Invest in Assets

It does not matter how much money you make; it matters what you do with it. If you want to get ahead financially, you have to spend less than you earn and invest the difference in assets.

When you think of assets, you think primarily of money. This is good, but it isn’t enough. You are not only spending money. You are also spending time and effort. Everything has a cost, and where you put your time, money and effort will determine how much of a return you get. So, put your time, money and effort into those things that make your life better, reduce obstacles and give you new opportunities. Put your money into assets.

What are assets? Assets are anything that decreases your expenses and increases your income. They can also be something that stores wealth without losing it. If it becomes less valuable over time, it isn’t an asset. If it doesn’t make you any money and only increases your expenses (time, money, effort), it isn’t an asset.

If you are renting a house that is $1,000 per month and you can buy a house that ends up being $800, then by buying a house you’ve saved $200 per month.

If you rent that same house out for $1,000 and pay $800 for mortgage and maintenance, then you have $200 more money coming in each month.

If you get a new skill that lets you earn $10,000 more per year, then the time, effort and money that you spent on obtaining that skill paid off. That skill is an asset.

If you put money in an IRA that grows at 6% annually on average, then that is an asset that stores wealth and builds it.

If you move to an identical apartment 30 minutes closer to where you work, then the proximity of your apartment has produced a savings in time.

Assets are important because assets make your life better. So, look around and start to think “what is it that I could do to make my life better, reduce my expense of time, money and energy AND increase the time, money and energy that I have.”

By thinking this way, you will be more open to spotting opportunities that can increase the quality of your life.

Investing in Residential Real Estate

“Real Estate has made more wealth for more people than any other investment vehicle.”

That is the claim, anyway. I’ve heard it quoted over and over. I don’t know whether it is true or not, but it doesn’t matter, because the substance here is even better than the sizzle. Real Estate investing is something that is relatively accessible compared to other investments. It requires no specialized education. It does not require advanced skills or talents. It does not have to involve a lot of money and it does not have to involve a lot of time, depending on how you invest. If you are careful and move slowly, you have a good chance of doing well. It is also a favored asset in terms of financing, which means that banks will lend money to you on the easier end of the difficulty scale so that you can buy a house and rehab it for rent or resale. By contrast, banks are less likely to lend to you to start a small business. If you want to engage a bank to lend you money to start to speculate in the stock market, good luck.

Real Estate investing is something that can be done while a person works a full-time job. Just as you can manage to find the time to buy a house to live in while you are employed full-time, you can also find the time to buy a house to invest in. This benefit to real estate investing should not be overlooked, because you can size your investment difficulty to the time and capital (money) requirements that you have. In other words, you don’t have to make your life miserable and work all of the time just to invest in real estate.

I started to invest in real estate when I changed employers. I decided that my 90 minute commute for the former employer was something I would never do again, and started to look for housing next to where I was hired. Admittedly, I was considering renting an apartment. I wasn’t looking to own. When I looked for apartments for rent, there were not very many in the area in which I was searching, and there were zero that I both wanted and could afford. With such limited options, I decided to look for a place that I could purchase.

Ultimately, I decided to buy a two unit duplex where I would live on the top floor and rent the bottom. The top floor was in very poor condition. The bottom floor was acceptable. That made where I wanted to live an easy choice. Renting the superior unit was easier, and by occupying the unit that needed a lot of work, I could pace myself. My investing got off to a rocky start, but it quickly became something that I learned how to do and how to succeed at.

When you think of investing in real estate, you probably think of rent. That was about all I thought about when I started. However, it did not take very long, but real estate investing had more benefits than I originally considered.

Income 

Yes, there was rent. That first rent check was the first time that I collected any significant income that was not a function of my employer. Knowing that I had other income was a great feeling, and it meant that I was less dependent upon my employer. Subsequent properties, each producing rent, would only add to that.

Amortization

Even though I was living in half of the structure, my monthly rent was paying most of the mortgage, and the mortgage was going down by an increasing amount each month. That is called amortization. The loan balance goes down and there is less interest that the bank can charge. Since the mortgage payment stayed the same, there was more and more money going to pay down the loan (principal) each month.

Appreciation

Beyond rent and amortization, I found over time that the property also increased in value year after year, though slowly. This is referred to as appreciation. That first property appreciated modestly, but after 5 years I found it was worth about 11% more than I paid for it. After 10 years, it was about 25%. In reality, it did only slightly better than inflation, but this was just one of the benefits of investing.

Depreciation

Next, there was depreciation. When I did my taxes, I was allowed to write off a percentage of the value of the property. This meant that I paid less in income taxes. What I also discovered is that if the depreciation pushed my rental property to have no profit, on paper, then I would actually be able to take the rental loss (up to $25,000 at that time) off of my income. So, my own wages, in effect, were reduced somewhat for tax purposes. I paid less in taxes because of my real estate, and that was ultimately due to depreciation.

Experience

The next thing that I gained from real estate investing was experience. Before I started to invest, I had never used a table saw. I never snaked a sewer. I did not know how to unlock siding. I gave no though to downspouts and water drainage. I didn’t even really own any tools. Also, I never had applied for a loan, I did not think anything about the value of a credit score and I had never had to itemize on my taxes. By investing in real estate, I learned a lot about home repairs, legal expectations, finances and a lot of other things, too.

Opportunities

Finally, there were opportunities that came from learning so much from over a decade of real estate investment. I got into real estate to make extra income. It accomplished that, and grew slowly over time as I continued to invest. However, beyond everything else just discussed, I started teaching dance for a local college. Then the thought came to me that I could surely also teach real estate, which I did. Furthermore, the writing that you are now reading can be traced back to real estate. While I write about many topics, I got into writing because I initially wanted to write about real estate, since it was so interesting to me. Both teaching and writing are two things that I love to do, and they can be traced back to the experiences that I gained from investing in real estate. Even the dancing that I just mentioned was a function of real estate, but that’s a subject for another time.

Real Estate investing offers a lot of benefits. This was an example of how to buy and hold, but there is also the option of rehabbing and selling, also called flipping. I have also done this, though it is not my preferred method of investing as it is a high intensity activity, which is more like a business than an investment. There are other less common ways to profit from real estate, but between buy and sell and buy and hold you have the majority of what people do in real estate.

If you would like to learn more about real estate investing, keep reading, or check out the videos and books on the topic.

Practical Advice is Hard to Find

It is very hard to find good information. It is not hard to find people who mean well and want to help. It is not hard to find people who have been successful. It is not hard to find opinions. What is hard to find is good information that is useful and can answer the question of “How do I…?”

Some information is person specific. If you find yourself wanting to start a business and ask a business owner how they got started—hoping to glean some useful information that might point you in the right direction—you might hear a story that you know was unique to the business owner’s life circumstances. If you discover only that the business owner inherited their business or that their employer wanted to retire and asked them to buy it, you cannot really plan to replicate what they did. This kind of information is not bad, but it is not useful.

Other information is too general. Look up “how to start a business” online and you will find advice such as “get an idea, make a business plan and talk to a bank.” That, also, is not the kind of targeted information that you need.

I am willing to speculate that the kind of answer to “how do I start a business” is more along the lines of “how do I generate an idea for a business product or service when I don’t have any ideas?” than it is “how do I incorporate?” Yes, incorporation should be considered, but the real question of “how do I start a business?” is concerned with the major actions that enable discovery of a marketable product or service, the production of that product or service and the profitability and control of that product or service.

To give two more examples of focused questions, it probably also is something like “how do I look at my own life to determine what kind of idea I can turn into a real product or service that I, with my own skills, abilities, finances and connections, can make profitable?” Another real world question would be “how do I find the resources and information that I need to be successful in my business?” These are the kinds of real world questions that you would want to focus on, because to answer these would be to discover the real answers to “how do I start a business?”

The reason for this blog, and for the books, videos and other content that I have produced, is that I have searched intensely for information throughout my life. I have found many answers, but I have also spent a lot of time searching. What I hope to share are the answers and the how-to of searching for the information you need, so that you will not have to search as much, and for as long, as I have.

The questions are always different, but the method is always similar. When I ask “How do I…?” what I really want to know is

  1. How broad is the topic and how do I focus on what I need to know? (i.e. in dance, how much do I really need to learn?)
  2. What are the major areas that concern this pursuit? (i.e. in real estate, how to screen tenants, how to price units, how to determine what to do to a property and what not to so that it is profitable)
  3. Where do I find the resources, people and information necessary to help me answer the question? (i.e. instructors, agents, advisors, contractors, associations, books, etc.)
  4. What changes do I need to make in my life to enable me to pursue something?

Using these four previous questions as a rough guide, here are some of the questions that I have answered for myself:

“How do I build a good life for myself?”
“How do I learn to invest in real estate?”
“How do I make new friends?”
“How do I get a job in my field?”
“How do I climb the corporate ladder?”
“How do I learn to dance?”
“How do I overcome social anxiety?”
“How do I eat to lose weight and control my weight?”
“How do I find good information for my health?”
“How do I overcome weaknesses in my life?”
“What kind of business could I get into?”
“How should I think in order to find the best answers to problems?”
“How can I find answers to problems when I need them?”

There have been so many times throughout my life that I have gone in search of good information and found my resources lacking. I did not have someone who could give me good advice and I could not find the information readily available. I hate to say that I reinvented the wheel, but sometimes, when you cannot find what you are looking for, you need to reinvent the wheel. So, whether you ultimately come to this site for how to select high quality tenants, how to build wealth or how to dance anywhere, I hope that you will see not only information that is focused enough to answer your question of “How do I…?” but also delivered in a way that respects your time. Respect for the amount of time it takes to learn something is very important to me, and I try not to duplicate content or to add filler.