@George Gammon
“So what it then boils down to is measuring the actually risk of taking 200k and paying off student loans opposed to investing in positive cash flow rentals with 30 year fixed rate debt at sub 4%, because it makes them feel good.”
I think you are missing the point people are making about “do what ever is going to make her feel best.”
The problem I see with your argument that it “boils down to measuring the [actual] risk of taking 200k and paying off student loans opposed to investing in positive cash flow rentals. . . because it makes them feel good” is that it is all about the financials. People simply value things differently. You assume that just because a person will be better of in the future based on math, that person will feel better down the road. Financially, yes, but happiness, enjoyment of life, etc. maybe not. I did not see her asking what makes most sense financially (but maybe that was inherent in her question) but more general, "what should I do?". For example, while working 15-hour days and not seeing my family, and living in a 500 sf apartment is the financially right decision, it is the wrong decision for me because I value time spent with my family way more than I value money. Same can hold true for stress/piece of mind.
“In the prior post we established they'd lose around 800k...I think that qualifies as risk.”
Frankly, I do not think we have established that they would lose 800k unless we make some extremely irrational assumptions that favor investing in RE. And don’t take me wrong, everyone on this site want to invest and believe investing in RE is the way to get out of the rat race but the numbers are not reality. For example:
- You assume that they actually have $200,000 to invest right away;
- You assume a first-time investor will find properties that will generate $1,500 monthly true cash flow on a $200,000 investment;
- You assume that they will pay no tax on the cashflows from the investment;
- You assume they will pay no capital tax on the sale of properties in future;
- You do not factor in the risks of investing in RE rather than paying off debt;
- You assume that they will pay off the debt completely rather than put at least some of the $200,000 in market which should conservatively generate 5% annually (which can be leveraged significantly just like RE). Even just $100k in market will generate ~$165,000 pre-tax in 20 years.
“What makes 2019 10x more dangerous than 2009? In 2009 the private sector was bailed out by governments, in the next recession who bails out the governments?”
While I certainly agree that a recession will happen eventually (probably sooner than later), you are talking about an event that will change the way we live today... I would probably buy gold if I believed this would happen. If you are thinking of a “normal” recession, then market will come back just like it did after 08-09, similarly to how the RE market came back.
2. And this is by far the most important topic you brought up. Can rents increase if wages are flat
This was very informative, helpful, and appreciated – but I am not sure it answered my concern? I am not talking about fixed debt v. rent but real rent v. real wages. If rent is going up by 5% per year, inflation by 5% and wages by 2%, real rent is staying flat while real wages is going down by 3%. The discrepancy between real wages and real rent is increasing rapidly – less people can afford housing. Same is true for home values.
Help me understand how “at some point people can’t afford the sky high rents” and “but remember those are inflation adjusted numbers and debt is nominal” have anything to do with my concern that real rent is increasing more rapidly than real wages?
My point, and again I may just be missing what you are saying, is that while $1 in real wages (accounted for inflation) was worth $1 in real rent in 1960, in 2014, $1 in wages is only worth $0.73 (if I am doing the math correctly – 120%/165%-1). Real income is not keeping up with real rent and something will have to give regardless of whether debt stays the same.
