Great article and well-thought out argument!
But when I see this I think: why the hell would I want to retire at 30 when I can just start another company?
How to retire at 30 on $1 million
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Re: How to retire at 30 on $1 million
#12Ryan, would you need to "love" real estate for this to work? Going back to the initial article, don't do it if you don't love it because you may end up spending a lot of time on it and doing something you hate is a pretty crappy retirement.
It sounds like you have a passion for real estate now, but maybe not when you started. The same is true for me and retail (I have a couple of franchises).
Re: How to retire at 30 on $1 million
#13Earlier quoted context omitted.
It makes it risky in the sense that if you only buy what you can pay right off the bat that you will reduce your income, but if the market tanks and you have to sell for whatever reason that you won't suddenly be working for a bank. Tying yourself up like that might come back to bite you and if something unforeseen happens you're back where you started or worse.
You do raise a good point, in that you're in some sense risking your other assets as well. You can secure nonrecourse debt for real estate like this, though this is harder to do than it was a few years ago. But the other way to look at this is that you're going to risk the money one way or the other: either you risk it as indirect collateral by guaranteeing a loan at 80% LTV or you risk it directly by buying the prop…
The point is that it's disingenuous to say you're only using ~25% of your money to buy the property, when in reality all of your money is at risk, because you're leveraging. If you invest 25% in the stock market, you won't lose more than 25%. The returns on the real estate is higher, because you are leveraging. Just because 20% down payment real estate loans are common doesn't change that fact.
I agree with the idea that real estate can be a good investment, but this article has very little to do specifically with investing after a startup exit. The article should be called "Why to invest in real estate."
Re: How to retire at 30 on $1 million
#14Earlier quoted context omitted.
You do raise a good point, in that you're in some sense risking your other assets as well. You can secure nonrecourse debt for real estate like this, though this is harder to do than it was a few years ago. But the other way to look at this is that you're going to risk the money one way or the other: either you risk it as indirect collateral by guaranteeing a loan at 80% LTV or you risk it directly by buying the prop…
The point is that it's disingenuous to say you're only using ~25% of your money to buy the property, when in reality all of your money is at risk, because you're leveraging. If you invest 25% in the stock market, you won't lose more than 25%. The returns on the real estate is higher, because you are leveraging. Just because 20% down payment real estate loans are common doesn't change that fact. I agree with the idea…
s/pay/say/
Re: How to retire at 30 on $1 million
#15sell one business, which you know really well (if you got offer - i think you are successful and know business well), and replace it with another business (real estate), which you do not know yet and probably loose money during initial period... doesn't make sense for me.
Re: How to retire at 30 on $1 million
#16sell one business, which you know really well (if you got offer - i think you are successful and know business well), and replace it with another business (real estate), which you do not know yet and probably loose money during initial period... doesn't make sense for me.
That's a fair point, but unless you're going to roll it all back into the same type of business that you just sold, you're going to have to learn something new, either the stock market or real estate or something.
Re: How to retire at 30 on $1 million
#17My dad spent 30 years in private banking for a big swiss bank, investing money long term for rich people. His advice to me when he retired: The only way to invest money long term and relatively risk free is through property - everything else is just bullshit.
Re: How to retire at 30 on $1 million
#18oh yeah that's a sure thing. no one has ever gotten fucked owning B grade multifamily housing. slam dunk.
There are no sure things in investing. If you have some specific quibble with my scenario that you can back up with data or experience, please post it.
The basic problem I see with this scenario is the tail risk.
You're probably going to be just fine. However there is a non-zero (and impossible to calculate) risk that you're going to lose the entire income stream.
Equities / ETFs allow much greater diversification.
The bit which bugs me though is why are you spending 200k a year. Countless studies show that greater income is not linked to happiness above a fairly low level. I refuse to believe the USA is so expensive that this level is $200k per annum. Reductions in living expenses are far easier to guarantee than increased returns.
Re: How to retire at 30 on $1 million
#19Not so fast on those tax benefits. Yes, you can depreciate your real estate and not pay taxes on them that year. However, if you later go on to sell that property for a gain, there is something called recaptured depreciation [1]. In essence, you will pay taxes on those gains at the orginary income tax rate until all the depreciation you reported is covered. Only the remaining gains can be taxed at the much lower capital gains rate.
Re: How to retire at 30 on $1 million
#20Ryan, would you need to "love" real estate for this to work? Going back to the initial article, don't do it if you don't love it because you may end up spending a lot of time on it and doing something you hate is a pretty crappy retirement. It sounds like you have a passion for real estate now, but maybe not when you started. The same is true for me and retail (I have a couple of franchises).
I'll have to reflect on this. It's true that I do love real estate, but I'm not sure you'd have to. My sense is that you'd have to enjoy it to some degree, perhaps more than the stock market, but less than a job. Acquiring properties is time-consuming, but holding them long-term just really isn't, both from my experience and from what I've seen from larger investors.