What is The Cash Flow Lifestyle?

What Exactly is The Cash Flow Lifestyle and Why Is Cash Flow So Important?

As I originally explained in 2011 with What Would You Do With A Million Dollars, the United States went off the gold standard officially in 1973. In short, the US Dollar was no longer backed by gold. Instead, the US dollar was merely ‘worth’ whatever the US Government said it was worth.

When the US and the Allies won WW2, the Bretton Woods conference put the US in a position unseen before in the history of society. The result was that the world, minus the US, was destroyed and needed rebuilding. The US lent all the major countries money forcing all major countries to tie their currencies to the US Dollar, which at the time was backed by actual gold.

Not after 1973. As a result of the Vietnam War, and decades of not having to worry about fiscal policies that made sense, the US was in a position where it needed to create more money that we had. Since money is simply the belief in a system that essentially isn’t ‘real’ anyway, who was going to question us?

Gold Spot Price

Click Here for More Information about The “Nixon Shock”

So why does this matter? Well for you, it means everything you have been taught about money is outdated and wrong. Maybe not everything, but for the sake of arguing lets just start over from the beginning and go from there.

The world we live in now punishes savers and rewards investors. Example? Too Big To Fail rewarded all the greedy wall street crooks and punished you. (Click Here for an INCREDIBLE book on this story.)

The world we live in now rewards people that borrow money. Yes, if you borrowed money to buy 4 houses you couldn’t afford in 2006 you were punished, but that was dumb because you should never buy something you can’t afford. But if you have debt at a fixed interest rate, it gets cheaper over time, just like your savings gets cheaper over time if its not tied up in an income producing asset like stocks or rental real estate.

Mutual Funds are a terrible investment. Most people invest in mutual funds because they have heard of them before and they like the idea of choosing between “aggressive and moderate” instead of putting thought behind where their money goes. But why are they so well known? Could it be because mutual funds spend a lot of money promoting themselves? Where does this money come from? (Click HERE for a GREAT book on this topic written by Tony Robbins.)

The Government raises money by selling bonds, then repays them by printing money. This is the simplest way to understand the current system. No, we won’t ever default to China because we can just print more money and pay them off. Other countries don’t have the luxury as their money is tied to ours, and because oil is also priced in US Dollars.

So what does it all mean?

If you have savings in a bank account, you are losing about 3% of its value every year to inflation. if rapid inflation hits, which is pretty likely given how much money we have been printing since the recession, then your savings will be hit even harder.

If you are investing in a mutual fund and ‘have a guy’ that manages it for you, then you are in the same position as a savings account but with more people charging you fees.

What should you do?

Focus on your cash flow. Focus on more money coming in than going out every month. You don’t have to start the next Facebook or Uber, but you should consider businesses and projects that can generate a few hundred or thousand dollars a month for you.

The greatest tool that every American has for building wealth is access to a primary mortgage as I explain below:

http://www.youtube.com/watch?v=OyAaB-87loE

(Also, read this when you have time: Investing in Stocks vs. Real Estate)

Your primary mortgage is the best loan that you can get and is secured by an asset. You have to live somewhere and its important that you own your residence. Some residences are better than others when it comes to investing, but we are speaking in generalities for the time being.

When it comes to your savings and retirement, stop thinking big pile of money, and instead think of income stream.

How can I make more money next month than I made this month is a question I ask myself every month. Even if its just a few more dollars, every little bit matters.

When I invest in stocks, I look for stocks with dividends.

When I invest in real estate, I look for cash flow rentals.

When I start a new business I ask myself how long do I need to work on this until I can walk away and have it still produce income?

The Problem With Trying To Save A Big Pile Of Money:

  • How big of a pile of money do you need?
  • Is this pile getting bigger while you sleep, or if you are sick, or if you are traveling? Or is it getting smaller because of inflation and people charging you fees?
  • What is your end goal? To retire and start spending money from this pile? What if you out-live your pile (which should be a good thing) or what happens when you get older and your cost of living actually rises so your pile shrinks faster than you thought?
  • Is your solution to turn that big pile of money into income at retirement? Why wait? Why not start now? How much income will your big pile of money produce anyway? What if you found a way to produce that with passive income so that your pile never gets smaller and you could retire sooner? This is The Cash Flow Lifestyle!

The Cash Flow Lifestyle:

  • Focus on your passive income! Passive income is money that comes in every month for work you have already done. This can include:
  • Pay Yourself First! As long as you pay yourself first and invest that money for future you EVERY month, you can then spend what is left over. Budgeting sucks, and study showed that even financial planners don’t budget. Its too hard. Instead, as long as you pay yourself first you are free to spend what is left over. If nothing is left over, then shit, don’t spend anything that money and work harder for next month.
  • Invest in Yourself! We live in the most incredible time right now. All the information you could ever want is available to you for free. Well, mostly free. You still need access to the internet which can cost money as well as a computer or smart phone, but guess what? These can be investments! Don’t be stupid and buy things you can’t afford, but also don’t skimp on things that could help you get better, smarter and eventually wealthier. (Start here: (Cash Flow Resources)
  • Never Stop Educating! It doesn’t matter how old you are, school never ends! If you have a job you need to know everything about that job so you can get better, then more valuable and eventually invaluable! You do not need to go to an actual school to do this, the skills matter more than the degrees. (Read: How Much Is Too Much To Spend On Knowledge?)
  • The Power of Compounding Is Your Salvation! Whether its your personal life where you decide to make better decisions with your health and money, or your financial life where you commit to investing in dividend paying stocks for the next 20 years. (For better life choices and the impact they will have on your life read: The Compound Effect by Darren Hardy

What’s the point of all this?

The old way doesn’t work anymore. Relatives that lived through the Great Depression urged saving because they know what can happen when times go bad. But that was before 1973 when dollars yesterday were worth the same tomorrow.

Now you need assets. Preferably income producing assets.

If your goal was to save $1,000,000 so you could ‘invest’ it and return 5%, that means $50,000 a year or just over $4000 per month. How long would it take for you to save one million dollars? Assuming nothing went wrong, whats your best case scenario?

By the time its saved, what has inflation done to it? Assuming a best case scenario of 3% a year for X years, how much value is that one million dollars really?

Then assuming all this went as planned, how are you going to turn your million dollars into $50,000 a year? Are you just going to give it to someone and hope for the best? Is he going to charge you? (Yes he is) How much? Will he pay you if he loses your money? (No he isn’t)

If this doesn’t sound that exciting to you then you aren’t alone.

If you are ready for a lifestyle change then you aren’t alone.

You do not need to be an expert to start investing, but you must start investing if you ever want to build wealth.

Do you want to build wealth?

 

Or keep doing what you have been doing and keep getting what you have been getting.

http://www.youtube.com/watch?v=LNuEkgK0nus


Back When I Was Lucky: Unemployed, In Debt, And Living With My Parents

I look around and I don’t think I have ever met anyone as lucky as me. Yes, I was born in America, so I already won the lottery, but it gets better!

I was born in 1984! Why is this important? Because this meant if I followed societies expectations, I would graduate high school in 2003. And I did!

Stay with me…

Because I graduated high school in 2003, this meant I began college a few months later in the fall of 2003. Despite spending a few quarters (University of California Schools are on the quarter system, not semesters) on academic probation (including a personal letter I had to write to the Dean begging to keep me enrolled), I managed to graduate in 4 years, meaning I entered the workforce in 2007!

Do you remember 2007?

In real estate history, 2007 is not looked upon as a positive year. In fact, most of our economy doesn’t look back on 2007 fondly.

You can trace back the peak of the housing market to between 2005-2006, depending on which part of the country you are looking. Prices kept skyrocketing… until they stopped.

Think of 2007 as Wiley Coyote from The Looney Toons cartoon. Prices are about to collapse, but as long as nobody looks down, everyone can buy themselves a few more seconds of ignorance and stability.

So here we are, it’s 2007 and I enter the workforce! Corporate America here I come! How lucky am I?!

I am hired as an assistant marketing consultant for an environmental consulting firm. Sounds pretty neat right? It wasn’t.

But lucky for me after I returned from a 2-week training program in Indianapolis (I was based in Newport, California) only to discover that the boss who hired me had left the company!

How lucky!

So now I had several bosses! Thats cool right? And no ‘real’ job description any more. Thats sustainable, right?

Here’s the thing. I hated my job. I hated my job more than you have ever hated a job. I don’t need to go into details about how I travelled 25 days a month, worked 60-80 hour weeks for extremely low pay while living in a very expensive city that I barely saw except when I was flying into and out of John Wayne Airport, LAX or Burbank (depending one whichever was cheapest or involved the longest layovers).

It is very possible that the greatest attribute any entrepreneur can have is a complete disdain towards working at a job. I consider myself very lucky to have this attribute.

Did I mention I was a coward?

Maybe coward is too strong of a word, but maybe it isn’t. I absolutely despised working at this job. My friends saw it in me.

I was terrible to be around, and any free time I had was usually filled with a lot of alcohol. It went on like this for WAY longer than any sane person should allow.

I was completely unappreciated and at any time I could have put a stop to it.

(My wife and I are currently watching Orange is the New Black on Netflix, and all I can compare it to is voluntarily getting up every morning and driving to prison for the day, only to do it all over again the next day.)

So why would I do this? We already established that I was a big fat scaredy cat.

Was it fear of the unknown? What would I do for money?

What would my friends think if I was unemployed?

What would my parents think if I quit my first job?

What would my mom think if I no longer had health benefits?

Whatever it was, it was strong enough to keep me doing something I despised for quite a while. But good thing I am lucky!

By the time the recession reached the west coast, my company had seen at least 3 rounds of layoffs before it was my turn.

I have touched on this before, but I was legitimately “Up in the Air”d.

It wasn’t as bad as getting fired over the computer, but it was a 3rd party company doing the dirty work.

So its 2008. Mid-Recession. I am 24 and unemployed, so I moved back in with my parents! How lucky!

All of these things were happening to me, (for me), and I had no control over them. I was too afraid to quit a job I hated, but was eventually fired! How many people get to experience this level of good luck in their lives? I assume not many.

But I did!

2008. Crazy recession going on. Living at home with my parents, back in Scottsdale and out of California where all my friends and “business connections” resided.

All of my biggest ‘fears’ had come to fruition. How lucky!

Do you know how freeing it is to be so afraid of something, and then to experience it?

Its pretty hard to be afraid of hitting rock bottom if it means moving up a level.

Armed with my only attribute of “never wanting another job again”, I decided I would never have another job again. What was the worst that would happen? I’d end up at home with my parents at 25 instead of 24?

So I took a risk. And then another. And then another. Now these were very calculated risks. In fact, they weren’t really even risks.

After studying Robert Kiyosaki for a few years, I was well aware that he made  lot of money in real estate after the savings and loan crisis of 1987. In fact, he did it in Phoenix. Phoenix is where I was, and there was a new crisis. How lucky!

I begged, borrowed, and stole all the money I could find, in order to buy single family homes in Phoenix. People told me I was crazy to be buying houses. Today, they tell me how lucky I am.

I tell them, I know!!!

I was born in America in 1984. The way the American education system is aligned, this meant I graduated from college after 4 years in 2007. There was a global recession underway that I had no control over. It didn’t start earlier, it didn’t start later.

I was fired from a job I was too afraid to quit.

At age 24, unemployed and a complete failure, I moved back in with my parents.

No one is luckier than me!

In the following years; several companies founded, many houses bought, rented and sold, websites developed and books in the pipeline, a loving wife and beautiful family. All because I am nothing but a big scaredy cat. At least I was.

And no one is luckier than me.

 


So You Want To Be An Investor? Don’t Quit Your Day Job

 

Don’t Quit Your Day Job

I often get asked “Where should I start?” or better yet, “What would you do if you were me?”

 

If I were you? I would get started immediately! But that doesn’t necessarily mean investing in Real Estate. Here’s why:

I cut my teeth in the Real Estate Investing game at the perfect time to be in the Real Estate Investing Game. I knew this at the time because everyone told me how stupid I was for getting into real estate in 2009.

This was a combination of being introduced to the right books at the right time, investing my savings and income made from my first company into Kiyosaki Real Estate courses, and eventually just pulling the trigger on my first property purchase.

I was VERY fortunate. All of these factors had to come into play at the right time for me to succeed. Not to mention I was born in 1984, graduated college in 2007, and then fired from my corporate job in 2008. If I was born a few years earlier and things were different, maybe I would have invested in real estate at the worst time ever.

I know I am lucky, but I also know that I was willing to take the risk when others wouldn’t.

However, risk taking is easy when you are unemployed and living with your parents. It gets harder in your 30’s when you are married with 2 kids. I get this.

This is why I am very cautious when people ask me how they should get started investing in Real Estate. You can do all the homework in the world, but eventually you will have to pull the trigger.

So before you do, make sure you have the following covered:

It Must Cash Flow!

What does this mean? You should know by now, but if not here is a refresher. It should put more money into your pocket every month than it takes out.

If it doesn’t cash flow after mortgage, taxes, insurance, property manager fees and miscellaneous repairs, than it isn’t an investment. Its a liability. Even if its losing just $100 a month, you try and convince yourself its a good thing because  of  appreciation, and taxes and blah blah blah.

The problem with losing money on an investment is
A- It’s dumb to lose money on an investment
B- How many of these “investments” can you afford if its losing money every month?
C- You won’t get rich by losing money.

Which brings us to number two:

You Are Going To Use A Property Manager

I don’t care if you only own one rental property, use a property manager. If you don’t, you will never buy number 2. Trust me. I see it countless times.
Or if you end up being the exception to the rule and do purchase a second rental property, you become a full time land lord and your other income producing projects suffer or become non-existent.

You are investing in Real Estate, you are not switching job careers to property management.

Your Best Course of Action is to Purchase a Primary Residence, and then Rent It Out

The best wealth tool that everyone in America has access to is your mortgage on your primary residence.

It’s the best interest rate on any loan you can get, and its secured by real property. And you get access to a couple of these over your lifespan if you are smart about it. So be smart about it.

Don’t Quit Your Day Job

If you want to be a writer and you aren’t writing every day then you don’t really want to be a writer.

If you want to be an investor and you aren’t reading on your lunch break, listening to podcasts and audio books during your work commute, and attending seminars on the weekends, then you don’t really want to be an investor.

How will quitting your job make you a better investor? It wont.

So whats the secret to investing? Working your ass off. There is no free time. Time is money. Time is Valuable. Time is a rare asset.

Never in the history of the world has there been so many different ways to make money for anyone at any time in any country.

Before You Invest In Real Estate

Ask yourself why do you want to invest in real estate.

Seriously.

Ok, then read this: “Why Do I want to invest in Real Estate?”

Answer: Because I want passive income and investments.

Then ask: “Why do I want Passive Income and Investments?”

Answer: “So I have the freedom to live the life I choose!”

Lastly: “What Life would I choose if I could?”

Answer: (This is where you come up with your own answer)

Does your 3rd answer line up with question number 1? Then great! You should start investing in Real Estate ASAP!

Does your 3rd answer describe something else that has nothing to do with Real Estate investing?

Well then maybe real estate isn’t for you? I am learning that it isn’t for everyone. But that’s ok, because only 64%-68% of the American adult population historically owns real estate, and that includes the real estate boom of 2006.

Maybe what you really want is to travel the world. There are other ways to generate income that will allow for this. Maybe you can intern at an embassy in a country you want to spend time in? Don’t need to own real estate for that.

For me, real estate made a lot of sense, and still does. But we are also not in the same market we were before. This is why I also diversify into stocks and other small business opportunities.

If you plan on spending more than a couple of years in any one place, I highly recommend buying a home and renting the rooms out. If you have a family and this isn’t conceivable then I recommend buying a home and in a few years moving to another one and keeping your first as a rental.

If you can do this every 3 years imagine the position you will be in after a short decade. The time is going to pass by anyway!

Make these types of decisions as early as possible.

Or don’t. Just keep doing what you are doing and keep getting what you have been getting.

What do you think? Love this? Hate this? Let me know!


Investing in Real Estate Vs. Stocks: Which is Better and Where Do I Start?

Real Estate vs. Stocks: The Final Showdown?

Facebook Question

The problem with answering this question is like asking a person which is better: sports or music? For each individual the answer will vary based on experience, preference and/or internal desires.

Additionally, how broad of a statement this: Which is better: sports or music? Better at what? Better how?

Same goes for Real Estate and Stocks.

Confused yet? Let me explain:

Advantages of Real Estate over Stocks:

Real estate is one of the best, if not the best, ways to build wealth in America. This is due to 2 important factors. Leverage and tax breaks. No other investment option provides these two factors which allows an individual to build wealth faster than any other investment.

But to clarify, these tax breaks and leverage opportunities for the individual only apply to your personal primary residence. Or in other words: your home. However, the term ‘Real Estate’ includes commercial properties, industrial, retail, apartment buildings, in addition to residential real estate. So when someone asks me “Which is better, stocks or real estate?” the first thing I have to do is explain the myriad differences.

  1. Buying your first home
    1. FHA loans 3.5% down payment
    2. 10-20% down payment conventional
    3. Investment properties 20% typically
    4. Mortgage limits, much tougher after 4 mortgages
  2. Buying investment properties vs. trading up your primary residence (2 years)
  3. Power of Leverage
  4. Tax Breaks of Home Ownership (Mortgage Interest Deduction)
  5. 1031 Exchanges.

The same broad confusion goes with stocks.

  1. ETFs
  2. Mutual Funds
  3. Stocks
  4. REITS
  5. MLPS
  6. Index Funds.
  7. Tech Stocks, Retail, Energy, Consumer.
  8. Dividend Stocks vs Growth Stocks.

Advantages of Stocks over Real Estate

To start: you can begin investing in stocks at a much lower cost than real estate. Investing in any type of real estate requires more capital, but with stocks you can open up a brokerage and begin investing with a few hundred dollars.

Stocks are also liquid investments, meaning you can liquify, or sell,  your stock portfolio quickly if you need to. However, this can be both good and bad. In times of panic everyone can liquify. This is why the stock market is more volatile than real estate, meaning it can rise and fall at a much faster rate.

“If the biggest investment you ever make is purchasing your home, then you are doing it wrong.” Your home will be a very large investment indeed, but it cannot be your biggest and/or only investment.

There is no one piece of perfect advice to give, when it comes to starting your investment portfolio, because times change markets, and regions impact results.

For example, the Phoenix Real Estate market is much different than that of New York City. And while I may like certain stocks today that I would adivse others to get into, you may be reading this a year from now and new information may have presented itself to change market conditions and provide better opportunities elsewhere.

This is what makes The Cash Flow Lifestyle such a crucial concept in your path to financial freedom. There are a few guiding principles to live by, thus a lifestyle, but there is no “end all be all” way to live it.

Every major real estate investor I know also has a very large and diversified stock portfolio. Same goes for all the major stock and bond investors I deal with in regards to owning real estate.

There are a few younger stock investors I know that still prefer to rent and stay out of the real estate market, but when I talk to them about why, its usually because they are still waiting on they type of home they want to buy  to become available, and also because their way of life depends on having a large ammount of capital working for them in the market.

Similarly, fix and flip investors I have worked with have so much money tied up in their projects that they have yet to diversify into more liquid investments, like the stock market.

However, keep in mind these are two examples of people still working for their money as opposed to their money working for them. There is money that can be made fixing and flipping houses, but no matter what anyone says, it is very capital and time intensive work. I know.

And for those who argue day-trading is a path to working your own hours and setting your own schedule, this is true if the schedule you want to set for yourself is 8-10 hours a day of studying and researching the markets.

There are easier and better ways to make moey, but society has an obsession with house flippers and day traders. But remember, these are jobs, not passive investment opportunities.

One question I often struggle with is when a  person I have never met asks me what it is I do. This is because I do a lot of different things, mostly looking for market inefficiencies and then capitalizing on them. But this is too much to explain at a cocktail party. The most positive response I ever got were the years I was flipping houses. It was as if I told them I was a cowboy from the wild west.

“Isn’t that dangerous?” They would ask.

“Isn’t that risk?y”

“Do you have your own TV show?”

“Yes, Yes, and no. What I do is too dangerous for TV.”

I am not too proud to admit that there were times I wanted to keep flipping houses just for the mystique that came along with it. Even as margins were dropping and I was working longer hours for less money. But don’t be fooled by the late night infomercials or the scammy-looking Facebook ads.

Even the successful day-traders and home flippers work long hours, spend a lot of time researching, and have a lot of their personal wealth tied up in their investing. Oh, and of all the people I have met who tried day trading and flipping houses, very very few were successful over time. And all of them have at one point or anther lost a lot of money. No successful investor hasn’t.

So which is better: Stocks or Real Estate?

Hopefully I have explained how impossible this is to answer. Remember the analogy of which is better music or sports?

The answer is too subjective.

Athletes listen to music and entertainers sit courtside at sporting events. A good mix of both is best.

Stock investors own homes and a real estate portolio and real estate investors keep liquid assets to fund their businesses.

Finding the right balance is key. But balance is difficult when you are first starting out.

Real Life Advice:

Too many books and blogs out there spend too much time dodging actual advice. Although I spent the last 20 minutes explaining how this question really cannot be answered, let me know explain what I would if I were starting from scratch today:

I am opening a brokerage account (e-trade is what I use) and putting at least 10% of my income into stocks every month. If I am very risk adverse, I am buying Vangaurd Index Fund. If I am more educated and searching for cash flow, I am buying dividend stocks, starting with energy companies followed by REITS. (I am investing in energy companies with a proven track record of growth and dividends. This can include producers, transports and pipelines. I am not investing in new tech like renewables and solar/wind.)

I am also looking to buy my first house, 3 bed 2 bath single family home somewhere close to where I work or maky my living. Depending on the numbers (purchase price, taxes, interest rates, going rents) I am purchasing it as my primary residence to get the best loan and tax breaks out there, and then I am going to rent out the two spare rooms.

After 2-3 years I am going to look for another home and do the same thing. When I move I am going to continue to rent my first home out, but this time all three bedrooms. This only works if the rents are covering all my my expenses, however. So its very important you run all of these numbers and scenarios from day one. It might make more financial sense to put more money down on your purchase, so that your monthly expenses are lower (usually avoiding mortgage insurance premium is your best bet.)

All the while I am putting 10% of my income into the same stocks.

I am going to continue to do this for 10 years. This means after 10 years I should own three houses, and a cash flow producing dividend stream in my stock portfolio. The stock market has most likely risen and fallen 5-25 times during this period.

I didn’t notice though, because I was just focusing on my 10% into stocks every month and looking for my next real estate investment. There are times where I will fund my real estate investments with money or income from my stock portfolio. This is why I have my stock portfolio.

There is no reason that this strategy will not work. If it won’t work in your part of the country then move. If you can’t invest 10% of your income every month then stop spending money on other crap. This strategy does work, but only if you are committed.

This is a 10 year plan that anyone can follow. This was my first ten year plan. It works.

Some mistakes I made along the way that you can avoid, and also advice to adhear to:

Avoid condos. Maybe there is an instance where they make sense, but they will never appreciate as well as single family homes and you are always at the risk of the HOA raising its costs. This cuts into your cash flow deeply and is tough to predict.

Work with people and professionals that have your best interest in mind. Then question why they might have your best interest in mind. Usually only you will have your best interest in mind, which is why you need to invest in yourself.

Never stop educating. If you are in a career, attend every conference, seminar, read every book and watch every youtube clip on your profession. Be the best at it,  most educated and most driven. Become irreplaceable. Become the person people want to follow. Whether you leave companies, careers, it doesn’t matter. You are being paid to learn, so invest a little extra in yourself.

Learn other skills as well. Learn how to write better. Or learn how to make youtube videos. Learn how to understand Facebook or other new technologies. There are hundreds of books on every topic. Read them. Get an amazon kindle unlimited subscription and read ebooks all the time.

Your industry has changed, is changing, and will change much more, in the next 10 years. Be prepared for it. Or better yet, be the reason it changes.

Keep the focus on your why. Sometimes times get tough, stick to the plan. Sometimes times get really easy. Stick to the plan. Sometimes you get so tied up in your sucess and achieving goals you may forrget why you are working so hard in the first place and instread just work hard to get better or to beat your competition. Remember your why.

So Real Estate vs. Stocks, which is better?

They both are.

How could this article be better?Like this? Hate this? Let me know! www.twitter.com/skyler_irvine

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Do NOT Borrow Money To Purchase A Car: The Next Sub-Prime Collapse is Around The Corner

Do NOT Borrow Money To Purchase A Car:

Have you seen these new cars? I’m talking about anything American made since 2014. They are unbelievable! The computers, the comfort, the luxury. American cars have caught up to if not surpassed their foreign luxury counterparts.

But have you also seen these prices?

F 150 Yukon Jeep Cherokee Tahoe

Unless you have the cash to pay for these, do not buy them! And if you have the cash to pay for these things, invest it!

Don’t Listen to Me

Don’t listen to me of course. I’m a hypocrite.  I just bought a new car. A Jeep Cherokee in fact. But if you read this: “Saving vs. Investing As I See It” you will learn that I buy cars a little differently. You see, in 2010 I wanted a new car. And not just a new car, but a really nice new truck.

But I had a really tough time committing that much money to a depreciating asset. But, I also really wanted it. This is a problem some people have and some people do not. I’m the type of person that wants things. Not all the time, but sometimes.

Some financial ‘experts’ will tell you to get rich you can never go out for a cup of coffee, you must buy used Geo Trackers with high mileage, live below your means your whole life and then die rich.

Geo Tracker Convertible!

My problem with this has always been that I know you can live richly while also being smart about money. I like going out for a cup of coffee, I like new cars and I like living below my means while also raising my means extremely high so I can live an enjoyable life.

So in 2010 I saved up the money I needed to purchase a brand spanking new Ford F-150 Platinum. But then I didn’t buy one. If you read the article mentioned above you will remember I instead bought a house. I put all the money I had saved up as a down payment on a rental property. That rental property at the time yielded about $450 per month after mortgage payments, insurance and property management fees.

That $450 per month became my car payment. So I got my truck, and used an appreciating asset that cash flowed every month to do so.

So what happened over the next 5 years? Well, I bought a few more cars. I, of course, only had one at a time, but life events kept causing me to want a different style of car.

2 years after I bought that rental and then my pick-up truck, I bought a new house for myself. The problem was that the truck didn’t fit inside the garage! Can you believe that? So after a couple weeks of parking on the drive way, in Scottsdale Arizona at 115 degree temperatures, I decided I needed a car that would fit inside the drive way.

So I traded in the truck for a sports car. I had equity in the truck from paying it down, and my new car payment was, you guessed it, less than $450. My appreciating asset once again foot the bill.

A couple years past, and a couple cars later, that appreciating asset has appreciated quite a bit! In fact, the rent has also gone up meaning more monthly money in my pocket.

In a Perfect World

Listen, I get it. In a perfect theoretical scenario I should have bought that used Geo Tracker in 2010, paid cash and reinvested that $450/month into something else. But the thing is, I wanted the truck. So I found a way to get it. Then I wanted a sports car. So I found a way to get it.

Then I got married, had my daughter and have another on the way, so I found a way to get the family SUV I wanted.

And the best thing is, I still have that appreciating asset. It still cash flows, and it still appreciates. I also have several others for other things I have wanted.

The Cash Flow Lifestyle is not about living below your means forever, its about raising your means to live the life you want. Its about discovering creative solutions to life’s issues. Life is not a perfect theoretical scenario where you can just not buy Starbucks for 10 years and end up rich and happy.

If Starbucks makes you happy, find away to generate $5 per day so your Starbucks is paid for, for the rest of your life!

Figure Out What YOU Want

I read all the books, blogs and articles. I listen to the podcasts. I know what other people say and teach. My best advice to you, the reader, is to not listen to me. But also don’t listen to anyone else. Take all of the information and define what is best for YOU.

  • Do you want to never work for someone else again, travel the country on Top Ramen, riding a bicycle, and clipping coupons? Then do it! You could probably start right now. It doesn’t take that much money.
  • Do you want to start a business doing what you love and generating enough passive income to have all of your necessities paid for? Then do it! Determine exactly how much you NEED to survive per month. Cut all unnecessary expenses, and determine exactly how much monthly income you need to earn to survive. I guarantee you it is much lower than you think. Get creative!
  • Do you like things? Enjoy travel? Have a passion for personal growth? Then get creative. Study all the entrepreneurs before you, learn what they did. Copy them when you can, improve on them when you need.

I started buying foreclosed homes in 2009 and everyone told me I was crazy. Those same people now tell me how lucky I was I bought when I did. Lucky? 2 years of sleepless nights, panic attacks, re-writing business plans. Re-running all my numbers. I don’t deny I am lucky, but I do deny that I just lucked into the opportunity.

After borrowing money from everyone and everywhere I could, I reached a point where I couldn’t get traditional financing any more. I had income, but no “job”. I didn’t fit into the box that mortgage lenders needed to check off to give me financing.

So I pivoted. I found Hard Money lenders. Hard Money lenders are like banks, except they need a lot less paperwork and charge a lot more interest. This only made financial sense to me because I was borrowing short term loans to buy distressed properties, rehab them, and then quickly sell. You have probably heard it called Fix and Flip.

Then the TV shows returned and the Hedge Funds showed up and put people like me out of business, so I pivoted again. I love Real Estate and I love helping people get rich. Helping people buy and sell real estate in my opinion is the best way to help people get rich.

So I partnered with a very experienced Realtor in Phoenix and co-founded The Myriad Real Estate Group a couple years ago.

My Fork In The Road

When I was laid off in 2008, in debt and ended up moving in back in with my parents, I became very depressed. I felt that I had hit rock bottom, failed everyone and at everything, I did the whole “good grades” thing, “get into a good college” thing, “get a good job with benefits” thing and then the whole “get laid off during the recession” thing.

I did all the things I thought I was supposed to do. All the things I was taught to do. All the things I was told my whole life to do. And I ended up depressed, with college debt and lost.

So I decided to double down and reinvest in myself. I really didn’t have anything more to lose. My parents were great and didn’t mind me living at home so I knew if I lost everything I would end up exactly where I already was. Put things in perspective.

I decided that if I could just generate a little passive income, I could move out of my parents house and just live cheaply. I was only a couple years out of college and knew all about living cheaply.

In 2008 I wrote down exactly what I wanted. To own my own house, buy my dream truck and have a dog. Just over 2 years later I had my truck, my own house and my dog.

And then it happened

Too make a long story long, what happened to me is what happened to the entrepreneur after he sells his company or the athlete that retires too soon. I wanted more. I didn’t work this hard to ride into the sunset at 25 years old. Although I had all the passive income I needed to live comfortably for as long as I wanted, I still wanted more.

Additionally, I felt I owed it not only to myself but to others. I was not the only one laid off during the recession. I was not the only Millennial sick of being the scape goat in the news, called lazy and looked down on for moving back in with my parents.

The reason it is so important that you write down exactly what you want is so you realize when you get it. 

At 25 I achieved what I wanted at 23.

At 30, I realized I had achieved what I wanted at 25.

As Tim Ferriss says, “There is less competition for the bigger goals.”

As Kanye West says, “Reach for the stars so if you fall you land on a cloud…”

Be You

We are all different and we all want different things. The philosophy of this blog and upcoming book (Coming soon! Sign up on my mailing list on top right of this page for early release!), is to help you get what you want. Learn from my experiences, both good and bad. Step outside of your comfort zone. Improve your financial well being; but also your physical and mental states.

Become a better you.

But most importantly, figure out exactly what you want.

I know a teacher  who works 9 months a year, saves and invests every month, and then travels the world every summer to exotic locations. I would call him rich.

I have another friend who owns two homes in California, one rental and one he lives in with an ocean view, married, works from home and has a dog at 30. I would call him rich.

What is rich to you? Its closer than you think.

What Does This Have To Do With Borrowing Money To Buy A Car?

I’m glad you asked! To make a long story longer, you need to start thinking differently. Steve Jobs told you to.

The old way of doing things is stupid. They told you to get good grades, go to college, get a job and keep it until you are 65. If that makes you happy then you probably aren’t reading this blog.

I have built a lot of my wealth in real estate, and I was able to do so because the market created an opportunity for me. This opportunity is very reminiscent of what is happening in the auto-market. Except this time I do not see an opportunity anywhere.

  • Remember all those sub-prime borrowers that were buying homes? They are buying cars now.
  • Remember all those new types of mortgages that were created to help people buy homes they couldn’t afford? Those are now 7-year auto loans.
  • Remember what happened when more people had more money? Home prices sky-rocketed. See current auto prices.

But with homes, they historically go up in value due to appreciation, inflation and location. With cars, they depreciate the second they drive off the lot. This means most buyers of new cars are literally underwater the second they get home.

Are they going to keep making payments if times get tough? Maybe they will, I don’t know. But when access to capital gets really easy, things get bubbly. And in a low interest environment, investors get greedy searching for yield. When they search for yield, they go into riskier investments… ie Subprime Borrowers.

And everyone makes money, until they don’t.

So What Does This Mean For You?

It means if you are in the market for a new car, look at a used one. If you have enough cash to buy one out right, consider alternative investments. Who knows, maybe you can find something that will buy your next few cars.

Or, if you are patient you might be able to get one of these very nice 2015 models for a lot less then today’s value.

Whatever you do, don’t just do what you think you are supposed to. You aren’t supposed to do anything. You aren’t supposed to go to college. You aren’t supposed to buy a home with a 30 year mortgage and you aren’t supposed to borrower money for 2 cars to put in your garage.

You’re supposed to be happy.

What makes you happy?

Maybe its a brand new car. And if it is, then by all means, borrow money to buy one.

 

Questions or comments? Find me on Twitter @Skyler_Irvine

 

How To Get Rich and Skinny in 30 Days!!! (But Not Really)

How To Get Rich and Skinny in 30 Days!!! (But Not Really)

If you want to lose weight you need to exercise more and eat less. Its really that simple. You can argue all you want about carbs, gluten free, vegan, whatever, but it really comes down to exercising more and eating less.

 

But people like complexity. People like to know more. People like to learn something from somewhere so that they can tell someone who hasn’t heard about it yet and say “You haven’t heard about…….????”

 

If you want to get rich you need to save more and spend less. Its really that simple. You can argue all you want about derivatives, option trading, IPO’s, whatever, but it really comes down to saving more and spending less.

 

But people like complexity… You can see where I am going I’m sure….

 

So why isn’t everyone rich and skinny?

We all know what we should be doing. Why don’t we do it?

 

Well, one reason is that we all don’t really know this. Or rather we do, but we convince ourselves it isn’t true. We argue about carbs and gluten free and then convince ourselves its too complex and difficult, and since we will never lose weight we should argue about how a “A Vegan Diet Really Isn’t Good For You” or “Running Is So Bad For Your Knees”, over a cheeseburger, large fries and a “diet” coke.

 

Same thing happens with your money. You are bombarded with the jargon, get rich quick schemes, “Don’t Miss Out on This Hot Stock!” articles, and of course my favorite: “Sign up now and I will teach you the Secret that Wall Street Doesn’t Want You to Know” seminars.

 

But really, just save more and spend less, every day, forever.

 

But forever is a long time.

 

30 Days

So why not just do it for 30 days?

 

Don’t budget. Budgeting sucks. Even financial experts that charge you money for their advice don’t keep budgets.

 

Just go one month. 30 days. Don’t do anything drastic, just spend a little less and save a little more.

 

Maybe cook dinner instead of going out? Or if you go out, just drink water instead of soda or alcohol. Or if you are at Starbucks, ask for a large cup of ice water instead of a bottle of water.

 

There are a lot of things you could do throughout the day. For 30 days.

 

Just spend a little less, and save a little more.

 

What? Does it sound too easy? Not complex enough? Well, if you want to invest in the complex stuff we can talk about that. But if you want to invest, you need to have some money. So spend a little less, and save a little more.

 

One Choice At A Time

By enforcing one small but positive habit that is easily manageable, you will start to notice the following:

1. Its not that hard.
2. What if I had started sooner, where would I be?
3. Your good habit muscle will get stronger, and you will expand it into other parts of your life.

 

Maybe spending a little less and saving a little more means going out to dinner less often. So instead you start to cook. Maybe you research some recipes and find you like cooking. Maybe you drink less alcohol and start to wake up earlier and feel more refreshed. Or maybe you go 30 days and end up fatter and in more debt.

 

Who knows? Its only 30 days.

 

Anyone can do 30 days.

 

Can you do 30 days?

 

You Don’t Need To Be An Expert To Get Started, Just Get Started

So don’t make a budget. Don’t worry about forever. Just worry about the next 30 days, one day at a time. Every time you are presented with a choice, remember your goal today is to spend a little less and save a little more. Remember, every single decision should have this goal in mind.

 

Just choose the option that allows you to spend just a little less. How little? Depends on how rich you want to be someday, or how soon you want to be rich.

 

Don’t worry about what you are going to do with the money either. Just spend less of it and save more of it.

 

For 30 days.

 

Anyone can do 30 days.

 

Starting today.

 

 

What Entrepreneurs Should Learn From SHARKNADO

SHARKNADO

 

What is a SharkNado? When a hurricane for some reason (global warming probably) hits the beaches of Southern California a tornado picks up sharks (all species because why not?) and drops them onto various parts of the city.

*SPOILER ALERT*

From this point on, there will be spoilers. If you have not seen the movie yet:

A. What are you waiting for???

B. Stop reading, see the movie, then come back to read.

So what can Entrepreneurs learn from this film? Plenty!

1. Expect the Unexpected, But Do Not Fear It!

When starting a new venture or business there is a lot of fear. Fear of the unknown, fear of making mistakes, fear of something going wrong, fear of fear.

The simple truth is: Something is going to go wrong! But you will deal with it!.

Fin, played by 90210 star Ian Ziering, never expected his beach bar ceremoniously named “FIN’S”, to come under attack by falling sharks. I mean, who would? When he applied for his bank loan to acquire the location to build FIN’S in the first place I can assure you the lender didn’t ask him about a Falling Shark Clause (he obviously got supplemental insurance for this).

Fin SharkNado
Fin SharkNado

When his friends and family asked “What are you doing Fin?! You are an ex-pro surfer, what do you know about running a bar on literally the most expensive piece of property in Southern California? Are you literally insane? And we literally mean that. We are not speaking figuratively.” (My words not theirs)

Never was the reason because of tornados filled with various species of sharks. Not once. Literally not once.

But Fin, being the true entrepreneurial ex pro-surfer that he is just kept on trucking. He didn’t worry about things like property taxes, obviously over-serving his ‘regulars’ in the middle of the day (played by the critically acclaimed actor “Kevin’s Dad” from Home Alone), or falling sharks.

And when the going got tough and sharks fell from the sky destroying his bar, he remembered what matters most:

2. Never Forget About Your Family!

When the going gets tough, your family is there for you. So you must remember to take care of them in good times and in bad. Times don’t get much worse than when sharks are literally jumping out of sewer drains eating people on the streets despite spending 25 minutes in a tornado with no water and not feeling the slightest bit of disorientation or dizziness.

As an entrepreneur, even if your family and friends do not always agree with your projects, they still support you as an individual and it is very important to lean on them every so often. Starting a business or company is a daunting task and the burden takes its toll at times. It is ok to take a breather here and there, just be sure to pay them back when times are good again. Which leads to the next point:

3. Customize Your Solutions to Fit Your Problems.

Sadly, there is no manual for being an entrepreneur. When you go off on your own, you are your own boss which means you only have you to run to when problems arise. While it is important not to worry about the unexpected, it is just as important to treat each problem individually and cater your solutions accordingly. This also means surrounding yourself with a good team. You need a good lawyer for your legal problems. A good accountant for your accounting problems, and in Fin’s case a good helicopter pilot for your Sharks in Tornado problems.

SharkNado Swarm
SharkNado Swarm

Got a SharkNado coming your way? No use sitting around waiting for sharks to fall from the sky when you can get in a helicopter and throw bombs into the tornado (I am paraphrasing actual commentary) Which leads to:

4. Never Give Up. Never Ever Give Up!

You can’t lose unless you stop playing the game. There is no game clock in business and the rules are always changing. All you need to do is keep working, keep educating yourself and keep working (its a lot of working).

You have to be willing to adapt at all times but keep moving forward.

Fin learned this lesson the hard way. After his best bartender was swallowed whole by a Great White Shark after she fell out of a helicopter, the same shark tried to eat Fin.

SharkNado Chainsaw
SharkNado Chainsaw

What was Fin to do other than jump head first into the shark with a chainsaw, find his only surviving employee (obviously survives) and then chainsaws his way out of the shark like a boss (The boss of Fin’s, which he used to own but now will get a fat insurance check unless Sharknados are not covered which of course they are).

 

 

 

Why it is Easier to Get Rich than to Lose Weight.

Why is it Easier to Get Rich Than to Lose Weight?

Getting rich is easier than losing weight. Period.

But in order to make this point, we have to declare some ground rules. Liposuction is an easy way to lose weight (minus the pain and all), and winning the lottery may seem pretty easy to some people. So lets remove these options and clarify.

It is easier to get rich over time than it is to lose, and keep off, weight over time.

How can this be?

When it comes to getting rich, the younger you are the greater advantage you have. Time is money. But time is only money if you spend your time wisely. Video games are a poor use of time. Reading this blog is a GREAT use of your time.

So you work 8 hours a day lets say. May sound hard but you get used to it like all humans can adapt to anything given enough time. Then you take 10% of your pre-tax income and invest it into an income producing asset.

Lets say a dividend paying stock at 5%. You contribute to this every week automatically because you set up auto-withdrawal with your bank and now you don’t even notice it is gone.

In addition, your stock is paying 5% a year, while also going up in value over time because that is what good stocks do. The appreciate.

You are smart and do not look at this stock every day, or even every week. You may even forget about it from time to time.

But it doesn’t forget about you, and it keeps growing, keeps paying a dividend, and you keep adding 10% of your income to it. As you work more and get raises, bonuses and birthday checks, you keep adding 10%.

You are literally making money while you sleep.

Want to get rich faster?

Invest more of your money. Diversify your portfolio. Now that your stock has grown, sell it and buy a rental property. Or buy two! You know how because you read this blog!

After you buy a couple rental properties and your rental income exceeds your expenses, guess what? That is the Cash Flow Lifestyle and you are free to live the life you choose! (More passive income coming in than expenses going out.)

Your property managers on your new rental properties send you checks every month and you keep investing 10% into more income producing assets because by this time its an addiction, but the good kind!

 

So now what?

 

Well, most people that achieve this type of success realize how amazing life can be and want to keep living this life as long as possible.

 

Enter Weight Loss. Or, a Healthier Cash Flow Lifestyle.

 

Keep in mind I am not saying it is extremely difficult to lose weight, I am just saying it is more difficult than getting rich for the following reasons:

 

1. You can’t set it up on auto-pilot: Every meal you eat, you have to make smart choices.

 

2. You can’t lose weight while you sleep: If you are, then something might be wrong. (Think diet pills or parasites)

 

3. You can’t delegate weight loss: When it comes to making money, as long as you are willing to take the risk, every other aspect can be delegated. When it comes to weight loss only you can eat well and exercise.

 

You have to make the right choices every single day.

But Wait! There’s More!

I’ve got great news for you, though. If you first develop the discipline it takes to get and stay rich, that same discipline can be applied towards ANY future goals as well.

First figure out what it is you want. Keep this desire in your mind at all times. If you want your passive income to exceed your expenses, determine why you want this.

This will make it much easier for you to not only set your goals, but to keep them.

As your passive income increases, remember: DO NOT INCREASE YOUR EXPENSES!

This is VERY common and is why most people never achieve economic freedom. Their income goes up, so they get a new car payment. KEEP YOUR EXPENSES LOW.

However, if your main goal is to increase your passive income so you can buy a nicer car, then you will! But if your goal is to live the life you choose, which means only working because you want to and not because you have bills to pay, then keep your bills low.

In conclusion:

1. Get educated

2. Get rich (invest in income producing assets)

3. Get healthy (eat well and be active)

4. Be happy.

We live in the only country in the world that declares every individual has the unalienable right to pursue happiness, so why aren’t you?

What is Investing?

What Is Investing?

What is investing? It sounds like a simple question, but is it? Investing should be simple, but we have a way of complicating it.

Investing should be defined as anything you buy that makes you money. Simple, right?

Investing in stocks should NOT be confused with day trading. Investing in stocks is NOT about finding a hot stock tip.

If you are just starting out investing, you should consider companies that you plan to hold onto for at least one year. If you decide to sell after a year, at least you will be paying long term capital gains tax versus short term capital gains (less than one year) which is taxed at your ordinary income rate.

Stock Trading Is Not Investing

If you are starting out with $1000 to “play around with” you must remember that every trade (buying or selling) you do will cost you $9.99 (at e-trade brokerage). Essentially, that is 1%. So you buy $1000 worth of stock, it costs you 1%, and say it goes up and you sell; it costs you 1%. This stock needs to have gone up at least 2% to cover just your trades. In addition, you are paying ordinary income tax (say 18-23% as an estimate) on any gains on top of that.

This is where the investor joke, “They call them stock brokers because they make you broke off their stocks” comes from. Stock brokers encourage trades because they get a piece of the action like a bookie taking bets. The house always wins because they represent both sides, and also take a piece off the top.

To make money day trading, you need to be using a lot of capital. A lot of day traders use leverage (other people’s money) so that a small spread yields them a lot of profit. But also a small mistake can be VERY costly. People that make a living off of day trading can apply for a special IRS status so that they are not taxed on short term capital gains like you and I are. You need a lot of money, and to dedicate the majority of your time to qualify for this status. This is not investing. This is trading.

Investing is Necessary For Wealth

What you need to do is invest. Think of investing as your savings account, only better. When your money sits in your savings account, what happens to it? It gets eaten up. Sometimes slowly (inflation or a nice dinner) and sometimes rapidly (vacation or car repairs).

When your savings is tied up in investments, the psychological impact is great. Your brain considers the money spent. It is in another account, and is tied up in stocks. Worst case scenario, you can ALWAYS take it out if you NEEDED to. But you need to convince yourself never to do so.

Real Estate:

It is no secret that I love real estate. I love everything about it. One interesting thing about real estate that not many people know, is that you can own real estate without owning a property.

REIT: Real Estate Investment Trust. (CLICK HERE FOR INFORMATION ABOUT REITS)

You may think that you don’t have enough money to invest yet, but you are wrong. It is all about establishing your plan, and then sticking to it. Everything I have read about real estate tells me that apartment buildings are wonderful investments. I would love to own an apartment building. But sadly, I am not in a position at this time to provide the funding to acquire one.

Instead, I found a company that owns apartment complexes throughout Southern California (very strong rental market) and is willing to sell me shares so that I can own a piece of it. In addition, this company is paying me money to own these shares. Why is that? If you don’t know then you didn’t click on the link that provides information about REITS.

Maybe you like commercial properties? Hotels? Retail? Medical? Residential? There are all kinds. Here is an alphabetical list.

The greatest thing about REITS is that you get all the benefits of owning real estate, without the hassle. I want to own an apartment still, but instead of throwing money into a savings account to save up for one, I am investing into an apartment REIT that pays me money to own it, plus will go up in value over time as inflation hits and the market recovers.

This will help me reach my goal FASTER. Investing shouldn’t be about: “I am saving up X amount of dollars, then I am going to invest in Y.”

Investing should be about: “I am going to invest in X  now, and then eventually I am going to take that and invest in Y.”

Investing For You

There are investments for everyone. Depending on your age, income, risk tolerance, whatever. There is no reason to NOT invest other than being uneducated. But everyone has the ability to fix that.

I used to believe that I had to learn enough about a topic so that I could ask an “expert” a logical question. I later learned this was not enough. Instead I would urge you to know enough on a topic to ask a logical question, and also know whether or not the “expert” just gave you a bull shit answer.

To conclude, when it comes to investing always remember Warren Buffett’s two rules of investing.
1. Never lose money.
2. Don’t forget rule number one.

 

The Secret to Investing

So What is the Secret to Investing?

So everyone wants to know the secret. Yes, pay yourself first… reinvest dividends, slow growth over time will yield greatness… blah blah blah….educate yourself about finances, live below your means, buy low sell high…. but tell me the secret. You know, the thing that all rich people know but wont share with everyone else.

Well before I tell you the secret, I will give you some background on it. When I first heard about the secret, I shrugged it off. I came across it like you would a common phrase in a  foreign language. I could translate the words, but I didn’t understand the true meaning of them.

I suppose that is why educating yourself is so important. You finished college and you are trained to believe that you are officially a future millionaire. Just hang that diploma around your neck and companies will be tripping over themselves to pay you money and give you benefits.

Then you get that job, and realize you have to learn how to do that job. OK, you think, but after I learn this I am done educating myself. 9-5 in the cubicle, doing your job, maybe a little fantasy football research mixed in, or see who broke Jennifer Aniston’s heart this week, you know all of the important things that help millionaires become millionaires. (Wait, is that the secret? Do millionaires get together and discuss Michael Vick’s fantasy value compared to Peyton Manning’s? The answer is no. This is not the secret)

But What About My 401(k)?

In your first couple days on the job you learn about your 401(k). And by learn about, I really mean that you learn that they exist. You have heard positive things about them and want to do it, but jeez that is a really big packet and “I am very busy”, you think to yourself. Hey (insert person that sits next to you at work’s name here), which 401(k) plan did you pick?

(Person that sits next to you at work)- “I picked this one because it offers (insert made up reason here since they did not want to read that big confusing packet either)”

You- “Thanks! That is a great idea because anything is better than having to read this packet. Its really big and uses words that belong on CNBC.”

Congratulations, you just made your biggest investment decision of your life as of now, and it only took a few seconds!
In a recent Wall Street Journal article, the author described how Baby Boomers are retiring only to realize that their 401(k)s are not enough to support them. In the article, the author says that financial advisers say that you need to have 85% of your pre-retired income to support yourself.  That is scary. Its a sad but true fact that the older you get the more expensive life gets. Medical bills aren’t getting any cheaper, and we aren’t getting any healthier.

Furthermore, who wants to live their retirement at 85% of the quality of your pre-retirement? Even with this parameter, soon-to-be retirees are discovering they do not have enough. The major reasons cited are they did not contribute enough to their plan, they started too late, they suspended their contributions, and, my favorite, that they sold all of their stocks when they were declining in value and then missed the rebound. In other words, panic selling. And what is panic selling? Well that is simply making investment decisions, that will shape your entire financial life, based on emotion and not information.

But What About That Secret You Mentioned?

Back to the secret. Like I said, when I first came across the secret I didn’t even know that I had. I heard the words, and it is possible that I had heard them before and not noticed. And even when I read about it, and then later heard someone tell me about it, it wasn’t until I was out in the world closing on a property that I truly learned it.

Was there ever an R-rated movie that you watched as a child and enjoyed, and then when you were much older watched it again and noticed so many different details about the movie that went over your head as a child? This is why I read investment books more than once. There are books that I read a few years ago that I was only able to gather a few facts out of that I could use. But as my career has expanded, I re-read the same books and the confusing topics now apply to me.

I want to preface with that paragraph because you are most likely going to be disappointed when you hear the secret. However, if you take the words to heart and apply the principles that you read about on this blog, one day it will hit you. Maybe you will be busy doing something unrelated, or possibly laying in bad late at night, but it will happen.

So here it is. The secret to investing is that the profit is made in the purchase.

This is very crucial to understand. Many people look down the line of an investment and imagine that “if ALL of these things happen, then I will sell this for a ton of money and life will be great!”

This is incorrect. Your profit is made in the purchase price.

You Make Your Money When you Buy

I recently met a young man on a golf course who asked me what I did for a living. I told him that I was in Investment Real Estate, and he looked at me like he felt sorry for me. He finally mustered up “well that was probably really good a few years ago.” ***(Author’s Note: This article was written in February 2011) ****

Why would he say that? Does he not know what prices were like a few years ago? They were astronomical! Inflation was out of control, lending was so easy that it was driving prices up further, no-documentation loans were so common that part time employees were buying homes with payments they couldn’t even afford in good times. Well, we all know what happened. Reality hit.

Now there are houses being sold for less than what they cost to build.

Less than what they cost to build! Is this the result of investing on emotion or information?

Buy Low, Sell High…. Duh!

There are many great publicly traded companies out there. Some are over valued. Some are under valued. Which makes more investment sense?

Maybe you do some research and decide its time to buy your first rental property. You find a gorgeous neighborhood, and an even better house. You run the numbers and find out that after taxes, management fees, interest, HOA dues, repair costs and marketing, that once rented it will only cost you $30 out of pocket every month. And because it is in a great neighborhood you can someday sell it for a lot of money. Is this a good investment?

Well every month it is going to cost you money, so how many of these investments can you afford? 1? 5?

Furthermore, your goal is to sell it someday for more than what you paid for it to make your money. But how much more do you need to sell it for to make a gain? Keep in mind that you need to also make up for the money you were losing every month on it just to break even. How good of an investment is this?

Investments should make you money, from day one. This allows you to make more investments. Your profit is determined in your purchase price. If your purchase price does not net you a profit, it is not a good investment. Period.

In the same scenario, what if you were able to change the numbers so that it netted you $30 a month. Then how many of these could you afford? If you say infinity, you would be correct. If you said how many you could find, you would also be correct.

A study was recently conducted which concluded that people get jealous. Who would have thought? But what is interesting is that people aren’t jealous of Steve Jobs’ wealth, or LeBron James’ talent as much as they are jealous of their neighbor that just bought a boat or their co-worker that stole their promotion.

Its a sad truth that these events shape your reactions. When everyone is refinancing their homes to purchase new cars and boats, buying rental properties that don’t cash flow and you are sitting on the sidelines you will inevitably feel left out. But how you respond is up to you.

You should never jeer other’s success. You should celebrate it. You should strive for it. You should converse about it. You should not sit with the unsuccessful bitter people talking about how lucky others got, you should instead mingle with the successful people and listen to what they have to say. You may be surprised to find out that they are in last place in their fantasy football leagues, but that the size of their portfolio is a much better use of their time.

So you now know the secret to investing. But knowing the secret doesn’t mean much until you understand what it means. The only way to do so is to educate yourself. Why am I not afraid of telling everyone this secret? Why do I not fear that there will now be a rush of competition in my field? Easy. Most people are lazy and success is really hard. Success is really, really hard. Sacrifice, risk, sleepless nights, stressful days, and oh yeah, luck.

“The harder I work, the luckier I get”- Gary Player

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