I’ve been investing in rental property since 2012. Over time, I’ve expanded my network and gotten to know other real estate investors, many much more successful than myself. So, it’s only natural that I try and pick the brains of these people to expand my own knowledge base.
In general, I’ve met some wonderful people and learned a lot. One common question I often ask investors is, “What is the most important thing you’ve learned through your years of REI?”
Not surprisingly, many will often reply saying: Treat REI as a business!
To that, I respond (internally): YAWN!
YAWN… Really??? Yes, really… No, I’m not trying to be condescending or rude. And no, I don’t think I’m a better investor than these people. Far from it! I just think that “treating REI as a business” is a really boring and dull (generic) reply… It’s a typical short-sighted investor answer we give when we forget that money isn’t the main objective in life.
The Journey to Early FI
This is Year 3 of my journey to early financial independence. I realized some time ago (2011) that going down the road of conformity was not the right answer for me. Quite frankly, I think there’s much more that life has to offer than simply going through the motions and working 9-5 until 65… or later.
Since I’ve decided to chase after my dreams and true desires, I’ve accepted the fact that I probably won’t be a “success” in life. From society’s vantage point, success is simply measured in terms of one’s monetary wealth. The more money you have, the better the person you are, right?!? Sadly, most adults don’t know any better than this… Why else would we revere so many wealthy idiots?
Anyway, my views on life are probably not universally accepted by most. In my mind, we are all operating on borrowed time… That is, we don’t actually ever own anything because nothing lasts forever. We come into this world with NOTHING and leave with NOTHING… All we really own are the memories and experiences created from t = 0 to t= final.
But it’s not like I approach life like it’s all doom and gloom. Actually, because life itself is so fragile, I’ve made a conscious decision to do my absolute best to MAXIMIZE what very little (and precious) time I have on this world as much as possible. This means cherishing: people, experiences, and the blessings of everyday life. I’m a glass is overflowing type of guy… Give me sunshine, good company (positive energy), and some free time, and I’ll make the most of it. I no longer sweat the small stuff and minor details that don’t amount to anything.
Life is beautiful! Just having the opportunity to chase early FI already puts me in a most enviable position. When you really stop and think about it, how many people out there in this world even have the luxury to pursue their dreams? If your earned income allows for more than just your basic necessities, you’re well, well ahead of the curve. I’m learning to stop desiring so much, and trying to appreciate everything I’ve got for a change!
Back to REI
So, with all that being said, you’ll understand why I approach REI the way that I do. I’m not all about the Benjamins… In fact, if my real estate “business” ever did decide to IPO, and you were a shareholder, I assure you that you would not be pleased with my results. Being CEO, CFO, and in charge of all important decisions, you would demand that I be terminated effective immediately and replaced with someone with even a little bit of competence in what they were doing.
I don’t really look at my rental properties as being a part of a business. Yes, of course each property is designed to earn money and not lose money… How else would early FI be possible? But I really couldn’t care less about maximizing ROI, or trying to squeeze out every last drop that I can get.
I am relying on my real estate investments to buy me my freedom. I want to be financially free so that I can pursue life with reckless abandon. That’s my main objective, and I always make sure to keep my endgame in mind.
All the money grubbing that can follow and consume other investors… It’s not worth my time. It’s not worth my efforts. And that’s not what I want out of my life.
Besides, if you really do believe in treating REI as a business, then where exactly do you draw the line? Does EVERY single REI decision you make have to be in the best interest of your cash flow? Seriously? We all know greed knows no bounds, so when would enough ever even be ENOUGH?
If we venture down that path, I don’t know that we would ever feel like we have enough… And that’s kind of sad… For instance, what if you found yourself involved in the following hypothetical scenarios and you were already a big-time, successful investor?
- Husband and wife are getting a divorce. They’ve decided to divide up their assets and sell the house. The eldest son desperately wants to buy the house so that it can remain in the family. You are the winning bid by a hair. Do you concede a property you don’t even really need, or are you still all about the ROI (the home has tremendous upside potential both as a flip and buy-and-hold!)?
- Your fabulous tenant of five years is going through some hardships and missed rent payment this month. You know that market rents have risen significantly since she signed her lease, and you are certain you can easily find a qualified tenant to take her spot. Do you give her the benefit of the doubt to straighten up her situation, or do you give her the boot knowing your ROI will thank you for it?
- You are selling one of your rentals to capture some massive appreciation gains. The highest offer is from a young punk who is paying all cash (mommy and daddy’s cash). You don’t know him well, but from the time you met him, you got a pretty bad vibe. The second highest offer is from a family who desperately wants to move in to this neighborhood so that their kids can attend the nationally ranked high school. The youngest has aspirations to go to med school. However, their credit situation isn’t the greatest, and although they have been pre-approved by the lender, it is not a slam dunk that they will be able to close escrow. Do you take the all cash offer that is basically guaranteed, or do you go with the higher risk, lower return option?
Why I Invest…
Why do I invest in rental properties then? Well, I also invest in stocks, but with owning stocks, I’ll never have any direct control or power over the decisions being made. Being a shareholder is great because I don’t have to do anything and I still earn passive income (dividends). However, as a small shareholder, I play a most passive role, and other people direct the company. But hey, if it’s all about business, then there’s absolutely nothing wrong with that. I invest in stocks for this reason… I’m glad they don’t allow me the chance to make a stupid decision.
But I do also want to have something a little more than that with my investments. As an owner of rental properties, I’m the landlord (boss). I call the shots and I get to steer the ship, so to speak. That means I’m allowed to make “dumb” financial decisions… Even with a PM in place, they still work for me and have to do as I say. For what I’m chasing after with rental properties, this is exactly the type of arrangement I’m looking for.
Here’s why I’m playing the REI game, outside of just earning semi-passive income for early FI:
- Provide quality housing. I take great pride in my properties and each one has been rehabbed to be turnkey ready prior to renting out. I want to provide a nice place to live at an affordable price for all of my tenants. I’m no slumlord here… I feel great joy in seeing families move into one of my properties and turning it into their own “home”.
- Have a direct influence on other people’s lives (hopefully a positive one). This goes beyond the first point of simply providing a quality home to live in. Again, I’m not all about the ROI. If I have a tenant who is experiencing some hardships, but usually pays rent on time and is taking great care of the place, I will cut them some slack. A late payment every now and then is fine. I’m not so cutthroat… I don’t even like to raise rents. Further, I like to reward great tenants. At the end of the year, I’ve made it a custom to hand out gift cards… Usually one for dining out with the family, and the other for Christmas gifts for the kids. I’ve received some warm responses so far, so I want to continue to do this. It feels good! And it’ll be even more fun this year since I have more tenants now… I get to make an even bigger impact. Imagine if I owned 100 units? When I really stop to think about it, a lot of my tenants have it rough… In some cases, they deposit over 1/2 of their monthly paycheck to me! These folks are helping me to buy my financial freedom… If nothing more, I want to be the best landlord they’ve ever had… I’ve had plenty of terrible landlords in my day, so I know what that’s like. Be the change that you want to see in this world… even if it ends up costing you 1% or 2% on your ROI.
- Help others on the journey to early FI. As a byproduct of REI, I’m able to network and connect with other investors and early FI enthusiasts. Since I own five properties and seven units now, I’m no longer a complete novice to REI. In fact, many other readers, bloggers, and meet-up investors have wanted to network with me. Many to learn about out-of-state turnkey investing. Others to get some ideas on how to invest locally in the Bay Area. Whatever the reason, I’m always glad to connect and lend a helping hand. Going back to my philosophy on life, I want to MAXIMIZE my time and experiences on this earth. A large portion of that involves the human experience. Making friends and enjoying a good laugh is way more rewarding (and memorable) than being one of those “If I teach you, I screw myself over” type of people. Life is too short for such nonsense! Karma is very real. From my own experience, any good you do in this world, you will be rewarded 1000x over. Whether it’s returned to you, your spouse, your kid, your grandkid, etc., the world has a way of balancing things out.
I’m a lousy businessman, and frankly I don’t care. I invest in real estate primarily to help me reach early FI (hopefully sometime next year!). Beyond that, there are many other good reasons why I invest in rental properties: I want to provide quality housing to tenants, make a positive difference in this world, and help others become financially free.
So what if my ROI suffers a little bit? It can’t always be about: money, money, money and more money. You hear so many people talking about wanting to make the world a better place… Or to leave the world a little better than you found it. Well, actions speak louder than words. And I’m going to do my best to step up to that challenge. So, what is the most important thing I’ve learned through my years of REI? No matter how far you get, or however high you climb, NEVER forget who you are and what you really want out of your life.