13 Years in Real Estate: Leaving and Reflecting
In the real estate lounge, you can leave whenever you want. But to get to the door, you need to get through a gauntlet of muscly-armed bouncers guarding the door. They will need payment- and it won’t come cheap. This is something that the online gurus didn’t tell me.
For any would-be real estate investors, let me give you a realistic taste of what you can expect when selling an appreciated investment property.
This Year: Painful Profits
The “pound of flesh” I paid to sell my houses:
I gave $85,000 to Uncle Sam
I gave $55,000 to the State of Minnesota
I gave $40,000 to the Contractor
I gave $30,000 for the Buyer’s Realtors
I gave $20,000 for my Realtors
I gave $30,000 in depreciation recapture taxes
I gave thousands more to the county, the closer, and on and on.
Selling my houses left me with a chunk of cash… and chopped over $200,000 from our net worth- all at the same time.
My Financial Aron Ralston Moment
Not to be too dramatic, but this year was our financial "Aron Ralston" moment (the famous Utah hiker who famously cut off his own arm to gain his freedom and his life.)
I can’t tell you how hard it was to give years’ worth of my salary to dubious governmental causes. But simply put, that was the price of freedom- and the only thing worse than paying the money… was not paying the money (and staying stuck).
We’re glad we sold. But that’s not the million dollar question. The question is this:
Would I do it all over again if I was 25?
Why Real Estate Worked
In short, yes. I would do it all over again. I might have even gone even bigger.
Despite my exit-cost-whining above, real estate worked. With some sustained effort, our rentals turned us from a financial train wreck into a Shinkahnsen bullet train.
“Sure” you might say, “but the stock market works too - and without the house calls”.
Believe me, I know. I’m a stock man myself now.
But for young folks, I’m still giving the edge to real estate over stocks for two reasons:
Life Skills
Leverage
Skills
I quickly learned construction, plumbing, electric, business and marketing, law, tax code, hiring, firing, and rapid-problem solving. I know of no better business, nay, life education than managing real estate.
From the fixed-up foreclosure we now live in to the leases I wrote last week to rent out our house while in Europe- so much of what I do and who I am wouldn’t be possible without having attended the school of owning properties.
Leverage
Ok, but why did real estate work financially for us? Why was it better than a Vanguard fund? The answer is simple: leverage. In 2012, they let a broke 25-year-old kid take the reins of a quarter-million-dollar apartment building - for $8000. You won’t find anything else like this in the world of investing.
With a small FHA down payment on that first 4-plex, I kicked off years of significant cashflow and appreciation on often ugly, but financially strong assets.
Conclusion
These days, financial success hinges on a few things:
Hard work
Luck
Understanding the Capitalistic System in which we Live
In the age of inflation and runaway capitalism, owning assets is the only game in town. Even better if you can own them with low, fixed rate debt (that will shrink in relative terms as the government prints money).
Real estate is the only asset class that teaches you something and lets you own humongous assets early in life with relatively little money.
And I know- current times are tough in real estate. It would be very hard to replicate what we did in 2012 at this moment in time. But my hunch is that it won’t be this difficult forever. And if and when things change for the better, the key question for you is- would you dive in?
Many of you don’t need the hassle. But just maybe there are some of you wouldn’t mind riding the bull for a few years if it meant a new place in finances- and in life.
Real estate changed our life. Maybe it could change yours too.
