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Our 10x strategy, and why we (kind of) stopped investing.
I remember reading this article when longtime pillar of the BP community, Brandon Hall wrote it a few years ago. I'll let the article speak for itself, but if I were to distill it down to a sentence: When it comes to wealth building, focusing on real estate is majoring in the minors.
I didn't take this advice seriously, my wife and I started investing in real estate a little after that article was released. We bought a duplex as a house hack, preceded by a handful of other SFH's in our neighborhood. We were early on the mid-term furnished rental wave, starting our first one in 2021, which helped boost our income.
During this same time period my wife and I both quit our jobs and started a dog-walking company. While investing in real estate we grew the dog walking company from just us to 25 employees walking about 100 dogs a day. Almost exactly a year ago today we sold that company for $400,000.
This wasn't a huge exit, of course. But it was the first realization that maybe real estate was not the best use of our focus. This small business allowed us to quit our jobs for a more flexible lifestyle and supported us for about 5 years. But not only that, just like real estate, we were creating equity out of nothing. No start-up capital, no reliance on banks, no particular expertise required (initially at least, we had still had to learn a lot along the way!).
And this is when I came full circle back to that Brandon Hall article. We didn't build some sexy software application in silicon valley. We spent $30 on a few leashes and flyers. Even so we generated more cash-flow and built equity faster than any real estate investment we made, or even all of them together. And that's including some very lucky breaks where we bought properties with sub 3% lending before the pricing jumps in 2021 and 2022. It finally hit me how quickly you can build an income, equity, wealth, etc through building a business.
Now that we've sold the first business my wife coaches other dog-walking business across the country (and some in Canada) how we did what we did. Within less than a year she's built triple the cash flow of our dog walking business and real estate combined, and seven figures in equity. Just like in real estate, business building can and does compound on itself.
But with that being said, our initial investment in that house hack did something for us: It took our housing expense, most people's biggest monthly expense, down (or at least close) to zero. And that gave us a feeling of security that allowed us to take "riskier" bets. Were the bets actually risky? I don't think so. Did we need that housing expense covered to build a business? No. But your own psychology and mindset does matter, and investing in real estate, while not making us wealthy, did give us this back-up plan where we knew we'd always have a roof over our heads and enough of a financial buffer we could figure something else out. And with the five investments we made in good parts of our town, that even if all our efforts in the business didn't pay off, in 20 years we'd still have a nest egg of equity we could fall back on. So it would be OK if we weren't paying into a 401k or the S&P.
Additionally our real estate investments have given us new opportunities that is making this next stage of our wealth building journey easier.
1. This year we've used 1 of our furnished rentals for my wife's clients who travel into town for weekend intensives. We can offer "free" housing at a 5 star airbnb, which feels like a huge perk to them. And instead of making $400 in a weekend, we make $4000.
2. We have multiple buildings we can use as office space as we look towards continuing to expand the coaching business and hiring employees.
3. We have built up some equity in our real estate investments. We're selling off a couple, keeping the easiest to manage, and using that capital to throw gas on our other fire.
After all that I'm sure it sounds like I'm anti real-estate. Real estate has definitely been a part of our journey of learning what it means to run a business, build a product, stand out in a crowded market place, (especially running airbnbs). My mindset has just shifted from using real estate as a wealth building tool to a wealth maintaining tool. Probably not the most common opinion around here, certainly not the sexiest.
Just a final thought I'm not sure actually fits in here but wanted to say: I have my real estate license. I've been working exclusively with other investors and have my license hung at an awesome investor friendly brokerage (shout out to Wayfinder) with lots of great brokers who all have different expertise. When I consult others investors, usually first time investors, I start by asking them what they're goals are. Most of them are some version of "I want to replace my income and quit my job." I always encourage them to house hack, or at the very least move into the property they're buying if it's SFH to get a lower interest rate and lower down payment. 9 times out of 10 I get the response of "I can't do that for X Y Z reason" Which always can be boiled down to some version of "I like my current lifestyle, I don't want to change my status quo." Which can be boiled down even further to, "That sounds hard."
This is just one persons opinion coming from my personal experience: The challenge I'd like to leave for anyone who wants to break your golden handcuffs of a 9 to 5: If you want a different outcome, you have to put in different inputs. It sounds simple, but if you aren't willing to change your life, your life won't change. Building any kind of wealth takes a lot of discomfort. And the faster you want to try and make that happen, the more willing you should be to embrace that discomfort. If you're starting from close to zero, you need to be flexible, scrappy and willing to sacrifice your current lifestyle in the short term for the better lifestyle in the long term. That's investing. Whether it's business or real estate.
Real Estate is an investment. Building a business is a job. Let's not conflate the two tools - both good tools, different applications. Both are great ways to build wealth.
I have no problem stating directly - Building a business is absolutely a faster path to financial freedom than buying rentals.
Many people on BiggerPockets do both or a hybrid - they have a real estate business, like contracting, buyer/seller agency, lending, property management, tax prep, etc.
The great thing about real estate is that it's (usually) a leveraged bet on long-term inflation. It can generate better returns, or at least more predictable returns than other asset classes like stocks, bonds, crypto, and other alternatives.
But, to retire off of real estate, one either needs a lot of time to pass, or needs a large base of capital. Most investors who are not in the "business" of real estate generate their wealth from a job or business, like you post, and then deploy that wealth into real estate.
At some point, even for an entrepreneur like yourself, you may want to take chunks of the wealth you create from building and exiting businesses and put that money into something that doesn't require your full-time attention, but still can generate cash flow and/or appreciate in value. While stocks and bonds are great options, 17M people in this country own at least one piece of real estate, often in addition to those other options.
Also - you are right. Early Financial freedom will forever elude the person earning a middle class income, but who is unwilling to do some combination of quitting their job for something much higher risk/reward, like starting a business, drastically cutting back on expenses, etc. That's cool. Financial Freedom isn't a burning passion for many/most. Hopefully those who don't pursue it with the passion and zeal of many in this community don't complain about income and wealth distribution bell curves later in life.
@Scott Trench agreed on most fronts.
I disagree building a business is a job, or at least that it's inherently a job. Probably just semantics, but for me investment is not just money, but time and focus. Real estate investing may involve more cash, but less time and focus (though certainly some). Business building may involve less cash (or more!) than real estate, and almost certainly more time and focus. I don't think that makes one a job and one an investment. If I can put in an input, and get an increased return (or the risk of less return!) as an output, that's an investment to me. Doesn't have to be financial.
Even a "job" I would consider an investment. An investment of your time. If you're only getting money as a return, I would consider it a bad investment of time. If you are getting other returns, like meaning, community, security, etc. Perhaps a worthy investment.
But in all cases I would argue time is the most precious commodity to invest, and it's invested most efficiently through focus, so look at those two the most carefully.
Love the article and counter point from Scott. Real estate and business are definitely different. Real estate is more passive while business is often active income until you get people in place. Even then you have to manage. Well done though, fun part with doing business is you can scale it quickly and there's always surprises on the way :)
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Real Estate Agent Missouri (#2018018941)
Very True! I started investing in RE as a hobby a few years ago and still am, BUT started a business with very little about 15 years ago. That business has fed my family allowed me to never miss one of my sons, sporting events and his provided a great lifestyle. This all came from a computer, printer and Internet access that was my startup cost never thought about it that way before, but yeah, thanks for sharing.
Great read and great comments. Thank you for sharing!
- Lender
- The Woodlands, TX
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Real estate is VERY flexible. Yup, as an industry it is malleable to be shaped the way and for uses to satisfy individual goals, ambitions, and lifestyles.
I’ve always thought of real estate as a spectrum with real estate business on one end and passive investing in real estate on the other. In between we have the life’s, careers, wealth, satisfaction of real people, and their contribution to the enhancement of society.
The goal of a large number of real estate investors is to have a large enough real estate portfolio generating a large enough amount of cash income to retire from whatever their “8 - 5” is, be that corporate employee, independent contractor, or business owner. I myself started in international banking; shortly thereafter decided that the income potential of banking was too limited with the “climb” too slow and the corporate culture too limiting. I took the real estate broker exam and became a commercial real estate broker while also purchasing property for my own account. 3 years later I “accidentally” purchased 1/2 ownership of an automotive service business and eventually ended up with 8 locations. Some of the locations I was a tenant, and some I owned the real property. When I added it all up I figured I had spent 80% of my time running the BUSINESSES, but made 80% of my money through the ownership of the REAL ESTATE.! So I sold the business, kept the real estate, and have been full time real estate the last 25 years.
Running a real estate investment fund, a high yield private mortgage fund, and syndicating real estate deals has provided me with substantial income over and above that which can be attributable to the money invested in the real estate. Nearest I can figure (it is somewhat inter related) I have been deriving about 1/2 my “net” income / wealth increase from my money invested and the other 1/2 from the compensation attributable to my running he fund/syndications. But since I personally invest my money in EVERY deal I syndicate and in every investment fund I manage at about 10% of the total investment it’s somewhat hard to “untangle” the accounting.
I have harped on this point continually, but many investors limit themselves and their wealth building because they do not educate themselves on three foundation principles necessary to understand and utilize the most effective wealth and estate building tactics and strategies in real estate. To effectively utilize techniques that will accelerate the increase in your net worth in real estate, the investor needs to thoroughly understand real estate principles, real estate law, and real estate finance. If the investors is not well versed in these three areas, they will not be able to successfully utilize the tactics and strategies that have proven as wealth accelerators by numerous real estate investors.