It is truly sad that people are bragging about getting a 4% return on their investment these days. A 4% return barely even beats inflation, if at all. I recently was looking over my bank statement for my savings account, which has just over $50,000 in it. I noticed the monthly interest payment that I was receiving and I could not help but to start laughing hysterically!
My latest monthly interest payment was made on 08/31/16 and it was a whopping $0.43! So basically I am getting $5.16 per year in return for having $50,000 on deposit.
That calculates to a 0.00010.2% annual return. So even with a large sum of money in a savings account, you basically get nothing in return. So how exactly is “saving money for retirement” good advice these days? Well, it’s not! You need to be actively involved in your finances in today’s world. Just turning money over to a broker or financial advisor or blindly putting money into a 401(k) is a terrible plan if you every want to become wealthy.
We are in the process of refinancing our home right now. We bought the house in 2013 for $195,000 with an FHA loan, putting down only 3.5% (about $12,000 including closing costs etc).
Today the home is worth almost $300,000. We currently have a 4.5% interest rate on our mortgage, and with the new loan through our refinance we will now have a 3.5% rate. This will lower our mortgage payment by about $80 per month, or $960 per year. Another way of looking at it is that we increased our annual personal cash flow by $960 per year. The best part of all is that we paid $0 to refinance! So we are getting an infinite return! Essentially we created $960 per year out of thin air.
Mortgage rates have NEVER been this low before. Borrowing money at just 3.5% interest is so cheap that it is almost like FREE MONEY! Compare today’s rates with rates back in the 1980’s, when mortgage rates got as high as 18.5%! Now is certainly the time to be borrowing money. However let me clarify, I am not talking about consumer debt. I am talking about using other people’s money. I am talking about borrowing money to create wealth. More specifically I am talking about borrowing money to purchase income producing, cash flow real estate.
If you are still following along, you may already be thinking what I am about to say. We should be trying to buy as many cash flow income properties as we possibly can right now while there is still “almost” free money available.
I am currently under contract on a triplex in northern Utah. The purchase price is $120,000 and I am putting down 25% ($30,000) and borrowing $90,000 at 4.5%. My monthly payment is expected to be somewhere between $600 and $650 per month (including taxes and insurance). The property should bring in just over $1,500 per month in rental income. After paying my mortgage and after all operating expenses are paid, I should easily have a $400-$500 positive monthly cash flow.
Can you see how it is advantageous to active investors to have these low interest rates? So while savers are complaining (many of my co-workers with deferred tax savings accounts) about these extremely low rates, I am celebrating! I can’t seem to get my hands on enough of this free money!
If you want to become a millionaire sometime in the near future, you need to really think about what needs to be done. You cannot expect to sit there idle, putting some money away into a 401(k) and hoping that it will amount to a large dollar amount when you are 65 years old. Get educated and get out there. You need to be actively involved with your money, whether that means starting a side business or buying rental real estate. Do something that is actively going to give you a good return on your money, otherwise you will be sad every time you get your bank statement and it says you got your $0.43 for the month!