I would like to share a small method. This year, my wife and I borrowed money from the banks using our real estate properties, via line of credit and cash-out refi. We invested the cash in an SP 500 index fund. It is all lenders’ money, not our own money. This is using other people’s money.
Our SP 500 account is currently up with a profit of about $240,000.
The expenses included interest payments to the banks and closing costs for refi, which total less than $40,000.
So, the net profit in this SP 500 account in 2020 so far is more than $200,000.
The SP 500 will go up and down. It may decline tomorrow. But in the long term, it returns about 10% annually.
The $200,000 in our SP 500 account is a small profit, compared to the big successful investors on Wenxuecity. A few of them do very well, and I respect them.
But this small method is simple and suitable for the ordinary people. The total time that I have spent on this is less than 6 hours, including emailing documents to the bank, the time to do closing for the refi, and doing some clicks on my computer to buy an SP 500 index fund.
I think that spending 6 hours and making $200,000 is not bad for the ordinary people.
Furthermore, this 6 hours are a one-time event. If in the next ten years the profit in this SP 500 account grows to $1 million, the total time that I spend is still 6 hours.
Hope this small example will inspire the ordinary people with houses and rental properties to use line of credit or cash-out refi to use the lender’s money to grow more wealth, passively, by spending only a few hours of time. In the long-term, the SP 500 should grow much faster than the super low interest rate right now.
By David Meng, author of the book “$5 Million in 8 Years: Real Estate Investing on the Side.”
not joking. it's real
从房子里借钱炒， 不知道房子后来有没有被收走。 不过他们不是很LUCKY， 是在倒霉的２００８年。。
I don't think a lot of people survived in 2008 to borrow money from the house to put it in the stock market.
That is a very risky move. Now you are lucky since the market just makes a new high.
The more people have this kind of the thought like you do, the more cautious we should be towards the stock market.
To illustrate the point:
2020, do cash-out refi on house A, put the cash into SP500.
2021, do cash-out refi on house B, put the cash into SP500.
2022, do cash-out refi on house C, put the cash into SP500.
2023, do cash-out refi on house D, put the cash into SP500.
I wrote the book "$5 Million in 8 Years" for my three kids. My wife and I have three kids. Two graduated from business school and are working. One is still in business school. They liked the book and said that I should publish it. So I added a few more chapters to make it more complete. My son published the book on Amazon, because I did not know how to do it. Amazon takes a big cut, and the money that I have received is truly negligible. But there are some people who have posted book reviews on Amazon, such as life-changing and one of the best books, showing that the book benefitd them and helped them. Therefore, it was worth the effort.
If I pay back all the loan to the banks, I still have the $200,000 left in my pocket. If after 10 years I have a net profit of $1 million in my SP 500, then I pay back all the loans to the banks, and I still have $1 million profit.
It will revert to the long-term historic average return.
SP 500 Index Annual Rate of Return
Average Compounded Annual Rate of Return of SP 500 (1965-2019) = 10.0%.
(By David Meng, author of book "$5 Million in 8 Years")
could you let us know the return rate? this will provide a better picture. thank you for the idea.
My wife and I have 15 properties and feel that it is enough for us, at least for now. That is why we put money into SP 500 as passive investment. But you are right, real estate with leverage grows wealth faster. Mine is about 27% annually as shown in my book "$5 Million in 8 Years." Thanks for sharing.
in average as shown in my book "$5 Million in 8 Years". Our SP 500 return of 23% in 2020 got lucky this year. And 2020 is not over yet, so it can still drop some. Real estate with leverage can return better.
我感觉应该cash out 所有的房子现在，然后投入一部分股票（1/3？），一部分房产（2/3？）
That was mostly real estate. With real estate using leverage, yes that can be achieved. The SP 500 that I posted about was only $200,000 profit, not 6 folds.
We used line of credit and cash-out refi on our properties, and put in about $1 million in SP 500. I clearly said that our return so far this year was 23%. The "spy 4万成本" would be way too small for line of credit and cash-out refi.
Yes you are right, the interest rate is very low right now. But the lenders would not approve more refi for us right now. We have to wait for more principal reduction due to paying mortgages every month, and more housing price appreciation, and then do more refi. For example, this year, do refi on houses A and B. Nest year, houses C and D, etc. Thanks.