Retirement Planning: Thoughts on Building Wealth

[drbubb]

Retirement Planning: Thoughts on Building personal Wealth

(excerpts from a Viber Chat on Retirement planning & other sources)

S. recently started a Viber chat about retirement planning.

Following are some excerpts

LINKS: coming

[drbubb]

J :

Dr Bubb , maybe you can share how you planned for your retirement.

Maybe us, some not so young people, can pick up a thing or two. Thank you in advance!

DrB:

To be honest, I left normal Salaried employment quite a long time ago (before 2000) and have made my living as an investor since then. I have had some terrific years, and some bad years. But overall I have made decent money, and learned a few tricks. Property investing was probably the most stable part of my investing, and investing in risky small mining shares was the most volatile part. I still invest in both, but much more carefully now. I can say more, if people are interested

1/ My first "big score" was a penny stock I bought a year or so out of college, with borrowed money that went up like 4X after I bought it - and was the biggest gainer of the year on the Amex in the year I bought it.  The gain provide equity for subsequent property purchases, which I am about to describe.

My big score was in the Computer Leasing sector. I spotted a bargain by digging deep into the company's accounting policies.  (Any CPA who is interesting can ask me for the details of what I discovered.  It may be fascinating for people who like accounting, as a "hobby")

I bought a tiny studio apartment in a "crappy" building in a great location

2/ My second important move was buying a (NY City) condo with a 75% loan, which nearly doubled in just 3 years. It happened partly because interest rates were high when I bought it, and declined over the time I owned it.  Falling rates allowed people to pay higher and higher prices for a property whose potential monthly Rent hardly changed.  The property was secondhand, small (maybe just 22 sqm), and cheap compared to others on the market.  It was a bargain, because of a quirk in the tax law that allowed rental apartments to convert to Condo status.  I had recently joined a large NY bank, and so I was able to get access to credit, a slightly larger percentage loan than might have been available to non-bank employees.  (Access to credit is a key advantage for young people starting out on their pathway to building wealth.  Buying a cheap property at a good time in the property cycle is another positive step.)

[drbubb]

3/

I sold that tiny condo (about the size of my temp residence in Makati now), to buy another larger one costing about double the first one. The second one also rose by over 50% in a few years. Eventually, I sold that to buy a 3BR property in London where I moved to. And it went up in value over the years I lived in it

PURCHASE STRATEGY : the Key Numbers

My thinking was simple:

+ OWN rather than rent.  Don't "waste my (scarce) money paying rent"

+ BUY A PROPERTY (one that I wanted to live in) and run the numbers carefully, spotting a bargain, by determining when the "after tax cost" of Buying a property using a mortgage was no higher, and maybe cheaper than Renting.  This meant that if I stayed in the property and interest rates stayed the same, I would be protected from future rent increases. At the time I was searching the property market, inflation was in the range of 6-8% or higher, and Rents were rising all across NYC.

+ OBSERVE the likely trend in interest rates, and buy when rates had stopped going high and seemed likely to fall.

OVER all those early years, I essentially lived for free, since price appreciation in my Condos was more than I was paying out in mortgage payments. (I can show some sample calculations, if people are interested.)  Many people who earn a regular salary have a rule of thumb: "Don't spend more than 1/3 of your salary on Rent or a Mortgage."  If price appreciation exceeds my mortgage payments, it means that I am saving at least 1/3 of my income.  That's a great way to build wealth