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How to retire at 30 on $1 million

ryanwaggoner.com

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Re: How to retire at 30 on $1 million

#71

Post by djm »

webwright wrote: post #66
djm wrote: post #34

I didn't see Tony Wright's article the other day, but I've just read it and the article linked here. I have a few comments. First, for the rest of this comment I'll define income as 'what you've got coming in' and wealth as 'what you keep or what you grow'. Most people fail to make this distinction (If you ask somebody if they are wealthy they will start talking about how much they get paid), but it's important, espe…

Regarding my assumptions, you're largely right... Though I take issue with: "(2) That you would invest your $4m in a low-return investment." My assumption is that you'd invest in a BALANCED PORTFOLIO. What sort of return do you think a balanced portfolio would get you?

When I read your comment I realised that I had made a rather foolish assumption myself - that most people would want to take risk. In practise most people do the opposite and seek to minimise their risk.

Then again, your article was talking about startup founders, who (in general) presumably are quite willing to take risk!

Re: How to retire at 30 on $1 million

#72

Post by webwright »

mrtron wrote: post #69
webwright wrote: post #66

Earlier quoted context omitted.

Regarding my assumptions, you're largely right... Though I take issue with: "(2) That you would invest your $4m in a low-return investment." My assumption is that you'd invest in a BALANCED PORTFOLIO. What sort of return do you think a balanced portfolio would get you?

A balanced portfolio is a very inefficient portfolio. Many people would be willing to take risks, or don't want/need to hedge against everything. His real estate example is a good one - you are at the mercy of housing/renting markets. But over the long term these have been quite steady and wouldn't be outside most peoples' risk thresholds.

No, a balanced portfolio aims to balance risk and return. If you put all of your cash into one (or many) high-risk-high-return securities, you run a meaningful risk of losing a big pile of your cash.

There's a pretty well-understood playbook for wealth management. You SHOULD be willing to take risks (with a very specific % of your portfolio)... But at any given time some of these risks will have gone south, some will have gone north, etc. Feel free to find me a wealth manager who offers big double digit returns over multiple decades.

Re: How to retire at 30 on $1 million

#73

Post by semanticist »

djm wrote: post #65
patio11 wrote: post #43

Earlier quoted context omitted.

how to you value the appreciation in somebody's house when the only meaningful way to value a property is to sell it? I think property taxes are fairly widespread in the US, actually. Your county has a group of assessors, who pick a SWAG based on comparable recent sales and -- ahem -- their desire to have the county generate tax revenue this year, and then you get to pay .8% or whatever of the assessed value in prope…

Thanks for the clarification (you too gyardley!). I'm in the UK and we don't do that here. We pay 'stamp duty' when buying a house and capital gains tax when selling (or not as there are exemptions) but nothing on an ongoing basis for the appreciation in value.

In the UK Council Tax is based on the value of your property, based on some fairly informal assessments done years ago.

Challenging your Council Tax band is possible if you think the value assessment is incorrect.

It's not a direct tax on the wealth embodied by the property, but it is a way by which the wealthier pay more tax.

Re: How to retire at 30 on $1 million

#74

Post by webwright »

ryanwaggoner wrote: post #67
webwright wrote: post #57

I think Ryan's missing my point. When I talk about income %, I'm talking about across an entire portfolio (that real estate should certainly be a part of). So you're putting 25% of your cash down on a $5m property for $110k per year. Nice! How many such properties do you think the banks are going to let you buy? With the future values of these properties a bit murky, I imagine that someone with 4-5m in the bank ISN'T…

I really enjoyed your article, so I apologize if you felt like I was attacking you. That said, I think I disagree on a few points: 1) Commercial real estate underwriting much more heavily weighs the fundamentals of the property as opposed to the borrower. As a result, it's possible that you could have a lender who would be comfortable with you carrying several times your net worth in loans, provided the underlying co…

Fair points. Regarding the 5%, that's my conservative # based on my personal feelings about the economy. The math holds up just fine if you nudge that up to 7%. You still go broke (unless you cut your spending, which I certainly would-- I've no need to live rich). 7% is pretty solid for a balanced portfolio.

I personally opt for a riskier portfolio than most (I have a few rental properties and assorted mutual funds), but I don't think you or I can pick 'em like Buffet! :-) It IS a hedge against ignorance, which I happily admit that I am (compared to buffet).

Interesting stuff, regardless-- I've actually never crunched the #s on big apartments. Thanks for doing it!

Re: How to retire at 30 on $1 million

#75

Post by matwood »

illumin8 wrote: post #54

Seriously? You want to get into real estate in the middle of the biggest depression we have ever seen? When property values are still way over-inflated? This is only the start of the article's problems. The next thing he advocates is putting 20% down on a $6.5 million apartment complex, effectively leveraging 5 to 1. Leverage has no place in any retirement account, period! This entire article is a recipe for disaster…

>Seriously? You want to get into real estate in the middle of the biggest depression we have ever seen? When property values are still way over-inflated?

Depends. In general when everyone is panic selling you want to be buying. Obviously you never want to be buying crap (bad stocks, bad property, bad anything), but the panic times open up great opportunities for those with cooler heads.

Looking specifically at property many people still need places to live, but again it comes down to good versus bad. Should I invest in an apartment complex out in the middle of the desert, probably not. If I find a good deal on a complex in a city near a college, now we're talking. Rates are currently low and a lot of people are being forced into selling which makes many prices low. You can also look at the financials of a rental property and value it much easier than say a residential house. Examining a rental property is much closer to examining a business than pricing residential.

Now, the above ignores the work that goes into owning rental properties. Depending on the income level your property targets you may end up spending a full day in court every month throwing people out. Does the owner of the property have the stones to throw out a mother and her kids because they don't pay? Then you have repairs and other complaints. You can get a company to handle most of this, but that does cut into your profit.

Re: How to retire at 30 on $1 million

#76

Post by revorad »

That's hardly retirement. You should re-title this to "How to invest $1 Million in multifamily real estate at 2010 prices". Doesn't quite have the same ring to it, but it's a lot closer to the truth.

It's a shame that even intelligent and knowledgeable people like Ryan and Tony choose to write articles with linkbait titles. There is clearly some interesting and valuable stuff in these articles, but they would be better if written more honestly without a pre-determined conclusion.

Re: How to retire at 30 on $1 million

#77

Post by mattmanser »

pchristensen wrote: post #44
dabeeeenster wrote: post #17

My 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.

This is assuming stable economic and population growth. There are lots of rural and inner-city property owners who could provide a cautionary tale to this theory.

Unless he retired 20 years ago he's also talking in the context of the biggest property boom in history.

Even after the current crash they're still significantly overvalued compared to their historic prices, once you take into account inflation.

Re: How to retire at 30 on $1 million

#78

Post by djm »

semanticist wrote: post #73
djm wrote: post #65

Earlier quoted context omitted.

Thanks for the clarification (you too gyardley!). I'm in the UK and we don't do that here. We pay 'stamp duty' when buying a house and capital gains tax when selling (or not as there are exemptions) but nothing on an ongoing basis for the appreciation in value.

In the UK Council Tax is based on the value of your property, based on some fairly informal assessments done years ago. Challenging your Council Tax band is possible if you think the value assessment is incorrect. It's not a direct tax on the wealth embodied by the property, but it is a way by which the wealthier pay more tax.

You have a point. I guess you can make a case that CT is an indirect wealth tax though it certaintly isn't intended to be. And of course the property value isn't re-evaluated on an ongoing basis so appreciation isn't reflected in the tax you pay during any given years liability.

In my original comment what I was really trying to get at is that, as an investment strategy, you would want to maximise your wealth by minimising your realisable income and that the typical way to do that over time has been to accumulate wealth in property. I guess I was wrong about this in the US but it's still a valid strategy in the UK.

Re: How to retire at 30 on $1 million

#79

Post by mrtron »

webwright wrote: post #72
mrtron wrote: post #69

Earlier quoted context omitted.

A balanced portfolio is a very inefficient portfolio. Many people would be willing to take risks, or don't want/need to hedge against everything. His real estate example is a good one - you are at the mercy of housing/renting markets. But over the long term these have been quite steady and wouldn't be outside most peoples' risk thresholds.

No, a balanced portfolio aims to balance risk and return. If you put all of your cash into one (or many) high-risk-high-return securities, you run a meaningful risk of losing a big pile of your cash. There's a pretty well-understood playbook for wealth management. You SHOULD be willing to take risks (with a very specific % of your portfolio)... But at any given time some of these risks will have gone south, some will…

The Warren Buffet school of thought on the issue is put your money into a few things you understand really well, and he is one of the better managers of our time.

I understand the 'balanced' wealth management approach - I am just not sure it is the ideal way to go. Is pg better off dumping money in mutual funds, real estate, commodity index funds and bonds - or driving the majority of his wealth into YC? He lives and breathes startups - so even trusting the best managers I would say he would be foolish not to invest a lot into YC himself.

I also would like to see the results of how bubbles, world wars, massive inflation, depressions and other difficult to hedge against events impact balanced portfolios vs someone dumping all their money into a single apartment building. My instinct is both would be equally screwed. And an event like that is almost certainly going to happen during the next 50 years.

I don't disagree with you at all - there are just several angles.

Re: How to retire at 30 on $1 million

#80

Post by c00p3r »

Buy a land somewhere in a developing world (a sharing with a native) and build an apartments for rent (hotels, flats, depending of location). In some areas of China or Brasil it is too late (too expensive), but the developing world is really big. Several projects, $100k+ each.

World's population is growing exponentially. Tourism (flights) becoming cheaper, etc.

In each small town in Himalayas I visited there were a lot of opportunities.

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