Home ownership is part of the American Dream. In the minds of many, psychologically and mentally, it represents security, stability, and financial independence. Renting has traditionally been seen as throwing money away, as many people also see homeownership as a financial investment in their future thanks to the popular belief that property will only ever rise in value, even if the recession of 2008 demonstrated otherwise.
The reality is that allowing for inflation, house prices have increased by just 1% during the last century, representing an extremely poor return on investment, and one that has been easily outperformed by the stock markets and direct investment in businesses and hard assets. Research has shown that the net value of homeowners is, on average, 44 times greater than that of non-homeowners, however, it’s unclear whether this is a correlation or causation.
So should you buy or rent? The truth is that there’s no ‘one size fits all’ answer to that question. Every individual has different circumstances that determine if buying or renting their home is best for their long-term financial prosperity. This guide is about you making the right financial decisions for you. It’ll examine the pros and cons of buying and renting, what you should take into account before making a decision, and the relative financial considerations of a mortgage versus rent.
If you are a numbers guy here is the spreadsheet – SimplePassiveCashflow style!
*I spent $300 dollars for an editor to get the grammar and spelling right on this article. I am sick and tired of seeing young families make this mistake.
What’s in this guide?
This guide will cover everything you need to consider about purchasing a home, renting, and purchasing a property to rent. This includes:
- The advantages and disadvantages of renting
- The advantages and disadvantages of buying
- The costs associated with renting vs buying
- Choosing a property
- Taking on a home loan
- Using your home to finance your future
- Buying a property to rent
- Useful resources
Firstly, this guide is about helping you to achieve financial freedom. What the wealthy do to achieve security and optimize investment returns is not always conventional wisdom. When financial freedom is your goal, there are two simple principles to follow:
- Prioritize purchases/acquisitions that make you money
- If a purchase/acquisition doesn’t pay you and you are speculating on increasing home values, don’t do it.
While this may seem black and white, sticking to these principles will again depend upon your individual circumstances. See the difference in how the poor, the middle-class, and the wealthy live financially:
For some, buying will generate the most financial opportunities, for others it’ll be renting
Hint: If you can’t save money to save your life then buying a home acts as a forced savings account, which will benefit you in the future.
So let’s look at the case for each.
Rent or buy? What to consider
Before going any further in this guide and considering whether buying or renting a home is the best option for you, there are a few important things you should bear in mind as you continue. These are:
- Are you comfortable living with unknown and variable costs? Or prefer having your costs fixed?
- Do you like to personalize your home, or are you happy to live with other people’s choices?
- How much space do you really need? Do you really need 2,000 square feet and that 4th bedroom to raise a family or is that your ego’s need to keep up with the Joneses talking?
- How much time and work are you prepared to put into the upkeep and maintenance?
Chances are that you’ve been told repeatedly that renting is like flushing water down the toilet. That you are paying money out each month and twenty years later you have nothing to show for.
The wealthy do not believe this misnomer and see housing as just another line item in their personal finances.
Our changing lifestyles mean that renting can be a sensible option for many people which can actually help you achieve your financial dreams.
So what are the advantages of renting?
Flexibility and mobility
The biggest argument in favor of renting over buying is the flexibility and mobility it offers. If you have to – or want to – move regularly, then renting allows you to easily pick up and relocate. Equally, if you decide you don’t like the property/neighborhood after all, that your commute is too long, or that you want to get your kids into a better school district, you have the flexibility to do that. Remember, gone are the days where you stay a loyal employee for decades. Often many professionals need to be mobile to compete for the best positions and salaries. Many of my friends in IT and Tech report dusting off the resume after they have reached the 6-month employment milestone. Having geographical mobility is essential in competing for the best jobs.
Liquidity in difficult times
Renting can often be cheaper than buying. Some rents even include utilities, and when things break, it’s not your problem, call the landlord – it’s their problem! That means you have more available cash. Don’t forget that life is unpredictable and things change. Perhaps your income goes down, unexpected bills occur, your mom falls in the shower and can’t get up, or your deadbeat brother-in-law hears of the rental properties you are picking up and needs a place to hang out and join your family. The beauty of renting is that if your financial circumstances change, you have the option of moving to a cheaper property without too much difficulty instead of selling the home in a fire sale due out of distress.
Not everyone has a perfect credit history. Experts estimate that around a third of all American adults have a credit score below 601 and so are considered a poor or bad risk. This greatly reduces the likelihood of qualifying for a regular home loan, meaning that borrowers would have to pay higher interest rates on any borrowings. If you fall into this category, buying is unlikely to be worth the expense.
Note: Don’t let real estate or lending brokers trick you into using the “scarcity tactic trick” where they say interest rates are at all-time lows! Buy now because it’s not getting any lower! Remember they get paid when you buy or originate a loan. Locking in a low-interest rate is a poor reason to go into a 30-year commitment for something you should not buy in the first place, even at a 0%.
A survey by Trulia found that 44% of American homeowners had some form of buyer’s remorse, and around a fifth had actually been prevented from changing their situation because of making a mistake when purchasing a home. With renting, if you’re not happy, you’re free to move at the end of your lease. Paying a couple of dudes to move your stuff from time to time is pretty cheap in the grand scheme of things.
If the area you live in has high property taxes, high insurance costs, or low rent-to-value ratios, then the math on renting makes sense. The rent on identical properties can vary hugely based simply because of their location, for example a $100,000 house might be leased for $500 a month in one town but $1,500 in another. Where rent to ratio values are low, renting is the savvier decision. Often primary markets such as San Francisco, Seattle, Los Angeles, New York, Washington DC, Honolulu, (are cool places to live but) have low rent to value ratios, as a result of too much wealth living there driving up the overall market. Investing in secondary and tertiary markets where the rent to value ratios are high means that the income more than supports the mortgage and expenses, for positive cashflow. Examples of these locations are Atlanta, San Antonio, Houston, Indianapolis, Birmingham, Memphis, or Kansas City. In these areas, it may make sense to buy a primary residence to live in.
The disadvantages of renting
Of course, while there are many advantages to renting, there are also drawbacks that can’t be ignored, and each individual needs to decide if the benefits outweigh the disadvantages.
Not feeling at home
Tenants are rarely allowed to decorate the property the way they would like. Decor is usually neutral and can feel clinical. Personalization is usually limited to putting up pictures and damage caused by doing so must be rectified before the tenant leaves. If personalization is important to you, then get over it… nah just kidding 😉
Rents usually rise annually. In some areas, rents increases are limited by local regulations. In most instances he landlord is free to increase it by as much as they like. In areas that are very popular, rent rises can be a significant increase to reflect increasing market demand.
Lack of security
While renting offers flexibility, it also lacks security. Your landlord might decide that they want to sell the property or have someone else live there. If you’re on a month to month lease, typically your landlord only needs to give 30-60 days’ notice.
Moving residences costs money, and you’ll need to find a deposit plus up to two months’ rent in advance for a new property, alongside the fees listed below. And that’s all before your landlord returns your deposit.
Tip: Building a relationship with your landlord could be invaluable. If you are renting a home in a primary market where the numbers don’t make sense, then chances are that you’re dealing with an amateur landlord. Often amateur landlords just want reliability and rent paid on time, as opposed to top dollar. You may be able to sign a longer rental agreement or just be given a further heads-up if the landlord is looking to make any moves with the property. They may need you more than you need them so try to negotiate a lower rent by signing a longer rent or a fair rent escalation factor.
Lack of tax breaks
Homeowners brag about claiming extra tax write offs on their mortgage interest against their tax bill. This is true that tenants can’t claim anything against their rent but this argument is a very weak one and likely dogma created by brokers to motivate you to create more transactional commissions.
Spending 100 dollars’ interest to deduct it on your taxes is actually one of the dumbest pieces of financial advice I have ever heard. They’re basically telling you to incur expenses to save a fraction of it. The tax benefits that you get as a real estate investor will blow the mortgage interest tax deduction out of the water due to taking other expenses as and operational business, depreciation, and not to mention the overwhelming greater return on investment if you bought a rental property than buying a primary residence to live in. And if you have seen the 2018 new tax laws it’s just a matter of time until the tax deduction for the regular person is going to be phased out. The middle-class just can’t catch a break!
Taking out a new lease incurs a number of costs. These can vary with state and your circumstances, but typically include:
- Broker’s fee: whether or not you need a broker will depend on where you want to live. In many big cities, landlords or property managers frequently won’t consider any applications that haven’t come through a broker. Typical fees vary between one month’s rent and 15% of the total annual rent. However, this is not the case in most circumstances but I’m just trying to be a good journalist here.
- Application fee: this covers the cost for credit and criminal background checks. Usually cost between $35-75 per person.
- Security deposit: we’ve already mentioned this, and it’s generally set at one or two months’ rent. However, some property types, especially condominiums, charge a move-in fee as well. This covers the charge of updating mailboxes, reprogramming buzzers, etc. This can range from $100-$200.
Based on a $1,000 monthly rent:
What about my furry friend?
Many rentals will charge a cleaning fee or surcharge for a pet. Due to people abusing the “service animal” loophole this is usually at the landlord’s discretion. However, more and more people are single or don’t have a roommate, landlords are becoming more accepting of our four legged friends. In fact, many landlords including myself see your pet ownership as a sign that you are more of a dependable long term tenant – minus the crazy cat lady/man with more than 3 cats.
But my spouse wants to buy our own home?
If you are in a Primary market the prevailing market rent to value ratios under 1% usually means that if you rent you will be able to live in a much nicer home than if you bought, assuming you had the same PITI mortgage payment.
Say you are looking at a $1,600 mortgage on a $350,000 home (typical 20% down payment). Now consider taking that same $1,600 monthly payment you will be amazed that you would be able to live in a nicer home. This does not even take into account the hidden costs of homeownership that we will talk about in a bit – and you can dive into the numbers with the accompanying spreadsheet.
And by the way, have you ever driven a rental car? It’s a lot more fun when you are not worried about a dent or paint chip here or there.
Purchasing a home
Now we’ve looked at the pros and cons of renting, we’ll do the same for purchasing a home or property, what to consider when taking out a mortgage, and how your home could be used to finance purchasing a property to rent.
Supersize me “homeowner style”
Average sizes of homes have increased according to the U.S. Census Bureau. In 1973 the average home was 1,525 sq. ft. Today that number approaches 2,500 sq. ft. That’s almost a 64% increase in square footage on the average home!
Despite the average family size decreasing from 2.9 persons per household in 1973 to 2.5 persons today, kitchens have doubled in size in those 4 decades along with the average ceiling height in a home rising by more than a foot. But more space in a home ultimately means more space for “things” and the increase in maintenance costs. Add to the mix cheaper and faster construction methods and you have the beginnings of a bubble.
The graph below illustrates Robert Shiller’s data. Shiller, a Yale University Economics Professor, shows how housing prices have changed over time using an arbitrary starting point of 100 adjusting for inflation.
Difference between a home and a property
This might seem like a strange concept, but there is a difference between a home and a property. Why? A home is somewhere you live, where you invest emotionally as well financially. It’s your anchor. A property can be anything from a piece of land to a luxury penthouse, but where you don’t intend to live and is purchased as an investment.
Buying a home is a huge commitment. No-one can argue with that. While home ownership is usually associated with stability and security to many, that stability and security can be a double edge sword become if your circumstances change.
When our parents and grandparents bought their homes, they probably expected to stay in the same area, near their families, working for the same employer for most of their life. If they wanted a new job, chances were that they’d find one in the same area. People didn’t often move away from their roots.
Employment trends have changed where very few jobs are for life anymore. And many people – especially professionals – find themselves looking further afield for work. Perhaps the perfect job is on the other side of the country. What do you do? Being tied into owning a home can restrict where you can work and, therefore, your earning potential.
Homeownership also ties up your cashflow, and the more expensive your property, the more that’s true.
The biggest mistake I see young couples make is not having a personal balance sheet that has a net positive cashflow. This cashflow is the oxygen for investing and learning about investing. Along with just plain overspending, buying a house is the biggest cashflow suck in the middle-classes’ budget.
For an analysis of the opportunity costs – check out the accompaniment spreadsheet that outlines the numbers.
The Big Questions
Before deciding to purchase your home, you need to understand what your priorities are. Without understanding these, you could easily make a costly mistake. Let’s call these The Big Questions, and they are:
- What do you want your financial situation to be in five or ten years’ time? What would your desired savings be? Are those savings realistic and achievable if you purchase a home?
- What space do you consider essential? How much do you own? Are you willing to downsize and declutter if necessary? Are you someone who likes to be able to get away from the other people in the house and have your own space? Would you be prepared put your ego aside to live with a smaller home if this gives you financial freedom?
- How much time are you prepared to spend on renovation, repairs, and maintenance?
- I know what you young parents are thinking… and I ask you do your kids really need a yard? They’re on their electronics all the time anyway. And with you taking that higher paid job to afford the mortgage they will never see you.
The advantages of homeowning
- Depending on the area, mortgage repayments can be lower than rent.
- Unlike renting, where a landlord can decide not to renew your contract, you can live there as long as you like as long as you make your monthly payments and ever-increasing property taxes.
- A fixed rate mortgage means that your costs are predictable.
- The interest and property tax on the mortgage are tax deductible. Note: BS Flag!
- For those who struggle to save, a home is a forced savings plan.
- The value of the home may
- You have an asset you can sell or refinance if you need access to cash.
The disadvantages of home ownership
- It’s a very long-term financial commitment. How many of us can imagine where we’ll be in thirty years? 5 years even?
- Mortgage payments may not be cheaper than renting. And purchasing a property requires a down payment plus considerable closing costs. Money today is more valuable than in the future especially if you can invest and make 10-20% per year.
- Any maintenance and repairs are your responsibility. There’s no way to predict what might go wrong, and costs can add up.
- Should you want or need to move, selling a home can take some time, making you less mobile.
- The value of your home may fall, depending on the economy.
- You can have terrible neighbors who start a side business selling Meth or, potentially more impactful, have the next door teenager start their own garage band.
- If your life circumstances change, e.g. your wages fall and you can’t afford the mortgage, then you’re stuck in the situation until you’re able to sell.
- Have you ever seen those scummy “buy your home for cash” ads? It works because everyday people run into problems and one day it might be you. (Sorry, that was a low-brow sales technique!)
The History of a Mortgage
Majority homeownership in the United States is mostly a recent phenomenon. Until the mid 1940’s, most Americans did not own their places of residence.
Big banks and their activities could be argued to have been the catalyst for the “American Dream” of homeownership becoming the majority statistic post-1950. The National Bank Acts of the 1860’s kick-started this gradual change. US Treasury securities now backed the US National Currency and standardized practices of US national banks. And by the 1890’s, American banks saw the popularity of Mortgages rise.
These early mortgages at the turn of the 1900s were in stark contrast to those that we see today. A typical homeowner in 1916 would pay up to 50% down with a 5-year interest-only-structure whereas a typical homeowner will save for 20% with the standard 30-year plan.
Amortized interest front loads the fees and interest in the beginning of the terms and greatly advantages the bank instead of the homeowner. For more discussion on this phenomenon check out this webinar on the topic to pay your mortgage off much faster with instead of simple interest.
What to consider when taking on a mortgage
The vast majority of people purchasing a property, whether it’s for their own use or to rent, will need a mortgage. A mortgage is a long-term commitment, typically thirty years in the USA. Fifteen years is the next most popular option. On average, most people now occupy the same home for around nine years.
Purchasing a home isn’t cheap. Lenders typically require a 20% down payment, which immediately reduces your available funds. You’re then tied into an ongoing financial commitment that reduces your cashflow for years to come. Even though the high level of competition in the mortgage market means that interest rates are generally competitive, mortgage payments are still a significant chunk of your income.
If you are also a real estate investor looking for additional income be mindful that one of the biggest factor’s in getting a loan is the debt-to-income ratio. Having a large mortgage (loan) without the income coming in from your primary residence will greatly impact this ratio.
Fixed rate mortgages vs adjustable rate
We all know that interest rates vary. Most Americans opt for fixed interest mortgages, preferring to know what their costs will be for the foreseeable future. The downside is that any drop in rates can be taken advantage of only through refinancing, which incurs additional costs.
While Adjustable Rate Mortgages (ARMs) are available, and often have lower interest rates initially, rates can rise dramatically if the economy changes, making them a higher risk. However, homeowners can always refinance.
Costs of taking out a mortgage
As mentioned above, there are a number of costs associated with securing a mortgage, which can become significant. Although they can vary depending on the state and municipality, these costs, typically are:
- Mortgage application fee: around 1% of the total loan, payable on the application even if the loan isn’t approved. This is why it seems like everyone is trying to give you a loan because it’s really profitable to be a lending broker.
- Home appraisal charges: even if you stay with the same lender, they may want to appraise your home to confirm the current market value. Charges vary between $225 and $700.
- Loan origination fees: a charge applied by the lender for processing the loan, before the application is sent to the underwriter. Usually between 0.5% and 1%. The smaller the loan, the higher the percentage is likely to be as both require the same amount of work.
- Documents preparation fee: a charge for preparing key documents, including the refinance mortgage, note, and truth-in-lending statements. Typically, $200-500.
- Title search fee: before lending, the lender wants to check that the home’s title is free and clear of liens and encumbrances. It’s usually carried out by a separate company which will check court records, prior deeds, and property databases. Usually $700-900, which includes insurance to protect the borrower against any losses caused by legal issues relating to the search.
- Recording fee: set by local or State government, these are the fees for recording the refinancing publicly. Varies between $25 and $250.
- Survey fee: to ensure that the property boundaries are followed and are not being encroached on by adjacent properties. Usually between $175-300.
- Inspection fee: not always necessary, but some lenders require an inspection of the home’s plumbing, electrical and HVAC systems and roofing, and check for potential infestation. $175-300.
- Attorney fees: again, not always required, but some states require attorneys for both the borrower and lender to confirm that the closing documentation is correct. Typically, $500-1000
- Flood certification: if a property is in a federally-designated flood zone, homeowners may be required to add flood or life of loan insurance coverage. Certification costs between $50-150.
Fess on a $100,000 mortgage:
|Loan origination fees||$1000||$1500|
|Document preparation fee||$200||$500|
|Title search fee||$700||$900|
These are all in addition to a 20% down payment.
While these costs may be negotiable to an extent, they still add up. It may be possible to roll the costs into the loan, but will then attract interest alongside the capital amount, and may push up the interest rate.
Choosing a home
Part of the purpose of this guide is to help you achieve financial freedom. Choosing the right property will make a real difference to the possibility of doing this, so careful consideration needs to be given when purchasing a home. Remember you are competing with other emotional buyers. It’s a race to the bottom, and based on the “greater fools theory” where there will always be a greater fool paying more.
When buying a home, people often choose to buy the biggest and most expensive home they can afford. A logical fallacy is to think “this is my forever home where my 5 kids and grandchildren will hang out!”
It’s not surprising as homeowners want the best for themselves and their family. But purchasing the best home on the market and being financially solvent is mutually exclusive. Instead, buyers should consider taking on a smaller, cheaper property. Not only will mortgage costs be lower, so will maintenance and taxes, and you’ll have better cash flow which can be the foundation of your financial freedom.
Apartments vs houses
Apartments offer a number of benefits. Again, they are usually cheaper than houses and are easier to maintain. Even better, emergency costs are shared by all the residents in the building, reducing the cost of repairs.
As investors, we like investing in apartments as opposed to homes. Simply put tenants can only screw up 6 sides of the property in an apartment (ground, ceiling, and 4 walls) whereas a home has a total 10 sides and a yard at their disposal. Factor this into your decision as you evaluation the hidden maintenance cost.
A cheaper property means the down payment needed is smaller. If you have a large enough amount, the funds could be used as a down payment on two or more properties for an immediate investment. Alternatively, as lower costs free up cash, these savings can be used to purchase another rental property which is proven to snowball into more and more investments.
The problem with a fixer-upper
If you’re buying a home, you want it to increase in value. Taking on a fixer-upper can seem like a way of guaranteeing this, which is why it’s become a very popular option with people who can’t afford a decent house in a good area. But while taking on a fixer-upper can seem attractive there are a number of common mistakes that inexperienced buyers make which end up costing them money rather than making it. These are:
- Rushing into a purchase without fully costing out the necessary work or considering all the holding and sales costs.
- Buying an overpriced value home rather than a fixer-upper. A true fixer-upper should be around 10-20% under the local market value.
- Not checking the floorplans and layout to ensure that they’re accurate and workable, leading to considerable expenditure to correct it.
- Finding out that the property has foundational or structural issues.
- Underestimating the cost of repairs.
- Underestimating the work required.
- Not considering whether it’s an area that people are likely to want to live in. This is especially true if adjacent properties are boarded up or also require extensive work.
- The repairs are NOT financed, so require more funds out of your pocket, which again cripples your precious investment capital. In terms of the finances and return on your equity this is where you hurt the most.
Using your home to purchase other properties
Another way of purchasing other properties is to use the equity you’ve built up in your home. This can be done by a complete refinance of your home or you could consider taking out a HELOC.
HELOC stands for ‘home equity line of credit’ or, more simply, ‘home equity line’. In some ways, it’s similar to a mortgage, as it is a debt secured against your property. It differs from a mortgage in two significant ways. These are:
- A home equity loan (mortgage) is a lump sum, paid at once. A HELOC allows homeowners to borrow or draw money on multiple occasions usually over a period of 5-10 years, as the need arises, up to a maximum amount.
- As mentioned above, a home equity loan usually has a fixed mortgage rate, while a HELOC normally has variable interest rates linked to Bank Prime.
Typically, during the first 5-10 years, borrowers need to pay back only the interest on the sum(s) they have borrowed. Repayment periods begin after the borrowing period and are usually between 10-20 years. The repayment amount is calculated by dividing the capital accessed by the number of months in the repayment period. However, borrowers should be aware that some lenders require the capital to be repaid in its entirety at the end of the drawdown period.
Some lenders won’t allow a second charge to be secured against properties, so borrowers should seek permission from their mortgage company first.
Advantages of HELOC
- HELOCs are a convenient way of funding one-off needs, such as a down payment on a second property, or renovation.
- Interest is paid only on the sum borrowed, and during the drawdown period, borrowers can repay just the interest.
- Upfront costs are very low. The cost for taking out a $150,000 HELOC loan is typically less than $1000 and may be paid by the lender without a rate adjustment.
- Some HELOCs can be converted into fixed-rate loans when a drawdown is taken.
Disadvantages of a HELOC
- HELOCs are adjustable rate mortgages (ARM) but are much riskier than a standard ARM thanks to the way the interest is calculated. If the interest rate increases on 30 April, then the HELOC rate will rise on 1 May. There are also no interest rate caps.
- Ensuring that the HELOC is repaid can require considerable financial discipline, especially if the capital must be repaid at the end of the drawdown period.
Buying a property to rent
As fewer people are buying their own home, there is a strong demand for rental properties across the country. This demand has been fueled by factors such as the 2008 economic crash, the high number of people with poor credit ratings, stagnant wages, rising house prices, and the increased mobility of the workforce.
Owning one or more rental properties can be a good investment in your financial freedom. But it requires careful consideration. It’s not like buying a home. When you buy your home things like space, schools and amenities will be your primary focus, and you’re likely to spend more to get your perfect house.
When choosing a rental, you need to look at the local market. Check with local real estate agents what type of properties are in demand and choose accordingly. It may be that single bed apartments are snapped up, or that there’s a shortage of family homes. Buying in the best locations with the best school districts will lead to more competition and overpaying for the asset and its income stream.
If you do your homework, buying a property to rent can be profitable over time. It’s a way of generating a passive income, while also building up savings through increasing the equity in the property. In many cases, renting will cover the mortgage and the taxes, if not generate a small profit on top.
Renting out your home
Should you want to relocate or want to improve your cashflow, renting out your own home is a possibility. However, this option comes with a number of potential complications – both financial and emotional – that need to be considered.
Financially, you’ll need to inform your mortgage company when your home stops being your residence. Different mortgage lenders have different rules for borrowers who convert their homes into rental properties. It’s common for them to require you to live in your home for at least two years. Typically, interest rates for buy to rent properties are higher because of the increased risk to the property, and you may need to refinance.
When you purchase a home, you invest in it emotionally as well as financially. You decorate it in your preferred style. You make memories there. You have a connection. Then strangers live in your home. Perhaps they’ll be good renters and take care of it as if it were their own. But perhaps they won’t and seeing what was once your home damaged can be a devastating experience. Even if you find good tenants, seeing someone else in your home can be an emotional experience. With a property bought purely as an investment, it’s much easier to be dispassionate and deal calmly with any issues.
Factors to consider when buying a property to rent
Just as with deciding whether to rent or buy your home, deciding where – or even whether – to buy to rent needs to be carefully considered.
Rent to value ratios
The Rent-to-Value Ratio is a quick calculation real estate investors run to determine if a property will cashflow. Take a $100,000 home that rents for $1,000 a month, the Rent-to-Value Ratio would be 1% ($100,000/$1,000). One of the biggest factors to consider when buying a rental property is the rent to value ratio. In some areas, such as Seattle, Los Angeles and the East Coast, properties are expensive to buy, but rents are relatively low. In these areas, rent to value ratios can be less than 0.75%, meaning that there is little chance of even covering the costs, making purchasing a property a poor decision. In areas where housing is cheaper to buy and rent to value ratios are much higher, then it makes sense to purchase a property and rent it out. Some markets you can find these Rent-to-Value Ratios over 1.5% in solid areas.
Type of property
As already mentioned, knowing the local market and which type of properties are in demand is important. A property sitting empty is costing you money, not generating it. However, even knowing that, there is still the decision as to whether it’s better to take on a more expensive property that will attract a higher rent, or two or more smaller ones that may have a higher rent to value ratio even though the rents are lower.
In real estate, the mantra is ‘location, location, location’, and that’s just as true for rental properties. Getting the location of the property right is just as important as choosing the right property type. If the market wants apartments in the city and large houses in the suburbs, buying an apartment in the suburb could be a costly mistake.
Location opens up other possibilities such as vacation properties. These can range from city apartments, beach or lake-front houses, to near big tourist attractions, anywhere that people are keen to visit. With the development of sites such as AirBnB, it’s easy to advertise properties for short-term rentals. While the property is likely to be empty at times this could easily be offset by the higher amounts that you can charge, and you can get to enjoy the property too.
Hopefully this guide has given you plenty to think about, and you now feel confident that you’re in a position to make decisions that will benefit your financial future. However, the right decision needs the right information, and so we’ve included these rent-vs-buy calculators from Realtor.com and Trulia.com to provide a personalized breakdown to assess whether buying or renting in your neighborhood of choice is most financially beneficial option for you.
The wealthy (not necessarily the rich) believe that home is not a place or house. It is the people that make a home. All too often a big house (the dream) is paired with long commutes and stressful jobs which minimizes the time away from home and what really matters.
The wealthy don’t attempt to keep up with the Joneses. They keep things simple and spend their resources (time and money) on the essentials and make sound financial decisions.
On an emotional note, although buying a home goes against everything from an investment standpoint there is something to be said about the security of owning especially if you have a family with kids.
We skimmed the surface on rental properties. For more information please visit SimplePassiveCashflow.com and check out our podcast.
About the author
Lane Kawaoka is co-owner of MFPE Investments LLC, which controls 1400+ units and where he is responsible for finding investment opportunities, analysis, and marketing. Mr. Kawaoka obtained a BS in Industrial Engineer and MS in Civil Engineering and Construction Management from the University of Washington. In addition to an analytical engineering background, Lane has real world experience in working as a project manager for over $220 million dollars of capital construction projects in both the public and private sector. Working as a high paid professional in Corporate America and frustrated by the traditional wealth building dogma, Lane was compelled to inspire and mentor other working professionals via his top rated podcast at SimplePassiveCashflow.com.
This course is currently in Beta mode and Beta pricing. Email Lane@SimplePassiveCashflow.com if you want a deal.
Week #1 – Introduction to the “Journey to Simple Passive Cashflow”
Week #2 – Seeing the Matrix – You will know why the middle class is shrinking and what you can do to continue your same standard of living
Week #3 – About Me – Learn about my background and why I have the formula for high paid working professionals to escape the rat race
Week #4 – Real Estate Investing from a 30,000 foot view part 1 – You will understand real estate investing and all the options. We will cut through the noise and identify what are the best options for the high paid professional
Week #5 – Real Estate Investing from a 30,000 foot view Part 2 – Continuation with the addition of downloadable tools
Week #6 – A free special gift
Week #7 – Fundamentals – You will get to know the basics of what every investor needs to know without reading a gazillion books or going through hours of boring podcasts
Week #8 – In-Field Experience – A guide to effectively network and build your investor circle
Week #9 – 2018 Trends – The Fundamentals don’t change but the market climate changes so here is the latest market report and things to be on the lookout for
Week #10 – Buying a Rental Property Part 1: Acquisition – Start shopping for deals and refine your criteria to be able to spot out your next addition to your growing portfolio
Week #11 – Buying a Rental Property Part 2: Lending – You can’t buy anything and use leverage effectively if you don’t know the basics of using the bank to your advantage.
Week #12 – Buying a Rental Property Part 3: Operation – Congratulations you are a rental property owner but that’s only half the battle. Now we focus on managing the manager so we can optimize our returns.
Week #13 – Buying a Rental Property Part 4: Mentorship/Networking – You net worth is your network. Don’t be that guy who repels help and good ideas and the last person to hear of the latest trends or work with bad vendors.
Week #14 – Half-Way Point! – Build your portfolio with the end in mind and with a holistic approach
Week #15 – Syndications + Apartments Part 1 – Understand why most sophisticated investors scale up to larger investments
Week #16 – Syndications + Apartments Part 2 – Find out how you can get access to deals once only accessible to the wealthy within the country club
Week #17 – Investor Mindset – Once you get started you realize that the possibilities are endless (I know it sounds cheesy but some people sign the front of the checks and some people sign the back)
Week #18 – Productivity – Following up mindset the limiting factor might be the fact that you suck at getting things done. Here are some of the best tips to increasing your output and having more time to do what you want to do.
Week #19 – Taxes – You will learn what you will need to know to prevent legal churn from a lawyer who does not know what they are doing
Week #20 – HELOCS/Refinancing – A great way to find lazy money to put to cashflowing rental real estate
Week #21 – 1031 Exchanges – Don’t be fooled but this talked about tax strategy. It is often not what cutting edge investors use.
Week #22 – QRPs – Got funds locked up in retirement funds? Lets free that lazy equity!
Week #23 – Life Insurance Banking – Its called life insurance but its use by the wealthy to bank from yourself and avoid taxes.
Week #24 – Other Financial Hacks – Other secrets I pick up by hanging out with wealthy people
Week #25 – Covering your assets – You will learn some ways to build legal protections around your financial empire
Week #26 – Conclusion – Pulling together the basic and advanced topics for you
This is the stuff you don’t hear talked about from co-workers!
Most so-called financial planners don’t even have a clue – although they are probably a nice guy.
These are the secrets of the uber-wealthy and specific mentorship groups that I have spent over $40,000 to learn over the past few years.
YouTube Link: https://youtu.be/_q1CV–qhBg? sub_confirmation 1
Text “simple” to 314-665-1767 to download the Hui Google Drive files and the 2018 Rental Property Analyzer
For a free electronic version of my bestselling book in 12+ categories text the word “ebook” to 587-317-6099.
Please help the show by leaving a review: http://getpodcast.reviews/id/1118795347
Join the Hui Deal Pipeline Club! SimplePassiveCashflow.com/club
Pardon the grammar – I’m an Engeneer, Enginere, Engenere… I’m good with math!
________Here are the Show Notes________
Revisit Episode 38 for insurance fundamentals.
Two recent claims broke the straw on the camel’s back for single-family homes.
Water claims has a lot of denials and payments.
If homes built in 1920-1960 and pipes haven’t been touched, chances are pipes are leaking.
Leaking –> cracked pipe –> pipes burst.
If property vacant, pipe leaking, and in cold weather environment, house needs to be “winterized.”
Establish pre-existing condition by taking before and after photos – especially if pipes in good condition when you purchase.
Defining cause of damage always murky.
Recoverable Depreciation = amount of money you get as long as you do the work.
Tenant in Episode 80 went AWOL and trifecta of theft, vandalism and maliciousness mischief.
After before and after pictures, frame claim with timeline of problems – ensures claim happened during policy period.
Ed runs Ross Diversified and insures nationally, such as investment properties, NPN, foreclosures, fix-and-flips, and more.
Best way to contact Ross Diversified: 1-800-210-7677 and/or Bruce Young at firstname.lastname@example.org.
This page is still under construction…
Last year I learned this cool financial hack utilized by the smart money. By being your own bank and using the Infinite Banking Concept you can create a dividend-paying whole life insurance. Its called life insurance but its just a tax code loophole to make a tax free yield in an account that is sheltered from lawsuits and creditors. I can assure you this is another thing you financial advisor or life insurance sales guys just does not get… likely because they are still working for a paycheck and it actually decreases their commissions.
The Journey to SPC – Episode 1 – 2018.06.14@$5,400/Mo
Get the uncut version by signing up for the Hui Deal Pipeline Club
Getting frustrated at W2
What are we talking about “Metric?”
What I don’t like about engineers
New Podcasts & Articles:
- My 1st Forbes article: How To Pay Off Your 30-Year Mortgage In A Fraction Of The Time – https://www.forbes.com/sites/forbesrealestatecouncil/2018/05/07/how-to-pay-off-your-30-year-mortgage-in-a-fraction-of-the-time/
- These past two podcasts drive home the point that you need to make money somehow to put into passive investing. As explained here Buck Joffrey – What is the formula to Wealth? – https://youtu.be/EI718_LBdC8=
- 115 – Flipping to passive rentals with Mark Ferguson – http://simplepassivecashflow.com/podcast-115-flipping-passive-rentals-mark-ferguson/
- 114 – Turning Active income into passive income in a Primary market with Jennifer Beadles – http://simplepassivecashflow.com/podcast-114-jennifer-beadles-turning-active-income-passive-income-primary-market/
- HELOC Downloadable Cheatsheet
- Jay Papasan – Author of “The ONE Thing” – https://youtu.be/4K4VFnGpfJo
- Backwards Engineering Happiness: The Needs after the Simple Passive Cashflow – SimplePassiveCashflow.com/happy
Not ‘Faux’ News [Lane’s Real Talk]:
- May Yardi Report – Link – U.S. multifamily rents rose $4 to $1,381 in May. This represents a 2% year-over-year increase but a 50-basis-point decline from April, as new deliveries took a toll on occupancy rates and growth.
- Syndication chart – https://drive.google.com/open?id=19hLpGJnaHzFs5YfiWiBK30Bc3jk1zFa8
- Syndications comparisons – https://drive.google.com/open?id=1p3OpRBrIHQVPVT1VEQpLZ_rszMCRqnRz
- Syndication cartoon video (for those visual learners) – https://drive.google.com/open?id=19_DD4uWbj8vkutJMmi5r2Qw7sKR-R7fD
- Homeownership very slightly goes up to 64% due to younger people [finally moving out of Mom/Dad’s]
- Apartment construction starts not yet slowing [I am watching for deceleration – seems we are in steady velocity state]
- The first big rollback of Dodd Frank [I don’t really know what huge impact this makes yet]
- The Fed will likely raise rates in June and again in December [They are always been saying this]
- Amazon top candidates
- https://www.metroatlantachamber.com/resources/most-popular/fortune-500-fortune-1000-in-metro-atlanta [Fingers crossed since I have half of my Altanta SFHs to sell]
I don’t care about politics but lets understand what’s happening…
Everyone saw Trump shaking hands with KJO from North Korea
For nearly 20 years, U.S. foreign policy has been dominated by military campaigns in Iraq and Afghanistan.
Fighting two wars made it necessary to make deals with other nations to secure key strategic military placement (ie bases in Turkey).
Everything is connected and when you become aware of this the world’s events make sense.
Turkey attacked the Kurds because they knew the U.S. would value the air bases in Turkey over supporting the Kurds.
Russia annexed Crimea because they knew we wouldn’t intervene militarily (Obama would not send more troops).
China built island naval bases in order to expand their military presence.
When the cat’s away the mice play…
Seeing the end game, Russia seized Crimea because they correctly calculated that Obama would not put U.S. troops into yet another battlefield.
Trump’s policy is more independent and less reliant on other countries.
When Saudi Arabia recently petitioned the U.S. for military support, Trump told them to pay for it.
When the UN voted against U.S. agendas, Trump told them that the U.S. would review the support and money it gives to countries that consistently work against the U.S.
One could describe this as hardball. It works in a lot of real estate deals when the winner is the party that is willing to walk away first. Who knows if it will work in world politics???
Right now the US economics look good and rents continue to raise at a steady pace (although not expected to mimic the growth in 2014-2016).
Although we all shake our heads at stories like this…
“allow … borrowers to have FICO credit scores as low as 500 … can take out loans of up to $1.5 million … can also do cash-out refinances … up to $500,000. Recent credit events, like a foreclosure, bankruptcy or a history of late payments are acceptable.”
Other stories remind us of the big picture…
“Community banks, which enjoy broad support among Republicans and Democrats, will be freed from Dodd-Frank’s mortgage rules if they make fewer than 500 mortgages a year.”
This unraveling of Dodd-Frank with make lending easier, which is awesome for real estate investors.
Hacking my 6 needs…
- Growth: Revamped my messaging to you. I will start doing these monthly tailored messages.
New initiative: Per the advice of my new health advisor (who said “my VO2 max sucks”) I an starting the day with 5-10 rounds of high intensity calisthenics to get my heart rate over 140 bpm. This should be done in 5 minutes and continue in the fasted state after. Recently I paid for a health MD. It’s cool because he took my blood biomarkers, did a DNA sample, and gave me a supplement plan. We get together and chat about how things are going with Dex scans and VO2 max readings (think Gatorade commercials with Lance Armstrong with the mask on while biking). It cost a couple thousand dollars but I figure it can’t hurt. Your health is wealth. He sold me when he said “MD’s are normally idiots” (He is an MD himself).
Morning time supplements:
Vitamin D3 – 5000iu
Omega 3 – 2g
Vitamin K2 – 1g
Alpha Liponic Acid – 1
Multivitamin – 3
DHEA – 1
CoQ10 – 1
Zanthosyn (Astaxanthin) – 12mg
Anastrozole – 0.5mg
Evening time supplements:
Melatonin – 3mg – PM
Zinc Magnesium – 2g
Zanthosyn (Astaxanthin) – 12mg
2. Contribution: I interviewed four candidates for a job. I don’t know if I will work with any of them but I feel like I definitely helped them get where they need to go. Apply here.
4. Uncertainty: Doing a syndication in a new area in a new partnership. Finishing up two flips (38k & 21k) in Atlanta and will put on market $oon.
5. Certainty: I got bonus depreciation on my K1 and got first distribution checks from Syndications per plan. Also got paid back on a 2nd lien private money loan I did on a flip. And replenished money back into investinahp.com right before the 12% fund closed. A lot of my deals are starting to get cashflow now.
6. Love/Connection: Helped out a few people locally at my meetup get out of a tough legal situation with a lawyer referral. Hosted a mastermind meeting with like-minded people. We had whiskey it was good fun and I think I will continue. I realized part of the reason I don’t like my W2 job is that I am surrounded by W2 mindsets and I too am a product of my peer group.
What I need help on: More time – need to add staff or I will just continue to be a super employee of one. Join my team!
#LaneHack – I use a lot of Gmail inbox labels. Here are some great suggestions in this article.
I especially like the one about filtering all emails that have the keyword “unsubscribe” which are likely to be things trying to sell me things.
It’s not all about Money:
Flowstate – Song of the month – Avicii Bromance – Avicii died this past month 🙁 – Sign up for the Club to download 😉
Be ready for the best sunset and sunrise captures: https://sunsetwx.com/
Join the club and find out what the easter egg is…
Life is funny, about the time you achieve something you realize that there is something else to go after.
When I was going after that magic number “10” single family homes I was all consumed by the chase. Then when I got there the next goal was 1,000 units. Got there and it was the same result. Taking a step back I realized that happiness was not about getting to a magic number or properties or money (although it is a great way to keep score).
I wanted to get back home to Hawai after 14 years of living in Seattle. Done! (And you can see why by visiting)
For a long time, I have written down my “I would be happy when…” or IWBHW’s and they always change and I am always chasing the next thing. Not until recently did I realize that it was not about the chase to the next goal but embracing and enjoying or the Journey… Follow along on mine.
We all have heard about the Gallup article that said that once someone has $75,000 of income a year their happiness does not grow by leaps and bounds. I’m not here to debunk it but to ask why and more importantly how can I apply it?
I have built up a large network of other investors who have enough “simple passive cashflow” and the common thought pattern switches from making money to getting back time and living a more fulfilled life.
These days I ponder… how I can hack happiness? After all, more money won’t make that much difference. (Although I would like a
I tried using Maslow’s hierarchy as a framework to dissect happiness but I have found it to be a little too bit “basic” as it applies more to those in third world countries and people with real problems in life. I don’t want to sound basic I mostly have “first world problems” which I am very grateful for.
In 2016, I went down to Texas to attend a Tony Robbins seminar and discovered my current framework to backward engineer happiness.
Mr. Robbins outlines six human needs:
6) Love and Connection
The lowest on the spectrum of human needs is to be Loved/Connection.
Action item: How can I get more Love/Connection? Schedule it? Attract more people of that nature? Create a podcast and network of other like-minded investors.
Certainty and Uncertainty are complete opposites. Certainty is having a reliable and safe life but at some point, we thirst for spontaneity.
Action item: How can I get more Certainty/Uncertainty? How do I build a routine? How do I put myself in places to get lucky? How do I free myself to go on more controlled impulses?
Significance is about feeling special.
Action item: What do I do that is my competitive advantage? Where can I get praise?
Contribution is about aligning your life’s work for the benefit of others. A mission. Apparently, Mr. Robbins did not endorse the mission of sitting on a beach with an unlimited supply of piña coladas and taking food porn pictures while gallivanting the world as a tourist. Nor did he support playing it safe with a bunch of passive investments.
Action item: What has been your biggest pain point growing up and maybe you can help others? What pisses you off most in this world? Realize that you might have to take a bit of monetary risk here to make a bigger impact.
Why do you think I accept non-accredited investors into my projects? Not because I love being super careful to follow SEC regulations. Certainly not because I have to expend so much energy to educate non-accredited investor and they invest all their money in just a couple deals. I do it because the middle-class non-accredited investors who go to work every day need these types of investments the most and damn it, I’m going to do that because it’s the right thing to do.
And the final need is Growth. Improving as a person.
Action item: Think about the different aspects of you life (physical, relationships, money, spiritual, to name a few), which ones need work? Many call this the wheel. I call it a stool (four pillars: health, relationships, spiritual, money/business) because I try to make things simple.
Tony Robbins six needs is a great starting point to see how we can increase our happiness. If you really think about these are the things that really make us happy. Lets us put focus on what makes us happy because in the end, that is what really matters. And the score of the game 😉
In another study, researchers asked 10,000 people to list 10 happy moments. This generated a corpus of 100,000 happy moments called HappyDB.
Here are the patterns that came up.
Here is where the team/comradary componet came into play…
Complete study write up.
Too often passive cashflow is associated with scammy multi-level marketing ploys to get people who don’t have the money in the first place to buy into expensive education systems. If the goal was to just make money and not to create value there are many things you could do such as sell drugs or sell a testicle.
“Hey man… let me tell you about passive cashflow and how you can get rich with little to no effort… do you feel that… its called entropy man!” (In a sleazy tone)
As mentioned before SPC-1.0 is getting into the rental property game and getting your mindset out of the Dave Ramsey/Millionaire Next Door lizard brain where you are just focused on putting food on the table and making ends meet. As you build up your cashflow you move from more scarcity mindset to abundance mindset.
SPC-2.0 is turning into more of a passive investors as I have traded my single family home rentals to more scalable limit partnership positions in syndications, and now after I have cashflow (food on the table) I can take some risks and go after SPC-3.0 which is Simple Passion Income.
Being a working W2 professional I have a soft spot for those in my position… It makes no sense for a computer engineer who has a family and working 50 hours a week at a $200K W2 job to do what is required to become an operational lead on an apartment deal. Doing such would require 12-18 months of relentless work without monetary gain and little success to build relationships with brokers, travel to the markets.. and put up hard money to close the deal.. I have tried to make a team atmosphere where talented professionals can dip their toes in to “scratch their entrepreneur itch” yet keep their regular salaries.
“Entrepreneurship is all about you! A job is more about sucking up and politics.”
All too often the entrepreneurs out there reaching success are not those who possess the skillsets but they just went after it and got lucky. Don’t get me wrong they deserve it because of all the sacrifices but imagine if you combined that grit with talent?
Ikigai is the alignment of doing something that is 1) you passion, 2) makes money, 3) you are good at and 4) good for the world. When you get this it is like arranging the Infinity Stones on the gauntlet and a higher level of achievement and happiness.
What is SPC-4.0? Maybe mentoring the next generation but at that point, we are playing with house money!
“What do I love to do and get paid to do it” Russell Grey or the Real Estate Guys Radio show.
The pursuit of an entrepreneur dream is not for everyone.
It requires an investment in time and money. And whenever you make an investment, you take on risk. In this case its taking time and energy away from a day job that already makes a lot of money.
In order to get enough critical mass behind an idea to turn into a thriving business, you must devote time, often many years. There are no guarantees that your efforts will be rewarded a lot of time luck is required. This Time Risk is that all of your time will be for nothing.
The saying “good is the enemy of great” comes to mind here. For many high paid working professional, you make enough money to be happy but part of what we are going for is not the extra wealth but “passion income.” Feeding that entrepreneur itch or as Buck Joffrey says that primal to our core instincts.
Except from the 12+ Time Best Selling Book:
The One Thing That Changed Everything: The Engineer Who Escaped the Rat Race and Achieved Escape Velocity
I walked the linear path for much of my life. Raised as part of the disappearing “middle-class” programmed me to study hard in school, checking the boxes on extracurricular activities, cramming for the SATs, and getting a high GPA to get into college, all to live a “practical” life.
Growing up, we were told to “waste nothing” and turn off the lights every time you leave a room. I still feel guilty to order a soft drink at a restaurant as opposed to tap water.
In college, while other cohorts were playing Frisbee in the quad, I was stuck in the basement of the industrial engineering lab. Why was I not playing the sun? Because Google told me what the highest paid undergraduate professions were. Driving on autopilot for much of my early twenties, I went for a higher-level master’s degree and tested to become professionally licensed as an engineer for the job security.
Upon entering corporate America, I spent my first five years of my career working for a for-profit, private company as a construction supervisor managing a bunch of entitled journeymen who were older than my parents. Facing the rigors of junior level employment, I played my role as the young guy, traveling 100% of the time for my company, sacrificing quality of life, as I navigated the operational clusters, toxic management, and other backstabbing pawns in the company.
I have a lot of scar tissue from that decade of working for the man not to mention building someone else’s dream. You tell me how engaged you would be if meeting protocol was to sit next to your superior and not speak unless directly instructed to or if you were asked to address a director two levels up by mister or misses!
One day an internal company email went out notifying of a friend/ex-direct report had died in a work accident. My boss was uncompassionate about the situation, looking out for the big bad machine first (mostly his annual bonus and agenda). This really put things into perspective for me.
As a corporate road warrior, it was novel being on company expenses all the time and maxing out on airline and hotel points, but you can only have steak and lobster so many times… The only people who cared about my platinum status were the other suckers in first class who were working for the paycheck or an acceptable quarterly review. Although I am grateful that I had a well-paying job post-2008 recession, I traded the most important resource, time, for money.
The linear path instilled delayed gratification, living below my means, and an overall scarcity mentality of saving money instead of earning more, being more. I was entranced by the pervasive Wall Street marketing to blindly put money into a company sponsored 401K plan only to “hope and pray” that compound interest would carry me to a secure retirement.
Let’s not even talk about the student loans I had…
I knew where this path was going…I mean I did the math and it told me so. This is my story of how I freed myself financially, how I took ownership of my life’s direction, and the series of events that allowed me to find my calling.
Seeing the (Economic) Matrix
A steady diet of ramen noodles and a free birthday latte per year made it possible in 2009 to purchase my own home to live in. Being a bachelor who was only home on the weekends, I realized that having this large home was a waste of money. I made a decision to rent it out and became a real real estate investor. You might be thinking that this was the big change, but at the time it was simply a lot of beer money after collecting the rents and paying the mortgage.
I don’t know if it was the beer or being love drunk with cash flow, but I opted out of the linear path in my early twenties.
From that point on I devoured podcasts, books, and online forums on every keyword iteration of passive real estate investing. At a few hundred dollars of passive cash flow per home, the process was simple, buy a rental property where the income exceeded the expenses and mortgage, then rinse, wash, and repeat. Like a space shuttle that accelerates through gravity and escapes the atmosphere into Zero-G, this was my way to financial freedom. Up to that point, the biggest breakthrough in my life was discovering the .MP3 format that compressed and played music digitally in my teens. Using this intellectual technology, I progressed intentionally to eleven rentals in 2016.
At that time, a few of my friends wondered why my ramen noodle diet was being replaced by Starbucks coffee and yummy double bacon and egg breakfast sandwiches. They wanted a piece of the action too. Duh, it was about time seven years later, said the little red hen who did all the work by herself…. As much as I liked helping people, I got tired of answering the same questions. So what does any other late Gen-X/Millennial do but start a blog? Unfortunately, the words I write, even if spelled correctly do not usually make proper statements in English, so I uploaded my Simple Passive Cashflow podcast to iTunes where I could ramble and honestly talk about what I was going through as an investor.
I began living more consciously, opting into more meaningful engagements with people and projects, and searching for meaning and purpose. I was beginning to ask myself, “after sitting on a beach with my unlimited supply of piña coladas and time…then what!?” Needless to say, my motivation for working in the hostile work environment that I once tolerated dwindled, so I switched to work in the non-profit public sector. I started to see the economic “matrix” where people essentially trade time for money and the rich let others build their dreams.
Being an introvert, it was paradoxically energizing to see my audience grow as I began in-person meetings and online groups I sponsored. I provided hundreds of free coaching sessions to guide newbie investors. With my engineering background and a little “bro-science,” I saw patterns arise in the stories from well-paid professionals who were led into an unfulfilling lifestyle unaligned with their passions. Abolitionist Henry David Thoreau said, “The mass of men lead lives of quiet desperation and go to the grave with the song still in them.” People do not have any time to look inwards and are constantly living with anxiety and self-doubts because they are working like machines in order to meet their basic needs without the freedom to find their true passion.
Why did so much hard-work lead to financial scarcity and lack of fulfillment?
This self-selecting group of hard-working professionals searching for more all had a common thread. A moment that pushed them over the edge and made them realize that the path they were on was unacceptable.
These are some of those tipping points:
- Seeing younger, less experienced workers being “red-circled” as future management and advanced through the company “fast-track”
- Being fired to cover up shortcomings in a budget
- Internal theft by upper management
- An affair by a superior lead to bankruptcy of a startup company affecting many innocent employees
- Chronic drain of working with deadbeats
- Getting lost in the office politics of getting your objectives completed when they do not align with your boss’ objectives
- A retirement party for a coworker is catered with crappy Chinese noodles due to the cost control
- When you don’t get the job because you do not have enough grey hair
- Because you have too much grey hair
- Being criticized for not being business savvy from those who live paycheck to paycheck (when you have a personal portfolio of a few hundred rental units)
- Sitting through endless meetings that should have been sufficed with an email
- Circle jerk meetings where the boss’ dumb ideas are exalted by their minions
- When your boss with no technical experience misuses terms like artificial intelligence, big data, machine learning, and deep learning
- Being enslaved with the “golden handcuffs”
- Seeing an ambulance come to the office routinely during layoff season
- Being around the negative W2 worker speak and adopting the prevailing victim mentality
- The road warrior gets an early quit on Friday only to see the spouse at home with the pool boy
- Watching your friends receive the Seiko stainless-steel watch retirement gift
If you have found a calling in something you are good at and truly love doing it…clap, clap, good for you. Keep doing what you are doing and consider yourself lucky. If you relate to any of the moments above, read on.
The One Idea
My online journal resulted in many emails of gratitude and acknowledgment because I was empowering people with the “how to” and inspiring them to take a leap of faith to change their financial life forever. I suspect the most effective part of my message was showing people that if little, awkward engineer me could do it, how bad could it be?
I started up-leveling my peer group, and through osmosis, this brought me to a Tony Robbins event where I literally walked on burning coals! There were a multitude of top-down and bottom-up techniques Tony Robbins spoke about during the intensive four-day event. One of those lessons was “things happen for a reason,” and boy, was I glad I did not leave to use the restroom when he outlined the six human needs:
6) Love and Connection
Here was the game-changing moment…. Tony Robbins said, “The most important thing is contribution because the secret to living is giving. If you catch onto that, you start realizing that there’s nothing you can get that comes close to what you can give. Life is calling all of us to be more than just about ourselves and that is when we get that spiritual hit.”
Apparently, Mr. Robbins did not endorse the mission of sitting on a beach with an unlimited supply of piña coladas and taking food porn pictures while gallivanting the world as a tourist. Nor did he support playing it safe with a bunch of passive investments.
Later that Easter, I was baptized, and the message there too was “go forth” and help others.
Then another of my mentors, real estate legend Robert Helms, said, “When you are successful you have an obligation to send the elevator back down.” I made it to my penthouse and now I and this elevator are heading back down to get folks!
We all have a finite time on Earth and an empty canvas to create a legacy. This was my one shot! Opting out of the linear path was not about getting financially free and sailing off into the sunset, but it was about standing up for change and creating the greatest impact!
The fan mail all followed a common thread of pain. Many hard-working professionals who are busting their butt on the linear path are being misled down a comfortable life of un-fulfillment. Many of them were enslaved by the “golden handcuffs,” running in the hamster wheel of the day job working for someone else. Some, like doctors, lawyers, dentists, accountants, and engineers make more money to get the big house and nice car, but in the end, they are just a bigger hamster. The dogma of the Wall Street “buy and pray” method is a cover up to insidiously steal investment returns from the people who are doing all the work.
Life is a three-phase screw job:
Phase 1: You enter the workforce with the worst jobs with the lowest pay. Time is abundant.
Phase 2: When marriage and kids enter the picture (and ailing grandparents) this is the time when one should be excelling at their time- consuming career. Money is abundant.
Phase 3: Your teenage kids hate your guts and your health starts to fail. Time is abundant.
The Next Chapter
My mission is to teach and empower good people to realize the powerful wealth-building effects of real estate so they can spend their time on more important ventures and passions instead of working long hours and worrying about their financial troubles.
In real estate we use leverage, and by teaching others, I am leveraging other people to achieve their financial goals in hopes that they too will send the elevator back down for the next person.
SimplePassiveCashflow.com seeks to educate those looking for diversification and better returns outside of traditional investments such as mutual funds and stocks. This is part of a large effort to redirect billions of dollars going to the corrupt Wall Street roller coaster and help the shrinking middle-class find safer and more profitable investments in projects that benefit Main Street such as affordable workforce housing rather than luxury housing for the rich.
The true meaning of wealth is having the freedom to do what you want, when you want, and with whom you want. Building cash flow via real estate is the simple part. The difficult part occurs after you are free financially to find your calling and fulfillment. But that’s a great problem to have 😉
Time is the most important resource. You can trade time for money and vice versa. It is pretty rare that you can not throw money at a problem and make it go away.
I stumbled upon a great visualization of your time. Basically, the yellow below is the time we sleep, blue is leisure, and light blue is at work. See the diagram here http://flowingdata.com/2017/05/09/adulthood-days/
- If you have not started investing… when the heck when? Get a mentor and compress the learning curve, decrease costly mistakes, and get on with your life!
- There is only a limited amount of time to create a legacy… VAs or Virtual Assistants I use.
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Some of you had questions about Virtual Assistants which I have had some growing pains with…
Take 1: I went to various countries/regions Craigslist where I heard there was cheap virtual labor such as the Philippines, Ukraine, Latin America, Eastern Europe, Etc. I created a generic posting for a Virtual Assistant and a link to a Google Form that I created that was supposed to farm data of willing workers and ask binomial questions such as if they had experience with graphics, audio editing, Excel, English, and how much their hourly rate was. This was a success and the idea was that I would create a database that I could BCC the emails to competitively bid projects. Unfortunately, when I sorted my list for the desired skill I was looking for, I discovered that many of the potential candidates sent generic resumes back. They did not even read the job description. I guess as the saying goes “shit in shit out.” Tim Ferriss talks about giving strange instructions to potential job candidates such as a requirement to fax in their application (in an age of limited fax access) to see which candidates follow directions and can overcome minor Resistance of not having fax machines.
Take 2: It seems like the tasks are taking a lot more time than it should. To some respect, that is to be expected. What I am trying to wrap my head around is the cultural differences not to mention the language barrier. In some of these Asian cultures, honor and face are utmost importance and sometimes it is culturally the normal to lie to save face. In America, we preach stepping up and admitting fault and moving on which I believe is a true demonstration of high value. So it’s a little frustrating… I know the internet sucks at these places but give me a break. I am just surprised they are not telling me their dog ate the GoogleDoc. Successful people take ownership and I accept this as MY fault in terms of me not having my job scope defined and linear instructions for the virtual assistant to carry out. If my virtual assistant misses on the deliverable or takes too long I take full responsibility.
Afterthoughts: A great discussion at a recent Mastermind I attended around this topic. Seems like a lot of people are backtracking from cheap (sub 8 dollar an hour labor) and opting for higher quality workers. I believe the vision of an employee is to get something done cheaper than your personal hourly rate, also get it don’t faster, and with a “Sir… I was completing task X and I found this wrong in our process so I took care of it and wanted to discuss this with you.” I don’t know if I will ever achieve this level of initiative in any person trading their time for money but one can only dream. Until then I will try to switch to a more project-based system as opposed to having a VA on call for a 10-40 hour set time. The cons of this project-based methods are that it requires more touch points for me to keep micromanaging each project and this is the exact reason I am looking for help in the first place. Time is the most important thing Jelly Bean. https://www.youtube.com/watch?v=BOksW_NabEk
The Random list of tasks to outsource:
1. Organize your travel (including learning your travel preferences). This includes making all your travel arrangements,
organizing all your flight info into your favorite travel app, and even remotely monitoring your travel to be ready to deal with
any missed flights or oversold hotels.
2. Handle billing disputes.
3. Help setting up bills onto auto payment on your credit card.
4. Address and mail cards, letters, and packages. Sure you may still handwrite the thank you, but do you really need to look up
the address and post the letter?
5. Update your contact manager (or CRM database).
6. Screen your e-mail and handle low-level responses. This includes deleting or archiving things you don’t even need to see.
7. Update your blog and social media accounts.
8. Organize and manage your filing system, both paper-based and scanned e-files.
9. Take dictation (either live or via recordings, perhaps using Voxer, one of my favorite apps).
10. Set up appointments and hold your schedule.
11. Gather all the needed data and prep information for all your appointments. For example, I ask my assistant to put to the
memo of any appointment she posts to my calendar any recent email exchanges and the contact information of the person
I’m meeting with. This saves me untold time when you compound this service over 15-20 meetings I hold each week.
12. Daily clean-up of your office, including refilling items.
13. Screen phone and e-mail so you don’t get the interruptions.
14. Take notes at key meetings and follow up with attendees on key deliverables.
15. Keep a master chart/list/calendar of your projects and deadlines and set reminders.
16. Tickler all birthdays and anniversaries, holidays, or other important dates, and even arrange for gifts, cards, or phone calls
that make you look good.
17. Update his or her own “Project List” so that all the tasks and deliverables they are responsible for in one place for you to
18. Get, open, sort, forward, handle, and if need be shred your mail.
19. Coordinate with outsourced vendors when you have an IT issue. You just work from a back-up computer for the day and let
him or her troubleshoot it with your IT vendor.
20. Order things online for you and handle any product returns or service issues.
21. Handle any personal errands or schedule any household repairs. Yes this is perfectly reasonable as it saves you time that
you can reinvest in creating value for your company.
22. Notarize your documents by becoming a Notary Public in your state.
23. Help you to streamline your office—filing, sorting, and systematizing wworkflow
24. Basic updates to your Web sites.
25. Create and continue to refine the “expert system” for how to be your assistant (this one should be part of their job function
right from the start). This way if you promote your assistant they have created the core system for your next hire. If they leave
you to work elsewhere, the transition is much less painful.
26. Dealing with tech troubles on your phone or tablet computers. They can do this during the day when you’re in the office doing
other more valuable work.
27. Any parts of your projects that he or she is capable of doing for you. Constantly be on the lookout for things to try them out
doing. For example, my assistant helped expand the syndication reach of my business articles by over 100,000 annual
28. Download movies or audiobooks
29. Search for contacts of people you need to meet
30. Bookkeeping with a CPA or without one
31. Edit videos
32. Make calls
33. FInd sellers
34. Take Calls from leads
35. Call banks to find a portfolio lender
36. Assemble a list of podcast guests to contact
For the limited offer coaching from Buck and program: Simplepassivecashflow.com/buck
Video Version: https://youtu.be/jq0MhXDEzzA
Audio Version: https://youtu.be/TUmVLqNNtlE
Text “simple” to 314-665-1767 to download the Hui Google Drive files and the 2018 Rental Property Analyzer
For a free electronic version of my bestselling book in 12+ categories text the word “ebook” to 587-317-6099.
Please help the show by leaving a review: http://getpodcast.reviews/id/1118795347
Join the Hui Deal Pipeline Club! SimplePassiveCashflow.com/club
Pardon the grammar – I’m an Engeneer, Enginere, Engenere… I’m good with math!
________Here are the Show Notes________
We heard you on podcast 17 and you told your story – http://simplepassivecashflow.com/podcast-17-serial-entrepreneur-dr-buck-joffery-wealthformula-podcast/
Hearing your story high paid doctor. Describe yourself as an employee?
Great butt kisser
Lane’s getting fired story
So you were fired what gave you the security to not go back?
Lane’s getting fired story
Why professionals are trained to go through the system
The two excuses why not to leave the professional system
Wealth formula – Mass (money) x Velocity (Leverage) = wealth
You need to make money
What happen to assisted living project?
Taking shots and trying things out? Where is the transition point from taking singles to going to homers?
We are talking about Jorge from Simplepassivecashflow.com/ahp
SPC listeners are usual creatures. Get me in a room with a bunch of W2 workers talking about their frequent flier miles and their cars and I’m completely turned off. What are your thoughts on coping with this?
What are some ways you teach the entrepreneurial spirit with your kids?
What if they just want to work for the man or do peace corps?
Simplepassivecashflow.com/buck to get the free 1-hour coaching offer from Buck.
Our worst W2 moments which were our Han Solo Moments
How to make it as a medical professional? – Kiss Butt 😁
We are robots.
For more content go to Simplepassivecashflow.com/buck
Check out all the videos on our YouTube channel. Subscribe to get the latest and hidden videos.
Des Moines, Iowa – 52-unit C+ Class Apartment (April 2018) – Video
San Antonio, TX – 192-Unit Class B+ MFH (March 2018) – https://youtu.be/-5h2GKZ3I58
San Antonio, TX – 253-Unit Class B+ MFH (March 2018) – https://youtu.be/vj8ZMteppfg
Oklahoma City, OK – 170-Unit Class C MFH (March 2018) – https://youtu.be/3n4Kan6fmAw