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: