I lost a couple thousand dollars when I was young betting in penny stocks, not realizing I wasn’t going to make money even if the stock moved because there were these huge spreads. If you go onto Yahoo Finance — look at the “bid-ask spread” for a company like Apple, the “bid and ask” is probably the same. Unlike Apple, if you buy penny stocks, the ask will be much higher. Penny stocks, or stocks with low volume, often have 10 percent to 20 percent of a spread. If the stock doesn’t move at all, you’re still down 10 percent to 20 percent. You need the stock to move up 10 percent to 20 percent just to be even; you need a serious move to make money.
Right out of college one my first mentors was a commercial real estate broker. He was a developer. I started talking to him a lot, learning about real estate. He told me about buildings he had purchased many years ago in New York and some of his other commercial property that he owned. That’s how I became interested in real estate as an investment. This guy (my mentor) had a steady income from property; he knew what was coming in. I knew what that was worth for an investor. I saw that as a great way to leverage my money.
I bought it for $112,000.
(Laughing) No, that was the purchase price. So I put down $5,000, and with closing costs, which were another $8,000, it was probably like $13,000, and then minus the seller’s concession of 5K, so probably around 8K, and then I spent some money renovating.
There’s something called the seller’s concession, which is basically an accounting trick where they increase the amount you finance, and you get credit towards your closing costs. When you get a loan, you have to pay the closing costs and down payments. The costs could be anywhere from $5,000 to $10,000, and you could almost cover your closing costs, but you can’t use the seller’s concession for a down payment. That has to completely come out of your pocket, but with the FHA it can be gifted to you. But I had my own money.
It wasn’t that bad actually. I didn’t live an extravagant life. I was making $60,000 to $80,000. I was able to pay my bills, save some money. In 2009, we were going through a recession so it was a good time to invest too. I was investing my 401(k).
It’s still a question mark — if I succeeded. In 30 years I’ll know. I think doing my research about the historic and current market conditions, knowing the area where I purchased is what helped. I bought at the very low end of a somewhat expensive market. For example, in my area, $300,000 could barely get you a very small house, but I got a condo. The people who bought the home before me purchased it for $200,000, and I actually bought it for $107,000, which is half price, so I would say doing your research, current and historical, knowing your area and sitting down and running the numbers.
A lot of people were scoffing at my investment, “Oh, well there’s no cash flow!” You know, the truth is, I didn’t buy it for cash flow. I bought it for appreciation. Most people who buy for cash flow have a lot of money, and if they don’t have to pay a mortgage they can have that cash flow. They can buy a duplex, fix it up. But I wasn’t buying for cash flow — I wanted a little and I get 4 percent to 5 percent back, but the truth is my mortgage is getting paid now, and in 30 years I’ll have a property that is worth a lot more and with no mortgage and has cash flow. As a retirement strategy, I would like that cash flow, and of course, I would like it now in my twenties, but that’s just not realistic.
Let’s say I have 100 percent occupancy, which so far I’ve been able to do. There’s a $5,000 “sells concession,” so I came out of pocket about $10,000, and there’s probably about $1,200 to $1,500 in profit a year which is about 10 percent of my money, which isn’t bad. But what do you expect? One-hundred percent?
If I paid cash for the unit, which I didn’t have, I’d have serious cash flow. But the whole strategy is to set myself up so 30-35 years from now I have some serious cash flow, so if I have an investment I need to make I won’t mind investing. I want to have a lot of different areas of cash flow.
My goal used to be money, just making money, chasing money — just money, money, money the American way. But my goals have changed as of lately. I realized that between $80,000 to $120,000 I can live a really good life, so my goal in the next three years is to either start my own business or find a job that will allow me to travel as close to full time as possible. I’d really like to become more mobile in my work and visiting national parks. I’m considering starting a staffing business, but I’m not sure. I don’t want to be stuck in a geographic area working for a corporation; for instance, I’d like to just go to California and enjoy the weather if I wanted to.
I’d say the biggest challenge for me is not simply becoming what society wants me to be, just meeting the social norms, getting the career, working those 60 hours a week.
So, I figure out what I want out of life, out of this endless cycle of staying motivated, and even though it’s not the norm, make it my reality. Along the way I’ll have to deal with working the 60 hours a week, which I’m not 100 percent into. I’d like to travel. I want to be able to volunteer more and travel more and make life more enjoyable, but for that to be feasible, I have to take some risks and make sacrifices.
Yeah, I don’t want to conform to what American society teaches and expects from us. It’s a fear of chasing the house and the white picket fence your whole life. I have a younger brother, and I talk to his friends’ parents, and they always tell me they wished they had done this or done that. So I see a lot of regret and unhappiness living the typical American lifestyle, a sense of being stuck with no way out.
I try to only buy things that bring tremendous value in my life … like my mountain bike. I spent a lot of money on my bike. I spent $850 bucks. To some people that’s a lot of money, to other people it’s not, but it’s something that brings and gives tremendous value. I don’t buy a lot of clothing — I shop at Kohl’s. I just to try to be as minimalist as possible, and if something is going to bring value, I buy it. But I won’t just buy something because it’s in style. I hold my phones for about two years or longer. Right now I have a Galaxy S5, and I’ve had it for a year, so I’m going to hold onto it for another year or two. I do a lot of research before I buy something. As a general rule of thumb — make more money than you spend.
If your idea of success is just making a lot of money, you should seriously reevaluate how you define success. Figure out what it is that you want out of life. Those things may change as you grow and your world becomes bigger, but you can adapt and change course along the way. Don’t let society dictate what success is and what it isn’t. When I first graduated it was money, money, money. I can be very selfish, I don’t know about you, but I can be selfish. It’s hard not to just think about yourself. Now my goals involve animal rights and helping people and travelling at my own will. It’s simple, but that’s how I define success now.