[pilom]

Cutting spending and keeping my programming job instead of starting a new business has worked out really well for me. Passive investing of my savings earns me $500/month and I don't have to do any work at all. Other options for those outside of SV is landlording. In some mid-west cities you can earn over $10,000/year/house after all taxes and expenses (including saving for long term expenses like roofs).

Not exactly traditional small businesses, but honestly, both options have much higher probability of success (or at least not losing all of your money like restaurants)

[VLM]

"In some mid-west cities you can earn over $10,000/year/house after all taxes and expenses (including saving for long term expenses like roofs)."

Possibly true anecdote. However with the median family income for the country being $45K or so, thats implying the profit alone exceeds something like 25% of the median tenant gross income. So thats like a $1M CEO waterfront house not joe6pack's house.

Somewhat more realistically, you can expect your average family to spend maybe 1/3 their income on housing, and your profit will probably be a fraction of that, and you'll only have tenants a (large?) fraction of the time, so from a scalability standpoint to earn a median income you probably need to rent out one to two dozen houses, which rapidly becomes a full time job and is quite a capital investment. Also it becomes interesting to express various typical maintenance costs as "months of rental profit" rather than $. A furnace might be more than a years gross profit, yet only guaranteed for 20 years... times ten other major appliances all carefully value engineered to fall apart...

One worrisome part about long term prices is a Z percentile resident will more or less always live in Z percentile housing. Now the capital cost of that housing solely depends on about 1/3 the resident's income put toward the mortgage interest payment... and that rate was at multi-generational lows aka prices were at multi-generational highs. J6P can afford to pay the bank $2K/month means he can borrow how much, depending on interest rate? So what happens to your capital investment when median income inevitably continues its multi-generational decline, while at the same time, interest rates inevitably rise resulting in crashing sale prices? There are other cultural effects like retiring baby boomers wanting to downsize, kids having mortgage sized school loans therefore unable to afford a mortgage, etc.

Just saying, focusing on return OF capital is probably more important than return ON capital, when you're doing long term real estate investment. From a diversification stand point it can work if you have 100 or so houses, but its rough at a smaller scale.

[aestra]

Landlording can be very profitable in some areas or a huge money pit in some areas. My parents did it for years and barely broke even, or lost a ton of money if you include labor costs.

Plus you get people waking you up in the middle of the night when they lock themselves out.

[pilom]

I agree entirely with the fact that real estate it is very hit or miss. But worst case scenario (assuming you have insurance) is you have to sell the house at a depressed price and take a loss on your time. With a restaurant (where 50%+ are out of business in 3 years) you rent the space, lose all the money you spent on rent, and on food and on employees etc. Very easy to lose everything with a restaurant, but you need to be fairly unlucky to loose more than you put into a house (i.e. you bought in 2007)

That being said, saving lots of money and living off of dividends is the way to go.

[aestra]

Assuming you can find a buyer for the house. My parents could absolutely not sell theirs, there was no buyer, because anyone could see there was no money to be made. You need a buyer to sell.

[tocomment]

What kind of passive investments do you have? It seems like you're lucky to get a 3% return on dividend paying stocks.

[pilom]

I just do US stock index investing. There has never been a 25 year period where the US stock market did worse than 3% if you include dividends. Let me know if you want sources. This year alone it is up over 10%. That being said there will definitely be down years but that is ok with me as they will even out over the length of my career.

[VLM]

"There has never been a 25 year period"

Just be aware that saying used to be 10 year period, until it broke. It hasn't worked in the last decade or so, therefore roughly speaking durations keep expanding to reach the eighties. I suspect in 2030 the phrase will be something like ... never been a 50 year period ...

The part that worries me is hearing about all those boomers having to cash in equities and real estate over the next couple decades to pay off the medical sector... Who, exactly, is supposed to step up and buy that stuff at current prices / PE ratios? AKA where's the demand?

[tocomment]

What do you think about tax liens as a passive investment?

[pilom]

Never investigated them. Have a summary link?

[tocomment]

Here you go. I'd love to give it a shot, but it does look like more learning is required: http://articles.chicagotribune.com/2013-03-07/marketplace/sn...

[pilom]

Interesting. If you're into repo'ing property I could maybe see it working. I feel like it would be easier for a similar reture to use something like LendingClub to loan money to people who actually want to pay it back, as opposed to people who are 1-2 years late on their taxes.