Different Paths to Reach Similar Goals

Some people rent and some people buy, and very often both groups have similar goals: retire early with good cash flow and provide for their children’s futures. One …

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Some people rent and some people buy, and very often both groups have similar goals: retire early with good cash flow and provide for their children’s futures. One commentator notes that the American Dream of homeownership has waned in recent years as U.S. homes have proven to not be the store of value they once may have been. Even so, there is no right or wrong answer on how to navigate life and investment, and success is only measured in whether one attains the goals she or he has set. For more on this continue reading the following article from TheStreet.

Where I live (Santa Monica, Calif.), real estate agents and locals draw precise boundaries between neighborhoods.

Single-family homes tend to populate the area known as "North of Montana." According to Trulia.com, the median sale price on North of Montana properties was $2,308,750 between March and May 2012.

The neighborhood where I live, "South of Montana," had a median sales price of $675,000 during the same period. You’ll find some single-family homes here, but condos and apartments make up most of the housing stock.

Given the economic makeup of the north-south community, it’s nice to see how well everybody gets along with one another, especially the kids. That said, it’s difficult to avoid at least a little snootiness.

Case in point.

A recent school event brought parents into the homes of local families. Upon leaving a presumably smallish apartment South of Montana, a North of Montana parent quipped, unknowingly to a (way) South of Montana parent, "I’m not sure how these ‘Southies’ live like this."

I got into a discussion with the friend who told me this. He lives in an apartment with his wife and child. We both agreed we really didn’t care much about where people lived and that, thankfully, comments like this tend to be isolated.

My friend did have an interesting reaction: The only thing he worries about is that, particularly as his son gets older, he might "feel less than," relative to the "Northies," particularly those who reside in multimillion dollar homes and estates.

As a parent and lifelong investor, I find this incident stirs up many thoughts and emotions.

Why We Work

We might be alike. I work hard for several interrelated reasons:

  • In nine years, when my daughter hits college age, I want her to have options.
  • At that point, I want college paid for, but, I would also like to provide her the flexibility to not have to jump right into college and/or work.
  • Within 10 years, I want to work less than I do today. I love the work I do, but I love other things in life as well. Working a little less down the line and doing the other things more sounds like a plan.

To get there, I save or invest pretty much every last dime after I take care of my financial obligations.

Ever since I moved away from my hometown of Niagara Falls, N.Y. (which is now even more famous thanks to Nik Wallenda!), I have lived in some of the nation’s most expensive real estate markets, particularly San Francisco; Orange County, Calif; Los Angeles; and Santa Monica. I never bought into the notion of home ownership as the American Dream in these places. I hardly ever considered it a sensible option.

I never felt like I had enough cash to get the ball rolling on a purchase. And I never felt comfortable with the notion of the place you live in as an investment. I would rather have free cash flow every month to save and invest. I feel like I have a better chance achieving the aforementioned goals by taking that route and not putting every last dime into a mortgage payment and ownership-related expenses.

More people seem to agree with that sentiment today, in the wake of the housing crash, than a few years ago when homeownership was the cornerstone of the (runaway) American dream.

I know people who live off the income they generate each week and/or month writing Apple covered calls.

I prefer that type of financial security over living to pay a mortgage and all of the other, often out-of-the-blue, costs associated with home ownership.

Sure, the well might run dry on Apple someday, but there will always be an opportunity to replicate a similar income stream if you have the capital to make it happen.

I’ll keep my money in that type of asset any day of the week over the relatively illiquid dwelling that ties up my cash for the purpose of shelter.

Last week I wrote an article titled My 8-Year Old’s Portfolio Will Kick Your Portfolio’s … — about the custodial account I set up for my daughter.

We dollar cost average into shares of Kraft, Viacom and Madison Square Garden. I promised to update that portfolio so, here it goes, as of Friday’s close:

  • KFT, + 0.74%, VIAB, + 2.17%, MSG, + 1.65%
  • Portfolio value: $1,015.14, +1.51%

Although it’s helpful to be transparent about performance and such, that’s really not what I take away from the process. It’s more about what we’re building.

When my kid turns 18, she might not be able to live off income from covered calls or dividends, but she’ll be a lot closer than many other "Southies" and probably a lot closer than quite a few "Northies," who probably should have stayed "Southies."

It’s about priorities. Why do you work? Why do you save? Why do you invest? Why do you buy a home? There’s no right or wrong answer to any of those questions. It’s about personal circumstance and experience as well as your goals and outlook on life and the economy.

If we buy property, it will be all about cash flow: Live in a unit, rent out the other one or two. I do not view home ownership as a workable proposition in this market unless it’s the type of investment that generates cash, rather than just a place to park it.

Given that I am self-employed (and my wife takes a traditional wage), the tax benefits of ownership (and being a landlord) will not hurt either. But, limiting the debt I am on the hook for every month will always be a priority. I prefer to let somebody else pay it for me.

Southie. Northie. Who really cares? At day’s end, it’s not about what you have; it’s about where you want to go and laying out a plan to get there.

Never make assumptions about the guy who drives a used car and wears the same clothes every day. He doesn’t keep up with the Joneses, but that doesn’t mean he’s not investing for his child’s future.

This article was republished with permission from TheStreet.

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