If there is one thing that sucks about being an entrepreneur, it’s the fact that you always want to dabble in new things.
When I was six years into my career of being a financial advisor, things were good. My business was growing and I really had no need to pursue any new ventures.
Unfortunately, I’ve been sucked in by too many Robert Kiyosaki type books and I’m constantly intrigued on how I can start new businesses. Plus, I’m used to hustling and working multiple jobs when I really didn’t have to (weird, I know).
When I was in college I worked two jobs and served in the Army National Guard. So being busy was normal to me. I was busy growing my financial planning business, but after years of growth I finally hit a comfortable spot that allowed me more time in the evenings to pursue new things.
My father-in-law had ordered some DVD and audio CD training by Carlton Sheets that showed you how to make money in real estate with no money down. To this day, I still don’t know why he bought it, but what I do know is that he gave it to me.
After listening to every single CD and watching most of the DVDs, I knew what my next BIG thing was. I was going to be a real estate investor.
There was only one catch.
Besides listening to Carlton while I was driving in my car, I knew nothing about investing in real estate.
Let me emphasize the keyword in the previous sentence: NOTHING. Don’t worry though because my father-in-law was going in with me.
Do you how much experience he had investing in real estate? NONE.
Sounds like the perfect pair, right? (don’t answer that)
My father-in-law is quite the handy guy; we thought because of that we’d be perfect business partners. I would be the numbers guru and he would be the handyman. It was a match made in heaven.
The First Find
The first property we ever made a bid on was a HUD house. The house was an extreme bargain located in a nicely developed neighborhood. We even bid about $5,000 higher than the asking price. If we had got the house, we would have made a killing. Unfortunately, we were outbid and forced to move on to the next money maker.
The next stop was a rental property. It was one side of a duplex that was located relatively close to both of our houses. Because of this we thought maintaining it would be simple (wink, wink), yeah, because we knew what we were doing. Remember, I am the real estate expert. ;)
The list price was approximately $120,000 for a two-bedroom duplex and the rent was around $1,200. At the time, I thought I remembered reading that if the monthly rental income is 1% of the asking price, then it’s a pretty good deal.
Unfortunately, I never really verified that with anyone. I don’t know if Carlton told me that or if I got it off the internet. Anyway, it all sounded good so we made our offer. (Can you see the train wreck getting ready to happen?)
After going back a few times with the owner, we finally agreed on a selling price. The buyer also required that we put down $500 for earnest money (like a deposit), which we happily did, and we finished the contract paperwork at our realtor’s office.
Donald Trump Look Out
I remember how excited I was that I just closed on my first rental property. Donald Trump, eat my dust. What is even more funny is I remember attending a sporting event with a good friend of mine and I was boasting to him that I was confident that within a year I would have at least 10 rental properties.
Go big or go home, right?
Shortly after closing the deal, I thought it would be good to meet with my CPA to tell him about the deal and get his opinion. Why I didn’t meet with him beforehand, I still don’t know. Not only is my CPA quite the tax expert, but he also has dozens of rental properties himself.
When I told him about the property and its details he was kind but deliberate. He politely informed us that we had overpaid.
What I think he wanted to say was,
“What the hell were you thinking? And why didn’t you ask me first?“
He explained that we were cash flow positive now but all it takes is one small thing – a roof repair, the air conditioner going out, fill in the blank with any minor thing, and then we would be out of the money.
He elaborated by sharing that most good rental properties are purchased well above the 1% range. He said that it is a bare minimum, but he would never buy a property at that rate.
He also informed me that most good real estate deals aren’t found by looking through the local newspaper (which is where we found ours). They are found through connections or situations that you just luckily happen upon like a friend or neighbor looking to sell their property.
When I asked him what he thought I should do about the current property that we had just closed on and deposited our $500 earnest money, he told us to do our best to get out of it. He also said that this happens routinely and that you could come up with some valid excuse to get out of it.
It didn’t take me too long to call my realtor to let her know what I needed to do. I had succumbed to the fact that the $500 would be my tuition payment to Real Estate 101, but my realtor said that this happens all the time. While I felt bad for wasting the duplex owner’s time, I’m still happy that we didn’t lose our butts by being tied to this property for eternity.
I learned a ton through that whole experience. Here were my key takeaways:
- Audio Programs Don’t Teach You Squat. Carlton Sheets isn’t the first course I’ve listened to, but it will be the last. These type of programs are a good primer, but you would learn much more doing it on your own or finding a mentor to teach you the ropes.
- Don’t Forget What You are Passionate About. I like numbers. I really don’t like real estate. Jaded by potential BIG profits I let my greed get in the way of what I really care about. Do you know how many real estate properties I own currently? Zero (except for my house). I finally had to succumb to the fact that real estate isn’t my thing. What is my thing is financial planning and investments which is why my “next big thing” became my blog GoodFinancialCents.com.
- If You Have a Resource, Use it For God’s Sake! My CPA is one of the most prolific real estate investors that I know, and would have happily shared his knowledge with me had I asked. Doing so would have saved me hours of time and frustration.
- Don’t Let Your Blunders Ruin You. The whole experience could have wrecked me from exploring new business ventures. The one thing you have to understand about all entrepreneurs is that we all fail. It’s in our DNA. What makes entrepreneurs different is that we don’t consider them failures; rather learning experiences. And trust me, I’ve learned A LOT over the years and this wasn’t the last time I learned from a business venture.
What have you learned? Have you tried any new hustles that didn’t work out the way you thought they did? How did it affect you? What did you learn from it?
I’ll leave you with one of my favorite quotes:
“There are two necessary conditions to become an entrepreneur: absolute confidence and total ignorance.”
Post by Jeff Rose, CFP. Jeff is the catalyst behind some awesome movements such as: The Debt Movement, The Roth IRA Movement and The Life Insurance Movement. He blogs at Goodfinancialcents.com and just released his first book, Soldier of Finance, which intends to help you kick the butt of your financial situation.
[Fail stamp by: Nima Badiey]