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Friday, August 28, 2009

Save Thousands For Your Retirement With Someone Else's Money

By Julie Broad

I am the big sister to two kid brothers. Like any older sister, I worry about my brothers, even now. Most of all, I worry about their futures. The one closest to my age is the one I worry about the most lately.

My oldest brother is a gifted carpenter. He used to be a chef and he was very good at that too. He is also great at rebuilding and repairing cars. His skills, patience and attention to detail are remarkable. However, this is not true when it comes to how he manages his money.

As he is only in his early thirties, he's happy to keep working for the next 30 years, but I do worry about the fact that he's only saved a little bit for his retirement. None of us can rely on pensions or government funding to support our retirement anymore so we all should start thinking about our futures today!

I don't want to see my brother in financial trouble later, so I decided to help him with his finances. There was one part of his lifestyle that was glaringly obvious to me that needed to change- he owns three cars. I explained to him if he sold one and put that money into savings, not only would he have the money from the sale, he would be able to save an additional $500 a month.

He can also take on side jobs. People are always asking for help with building fences or kitchen renovations. He doesn't have to work every weekend, and in a year he could have enough saved to put 10% down on a beat up house could be bought for around $200,000.

If he lives in the house while he's fixing it up, he can save even more money. Once it's all fixed, he can rent it out for about $1,400 per month. It's at this point he would buy a primary residence where he will live.

Now, keeping this really simple, lets look at what my brother has when he retires in 25 years:

If his repairs add $25,000 in value and the house appreciates by 4% every year, then in 25 years it'll be worth approximately $576,743. That means that his original investment has almost tripled in 25 years! Imagine- $1,900 a month of someone else's money going toward his retirement ($576,000 divided by 25 years divided by 12 months)!

Even if the property doesn't appreciate by 4% each year (which has historically been the average), his tenants will have paid off his mortgage in 25 years. And, he will still be able to enjoy profits from the rental income each month (his positive cashflow from this one property could increase to as much as $2,350 each month if rent and expenses increase 4% each year for the next 25 years as well).

Also- in 25 years he will have the home where he lives paid off as well. The two properties should give him over $1 million in equity. That's a nice number for retirement- especially nice when the majority of the retirement savings was contributed by his tenants over the years!

When I explained this to my brother, he sold one of his cars! And with the money he earned helping us with our property, he's already putting together a nice little down payment for a home. - 23212

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