My name is Rich. I like to talk about 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 twenty rental properties that are paid off.
Let me tell you my story.
How do you summarize your financial life in a blog post?
What if it’s your first post ever?
I’ll give it a shot!
I met my wife in college and quickly realized she was the right person for me. Before she married me, she asked me a question that I didn’t know the answer to. It was a question that I also did not want to know the answer to.
“How much money do you owe in student loans?”
(Very blank look from me)
Thinking back through the last 3 1/2 years of college, I remembered getting some grants and a partial scholarship from the military for majoring in Chinese, how bad could it be? I remember taking out a few student loans to help make ends meet (a.k.a. always eating out and vacations with rich friends).
You see, my wife of sixteen years is Chinese. Taiwanese to be exact. The Chinese, much more so than us Americans, tend to frown on debt. I didn’t see a big problem with the debt at the time, especially considering I was sure to be rich someday and could easily pay it back.
Back to the story… After being in college for four years, I had racked up more debt than I imagined. I ended up calling at least four different loan companies before I had the total.
$32,000 and change. (Back when $32,000 was a lot of money).
I said to my wife: Wait, why are you crying?
I took an extra job while still in college (Fidelity Investments), and she took two extra jobs. We knocked that debt out in less than a year. Future blog post on this. Boy, my wife is crazy!
If you have a lot of debt, stop spending. You don’t both need new Iphone 7’s! Find ways to save. Find ways to earn more. Pay it off fast. There is always excuses why you can’t do this. But you have to. It’s that simple.
Rich on Money
I called to place my trade, and the savvy trader on the other end of the line told me I was foolish not to invest in an aggressive index fund, where I would make money twice as fast as the S&P 500 index. He was right, sort of.
I invested $4000 in the Aggressive Index fund (I think that was the actual name), and lost money twice as fast as the S&P 500 when the market dived with the pop of the tech bubble. $4k went to $2k in a few weeks. It was one of the best lessons of my life. That Warren guy knows what he’s talking about!
Beware of financial advisors. They almost all suck.
I joined the military as an officer and ended up moving to the island of Guam. This put our plans to buy a house on hold. After two years in Guam, I received orders to move to Washington, D.C. It was 2003, and we were eager to buy a house believing that owning real estate would be key to our financial future.
The market was unusually hot in 2003. House prices had been rising rapidly over the past two years, and houses were selling as fast as they came on the market.
We were shown a house that wasn’t coming on the market for a few more days, and made an offer at the full price of $280,000. We had enough money for 10% down, borrowed another 10% towards the down payment at a 7% interest rate, and paid 5.5% on the remaining portion.
Cool! My first property!
The payments were about $1600, and I didn’t sleep for several days straight fearing it was the biggest mistake of my life. Luckily, it rose about $100k in value over the next year.
My wife kept hounding me to pay off the loan faster than 30 years. I told her I knew what I was doing, and I would rather save and invest that money instead of paying it off early. I did add $500 to the mortgage bill to make her happy.
The house kept growing in value, which prompted us to search for a 2nd home to buy as soon as possible, sensing another chance to get rich quick! In 2005, we did what many others had been doing to get-rich-quick. New Construction.
The idea with buying new construction was that you made a small down payment and locked in the price of your new townhouse. It took about a year to build. Once it was completed, you would turn around and sell it as a new home without ever moving in, and pocket the appreciation it made in the year it took to build.
The problem was, it wasn’t appreciating in value anymore. Every house in the neighborhood was for sale, and no one was buying. I tried to rent it out, but the only offers I got were section 8 (a form of welfare where the government pays the rent).
We didn’t know it at the time, but I was witnessing the top of the market, and it was starting to nosedive. I sensed trouble, and offered a $3K incentive to the selling agent.
I got out of that bad situation with about $10k in profit, and watched the rest of the houses in the neighborhood eventually go into foreclosure. This beautiful new construction area ended up becoming a bad neighborhood, with crime problems and vandalism.
Counting on appreciation when you buy is a losing proposition. It’s impossible to predict. If you made lots of money on your house, it’s not because you’re awesome. You got lucky.
I put real estate plans on hold.
About a year later, in my never-ending quest to learn the secrets of money, I finally read Dave Ramsey’s Total Money Makeover. By the way, this book is one of the greatest debt books out there. Wait a second! I’m doing awesome according his steps!
(virtual pat on back)
O wait, but why in the world is he saying to pay your primary residence mortgage off? I thought that was good debt!! Don’t I get to write off the interest!? I read this part of the book carefully. He convinced me. Now I felt smart.
I realized the wisdom in paying off my mortgage as fast as possible, and ahead of making normal investments.
How come my wife doesn’t think my idea is amazing?
Probably because that is what she had been telling me to do all along.
We both had jobs and decided to make LARGE monthly payments against the principal and knock this debt out, just like we knocked out my student loans. We were able to pay the house off in six years, and our savings rate went up a lot!
Couple this with doing halfway decent flipping houses in D.C. (future blog post), and I accumulated a little chunk of change in the bank on top of being debt-free (including primary residence).
I’m in the military, so I had been renting the house in D.C. out since 2005, and wasn’t that happy with the rent-to-price ratio.
Even though the house was paid off, the return on investment was quite low.
In search of a better real estate investment, I ended up in the southern United States in a city where houses could be bought for the price of a down payment in D.C.
The rent to price ratio was much, much better and…
My rental yields almost tripled!
Also, instead of being highly leveraged (having a lot of debt) buying lots of houses with mortgages or on credit (old late-night infomercial trick), I was buying houses for cash (I hope Dave Ramsey is proud!).
There is a snowball effect to the amount of money that comes in as rent when your primary residence and rental properties don’t have mortgages. Your existing properties can purchase your next property at a faster and faster rate.
If you are going to invest in real estate, make sure your primary residence is paid off. Limit yourself to one mortgage, and then pay it off before starting your next investment. This may sound crazy and impossible, but you’ll thank me someday.
This is, in a nutshell, what I have done with my financial life.
I was able to do all of this on one military salary, while my wife stayed home with two kids, while living a majority of the time outside the United States.
I want to help others do something like this better and faster than me. I’ve always had a high savings rate by working extra jobs (I guess it’s called hustling now), and avoided wasting money on unnecessary crap (being frugal).
Without my wife, I would have never done any of this at all. This was all her idea, I was just smart enough to listen. It used to drive me nuts how all she wanted to do was save.
Then, one day fairly recently, I realized we are well on the road to being quite comfortable someday.
My passive income right now would allow me to retire according to financial independence calculations. But my wife and I are having way too much fun investing in real estate and saving for retirement.
We want to see how high our passive income can get, and retire in style someday. It’s our goal to retire at a higher comfort and income level then we had in our working years.
I’m now less than three years from the minimum time for a generous military retirement! We’ll see what happens after that.
I’ve made a lot of stupid mistakes along the way, and still did all right. I hope my stories and experiences can help others get out of debt, invest, create passive income, and live well.
Comment below on where you are financially and what your goals are.
Want to get started in real estate? Read my complete guide to real estate investing.
Curious exactly how I invest my money?
Rich on Money