If you had a million dollars, could you theoretically...

Discussion in 'Community Discussion' started by HappyDude20, Sep 13, 2012.

  1. HappyDude20 macrumors 68020

    HappyDude20

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    #1
    ..make more money with it, without working?

    It was a stark thought earlier when I thought, say you just got a million bucks. Wouldn't you be able to put that million bucks a CD account, and earn a good amount from it? Without having to work?

    When this thought came to mind I assumed rates today would be like 3%, but after a quick google search saw they range with CDs from 1.03%-1.29%, depending on how long you leave it there.

    But even with that, say 1%, with a million bucks that $10,000 a year. Not much actually, but still something. And then you take that money out at the end of the year and put it back in the CD; or take the 10k out if the CD is like a 3-5 year term, assuming you a CD that can do that. I'm just a student thinking here. Also wondering (answer is probably yes) if you have to pay taxes on that interest you make?

    Any other ways that your money can make money for you? Im not even close to being a millionaire, a college student debt actually but still fun to think about how to do this.
     
  2. justinmancini macrumors newbie

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    #2
    If you can live on $10,000 a year.. Lol

    That being said, multiply that by 5.. $50,000 a year for doing nothing..

    But would you really want to live the life of someone who brings in 50k a year, when you have 5 million in the bank?
     
  3. Dagless macrumors Core

    Dagless

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    #3
    Depends what you want to do with it.
    My parents have a lot in the bank but don't live lavishly. They just use their money to invest in local businesses, that sort of thing. So long that you're comfortable it shouldn't matter how much you spend on living.
     
  4. flopticalcube macrumors G4

    flopticalcube

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    #4
    Safe withdrawal rate is 4% if you have 75% in SPY and 25% in Treasuries. Backtesting this has survived the Great Depression and the Great Recession... just. So your answer is $40,000.00.
     
  5. snberk103 macrumors 603

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    #5
    The other thing to keep in mind is that you can draw down the capital. You don't need $1,000,000 in the bank when you die. Ideally, you'd like to time things so that you were about $100 overdrawn... let the bank absorb that loss.

    Putting aside any income you earn on interest, you can withdraw $10,000 a year for 100 years - tax free. (I am assuming you have the $1million in the first place tax-free or after taxes). The capital itself is not 'income' and therefore not taxable, just the interest or other invest income earned from the capital.

    One other thing to keep in mind... the higher the investment returns, the higher the risk of losing the capital. Higher investment returns are a reward for risking capital.

    One other way for this hypothetical windfall to 'earn' an income is to use it to pay down debts, and to buy a house with no mortgage. The money you save by not paying a bank interest on your loans is just like earned income. So, if your student debt interest rate is 10% - for example - then paying that debt off is the same as the windfall earning 10% on the amount of the debt. Not having to pay the bank for a house can 'earn' you a tremendous amount of money over the long run.

    A million dollars though, is not what it used to be. There once was a time when it actually meant you were rich. You could in fact retire for life on a million dollars. Now a days.... not so much. I'd still accept it! But it's not the same.

    ---

    In the early 1980s, when Microsoft was just getting big, we read that Bill Gates was earning $million a day. A few of us speculated what it would be like to have that kind of money. One of the older/wiser members of the group challenged us, and told us we couldn't actually spend that much money... we did not have the mind set. He was right. We would say we'd buy a house for a $million (this when ordinary houses were in the $30,000 to $80,000 range - so a mansion). He'd point out that it typically took 5 days to close the deal, and assuming we spent no time actually looking at houses we'd have another $5million to spend by the time we took possession of the 1st house.

    The most expensive car in the world at that time was, iirc, about $150,000. So we'd need to buy half a dozen in a day to take care of another day's $million. We'd offer ideas, and he'd put a timeline on it.... and in each case it would take more than a day to spend that $million, so we were literally making more money than we could spend.

    He claimed we were all too 'middle class' to think big enough, and that someone from a truly wealthy family would have no problems spending that kind of money. Unfortunately we didn't know anyone really wealthy, so we couldn't test that part of the hypothesis.
     
  6. Tomorrow macrumors 604

    Tomorrow

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    #6
    OP, your example is an interesting one, but it won't work with your numbers. Your earnings would need to be enough to (1) outpace inflation, traditionally around 3% per year, and (2) pay taxes on your earnings, and (3) have enough left over to live on. You probably need a return closer to around 8% to make that happen.

    Otherwise, like snberk103 says, simply use your earnings as part of your income, while treating the remainder of your principal like an annuity.
     
  7. Apple fanboy macrumors P6

    Apple fanboy

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    #7
    Just buy property and rent it out. That would give you a decent income you could live off. It's nic to imagine though. Apart from my apple products I live quite a simple lifestyle.
     
  8. dontwalkhand macrumors 601

    dontwalkhand

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    #8
    That would be nice, but to buy my apartment building out, I would need $29 Million more :(....maybe its more now, but I know it did cost $30 mil to build, so it isn't even the true cost.
     
  9. lewis82 macrumors 68000

    lewis82

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    #9
    I'd use a million dollars to pay for my education, buy a nice car and a condo. And then assuming the real estate market hasn't fallen, after a few years I could buy an even nicer one.

    To me the idea of living off your wealth seems uninteresting. That is, unless you have billions, in which case I would not own a house and just keep roaming the world until I get tired. But to have a modest salary without working must be boring. Maybe I'd accumulate degree after degree to keep myself busy...
     
  10. flopticalcube macrumors G4

    flopticalcube

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    #10
    After expenses, probably not. Gross rental yields are under 5% in the US.

    ----------

    Trust me, its not. Particularly if you have a family to look after. Some days it feels like hard work. ;)
     
  11. localoid macrumors 68020

    localoid

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    #11
    I just want to say one word to you. Just one word.

    Are you listening?

    Plastics.
     
  12. senseless macrumors 68000

    senseless

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    #12
    Rates are artificially low right now. If it was 1982, you could put that million in an ordinary bank money market account and live happily on a 9% yield.
     
  13. malman89 macrumors 68000

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    Michigan
    #13
    You don't need to buy an insane apartment complex. I'd start off with a few walk ups in a college area. Guaranteed renters. One of my old landlords while in college in Chicago had it made. He owned 4 properties close to campus that were always at 100% capacity.

    He charged $500/person and in our building it was 3 floors of two 3 bedroom apartments. That's $1,500 an apartment per month and $9,000/month for the building (or $108,000/year). While we were there, he re-did two bathrooms (ours was one - and just the tub and tile), he re-laminated the wood floors, and replaced the roof. And that's just one building. I'm sure he's sitting pretty well off.
     
  14. MorphingDragon macrumors 603

    MorphingDragon

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    #14
    have you ever thought about investing internationally?

    There are some Huntly properties my parents are looking to give fresh owners too. :p
     
  15. snberk103 macrumors 603

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    #15
    Lotto tickets. We buy a couple of tickets every week.... we don't actually believe we are going to win... but we might win, and therefore we can dream.

    We are now well established in our lives, and I don't know what our net worth is... but I can tell you that we worked hard, and saved where we could but still treated ourselves on occasion. One strategy we pursued relentlessly was to pay down the mortgages aggressively. Especially in the first year or two, any little amount paid over and above the scheduled payments leverages into huge savings down the road. We are now sitting in a house we had built, on 10 acres of land on a small island in paradise - debt free. And we are still working.... just not nearly as hard as we used to.

    You are in a unfortunate point in history. This is actually a great time to borrow money to invest in real estate ... it's practically free to borrow at the moment*. But you need to have money to borrow money. By the time you are in position to take advantage of the conditions the market will likely have started back up the price curve and mortgage rates will have started to climb to keep the price increases under control. It's possible you may actually end up spending years just just behind the point of being able to buy your own place.....
    ------
    *American real estate is at historically low prices, which is bad for the people who own the property now. However, it is good for people who want to buy the property. Americans don't have enough money to buy up the inventory... but people in other countries do. The US dollar is steadily losing value, making US real estate even more affordable to international buyers. My reading of current conditions is that off-shore buyers are concluding that the US economy has stopped it's free-fall, and that things are just starting to get better - and therefore property in the US is as cheap as it's going to get. In the last month I've picked up on several stories about the increasing amounts of off-shore money buying American real estate... as second homes and as investments. If the responds by showing a price increase in real estate, then more money will pour in since the off-shore money will take it as confirmation that the bottom of the pit has been reached.

    If you have the money.... buy real estate. They ain't making more of it, you know....

    Keep in mind... Location, Location, Location...... not all places are going to see increases. Look at places with low crime rates, and strong gun controls... us foreigners don't like guns.
     
  16. lewis82 macrumors 68000

    lewis82

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    #16
    That is so very true. There is a wave of Quebecers buying condos in Florida, and then renting them to retirees who spend their winters there. Easy money if you have the capital up front.
     
  17. vrDrew macrumors 65816

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    #17
    You'd want to find some investments that paid a bit better than 1.2% (current Money Market rates) if you wanted to live off your capital.

    Example: You could find an investment advisor to select a portfolio of good quality corporate bonds that would pay roughly 3-4%, provided you were willing to assume a (very small) amount of risk. That would give you an income of $30-$40,000. Not a fortune, but enough to live on.

    Alternately, you could make your own investment in something like real estate: Buy 20 or so apartment units at $100,000 each. Put 50% down (ie. $1 million) and finance the rest via a commercial mortgage. Rent the apartments out for $850 or so per month, and you'd have a gross rental receipts of about $200,000 per year. From this you'd need to deduct your mortgage interest expense (say about $60,000 per year) plus whatever other expenses you had on the property - say another $40,000. This would yield a net annual income of about $100,000. Not "rich" per se, but doing a little better.

    Short answer: Unless you are a retiree with a relatively short life expectancy, $1 million probably isn't enough to live on comfortably without risk. You'd have to do something with the money in order to live comfortably.
     
  18. lighthouse_man macrumors 6502a

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    #18
    You can buy a few small apartments/studios in a big tourist destination and live off vacation rentals. It'll yield you more than 10K a year. There is very minimal work required like giving people the keys, cleaning the apartments after each check out, etc. unless you are willing to stay without work and take less money a year by soliciting an agency to do the job for you.
     
  19. snberk103 macrumors 603

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    #19
    Little bit more work than that. You will need to chase people down for their payments. Chase them down to pay for damages to units, and for stolen items. Not everybody of course, but a small minority or bad renters can keep you very busy. Then you will need to deal with the small group that want 5 star accommodation for 2 star prices.... and will call you daily to "fix" things in the unit.

    And of course vacation rentals are usually seasonal income streams. Ideally you'll own units in two places with opposing high seasons... you can then commute seasonally and live in a unit in the low season instead of paying to live somewhere.
     
  20. lighthouse_man macrumors 6502a

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    #20
    Well you're talking about the worst case scenario here and even this can avoided. Whatever is in the house will probably be cheap but relatively durable, a generic LCD TV, generic toaster, generic stuff, Ikea furniture, etc. Internet but no phone line, and you always have to ask for a caution check.

    You set up a website with pictures and services included, anybody wants something extra has to pay for it. You do regular checks, every 6 months or so, on things in the apartment like the plumbing, etc. You'll only work less than 5 hours a week in a busy season. Some cities have full year seasons, like New York and most Western European capitals.
     
  21. snberk103 macrumors 603

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    #21
    I used to work in the hospitality business. Easily, 90%+ of your guests are nice, civilized, easy going. The kind of people who renew your faith in humanity, on a daily business. The minority however, make you swear off people forever, will soak up all the profits you've earned in the previous 6 months, and will push your work week deep into triple digits.

    Even if you've managed to recover all out of pocket expenses from a horror movie renter, their presence will linger on with increased insurance premiums on your entire stable of units; with increased marketing costs to overcome the bad reviews posted internet wide by the 3 people who just happened to be below Nazgulese guests; with 2 units shut down for 2 months at high season - full of well paid contractors - while you end up paying premium rates to another vacation rental company to relocate the guests who had reservations for those units. That other vacation rental company will promptly try to poach these guests away from you, by the way.

    No.... vacation rentals are not necessarily easy. It can be done, and it can be lucrative... but you do have to work at it.
     
  22. lighthouse_man macrumors 6502a

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    #22
    OK then I'll take your word for it.
     

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