Thursday, January 28, 2010

Other Peoples' Money

D and I know someone who recently declared that they felt retirement savings and emergency funds are a waste of time and effort. They plan to circumvent the need for that by putting all their resources into income generating real estate. That will be their extra cash flow as well as what will fund them for the rest of their life.

As we are live pretty much the exact opposite of this person's ideal, their comment made me stop and wonder if I could do that and if holding a bunch of non income generating real estate was a bad idea after all. Maybe that was their way of bringing that to our attention. After all, why pay for something yourself when you can get someone else to do it for you?

Assuming that what people say is a product of where and what they've been through, I can say that this person's views have largely been shaped by their financial situation. They do not have any savings and owe at least $300000. So I can understand that the idea of savings may be so far away, it may not seem possible in this lifetime.

They are also in their late 30's. Two thirds of the debt is a mortgage and the property is a duplex that is income generating. Their plan is to keep buying more to the point where basic living expenses are covered.

What is difficult for me personally is the sheer timeline of it all. I think it would be neat to have some other people pay for my yearly living expenses but I do not believe I could handle how long it would take to accumulate a decent amount of money in the bank.

I can understanding the ego boost one can get from owning a bunch of real estate and having it paid for by people who are "working for you". Unfortunately I only seem to be able to see it from the "how little equity there is for a very long time" point of view.

I forget that savings isn't what they would like to have. They do not wish to bother with it. They live for today and am enjoying life to the fullest. What a different way of thinking. Living this way assumes a few things. That they will be able to get continued funding from the bank. That their job is stable and they will want to do it for long time. That they will continue to have tenants and be willing to manage all of their needs.

Even thinking of this scenario has challenged my requirement for financial security. I would like to get to a point where I do not need to worry about banks, mortgage rates or income. It is important to me to own real estate or other stuff outright. I also get a kick out of doing it with my own 2 hands. It gives me a real sense of accomplishment. That's probably both a control thing and a result of my upbringing.


  1. We are a mix of different beliefs. I am from England so I have a pension but we also have a holiday home in Crete. At any time we could sell one of the houses and be debt free but the idea is to keep them both. My husband is from Syria so he prefers to invest in land & building not pension schemes (a healthy mistrust of the banking system from the old country I suspect)so we have more land, an apartment & the plans for holidays apartments to finance his pension. Balance works for us & I think it is cultural rather than fear of saving.

  2. Being a landlord is work, unless you hire someone to manage your properties for you, which then reduces your take. There is no such thing as a free lunch.

  3. Hi Lizzie!

    I think you have a very sound plan and the cultural differences actually work with your goals.

    There is a balance between liquid assets and real estate whereas in my example, they do not feel liquid assets are necessary.

    Had you not had a pension, I would think you would be doing some retirement savings as well.

    @ The Executioner

    They do hire someone to manage their current property. I too see it as work though they give off the air that everything is so easy which makes me wonder if I am missing something?!

  4. So true, The thought of no pension would panic me a lto!