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Old 04-18-2006, 08:43 PM
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Join Date: Nov 2003
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Originally Posted by kaweahnet
The problem is inflation my friend. That $200k isn't really $200k at retirement. If you want to avoid inflation ... check out this:

Take that $50k and put it down on a $250k rental home that generates $1000/mo in rental income. Finance the $200k on an Interest only 5/1 ARM which will cost your about $800/mo. Take the $200/mo you're making in monthly income and put it away to pay property taxes and insurance. Best of all, at tax time you can write off paper losses of up to $25k against your regular income which will greatly reduce your taxable base and you'll get a huge return. Many real estate deals actually will show a loss, but after your tax benefit it turns out t be positive. YES, that means you will have an influx of cash (+ cash flow) and the best part is that the house is increasing in value faster than the rate of inflation.

Effectively, in 5 years, your home is probably going to be worth about $350k (concervative by today's standards). You just made $100k off of a $50k investment in a period of 5 years (assuming you sell it). AND there are tax shelters to allow you to move these into other investments. On top of that if you get licensed as a real estate agent and sell a few home each year you can darn sure write off every single penny of that M3, and every accountant worth his salt BETTER support you on that deduction.

It's all about being creative. But, for God's sake, stay away from small gain investments ... because they don't keep up with inflation.
What about the cost of maintaining the home and fixing problems & damages? What about the months were you don't have the house rented and need to pay that bill out of pocket? What about when your tennants don't come up with the rent money? Laws make it hard to kick people out. It's not as easy as you make it sound, IMO.
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