs in one basket) and you're looking at $15,000,000 easy!

Did you see the thread where Maui condos are up 15% YOY? IN The worst real estate market EVER!
Here it is. Maui condo prices rise 15% - Pacific Business News (Honolulu):

[bots2019]

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Originally Posted by honobob I'm not oblivious to this but what is that point over the next 20-30 years? What was the differential between say London England and London Kentucky 30 years ago? What is it today? I'd say it's probably grown and will probably grow in a similar ratio over the next 30 years!

London, KY is obviously not a 'substitue' for London England. However, if housing differentials become too significant, other large US cities (like Chicago, Seattle, etc) become very viable alternatives to SF. The job markets and amenities are similar.

If you really think 11% in SF is sustainable, and that a lower rate will occur in other large cities then the 50% assumed housing premium you currently pay in SF will rise to 6X. In my experience, salaries do not very that much among these locations for similar jobs, so the question is whether someone will pay a 600% premium to live in SF as opposed to another of these large cities (despite making the same money). I say no. If you believe 11% will occur in SF, the only alternative to this significant price differential is similarly huge increases for other areas as well.

So if you think 11% is sustainable for SF which is it?

a) people pay a 600% premium to live in SF relative to other large cities like Chi and Sea (despite similar salaries)
b) other large cities RE will appreciate at a similar rate

I really don't think there's an option 'c'.

ps - I wouldn't necessarily make a similar argument for Honolulu. There are enough differences between HI and mainland cities that I'm not sure they are viable alternatives. Maybe you'll see 11% there... but I still doubt it.

[innova]

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Unfortunately with this plan you have to make the $15,500(inflation adjusted) payment EVERY year. With the $500,000 condo you should have positive cash flow within just a few years so your potential $10,000,000 payday is being supported by a tenant, The $15,500 AND the extra cash flow is invested in the market or better yet another 11% earning property (OK OK not all the eggs in one basket) and you're looking at $15,000,000 easy!

Where is the positive cashflow coming from? What is the typical monthly rent on a $500k condo? One word: ALLIGATOR.

Many of you real estate 'gurus' consider Rent - Mortgage payment(PITI) = cashflow. Its not so simple.