Lincoln, NE · Member since 2019 · 19 posts · 21 votes
Hey BP! I'm still quite new around here so I know I'm risking outing myself as someone who "doesn't get it yet" by asking this, but I've been consuming everything I can to try to educate myself - podcasts, books, forum conversations. (I have yet to get out to a local meet-up, but I'll get there.) I think of this as part of what it takes for a new investor like me to get up to speed.
One thing that keeps coming up - particularly as I read my way through some of the titles folks on the podcast identify as their favorite business books - is the idea of drastically minimizing expenses. I guess the volume and frequency of the "you must live an exceptionally modest lifestyle" message has surprised me and I'm curious if you have tips for how to accomplish the spirit of what they're saying without drifting into self-deprivation. Live below you means, sure, but some of this advice...I dunno.
Of course I get that living on $20,000 a year, for example, would provide a big boost to my wealth building but I've lived on that income before, as I'm sure many of us have, and I don't recall it being very pleasant. I don't need to splash money all over the place, but what's the point of using real estate as a tool to build passive income and increase my long-term wealth if it doesn't also improve my standard of living as I go along? Sure my retirement would be GREAT if I save 50% of my income, but... What am I missing here, BP?
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
7y
I can see how just saving for retirement would not be a very big why. The folks I know that 'do without' have a stronger reason than to have a big nest egg someday.
We and others you have listened to I'm sure just prioritize things differently. I've never been impressed by or been driven to purchase brand new cars or phones or clothes or exotic vacations, etc. I'd rather have freedom. Not yearning for things that drop in value has allowed me to not have had to clock in anywhere for 17 years.
We still have wonderful experiences and fun. My boys and I might play frisbee golf and go for a Costco hotdog afterward for a treat where others may do something costing far more than $8, but we don't feel we are doing without at all. Another favorite we do is kids bowl free, a national thing. I'll get a pass all summer for $20 to bowl 2 games a day if I want. The kids are completely free. Great memories can be built without large dollar signs.
I don't have to be very frugal anymore, but it's hard not to be. It's what we like and what we are used to. I now have a car that goes too fast and is too small to carry tools or kids. Big whoop. Got it at a steal with no payments. If purchased years ago with payments when I was broke, it would have delayed my semi-retiement 10yrs. Our priorities are still in the correct order I think.
It's up to you. Would you rather pay retail for things that will be worth less (wothless) later? Or change how you define fun and important for freedom? 90+% of workers run on a wheel well into their 60s. Be normal if you want to.
Did you sell all 350 homes at once for that 7 figure buyout? just curious because that does not make sense as 9,999,999.99(max for 7 figs)/350 = $28,571. I know your homes were worth more than that apiece :)
yup partner bought me out.. that was net gains over the course of 4 years of building portfolio and exiting .. not the sales price..
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
7y
When you ask people why they got in real estate the answer is almost always to be free. Money is what allows you to be free, but for me it's not the primary goal. Being able to design my lifestyle is.
Looking back at my 10 years in real estate how I manage money has changed a lot. Early one a divorce wiped me out financially; I was left with a nice home I could not sell, a new house/horse farm that was not drywalled yet and I could not move in, the construction debt from the work and a huge monthly payment to my ex to support her lifestyle in CA. I never defaulted on anything, but I remember one month I had literally no money to buy feed and basically lived of spaghetti and bananas despite an executive income. I had to pinch every penny and did a lot of the work on my first properties myself.
The following years everything I had went into growing my portfolio, money I had, money I borrowed and every wake minute I had. I would start early at the office, try to get out at 5 and then be excited about another 5 hours I had left in the day to work on the rentals. We grew a lot, I met my amazing wife and after watching me for a couple years she started investing herself. She is a teacher and drove a Honda and I had a company vehicle, we worked hard and we invested most of what we made, but we also made sure that we could enjoy life. And we never took cash flow from our business to pay for our life, that's what active income is for.
Almost four years ago I quit my corporate job after almost 20 years and went full time real estate. Like a kid in the candy store I was so excited about having all my time to spend on what I love most - real estate! It was an amazing feeling, although cutting my W2 felt like jumping from a bridge. And that drove me to work really hard to build my career as a real estate broker, but I also played around with general contracting high end properties, building new construction and of course managing and growing the portfolio. And also giving back; countless hours to help others to get started, because I remembered all to well how hard it was for me to find a good agent (took me years) or anyone who could help me (before BP!). I would work 7 days a week (as an agent you don't get off on the weekends) and were burning the candle on both ends running from meetings to job sites and back.
So my goal for this year is to log a little less hours, lower my stress level a bit and make more time for the things I enjoy outside of work. I just got back from a skiing trip to my home country Austria and next week for spring break we will be in Mexico on the beach. Two more trips planned for this summer. And on Thursday we will be attending a beginners class in sailing - I am excited to make finally some recreational use of Lake Michigan!
So we are spending our money on experiences and a little bit on nice things. But every dollar we earn passive goes back into RE. And every dollar we make active get's stretched as much as we can. We have no consumer debt. We drive nice cars, but they are paid for. We shop at Costco, we cook mostly at home, we usually don't have more than one drink when we are out and heck - we even fly Spirit to Mexico (I know..). Looking forward what motivates me financially is being able to help my family, being in the position to give back is a huge motivation for me.
For every book I read about real estate and business I try to read one about life and happiness and often it comes down to the freedom to have choices. And my wife keeps reminding me about what I told her way back why i got into REI in the first place..
Good day Frank, I’m very interested in what you meant by the critical time at year 10-12?
Hi Marcello,
Investing takes time and it doesn't happen overnight. Years 1-5 is the hardest. Most investors start with little equity and down and cash flow is low. Then years 6-9 things really start to ramp up you probably have a few rentals now equity has increased and cash flow much higher. You have also had 9yrs of working and saving money from your real job to add to your investment.
Now years 10-12 is where the fun happens. If you invested correctly and didn't blow all your money in years 1-9 from your investment and your personal income. Your investments should now be able to cover all your rent or mortgage on your owner-occupied house, car payments, and bills. Now all your personal fix costs are covered. Now life is easier and gets fun.
Now, this relies on a few things. 1. Need to invest in the correct property.
2. You don't change your lifestyle during this 9yr run. Don't buy a bigger house, don't buy an Escalade, don't start wasting money because you think you are a baller with3 rentals.
3 You continue to work hard and stack cash for your next deal till you hit the critical point where all your rentals pay for your bills or a set dollar amount that you are happy with.
4. Increase your personal income with a higher level of skills. So important. Need money to invest with.
So the game plan is not hard but it takes sacrifice, but in the end, you will have the life people dreamed of and it only takes 10yrs of hard work. Most people can't see that far, they are not willing to do what it takes, and what it takes is not that bad. I worked on my Grandpas farm when I was a kid. Now that was hard work.
Rental Property Investor · Torrance, CA · Member since 2016 · 724 posts · 1k+ votes
7y
For us frugality hasn’t felt like much of a sacrifice. I think it depends on how you go about it. We’ve saved $70,000 in three years. $48,000 for her student loan, $10,000 for a car loan, and another $10,000 in miscellaneous debts.
We did it by focusing on the biggest expenses. What you could call the “status symbols.” The vast majority of people’s income goes to housing, transportation, and food. We live in a decent apartment in a safe neighborhood, but nothing fancy. We’re 15 minutes from the beach. If it were 5 minutes from the beach it would be $2,500 a month. We only pay $1,200 a month (in LA this is very inexpensive.) We drive older payed off cars. They’re not falling apart, but they aren’t turning heads either. Last, we only eat out maybe 2-4 times a month. No fancy restaurants, that’s not our scene.
Because we save on the big things, we don’t sweat the small stuff at all. I don’t care if she goes to the mall and gets a pair of shoes now and then. I don’t refrain from going to Starbucks on the way to work. Saving money is almost effortless if you don’t have high bills to pay.
Driving an older car and living in a modest apartment do not make me feel broke. What makes me feel broke is having to check my bank account to see how much money I have before I go to a restaurant. Or spending time clipping coupons and chasing sales. When i need something I just buy it wether it’s on sale or not. Don’t pinch pennies, pinch dollars.
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Account Closed:
For us frugality hasn’t felt like much of a sacrifice. I think it depends on how you go about it. We’ve saved $70,000 in three years. $48,000 for her student loan, $10,000 for a car loan, and another $10,000 in miscellaneous debts.
We did it by focusing on the biggest expenses. What you could call the “status symbols.” The vast majority of people’s income goes to housing, transportation, and food. We live in a decent apartment in a safe neighborhood, but nothing fancy. We’re 15 minutes from the beach. If it were 5 minutes from the beach it would be $2,500 a month. We only pay $1,200 a month (in LA this is very inexpensive.) We drive older payed off cars. They’re not falling apart, but they aren’t turning heads either. Last, we only eat out maybe 2-4 times a month. No fancy restaurants, that’s not our scene.
Because we save on the big things, we don’t sweat the small stuff at all. I don’t care if she goes to the mall and gets a pair of shoes now and then. I don’t refrain from going to Starbucks on the way to work. Saving money is almost effortless if you don’t have high bills to pay.
Driving an older car and living in a modest apartment do not make me feel broke. What makes me feel broke is having to check my bank account to see how much money I have before I go to a restaurant. Or spending time clipping coupons and chasing sales. When i need something I just buy it wether it’s on sale or not. Don’t pinch pennies, pinch dollars.
Since you mentioned Starbucks when I see office workers buying 2, 5 dollar plus coffee's daily that adds up its small at the time. But its 200 a month just on coffee.. Chris Rock was interviewed at a convention on Hair care products and he was talking to one lady who said she spent 800 a month on her hair.. he had no clue and was floored..
Investor/Agent · Kansas City, MO · Member since 2017 · 291 posts · 308 votes
7y
@It's about choices. The people in the podcasts have made decisions. They've wanted something and have given up other things that don't mean as much to them so they can accomplish it. I think most of the successful investors and those who have been on this site for awhile have a pretty good idea of who they are and where they want to go financially. Particularly those who have been a guest on the show as they have achieved a level of success that most would aspire to. You typically don't get there by worrying about what others think of your financial choices. The goal is bigger than that.
My wife and I have two vehicles total and the value of those right now is probably about 10k. I look around at others in our neighborhood and I see some houses with 150k in vehicles in the driveway. Talk about a never ending drain on the bank account, but to each their own.
If you want to be like nearly everyone else and live this life of constant consumption then that's completely fine. But, if you want to be different and live like most can't then you typically have to make some choices. Typically, the more drastic those choices are the quicker you can get to that life you want. Good luck.
Hey BP! I'm still quite new around here so I know I'm risking outing myself as someone who "doesn't get it yet" by asking this, but I've been consuming everything I can to try to educate myself - podcasts, books, forum conversations. (I have yet to get out to a local meet-up, but I'll get there.) I think of this as part of what it takes for a new investor like me to get up to speed.
One thing that keeps coming up - particularly as I read my way through some of the titles folks on the podcast identify as their favorite business books - is the idea of drastically minimizing expenses. I guess the volume and frequency of the "you must live an exceptionally modest lifestyle" message has surprised me and I'm curious if you have tips for how to accomplish the spirit of what they're saying without drifting into self-deprivation. Live below you means, sure, but some of this advice...I dunno.
Of course I get that living on $20,000 a year, for example, would provide a big boost to my wealth building but I've lived on that income before, as I'm sure many of us have, and I don't recall it being very pleasant. I don't need to splash money all over the place, but what's the point of using real estate as a tool to build passive income and increase my long-term wealth if it doesn't also improve my standard of living as I go along? Sure my retirement would be GREAT if I save 50% of my income, but... What am I missing here, BP?
The more you can save then the more you can invest! But, that doesn't mean you cannot live a life rich with experiences. Budget your money and set aside some for things you enjoy doing. Every pay raise I give my investments a pay raise and I give personal spending money a pay raise...my investments just get a bigger portion of that pay raise. And make good choices with purchases, such as looking at cars as tools and not toys, living in a house or apartment that fits your needs instead of wants (you do not need that McMansion), not eating out every night or ordering takeout, thinking you are entitled to fancy vacations every year, and shopping for clothes at reasonable prices. So basically live within your means. If you cannot really afford something, don't buy it.
Brookfield, WI · Member since 2016 · 191 posts · 108 votes
7y
Seems like you are referring to the FIRE mentality. Which a lot of those on BP are advocates of. What I think is missed, is this is not a FIRE site, so there's the second part that get's glossed over. The mentality is: Live on as little as possible, invest/reinvest the rest....and here's the other part.... Until you don't have to anymore. So, if you can put away $25k a year, for say, 10 years at ~10% ROI, you now have 500k (compounding/snowball) with which you can "take" 50k a year of, every year, forever, for example. Now, look at that from a real-estate perspective. if you BRRRR and leverage, you can cut that down to 5-6 years, in theory. So the key is, put yourself in a good position early, with some frugality, and reap the benefits for decades to come.
@It's about choices. The people in the podcasts have made decisions. They've wanted something and have given up other things that don't mean as much to them so they can accomplish it. I think most of the successful investors and those who have been on this site for awhile have a pretty good idea of who they are and where they want to go financially. Particularly those who have been a guest on the show as they have achieved a level of success that most would aspire to. You typically don't get there by worrying about what others think of your financial choices. The goal is bigger than that.
My wife and I have two vehicles total and the value of those right now is probably about 10k. I look around at others in our neighborhood and I see some houses with 150k in vehicles in the driveway. Talk about a never ending drain on the bank account, but to each their own.
If you want to be like nearly everyone else and live this life of constant consumption then that's completely fine. But, if you want to be different and live like most can't then you typically have to make some choices. Typically, the more drastic those choices are the quicker you can get to that life you want. Good luck.
I lived in Palo Alto for years.. and with many exceptions of course.. common to have a used Camry in the drive way of a 2 million dollar home.. of course a 2 million dollar home in Palo Alto is a 100k home in many other parts of the country ...
and for sure when my main focus 15 to 20 years ago was pre foreclosure bail out when it was still legal in Or and Wa to do those.
I would sit with folks that were within 3 to 5 days of losing their homes and in the driveway just as you state there was a new or newer RV and easy 75k and up in cars.. etc etc. I find that areas with a lot lower housing prices will have more SUVs and expensive trucks simply because unlike Palo Alto were you might spend 60% or more of your income on housing.. in the cheap areas mortgages could be in the 500 to 700 dollar range leaving plenty of money to buy things.
Investor/Agent · Kansas City, MO · Member since 2017 · 291 posts · 308 votes
7y
@Jay Hinrichs...good points. That's crazy that people risk their homes, but yet can't get rid of their toys.
Before I met my wife I dated a girl for a few years. She worked in the car industry and each year she would buy a new car and get rid of her "old" one. These cars were like 35k and I think she was making between 40-50k a year. She actually moved in with me for almost a year and I was basically paying for all of our living expenses. Within two years of me breaking it off she had filed for bankruptcy.
My wife and I have two vehicles total and the value of those right now is probably about 10k.
I would sit with folks that were within 3 to 5 days of losing their homes and in the driveway just as you state there was a new or newer RV and easy 75k and up in cars.. etc etc. I find that areas with a lot lower housing prices will have more SUVs and expensive trucks simply because unlike Palo Alto were you might spend 60% or more of your income on housing.. in the cheap areas mortgages could be in the 500 to 700 dollar range leaving plenty of money to buy things.
I've told this story before, but it bears repeating. Years ago, I had a working class family renting a house. They drove two decent but very inexpensive, older cars. Always paid rent on time, never complained, took great care of the house and yard -- They were landlord gold for me. Six or eight months in, they got a brand new Camaro. They were more proud of that car than they were of their children. When they spoke of it, they smiled as if a miracle had enveloped them. Two months later, they started falling behind on rent. A couple of months later, they had to move, he back with his mother, her and the kids back with her family. All for the want of a cool car.
Hey BP! I'm still quite new around here so I know I'm risking outing myself as someone who "doesn't get it yet" by asking this, but I've been consuming everything I can to try to educate myself - podcasts, books, forum conversations. (I have yet to get out to a local meet-up, but I'll get there.) I think of this as part of what it takes for a new investor like me to get up to speed.
One thing that keeps coming up - particularly as I read my way through some of the titles folks on the podcast identify as their favorite business books - is the idea of drastically minimizing expenses. I guess the volume and frequency of the "you must live an exceptionally modest lifestyle" message has surprised me and I'm curious if you have tips for how to accomplish the spirit of what they're saying without drifting into self-deprivation. Live below you means, sure, but some of this advice...I dunno.
Of course I get that living on $20,000 a year, for example, would provide a big boost to my wealth building but I've lived on that income before, as I'm sure many of us have, and I don't recall it being very pleasant. I don't need to splash money all over the place, but what's the point of using real estate as a tool to build passive income and increase my long-term wealth if it doesn't also improve my standard of living as I go along? Sure my retirement would be GREAT if I save 50% of my income, but... What am I missing here, BP?
Ryan,
As in anything, you need to be balanced. You have to be frugal but you can't starve yourself and your family by being too cheap. You got to live life as comfortably as you can but realize there's value in DELAYED GRATIFICATION.
For example, I bought 2 Rolex watches for myself and another for my brother in law in 2016 but only after I've acquired over 1,000 apartment units. I also paid for my dream truck at that time and paid cash for it - because I can.
But back in early 2000s, I was struggling to even pay my bills so I ensured my overhead is very low. 7 years after my bankruptcy, I've acquired 12 apartment units and that was enough to pay for all my bills which was only $4,000 a month.
Rental Property Investor · Bath, ME · Member since 2014 · 220 posts · 288 votes
7y
@Ryan Pozzi - Lots of replies here, and I haven't read them all. So at the risk of a redundant message, I'll add two things:
1) All that matters is the gap between your income and expenses; and unless you're raising money, this gap represents your investment capital. For those with limited income potential or inflated lifestyles, cutting expenses is the path of least resistance to grow the gap. For those with the ability to ramp up their income but already live a fiscally-responsible life, there is little to gain by cutting out the morning latte.
2) The Mr. Money Mustaches of the world believe that cutting unnecessary expenses not can not only quicken your journey to financial freedom, but can also release you from the chains of materialism and enable you to live a more engaging, rewarding and environmentally-responsible life. I happen to enjoy reading MMM.
Erie, PA · Member since 2016 · 39 posts · 17 votes
7y
The answer to that question depends on the individual and their specific circumstances. Ask 50 different people and you will get 50 different answers related to how much (or little) they were willing or needed to sacrifice in order to reach their individual goals. Life circumstances and even the goal will be different from person to person. That being said, as a general rule, the more capital you have to invest, the faster you should be able to build wealth and reach your goals. People who are willing to make sacrifices have the potential to build more quickly and may be more motivated to make good decisions because of that sacrifice. In my opinion, the more capital a person has, the easier it is to do well in REI as long as it's done correctly. A large income earner or someone who had a wad of cash dropped in their lap is going to have a much easier time of it than the person who is scratching and scraping to save up for a down payment. Creative options can be used to get around that, but are generally more difficult to find for most investors. I think that most of us here on BP realize that some sacrifice is necessary and wouldnt be investing in RE if we weren't willing to make some sacrifices. Everyone is different and there is no standard. It all depends on how fast you want to get there and what you are willing to do in order to do it. Just figure out what works for you and what you're comfortable with and go from there.
Rental Property Investor · Torrance, CA · Member since 2016 · 724 posts · 1k+ votes
7y
@Jay Hinrichs I buy absolutely everything on a cash back rewards card. Pay the balance off every month. It’s not much but it takes zero effort aside from applying for the card.
Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
7y
For me keeping expenses low has proven to be imperative. When you're saving up for rentals, need to qualify for more loans or just want to take further risks it gives you a huge advantage.
I've never had a car payment and only had housing expenses for a few years of my adult life. Because of this I'm in a much better spot if I want to buy more rentals, need extra reserves for my rentals or if there happens to be a downturn.
For all of the getting started with no money talk I'm still very bullish on the tried and true formula of keep expenses low, save as much money as possible, improve your credit score and increase your income. My 27 year old friend who's a millionaire always says: save more, invest more.
Warren Buffet drives a paid off affordable car and eats McDonald's breakfast. Depending how the market is doing he gets one of three things, all under $2.
Real Estate Investor · Pasco, WA · Member since 2015 · 16 posts · 8 votes
7y
I believe the idea is creating a situation where you can comfortably live you life and make it sustainable for you. 50k a year in expenses? Ok, how can you set up your life to better be like that.
Very successful people can still lice their life lavishly but it is all sustainable (or should be) by the life they create.
Is your goal to go as quick as possible with the least amount of risk? Then you may want to follow the "set for life" way and save money.
If your goal to create as much cash flow as it takes to fund you're lifestyle, you may become a bit more creative in how you work on your business.
Your business at the end of the day should be frugal in nature, because that has shown long term success for many people, but if you wish to look at how you can set up yourself with a business that funds YOUR goals and lifestyles, then go for it. You will just have to be more active and creative!
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
7y
Do what you want, but if you spend less than you make, then you can create something powerful. The more you do that the better. In good times like this people get sloppy and start buying the cars, boats and other toys. Then a recession hits and they have to start all over. Just be smart. We live a frugal life, but still have a lot of fun. We chose to do things that are free or inexpensive, don't go out a lot, have 2 paid for vehicles and a house payment that is less than a normal studio apartment.
We just booked a flight to Europe for our family of 4 for free with my business credit card points. Car and a few hotel rooms will be free as well. You can still do a lot with out breaking the piggy bank!
Investor · Denver, CO · Member since 2016 · 181 posts · 242 votes
7y
@Ryan Murdock check out this link on how to allocate money https://i.imgur.com/u0ocDRI.png As others have said it depends a lot on your current financial standing but also you have one chance to live your life so don't stay at home every weekend eating ramen in the corner, go out and have some fun!
Warren Buffet drives a paid off affordable car and eats McDonald's breakfast. Depending how the market is doing he gets one of three things, all under $2.
The Mickey D's breakfast combos, sandwich hash browns coffee, are more like $7 here these days.
You can't take it with you, have fun that you can afford. There is no point to leaving a 6 or 7 figure inheritance to that no good kid who will pizz it away in a few months. Like one of my cousins did.
Rental Property Investor · Beavercreek OH · Member since 2018 · 422 posts · 970 votes
7y
I used to live with my wife and 2 kids in a two bedroom duplex. My son came to live with us. Wife wanted to rent a bigger house. I said no way and saved and saved. Our one entertainment was bowling. Folks at the bowling alley thought we were poor.
Wrote a check for 160k (all saved) to buy a bigger house for the family twenty years ago. Clipped coupons, drove beaters and continued to save.
Started a small car lot. Successful. Branched out to real estate during the crash. Bought everything I could at 50 cents on the dollar. Still saved and plowed back everything into the business and real estate. Now 7 car lots and 100+ units.
Spend some now. Big house, beach house directly on the Gulf of Mexico, new Lexus and Sting Ray. Hard for me spend still but I'm learning. LOL
Guess what? Order is everything. If I'd spent early I'd have nothing. Kids will tell you have fun when you're young. Adults will tell you building a life is fun. Now I get to reap what I sowed, as well as help a lot of other people and causes that I believe in.
