All Forum Posts by: Randy E.

 I worried about that also.  Like you, I'll worry about that if the day ever comes that I want to sell something.

Fortunately for me, a house that I bought+rehabbed for an all-in of $22K three years earlier appraised at over $100K last year and I was able to take out an equity loan on that one alone.  It was a precarious process, because the appraiser wasn't paying attention to the local market enough and didn't know about sales over the past year.  Strange, I know, because that's his job.  But in the end, it worked out.

 For me, yes, the properties are purchased as a cash purchase.  The problem comes when it's time to invest again and I'm faced with waiting until I save enough to buy again (which, depending on how life expenses are going could be a reasonable time or a long time) or trying to leverage my equity to grow my business more rapidly.

At this price point, getting another unit creating an additional $800-$1K/month means I will be able to pay off a $30K loan a lot quicker than waiting to save $30K without that.  And that allows me to get the next property quicker, and so on and so on.  I've done the math countless times over the years.  Getting easy access to equity loans would allow me to acquire 30 more houses in a few years than saving for each, one at a time.  And that would allow for much more rapid growth after that.  And all along, the houses would be getting paid off at a rapid rate.  It's truly a chicken-egg dilemma.  

 I am a sub $30K investor.  In fact, I may soon end up buying a historic downtown commercial building for less than $30K if things go right.  I don't worry about investors who shout doom and gloom at this particular category of properties.  It reminds me of the general non-investing people who warn against the risks of RE investment in general.  Both parties shout warnings about something they know little about and fear more than a little.  I listen politely, do my own research, measure my own capabilities, and make my own decisions.

I went looking for loans last year and I discovered that while it is tricky to find lenders who will loan on properties that appraise for less than $100K, it is easier to find lenders who might loan on a portfolio of properties that total that amount.  Some were more amenable if the properties were located close to each other, or even next door to each other.  But there are options.

Good luck.

 No offense intended, William.  I guess we simply have a difference of opinion. 

But I agree some of the differences of what people consider wealth/rich or not come down to each person's lifestyle.  For some people, having $1M of rental realty generating $4K-$9K a month is a phenomenal achievement and a great place to be in life.  For others, that "passive" income doesn't come close to matching their non-realty income and it's not that big of a deal.  Some people would be happy to stop working their traditional W2 at that point, and live life on their own rules.  Other people would ridicule the notion of thinking $1M of net worth is even the beginning of "enough."  Some people have a lower-expense lifestyle, some people have a higher-expense lifestyle.

I can't say either side is right or wrong.  I just know the cold hard facts say that anyone who has a net worth of $1M is wealthier than 99% of all people in the world, and wealthier than 96% of all Americans.  Whether a specific person considers that "rich" or "wealthy" or worthy of mention, is not for me to say.  Personally, I consider it fantastic!  And I commend anyone who achieved it.

 Yeah, being in a car when it's 90 degrees makes it hard to sleep.  And the seats don't make it any easier.  I remember driving to NY in my early 20s only to find out that the place we were planning to sleep in was no longer an option.  So, three guys slept in a small Hyundai parked under a street light in front of a brownstone with one blanket stretched across the front and back seats in Harlem in the late winter.  Not.fun.at.all.

If I ever had to sleep in a vehicle again, I hope it's a minivan.  At least I could put the rear seat down and lay down property in the back.

 Options.  That's the difference.

Taking your example.  A woman lives in a house in LA that is worth $2M, she owes $1M, she loses the ability to work, and she has zero income and no other assets.  She realizes she has the option to move away from the money pit that is LA now that she can no longer afford it.  She can sell her house, pocket the $1M, move to the midwest, pay $100K for a decent house in a safe neighborhood, put the rest in an index fund, and draw about $35K/year for the rest of her life.  She won't be living high on the hog, but she'll be safe, sheltered, fed, and clothed.  

Another example.  A man lives in St Louis in a house worth $110K, he owes $55K, he loses the ability to work, and he has zero income and no other assets.  He can sell his house, pocket the $55K, move to a C- apartment that costs $650/month, and live very frugally on another $450/month.  He can't invest the $55K because it won't generate significant income and without the ability to work, he needs to have a way to access money on a monthly basis.  In about 4 years, the $55K has dwindled to little more than $0, the man is summarily evicted, loses the few worldly possessions he has left that can't fit in his car, and begins sleeping in his car parked in a grocery store parking lot.  He depends on the local food bank for meals.  It's October.  He dreads the coming winter, imagining sleeping in his car to be like sleeping in an icebox.

$1M provides options.  It provides a safety net.  It doesn't promise a lavish lifestyle, but to be able to live life in a home of your own and paying all your bills seems pretty doggone "wealthy" to me, compared to the other scenario which is where people with no significant net worth might one day find themselves.

 Agreed!

 Bill, I think that's the biggest obstacle to this discussion.  Some responses indicate a "middle class" lifestyle that, to me, sounds like an upper class lifestyle.  When I hear about spending six figures a year to send a child to college, or taking frequent international vacations, or having multiple houses, or earning $400K a year, I think "upper class lifestyle."  There is nothing at all wrong about an upper class lifestyle.  I'm just saying that's what comes to mind.

When I hear "middle class" lifestyle, I think of a summer vacation to the beach, a winter vacation to visit faraway family (or maybe Disneyworld,) buying a modest new car (not a Tesla or MB) every five or six years, owning (or paying for) your own home and being able to keep it up, eating out with the family a few times a month, being able to afford music/dance lessons and sports for the kids, going to the movies without having to save for it, college options for the kids being limited to those options that cost (whether through the actual cost or cost after scholarships and grants) less than $15K/year, those sorts of things.

I guess we could shoehorn these wide-ranging descriptions into "lower middle class" and "upper middle class", but some of the responses here indicate to me that the gap in our assumptions is much larger than that.

Anyhoo, this is a fun discussion to follow.

I think that's a false comparison. If I had $1M of real estate and it generated only $3K, I'd sell it and buy RE elsewhere that could generate much more than that.  Buy ten $100,000 homes in nice B- neighborhoods where they generate at least $1K each, and that's $10K monthly easily.  So, if I make $10K/month for not working, I'd say that's a nice position to be in.  Even if I had a $400K salary, I'd appreciate the extra $120K to do with as I please.

But, as you alluded to, it's all a matter of perspective.  Someone accustomed to earning $30K/month (and spending $29K/month) may not fully appreciate the benefit of another $10K/month the same as a person who earns only $4K/month.

 Hi Shiloh,

I think that sort-of disappointed feeling originates in a childhood misunderstanding.  Several responses here have mentioned that the individuals once thought, as children, that being a millionaire meant this or that.  They had grand misconceptions, based on childhood brains not understanding how the world really works, that being a millionaire meant being Scrooge McDuck, owning a personal airplane, take frequent world-wide vacations, have chauffeurs maids and cooks, and being able to literally swim in a roomful of money.

I think that what most net-worth people don't want to admit to themselves is that, yes, they are better off financially that the vast majority of Americans.  Being better off doesn't mean being able to spend money without consequence.  It means that, if your car breaks down and you don't have the cash on hand, you have the ABILITY to siphon money from your investment income and get your car repaired instead of waiting till the next paycheck (or the next next paycheck) to do it.  

Being better off means that if you suffer a large unexpected expense, serious illness, temporary loss of job, major home repair, you can charge it to a credit card and siphon money from your investments over the next year to pay down the credit card gradually instead of being left in a financial desert where you know you will never be able to pay more than the monthly minimum on those cards for the next 20 years, while the principal grows and grows until you'r eventually forced to file bankruptcy.

Being better off means, if a catastrophic potentially life-ruining event occurs, you can sell one property or take a large piece of your investment money, handle the otherwise catastrophic potentially life-ruining event, and still have more net worth than 93% of all Americans.

All of that reduces latent stress on the brain.  All of that allows (or should allow, if one's perspective is in the right place) a person to focus on all the smaller details of life that make most people happier.  There are many studies that prove that people are less happy when they are regularly in serious financial distress are perpetually worried about how the next bill is going to be paid, or working multiple jobs that leave less time for family obligations (while will add to the sense of sadness/worry) yet still fall short of having enough money to escape financial distress.  Having $1M net worth, at the very least, should allow an individual with correct perspective to not feel the stresses of daily living the same as most of the other 96% of Americans.

I still "feel" I'm living paycheck to paycheck, and in a sense, I am.  Yet I acknowledge that I'm in an immensely better financial situation than almost all of my friends.  Even the ones who earn more cash than I do on a yearly basis even when I account for my investment income.  They may drive automobiles that cost more than mine, they may take better and more-frequent vacations than I do, and they spend more on clothes, their personal homes, and such than I do.  But I know that if something happened that prevented them and I from being able to work our traditional jobs, they would be ruined, while I (and my family) could live a simple, comfortable life from the net worth I (and you) have built.  

That is a benefit I don't think some people give enough credit to.  It has actual value in generating a feeling of contentment in our brains.  And that feeling of contentment allows our brains to concentrate on how to build more net worth instead of always being consumed with putting out the next financial emergency.  Also, that feeling of contentment allows me to pleasantly help my children with their homework or college plans, instead of always thinking about how I'm going to outrun the current/next financial emergency.

We are better off for it.

Again, congratulations.