What I wish I had Learned as a Kid about Money

I’m from a typical middle class family where my dad worked at the same place of employment until retirement and my mom stayed home. They invested in some real estate rentals, which gave them some additional income. And I have many not-so-fond memories of cleaning ovens, painting and general clean up jobs as a kid. When I graduated college I figured I, too, wanted to invest in real estate and I bought my first home. Later I bought another house and rented the first one. Over the next few years I acquired several rentals. Eventually I decided to get a property manager because of some of the problems I was having and renters who would show up at my door step of my personal residence unannounced. Even with the landlord headaches and some years that those rentals bled me dry because of some bigger expenses (new furnace, new carpets, disposal of an old RV, etc, etc.), I still believed rentals were a good investment – just not always a positive cash flow. The big saving grace, though, was that they provided me huge deductions and for many years those rentals were growing in equity.

One of the biggest mistakes I made was to assume those properties would continue to increase in value – or at least remain the same value-wise. My plan was to sell one rental for each kid when it was time for college and use the equity. I did not put any other money aside. No savings, no stocks and no college funds for my children, let alone any retirement money. I really believed that I would be able to liquidate everything and have money to live on later in life with the proceeds.

Two years ago everything changed. The values on all my properties dropped. All of a sudden I owe more than the properties are even worth (on some). And the ones that do have equity are either hard to finance under current lending guidelines for a conventional loan or in really bad real estate markets. My daughter goes to college this year and now I’m going to have to take out loans to help her.

So, looking back here is what I wish I would have figured out a younger age:

1. Diversify

Don’t put all your money and savings into any one investment or type of investment. I think there can be a balance as far as investing in some maybe higher risk stuff, but also keeping a good chunk in some that are low risk. If I could redo some of the decisions I made, I would have (in addition to real estate) put money away in a college savings plan and started a self-directed IRA.

2. Do not use Credit Cards

That furnace and repairs to a water line that I put on a visa two years ago for two of the rentals – yeah, I’m still paying on that. It seemed like a good idea at the time when the credit card offered me 0% financing for 6 months. But again being self-employed and on commission, I never knew exactly when or how much income I was going to be bringing in and getting that credit card paid off just didn’t seem like a huge priority. However, once those promotional offers expired, then the interest rates really get up there. And if I move the balance to another visa, the upfront fees are so much, it makes me cringe.

3. Save, Save, Save

I thought I was doing pretty good if I had a few months worth saved up for living expenses, but it’s not enough. The truth is there are always other things that are going to come up – car repairs, medical, replacing the dead laptop, and with kids this list is even longer…

What I didn’t realize soon enough is that you can create multiple income streams and make the money that you do have, work for you. I have met people who actually live off the interest that they earn on their investments. I know I will have to start out small, but my new goals now are to use money I have saved and invest in some of these note and trust deeds. Last year I funded a new loan and then bought an existing note and trust deed, which I later sold, but it was (in my opinion) such a better deal to have income payments coming in on these private money loans than having another rental (and I do realize note and trust deed investing is not for everyone, I'm just saying it has worked for me). Looking down the road, I still think the rental market will also be good for me for awhile, as far as being able to keep renters in the houses, but I just do not want to purchase or manage any more rentals and instead seek to diversify with some other investment options that are paying higher yields, for example 12% annually in yields on the note and trust deeds I had. (These two investments were through Greyson Financial, a private money broker in Oregon). This type of investing I think will allow me to build up my savings faster and hopefully by the time my other children are ready for college, I will have things a little bit more squared away financially so I won’t have to take out loans to help with college expenses. It would also be nice to eventually be able to live off interest from my money :)