
How to retire at 30 on $1 million - ryanwaggoner
http://ryanwaggoner.com/2010/08/how-to-retire-at-30-on-1-million/
======
webwright
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 going to get the green light to buy $21m
in properties (4 difference loans to service).

People keep bringing up INDIVIDUAL investments that can net a great return (in
this case, 9%). That's missing the point. With big piles of money, you have
diversified holdings. You're not going to drop 90% of your cash in real estate
down payments. Nor are you going to drop it all in stocks. You're going to
(generally) do a reasonable asset allocation to minimize the risk. While I did
mention the S&P500's performance for comparative purposes, I wasn't advocating
for a pure stock portfolio (any more than you're advocating for a pure real
estate portfolio).

As he says, real estate has plenty of risk. You're betting on a local economy,
construction pace, population growth, etc. But anyone with millions ought to
be playing in real estate.

~~~
ryanwaggoner
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
collateral fundamentals are strong.

2) I'm skeptical that a long-term diversified portfolio will only return 5%,
_before inflation is taken into account_. This would correspond to a real
return of 2%, which seems overly-conservative. Don't wealth managers advise
safely withdrawing 4% per year to protect your principal and keep pace with
inflation? I may be mistaken here.

3) I'm not as gung-ho about diversification as you are. I think it can make
sense, but as Buffett has said, it's a hedge against ignorance. If you sell a
startup for $20m, you were _highly_ under-diversified before the sale, but
that doesn't make it a bad idea. Nor would it be a terrible idea to roll a
significant portion of that capital back into a business that you knew well
enough that the risk profile was low _for you_. This probably requires more
work and self-assessment than most people are capable of or willing to engage
in.

Anyway, thanks for your original post and your comment here. Food for thought,
as always :)

~~~
webwright
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!

------
djm
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, especially when thinking about how to optimize your tax situation.

Tony's article makes several assumptions:

(1) That you want to live a high consumption lifestyle. The $200k p/a first
class lifestyle he quotes isn't necessarily what everybody wants. Even people
with some wealth have to live within their means or they'll (as he correctly
pointed out) lose it eventually.

I'd actually take a guess that a typical family wouldn't be able to spend
$200k in a year if they did not make purchases whose primary purpose was to
display status.

(2) That you would invest your $4m in a low-return investment.

(3) That you would invest the money in such a way that 100% of your income is
realisable (subject to income tax).

The best strategy, imo, for somebody with a freshly minted $4m to play with is
to put as much as possible into an investment where growth in their wealth is
not realisable (which usually means buying property because appreciation is
not taxed whilst it's happening [1]).

They have a balancing act to play because they want to invest as much in this
way as possible whilst leaving enough in an investment that will provide them
with an income substantial enough to live on.

As for Ryan W's article, I'd basically agree with what he said other than the
part about buying a property with a mortgage. It would be better to buy a
smaller property you could afford outright or partner with some other
investors to buy the apartment complex (which has it's own set of problems).

[1] I might actually be wrong about this. I know I've read somewhere that
there have been attempts to tax wealth directly in some US states. I've no
idea how the govt would be able to do this in a workable way though - how to
you value the appreciation in somebody's house when the only meaningful way to
value a property is to sell it?

~~~
patio11
_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 property taxes.

My father has drolly noted more than a few times that he wishes this
assessment came with a shotgun clause (i.e. if the assessors tell you your
house is worth $X, you could say "Sweet! I'll have the lawyer draw up the sale
documents. You can have the keys tomorrow.")

~~~
byrneseyeview
I've heard proposed property tax systems that work that way: you pick a
property value on which you'll pay taxes, but you give the government the
right to buy your property at that value.

~~~
andreyf
Is there a name for this kind of game? I think the most common example I've
heard is "you cut the pie, I pick who gets which slice (assuming everyone
wants the largest one)".

~~~
msg
"honor among thieves"

also, "fair division": <http://en.wikipedia.org/wiki/Fair_division>

------
smackfu
Is this really retirement though? Or just using your retirement assets to fund
a career change to apartment management?

~~~
ryanwaggoner
You're definitely not managing the property in this scenario; part of the
operating expense is hiring professional managers. REITs and other
institutional investors own and operate properties like this from a distance
all the time.

EDIT: I should mention that I own several smaller properties in another state
that are managed and I spend maybe an hour a month on them. I'd spend more on
larger properties like this, but it's hardly a full-time job.

~~~
skorgu
Would you consider expanding on some of the nuts and bolts of hiring and
managing those professional managers? I can't name anyone who's had a good
experience with a management company on either side of the transaction but of
course that's likely confirmation bias.

A 'day in the life' of what kind of issues you run into with those properties
would be fascinating (to me anyway).

~~~
joelhaus
I joined a firm that owned and operated a portfolio of around 1,400 mixed-use
units after college. The firm was small and so I was able to get involved in
almost every aspect of the business. In addition, I'm currently getting a M.S.
in Real Estate. I suspect our firm had better success because we had skin in
the game. Personally, I would have difficulty handing over those
responsibilities to someone without a long term financial stake.

Conversations about real estate investment are so localized and situation
specific, it's difficult to make generalizations, but I'll try making a few
anyway:

1) _Motives_ \- consider carefully when drawing up a contract what financial
incentives are being created for your manager. Our top priority was always
filling vacancies, but as an owner, your sign-off should be always be required
before a new tenant is approved[1].

2) _Kickbacks_ \- if you expect your manager to handle hiring of contractors,
he _will_ be offered money to award the contract. You will also need
contractors more often than you think. When a tenant moves out, you'll either
renovate or at the very least, re-paint their apartment... depending on the
local rental market, this can be the difference between a one month and a six
month vacancy. The smaller the property, the more important it is to get
apartments rented quickly.

3) _Repairs_ \- if something can go wrong, it usually will go wrong.
Appliances, doors and other fixtures will break, capital improvements will get
pushed ahead in your schedule and tenants will misbehave, sometimes even
breaking the law and requiring the police to get involved. When you see a
property with a high cap rate, expect more of these issues[2].

4) _Emergencies_ \- if you don't live very close by, you should have someone
on staff that does or, even better, have someone on payroll that lives on-
site.

This is only the tip of the iceberg, feel free to get ask any questions.

[1] Personally, I would also want to deposit all rent checks myself and sign
off before any invoices were paid.

[2] Another "high cap rate" problem you'll be faced with is landlord-tenant
court. These properties tend to just have more 'problem' tenants.

    
    
      P.S. Some last thoughts for investors:
    
      a) *You make your money when you buy.*
    
      Putting all your eggs in the appreciation basket is risky; 
      if the cashflows are there, many of the above issues won't 
      be keeping you up at night.
    
      b) *If your strategy is to hold for less than five years, 
      your management time just increased 10x.*
    
      Commercial real estate loans generally have a balloon 
      payment after 5, 7 or 10 years. You'll need to roll your 
      loan over at this point and any equity built up above the 
      lenders required loan to value (c. 65% these days) can be 
      extracted. Don't put yourself or your investors in a 
      position where you are forced to sell at a loss. 
      Credibility in this field is hard to gain, but easy to lose.
    

[Revised for clarity]

~~~
ryanwaggoner
I'd love to talk further if you're game. mail@ryanwaggoner.com

------
mark_l_watson
When I was 24, one of my best friends who was two years younger starting
researching the issue of how to invest for the long term and he also came up
with the rental property plan. We both bought condos that we lived in
ourselves for a few years and we have both had about 30 years of rental income
from. He bought another couple small units, and he quit working as a
programmer when he was 40, he and his family live very frugally, and he has
done nothing but property management since then.

My problem with the article: taking on a lot of debt. Bad idea, in my opinion.
It is best to own much less property and have no debt on it. Of course, who
wants to completely retire? I think that the trick is to make small income
property investments, try to pay them off within a decade, and always work on
what gives you pleasure, and don't concentrate on money.

~~~
rphlx
The point of debt is that when the real estate market drops, you declare
bankrupcy and let the lender eat most of the loss. Donald Trump has done this
like 5 times.

If you own outright, you eat the entire loss yourself.

Basically -- debt increases upside and reduces downside risk. And inflation
helps you pay it off. No wonder we're addicted?

------
dabeeeenster
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.

~~~
pchristensen
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.

~~~
mattmanser
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.

~~~
dLuna
In principle I agree. On the other hand, if he has a positive cashflow from
the property it doesn't really matter what its price on the open market is.

------
leot
The major difference financially between the stock market and real estate
seems to stem from the fact that real estate is costly to manage, and
_doesn't_ scale, and thus investment banks and major market players are unable
to participate in a big way.

My knowledge of the stock market, even if I get a fancy MBA and specialize in
finance, still won't be able to compete profitably with institutional
investors that have massive pools of capital, inside knowledge, aggregated
expertise, and highly optimized trading algorithms. As an individual investor
I have no competitive advantage, even if I'm savvier than 99% of other
individuals, because all the spread will be grabbed en masse by the big
players.

By contrast, the number of non-experts buying and selling real estate, along
with its relatively high transaction costs and necessarily local nature, means
that even if I were only smarter than, say, 90% of people, I'd be able to do
quite well because the spread wouldn't be gobbled up by the 99.999999th
percentile financier.

As soon as electronically-managed liquidity is thrown in, and transaction
costs become substantially lower for an elite subset, then it becomes much
less "worth it" to participate. Thus, even REITs, by their very nature, are
going to yield a lower return (pre-fees) than clever, well-managed individual
real estate investments.

------
hammmatt
It seems like a matter of philosophy.

There are going to be distinct advantages and disadvantages with any
investment philosophy you wish to make your own. The real question is what are
your long term goals?

This is how I see real estate investment.

PROS \- After paying off the mortgage you can still sell the house for its
current value. If you select wisely, this is an additional investment. \-
Monthly income that is generated as safely as possible. Since you can select a
good market to invest in, and even select who is moving in. You have as much
security as in a monthly payout as you are ever going to get. \- Can be used
to leverage other investments. Equity can be an incredible tool. \- Makes your
credit score and personal financial statement look amazing. If profitable, of
course. \- You can invest money to make continued improvements on the
property. And potentially increase it's value. \- Can live there is your
significant other kicks you out (haha)

CONS \- Limited mobility. If you invest in real estate with are with it for a
while. \- High initial cost. Unlike investing in stocks, it is difficult just
to buy 10 shares google. You have invest quite a bit of personal capital. \-
Ties your investment to the community. Which may be a positive if you don't
like the swings of the investment market.

To say that an investment can be unsafe, or it is changing from a way you know
how to make money to a way you don't, is an invalid reason not to do it.

Any investment can be unsafe. Business lose value all the time. General Motors
has lost value consistently, buying there stock doesn't mean that Google Stock
isn't going to be a great idea.

As for a learning curve, there was plenty to learn about stocks while learning
to invest in those. There was plenty to learn about your startup before you
could make it profitable. There will be plenty to learn about real estate as
well.

Ultimately, what are your investment goals? How much money do you need, and
how are you comfortable spending? Do you need money for huge investments, or
are you content to have a steady safe income?

I love the idea of real estate investing just because it seems like it could
replace the income from my job. Therefore, I would not have to work. Also, it
gives you a base of credit to allow massive loans for massive expansions in
business.

Also, if you don't screw it up, it can be multi-generational income. Which is
something you can not say for capital style investment.

~~~
dedward
I think a good read of "Rich dad, poor dad" would do many good on the
philosophy end of things.

His point is to define "rich" as having your assets (which he defines as
investments that produce income) produce enough income to cover your expenses.
As soon as you reach that point, you can quit your day job and focus on
managing your assets.

The point about redefining the meaning of asset is a good one - real-estate is
his thing too - but he points out that the cycle joe average has been playing
(at least, pre-crash) where he gets a mortgage, waits for the market to go up,
then sells, then just goes out and mortgages a bigger/better place and keeps
doing that...... he chooses not to define this as an Asset in this context
because it's not generating income for you - it's a constant liability and
bill you have to pay.

~~~
sireat
<http://www.johntreed.com/Kiyosaki.html>

Kiyosaki might have some good nuggets of general wisdom in his book, but he is
one of those whose actual success is based on book sales, not other
business(real estate, investing, etc.).

------
sdz
Not 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.

[1]: <http://en.wikipedia.org/wiki/Depreciation_recapture>

~~~
ryanwaggoner
Yeah, I decided to avoid getting into that because the article was already
long, but it's a good point. However, to be fair, you should also point out
1031 exchanges, which allow you to defer those capital gains taxes even
further down the line:

<http://en.wikipedia.org/wiki/1031_exchange>

------
MikeCapone
I'd like to hear what people think about REIT ETFs to invest in real-estate
more indirectly. Do they bring most of the same potential returns as owning a
building yourself, with the added benefit of diversification, or are they a
completely separate thing?

What if that million was invested in a low cost REIT index?

~~~
pchristensen
They are indexes (RE _I_ T) and funds (ET _F_ ) so you get diversification at
the loss of control. Kind of like buying an S&P Index or investing in a mutual
fund as opposed to investing in specific company stocks.

~~~
jaxn
An REIT is a Real Estate Investment Trust. Not an index.

I have a small investment in an REIT and while the trust owns multiple
properties, it is far from an index. An REIT is more like buying an individual
stock, you are investing in a company that will use your money to purchase,
improve, and maintain real estate in exchange for a share of the company.
(That may not be technically accurate, but it is essentially what is going on)

------
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.

------
jacquesm
You forgot to factor in capital gain taxes on the original sales price.

Depending on where you live that could put a substantial dent in your 'take
home'.

And leveraging (to use a popular word) that money to obtain a much larger
property by financing is actually a fairly risky strategy, especially if you
are going to put the rest of your money in to different investments.

~~~
ryanwaggoner
_You forgot to factor in capital gain taxes on the original sales price._

I believe Tony already took that into account in his article?

Leverage increases the risk, yes, but that doesn't make it "risky". It's very
much the norm in the real estate world, which has a pretty stellar track
record for creating wealth, once you get out of the levels where soccer moms
are flipping houses. Buying commercial multifamily real estate isn't about the
value of the property; it's about the value of the cashflow stream that you're
buying. For certain markets and with long-term demographic trends and
forecasts being what they are, I'm very comfortable with that level of risk.

If it makes you feel better, run the numbers where you put $2mm or $3mm down,
which reduces your return, but also decreases your risk.

~~~
jacquesm
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.

~~~
ryanwaggoner
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 property outright. The
advantage in the first scenario is that you get a higher return. YMMV, but
again, I'm comfortable with this level of risk.

~~~
gfunk911
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."

~~~
jholman
> 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."

Or, perhaps it should be called "A plan for generating retirement-suitable
income using approximately $1mm of capital".

Oh, hey, that's what it _is_ called (modulo some aggressive rounding).

I agree with the first paragraph, though, that if it does turn out that you
have $5mm, and if it does turn out that you can't secure nonrecourse debt,
then it is true that you're also taking on extra risk.

------
GBKS
This seems to be a somewhat common practice. A pro football player (A.J. Hawk)
just bought the apartment complex next door (bank shortsale). I was told he
has bought several properties, fixes them up and rents them out to pay for his
retirement.

------
hippich
sell 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.

~~~
ryanwaggoner
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.

~~~
hippich
Ah. Then it's good when you want to learn new skill. I actually want to do
this, but I believe retirement is something different. =)

Probably, we need to define what is retirement. =)) If it's doing nothing
(business wise) - probably it's too boring anyway and learning new skills is
good idea.

------
ivankirigin
I would never want to retire. This whole series of articles is silly. Let
alone that if you're the kind of person that wants to do nothing for the rest
of your life there is an even smaller chance of making it in building a
startup.

~~~
jat850
Why can't someone interested in a future in philanthropy, volunteerism, family
building, etc., succeed at building a startup?

None of them are likely to be income-generating ventures, meaning for all
intents and purposes, it's a life of retirement. Retirement does not imply
doing "nothing" for the rest of one's life.

------
illumin8
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.

~~~
ryanwaggoner
"Be fearful when others are greedy and greedy when others are fearful."
~Warren Buffett

Do you have any personal experience with multifamily real estate? It's valued
based on the income stream, so unless the income stream is inflated, it's not
really overvalued. And increasing population + more single-member households +
fewer people buying houses now = more renters. Where the hell do you think all
the people losing their homes right now are going to live?

Avoidance of the kind of knee-jerk reaction that you're espousing is what
makes good real estate investors incredibly wealthy.

The leverage thing I'm more willing to concede, but the numbers aren't
terribly different if you just buy the property outright. And let's be honest:
this isn't a true "retirement account".

~~~
rphlx
> more single-member households

Do you have a source for this? I think the number of single-member households
is actually declining in most parts of the US. People move in together to
reduce costs during a recession. College grads moving back in with their
parents, 2 imigrant families share a 2BR apt, etc.

------
jaxn
Ryan, 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).

~~~
ryanwaggoner
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.

~~~
jaxn
I guess that is a key difference in real-estate and retail. The margins in
retail aren't high enough to hire a management company to handle all of the
details. Sure, there are store managers, but they have to report to someone.
And there is turnover.

I am going to keep the multi-family unit idea in mind for the future.

------
marze
Apparently, Florida Senate candidate Jeff Greene made a billion dollars doing
just this, over and over again.

~~~
zanek
Not really :

"Greene began investing in real estate while in business school, and continued
to build a successful real estate business. Greene went from being a bus boy
at the Breakers Hotel in Palm Beach to being one of the most successful
businessmen in the world. [8]

In mid-2006, Greene, worried about the possible collapse of the real estate
market, spoke with John Paulson, a fellow investor who discussed with Greene
his investing strategy. They agreed that the real estate market was unstable
and a bubble might be forming in housing. After the meeting, Greene engaged in
a similar investing strategy to that of Paulson, which involved a series of
unconventional investments trading credit default swaps. The return on
Greene’s investments ultimately saved his business, and even put him on the
Forbes 400 list."

~~~
ryanwaggoner
To be fair, he did get to somewhere around a half a billion before he started
doing the credit default swaps. I can live with that :)

------
jeffepp
A better way to invest your money in real estate is to purchase a primary
residence and (with some cosmetic improvements) sell the house (after 2 years)
for a tax-free gain.

You get the obvious mortgage deduction, while living there as well.

I am on my 2nd house (I bought #1 in Metro Detroit in '08) with no experience
fixing up houses, so it can be done.

Have to be willing to be patient and study the market. Generally, you make
your money on the "buy"

~~~
ryanwaggoner
This _can_ be a better way to start in real estate, but it's also highly
dependent on the specific market, timing, and your skills. It also doesn't
scale very well.

~~~
jeffepp
You can make the market timing argument for any property. Like I said, I
bought in Detroit area in Jan '08. Look at the numbers, the timing was awful.
The purchase itself, was not.

~~~
ryanwaggoner
True, though buying for appreciation is much more speculative, in my opinion,
as opposed to buying for the return of a stream of cashflow.

~~~
jeffepp
This only scales if the value of the property appreciates and allows you to
refi and purchase another property with the equity. If the value goes down,
the cash flow will as well.

~~~
ryanwaggoner
Actually, for income real estate, it works the other way around: value is
determined almost entirely on the cashflow of the property. As a result, you
can control the appreciation of the property by improving the income of the
property.

------
kloncks
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?

------
shin_lao
Ah!

If I made $4 millions I would use that to make another company. No need to
worries about investors before a loong time.

------
oceanician
Damnit. I'm too late. Is anyone else over 30?

------
ww520
It's difficult to obtain 20% downpayment financing on a commercial loan. 30%
is the usual limit lenders would allow. 40% is more typical.

But real estate is a very good way in general for ordinary people to become
financially independent or even rich.

~~~
rphlx
Maybe it was historically. But "Past events do not guarantee future results".
Athough, people never really seem to believe that.

------
plq
this is not retirement, this is good and old fashined work: investigating
investment options. i.e. you network, look for best deals, best people, less
risk, better roi, etc. etc.

------
joehn
but you are leveraging up with the large mortgage. so it is very risky.

a better solution is to buy tax free municipal bonds.

------
rwebb
oh yeah that's a sure thing. no one has ever gotten fucked owning B grade
multifamily housing. slam dunk.

~~~
ryanwaggoner
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.

~~~
Super_Jambo
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.

~~~
noodle
> The basic problem I see with this scenario is the tail risk.

you don't think that there's a similar risk in the market? sure, you pick how
much risk you take when you invest, but i'd say that you're doing the same
when investing in this type of real estate -- making a choice to exchange some
safety for higher returns.

> The bit which bugs me though is why are you spending 200k a year.

i don't believe this was point of the article.

~~~
jacquesm
It's not like real estate and stocks are your only options.

~~~
noodle
agreed, but pretty much every investment is about deciding on that tradeoff
between risk and return

------
korch
_all [he] ever did was smash up things and creatures and then retreat back
into their money or their vast carelessness_.

—Fitzgerald, The Great Gatsby

I think I recently drove by a sign on the road that said this too. It was
right next to another sign that read "Make Money Fast", and another sign that
said "Get Rich Working from Home." However, a much wiser man than I once said:
TANSTAAFL.

Now I know this is gonna get nuked, but I don't care because I can prove my
point if you can understand me. Money is all you guys ever talk about here.
Can we get more up votes on articles about oh say, extravagant assembly code
or hardware hacks, instead of the daily echo chamber of TC driven $pablum?

IMHO everyone here, or at least the most vocal minority, is far, far too
obsessed with making money. And the kind of money amount always being talked
about is literally winning the lottery. Fools! You want to know why the
American Empire has hollwed out and is about to fall? _Everybody is a fucking
true-blue believer that they deserve to be rich,at the expense of everything
and everyone else!_ Why can't people just be happy with enough to get by?
Spend time with your friends and family, stop chasing the bullshit ideology of
_conspicuous consumption_ which much richer and much more powerful individuals
want you to believe in order to trap you into their completely distorted
mentality, a simulacrum of un-reality! And those biggest fish only benefit
themselves by getting everyone else to chase their white rabbit btw.

Here's my one "TED" wish: instead of the pursuit of money and winning the
lottery, I want more of you super-smart, elite, "WEIRD", technophiles to spend
the same amount of time & effort doing something intrinsically meaningful,
creative, in the pursuit of knowledge for yourself or others, or sacrificing &
helping those people in your communities who are disadvantaged, oppressed and
less fortunate, or the noble purpose of doing something(anything!) because it
is Right and nobody else seems to be doing that thing.

What kind of ignorant fuck _truly_ wants to live the hollow lifestyle of a
wealthy young aristocrat? You might think you're making sacrifices now for
_freedom_ from money later, but I, and every single philosopher going all the
way back to Thales would warn the pursuit of wealth, for it's own sake, or for
the sole sake of being "freed" from money, ends up becoming a tragic,
inescapable anchor you will be permanently chained to in your life, and it
will fully consume and ruin whatever goodness and potential you might have
started with.

There is another way. Take only what you need, don't need much, give
generously without regard, and redirect all your newly found free time &
energy into efforts that truly matter.

Fuck you, Money!

~~~
wazoox
I'll add that for each rich person there must be an army of people working to
feed this rich, clean his toilets, repair his cars, tend his gardens, so there
is a definitive limit to the number of rich lazy bastards the society can
support.

Then you may realize that you don't really want to be even more exploitative
towards other people by being living a more wasteful way-of-life than you
already do.

~~~
korch
I've read that at the height of the French monarchy right before the
revolution, a disproportionate number of labor was being employed in textiles
to create the extravagant, lavish and enormously expensive dresses for the
royal court. We're talking like 25+% of what we would call their GDP. (If you
really want to understand capital, wealth & labor in terms of the bigger
picture, I highly recommend skipping the baseless, mostly fictional "modern"
econ textbooks, and go read some political economy history books. _The more
thing changes, etc, etc_ )

Your point hits right to the heart of the matter. And it's why I utterly
despise the rich so much. When I look out on the world, I don't see what is
actual, rather I see all the lost potential(opportunity cost). It's
heartbreaking. And it's not just how much wealth they take—it's also how much
resources they divert from the natural ebb & flow of capital to support their
meaningless, empty, wasteful lifestyles. And all for no practical reason other
than keeping up with the Joneses. Meanwhile people are starving and killing
each other in ghettos not 10 miles away.

It's funny how such a stat like the French textiles leaps right out in
historical hindsight, yet every era of human history has it's own economic
sinkhole into which the rich and the powerful throw societies collective
wealth. I suppose for the present day US, instead of lavish dresses for the
royals, it's lavish military spending for the gravy-train DoD fucktards.
(We'll hit a $1 trillion defense budget in less than 5 years! If that doesn't
make you want to take to the streets with a molotov, then nothing will). They
don't realize it yet, because they are all narrow minded pigs blinded towards
their own trough, but their economic parasitism will inevitable trigger
another revolution in America. Malcom X's proverbial chickens will indeed come
home to roost, and it's going to be simple, unsustainable economics that
triggers it. Archaeologists will dig us up in 1,000 years and wonder why we
couldn't see the pattern.

Wealth = Exploitation.

QED, bitches. If this belief makes me a radical socialist, so fucking be it! I
know I'm right from a high level perspective.

~~~
wazoox

      > If that doesn't make you want to take to the streets
      > with a molotov, then nothing will.
    

Precisely that. Western people had been fed into obedience, they've got to
much to lose to react anymore.

    
    
      > If this belief makes me a radical socialist, so fucking 
      > be it!
    

So we're at least two on HN among the crowd of free-market believers :)

------
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.

