It seems that the US does stop for 4th July celebrations for about a week or two … go figure! But, just when I was beginning to think that the 7MITs feel that they have enough to go on without our help, Jeff pops up with this interesting post … for all of you with real-estate and/or stocks in your future, what’s the huge breakthrough that Jeff has discovered?! It’s right here in his post …
As a quick recap…
- My life purpose is to “Lead and develop leaders.”
- My number is 10 Million on 1/1/19
- My current Net Worth is $672,290
- My annual required compound growth rate is ~ 30% +/- a couple %. I’m finding this number is fluctuating a bit, but seems to average out to right around 30%.
- My selected growth engine is real estate investment and individual stocks
According to Masterson’s Table I should be able to generate ~ 30% with my growth engine. Over the past couple weeks I’ve been researching both elements of my motor to determine whether I believe Masterson’s results.
What follows are my predictions, guestimates and silly wild a$$ guesses as to what I might be able to expect in annual returns and its affects on my number.
Now I make no claims as to the accuracy of these results. Remember, it’s product of my research online and work with a calculator. I welcome all comments and corrections.
Real Estate: In this first round I only considered residential real estate. I need to repeat this exercise for commercial real estate and hope this post will generate some discussion in that regard.
In my analysis, I initially considered my returns as a percentage of the property value. Then it dawned on me that my actual growth should be determined by how much of my own skin I have in the game. In other words my returns are a function of the down payment I put into the property.
I assumed I would be buying properties in the $150K range with 20% down (i.e. $30K). I planned for a 30 year loan at 6% and positive cash flow with an anticipated holding period of 10 years. Tax benefits and purchase discounts (e.g. good deals, foreclosures and tax liens) were NOT considered. I view them as icing on the cake.
Bottom line for me: the business fundamentals of the property must be sound before I lick the icing.
|Vs. Property Value||Vs. Down Payment|
|Mortgage Pay Down||1.0%||5.0%|
10% is nothing to sneeze at, but when you compare the returns to the amount of money I’d potentially be investing (the down payment), it quickly becomes apparent why real estate investing can be so attractive.
Individual Stocks: When it comes to stock investing, I’m going to stick to the value investing principles made famous by investors such as Warren Buffet and laid out in books like Phil Town’s “Rule #1”. I will be doing my stock analysis centered on the requirement to make 15-20%. Also many of the stocks I anticipate investing in will likely pay dividends on the order of 3-5%. Putting the two together, I think I can possibly gain 18-25% annually with this approach.
Revving the Engine: Simple math here throws out a potential annual return of 68-75%. Wow! That’s basically double what Masterson came up with. I’m not claiming Masterson is wrong, but if I were writing a book, I’d probably low ball the results a bit hoping that most folks would see better than published results. I’m hopeful that was his approach.
Pulling My Little Red Wagon: If I hook up my growth engine to my little red wagon, I can begin to see how achievable my number really is. Here I projected my current net worth ($672K) out to where I think it will be on 1/1/10 based upon my recent growth rates, then started running the math on an annual basis at 68% growth.
This of course assumes my entire net worth is fed into the engine. I can tell you right now, I don’t have the intestinal fortitude to pump it all straight into the machine. Although it would mean reaching my number in about half the time I’d planned. That’s a plus!
Another way to look at the numbers is to ask the question, “How much of my net worth do I need to feed the growth engine in order to hit $10M by 1/1/19?” The answer to that question is 49%. I can live with that.
My profile then begins to look like:
Conclusions: I can most likely use a combination of real estate and stock investment to reach $10M by 1/1/19. I should anticipate returns on the order of 30-68% and be ready to commit between 49%-100% of my net worth to this investment strategy.
What do you think of my analysis?