Monday, August 2, 2010

Net Worth July 2010 (+2.75)


Net Worth for month ending July 2010

Our updated net worth for end of July 2010. We moved some of our money into the mortgage to slowly bring it to 20% LTV. I've been listening to some podcasts on real estate investing. They're telling me to put as little down as possible and have as much in liquid assets as possible. That way you increase return on investment or ROI. Well this goes totally against the Dave Ramsey philosophy of having no debt, but I kinda like both.

A Look at ROI

So we'll see which philosophy wins out in my mind. An example of ROI is if you buy a 200k house and put 10% down you "invested" 20k. Let's assume an appreciation of the house instantaneously to 250k giving you a profit of 50k (just for an easy example). Your return on investment would be your (profit - original amount)/original amount = (50k-20k)/20k = 150%.

Example 2 would be if you put 20% down on your 200k house which would be 40k. If appreciation remains the same, your 50k profit would bring ROI of (50k-40k/40k) = 25%. Anyways, ROI for this house would only be 25% because of the larger original downpayment.

So real estate investor would like to leverage as much as possible to gain the largest ROI as possible. Anther way to put it: Use as little of your own money by borrowing other people's money to make as much money for yourself as possible. See how this leads to corruption and greed... or is it the other way around? Greed makes us want to use other people's money to make us as rich as possible. Anyways, that's what investors look for. Maximizing your return on investment.

Savings

Currently we have about 70k in retirement and savings (college) accounts. We hopefully won't be touching that for another 20+ years. Our largest liability is our home mortgage which is currently at 173k. I want it to be at 172k for 80% LTV.

Well, that's it for now. Let's see how much we can save and make next month. What can a budget do for you?

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