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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Why Tesla Will Succeed

Tesla, as a Company, is Going to Succeed:

When it comes to investing, its always important to buy with your head and not your heart. Develop your system, and invest accordingly. If you want to change your investments, refer back to your system and decide whether or not your system needs to be adjusted, updated or overhauled.

Always refer to your system before making investment decisions. Your system is your brain. You spent a lot of time developing it, so stick to it. When markets go up and when markets go down, stick to it.

As you should be aware of by now, my system involves cash flow. Not just cash flow, but continually growing my cash flow every month, so that next month I make more passive income than I did this month, every month, forever. This is my system. Even if it means buying just one more dividend paying stock this month, I am sticking to that system.

 

Liking a Product VS. Liking a Company

There are times where a new product may come along that you think is just fantastic. Maybe the GoPro was one of these products? Very cool product indeed, and also developed a cult following with raving fans which is very tough to do.

Its ok to buy products you like. But that doesn’t mean you should buy their company’s stock. Especially if it doesn’t follow your system. GoPro makes a great product, but if it wants to be a successful company and make money on your investment, it must overcome A LOT of hurdles.

We want to make investments into companies with as few ‘ifs’ as possible. GoPro going from successful product to a successful company has a lot ‘ifs’ in front of it, and many of those ‘ifs’ are competitors that are much larger than them already.

Tesla Will Succeed

Tesla Will Succeed

Tesla Will Succeed

What Does This Have To Do With Tesla?

Tesla is a car company. A new car company. A new car company in an age where the industry doesn’t allow for new car companies.

There are many ‘ifs’ in front of Tesla for it to succeed as a company.

But heres the catch, I really believe its going to succeed.

Tesla Chart May 7, 2015
Tesla Chart May 7, 2015

Elon Musk, CEO and Founder of Tesla just announced their latest product. A batter for the home. Tesla may not be a car company after all. It may be a battery company. It may be a batter company in an industry that definitely needs more efficient batteries.

What Really Makes Tesla Special?

Elon Musk is out to change the world. This is a very good thing, and your heart will most likely support this. But your brain should tell you that most people are lazy and change is hard. Investing in change can be expensive.

You can like the idea of renewable energy for the earth, but for your investment portfolio it has to make both sense and cents.

So what is it that makes Tesla so special? From day one, Elon Musk has marketed his products as a luxury product, and when you make a luxury product, you can make your own margins. This is not a statement meant to be cynical, its meant to point out Elon Musk’s true genius!

When you create a product for the masses, you must mass produce it as cheaply as possible and cut all possible corners. This sacrifices product integrity, and eventually brand integrity.

Tesla makes a $100,000 car. This gives it plenty of room for error when it comes to profit margins. It also allows for investment and innovation. A $100,000 car model today may be a $30,000 car model ten years from now. And there will be a new $100,000 car model ten years from now that will consist of parts and innovations not even considered today.

Now Tesla makes a $3500 home battery back. This isn’t something you need. Its something you want. People love buying things they want more than things they need. 

There is a lot of potential for a home battery. In fact, the next natural disaster that strikes I bet you will see Tesla delivering charged batteries to the stricken areas that will greatly demonstrate their potential and importance. Mark my words.

Unfortunately, I don’t hold the same views that many have that this will completely change the world. As a storage of power, I assume these are officially the best batteries on the market. But energy demand will not slow down, and the cost and demand for the raw materials needed for solar power are just not inline.

Additionally, the problem with humanity is that the more efficient things get, the more we use, the more we ‘need’.

The more fuel efficient our cars become, the more we drive.

The more battery our iPhones have the more apps we download and photos we take.

The more energy efficient our homes become, the more energy we consume. Smart thermostats? Smart refrigerators? Smart TVs?

The Future for Tesla

So what does the future hold for Tesla? No one knows for sure. If someone says they do, they are lying. But its hard to argue that the future doesn’t seem bright. First, they updated an outdated industry and forced change and reform. Then, they improved on an old product and created an entirely new marketplace that just days ago didn’t even exist.

Does this sound like another company to you?

Why Tesla Will Succeed

Hmmm.

As of today, Tesla does not pay a dividend. It is a growth stock and growth stocks rarely pay dividends. I currently do not own any Tesla stock… but I would be lying if I said I wasn’t reviewing my investing system later today.

 

What did you think? Like this? Hate this? Let me know! 

Wealth Triangle

What is The Wealth Triangle?

There are only 24 hours in every day, for every person rich or poor. The definition of ‘wealth‘ varies from person to person because everyone chooses to spend their time in different ways.

Some people would like to travel the world if they could, while some would simply like to stay home with their families… if they could.

But there is only so much time in the day. And most people must sell some of that time to someone else in order to pay for life’s necessities and also luxuries of their choice.

This brings us to the Wealth Triangle.

Wealth Triangle

Wealth is merely a triangle with 3 important pillars: Time + Knowledge + Money = Wealth

Once you have achieved two of these pillars, you can use the two you have to obtain the third. When you have all three, you are wealthy.

Time + Knowledge= Money

Lets say you are fresh out of college and have no money. But you are young meaning you have a lot of time left. Use this time to increase your knowledge. Read BOOKS about money, finance and investing. Attend seminars and lectures. Find something you are passionate about and get a job in that industry. Use the money you make to buy assets that produce income and grow over time. By using the time you have, spend your days increasing your knowledge and the money will come. Time + Knowledge + Money = Wealth

Knowledge + Money= Time

Lets say you do not have as much time, but you have years of experience in an industry and hopefully savings. You should still be reading books, attending seminars and continuing your financial education. With this wealth of knowledge and money, you can now purchase time. By knowing how money really works, and how to put it to work for you so that you do not have to work, you now have the time you need to do as you please.

Time + Money= Knowledge

Who has time and money but no knowledge? Think lottery winners, or those who have recently received a large inheritance. Many people do not know how money works, or even how to keep money. Most lottery winners end up not only broke within 7 years, but also in more debt than they started in. This is not a coincidence. We are only taught how to consume, not how to invest. (See What Would You Do With A Million Dollars?)

The First Step Is Getting Started:

While everyone loves money (especially me!) the most important of these pillars is time and Knowledge. There is only so much time in the day, month years and in our lives. You can diet and exercise to try and buy more time… but that seems hard.

With knowledge, anything is possible. Knowing the right people, the right terminology, the right time, the right investment, the right price and you can achieve wealth. But like dieting and exercising it seems hard.

True Wealth is achievable by anyone. You must first define what it means to you and get started. Its much better than selling the most precious asset that you have, time. Besides, you are running out of it.

 


4 Mistakes Young Investors are Making

Ever since the celebrations at the beginning of the new millennium, investors have had to deal with turbulent markets. For young investors just getting started with managing their money and trying to make it grow, the experience of the Lost Decade of stagnant stock-market returns and the 2008 recession’s impact on the entry-level job market have combined to make it even harder for those just beginning their careers to get employed at all — let alone get a good enough job to be able to invest.
Full Article

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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What would you do with a million dollars?

What would you do with a million dollars?

This question is often asked to high school students by a guidance counselor, or by friends at a bar, and often the answer varies. However, if given a million dollars would you know how to make it last? How much money did you make in 2010? How much of did you keep?

Could you retire on a million dollars? Would you want to? What kind of a lifestyle could you live if given a million dollars at the age of 25. If you are immediately thinking of the objects you could buy with this money than you are definitely a product of the American educational system. We have all been taught how to consume. Some of us have been taught how to save. Very few of us have been taught how to invest.

Keep in mind that in 1971, Richard Nixon took the United States currency off the gold standard. The result was that our money turned into a currency. Like a river or ocean current, it fluctuates compared to other currencies. This makes great political sense because it allows a government to borrow money for a project, then print money to pay down the debt. When this occurs, debt becomes cheaper for everyone as there is now more money in the system.

In the past, inflation has risen about 3% a year keeping in line with about a 3% growth in US GDP. (This does not include war years which change all the economic rules). This is meant to encourage consumption. Imagine you want to buy a car. The government wants you to buy the car right now, even if you do not have the money to do so. You can finance the purchase today and have your debt become 3% cheaper a year from now; or save up for a year and pay an extra 3% a year from now due to inflation.

Another side effect of the 1971 decision is that money in the bank needs to be keeping pace with inflation just to maintain its value. Historically, the US has seen a 3% inflation rate. However, this was prior to TARP, Quantitative Easing 1, Quantitative Easing 2, Government Bailouts 2008. What interest are you earning with your money? Is your money earning more money?

You need to be pessimistic about your future. 10,000 Baby Boomers turn 65 years old every day. You and I will pay for their retirements. Can you even afford your own retirement? Social Security is bankrupt already so do not plan on retiring on that. Is a million dollars enough to retire on? Depends on the lifestyle you want to enjoy (Yes, life should be enjoyed, not just lived).

Responsible people have already started to save for their retirement. Some may have a number they want to reach in order to feel comfortable. Do you have a number? I hope that you do not. Instead you should be thinking of how much monthly income would give you the life you desire. I do not mean salary, I mean monthly income.

I graduated college in 2007 with a C average. If you asked me what I wanted to be when I grew up, all I could ever think of was to be happy. I got a good job after school. I travelled a lot. I worked a lot. I bought a lot of things. I was not happy.

I wanted to quit but two things kept me from doing so. The first was that I didn’t know what else I would do; I didn’t have a dream job. The second was that I had 4 different bosses. How do you quit with 4 different bosses? Do you have to quit 4 times and ask for 4 letters recommendations. Do you have to give 2 weeks notice 4 times? If I quit today, would I have to work for 8 more weeks?

My company was kind enough to to Up in the Air me which eradicated all the worry. Relieved right? Not really. Now I was unemployed and unhappy. Oh how I missed the days of employed and unhappy.

I then did what any young, confident and newly unemployed person does: I moved in with my parents and revised my resume. I’ll skip over all the self pity moments I had and go right to the epiphany. After sending out my resume to all the wrong places, I decided to take a very large chunk of my savings and invested into some Robert Kiyosaki Real Estate classes.

A lot of it was sales fluff, but one thing stuck with me. The concept of Cash Flow. This is similar to what Timmothy Ferriss preaches in The Four Hour Work Week and George Clason cites in The Richest Man in Babylon, but this time it made sense to me.

Cash Flow = money coming in> money going out.

Instead of looking for a new job I would hate, I began to find investments. Instead of working 40-55 hours a week for someone else, I dedicated all of my time researching ways to cash flow. Instead of accepting a job offer in San Diego, I purchased real estate in Arizona.

Lawyers, doctors, accountants and most likely your boss all have one thing in common. They get paid hourly. They sell their time for money. Yes, they get a lot of money for their time, but there are only 24 hours in every day. If they want more money they have to sell more of their time. I may spend a month working on a deal, but when I am done I get paid once a month, every month, for ever. If I want more money, I find more deals. If I want to sleep in, I sleep in. I decided my time is too valuable to me to sell it to someone else. How valuable is your time?

What would you do with a million dollars? This question expired in 1971. Instead, I ask you: What would you do if you cash flowed?