When it comes to passive income, real estate is king. A small investment can be leveraged into a massive cash cow. This is the second in a series of posts on lessons learned. Some lessons in life come from clients or from watching clients deal with issues. With investment properties I pull from personal experience. Over the years I have owned over 100 single family homes, numerous duplexes, a few multi-unit buildings, a storage facility, commercial property, and farm land. The lessons I have learned buying, selling, and leasing real estate over the last 28 years should provide a few nuggets of wisdom you have not read before. This added wisdom hopefully flows to your bottom line.
Residential Real Estate
We will start with residential investment properties because I have more experience in this arena and most readers own/manage the same; I will address commercial property in a future post. The issues I raise are only a sampling of the issues I find most relevant; a full review of investment property issues is beyond the scope of one blog post. The best approach is to start from the beginning and move through the lifecycle of an investment property, from purchase, to renting, to eventual sale.
There is no surprise around here I am an accountant. Before the dream of accounting set in my dream was to write for a living. My first novel was finished in high school and my second shortly thereafter, neither published. Writing was in my blood. There was only one little problem; writing does not always pay the bills. The internet changed all that.
Starting in the mid 90s a new company showed up making it easier to sell books: Amazon. Behind my office building was a company called Banta, the seventh largest book packager in the country at the time. RR Donnelley bought them out years ago. It was now easy to produce and sell books on Amazon. I jumped on hundreds of radio talk shows to hawk my wares. I wrote about everything that tickled my fancy. And I got my first taste of money from my writing skills (or lack, thereof).
Editing and production takes a lot of time, time I could be writing. Several years later content farms showed up online, eliminating most production time issues. I eventually settled into HubPages for a few years, publishing over 100 articles. In December 2009 and again in January 2010 I wrote about Tony Robbins. The articles have produced a small but steady stream of traffic and income over the years. Recently the traffic spiked and I did not know why. Research indicated Tony was in the news because some people were burned in his fire walk seminar. Traffic returned to normal after the new cycle ebbed. Now it is rocketing again due to a Netflix documentary. I guess now would be a good time to revisit our favorite promoter.
A cold north wind raised goose bumps on my forearms. The year is 1982. I am 18 years old with no idea how I am going to live my life. My dreams are to own a business and make lots of money. You see, my family is very poor. Just money. That is the goal.
The wind gusts, reinforcing the goose flesh. The family farm finished bankruptcy only months before. My whole life plan was over; farming is no longer a viable job opportunity, the only thing I know. Our farm house was a shotgun shack. (A shotgun shack is a building where you could shoot it with a shotgun and the pellets would pass through without hitting the building. The old farm house had plenty of holes.) By some miracle we kept the house and a few acres of land from creditors; the rest was gone.
My dad’s life was over, too. All he knew was farming and now the farm was gone. He started a business repairing silo unloaders. The competition was tough. Life in the 1982 Rust Belt was no fun. Work was scarce; opportunities few. Unemployment reached toward 20% in our local community.
The silo repair business, like all business, is hard. Finding clients is no easy task; potential customers trust the businesses they have hired for years and an upstart is a big risk. All you have is price and verve. You work hard for a song and hope to build trust so you have a chance in the future.
Reducing spending is my favorite pastime, more fun than a Pokémon or any other video game. Finding new ways to reduce costs provides me more pleasure than any other activity I engage. I bike to work as often as feasible, blasting my transportation costs to a minimum. Our home hot water is supplied by a geothermal heat pump. In the summer there is no reason to keep the geothermal on except for hot water so we put it on a timer, reducing our electric bill to almost nothing. (We use hot water in the evening to hand wash dishes and wash up after working outside.)
There is one more energy hog in the house we need to address: the clothes dryer. We launder our clothes in cold water. Most people drop the wet clothes into an electric dryer and crank the beast to the highest setting for an hour. Not me. We have devised a system where we dry our clothes, even on vacation, without a clothes dryer.* The energy cost of running a clothes dryer has been known to send frugal people (like me) into epileptic shock. The first time Mrs. Accountant ran the dryer I went outside to watch the meter. I hurried Mrs. Accountant to the meter to see the damage with her own eyes. She agreed. The dryer stopped and the clothes lines were put to work.
From an early age I practiced picking out conversations from a crowd. It’s a neat little trick for a business owner to have. When you think I cannot hear you I may actually be listening in closely. Conversation in a crowded room takes skill with multiple conversations amped in volume so you can be heard over the cacophony. Picking out a select voice from across the room takes a lot of practice.
At a recent social event I put my talent to good use. The trick is to focus on only one voice. Focus is the key. I move from voice to voice, focusing on the words until I find one I find interesting. I do all this while talking with my friends. You would be amazed at what people say in a crowded room when they assume only their little group is listening. On this particular event I honed in on a man talking about people he does not trust. I found this interesting so my radar swung into action, focusing on the conversation the two men were having while maintaining an intelligent conversation with my mates. So I don’t interrupt, I never make eye contact with the people I am focusing on. The man continued, “I don’t trust people who act like they are perfect; they never smoke weed or drink or do anything wrong.” He went on a bit more before changing the subject. The new subject did not interest me, so I moved on. But by now I was mulling what the man had said.
Some of the largest companies in the world did not exist a few decades ago. Amazon, Apple, and Microsoft are only a few of the organizations with massive market share, Microsoft and Apple with humble beginnings in the 1970s and Amazon gaining life in the 1990s. Each is a leader in their industry. It is hard to imagine the world without the retailing genius of Jeff Bezos. The way we shop, work, play, invest, read, and think have all been radically altered in the last few years by companies with vision. And a secret weapon to put them in front and keep them there.
Intel may not have been the first, but they were the first company I heard preach it. Andy Grove had an idea so radical it was insane, insane enough that it might work. The secret was to create products and services that turn your current products obsolete before your competitors do it for you. Insane! Create a business to put your current business out of business. Business is tough enough as it is without doing the work of your competitors for them. But think of it for a moment. Amazon keeps reinventing itself at an ever increasing rate. Fast shipping is not good enough. Never satisfied, Amazon uses every method possible to ship cheaper and faster. Competitors never have a chance. Amazon reinvents itself so often the competition is not across town, but in-house.
I started this blog to share stories from my side of the desk. Doctors, attorneys, and accountants hear all the good stories. The insights I could provide my readers would prove valuable in their lives as they work toward financial independence. Reinventing the wheel is a poor use of time. Learning from the experiences of others is how we grow personally. Sharing stories and ideas were to help you, the reader. What I discovered is I am also learning a lot along the way.
Recent events highlight the difficulty business owner’s face on a regular basis. I see it with business clients all day long; now it was my turn. I screwed up bad. I handled an employee who went off the rails about as bad as any employer could. It is too easy to pass blame to my office manager or to assume the employee is bad. Sometimes the issues come out of the blue; this event festered for a month and a half before I took action—the wrong action.
One of the all-time great pleasures people receive from reading personal finance blogs is stalking the blogger. For some reason peeps want to know what the heck we are spending our money on. Who am I to upset the apple cart? Stalk away.
Below is a table showing my spending for 2015. I know, I know, you expected this months ago. All I can say is: Better late than never, you little stalker, you. My obsessive-compulsive way of recording stuff in my life allows me to break down my spending patterns for you. There were a few surprises when I reviewed the numbers. I will provide some explanations after the table.
In the future I plan on listing my annual spending once per year only. My columns listed here are exactly how my personal records read, minus the description. The miscellaneous column catches a lot of stuff I could break out, but since most months have only minor miscellaneous spending, I elected to keep it simple.