When I was 14 years old, I opened my very first checking account at Bank One. That's where my Dad banked and so that's where he drove me when I asked to open an account. Over the years, I continued to give them my business.
By 16, I had opened another checking account (don't ask me why) and a new savings account, too. At 20, I started my journey into credit cards with... yep, a brand new Chase credit card. (Note: Chase ate Bank One in 2004.)
At 21, I opened my first Chase business checking account and, at 22, I funded $1000 into my new Chase investment account. When my wife and I married the following year, we canceled her National City account to combine our finances with... Chase.
In the second part of this series, I discussed two mistakes I made when jumping into real estate investing. Despite running a successful property management company and knowing how the business worked:
- I bought a negative cash flow property without an emergency fund
- I got emotionally involved
In the conclusion of this series, I want to share three additional mistakes I made, and give my final thoughts on my experience. Let's jump right in.
This is part two of a three-part series on how he stumbled into real estate investing at age 23. Be sure to read part one here.
When we last left off, I'd just walked away from my first real estate closing with an eight-unit apartment building and $1000 cash in my hand. I was riding high. Unfortunately, the reality of the situation hadn't sunk in. Over the next year, my low-income, eight-unit apartment building was going to take me on the most wild roller coaster ride of my life.
Instead of providing a chronological list of events (which may be entertaining, but of little use), I want to share the mistakes I made and the biggest lessons I learned throughout the process. In this second installment, I'll share the first two mistakes (of what could be dozens). Neither of these first took long for me to realize.
How I bought an 8-unit apartment building with no money down and walked away with $1000 cash at closing
When I was 23, I bought an eight-unit apartment building with no money down. And I walked away with $1,000 cash at closing! Sounds pretty fancy, right? Wrong.
It was one of the dumbest real estate investing mistakes I've made in my young life.
Few concepts have had as great an impact on my family's financial decision-making as learning how to calculate our real hourly wage. The concept was introduced by (or at least popularized by) the amazing book, Your Money or Your Life. This book has had a dramatic influence over our financial turn-around (just as it did for J.D.).
The authors focus early in the book on ensuring that readers are aware of the true costs associated with their jobs and incomes — including accounting for the time we spend on activities that are often forgotten.
When Courtney and I first sat down to figure out just how many different expenses were associated with our income opportunities, it was an eye-opening experience. It unveiled a new layer of consciousness towards both our work and our spending. In one case we shifted from, "I make $42,000 per year" to "That really only results in $22,000 net after all expenses are considered."
For years now, Dave Ramsey has recommended ditching credit cards and paying with cash. (Specifically, Ramsey advocates the use of an envelope budgeting system.) In fact, this anti-credit card stance is one of the biggest problems critics have with his philosophy; they often point out that "responsible" credit card use would yield a higher credit score.
But it looks like Dave Ramsey has some new company in the Cash Only camp. According to a recent MSN Smart Spending article, money guru Suze Orman is the latest proponent of paying for purchases with cash:
On her Saturday night show on CNBC, she asked viewers to join her in a Back to Cash movement. "Let's go back to the good old days," she said. "Let's go back to the times when you literally paid cash for everything. That's right. Cash. Stop using your credit cards altogether."
When booking airfare online, most people think of the popular online aggregation sites. You know the ones: They have the fancy commercials, catchy jingles, and washed-up celebrity pitchmen. While those sites aren't inherently bad, there are a few well-documented problems with relying solely on these larger engines:
- Many of the aggregation sites neglect to include smaller, budget carriers.
- Larger airline companies may temporarily exclude or intentionally block these aggregation sites from fares.
- Short-term specials or incentive sales aren't usually aggregated either. They're often only found by visiting the individual sites of the carriers.
Obviously, there isn't just one website capable of giving you the best deal every time. I wish it were that easy.
Many larger carriers make a significant amount of money off of the loyalty factor — meaning those individuals and companies who choose to fly the same airline every time for whatever reason. Because of this, they're not necessarily in a rush to make all their fare data open and available for the world to dissect.
Earlier this week J.D. tackled an important issue with his tenet Large Amounts Matter Too.
This concept goes by many names:
- Focus on big wins.
- Pick the low-hanging fruit
- Attack high-leverage areas.
You get the point: It's efficient to do things that have major impact with minimum effort. J.D. wrote:
Whether you should halt your retirement contributions in order to focus debt is one of the most heavily debated dilemmas in personal finance.
Unlike "spend less than you earn" or "track every penny you spend", there's no cookie-cutter answer to this question. Variables such as age, career, risk tolerance, and even personality type make each individual situation unique.
You'll Never Win a Race Against High-Interest Debt
Regardless of your personal situation, there are very few circumstances where high-interest debt should not be the top priority. What's high interest? Well, that's another fun question to debate. For the purpose of this article, we'll assume a broad range of anything in excess of 8-12%.
We all know how to rent a typical, cookie-cutter apartment or house. Find a contact number. Set-up a walk through. Fill out the application. Pay your fee and wait for a response.
But sometimes typical just doesn't cut it.
Maybe you're looking to secure a unique apartment in an irresistible location. Or you might be seeking the only house for rent in a certain school district. Heck, you may even find yourself in New Zealand needing a short-term (3-month) lease when everyone wants a 6-month minimum. *raises hand*