In the last post we discussed the importance of knowing your WHY. This concept is so important that I’m going to share my origin story.
It is not as epic as Iron Man. I didn’t gain superpowers, unless you think my ten properties in ten years is superhuman. Maybe…just maybe..it will inspire you to buy, hold and cash flow ten properties in ten years like I did.
In the spring of 1994, I was stuck.
There I was, immersed in a sea of cars, on one of the most beautiful bridges in the world. If you have ever walked or biked across the Golden Gate Bridge, you become enamored by the dark raging pool of the Pacific Ocean along with the engineering marvel that stretches in front of you.
As I inched my black SUV through stop-n-go traffic, I kept thinking why on earth was I living here?
Here I was on a glorious Sunday afternoon and the traffic was ridiculous. As far as I was concerned, that foggy city across the bridge had just lost its charm.
Practically speaking, San Francisco was (still ) expensive. From silky cappuccinos and cold pints of Red Hook, to housing, a dollar didn’t go far. My co-workers and I were all living beyond our means.
Somehow, we kept the facade that we were young, fabulous and rich thanks to Visa and MasterCard.
Parking was a nightmare. I paid more in parking than my friends paid for rent back home.
Due to my sales career, ditching the car was not an option. Back then, if you didn’t make at least $80,000 a year in the city, you were struggling.
I’m not sure why, but I was driven to succeed in this darn town at any cost.
As my friends kept moving out of the city to the suburbs or back to the Midwest, I kept pushing myself to make more money to feed the insatiable appetite of my lifestyle.
San Francisco was my spoiled mistress.
A weekend of wine tasting in Napa Valley?
Count me in.
Tired of the fog?
Let’s spend the weekend in Santa Cruz and catch some surf and sun!
Hmm…looks like the Sierra Nevada just got pounded with snow. Let’s hit Lake Tahoe for some fresh powder at Squaw Valley along with some late night gambling at the Hyatt in Incline Village.
You get the picture.
Living and working in San Francisco was one of my dreams and I nailed it. I just didn’t realize the toll it would take on my finances.
Here was the problem.
I didn’t have anything to show for it after four years of hustling. I had no assets except a small IRA and brokerage account.
I was fortunate in that I graduated with less than $3,000 in student loans. I also knew if I kept doing what I was doing, I would never get ahead unless I could replicate my college buddy John’s success.
That wasn’t going happen. He was crushing it back then and is crushing it now as an estate planning expert for the one percent.
Nice job Johnny!
The other thing that worried me was I always wanted to own cash flowing residential income properties.
Ever since I picked up the phone and ordered an infomercial course on “no-money-down” real estate investing from Carleton H. Sheets, I dreamed of passive income.
(I hate to admit this. I love infomercials. That’s why I force myself never to watch them.)
This infomercial was a brilliant marketing production and ended up becoming one of the most successful running infomercials in history.
There was wise ‘ole Carleton sitting outdoors in Hawaii interviewing ordinary people just like me who had achieved financial success by purchasing his course and becoming a real estate mogul.
He even included real estate forms to get you started along with 12 or so audio-cassettes and some fancy booklets. I will never forget his comment that buying real estate will become so easy for you, it will be like buying a suit.
Hey, I buy suits all the time at Nordstrom’s for my job. This sounds easy. Beam me up Scotty!
While it was possible to pick up some income properties in Fog City, it sure wasn’t probable based on my circumstances.
Sure, I looked into becoming a real estate mogul like Carleton. I toured properties, analyzed deals and pretended I was a “player” in my slick suit in tie.
Fake it till you make it. Right?
I even interviewed successful landlords, including my own landlord who owned my apartment building in North Beach. He was the best landlord ever. I would pay rent late from time to time and he waived the late fee.
All of these successful landlords told me the same thing; tenants had all the rights due to rent control and other restrictive rules in their favor.
Due to exorbitant prices, you couldn’t cash flow like in the 1970’s when they were getting started.
I wanted cash flow. From what these grizzled veterans were saying, it was hopeless.
Fortunately, that darn traffic jam on that swaying golden bridge on a sunny afternoon was the shot of adrenaline I needed.
It gave me my WHY.
You see, I didn’t have an income problem. I had a cash flow problem.
I know this sounds redundant, but work with me here.
While my income wasn’t great by San Francisco standards, it was decent by U.S. standards.
Here’s where my thoughts lead me as I started arguing with my critical self.
What if I could replace all my income with cash flow while still earning money in my day job?
What do you mean by cash flow?
I’m talking about money that comes in 24/7. No matter what I’m doing. I want cash coming in. I could be skiing in Tahoe, surfing in Santa Cruz, or who knows what. The cash flow wouldn’t stop when I goofed off.
You are crazy. That’s impossible. Don’t get me going on that late night, get rich quick, something for nothing earning money while you sleep crap. You know that doesn’t work.
Remember that silly weekend seminar in Oakland you attended to learn how to buy and sell stuff through government auctions?
How about all those real estate “no-money-down” books and tapes you purchased? If that stuff worked everyone would be rich.
Remember that Robert Allen dude? The famous “no-money- down” guru? He went bankrupt.
Just because I spent that money doesn’t mean it was a total waste. You are such a Debbie Downer dude. I like to think there was a kernel of wisdom in each and every seminar or book I purchased.
Can we focus on the present versus the past?
Fine. You live in San Francisco. All you have is a small IRA. Ditto for your Bear Stearns trading account. Your income is erratic while expenses remain fixed.
Welcome to a career in financial services bonehead. Most of the people in this city are scraping by with big salaries and nothing to show for it.
No wonder you are having trouble finding people to invest in your stock
models. They live in the most expensive area of the country.
What were you thinking when you moved here? Another one of your silly adventures.
You need to marry that nice girl you are dating and settle down.
Really! Are you gonna pull the Mom card? Let’s leave the relationship part out of this. You know I hate commitment.
What if I lowered my cost of living AND moved to an area where I could buy cash flowing real estate. In theory, if I made the same amount of money that I earn now, I would have more cash to invest. In fact, I could have the best of both worlds. I could visit this city anytime I wanted while enjoying a higher standard of living.
Ha! Where would you go?
Hmm….my hometown? My Dad and brother keep asking me if I want to partner up in the family business.
Plus my brother is crushing it on his rentals. Maybe I can learn from him?
All I would have to do is buy ten properties that cash flowed $500 per month each after all expenses. That would be $5,000 per month.
I could easily cover my fixed expenses with room to spare. Hey, I wouldn’t have to pay for a parking spot!
I can’t argue with that logic. What are ya waiting for?
This darn traffic jam to clear up so I can race to my favorite Cafe (Steps of Rome) and map out my plan.
On that fateful day on the Golden Gate Bridge, I discovered my WHY.
It didn’t work as planned since it took me another four years to purchase my first property
Remember that family partnership idea?
Let’s not go there.
As a result of luck, long hours and never giving up on my WHY, I nailed my goal in ten years.
To all those people who created that traffic jam on that balmy day, Hooyah!
Great job Carleton for for teaching me creative finance. While your course was a lot of hype, it provided me with some solid insights on structuring deals with “low-money-down.”
This could have been me! The Secret Shame of Middle-Class Americans
N.Y. Times article on Carleton. Poor guy. “When the Real Estate Game Costs $9.95”
Here’s the Carleton Sheets infomercial. I was hooked!