Mindset

Busted!

High school you skipped out on class with a few friends to avoid the drudgery. They found you behind the portables playing hacky sack. Chuck was smoking a cigarette and Wayne was decorating a no parking sign with a sharpie.

Hauled into the office, the vice principle pulls you aside. They always do this because you have “potential”. She once again says:

“You are the average of the five people you spend the most time with.”

Well you happen to like your friends and don’t want to stop hanging out with them just because they don’t have “potential”. That would be lame. So you obviously don’t act on her advice.

The problem with that advice is that it is often taken as removing the people from your life who drag you down. A Negative Nancy who is always upset about something and you rarely have fun with any more. A Pulldown Paul who attacks rather than supports your wacky ideas and ambitions.

Good advice, certainly. But on the positive side, I prefer the advice:

Surround Yourself with People Who are Where You Want to Be

No matter what goal you have, someone has accomplished it before. To 99.99% of the population, your goal sounds ridiculously impossible. They might not say it to your face, but you can tell they think failure is inevitable.

To the 0.01% of the population who has reached your goal, they know it is possible. They can see a path where is works out, although it takes a lot of work and some luck.

The good news is you don’t have to spend a ton of time with these people to get an uplifting benefit. They don’t have to be one of the top five people you spend the most time with, they just have to be one of the top five people you spend time discussing your goal with.

If it helps, think about it in terms of social media. If you follow hundreds of bloggers, you’re likely to get good ideas from them. They may even follow you back, and eventually, opportunities can arise from it. You might collaborate on a post together, which allows you to piggyback off their following to reach your own goals. In fact, it can be useful to know how to buy Instagram followers to expand your following further, which may open even more doors for you.

Talk About Different Things with Different People

When I think about some of my hobbies and goals, I realize for each one there are one to three friends who share the same interest. Rental property investing, working out, fantasy baseball, running a business, coding, reading, blogging, etc.

It is foolish to try to talk about fantasy sports with someone who doesn’t play. They just don’t care that your running back was injured and didn’t get any points. Don’t be that guy.

But if you have two friends who are also interested in rental property investing, ask yourself “are they where I want to be?” Most likely you are in the same position and not learning a lot from each other.

Find someone who is just a few years ahead of you – maybe has attained your five year goal of having 10 properties. Buy them a beer. In a couple months hang out again. It is a mistake to find someone 20 years ahead of your goal. Shockingly, there isn’t as much you can learn from them. They will be working on huge deals and their day to day will look nothing like yours. You can’t skip the in between stage.

I’m Heading to FinCon

I’m going through this process by going to FinCon next weekend in San Diego. It is basically a financial blogger conference.

I’m going to hang out with people in person who I can learn from in two categories: blogging and real estate investing. There are people who are way ahead, right at my level, and even behind me in one or both of them.

I am excited to learn a lot and make some new friends.

If you will be there, leave a comment so we can hang out!

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Are You Interested in Hearing About Blogging and My Personal Attempts at Self Improvement?

I know you are interested in rental property investing, but I don’t know if you are interested in these other areas.

There are a lot of blogs that write articles about their experience blogging. They often encourage you to start your own blog and use their link to sign up. Are you interested in learning how to a blog can be beneficial for solidifying your thoughts and tracking your experience in rental property investing? Do you already have a website and are you interested in hearing my experience?

Same goes for more general self-improvement. Are you interested in hearing about financial matters outside of rental property investing? How about other things I am working on like becoming more disciplined in carving out time for different goals?

Let me know your thoughts so I can shape this website into whatever you guys and gals are most interested in!

The impossible happened – the logical, cool nerd fell in love and got married!

The wedding and honeymoon were magical. Everything I had envisioned since I was a little boy (We returned from our honeymoon a few days back and I’m currently getting back in the swing of things. So if you left a comment, used the contact box, or replied to an email (if you sign up for email updates, you’ll receive 1-2 emails a week with juicy details), I’ll get back to you soon.

Marriage and Finances

This is a financial blog about rental properties, so let’s examine marriage through that lens.

Finances can be a huge strain on a relationship – it might even be the #1 cause for divorce. Each individual has their own ideas on money that might not be discussed. I suppose it all comes back to communication.

I am naturally a big saver. I don’t buy many things, even clothes – “I want for nothing” is a Brian-ism. But I do spend big on travel.

Without defining my approach and my wife defining her approach, we would likely just keep our previous behavior, and at the same time expect the other person to behave the same way. That is a recipe for disaster.

Rather than me just saving everything because I don’t spend it, I am going to have to communicate. We are going to have to set goals together and modify our behaviors to reach those goals.

Gen Y Finance Guy has a 50% savings rate goal to reach financial independence quickly. I don’t think we will be quite so ambitious, but simply having a set number and tracking it will help.

Now that I’m married, I feel greater responsibility in this area. I have heard it is a much bigger kick in the pants when you have your first child, but suddenly my decisions don’t just affect me.

Combining Finances – What’s the Right Way?

There are several options for how to combine finances once you are married. Or even not combine them at all.

You can have a joint checking account but keep open personal accounts with an allowance deposit each month. You can have joint bank accounts but personal credit cards. You can share absolutely everything. You can file taxes jointly or separately.

We haven’t decided exactly what we want to do here yet. We already have systems in place for rent and sharing household expenses (I handle most bills, she handles most grocery and household shopping). We already have a joint credit card we have been using for wedding and honeymoon expenses (which is a whole nother discussion).

It will probably stay this way until all the name change paperwork is complete. Then whatever we decide, it will be close to combining everything since we are on the same team.

How Does this Affect Rental Property Investing?

There are a lot of questions I don’t know the answer to yet.

How will combining finances affect our ability to get investment mortgages? Will our credit score be affected? Will debts held in our individual name matter for debt-to-income ratio calculations?

How will filing taxes jointly change our taxes? I am self-employed so set aside money each month to pay quarterly estimated taxes, then usually owe a lot more in April.

How will marriage affect our mortgage sequencing? Right now a conventional loan on the first 4 investment properties are 20% down and 25% down for loans 5 through 10. Should we try to put some properties in my wife’s name? I know some investors do this.

I tend to delay learning details like this, waiting until it is actually time to act to decide. But some of these might change the strategy or how we set things up, so I will start learning now. If you have any insight, please leave a comment!

Give me some tips – how do you make sure this communication happens? Is there a regular time you sit down and review finances and decisions together?

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?