Rich on Money

Real Estate and Investing

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What Beer Teaches Us About Money

I’m going to reference two awesome books in this post. They are must-have’s if you want to know money.   They are books by finance blogger Jim Collins and a trader turned probability expert and essayist, Nassim Taleb.

Why would I talk about both of these books in the same post.

Simple.

Reading both gives you almost everything you need to understand money. Damn close anyway.

Beer and Foam

Jim Collins book The Simple Path to Wealth has a section I love where he compares the stock market to a glass of beer. These glasses contain different amounts of beer and foam.

If you use a little skill to pour the beer, you can have a glass full of mostly beer with very little foam on top.

Pour the beer too quickly, you’ll have mostly foam and very little beer.

What if somebody else pours your beer into a mug that you can’t see through and then hands it to you. You have no way of knowing how much is beer and how much is foam.

The same problem exists with the stock market.

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How Lucky are the Richest Guys on Wall Street?

This post is based on and inspired by ideas from the book Fooled by Randomness by Nassim Taleb. It’s one of the most insightful books I’ve ever read.   It’s about the role of chance in life, and how we are often blind to and fooled by it.

Get it and read it.

It ESPECIALLY applies to money and the markets.

The points I make in this post are derived from his book.  Here we go:

Russian Roulette

Have you ever played Russian roulette?

I have.

water-balloon-russian-roulette

I’m kidding. I haven’t.

          Why not?

 Because that’s stupid!

Because as exciting as it sounds, I just can’t stomach the worst possible outcome. It’s not an acceptable risk. Not even to play once.

No matter how smart I am (or how smart I think I am), the outcome is ruled by randomness. By chance.

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key to success

How Much Money Will I Make From My Rental Property?

This is going to be a short, simple, down-and-dirty tutorial to help you look for or make offers on rental properties.

Going from simple to complicated, the first thing to understand is the 1% rule, which is easy to do in your head, and can save you the trouble of breaking out the calculator for properties that are overpriced.

1% Rule

The 1% rule is quick and easy. Monthly rent should be at least 1% of the acquisition price. The acquisition price may be a higher number than the purchase price. It’s purchase price plus the money to get the house ready to rent.

Example.

$80,000          to purchase house                plus

$20,000          remodeling                            equals

$100,000        acquisition cost.

$100,000 home should rent out for at least $1,000 a month, or it would not be a good investment.

          What is the logic behind the 1% rule?

If a house will give you 1% of the purchase price each month in rent, then it gives you 12% of the purchase price each year.   That apparently means the investment makes 12% a year!!!!

          WOW, THAT’S AWESOME! I’M RICH (ON MONEY!!)

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Prospective Tenant? When in Doubt, Just Say No!

I had a chance to avoid an eviction.  I don’t think you can avoid them all, but this one, yes.  I didn’t listen to the obvious warning signs.

My experience with purchasing my first rental property was scary enough to give up on real estate investing for the rest of my life!

Actually, my wife recently remarked to me that she was SHOCKED when, after going through the stress of purchasing the first rental property, she realized I wasn’t going to stop. She said she thought I had enough!!!

If you haven’t read about my first rental yet, read about it here.

After I bought this house, I discovered the seller had concealed the fact that something under the house had pushed up the floor almost two feet in the middle of one of the rooms. It was quite the ordeal figuring out what it was and how to fix it.

Also, while the house was vacant, someone decided to climb into the crawl space under the house and steal all the copper plumbing.

So I guess real estate investing isn’t for me!

  • But my love for real estate runs too deep!
  • My threshold for self-punishment still not met!

I had a desire to succeed in real estate.

I decided to get back on that horse and keep riding!

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How I Bought a Rental Property With Cash and Without a Clue

After moving back to the USA from Japan in 2012, I started a new job in Alabama.  I met a fellow military member who shared my passion for real estate.  Meeting him had a profound effect on my life financially.

What he did with real estate is exactly what I wanted to do.

And he was wildly successful.

His Background

When I met him, he had been living there for two years.  In that time, he purchased four houses with cash, remodeled them mostly on his own, and rented them out providing substantial cash flow each month (especially without a mortgage!)

He bought in the range of $25-35k, putting a few thousand and sweat equity into them, then renting them out for around $750 a month.  The numbers were REALLY working for him.

If you apply the 1% rule to these properties, a house that totaled $40k in cost to rent out should pull in $40o to be “worth it.”

These were almost double that.

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5 Tips to Land the Perfect Property Manager

I can trace some very fortunate events that have transpired in my life financially back to one chance encounter.

Many important lessons came out of this encounter, but today we’ll focus on the property manager aspect of it.  I will give you 5 tips to find the perfect management company.

Think you can manage it yourself?  What a headache.

Also, these companies can end up being worth far more than their fees just through their contacts and understanding of the rental market.

It’s working for me, and it can work for you.

I own several rental properties debt-free giving me a passive income that I could retire on today.

But I won’t.

I’m gonna keep buying properties and raise our passive income to a very comfortable number that will allow me and the Mrs. to retire-in-style.

I’ve developed a system and built a team of people over the past few years that is really working for me (literally and figuratively).

I’ll share all these with you in the hope you learn from my luck and missteps.

At the beginning of 2014, the only real estate I had was my primary residence in Washington D.C. which was paid off and rented out.

I wasn’t making much money from it.  It was too high-end in too nice of a neighborhood.  High cost/low rent.  It was actually a poor investment as a rental.

So how did I go from one rental with unimpressive returns to several rentals with impressive returns in a short time?

I met the right person (financially), and was prepared for the opportunity.

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The Flippin’ Truth about Flippin’

I’m going to tell you what I’ve learned flipping six houses in D.C., all while living overseas.

Next, I’ll share exactly how much I made (and lost) on each of these flips.

I’ll close out with my recommendations on flipping as an investment strategy.

          Let’s get started!!!

So I flipped a house in D.C.

It was the subject of my last post.  I detailed how I go from no clue about flipping to trying it once.

Now I have a small clue.

          How did I do?

I cashed a big, fat check for:

$16,908

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The Best Damn Finance Book I’ve Ever Read

First, a little about me and my website:

  • I paid off $32,000 in student loans in a year.
  • Paid off our $280k mortgage in 6 years.
  • Flipped several houses in Washington D.C. to help me build income for real estate investing.
  • Have purchased several rental properties without using debt.

My website is all about helping others to get out of debt and create passive income from real estate.

But you can not mess with real estate until your finances are on a solid basis.  You gotta go get Jim’s book! (or at least read his website)

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“Spend less than you earn–invest the surplus–avoid debt”

The central theme of Jim’s website and book.

It’s hard to believe the Path to Wealth can be this simple.

But in his book, you’ll see it is.

I got to admit. I love this book! My review is going to sound a little over the top, but it’s a damn good book!

I’ve been big into finance and real estate books my whole life. I’ve read them all.

stack of booksOk, way more than this!

About a year ago, I stumbled across financial independence and early retirement websites and it opened up an entire new world to me!

I began seeking out all the top blogs in this field, and one that kept coming up was jlcollins.com.

To put it bluntly, his Stock Series was the most comprehensive explanation of investments I have ever read. There is so much noise and confusion out there in the finance world, and he slices right through it and tells you what’s really important.

He makes it easy to understand the complex world of money. His approach to investment is so simple, it’s alarming!

I followed his blog closely and eagerly awaited new posts.

When he sent out an email explaining he was writing a book and soliciting help from his readers for proofreading, I jumped at the chance!!

The only reason I volunteered was because I wanted to read the book ASAP!!!

As luck would have it, I was selected to be a proofreader, and had the opportunity to read the book before publication. (Actually, I’ve read it about 20 times. Occupational hazard!)

The book is exactly what I was hoping it would be.

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I’m Flippin’ Rich!

This post will describe my first house flip.

First a review of my background.

I’m Rich on Money.

  • I paid off $32,000 in student loans in a year.
  • Paid off our $280k mortgage in 6 years.
  • Flipped several houses in Washington D.C. to help me build income for real estate investing.
  • Have purchased several rental properties without using debt.

Back to my flip.

I was scared to death about it!!

But it made me some money.

       How did you get so flippin’ Rich, Rich???

(Ok, I’m not Rich.  It’s a play on words!!)

Let’s review a little what I’ve done so far.

I’m in the military. From 2003-2005, I lived near Washington, D.C.

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You Did What with New Construction???

In my last post, I talked about the purchase of my first house ever.   It was a townhouse near Washington, D.C., and I paid $280k for it.

I thought I paid way too much and was sure I’d just made the worst decision of my life!!!

About a year later, similar townhouses were selling for $400k+.

HELL YEAH!!!!!!!

I’m Rich! (on Money) 

I tried to buy a second home, and repeat my success with the first.

Just couldn’t find a good enough deal!

The market was so hot, everything was snatched up for absurdly high prices (this is around 2005, the peak of the housing bubble)

I heard others were getting rich with a easy method that didn’t tie up too much money and was sureproof in this rising market!

Eventually, I decided flipping new construction was the way to go.

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