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

[kombat]

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]

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]

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]

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]

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.

 

[honobob]

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.

I believe this is where OAP stayed when he was in town. It's just a studio. Notice excessive use of "!" by management company This is also where one of the Chancellors for the the UC system jumped from an upper floor to her death. Making about $350,000 a year but a renter. I'm not saying there's a connection.
Awesome alcove studio in perfect location @ luxurious Paramount!!!!!!!

Here's at least a one bedroom.

Large 1 bedroom/ 1 bathroom w/ Private Porch in Russian Hill Oooh, $2,700 and no parking. Notice excessive use of "!" in body of ad.

I think the market is getting back to the days of prospective tenants submiting resumes and stories of how they'll love and cherish the property if given the opportunity. Five years from now rents could very well have doubled.

I'm not a Guru but my 2003 Hono purchase now has positive cash flow plus an increased appreciation of $200,000. My 2004 purchase of a studio and one bedroom in Waikiki pays all the bills and has appreciated $138,000. So 51 years of ever increasing cash flow until completely paid off on just these two properties! My 1978 purchase in Diamond Head has appreciated $375,000, probably took about 5 years to cash flow positive but I had a 15 year mortgage so the nut was bigger but it's been no mortgage since 1993!!!!!!

 

[honobob]

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.

Option C has been presented here much better than I by other people but when I have time if no one steps up I'll give it a try.

Here's a good take on SF..
Bay Area needs to invest to retain top-tier economy

Of course you could find a similar story 20 years ago but I keep up with what's happening in the market but real change is slow so my exit plan would be easy to implement.

Hawaii v SF.. I'd bet on SF any day. My 30 year rate in Honolulu has only been 9%. Still good and I do anticipate better returns because of the boomers, etc. but all and all SF is the better island. When I'm in Waikiki I'm always talking to tourists and people who have relocated here recently and even people who have been here for some time. This helps me keep on top of why demand may change. More people will relocate to SF than Honolulu.

 

[spideyrdpd]

Hi
Are there readers that are actually interested ?
Or is it a a case of lets see what "they" post next so we can bash em ?
I never specified an area. When I agreed with Bob its more with real estate in general.
I would say there are many locations that will do well,
but as with anything many areas will just never be boom towns.
I still dont see why its impossible for real estate,
but possible for the stock market to do 10% ? Or 9 % ?
There are many reasons why real estate is better.
Its better from a tax point of view and as Bob pointed out if you get positive cashflow its a plus. Of course there are also reasons why its worse. Of course my property is managed but there are still many headaches and expected expenses.
Rob

 

[CuppaJoe]

....
Here's at least a one bedroom.

Large 1 bedroom/ 1 bathroom w/ Private Porch in Russian Hill Oooh, $2,700 and no parking. Notice excessive use of "!" in body of ad.
....

I wouldn't touch that apt. with a.... No smoking and no pets followed by unnecessary punctuation, you would be renting from a control freak. Any apt. on Russian Hill that needs to be advertised has to have something very wrong with it beyond what is owned up to in the ad, IMO. Most get rented by word of mouth.

OK, I can show you (literally) a Russian Hill newly remodeled one bedroom with full GG Bridge view, offered at $2,250. The property is buried deep in a REIT arrangement so some on this board may have a financial interest in the property. If I had wanted it, I would have tried to negotiate something when I realized the tenants were leaving last summer. Care to speculate why there are no takers during the last five months when it has been officially on the market?

 

[honobob]

OK, I can show you (literally) a Russian Hill newly remodeled one bedroom with full GG Bridge view, offered at $2,250. The property is buried deep in a REIT arrangement so some on this board may have a financial interest in the property. If I had wanted it, I would have tried to negotiate something when I realized the tenants were leaving last summer. Care to speculate why there are no takers during the last five months when it has been officially on the market?

I'm curious but I'm not sure of the situation. Are you saying that the $2,250 apartment has been vacant for 5 months or that the potential vacancy was known 5 months ago? So if demand is so high that properties need not be advertised then my guess would be rent is too high (but my limited knowlege of the rents in SF makes me think that is reasonable as I was looking at studios in Fox Plaza at $1800 a month that were nothing) so is there a possibility that the property could go into foreclosure and a potential tenant would could be forced out? Yep, that's my guess based on info given. Are you a property manager?

 

[CuppaJoe]

I'm curious but I'm not sure of the situation. Are you saying that the $2,250 apartment has been vacant for 5 months or that the potential vacancy was known 5 months ago? So if demand is so high that properties need not be advertised then my guess would be rent is too high (but my limited knowlege of the rents in SF makes me think that is reasonable as I was looking at studios in Fox Plaza at $1800 a month that were nothing) so is there a possibility that the property could go into foreclosure and a potential tenant would could be forced out? Yep, that's my guess based on info given. Are you a property manager?

I'm not a property manager or building owner. In June 2006 when the property in question was "bought" by a company that puts buildings into REITs it was assumed that there would soon be available apts. Their MO is to try to buy out all tenants even those under new one-year leases, to increase profits for shareholders. I heard that the tenants in that apt. were leaving in June 07. There was then a full (and I might add slow remodeling done) and the apt. became rentable about Dec. 07. IMO holding overpriced apts. off the market as long as possible, reduces supply and effectively increases rents.

Coincidence: I too am familiar with Fox Plaza apts as I remember a one-bedroom apt. there years ago, very very small. Have you looked at the website for the old Fox Theater, it was a shameful historic loss.

 

[spideyrdpd]

If you can get / enforce the no smoking rule that would be nice.
Same goes for pets. Our lease has extra money for deposit and rent for pets.
There are also the annoying condo rules.
When dealing with foreclosures the property you buy often will be empty for a time will you do all the maintance the last owner skipped oout on . As well as updating the place. Reits have different rules. They also usually have more cash. So they dont do things the way a small time landlord would.
Rob

 

[CuppaJoe]

... the $2,250 apartment ....

Update. I got the $2,250 number from a guy who was showing it about three months ago. He thought they wouldn't get it because the apt. is so small. Making a complete fool of myself, I said, sure they will.... Their website confirmed the 2,250 number. This morning another guy was showing it.

I ran into a character who happens to be an outspoken member of the Russian Hill Neighbors Assn. She thought they wouldn't get 2,250 because the bathroom is so small you could do everything you need to do in there standing still. Thinking maybe they have lowered the price, I asked the guy what they are asking. He said, $2,795." After I scraped my jaw off the sidewalk, he repeated, $2,795, ballpark." Yep, the website now says $2,795.

 

[honobob]

If you can get / enforce the no smoking rule that would be nice.
Same goes for pets. Our lease has extra money for deposit and rent for pets.
There are also the annoying condo rules.
When dealing with foreclosures the property you buy often will be empty for a time will you do all the maintance the last owner skipped oout on . As well as updating the place. Reits have different rules. They also usually have more cash. So they dont do things the way a small time landlord would.
Rob

Well I've always had a no smoking rule. Not hard to get (in the west) and yes, hard to enforce but from what I've heard very easy to claim out of the deposit. Thanks to Hotels that have documented the damage and extra costs of maintaining smoking rooms I'm told it's easy to have a cleaning service determine smoke damages. My tenants have been actual non-smokers so never had the problem.

Pets are cash cows, pun intended. My airline to Honolulu has no problem charging me extra to have Honodog share the seat I already paid for. Generally no one knows Honodog is onboard until we're lined up to deplane and someone notices her in her see through bag. Usually the comment made is a favorable comparison to the BRAT that everyone knew was aboard. I'm sure there were well behaved children also. Three of my condo's allow pets and I charge an extra deposit but not extra rent although a lot of people do. Good tenants are good pet owners. Bad pet owners have pets that are problems.

Here's an interesting article on a pet friendly environment.

Check the room rates. $400 a nite for a room and $16 for an appetizer. Hell yeah I can afford a $600,000 condo!

Mendocino the place to take dog for a paddle

 

[honobob]

Honodog winking at you from Waikiki Bitch!

Cuppa Joe I sometimes go to the starbucks in The Fox lowrise and run into tourists looking for the Fox Theatre and see the pained look when I tell them this is the place. There are plans to build higher on the lowrise and next door is building some 20 story residential and they're planning several 40 story buildings a block north at Van Ness. And yet prices KEEP going up!!!! Lots of single theatres that have been converted into condos with some at least keeping the facade.

So Cuppa Joe, a renter I believe, Rent Control? You know that's on the line in the June election. What's your take? Really interested and not tryan to argue against your plan.

 

[honobob]

Update.Thinking maybe they have lowered the price, I asked the guy what they are asking. He said, $2,795." After I scraped my jaw off the sidewalk, he repeated, $2,795, ballpark."

But in all fairness today is a fantastic day in the Bay! I'm only coming in to replenish the drinks and adjust the music. $3,500 a month IS fair!! Yeah, I'd rather be in Seattle or Chicago. Not!

no offence intended to the fair citizens of the northern persuadsion..whatever it's a ggood day here.

 

[CuppaJoe]

....

So Cuppa Joe, a renter I believe, Rent Control? You know that's on the line in the June election. What's your take? Really interested and not tryan to argue against your plan.

On the line, indeed, statewide. My take is that I'm vulnerable, my days are numbered, perhaps. How does that Woody Allen joke go, "why is it that our days are numbered and not, say, lettered?"

 

[CuppaJoe]

But in all fairness today is a fantastic day in the Bay! I'm only coming in to replenish the drinks and adjust the music. $3,500 a month IS fair!!....

Could it be that some 90 posts in, this thread is still on topic, "how to get rich in 30 years."

The Wharf was uncrowded at noon today, wass up with that? Is everyone out at the mall that was a ghost town last Saturday?

 

[bots2019]

Yeah, I'd rather be in Seattle or Chicago. Not!

Fine, Tampa then. The point isn't weather, it's alternatives. And I haven't heard anything related to this elusive option 'c'. So which is it, in 30 years will high-end wage earners happily pay 6x as much for SF real estate (despite the same wages) or will we see similarly obscene RE appreciation rates in Chi, Sea, Tampa, etc

 

[honobob]

will we see similarly obscene RE appreciation rates in Chi, Sea, Tampa, etc

We'd have to know what the long term appreciation rates are for Chi, Sea, And Tampa. On the REAL real estate appreciation thread other posters reported better than 11% rates. For all I know all three of these cities could be in that category so it wouldn't make much sense to compare without knowing what we're comparing. Do you know the rate there? What is the rate in your area?

If no one steps up I'll post C here in a few days. If you search the real estate threads you can find it.

 

[kcowan]

It is a shame that short-sighted attitudes regarding real estate values is causing so much financial hardship.

 

[bots2019]

We'd have to know what the long term appreciation rates are for Chi, Sea, And Tampa. On the REAL real estate appreciation thread other posters reported better than 11% rates. For all I know all three of these cities could be in that category so it wouldn't make much sense to compare without knowing what we're comparing. Do you know the rate there? What is the rate in your area?

If no one steps up I'll post C here in a few days. If you search the real estate threads you can find it.

FWIW I bought 6.5 years ago in a medium cost MW market. I believe my aggregate appreciation has been 20-25% (about 3% annual). However, this, or the historical appreciation rates for Chi, Sea, or Tampa aren't really my point.

I was simply pointing out a flaw in your thinking, namely, that if other large cities offer a reasonable alternative to SF (in the eyes of high wage-earners) in terms of employment, amenities, etc, that people are not likely to pay orders of magnitude more to live in SF given that the wages are similar. If future RE inflation is 11% over the next 30 years in SF that leaves two choices... either these other markets appreciate similarly (in order to maintain some pseudo equilibrium in the housing market) or they become orders of magnitude cheaper... basically the only way I think SF will appreciate 11% is if other, similar markets appreciate somewhat similarly... or if general inflation is out of sight.

 

[CuppaJoe]

... pay 6x as much for SF real estate (despite the same wages) or will we see similarly obscene RE appreciation rates in Chi, Sea, Tampa, etc

I know next to nothing about real estate but am surprised to see it correlated with wages. 35 years of unscientific water cooler talk in S.F. indicates that some people buy houses in the city with a lot of help from their families. There are many people in S.F. who bought their homes just after WWII and in turn helped their children buy homes, and they want to continue on in the city for another generation or so. If it was based on wages, would we say that home ownership is a "dream"?

 

[bots2019]

I know next to nothing about real estate but am surprised to see it correlated with wages. 35 years of unscientific water cooler talk in S.F. indicates that some people buy houses in the city with a lot of help from their families. There are many people in S.F. who bought their homes just after WWII and in turn helped their children buy homes, and they want to continue on in the city for another generation or so. If it was based on wages, would we say that home ownership is a "dream"?

Probably some truth in this, although look at most large densely populated urban areas (SF plus all the cities I noted and more - high RE prices, high wages) versus rural areas (both low). Clearly there's decent correlation if you look at every US city - perhaps somewhat less causation amongst individual big cities. There may also be less causation in areas with high volume of 2nd homes (Honolulu, etc).

I know a number of people in SF area, mostly young types making really good salaries. I would think a large driver of RE prices would be these type of folks moving in from outside the area and looking to purchase homes/condos/appartments. As RE prices rise relative to alternative locations, I would think these types would increasingly choose to live elsewhere which one would expect to keep the reigns on RE prices...

Nothing real scientific, just my .02.

 

[honobob]

Here's one way how SF deals with "poor" people who want to own property.

You can try to win the housing lottery! The below market rate lottery. Are you a poor single if you're in Chicago or Seattle making $60K? Ha Ha, are you dating poor old/young ladies?

Mayor's Office of Housing : 2007 Income Limits for Qualifying to Purchase a BMR Unit

A one person household can make no more than $60,550
A two person household can make no more than $69,200
A three person household can make no more than $77,850
A four person household can make no more than $86,500
A five person household can make no more than $93,400
A six person household can make no more than $100,350
A seven person household can make no more than $107,250