I’m an older sister with two little brothers. Like any big sister, I worried about them when they were little and I worry about them now. Lately I’ve been worried most about my oldest brother and his future.
My brother is very gifted at things that require the use of his hands, a lot of patience, and great attention to detail. He’s been a carpenter, a chef, and has also rebuilt cars. He’s amazing at all of it. However, he is not so skilled when it comes to managing his finances.
He’s only in his 30s, so he foresees that there’s lots of time left for him to continue working and saving for retirement. He makes up for the fact that he practically has nothing saved by using his age as an excuse. That’s why I worry- the government isn’t going to take care of us in our old age and pensions are mostly a thing of the past. If he doesn’t save something for his retirement, he won’t ever have enough to retire.
As his big sister, I decided to help him out by making a plan. My brother has three cars, and he certainly doesn’t need all three. I convinced him that one of the cars should be sold. The money he makes from the sale can be put into a savings account, and he’ll also be able to start saving about $500 a month.
Side jobs are great source of extra income and carpenters are always in demand. Building fences and helping with kitchen renovations could also add thousands of dollars into his savings in a short period of time. The savings can then be used as a down payment to buy a fixer-upper which could probably be purchased for around $200,000.
Since he is a carpenter, he can even buy a house that has been listed as a “handyman’s special”. If he lives there while he’s fixing it up, he can save even more money. After a few years he can rent out the house for about $1,400 a month. Then he should buy and move into a different property.
Fast-forward 25 years – let’s see what he has to show for his investment.
Assuming he adds about $25,000 in value by fixing the property up and the property appreciates by 4% each year, in 25 years his investment property will be worth $576,743. And ” his tenants will have paid the mortgage off for him! It’s almost like someone else was putting nearly $1,900/month into his retirement savings plan for him ($576,000 divided by 25 years divided by 12 months)!
If you’re wondering where the 4% comes from, properties increase in value on the average of 4% every year, even with ups and downs in the real estate market. But even if it doesn’t increase quite that much, the tenants have still paid off the mortgage over the 25 year time span. The rent from the property that he continues to collect (which would be up to about $2,350/month if rent and expenses increase at a 4% rate as well) will go directly toward his retirement.
In 25 years, he will have his own primary residence paid off as well. If he owned nothing else but these two pieces of property, then he will have about $1 million worth of property for his retirement. Doesn’t that seem like a simple way to have other people help you save for your retirement?
So are you wondering what happened to my brother? He followed my plan, sold one of his cars, and now he’s doing side jobs and saving up for a nice down payment for his first investment property.