BiggerPockets

I've replied to one of your other new threads already, with sort of the same theme.

Obviously, if you own ten $100k homes, you are worth $1Million.

--- So what? ---

Nope, I can't get there either.

The math is straightforward. Lets just look at the first house you buy.

After 10 years at 5% appreciation, its now worth $162,889. The loan balance is paid down to $77,231. That gives you equity of $85,658, of which $10,000 is your original investment and $12,768 is the paydown on the loan.

Figure that out for all 10 houses, and add up the equity. I get $483,614.

To address the other comment, the houses are actually worth $1.32 million, with the appreciation. But you still owe $837,000 on them. Doesn't make you a millionaire in my book.

My question is whether you could pay retail for one $100,000 per year and at the end of 10 years , with the increasing expenses and the DEPRECIATION we're currently experiencing, be completely broke and be a NEGATIVE millionaire?

Mike

After 10 years, you have nearly $860K in equity, so you're almost a millionaire...

But, like Wheatie pointed out, you've spent over $400K to get to that point.

So, while the author could argue semantics to conclude that you've almost attained millionaire status in 10 years, most people would say you're only halfway there...

considering the state of our economy, you now really need to look at inflation in this equation, where it probably wasn't a big of an issue before.

however you get to your $1M, you should consider in 10 years, that $1M will buy a lot less than it would today.

i think we all should really start paying closer attention to inflation as an issue with our longer term holdings.

For real estate holdings inflation is your friend as long as you have a fixed rate loan. The inflation helps the value of your investment go up and at the same time eats away at the value of your mortgage.

I was just looking at the cs home price spread sheet for April of this year and the closest MSA to me is the Cleveland OH one and the average year over year appreciation rate since they started recording data is 3.66%. The last two years have really put a hurting on that number, pulling it down almost 1% for 21 years worth of data. So based on this data looking to get even 5% year over year is pushing it with the current market trends.

-Michael

Absolutely. Real estate is one of the best hedges out there against inflation...

If you look at the long term (1890 to now) Case Shiller data, inflation is the ONLY thing that affects house prices, over multi-decade time periods. Since 1890, there have been two major discontinuities. One about the time of WWI and another after WWII. Prices dropped to a new baseline after WWI and rose back to a new, higher baseline after WWII. Don't know why the first drop occurred (great depression and banks calling mortgages?), but I think the second rise was due to the changes in lending after WWII. I'd say it remains to be seen if we will settle at a new higher baseline now, or if the trend will revert back to the pre-2000 baseline.

If we follow the long term trend, values and inflation will eventually meet up. If you plot the nominal values (non inflation adjusted) and inflation on the same graph, and normalize the two to match at some point in the past, you would see that they track roughly together from about 1950 until the late 1990s. The values line would jerk around a lot, and be above the inflation line sometimes and below other times.

Starting about 1999-2000, the home value line would have diverged significantly from the inflation line. Since about 2005-2006, the value line turned down. But, in many places, the value line would still be well above the inflation line.

Here's an example of what I think we would see with this graph:
http://agebb.missouri.edu/mgt/landsurv/07landgraph.htm

I lived through that boom in the late 70's. Notice how prices fell and at the same time the inflation rose, and by about 1987 the two lines catch up with each other. Notice that it took until about 1998 for prices to get back to the same NOMINAL level as 1982.

I suspect we will see the same sort of trends in residential real estate. I say that because lending guidelines are more like they were before the boom. However, I don't think securization is here to stay. So, its possible the new trend line will track inflation, but at a higher level.

What you need to do is write a book with bad math and empty promises and over ten years, sell 1 million copies at a profit of $1 per book and in ten years you will be a millionaire. Get Al Gore to be a co author and you won't have to worry about math.

Now - how did they say you are going to pay for 10 houses at 100k each? I'm curious how that one was presented. Probably said rent them out and went into nothing about the rental business....