The path to becoming rich is already known

[gwasser]

When reading all those books on becoming rich there is one common thread. Unless you are the big aggressive `Donald Trump` type who gambles big time, getting rich is a pretty boring undertaking that takes a long time view of things. You live below your means, you save and invest at 8 to 15% per year on average and when you reach retirement age or somewhat earlier when you reach `freedom` 55 then you have hopefully scraped enough together to retire and call yourself wealthy. You may win the lottery or suddenly become a star, but chances are that in that case you do not have the skills to keep your fortune together. There are so many stories of lottery winners who were broke again within a few years.

So, really, it is not only about earnings power, it is a lot about managing your resources and gradually becoming rich while building your investment skills along with it. That was the difference between Rich Dad and Poor Dad. Although poor Dad had lots of earnings power, he did not have investment savvy and spend all his income. Rich Dad had a modest income but through excellent investment skills he builds up a fortune over the years.

It is no accident that only 3 to 5% of Canada`s population can call themselves millionaire. Not that it takes a genius to have a million, but it takes patience and backbone. How many people have not traded away their wealth by continuously selling their residence and buying yet another dream home? All profits were lost in paying commissions and lawyers and movers. It is not that real estate commissions are too high. Realtors work really hard to earn them. My estimate is that the top 20% of realtors, many with 20 years or more experience, make on average $125,000 per year. Not bad, but not great either and it took a lot of shoe leather for them to get there.

Why do we prefer ETFs over Mutual funds? Because, the administrative expenses of continuously buying and selling stocks ("active management") is cutting in your returns big time. That is why the `buy and hold` strategy is so efficient: you don`t pay commissions and you don`t pay capital gains taxes and you only pay a bit of taxes on your dividends. That is why guys like Warren Buffett state that if possible they like to keep a stock for ever.

So investing is not exciting, in fact it should be boring and you need the backbone to stick with your plans and strategies. That is easy to do when everything is hunky-dory, but in tough times, you may have to hold on to your stocks while you`re sick in the stomach. Even worse, you need a stomach strong enough to buy good companies while everybody around you runs like a chicken without a head. Buy low and sell high is something nearly impossible to achieve consistently. You may luck out a couple of times, and then you may suddenly get hit by setbacks (to say it nicely). My earlier post on Godfried`s Ten Rules of investing is not coming out of the blue. These rules are the result of many runs to the washroom.

ibri-->Although 2007-2010 was my 8[sup]th or 9th[/sup] major downturn, it was still difficult to keep my cool and it was even more difficult to have sufficient cash for buying those `once-in-a-lifetime` opportunities while seeing your net worth running south at an alarming rate. Every downturn though I handle a bit better. You may have read my numerous comparisons between real estate and stock market investing, and here again nearly all my observations in this post are applicable to both asset classes.

There is a bit of a market timing trick you may want to keep in mind. As you know, I don`t time markets but this may work. The real estate market `lags` the stock market by several months if not up to half a year. If you were considering taking profits and felt that you should have cash ready for future opportunities, when you see the stock market tank you might use that as an additional argument for selling that fully valued real estate property. Because you know that real estate prices are soon to follow the stock market. Visa versa, if you see that the stock market has improved significantly and the real estate market hasn`t yet, you know that this might be a good time to expand your real estate portfolio. Not fire-proof, but if you are ready to do a buy or sell transaction it is something to keep in mind.

I don`t invest based on technical market analysis, I invest based on fundamentals. But if the fundamentals are right, I don`t mind trying to use some technical trends to see if I can buy at an even better price. I don`t depend entirely on the technical stuff. I may buy first a bit, and then the next try I buy on technical reasons, and then again a bit more when the technical analysis says this may be a good time to buy. Thus you can combine fundamentals and market trends to get something for an optimum price.

When all is said and done, with investing you want to keep things simple. If you don`t understand how an investment works don`t use it. So, KISS (keep it simple stupid), save, live below your means, build investment skills, a strong stomach, buy on fundamentals while not forgetting that the `trend is your friend` are the elements of becoming wealthy. Not at all difficult to understand; if you truly want to become a millionaire though you have also to handle that what so few can do in real life: "Stick with It".

 

[invst4profit]

Straight forward grass roots common sense. Bravo.

I have never understood people that say they want to be a millionaire. For the most part they have no idea what that means and are indirectly suggesting they require wealth to be happy.
How much money a person can attribute to himself is of little significance other than to attempt to impress others. What is important is whether one is comfortable and happy with what they have. Although that sounds silly it is reality.

Devoting a lifetime striving to gain wealth only for the purpose of wealth is in my opinion a wasted life.
One should become wealthy because what they enjoy doing produces "wealth" as a by product of there life endeavors.

The true value of money to me comes not from how much you have but rather from how much pleasure you derive from earning it.
That is where the motivation comes from to insure a individual does "Stick with It"

 

[mortgageman]

Great post!
I love the "many runs to the washroom" line.

QUOTE (gwasser @ Mar 26 2010, 12:35 PM) When reading all those books on becoming rich there is one common thread. Unless you are the big aggressive `Donald Trump` type who gambles big time, getting rich is a pretty boring undertaking that takes a long time view of things. You live below your means, you save and invest at 8 to 15% per year on average and when you reach retirement age or somewhat earlier when you reach `freedom` 55 then you have hopefully scraped enough together to retire and call yourself wealthy. You may win the lottery or suddenly become a star, but chances are that in that case you do not have the skills to keep your fortune together. There are so many stories of lottery winners who were broke again within a few years.

So, really, it is not only about earnings power, it is a lot about managing your resources and gradually becoming rich while building your investment skills along with it. That was the difference between Rich Dad and Poor Dad. Although poor Dad had lots of earnings power, he did not have investment savvy and spend all his income. Rich Dad had a modest income but through excellent investment skills he builds up a fortune over the years.

It is no accident that only 3 to 5% of Canada`s population can call themselves millionaire. Not that it takes a genius to have a million, but it takes patience and backbone. How many people have not traded away their wealth by continuously selling their residence and buying yet another dream home? All profits were lost in paying commissions and lawyers and movers. It is not that real estate commissions are too high. Realtors work really hard to earn them. My estimate is that the top 20% of realtors, many with 20 years or more experience, make on average $125,000 per year. Not bad, but not great either and it took a lot of shoe leather for them to get there.

Why do we prefer ETFs over Mutual funds? Because, the administrative expenses of continuously buying and selling stocks ("active management") is cutting in your returns big time. That is why the `buy and hold` strategy is so efficient: you don`t pay commissions and you don`t pay capital gains taxes and you only pay a bit of taxes on your dividends. That is why guys like Warren Buffett state that if possible they like to keep a stock for ever.

So investing is not exciting, in fact it should be boring and you need the backbone to stick with your plans and strategies. That is easy to do when everything is hunky-dory, but in tough times, you may have to hold on to your stocks while you`re sick in the stomach. Even worse, you need a stomach strong enough to buy good companies while everybody around you runs like a chicken without a head. Buy low and sell high is something nearly impossible to achieve consistently. You may luck out a couple of times, and then you may suddenly get hit by setbacks (to say it nicely). My earlier post on Godfried`s Ten Rules of investing is not coming out of the blue. These rules are the result of many runs to the washroom.

Although 2007-2010 was my 8[sup]th or 9th[/sup] major downturn, it was still difficult to keep my cool and it was even more difficult to have sufficient cash for buying those `once-in-a-lifetime` opportunities while seeing your net worth running south at an alarming rate. Every downturn though I handle a bit better. You may have read my numerous comparisons between real estate and stock market investing, and here again nearly all my observations in this post are applicable to both asset classes.

There is a bit of a market timing trick you may want to keep in mind. As you know, I don`t time markets but this may work. The real estate market `lags` the stock market by several months if not up to half a year. If you were considering taking profits and felt that you should have cash ready for future opportunities, when you see the stock market tank you might use that as an additional argument for selling that fully valued real estate property. Because you know that real estate prices are soon to follow the stock market. Visa versa, if you see that the stock market has improved significantly and the real estate market hasn`t yet, you know that this might be a good time to expand your real estate portfolio. Not fire-proof, but if you are ready to do a buy or sell transaction it is something to keep in mind.

I don`t invest based on technical market analysis, I invest based on fundamentals. But if the fundamentals are right, I don`t mind trying to use some technical trends to see if I can buy at an even better price. I don`t depend entirely on the technical stuff. I may buy first a bit, and then the next try I buy on technical reasons, and then again a bit more when the technical analysis says this may be a good time to buy. Thus you can combine fundamentals and market trends to get something for an optimum price.

When all is said and done, with investing you want to keep things simple. If you don`t understand how an investment works don`t use it. So, KISS (keep it simple stupid), save, live below your means, build investment skills, a strong stomach, buy on fundamentals while not forgetting that the `trend is your friend` are the elements of becoming wealthy. Not at all difficult to understand; if you truly want to become a millionaire though you have also to handle that what so few can do in real life: "Stick with It".

 

[rforgiel]

As the title says the path to becoming rich is already known. If one wants money it can be gotten.
Yours posts also bring the topic of wealth into the discussion. Lets bring in the Buddhists definition of wealth.

"Happiness is the fruit of wealth. But of what wealth? Often, material wealth brings with it the fear of losing it. True wealth is knowledge that enables you to live life as the expression of your inner values.

Happiness grows when you do something for yourself and just importantly, do something for others."

We can do our investing to but lets make sure it is not for accumulating in the material world but to let us do what we want to do.

 

[gwasser]

QUOTE (rforgiel @ Mar 27 2010, 10:25 AM) As the title says the path to becoming rich is already known. If one wants money it can be gotten.
Yours posts also bring the topic of wealth into the discussion. Lets bring in the Buddhists definition of wealth.

"Happiness is the fruit of wealth. But of what wealth? Often, material wealth brings with it the fear of losing it. True wealth is knowledge that enables you to live life as the expression of your inner values.

Happiness grows when you do something for yourself and just importantly, do something for others."

We can do our investing to but lets make sure it is not for accumulating in the material world but to let us do what we want to do.

You are right Ramon. For me wealth is only the means of doing what I like to do and to determine when I do it. I also like wealth because it helps me achieve new goals in my life beyond plain survival. Goals that hopefully not only impact me and my family, but als the world around us.

This, I think is also a very important aspect of REIN. Real Estate: investing and wealth creation that let us spend time with our families and help those around us as is examplified by REIN`s commitment to Habitat.

 

[housingrental]

Hmm what if you don`t derive pleasure from lots of your job tasks? Are you just screwed? Then what?

What portion of people do you think associate work with pleasure?

QUOTE (invst4profit @ Mar 26 2010, 02:05 PM) The true value of money to me comes not from how much you have but rather from how much pleasure you derive from earning it.
That is where the motivation comes from to insure a individual does "Stick with It"

 

[invst4profit]

QUOTE (housing rental @ Mar 27 2010, 02:58 PM) Hmm what if you don`t derive pleasure from lots of your job tasks? Are you just screwed? Then what?

What portion of people do you think associate work with pleasure?


Interesting questions.

To the first I believe you should considered yourself screwed. As to "then what?" I would suggest you stop screwing yourself.

To the second I would answer not enough and for those that do not I would say they will not likely find themselves on a path to true success. The majority of them are toiling away there lives working for someone else and therefore someone else`s success.

 

[Rickson9]

Buy low. Sell high or never. That`s how I do it anyway.

 

[housingrental]

What if your toiling away working for yourself?
Cut your workload and job tasks into a portion of what done prior, sell your house and move to a $600 rental?


QUOTE (invst4profit @ Mar 27 2010, 06:28 PM) Interesting questions.

To the first I believe you should considered yourself screwed. As to "then what?" I would suggest you stop screwing yourself.

To the second I would answer not enough and for those that do not I would say they will not likely find themselves on a path to true success. The majority of them are toiling away there lives working for someone else and therefore someone else`s success.

 

[margaretcowan]

Hi Adam

To expand on Investforprofit`s pragmatic advice to "stop screwing yourself", I`d like to suggest you take some quiet time to reflect and hand write a list of all the things you love to do in your business and in your life. What have been joyful times in your work life and life in general? How many of your loves do you experience now in your work? How you can incorporate more of those loves in your work and life?

Then write a list of everything you don`t like to do in your business. How can you delegate these tasks or barter with someone to do them or eliminate them? (Have you read the Four Hour Work Week?)

If you find few of your loves appear in your work, you may want to consider a change...for your happiness and health.

I`m going through a similar process myself these days, although I don`t feel I`m "toiling away."

All the best,
Margaret
What if your toiling away working for yourself?
Cut your workload and job tasks into a portion of what done prior, sell your house and move to a $600 rental?

 

[housingrental]

Thank you for your perspective Margaret.

I think what I`m getting at though is how realistic is this for the vast majority of people? Work is needed to pay for food, house, etc... and this is why work is done... not merely for self satisfaction... it might be best to have a job you love but isn`t an adequate income stream lead to a more satisfied life than only doing work you love and not making enough to support yourself and your family?

Ie for most people - lots of money might not create happiness... but not enough money creates a lot of unhappiness...

 

[gwasser]

QUOTE (housingrental @ Mar 29 2010, 07:35 AM) Thank you for your perspective Margaret.

I think what I`m getting at though is how realistic is this for the vast majority of people? Work is needed to pay for food, house, etc... and this is why work is done... not merely for self satisfaction... it might be best to have a job you love but isn`t an adequate income stream lead to a more satisfied life than only doing work you love and not making enough to support yourself and your family?

Ie for most people - lots of money might not create happiness... but not enough money creates a lot of unhappiness...

I would like to say: "Just do what you want to and the money will come".
But you are right, that is not entirely correct because some activities do not pay well or at all. So, I guess one should amend that:
"Visualize what you want to do including a way to make money from it; then implement it"
If you need funds to set this up then you could envision making money in a temporary job close enough to your goals until you are ready to convert it into your dream job: "I.e. does this job I am going to take get me closer to my Belize?"

If you truly like real estate investing but you don`t have the funds, you could get a job at a property manager company. Our you could become the salaried assistent of a realtor or a realtor. This brings you closer to what you want.

Or you want to invest in real estate to achieve your Belize of "for-ever-travel". Go get a job in tourism, save for real estate and become a sophisticated investor and so on.

Not everything will be easy to achieve. Life is full of choices and sometimes we live with the consequences of our past choices that still have to be resolved. I suggest, include resolving these consequences in your path toward achieving a Belize and start working on it. Even with a lot of obstacles to overcome, it is a lot easier to overcome these obstacles when you know where you`re going than if you go around in circles without a Belize to look forward to.

 

[JohnSoucie]

QUOTE (invst4profit @ Mar 26 2010, 03:05 PM) One should become wealthy because what they enjoy doing produces "wealth" as a by product of there life endeavors.

This statement hits a chord with me. You state this like it`s a commonly held truth among the enlightened. I don`t agree whatsoever. That statement is all fine and dandy if what you just happen to really enjoy doing and are trained to do is also able to produce wealth. You can`t force something you love to produce wealth in every instance. Nor should you.

I find most people(yes I`m generalizing here obviously) who make this kind of statement have virtually no interest, appreciation, or more precisely, LOVE for the arts, as just one example. They just don`t "get" the artists or the patrons point of view.

In addition, many people look at hobbies as mere distractions to "real" and "important" work/tasks in life. Not all hobbies are trivial to all people. I consider my hobbies to be my true life`s work. I build things, I design things, I appreciate the arts(music specifically) in a very serious way. Talking to someone who doesn`t share any of these traits/obsessions is frustrating at best. So the things that I really enjoy doing, don`t have a hope in hell of producing wealth. And no...making a business out of one of them would ruin it all. I use the term "hobbies" but unfortunatle that belittles the whole concept. Hobbies, to many, is golf, gardening,etc....what if my hobby/life`s work projects requires 1,000 hours and $50,000 to complete but can`t generate any income? Should I just say...that was a foolhardy dream...get real and do something else that can actually produce wealth. My dreams never fade. I won`t be broken. No I will go produce wealth so I can afford to and have the time to return to my dream

So in fact I need to produce wealth as my hobbies happen to cost time/money. The production of wealth can never intertwine with my life`s work....never. That would ruin my love of it.


QUOTE The true value of money to me comes not from how much you have but rather from how much pleasure you derive from earning it.

No offence but that is only one VERY narrow point of view. Your passion lies in creating wealth, lucky you...try having that conversation with a hardcore musician for example, who knows he won`t be a rich star but nonetheless can see himself playing and practising daily for extended periods for the rest of his life and spend the rest of his time appreciating other music. Getting wealthy doing what he loves has no place in there whatsoever. But he may need wealth to afford expensive instruments, attend expensive concerts, hire professional teachers, etc.....so he must look elsewhare for his wealth. And it could but it may not necessarily become a lifelong obsession. Just ask many auto mechanics why they don`t even work on their own cars anymore let alone work on that hotrod they started 20 years ago. Their desire to make what they loved(working on cars) ,their career, absolutly ruined their love of cars...it`s now stritctly a job.

It really sums up the brilliant concept of the Personal Belize......once you achieve your Belize....maybe some people actually want to stop! Creating wealth doesn`t have to become your life`s work. If it does, cool, but that`s not for everyone. And no you don`t necessarily hate what you are doing to create your wealth....but when a true choice is available, you revert to your love.

Just my opinion, but I feel this point of view needs to be represented and respected.

John

 

[housingrental]

"If you truly like real estate investing but you don`t have the funds, you could get a job at a property manager company. "

That`s funny but in practice horrible advice, I use to think the same way.

"Visualize what you want to do including a way to make money from it; then implement it"

This is good advice. What are the implications of this for most people though? Isn`t it getting the highest paid job possible while living on less than you can spend?


QUOTE (gwasser @ Mar 29 2010, 01:23 PM) I would like to say: "Just do what you want to and the money will come".
But you are right, that is not entirely correct because some activities do not pay well or at all. So, I guess one should amend that:
"Visualize what you want to do including a way to make money from it; then implement it"

If you truly like real estate investing but you don`t have the funds, you could get a job at a property manager company.

 

[gwasser]

QUOTE (housingrental @ Mar 30 2010, 09:41 AM) "If you truly like real estate investing but you don`t have the funds, you could get a job at a property manager company. "

That`s funny but in practice horrible advice, I use to think the same way.

"Visualize what you want to do including a way to make money from it; then implement it"

This is good advice. What are the implications of this for most people though? Isn`t it getting the highest paid job possible while living on less than you can spend?
I just lost another posting. I knew I should have copied it prior to pushing any button.
Anyway, here we go again:

There is one simple reality in life: you can not invest if you have no money to invest!

There are two sources of money:

• Savings from employment or self employment
• Other people`s money.There are three sources of other people`s money:
• Lenders such as banksJoint Venture InvestorsFamily, friends and all those others whom I forgot
  

Banks and many other lenders won`t touch you if you have not a decent income to ensure you can pay your mortgages on your properties. Or.. you can use money from JV investors.

The expectation of many starting REIN investors is that after spending $475 on an ACRE weekend they are real estate experts and JV investors should throw money at them and be happy with a return of less than 10%. Sorry that does not work! Nor does the expectation that the JV investor will split the profits 50/50 with you, just because you found through your realtor a property that may cashflow.

If you have an extensive track record with consistent returns of 10 to 15% percent per year, you have a chance to find a JV investor. But otherwise, you`ll have to knock on the door of friends and family. Even those will not be entirely blinded with love and are not likely to provide you with a 50/50 deal when it is so much easier and cheaper to hire a realtor to find the property themselves and put a property manager in place for 7 to 10% of the gross rent.

So when you have a dream or a visual board of your Belize, that is good. But be realistic when plotting your roadmap to Belize. This road is filled with a pavement of sweat, hard work, uneasy moments and a lot of learning. I learn still every day and I love it. But as they say, you cannot walk over water, unless... you become a property manager

.

 

[Nir]

Hi Godfried,

Great post. how many apts/what type of properies do you own if I may ask?

Regards,
Neil

 

[gwasser]

QUOTE (investmart @ Mar 30 2010, 10:20 PM)
Hi Godfried,



Great post. how many apts/what type of properies do you own if I may ask?



Regards,

Neil




Hi Neil,



Thanks for the response. Regarding how much I own, I would like to keep that info to myself.

 

[housingrental]

This is quite possibly my favourite post ever read
Thank you for writting it


QUOTE (gwasser @ Mar 30 2010, 01:08 PM) I just lost another posting. I knew I should have copied it prior to pushing any button.
Anyway, here we go again:

There is one simple reality in life: you can not invest if you have no money to invest!

There are two sources of money:

• Savings from employment or self employment
• Other people`s money.There are three sources of other people`s money:
• Lenders such as banksJoint Venture InvestorsFamily, friends and all those others whom I forgot
  

Banks and many other lenders won`t touch you if you have not a decent income to ensure you can pay your mortgages on your properties. Or.. you can use money from JV investors.

The expectation of many starting REIN investors is that after spending $475 on an ACRE weekend they are real estate experts and JV investors should throw money at them and be happy with a return of less than 10%. Sorry that does not work! Nor does the expectation that the JV investor will split the profits 50/50 with you, just because you found through your realtor a property that may cashflow.

If you have an extensive track record with consistent returns of 10 to 15% percent per year, you have a chance to find a JV investor. But otherwise, you`ll have to knock on the door of friends and family. Even those will not be entirely blinded with love and are not likely to provide you with a 50/50 deal when it is so much easier and cheaper to hire a realtor to find the property themselves and put a property manager in place for 7 to 10% of the gross rent.

So when you have a dream or a visual board of your Belize, that is good. But be realistic when plotting your roadmap to Belize. This road is filled with a pavement of sweat, hard work, uneasy moments and a lot of learning. I learn still every day and I love it. But as they say, you cannot walk over water, unless... you become a property manager

.

 

[Nir]

QUOTE (gwasser @ Mar 31 2010, 09:12 AM) Hi Neil,

Thanks for the response. Regarding how much I own, I would like to keep that info to myself.

no problem. what about the 2nd part of the question - type of properties you invest/ed in (condos, plexes, apt building..)?
not sure if you`d like to keep that to yourself too(?) thanks.

 

[gwasser]

QUOTE (investmart @ Apr 4 2010, 11:02 PM)
no problem. what about the 2nd part of the question - type of properties you invest/ed in (condos, plexes, apt building..)?

not sure if you'd like to keep that to yourself too(?) thanks.




I am lazy and have invested mostly in rental pools of condominium complexes. Thus I have very little work to do myself.

This is not entirely true in real life. Some of the disadvantages are:

1: a lot of lenders don't like to provide mortgages for rental pools

2: not every property manager and rental manager is good which requires more intervention than originally planned

3: not every developer that sets up such a system is equally honest. In one case we just have reached a settlement after a 2 year fight in court.



Overall though, for me rental pools are extremely convenient. Currently I am working on a JV that I am planning to set up along a similar line so that the 'finder' is required to do no more work than the other investors and thus profits can be split on the basis of equity invested. Which makes it a lot more attractive for the other JV investors rather than going the old 50/50 route. See also my latest post on this topic:

http://myreinspace.com/public_forums/General_Discussion/61-16161-Comparing_apples_and_oranges.html=