I've been investing in the market since starting work over 10 years ago, and portfolio is doing well, mostly index funds and my RSUs. In addition to my primary residence (3BD/2BA near Seattle) I have one investment property (my first condo) which earns rent that covers its mortgage, plus a tiny bit more for $500/mo net cashflow. What I've been wondering about is, why wouldn't I try and leverage my employment income further, to get another loan on another investment property, same deal as above, and grow my assets significantly, rather than continue to chase after stock gains? Here's my math: Take $200k in savings, and A) purchase a $1M 2-unit residential property; 800k loan is about $4k/mo all in, so rent would cover that. Result: net income += $500/mo, assets += $800k B) purchase RSUs, more index funds, Bitcoin, whatever. Result: no impact to net income or assets/worth. With A, I can rinse/repeat yearly, and my net worth increases dramatically over time if property appreciates and the mortgage is paid down by the tenant. With B, stock must perform well, and my worth increases if it does, but my income level remains the same and I'm beholden to that asset. I know there's leveraged instruments in the stock market, but that seems ridiculously risky if you get a margin call on a bad bet, whereas housing or even commercial real estate might drop in value short-term, but as long as income is relatively steady, who cares? Is there a better option for leveraging income for asset growth than real estate? TC: 450k, NW $3M, 10yoe
What’s is your goal with investing? Passive income to use now or long term appreciation? If you need almost tax free passive income now, invest in B and C areas of RE (higher rents but lower appreciation long term). If you are looking for long term appreciation, either RE in A grade area or stocks can do the trick.
🔥 :) I want to get to the point that my assets are providing my income and I can get out of the ratrace within 5-10 years. I think it's doable with real estate without as much risk as stocks. I'm fine with risk, though, but my main point here is there are few Investment vehicles that allow you to leverage current employment income to maximize asset acquisition.
RE is the way to go for 🔥
B and C grade areas are blue collar worker areas BTW
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When you put $200k RE with leverage, your assets increase by $1M but so do your liabilities by $800k. The change to your best worth it still $200k. Accounting 101 By investing $200k in RE, you are making $6k/year above mortgage. That is 3% per year before property taxes and maintanence. And this is somewhat passive and somewhat active since you need to spend time. Stocks can give you 2% dividend yield (currently little lower). This is fully passive. As for BTC, I don't know.
As for accounting 101, I get it - I didn't say my worth would change (it doesn't) just assets. Over time, worth catches up right?
Good point on the passive part for dividends. Is it fair to say that RE can be passive too if u use property managers. It just reduces ur profit.