You've probably heard it said a million different ways that real estate investing is a legitimate path to real wealth. I happen to believe that. It's true and can be a huge winner with regard to generating vast sums of money, someday. That's right, it, like most other true pathways, is not an instant, get-rich-quick scheme. You must put in the time, expend the effort, and put up with the headaches to get to those bigger gains.
Yesterday I was talking to my dad about the frustrations I have with my renters. He began to delve into his oft repeated statements about how renting out a property is one of the messiest and most difficult things a person can do to themselves. He said that the trick would be to have other people manage it for me.
I would love to have somebody else do my dirty work in this arena. However, I replied to my dad by asking him, "If you just started your own restaurant, where would you be spending most of your time?" His response: "At the restaurant! Cooking and making sure it runs right." That was the answer I was looking for. Truly, it's your money, not someone else's, so nobody else is going to care as much as you do. In the beginning, the margins are too slim to rely on somebody else's ability to make it all work. The same goes for real estate investing and property management. Because I'm just starting, I need to be involved every step of the way.
The difficulties are different for a landlord than they are for a restaurant owner, or a retail store owner, or a repair shop owner. Difficulties, though, exist in every one of these endeavors. That's how it works. You cannot simply get rich without putting in the effort and time it takes to get there.
As a property manager for my rentals, I have to make all the calls, go collect the rent, and deal with laziness and late payments. This requires a certain degree of politeness while still remaining strong. My dad used to say, "Don't mistake kindness for weakness." I think that phrase rightly characterizes he and I both. We are exceedingly kind individuals, but that doesn't mean we can be taken advantage of over and over again. With my renters, I have to maintain a constant boundary while remaining kind in my dealings. This helps to ensure that the relationship doesn't sour and cause me to end up with a heavily damaged property once they move out, but I still get paid.
My goals are straightforward as a landlord: pay the houses off; create positive cash-flow (the amount of money being paid to me by my properties is greater than the money going out); eventually expanding to multi-unit properties (real estate investors refer to this as diversification); building a large asset base of properties with positive cash flow that can sustain continued growth as well as all expenses for my entire family. Finally, I need a solid network of individuals in all related areas that I can rely on to perform much of the management for me and to keep the empire growing.
As the scripture says in Proverbs 13, verse 22, "A good person leaves an inheritance for their children’s children, but a sinner’s wealth is stored up for the righteous." My goal is to generate enough assets that even if my children's children aren't prudent with their spending, the income will continue to flow in. The obstacles to such a goal are not a simple matter.
Aside from the irresponsible nature of my descendants that will inevitably occur, there is the obstacle of getting off the ground in the first place. See, not only am I poised to launch a huge wealth generator, but I'm also poised to fail. The housing market is bad right now, as is the rest of the economy. If I lose my job or my wife loses her job or some huge expense hits our family that we can't afford, I might have to fold and lose all I've worked to gain so far. That's not the end of the road, of course, but it is an extremely large setback that I'll never fully recover from.
Understand that as time marches forward, my window to generate exponential wealth diminishes. You've heard it said that investing $20 a week for fifty years with a modest 10% annual return will make a millionaire out of you, but that investing $20 a week late in life, even at a liberal 18-20% gain won't have near the same results. Similarly, the money I make now will weigh heavily on the money I have toward the end of my life. Whenever I waste money now or am forced to spend it on something that doesn't appreciate, I'm chipping away at my generational wealth. A big screen television, some furniture for that nice, big house, a new car, a fun trip, etc. etc. now, will impact directly on my final numbers later.
Ultimately, it's quality of life that you must evaluate and adjust for. As a landlord, much of my time is spent dealing with headaches; I lose time at home when I have to go collect the rent and I experience a high degree of stress as I'm contemplating eviction and the potential for destructive renters. With riches at the end of life being more of a priority, what sacrifices in the here and now am I willing to make? How much of a trade-off am I okay with to achieve these greater goals? I know that the quality of my son's childhood is very important, so I can't devote all my time to creating wealth for him later. What quality of life do I want to maintain now and what quality of life do I want to have at the end of my life?
Short-sightedness is a bad sickness in American culture. Most Americans today are heavily in debt, paying high interest loans, and suffering from a bad economy. For many, this is a hard time in their life, but most of these people aren't even thinking about retirement, let alone providing something for those that they'll someday leave behind. The quality of life that's bought with credit cards is not the quality of life that a family or an individual is supposed to have.
Here's what being a landlord, a business owner, or an investor means: you work hard and take your lumps, put in your time and brace for setbacks, and you get to that generational wealth at the end of the road. It's a sacrifice, and some are more willing than others to sacrifice. The road is hard, but the payoff at the end is worth it. Sacrificing all for the eventual payoff isn't the goal either, however. Balance is crucial.
Leave your children something and leave their children something as well. You will someday die and you'll be leaving everything behind. What will have been left? Debt and a disastrous financial situation or successful investments and fruitful assets? It's up to you.
So, is it worth it to be a landlord? I say yes. The road is tough right now, but it's that way no matter what you do. So, the goal now is to get through the hard times at the beginning. I'll someday stabilize, maintain positive cash-flow, and begin to roll the snowball of wealth forward.
Wednesday, April 13, 2011
Wednesday, January 5, 2011
Psychology of Advertisement: Are You Being Manipulated?
I have news for you, you're being manipulated.
Cognitive psychology is a seemingly strange area of study to have jumped right out of human science and into the commercial world. But advertisement is a psychological exercise at the highest levels, demanding a deep understanding of the human psyche in order to exploit it for financial gain.
Psychology allows one person to recognize the tells of another person to help at the negotiating table. Psychology assists investors with predicting the direction of stocks in the market (consumer confidence). It gives a person an edge when making friends; it is how detectives build criminal profiles and how interrogators gain more insight than what is actually said. Psychology is a tool we all use, to one degree or another, and a tool that is continually being used on us.
I think modern advertising is actually dangerous. It's often blatant and obnoxious, but then, the best advertisements are often subtle and nearly imperceptible because they are so interwoven into our lives. For instance, the simple placement of brand names on everything we or the people around us use are not obnoxious, they simply "are". We don't consciously notice the brands of those things we use, but we take cues. When I was young, I worked with guys that always used Craftsman tools. They would sometimes get a new tool and mention they'd gotten it at Sears. I never asked them about it, but I did take note somewhere in my subconscious and it resulted in my preference for the tool maker when buying my own--at Sears. I automatically had a higher opinion of the company because I respected the men I worked with. I realized this after I'd bought my tools.
Back to my earlier statement that advertising is dangerous: I say this because it's hard to take a drive without seeing hundreds of advertisements everywhere you go. It's difficult to turn on the television and not hear advertisements in the background. The reason seeing or hearing these things can be dangerous is because they implant a sense of need in your mind. Simply being aware of the things that are out there, i.e. a simple food processor that "most other people" have that makes food preparation so much easier. Or, how about being aware of that way cool iPod that your friends all have--which means you also need to use iTunes and you'll need earbud accessories and a cover to protect the device... Or, you are made aware of the "need" for a cell phone with an internet connection and unlimited texting. Or, you realize you can't possibly take your kid anywhere unless you have a DVD player in your car (okay...this may be true).
Advertisement has become so good that our culture has bent to accommodate increased spending as income increases. For instance, you never see a high-level business man in a movie that is wearing a cheap suit, he's wearing an expensive, thousand dollar suit with costly shoes and a stinking silk tie. So, you get that promotion, but now you have to upgrade your wardrobe. How about that car you drive? Of course, you know that form watching others, from watching the television shows, and from seeing the commercials that higher level managers drive the nice cars, so your low cost pinto needs to go in order to get that fancy new BMW to fit into the image of the executive. Granted, sometimes you need to buy a nice suit or look the part to be taken seriously, but take into consideration just how much it's going to cost versus the benefit. I may just write an article on providing the image without investing the money.
It almost doesn't matter what you do. As an American, you're going to think you need a lot more than you do. But when it comes to generating wealth, you kind of need to give up obtaining the "appearance" of wealth to have true wealth. If you buy into the higher lifestyle of an American, if you think you need things that you probably don't so you can make life easier or so you can look successful or so you can xyz...then you will likely never have enough money to obtain generational wealth.
Your interests should be to generate long lasting wealth so that you'll have "real" success. Train yourself to realize that it doesn't matter what others think of you (except, sometimes, when it comes to impressing superiors in order to maximize income at your job--and even then, it's a mathematical decision, not a given).
Your friends, your neighbor, and the occasional stranger might be impressed or envious for about a minute when they see you, but they quickly go back to being self-absorbed and interested in their own appearance to others. Don't fall into the trap of not realizing how little others care about what you have and how you look. Stop worrying about what they think and do the right thing for you and your family. To tell you the truth, people admire those that actually dedicate themselves to accomplishing a valuable goal. I admire writers that finally get published after working hard at it. I respect people who work to build their own business. I also sit in awe at the occasional person I meet who has altered his or her life, i.e. sacrificed, in order to save money and wisely invest it for long-term, future wealth.
You can do this too. Do some evaluating and really try to see what advertisements (manipulation) you've bought into. Then, after identifying your weaknesses, control them. Think about your goals. Are you striving to buy a new car or are you looking toward the future when you'll be able to live comfortably, seeing the world as you please, maybe even traveling in your own private jet?
Have you realized where you've been getting manipulated? Have you already sacrificed to generate real wealth? Let me know in the comments!
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