If you think about it, you really have only two options. You can blow it on something that wonâ€™t make you money, but may bring you some kind of happiness, for example a new car or a LCD HDTV Television. Or, you can use that money to make more money; much more.
If you had decided to deposit the $25,000 in a long term CD, earning you 10% interest per annum ten years ago. You would have just about $50,000 right now, doubling you initial investment.
Photo credit: Cristian Andrei Matei
Putting your money into something that will make you more money is always a good idea, but the problem many people have is that, they do know what are the best investments. Itâ€™s my hunch that the Caribbean will soon experience a real restate boom, so my vote is still on real estate as the #1 form of investment.
Here a hypothetical example â€“ Itâ€™s 1997, you have the same $25,000 to invest. Someone approaches you with the opportunity to be a partner with him on a 6 unit office building in, say, Bridgetown-Barbados. You each will put $25,000 in as a down payment; youâ€™re able to buy a building worth $370,000 (25% down payment, 75% loan from the bank).
Over the past ten years the Bridgetown (Bâ€™dos) market has seen appreciation of 150%. So, in 2007 your building that you bought for $370,000 is now worth $925,000.
This is why real estate investments can make you a ton of money: leverage, appreciation, income, and tax savings. Now all youâ€™ve to do is find a way to make 25,000 🙂
Investing is a good idea. But the investment must be prudent, and this post mentions nothing about risk. Also, the math in it does not make sense to me, and certain info, such as the interest rate on the bank loan, is not given. This is not trivial stuff. However, the concept of thrift and especially of “delayed gratification” (the engine of class mobility) is very, very important.
The figures in this post were all made-up by me…an hypothetical example in other words. 😮 And there is nothing about bank interest rate…(25% down payment, 75% loan from the bank) – this means the partners put up 25% of the money as a down payment and the bank put up the remaining 75% to buy the building. Remember this is an hypothetical example ❗
It’s also important to note that you’d have paid down only about $100K of the loan principal in 10 years. Even without figuring the net present value of the payments (your costs), your gross profit has been reduced to about $350K. Now subtract the principal payoff of about $270K and the net looks like about $80K (and that’s before figuring in and deducting all of your net expenses). The investment doesn’t look so sweet now.