Friday, March 26, 2010

Get rich off of real estate slowly...or quickly?

I came to the conclusion that once you save up a certain amount of money, it is foolish to continue to pay rent. I feel that if one wanted to amass a fortune, the next step has to be taken. While stocks will get you tons of  money (if you research them carefully) in the long run, but what about something in the short run? Is it me, or am I the only 26 year old that wants to own land? That would be a total bummer if I am.

More than likely, I'm not and there are probably people who own their houses free and clear. I wish to aquire a piece of real estate for the purposes of investing. That is my answer to short run gains. There has been more real estate investors that have gotten rich younger that stock investors. Also I need a more diversified portfolio anyways. So my lastest venture is to aquire a cheap property, take the mortgage and throw it into a high interest yielding CD at over 3% (cough Sallie Mae cough). I have a nest egg built up so paying down the principal while I am gaining interest off the loan along with collecting a refund off the 2010 income tax is genius! And getting the Obama credit  would  not be bad either, but I have a month to land a decent deal for that so that might be a "no-go". In case if you were wondering, at 3% interest on a loan tucked away in a CD would be:

100000 year 0
103000 year 1
106090 year 2
109270.7 year 3
112548.88 year 4
115924 year 5

Now 15K  from not doing anything except holding onto onto that money, I can live with. That would cover my Roth IRA contributions for the next 3 years! (Which it would compound more interest) The only thing I would need from that is a decent IRA plan. Or better yet, compound the money a second time while investing in a Roth from the cashflow of the property! Now let's say I rented out a house at 1K for purposes of simple math and saved that for five years. That would be 60K on top of the 15K earned from interest! Obviously no plan is totally fool proof and there will definately be bumps in the road, but I can safely access that having 120K after taxes after 5 years of doing nothing else but collecting pay checks and upkeeping a property isn't bad. And that is just from a simple game of manipulating interest in your favor. If you have a bulletproof credit score, your obviously going to become even richer from this idea, for you can get the higher loans at the lower rates. BTW this doesn't count for the amount you would make off the sale of a property as you continue to slow pay down the prinicpal!

The number one thing thoughh is being frugal  in a time where being frivolous is so tempting. The rewards are that much greater!