A response to an email; How the average person can get ahead and be financially independent – Real estate

Financial Independence is important to those with peculiar views
Successful real estate investing; We need to crunch the numbers

It’s always a good thing when I hear from a young person. I am sure you already know that there are very few people who share our views on life, money, and the reason why we are here in the first place.

Our financial system was developed to keep the vast sea of humanity in a state of perpetual worry and overwhelmed with the immediate tasks of the day. If we are too preoccupied with paying the bills, how can we ever have self-awareness to contemplate our existence?  If we are always working to pay our rent and necessary expenses, we won’t even have the time and energy to look up in the sky to observe the weather. Satan likes that most will never be conscious enough to question things.

The alt-financial media and MSM scare people into submission. An effective sales technique

Moreover, Satan looks favorably upon the alt-financial media as it spreads hopelessness, despondency, and despair. Why bother working for the future when it’s all coming down anyway?  I come across dozens of videos from Australian TV, like 60 Minutes and ABC News, that pound on the calamity concept. For those who have no idea what they are doing and follow the crowd, it is a calamity. We need to tune out this garbage and bunch of half-truths. We need to move forward.

At 53, the one constant I can say to those who share our peculiar views is this; if we are dependent on others for money and wages we will always struggle. This is why I try to relay to others that we need to be independent-minded and look for ways to be free of dependency.

I wish I had developed this mindset in my 20’s, rather than waiting until my late 30’s. Regardless, it is never too late to start. Here is an email I received for a reader in Toronto.  (80% of my bandwidth is from the United States, yet I receive a ton of emails from Canada).

I am 24 years old and trying to best position myself to succeed financially in the current economic climate. I want to thank you for all of your insights, I’ve learned a tremendous amount.

I appreciate your perspective on investing in real estate, but don’t know where to start. I was wondering what books/websites/etc. you would recommend reading to learn the requisite skills to begin. For instance, I don’t even know whether I should learn to invest in the Canadian real estate market, the US market, or any of the implications or prohibitions that are tied to either.

Thanks in advance,

Here was my response (edited for spelling and grammar).

Hi Dean,
Thanks for reading my articles and for the email.

Investing, especially in real estate, is essentially a relationship between money and time. The less time people have, the more money they need. The more time they have, the less money they need. Okay. With this said, I didn’t start investing in real estate until my mid 30’s. So now, I’ve been investing in real estate for about 18 years. I invest in real estate, not because it’s something I grew up with and know, it’s because I saw the advantages of owning rental properties [especially after I “woke up”].

In the United States I can generate up to $100,000 in rental income and pay little income taxes on the federal level. For some reason I always have to pay some on the state level. What I’m trying to get at is that I identified rental properties as the most efficient way for me and the average person to stay ahead of what we discuss everyday on my blog.

At 24 years old you are ahead of the game by at least 11 to 12 years from where I got started. Given this, I can imagine a scenario that if you manage your time and money the right way you can own three or four rental properties by the time you are 30. By the time you are in your mid 30s you can own a bunch of them. I didn’t start until my mid-30s.

It all starts with the first one. It’s never a bad time to get involved in real estate, however there are better times to get active than others. Obviously, I research Toronto and such, and I would stay clear for now. This is okay. You don’t have to own your place where you live to invest.

I will let you know a secret, until I moved in with my wife I rented every place I lived. I devoted all of my resources and capital that I could devote into rental properties. I rented and I invested. Don’t make the mistake of tying up your precious capital with an owner-occupied property. Rent in Toronto if that’s where you want to live and invest elsewhere.

At 24, you have a lot of energy. I would look to buy my first property where I could find positive cash flow. This means that you may have to go outside into larger concentric rings. If you stick to Toronto you’ll be competing with all those investors who don’t care about negative cash flow. Unless you’re a trust-fund kid you should care about not having negative cash flow.

I don’t know the advantages of Canadians investing in U.S. real estate, but I know that there are plenty of cash flow properties around [even on Ontario, but mathematical analysis will go a long way to help where to concentrate]. I know in Upstate New York there are tons of places that cash flow. When I first got involved in real estate investing I was investing in areas where people were laughing at me. That was the height of last decade’s bubble and the properties doubled in like 2 or 3 years. That was auspicious timing, but you have to be very more prudent in this cycle as it is in late stage. I am concerned however that with monetary policy being as it is, assets may continue to climb in certain areas, including Toronto. But that doesn’t mean you should invest there at this point.

There are plenty of books in the book stores that talk about the fundamentals of real estate investing and what landlords and real estate investors look for. When I first got involved I read many of these books. I went into the bookstore and just picked up a few of them and went through them.

But I am here to tell you that if you want to survive financially and get ahead, especially with this endeavor, you need to understand the math behind investing in real estate. This is the most important aspect, because it is all about time and money and the formulas and the math behind it reflect this. Unless you are well-versed with the math behind real estate investing you will probably make most of the mistakes that other real estate investors make and result in their undoing. So, I would pick up books that emphasize the math behind real estate. The math isn’t very complicated, but it’s something that you need to keep in your mind when you locate potential properties. Real estate investing has nothing to do with what we see on the television shows. That doesn’t make for good programming.

I would also learn how to rehab the houses. At your age you can develop a skill set in which you can do much of the work yourself. I had no experience with carpentry when I first bought my first property. But I saw how important it was when it came to saving money. You will be shocked to see how much money you can save by learning to do the work yourself. As you get older and acquire more properties and develop a higher cash flow you can then begin to turn the work over to other people.

The advantage of this is that you already know what needs to be done and can keep your costs within reason. It’s very easy for costs to spiral out of control. So you need to understand the math and you need to understand the carpentry and rehabbing; two vital skill sets. There are a lot of first-time type of repairs and have learned a lot by watching YouTube. There really isn’t any reason to buy books anymore about real estate when there’s so much free content on YouTube. Maybe do a YouTube search on real estate math and see what comes up. [I just did and there is plenty].

I wish I could say there were a couple books that you could read and get a thorough understanding, but there really is no replacement for experience. And at 24 years old you have your whole life in front of you. At twenty-four I had my head up my ass in grad school, and was completely oblivious about what I discuss on my blog.

Like I said, I don’t know the advantages of investing in U.S. real estate versus your home area. I would look for former Rust Belt areas [in Canada and the U.S.] that you could easily get a positive cash flow. These are not houses you would want to live in but, that doesn’t matter. Don’t buy real estate to invest in places you’d want to live. As long as other people want to live there then that’s a good decision. Just don’t invest in crime-ridden ghettos. I never invested in Baltimore City for instance, but I bought around the area.

I think you get the picture. It all starts with the first property. If prices fall on that first property, but you made good math analysis, then your cash flow will ride any cycles out. Real estate is all about money and time. If you do a good job in investing, other people will notice and they may give you money to invest as well. Just don’t spend too much time behind the computer trying to figure things out.

Good luck and if you have any questions just shoot me an email.


A message to Christians about real estate investing

Note: Since I discussed the end times on my blog, my bandwidth has dropped about 30%, so I don’t care anymore about attracting more readers.

Here is one final thought to my Christian readers who think that money is evil and the real estate investing is a sign of greed.

My properties are in much better shape than those of my fellow landlords. I take great care of my residences and perform the repairs myself, unless I need licensed experts to perform the work. I can put money into my properties and charge less rent, because I learned how to invest and rehab, and I know when to buy. Besides, it’s a lot of work and it can be risky as we need to overcome all the apprehensions from those around us who say it cannot be done.

I only purchased two properties ever that were not foreclosures. That means 90% of all my purchases were either REO listings or bank auctions. I stay away from standard transactions, because I do not want to get over on homeowners. Working with banks and the government is entirely another matter.

I can time the market cycles to my benefit as well. As a result, most of my properties have no mortgages. What this means is that I can attract excellent tenants and charge them rent that is anywhere from 10-30% below market. For instance, I purchased a home in 2002 and paid off the mortgage a couple years ago. This 4 bed, 2.5 bath would normally rent for 2,000, but the family that lives there is the only tenant I have ever had there. They essentially paid my mortgage and I thank them. I thank them by only raising their rent $200/mo. in 17 years. That’s right, they pay $1,400/ mo in Fort Washington, MD.

I do this, because I am a Christian and I tell them so. Never forget that a man is worthy of his wages. We can spread the good news in so many ways.