I moved to Las Vegas knowing it would be a good move, and it’s been far better than I thought.

After considerable research in late 2016, I was convinced moving to Vegas was worthy of taking big action on, so in early 2017 I moved my family out here. We closed on a house that my wife had not seen yet, and we had no jobs lined up. Some people probably thought I was silly, some thought risky, 18 months later I’m ready to recap on how things have turned out and what the future looks like from here out.

First, it’s important to know why we looked to move in the first place. We were in a small town in the southeast part of America, in North Carolina. Metro population of about 400,000, little to no growth and few opportunities. My wife and I had lived there a while, and it was a good place for us to meet, grow, and take some risks, but at this point, we wanted to spread our wings and capitalize on some massive new opportunity. So we wanted a growing city, somewhere warm, somewhere with low cost of living, and a place where we could start new careers easily. I had been coming to Las Vegas for years (to party!) so we had some small social connections to this town already and we had visited tons of times, just so happened that it was primed to be a fantastic economic location as well.

 

As a real estate investor, it was a bit tricky for me to navigate this move. I wanted to buy a primary house to live in (which normally I consider a lousy investment) but I was convinced the market out here would appreciate greatly, and I wanted to be a part of it. Since neither, I or Nikki had jobs lined up, and my passive income wouldn’t yet allow a bank to finance the amount of house we wanted to buy we put her mother on our loan to show income. I flew out alone one weekend to check on 3-4 houses, we made a good offer on one, we set to close a few weeks later so we packed out all our stuff and drove 3300 miles across the country.

 

We closed on a great little house for $223,000 in February of 2017. I came out of pocket ~$12,000 for closing costs and a 3.5% down payment. A few weeks later we both found great jobs and we were able to get paychecks before our first mortgage was due. SO EASY. In only 18 months the house value has increased dramatically to $270,000!! That’s a $47,000 increase in value just for being here! Also, on the $12,000 I invested that makes a return of 25%! This summer we will refinance our house to take the MIL off the loan and since the loan amount has increased to an 80% LTV I can drop the PMI off as well. The house looks to continue to increase in value over the foreseeable future and perhaps might be my most profitable property yet.

 

If you’re stuck in a town with no appreciation or opportunity, Las Vegas might be a good place to check out. Now, it’s become MUCH more competitive since we moved here, further solidifying my top-notch decision-making skills, but that doesn’t mean the all the opportunity has been extracted, actually I think Las Vegas has momentum that seems unlikely to slow for quite a while.

 

Let’s go through this list in a sort of “decreasing order of potential impact”:

 

Climate change was a big one I considered and still do. I didn’t list this just for laughs, and while some people may consider it controversial, it’s important to consider the facts.. As the climate changes threats on the coast will increase, especially the east coast and costs associated with increased weather events will have to be paid, both state costs and insurance costs will go up. We were caught pretty badly in 2016 with Hurricane Matthew, which did $25,000 of damage (to my $60,000 house!) and for me that was a tipping point, we moved shortly afterward. In 2017 the Hurricane season was much worse, I was glad not to be there. While this example by itself is absolutely anecdotal, it’s still part of a cogent long-term analysis. The coasts are going to more expensive, and higher risk to live on. Storms will get worse, water levels will rise, costs of repair will burden the states (and people) who are late to adapt. Over the next few decades as specific instances occur in larger frequency people will start to move inland and upwards. I chose Nevada, anywhere far from a coastline would have been acceptable.

 

Look at the financials and compare states who have implemented a lousy economic policy which has made them bankrupt (Kansas!) and compares them to states with progressive Marijuana legalization programs that are making money hand over fist! We closed in early February, and Marijuana went on sale in July, but the law had changed back in January so I KNEW it was coming, and I KNEW it would have a significant and sweeping impact on the state’s financials. Income from this new economic industry will allow the state to fund improvements in infrastructure, education, and more. Now eventually all states will legalize, but I want to make money right now, and this is easier in a state that can afford to reinvest. It’s important to consider the margin between states and their respective economies. Not all states grow at the same rate, just like your business responds to how you invest so do state governments. Get to state that encourages new industries and reinvests profits to benefit its citizens.

 

Population growth forecasts for Las Vegas are massive. Metro area population numbers in 2017 were around ~2 million and are projected to jump to ~3.2 million over the next 10 years. This is a lot of people! Where the people go, so does the opportunity. These people will all need jobs, things to spend money on, and places to live. This will further increase home appreciation but also job opportunities will get more competitive, this might be bad if you’re a talentless slacker, but if you like capitalism this will only serve to benefit.

 

For weeks before we closed on our house I was watching the news about the potential deal for the Raiders to move to Las Vegas. I don’t watch sports at all, nor do I think the stadium itself or the franchise coming here will have a much direct positive financial effect on the city. However I do think the cultural effect it will have on this city will be substantial, and I believe regardless of how things actually shake out, the perception alone will cause beneficial economics worth capitalizing on. I also knew that once the Raiders deal closed, the market wouldn’t go up overnight, it would take time. That said, the earlier you can get in, the better, so while we were bidding on houses I was also watching the news about this potential deal. Towards the end, I was VERY convinced this deal would move forward so I did as well. I ended up closing on my house about 3 weeks before the Raiders closed. For anyone who sees this as a benefit they can’t partake in, remember the stadium won’t be complete for another 2 years. That leaves a lot of time left to get in early!

 

I wanted to consider the low cost of living in Nevada (who wouldn’t?). One thing I will say about small towns, they are cheap to live in. Nikki and I had gotten spoiled living in a town where we can buy houses for $50K, property taxes and utilities are low, cost of living inflation is minimal to none. This isn’t without its negatives as well, in fact, this is a symptom of the negatives I spoke about earlier. A town with little opportunity, no growth, not much demand to go or live there certainly can’t be expensive as well, these things go hand in hand. So a concern of ours when moving was that our cost to live would increase as the opportunity did, this is correct thinking, but it’s not a direct correlation. Meaning, different markets have a different ratio of potential income to cost of living. California for example on average can produce far higher than average salaries, but the cost to live is exponentially higher than even that. We didn’t’ want this, we wanted to keep the margin between increased income and increased cost of living to be a minimum. Turns out that cost of living in Nevada is REALLY low! Nevada is one of only 5 states with absolutely NO state tax, Nevada utilities are cheaper than you would think, property taxes are really low as well, and There are 5 states without a state tax, Nevada is one of them. The cost of living change for us was mostly in housing and transportation. Houses here are just more expensive, and by a notable margin (Though they are much newer and nicer so we were happy to pay up!). We also found when we moved here that auto insurance rates are the highest in the country, so that cost went up slightly as well, neither have made us need to adapt or change our habits. The change in the cost of living was unremarkable if not altogether noticeable. At the same time, we get paid much more than back east, so in essence, we moved to a city with vastly more opportunity, and we get paid much more to have a better life than we did previously. Easy choice

 

Have you seen the data of movement out of California? California is a pain in the ass!  This is no secret, and it will have a significant impact on the Las Vegas economic future. I’m certainly not saying that people are moving out of California in droves to move here, but rather the cost/benefit ratio of living in California is trending downwards, especially at the low end. It’s just more expensive to live there, and it’s only going up. As this happens people will move, and where will they want to go? How about a place that equivalent in weather, has a huge swing in the cost of living for similar lifestyle, has grown and is a well-established city? This is why Las Vegas, Phoenix, Miami, and others are topping lists for migration, now which one is closest?

 

Late last year the federal government significantly changed the tax law, and one aspect of this was eliminating the ability to write off property taxes for high dollar houses, it also eliminated the ability to write off state and local taxes. Now for most people they won’t notice really, the standard deduction was increased enough to offset this change for most people, but not everyone. People with high taxes (state, local, and property) are going to get pinched and it’s going to be expensive. Maybe they will stay and take it, maybe they won’t, certainly, some will do both. If only there was a place ~5 hours from LA that had similar big city amenities with low property taxes, low housing costs, and no state tax……….

 

I somehow missed this information in my analysis but shortly after moving here we found out about massive strip investmentscurrently ongoing. One I did know about was the Raiders stadium, but a few new casinos in the works, the gorgeous T Mobile arena, Richard Branson just bought the Hard Rock Hotel and is converting it to a Virgin hotel, and more. Total investment will be about 10 Billion and the casinos should be complete in the next year or two. You don’t have to do a lot of market research in an area to see it’s future, instead look to the market research that was done by someone with more resources and experience. Simple explanation, I don’t have to speculate if Las Vegas is a good investment, smarter people than me just recently sunk 10 billion into it, so I’m going to assume they didn’t do it on a whim.

 

Las Vegas is very proactive about infrastructure. I’ve lived in a few cities in my days, and I’ve never been to one as universally afflicted with construction traffic like Las Vegas. Now, this isn’t to say traffic in Las Vegas is bad, the opposite actually there is hardly any traffic considering the size and population. So why is everything under construction when it doesn’t seem needed? The city is proactive about the incoming population, and they are not screwing around.  We have great new, clean, wide roads that handle tons of traffic and will only improve thanks to the foresight and capital injection into infrastructure that is not reactive, but proactive.

 

Have you heard of the Golden Knights? I’m certainly not one to follow sports, I don’t think I’ve watched an entire sporting event in entirety in my whole adult life. I really could care less, but like the Raiders I absolutely care about the cultural and economic impact this has on my city. The Golden Knights are a hockey team that sprang out of nowhere with this being their first year playing, and they made it to the super bowl. To say that this was a local cultural phenomenon is an understatement, people are losing their minds. While I would never argue that this has direct economic benefit, it does change the cultural outlook of the city. Just like the Raiders coming, I think the impact will be indirect. People will look at this city differently, less as ‘sin city’ and more as a large metropolitan city with lots of opportunity, amenities, and it just so happens to be the entertainment capital of the United States. This bodes well for our future.

Where next

Feel like it’s too late to move to Las Vegas and you missed the rush? It’s certainly harder than it was 18 months ago. Houses are gone inside of 72 hours and going for well over asking price now, it’s a brutal fight to buy an average home right now. So where else is there to go?

Denver – Denver is a great choice! When I started my search it was my first choice, but it’s also on the upswing already so I couldn’t’ get in early. The second was that it was just too cold for me. If you’re looking for growth, Denver fits many of the benefits I listed and has a long road of prosperity ahead

Nashville – If I had to move again today, Nashville is where I would go. It’s in the south I know, which is horrible but Nashville is a large and respectable city so shouldn’t’ be too bad. It’s insulated from climate change fairly well, low cost of living, and poised for massive growth.

Phoenix – Similar to Vegas! It’s growing, it’s got a great long-term forecast and it’s well established. Phoenix, like Las Vegas, has a strict no-snow policy so you don’t need to worry about investing in heavy winter jackets!

Wherever Amazon HQ2 lands – What did we talk about in regards to letting other people do market research? Amazon is spending a lot of time and energy to find just the right place when they announce it, you might want to jump. People don’t all get up and move at once to capitalize on an opportunity, they filter in as it becomes more apparent. If you’re paying attention you can get in on the upswing of new developments without needing inside knowledge. Wherever Amazon chooses will likely be a good place to follow. There are exceptions however, Toronto is a current leader which I wouldn’t recommend and Washington DC as well. These places are overcrowded and overpriced, these are not underdog cities you can jump into and ride the wave. If Amazon goes to Raleigh though, I would jump on it quickly.

 

Summary

Deciding where to live is important. Most people die within 50 miles of where they were born, If you live where you were born then you didn’t choose it! It may be a good location or it may not, find out and then make a decision to live there or not, don’t stay out of comfort if it’s not lucrative. Live in a place that can maximize the strategy you build for yourself. If you live in New York City or Los Angeles and you’re struggling, LEAVE! Come back when you can more easily afford it. Paying the high cost of living for no reason other than complacency is a mistake and one that can be fixed. It’s important we all live in a city we have chosen and for valid reasons, winging it is relying on luck, and luck is fickle.

Make your underwriting EASY

Ask your lender first, fast, and often

 

People have debt and lending questions all the time and they seem to insist on asking friends, fellow investors, or the internet. Don’t be fearful to ask a lender directly because you may not be “ready” to buy yet and doesn’t want to waste anyone’s time.

You’re not wasting anyone’s time!

Lenders work by selling you a financial product; they get paid to convert you from a tire-kicker to a closer. If you want to casually call up a lawyer and ask for legal advice, you’re going to get charged. Lawyers work on their knowledge, and they charge for their time and information. If you want to be someone who takes action and closes deals, it doesn’t make sense to avoid the lender when they have all the answers you need and they want to help you close a deal.
If you have lending questions, even if they are in the future, ask someone with direct information. Use your ramp-up time to build a relationship, and get good information straight from the source. Not all banks are equal and not all have the same products, so it’s important to get correct and thorough information that applies directly to what you’re trying to do.
These days I speak with my lender at the beginning of the year to discuss everything I want to do and how I need to maneuver to match my buying strategy with my subsequent lending strategy. Imagine if you purchase a house and do some rehab, now you want to cash out and throw a loan on it, except you haven’t spoken to a lender before now and then find out that there is something restricting your approval for a loan. Don’t get stuck assuming your lending strategy is solid, get in front of your lender FAR in advance.

Smooth is fast

This is a phrase I learned in the military, the premise is that when trying to accomplish a task under pressure we often force ourselves to go fast. The problem is that going fast just for the sake of speed doesn’t always improve efficiency; it causes us to make mistakes and not think thoroughly. The end result is an overall longer time period rather than a shorter one, the opposite goal of going fast. So in the Army they say “smooth is fast” to encourage troops to develop proper habits, think clearly and thoroughly, and not succumb to pressure. This way when a similar event comes to our mental and physical preparation will serve us far better than simply trying to excel under pressure.
I admit this is a wild extrapolation of the lesson, but I think about it every time I begin underwriting and it’s helped me. The motivation is obvious; I want to close my loans smoothly and quickly. I don’t get stressed and go into a disorganized panic, I create a system to make the process easy and I prepare diligently to execute. Building upon this idea, here are some other tips to make lending easy:
Your processor is going to provide you a list of loan docs (sometimes called stips) you’re going to need to close a mortgage, and the bigger your portfolio gets, the more you’ll need. What I do to make this easier for all parties is:

I prepare all my docs before I submit a loan application. I keep them well organized in a single folder on a cloud account waiting until the processor asks for them, then I can instantly copy him/her a link to the entirety of the docs needed and then I’m 90% done with my underwriting within 10 minutes of submitting an application.

There is always some scrounging for a weird request after the fact but the bigger the bulk of stips I can get the faster my overall process goes. It also shows the processor that you actually care about getting this done while the overwhelming majority of borrowers who delay providing their stips out of sheer laziness and/or apathy. Show that you’re well prepared, organized, and quick to respond and you’ll make loan closing a breeze.

Make them love you

Your lender will love you for being organized and prepared. I’ve worked in lending for a long time and the number of borrowers who are being chased down for documents to close a loan is staggering. This makes it incredibly easy to set yourself apart and get a reputation for efficiency. This is like any other service in that your relationship plays a significant and unspoken part of the dynamic and has a direct impact on the quality of service provided. If you are disorganized, unmotivated, and a jerk, you’re going to get the worst service someone can provide. Anyone who has worked in service knows that the best service goes to the clients who are liked the best. BE THIS CLIENT. Be prepared, have a positive and helpful attitude, be proactive, and understand. Work harder to make their life easier than you expect them to make your life easier, this may seem counterintuitive but consider the end goal: a loan that is closed quickly and smoothly. This will be done by a processor and underwriter who are motivated and excited to help you in your endeavors, you must invest in the relationship.

Conclusion

You’ll never need this list without a lender giving it to you first, but as I said, I like to be extremely prepared. When I put a loan application in, I like to have the lender all my documentation within minutes, far sooner than his processor could even get me the list. With that idea in mind, I’m going to provide a very standard list of documentation required to hopefully make life easier, or at least prepare my readers for what’s to be expected. I’m taking this list from a loan I just recently closed.

2 years W-2

2 years tax returns

2 months pay stubs

2 months bank statements (all bank accounts)

All home insurance policies

All lease agreements for rentals

All recent mortgage statements

All HOA balance statements (current)

This is certainly not a comprehensive list, and it’s subject to change based on lender and market conditions, but it’s the standard majority of what all lenders will ask for. It’ll most likely be a bit less if you’re just starting out, but still good to know. Yes, the process can feel invasive, especially the first time or two, but you get used to it.
Follow these simple guidelines when considering your debt policy and I’m confident they will make your life easier, and more productive.

Money isn’t that important

Money isn’t important

It doesn’t take long to realize that I talk about real estate and finance a LOT. I certainly take the topic seriously, and have even known to write blog articles about it! Recently I was speaking with a friend about mortgages and he became quite irate with my comments. He ended our conversation quickly and summed up his thoughts on the interaction with “Money isn’t that important”.

This isn’t anything new nor is it a profound statement, but when used one way it is absolutely true; money isn’t important. When used another way it can be used as a defense mechanism to justify a poor financial situation. I thought it would be interesting to analyze the usage of this phrase and the context behind it.

Money is a means to an end

“Money can’t buy happiness” is the other common phrase of similar position to “money isn’t that important”. Also true! plenty of people are happy and plenty of people don’t have much money, I was a happy guy when I was poor, and I’m a happy guy now that I’m less poor. That said unless your definition of happiness is swimming in a giant vault of gold coins, and your name is Scrooge McDuck, you probably want money to solve problems, not create happiness. This is the center of all money needs really, to solve problems, so how much you need is determined by how big a problem you want to solve.

My friend who said money isn’t that important might actually believe that for himself, but to assign that to everyone is short-sighted. Obviously, money is important to SOME people and situation! This guy likes to spend time with his family, they don’t like fancy clothes or nice new cars, and they have inexpensive hobbies, Him and his wife both bring in a good income, and they live in a low cost of living area; their needs are all met. He really doesn’t need any more money to solve his problems. It sure SOUNDS like the dream right? It is if you have similar interests and ambitions and don’t plan to ever get sick or have unexpected costs.

It’s easy to say money isn’t important when you have enough, don’t have unquenched ambitions, and don’t have any large problems to solve.

For everyone else on the planet though, who doesn’t have their life needs met, haven’t satisfied their ambitions, and want to leave their mark on society, money is of the MOST importance. How many people have a job they hate and can’t afford to quit? How many people are drowning in debt and are constantly overwhelmed with not having enough money to solve basic needs? What about people who have huge dreams but can’t afford to fund them? Majority of us think to ourselves, “I could use a lot more right now” several times a week, or even throughout the day. For those people who think money is important, can solve problems, and remove stress from life it’s important to learn how to properly manage and maximize economic resources. To disregard it is to ignore one of the most valuable resources we have.

To say money isn’t important AFTER you have enough is pure arrogance. Money was important to get him where he is now, but now that he’s comfortable he gets to look around and say “money isn’t important, a family is”. Sure, everyone would agree, but he only gets to enjoy his family because he has a stable life with a rock-solid job and low overhead. He would care much more about the value of money if he was in need, and my point is that there is a lot of life left to live. Things will change, the economy will change, needs will change, and unexpected costs will impact your life,

Freedom is what’s most important, and it’s for sale

My friend says money isn’t important, but he and I are both at work Monday morning. Now we may both enjoy our jobs, but I know I would rather be hiking, at the gym, taking photos, spending time with my fiancé, talking to real estate investors, traveling, etc. Plenty of stuff we could be both be doing, but instead, we are both at work so we can earn a paycheck….seems money is a LITTLE important then huh? Maybe he’s working hard now to pay his house off, reduce his overhead, then retire with a low cost of living and have enough on just his retirement. Sounds nice, a common approach, but then he’s beholden to that retirement amount. No new fancy car, no house upgrades, no expensive toys, now maybe he doesn’t care about that stuff because he won’t have a choice. He can’t afford to care about that stuff because he certainly isn’t going back to work after retirement, he’s going to quit early, quit with JUST enough, and then his life is confined to that income he chose to rely on. People say money isn’t important, but that’s only true once you’ve adjusted your dreams and ambitions to fit into the economic conditions that you’re used to.

Imagine if you could stop working, forever. You could afford a nice house, you had enough money to fix all your house problems, pay all your debts, fix your credit. You could have enough for your significant other to stop working, the kids won’t have to work, you could pay for their college as well. Even better than that you would have enough not to worry about health problems or changing the economy. This requires a LARGE volume of resources but it’s not impossible, it’s just hard. It’s far easier to just say “money isn’t important” when dealing with the struggle of not having enough is quite a bit harder. People who say money isn’t’ important are vastly undervaluing how much they will need in the future, and how much more they could do with their life if they maximized the efficiency of their money spent. I’m not advocating to get a second job or higher income or work until you die, I’m simply advocating to respect your resources, use them to maximum efficiency, and take your economic situation very seriously.

It’s my dream house/car and I deserve it

Think about your dream house and think about how big it is, what it looks like, what amenities it has.

Marble floors?

Infiniti pool?

Giant backyard?

Helicopter pad on the roof?

15 bedrooms?

Staff suite to house your full-time cook, a landscaper, and housecleaners?

Ok is 15 bedrooms and a full staff too much? Probably, but why? Is that not a dream you have, or is it not a dream you bother with because it’s unrealistically expensive? Are we talking about dreams or realistic goals? See this is the problem with saying “money isn’t important”, or “this is the dream house I’ve always wanted”. We say these things and it blends the lines between our wildest ambitions and mundane reality. Therefore every person who has stretched their income to buy a house because It was their ‘dream house’ has lied to themselves. That isn’t your dream house, that’s just the nicest house you can afford and if you could afford more you would buy more! If your dream house costs $150,000 and then you won a 10 million dollar lottery, I’m willing to bet you will upgrade. People are so impatient and so willing to give up on their ambitions that they will buy a barely expensive house, stretch their income to get there just so they can buy it while it restricts them from investing that money and buying something really big later. Buying your ‘dream house’ early is helping to kill your dreams, not fulfill them.

Now to my all time favorite self-delusion: “I deserve” it, well let me be really clear: You already have more than you deserve.

In fact, if you live in America and you have a low income, you already have more than you’ll ever deserve. Americans have been born into the greatest infrastructure of all time. The amount of money spent over the last few hundred years here have made social and economic mobility easier than ever. We hit the geographic JACKPOT just by being born here and to think anyone deserves more than that is insulting to the billions of people who didn’t get as lucky. If you earn $34,000USD/year then you’re in the top 1% of global earners, should be pretty clear that you got more than you deserve just by pure luck, enjoy it and say thanks to your parents; They have done more for your financial opportunity than you ever could.

I sold cars for many years, this rationalization is used by both parties and it’s the same disservice to both. People would buy cars they can’t afford and say “but I deserve it” and when I had trouble closing a deal I would say the same thing “you deserve it” (yes, I feel a bit sleazy about it). This happens so often but is it true? If you work hard and have the resources to buy a new car, does that mean you deserve it? Of course not. Here is what people deserve: exactly what their choices have given them. Also, I like to think what people really deserve for working hard is to look towards a day when they don’t have to work AND don’t have to stress about money. If you work hard at your job, isn’t what you deserve is for one day it to be OVER??!? When you buy a car what you’re really doing to yourself is pissing money away, money that could have been invested, compounded and then funded your (perhaps early) retirement. Instead, you’re guaranteeing that you will have to work longer and harder for that retirement and during that time you’re going to watch that car you love and deserve lose value, rapidly, it’s going to turn into an old car you hate right before your eyes. Your emotional attachment to it will be long gone, along with the money you spent on it and you’ll be so frustrated with it one day you’ll go to a car dealership and buy something new to make that feeling go away. The next car will also be too expensive, you’ll say “I’ll drive this one till the wheels fall off”, and you’ll stretch to buy and repeat the cycle while telling yourself that ‘you deserve it’. No friend, you deserve freedom, don’t rationalize out of it just for a shiny piece of metal.

People love to overspend on a fancy car and say “but it’s my dream car”. Really??!? That fancy new Camaro is your dream car? Sure it’s nice, but it’s a slightly above-average mass market mid-sized car, it’s special in no possible way. How long has it been your dream car, the one you bought is a new model that just came out this year? If you want just wanted “A CAMARO” you could have spent a lot less. You only said it’s your dream car to rationalize a HORRIBLE financial decision, you stretched to get it, and if all that wasn’t bad enough in a few months it won’t be new anymore, It’ll be dirty, the new car smell will be gone, and it might not be your ‘dream’ anymore. Next year’s model will be your new ‘dream’….wait, that doesn’t’ sound like a dream, that sounds like dangerous consumer capitalism. How about this example, take your dream car and buy the same model but 15 years old. Would you buy a 15 year old Camaro and be just as happy? No you wouldn’t because a 15 year old Camaro is old, ugly, and not fancy, you just wanted a new car and you used “it’s my dream car” to rationalize it. That new car is going to be old, ugly, and not fancy before you know it. The marketing machine by the auto industry is vast and convincing; don’t let them help you make a bad decision. Stop telling yourself you need a nice car, what you need is freedom; the rationalization to buy one is not profitable or helpful.

If you had more money, your dreams would get bigger!

This happens because money is REALLY important, and it dictates our lives far more than most people give credit for, and certainly more than dreams. That’s why people change their dreams to fit their economics. Pretend for a moment that you agree money IS important (difficult scenario to imagine I know!), now what real problems do you want to solve, what ambitions could you fulfill with a large volume of economic resources.

Own a ridiculous house

Pay for your kid’s college

Have enough money to self-insure against future sickness and injury

Travel the world

Buy your parents a ridiculous house

Buy your in-laws a ridiculous house as well

New cars for the whole family

Donate to charity

Donate to community

Donate to humanity

Now, this plan might not be for everyone, but I figure this is a general enough ‘Dream plan’ for most people to agree to. So how much money do you need to get down this list and accomplish it all? I know if you asked people how much it would take to get that list done, most would look at the list, mentally give up, and say: “Money isn’t’ that important Alex”. Money itself isn’t important, but technically neither are a person’s dreams, what’s important is what you can actually accomplish, and for that, you’re going to need a fat purse.

Why I chose real estate

This might be the easiest post I’ll ever write.

Real estate isn’t really something I chose it was more the product of my realizing that I had little talent, an average work ethic, I was flat broke, and I was arrogant enough to think I could still get rich despite these weaknesses.

Again, let me state the checklist of things I had going for me when I found out real estate is perfect for me:

  • I had little to no money.
  • I had no business I could think to open
  • I didn’t wan’t to do full time sales
  • I had no service to offer
  • I consider myself lazy

In addition to these clearly advantageous personality traits…. I wanted something that would fit into a box that would require me not to change. So my adventure had to be:

  • Low risk
  • It had to work in the long term
  • I wanted it to be passive.

I had read Rich Dad Poor Dad years ago almost by accident. Luckily, it taught me that passive income was the most efficient. I had thought about opening a business for years; Restaurants, bars, gyms, supplement stores, and self storage were all ideas that I had considered. So as I’m going through these options I’m realizing that all of them have similar negatives that I wanted to avoid:

  • All of them have high overhead
  • I needed buildings, inventory, employees, utilities for all of them
  • They all were owner-occupied. Meaning I had to go work on this every day. I needed something I could start on a part-time basis
  • They were all hyper competitive, and the these industries are saturated. You know what the failure rate for restaurants is? How many supplement stores pop up and then are gone in a blink. I didn’t want to follow a trend, I wanted a long term solution.
  • These businesses are all cash intensive. One of the main reason businesses fail is under-capitalization. I didn’t have any money to start with so I didn’t want to go into a business that I would need large sums of cash to float the expected hardship of early business.

 

Enter residential real estate

Real estate has required me to make almost zero compromise on any of the features I listed. I actually believe it would be perfect for a lot more people if they would just take the time to learn more about it. Let’s look at how it fit my goals:

It doesn’t take much capital. My first house I had bought with a VA loan and put no money down. While that’s not possible for everyone, if you owner-occupy a house for 1 year you can buy a house with an FHA loan and only takes 3.5% down. A year after learning about real estate investing I did exactly that and moved into a house (that I would eventually rent out) with only $2,000. As I’ve gotten better I’ve learned you really don’t need much or any money to make a living in real estate.

Little to no money

It requires no new ideas, no new business, and no service to provide. It’s been done to death, it’s tried and true, and it works. The returns are great, the risk is far lower than I had originally thought, and you don’t have to be very smart to pull it off.

No business ideas to create

It’s passive. I don’t know my tenants I only have to deal with my property manager and he’s 2600 miles away. My entire portfolio is run over the phone, and some of my rentals I’ve never even seen.

Can continue to be lazy

Let’s see if it coincides well with things I was opposed to in other businesses:

You have to buy the building and upkeep it, but that’s all. With a restaurant I need a building, employees, marketing budgets, inventory, permits, etc. All this means less risk during economic low points, and certainly allows me to sleep better at night. Also, my real estate is a purchase of an asset, not a moving system. Once the house is bought, there is little continuous overhead that isn’t directly paid for by the tenant in real time.

Low overhead

As I mentioned before the tenant lives in the unit, but I never have to go there. It doesn’t require much of my time and that allows me to continue to leverage my human capital to make money from other flows of income. For instance, my tenant pays me on the 1st of the month, but so does my employer. I have essentially bought more time.

Non-owner occupied

 

Real estate isn’t’ a scary as I first thought. In fact it’s more boring than anything. My tenants pay rent on the first, like clockwork. People ask me all the time “what if the tenants don’t pay” as if they are terrified of this risk and instead of learning how to mitigate it, they run from real estate investing completely. The fact is, people pay their rent, homes don’t decay abruptly, and interest rates can be locked in. My business is systematic, consistent, and boring.

Low volatility

 

The only investor who can rent my property out for profit is me. There is no possibility for somebody else to box me out of my rentals, and there is no shortage of houses that I have to fight very hard for the next one. There is definitely competition in the buying process, but once you own the unit, you don’t have to fight the market for tenants. I need one tenant and I don’t have find a new one every day.

Not hyper-competitive

 

That’s all there was too it. I wanted to create wealth and I wanted to do it fairly low-risk, with low startup funds, and not have to spend my active working time on the daily business tasks. It sounds like every pyramid scheme pitch I’ve ever heard! I did have to spend some time getting educated, learning the details, and understanding how the systems work, in the end I got what I wanted though. Real estate has given me economic freedom and stability with a very hands off lifestyle, much lower risk than I had expected, and it’s been far more profitable than I had originally thought. I ask one of my investing partners all this time:

 

“This is so easy, why don’t more people do it?”

How I paid for a rental house in cash

6 years ago I thought I would never be able to pay for a house in cash. How would I? Houses are expensive, I had no money, I was bad at saving money, and I had a low income. This seemed impossible, then a year and a half ago I actually did it, and it was EASY!

I have written the details on this purchase in my deal #3 analyses which can be found (HERE). The total cost of the house plus rehab was $68,000. I didn’t save up any extra money than this to be safe, I just intended to spend everything I had to get this done. So where did the money come from?

 

The vast majority came from me getting rid of my car payment. That’s it.

 

If you have a car payment, you’re throwing away (at least a portion of) financial future. You can make all sorts of rationality about cost, maintenance, or try to reconcile the economic effects all you want. The fact is cars are a necessity to travel from A to B and anything above that is luxury. Unfortunately luxury is expensive, it depreciates, and its’ unnecessary. My car payment at the time was $415, which is about average. The car was a lease and had a bit higher insurance so my total cost per month came to about $650.

I sold my awesome car in 2011 and bought the cheapest, dirtiest, ugliest, truck I could stand to live with. Someone traded this old truck in at the car dealership I worked at and I paid $1500 for it. It had 250K miles worth of dents, scratches, peeling paint, a manual transmission, no radio just a hole in the dash. It had bald tires and a crack in the windshield. I later found it trying to be sold on craigslist for months at $2000 and no one would buy it because that was overpriced. I didn’t’ care about any of these things at the time though, I only cared about my future. All cars are temporary, nice ones become junk as time goes on so there is no reason to fall in love. Just look to buy the cheapest thing you can possibly stand to live with… then lower your standards a bit further and look again.

So while it cost me a bit of money to get the new truck running: ~$600 or so for tires and a windshield and a good cleaning. My cost basis for transportation had gone from $30,000 in debt and $650 per month, to $0 in debt and $50 a month (just insurance). This was around July 2011, and I bought the house in June 2016. That’s about 59 months.

 

59 months * $650 car payment = $38,350

 

The next thing I did was start learning about real estate. So between this story and the time I bought my first rental, I had to move my fiancé and I into a single family house and out of my condo. I made a similar sacrifice as the car. I knew we could afford a decent newer house that we would be proud of and would be similar to homes our peers were buying, the rule is to stretch when buying a house right?

You’ve heard that buying a house “is the American dream, that’s the best investment, that’s the goal”. Wrong, wrong, wrong. That’s nonsense, and just because people say it, doesn’t make it true. My goal is financial freedom, not stretching to buy a somewhat nicer house and then getting stuck in it for 30 years. Instead we bought a foreclosure vastly underpriced. It wasn’t pretty but we did some small work to it over a year and it didn’t take much rehab before we were able to refinance the loan and take out a big chunk of cash without increasing our monthly payment. We didn’t need money to make money; we used knowledge to make money!

 

This added $20,000 to our pool

 

The last thing I did was save a little bit extra each month that I normally wouldn’t have. This was tax returns, a little bit of cash each month; interest earned, any bonuses, etc. We didn’t take trips, we skimped on Christmas, things like this add up. Sure it sounds annoying, but really the ambition of seeing our goals come together was worth far more. My house pays every month now, and will continue to for decades. Most people don’t have their car from 5 years ago or remember what they got for Christmas 2 years ago. What seems like sacrifice is actually quite insignificant. So with tax returns going to this and interest earned the total increase in actual savings was well under $200/month on average, but that’s what they combined to be.

 

$200/month average * 60 months = $12,000

 

Lets total this up:

12,000 + 20,000 + 38,500 =$70,500

 

The total amount saved was a tiny bit over $70,000 and I spent all of it to get this deal done. It wasn’t that risky as I had done enough research to know I had exit strategies, what to expect, and what the worse case scenarios were.

So instead of paying out $650/month in car payments and insurance, I now have a house that makes me $950/month and will continue to do so for decades. This doesn’t even account for the equity I’ve made, the tax benefits I receive, and the high cost of depreciation I’ve avoided by selling the car. 5 years of driving a cheap car changed my financial life forever, and it feels like no sacrifice at all looking back. Making car payments is never going to build you wealth, but having a car payment might prevent you from building wealth. None of this is profound, it doesn’t require a high income, and giving up a fancy new car isn’t really much of a sacrifice. The real thing you need to commit to is TIME, and luckily, you’re going to spend this time no matter what. You can make that time extremely useful by thinking of your future self and how best to treat them. They won’t care about how cool your car is now, they will care about how well you have set them up for a future of low stress, and high opportunity.

 

Are you willing to give up your car payment for financial freedom?

How I fixed the money problem

Have you gotten sick of living week to week yet? Do you ever stress about money? Worry about paying the bills? I’m sure you do because the vast majority of Americans share this stress, and I’m here to tell you it’s not only voluntary, it’s fairly easy to beat.

 

Here was the real stress for me. It wasn’t living week to week, or never getting ahead it was being stuck in jobs and situations that I had no control of. Do you hate your job but can’t afford to leave? Too strapped to save for a new place or move to a new city? When your economic situation causes you to stay in a situation you hate but can’t afford to leave, it’s called “Wage slavery”. It’s common, it ain’t new, and it’s awful.

I fixed it, so I know other people can. Unfortunately people largely take no control of their situation, they make zero sacrifice, and they just don’t make any efforts to get better. If your economic situation is stressful or not improving then ask yourself “what have I really done to improve it?”. luckily while it may take time to get better, it takes little effort, little sacrifice, and zero luck. This is a situation of design, not advantages. I went from broke, bad credit, stressed about it all the time, and STUCK, then one day things went from just stressful to catastrophic. I decided to find out how I could fix it and find financial security and I have been amazed about how easy it’s been. I’m not special by any means: I’m of average intelligence, I’m lazy, and I started out with really bad habits. I fixed my money problems, anyone can fix theirs as well.

 

Understand common cultural financial pitfalls.

 

A: It’s incredibly taboo to talk about money in America. This is ubiquitous, and dangerous, especially with the prevalence and ease of credit debt. Everyone around you is broke, but no one appears to be, and no one talks about their financial standing so you think you’re not doing so bad. Even most parents don’t talk about money to their kids. I don’t know why the culture is like this, maybe because everyone is ashamed to be so broke, but it gives people a false sense for the volatility in our daily lives.

B: Lifestyle inflation, maybe the hardest pitfall to avoid. Almost no one is immune too, if you make more, you spend more. If you make $200,000 per year, you’re going to buy the most house you can afford, not the most house you need. Creating wealth is a function of habits, not income. Plenty of people with large salaries struggle too, they get a raise they get nicer cars, nicer houses, spend more on clothes, private schools, etc. Not too say you shouldn’t spend any of your income as it goes up, but you don’t get ahead by spending, you get ahead by investing. If your pay period goes by and 100% of your income is spent, it guarantees you will always have to work to sustain. Do you want to HAVE to work forever?

C: Instant gratification. You want things now, you think you deserve them, and they make you happy….for today.  I sold cars for 10 years and telling people “they deserve to buy this new fancy car” is so easy to use against people it’s unethical. We aren’t worried about how to sustain a lifestyle through our whole lives when we are 25, we just want to live the YOLO life and have fun. Don’t sweat about tomorrow, have fun today right? Well tomorrow you’ll be losing sleep on how to pay for that Lexus you didn’t need, but for today you’re happy and you get to look cool on Instagram.

 

Find out where you are

The next thing I did was start really understanding my financial position. This is easy, free, and invaluable. Can you make a grocery list without checking your fridge first? No, so lets take an inventory of where we are. It’s like using GPS software for directions but not letting it know where you’re starting from.  How can it possibly know how to get you where you want to go if you don’t know where you are. This is EXACTLY how finance (among many other things) works. You must know where you are so you can calculate what it takes to get where you want to be. You have to have a starting location, and a destination. This is a simple concept that will really help and very few people do it, which is a testament for how little people are doing in order to improve their situation, it also shows how a few easy steps can help you get control. Now there is an unlimited amount of information on methods and ways to do this but to keep it extremely simple I personally only do and recommend these 2 things.

1. Track your net worth using an aggregate software like Yodlee, Mint,  or my personal favorite: Personal Capital. You’ll input all your assets and liabilities for the first time, and if your situation is anything like mine was there is a good chance you’ll find you have a negative net worth, mine was about $10K negative when I started. That’s fine, this isn’t a blog to celebrate success, it’s to move towards it. Now that you know where you stand, you can get to where you’re going.

2. Check your bank account every morning. I do this every morning on my phone the instant I wake up. It keeps me obsessed, dialed in, and in control. Transactions post at midnight so this is the perfect time to do it. If you’re avoiding looking at your account because you’re afraid of what you spent recently, this is a bad sign. Without changing any other habits, this level of increased control will keep you on financial alert and improve your situation.

 

Pay yourself first

This is the oldest rule in the book, and it changed my life. It’s actually really easy and most people don’t think they can do it, but they never try. If you try it, I bet you’ll like it and find it easy as well. For me saving money meant having some money leftover at the end of the month and then putting it in a savings account and it never ever worked, not for 27 years. Then I did the opposite, I saved first then learned how to live on the rest. People think they can’t afford to do this because they are strapped already and that’s true, but most are strapped voluntarily. You waste more money than you realize most likely. You have fallen guilty to lifestyle inflation. How can everyone be broke and everyone has different incomes? I know people who make $300,000/year and stress about paying bills in full each month. You might have to make some sacrifice, but if you cant’ afford to save 10% then you really can’t afford the way you live now. Here’s what I did. I started with 10% of any income (post tax) and put it into a savings account in an online bank that had no debit card. This eliminated my impulse purchasing and it removed the “burning holes in my pocket” phenomenon I had all the time. It also made me feel confident that if I did spend all the money I had in my account, my savings goal was already taken care of so I didn’t have to feel guilty. After only a few months I had accumulated more money than I ever had in my life and I barely noticed a change in my lifestyle. That’s when saving became fun,I started to increase that rate from 10% to 20% and then higher as I enjoyed my account grow. I found that creating wealth is much more enjoyable than spending money. Anyone can spend money that’s easy, there is pride in the challenge.

Maximize credit score

Few things are more expensive than poor credit. At best it’ll cost you large interest rate expenses and deposit requirements for things like utilities and cell phones. At worst it’ll prevent you from getting jobs, you’ll be locked out of investment opportunities, and you won’t be able to rent/buy a home. I had poor credit when I started and I fixed it with no magic, no consolidation company, and no credit fix company. I did it the ‘hard way’ you could say. I paid for a monthly credit report and consistently fixed negative events and waited for them to fall off. It takes time, but any progress helps. These days you don’t need to pay for your report you can use credit Karma for free. Track your credit score, take it seriously, fix errors, and then let it save/make you money instead of being a burden.

Educate

Want to be an investor? Invest in yourself! There is nothing with a higher return on investment than education. I don’t mean formal education like college, I mean self-sourced education like books, audio books, podcasts, blogs (if you can see this, you’re already doing it! look how easy), and anything you can get your hands on. I know that reading in our society are something everyone wants to but few people even attempt to do after high school. Still, I encourage you to try it. Everyone in the world thinks they are of above average intelligence but never take the time to crack a book. If you think you can learn everything about the world, the systems at play, the nuance of financial and social culture just by being around a while then you’re wrong. If that were possible, people would be a lot smarter, and a lot wealthier! I gave up music almost completely years ago and switched to audio-books/podcasts. My gym sessions are education, my car rides are education, I have a cheap waterproof speaker in the shower for education. Learning was annoying in school because you were told what to learn, now you can learn about things you enjoy. It’s not a chore, it’s empowering, useful and entertaining. Ask yourself if learning is something you are unwilling to do in order to create financial security in your life. If you ARE willing, then here are my recommendations to get started, you can change your life with the information provided here and it’ll cost less than $30, and they are not boring textbooks, these are entertaining books.(These are personal recommendations not paid endorsements. I don’t make any money off this site)
“The Richest Man in Babylon” – George Clason
“Rich Dad Poor Dad” – Robert Kiyosaki
The 10x Rule – Grant Cardone
The Bigger Pockets Podcast

 

The combination of these small things changed my life. They may not seem like much but the implementation of them compounds like you wouldn’t believe. Commit to taking control and your life will literally change just like mine did.