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Sometimes ignorance is bliss.

Success can be spoiled by learning additional information. It might be preferable to just not know, continuing to believe whatever you choose to believe.

For example, what if you were a baseball player in the late 90’s when everyone was using steroids, but you stayed away. You didn’t want to cheat. Everyone knows you didn’t take them. It is a large part of your identity and how people remember your time in the game.

Then you come to find out that protein powder your trainer was giving you actually included a whole bunch of stuff that is illegal and performance enhancing. And it shatters your clean image you have of yourself.

Wouldn’t it be better to just not ever know?

Is a 90’s baseball player really the intended audience of this article? Brian, how about you write something people can actually relate to…

Ok let’s try again.

You are one of the top salesmen at your company and work extremely hard to reach your numbers year after year. And you go about it the right way – no lying or tricking people, for you it is all about building a trusting relationship and selling exactly what they need, nothing more.

Your character means everything to you. But it turns out all your success is built on a lie.

You accidentally open a spreadsheet on the corporate file and see all your accounts listed. There is a column for the sale price, which you are very proud of, and another that is roughly 10% of it.

The mystery unravels when you start asking questions. Your corrupt company budgets a certain amount for bribes. It turns out your boss has been giving kick backs to the decision maker on almost all your sales, and hardly any of the other sales. Why yours? He is racist and sexist, deciding to help you, the white male on the sales team.

Are you actually good at your job or did they just buy because they got money under the table? Are you a good person for keeping all those commissions for the last few years? You already spent the money on your kid’s private school education or donated it to the poor, so it’s not like you could just give it back.

You quit, your identity is shattered, you never trust a company again, can’t hold a job, lose all sense of self-worth, and your family leaves you. Sometimes ignorance is bliss.

What About Investing?

If you have success as an investor, you will believe you had a large part to do with that success. Your intellect and skill led you to success.

But is that true?

What if you view investing through the lens of a casino? Just because you are betting on red and the ball lands on red 30% more than black, you wouldn’t think that’s because of your skill. You wouldn’t think you are smart because you had the foresight to choose red over black. You know it will even out with a long enough time horizon.

What if your investing success is just luck over a short time frame?

Even if you have been in the stock market for 20 years, it is possible a big crash is right around the corner. 20 years certainly sounds like a long time, but it isn’t enough to see the big picture.

From 1980 to 2000 the Dow Jones went up 1290% – if you picked individual stocks in 1980 and died in 2000, you left the earth thinking you were a stock picking genius. The annual growth rate was 14%!

From 1996 to 2016 the Dow Jones went up 230%, roughly 6% per year. Not a horrible average yearly return, but there were a couple huge crashes that were truly frightening. You sure wouldn’t think of yourself as a stock wizard.

What about for Rental Property Investors?

There are the same issues with market cycles – for a 10 or even 20 year time period you might get lucky (check out How to Visualize the Real Estate Cycle).

The expenses are also inconsistent, which complicates things as well. The first year you own a property, its AC unit could die. Does that mean you should expect to replace it every year? No, of course not. You’d visit a site like castlehomecomfort.com/service-areas/philo/ and ask for a repair quote. Having it fixed would be much more affordable than replacing the whole system. But, at the same time, does this mean you will never have to pay out on the AC unit again? Afraid not! Regular tune-ups are essential – just ask First American – and there will no doubt be problems in the future that will cost money. That’s just life.

Or you could be in my position, 5 years in as an investor without any huge expenses (roof, HVAC, water heater, appliances). Does that mean this will always be the case? No, of course not. I know that one day I’ll more than likely need to get in contact with a repair company for something, such as an AC repair company should my AC units eventually break down.

I was actually talking to a friend of mine about this the other day. She has recently had a new roof fitted on one of her properties. You see, she decided to replace the roof before it got a chance to become any more damaged. In the long run, paying to have the roof repaired now, has probably saved her some bigger costs further down the line. Besides, it is no secret that small issues with a roof can lead to bigger, more expensive problems in the future. With this in mind, you can learn more about the benefits of tackling any roofing issues as soon as they arise by taking a look at roofing websites like https://carolinahomespecialists.com/areas-we-serve/durham-nc/.

Ultimately, it is hard to get the complete picture with a small sample size. Right now I am at 7 “property-years”, because I have had my Atlanta property 5 years and my Memphis property 2 years. It might take 100 property-years to have a clear view of the frequency of large expenses for rental properties.

Get In the Game

There is no substitute for experiencing something on your own. You could learn all about the stock market and the huge swings in the past to come away with a very logical view of it all. But until you go through a crash with a significant portion of your savings quickly evaporating, you won’t know how you will behave.

It is wise to have the learning happen now with a smaller chunk of money. Don’t make the mistake of thinking you can sit on the sidelines perfecting your education without any skin in the game – it’s not the same.

With rental properties there is even more to learn – each property-year bring additional experience. Simply testing the waters with one property will deliver a different type of knowledge than books, podcasts, and blogs.

So get going.

Do you agree first-hand experience is necessary for investing? How do you avoid reading too much into your investing success even over a couple decades?

You ever hear that story about boiling a frog?

It goes, if you put a frog in a pot of boiling water, it will jump out. But if you put a frog in cold water and slowly heat it to boiling, the frog will stay in the water and die.

Wow, morbid opener Brian – everything ok?

The point is you don’t notice changes that happen slowly, but they accumulate over time. Don’t ask “is this situation much worse than yesterday?” Instead step back and view it objectively.

Instead of killing a frog, let’s build a positive example.

Inheriting Rental Properties

We are looking for a situation where if you suddenly get something great, you jump out like the frog. But if you slowly build up to something great, you stay in.

There has to be a negative aspect to it that forces you to jump out. At first glace, you don’t know how great it is and only see the negatives.

Imagine inheriting a portfolio of 20 rental properties with zero real estate investing knowledge or experience.

You know there is $550k in equity and there is an investor who will give you $500k for all of them as a package. No hassle even selling them individually. No need to learn how to manage rentals and do repairs. Besides, you are retiring soon and that $500k will give you a nice cushion for your 4% withdrawal rate.

So you get out as quickly as possible. You sell the whole portfolio.

Slowly Gifted Rentals

Instead imagine you are gifted a rental property. You know it has almost $20k in equity, but if you sell it, that won’t have much of an impact on your life.

So you decide to keep it and continue renting it out. It is kind of a hassle and there is a lot you don’t know, but a property manager does most the work and you can always get advice later if you run into a sticky situation.

Then next year you are gifted another rental property. Ok, not too different, you barely spend any time worrying about the first property.

Then the next year you are gifted another. And the following another. And so on for 12 years.

As you build up these years of experience, you understand the value of the monthly cash flow and accumulation of equity. So even though it ends up taking more of your time as you progress towards 12 gifted properties, you keep with it.

12? Don’t you mean 20?

We want to end up with an identical situation to 20 properties with $550k in equity. If you were gifted properties for 20 straight years, you would have way more equity than that.

Instead, you are gifted 12 properties over 12 years. At that point you know you won’t receive any more gifts, but if you reach 20 properties you can retire on the cash flow.

So you refinance (or 1031 exchange) the first 8 properties into 8 more. Now you have 20 properties with $550k in equity.

The end condition is identical, but you understand it much better with 12 years of experience. You know it is some work, but the benefits are worth it. So you keep the rental portfolio, retire on the cash flow, and keep building equity wealth for years to come.

Accumulating Good is Better than Sudden Great

Each individual property you received barely pushed the needle for your net worth. It was merely good.

Gifted $500k at once? That is great. Life changing.

Yet you would take a different action because you don’t realize how great it is. The thought of managing 20 rentals and learning everything at once is overwhelming – you jumped out.

Stringing together good results, year after year, is better than getting rich quick.

Most likely you won’t be gifted properties, but you can build it up on your own. Maybe you won’t be able to get one rental per year at the beginning, but each one you add makes a difference.

What do you think – is accumulating good results better than a sudden great result?