Yours is a very pessimistic view. You have no faith in your fellow human beings. There are a lot of smart enough people out there with sufficient will power to make these changes in their life if only they have the education and awareness of the opportunities. Sometimes all it takes is seeing the impact these changes have.
One of the best quotes I have seen about finances is this:
Poor people spend what they have and invest the rest.
Rich people invest what they have and spend the rest.
I've unwittingly been following this advice for a long time. When I save up enough money, I buy a HOUSE. An entire house I'm not just talking down payment. I have 5 houses now. I rent them out. I flip them. I live in them. Did you know you can buy an entire house for less than $5,000? A lot of people don't. I think those that buy houses retail or rent are silly. You think people who try to convince others that giving up coffee works are silly. To each his own. Why buy stocks and bonds when you can buy a house that pays $500/mo rent on a $5000 purchase?
Most people think I'm insane when I say that kind of thing, but it happens and it works. It takes experience, research, and time. It takes dedication and will. Strength of character and determination. Those are the characteristics that are lacking in our population right now and unfortunately those things aren't being taught. Those are the things needed to launch a startup, build wealth, and pay off credit card debt. They are also what is needed to give up coffee at Starbucks, so start with the coffee and you'll build better people for the long run -- that's what's important.
> There's no medium ever invented that does this better than television.
I internet is better for me, but I get your point.
> They want coffee, and buying one at the starbucks next
> to work is a lot easier and tastier than brewing it
> yourself.
If Starbucks is tastier and easier than your home brew, you're doing it wrong.
> automate your finances
If you think automating your finances is easier than not getting a coffee at starbucks -- well, I disagree entirely. Most people can't even balance a checkbook.
> purchase the bond/equity ratios that suit your age
Really? These are advanced investment concepts and it takes a lot of education to get there. Start first with not spending more than you make. I think that's the point of the article. Once you manage that, then start thinking about where to invest. You're putting the cart before the horse.
All these concepts can and are being learned by people all over the world. It just takes time. You have to crawl before you walk. Crawling out of the hole of debt is the first move. If you keep spending at starbucks and paying 20% interest while you're trying to get 6% on bonds (if you're lucky) then you're still losing money. The secret to building wealth is first and foremost to stop losing money.
> Why buy stocks and bonds when you can buy a house that pays $500/mo rent on a $5000 purchase?
500/mo * 12 mo = $6000 a year. At $5000 investment that's a return of 120%, as another commenter pointed out.
Why invest in anything at less than 120% return?
Either a) you've discovered some capital allocation inefficiency, i.e. trillions of $$$ are being foolishly allocated into places like stocks and bonds when higher returns obviously exist or b) you don't fully appreciate the risks that come with the 120% annual return
(I guess there is another option, that the scenario doesn't exist, but I'll take your post at face value and assume that it does.)
You seem to be doing this part time. I've seen other people (Rich Dad, Poor Dad) giving similar advice about real estate investments for years, but my question has always been: How is the market still that inefficient? I don't think you could do the same thing on stocks or bonds. Are there just a ton of localized laws and market quirks that keep the market from clearing?
You can actually get them for even less than that and get more in rent. The cheapest way is through Tax Sales. You can buy a 3 bedroom house at a Tax Sale for low thousands of dollars and rent them out Section 8 for $800/mo or more and the US Government pays you all or a portion of the rent so it's reliable residual.
Of course it isn't that simple, sometimes the houses need a lot of work to get rent-ready and if you don't live near them you need a property manager. It's complicated and a lot of hard work but the dividends are incredible. You can also lose your shirt if you aren't careful.
I'll email you.
EDIT: Strike the email, here's a post to a blog with results from a Tax Sale in Tulsa County Oklahoma last year:
Some of what you read in these comments below is true. Skepticism is warranted. It's hard. It's dirty. The houses do need a lot of work. The tenants don't pay sometimes, but the US Govt always does. Property managers take 10% or more of the rent to manage the properties. It's a BIG risk but BIG returns can be had as well. Plus, it does take time and emotional stamina. Imagine buying a house that was a meth lab. It happens. Imagine removing the person who lives in it and they burn it down. It happens.
The tricky part is that it's very easy to not notice when your "investment" turns into a "second job" that may not really be paying that well per hour.
It's important to find a good property manager in the area you are investing. They do the work for you but the returns are less of course. Just like anything...
Please email me. (talithamichele at gmail dot com) It has been a long time since I read real estate books. I need to figure out how to buy a house cheap. I know it can be done but I don't know where to get the info I need.
Foreclosures in bad neighborhoods that are in rough shape that go up for auction, where there aren't many bidders.
The unmentioned parts are that (1) fixing these places up costs money on top and you probably can't afford to hire contractors, so this is basically a second job and (2) the renters you get at the low end are terrible, and also require a lot of time and effort. It's not just invest and forget here.
and where there are many bidders, there are likely people who do this for a living and know exactly how much the house is worth, how much it will cost them to fix it, how much they can rent it for etc. AND they have the professional network in place for all of that-- relationships with contractors, etc
as another poster pointed out, it essentially becomes a job. and you will be competing with people who do this as their full-time job, who will likely have more experience and better connections than you.
1) it was a typo for $50k which is a reasonable number. The house down the street from me just sold for $55K and reasonable rent for it is $650 in the neighborhood. My house was a bit more (housing boom) but I will easily be able to get $900/mo in rent for it (nicer inside), and I am only paying $530 on it. Just need to find another house to upgrade to.
2) the 5000 purchase means closing costs/fees/etc on a house with a 100% mortgage, and in a lot of places the rent can easily be $500 more than a mortgage.
The best places to find things like this are college towns, because there are always lots of renters. The example of my neighborhood is based on the fact that there are a pile of grad students living here.
No, I really meant $5,000 -- total cash money for an entire house that you own free and clear. No typo. I know it sounds too good to be true -- but it's not. See the link I posted above.
Some of that stuff you see on infomercials really does work, but it's really hard and takes time, smarts, and dedication and most people fail en route to success simply by giving up or making bad purchasing decisions.
Short answer: slums or (tax liens or auctions for slum houses)
These types of returns are certainly possible. I bought my share of $10k to $50k townhouses with $800 to $1500 / mo rent. With sub $100k houses, typically it will be difficult to get conventional financing, so most people buy these properties with cash or money from a HELOC or something along those lines.
There is certainly money to be made when you are purchasing property for less than its construction costs. However, you have to ask yourself what the tenant profile is of someone who can not afford $5k to buy a house.
The government program the commenter is referring to is usually called Section 8. People in financial straits can get on a waiting list to get accepted into the Section 8 program. Participants end up living in better neighborhoods than they could otherwise, and give landlords typically higher than market rate rents. The typical Section 8 profile is single mother with 2-3 kids and on welfare.
Buying properties through tax lien certificates or auction has its own set of problems because you are buying 'as is'. Let's just say you need to do a bunch of research before you go into it, and mistakes can be costly. One of my friends found out he had a leaking underground oil tank in one of the properties, which costed $85k to clean up.
Landlording is a very bimodal process. If you have very clean, responsible tenants, anyone can manage that property. The real issue is when you get one of these trouble tenants. One that knows all the ins and outs of the law and knows how to string out the eviction process (depending on your state laws) for years. You significantly increase your chance of encountering trouble tenants when your properties are in lower income, lower rental areas or dealing with tenants with government subsidized programs.
The commenter linked to Tulsa, OK which has cheaper properties. This is great if you live close by, or have someone trusted to watch your properties. Property managers can be viable, but you really need to vet them throughly.
I am currently out of the property game, but if I were to start over again, I would not touch slums. I'd buy in the cheapest neighborhood that I would feel safe living in. One with a lot of blue collar immigrants where there are signs of gentrification. Look for the type of cars, people caring about their landscaping and house, new construction, new retail / service stores opening. Buying in the right neighborhood drastically limits my exposure to trouble tenants, and buying in cheaper neighborhoods increases the upside opportunity. The reason you might want to value appreciation more than cashflow is because appreciation can be tax deferred. If I were to buy a property now, it would probably be a 4-plex, and renting or airbnb'ing the other spots. This optimizes for acceptable returns with low/no maintenance.
The vast majority of them do need a lot of work, especially from tax sales. From Sheriff Sales, where the home owner fails on a mortgage, the houses are in better shape, but cost more. It's not an avenue for everyone, but neither is giving up coffee at starbucks I suppose.
One of the best quotes I have seen about finances is this:
I've unwittingly been following this advice for a long time. When I save up enough money, I buy a HOUSE. An entire house I'm not just talking down payment. I have 5 houses now. I rent them out. I flip them. I live in them. Did you know you can buy an entire house for less than $5,000? A lot of people don't. I think those that buy houses retail or rent are silly. You think people who try to convince others that giving up coffee works are silly. To each his own. Why buy stocks and bonds when you can buy a house that pays $500/mo rent on a $5000 purchase?Most people think I'm insane when I say that kind of thing, but it happens and it works. It takes experience, research, and time. It takes dedication and will. Strength of character and determination. Those are the characteristics that are lacking in our population right now and unfortunately those things aren't being taught. Those are the things needed to launch a startup, build wealth, and pay off credit card debt. They are also what is needed to give up coffee at Starbucks, so start with the coffee and you'll build better people for the long run -- that's what's important.
I internet is better for me, but I get your point. If Starbucks is tastier and easier than your home brew, you're doing it wrong. If you think automating your finances is easier than not getting a coffee at starbucks -- well, I disagree entirely. Most people can't even balance a checkbook. Really? These are advanced investment concepts and it takes a lot of education to get there. Start first with not spending more than you make. I think that's the point of the article. Once you manage that, then start thinking about where to invest. You're putting the cart before the horse.All these concepts can and are being learned by people all over the world. It just takes time. You have to crawl before you walk. Crawling out of the hole of debt is the first move. If you keep spending at starbucks and paying 20% interest while you're trying to get 6% on bonds (if you're lucky) then you're still losing money. The secret to building wealth is first and foremost to stop losing money.