“Price is what you pay. Value is what you get.” — Warren Buffet
I’ve received some pretty bad financial advice in the past.
I’ve missed out on a lot of crypto’s upside
I’ve also invested a lot in options and ended up losing a lot of money.
There are common things people tell us about investing that I think are just not true.
Let’s go over the three worst pieces of financial advice I’ve ever received and how you can learn from my mistakes.
1. Don’t Go into Debt
The first thing people often say when it comes to money is don’t go into debt.
Why do they say that?
If you’re gonna go out and buy stuff with that money, yes, debt can be bad!
But debt is not a monster that will come out and grab you like one of those old horror movies.
There is such a thing as good debt.
These days, I’m trying to get a lot of cheap debt to go and buy other assets.
We have this thing called arbitrage.
You’re able to borrow 1% and then get a much higher return.
You do have to know what you’re doing and do it responsibly.
I was able to borrow at 2.75% on a 10-year fixed personal line of credit, which is awesome!
I was able to do this and get higher, double digit returns.
There are situations that make sense to be able to borrow.
When people say to not go into debt, I think it’s really shortsighted.
If it’s credit card debt or not borrowing for investment, you do have to understand the risks.
For me, I’ve found some great ways to make it work.
2. Single Family Investing Leads to Financial Freedom
The second worst piece of financial advice I’ve ever been given is that single family investing leads to financial freedom.
I don’t believe that’s true.
I know a lot of you wanna fight me on this!
But let me make my case:
Over the past 15 years, I have done single family investing and been around many people doing single family investing.
It typically takes a lot of time.
There’s a lot of energy that goes into it.
It’s more of a long term hold.
You may know people who have become financially free by doing single family investing.
I know them, too.
Typically, their success has been a 5-, 10-, or even 20-year achievement.
A lot of sweat equity will have gone into that achievement.
Some of this success has to do with timing and when they got into single family.
People I’ve talked with have had to make over 1,200 phone calls with high-net-worth individuals.
That’s so many hours just talking over the phone!
Some of these people own anywhere from 1 to 40 rental houses.
The investors who become financially free through single family because it’s a full-time job.
Even if they have a property manager, it’s a lot of work.
Why is that?
It comes down to the slow process.
You might get $100-$400/month if you can find even a property that can have cash flow.
It’s getting harder in a lot of markets to even find properties that have a positive cash flow.
One example is the house I live in Pasadena.
We have a lot of assets out of state, but in California it just doesn’t make sense.
If I were to own this house and put 20% down, I would tie up that capital.
I’d be spending somewhere between $4,000-$5,000/month.
For less than $3,500 a month, I can rent and put my money elsewhere.
Some of you may disagree that it’s not the right thing to do, and that’s okay!
I’d rather have my money in multi-family assets.
It’s a much more efficient asset class.
Why is that?
Let’s say I were to own 50 houses in a certain area.
I’d have to pay a maintenance guy to come in for $50/hour and diagnose an issue.
They might determine the issue is in the plumbing, so they have to run to Home Depot.
This could take up to a full day for one house.
Imagine you’ve got 50 of these houses draining all that time and money
Now imagine you have a 50 unit apartment complex.
It’s all central in one place.
Typically, you have onsite people to take care of any issues that come up.
You have a lot of similar parts for similar appliances to cut down on costs.
There’s a lot more efficiency built into this model, but that’s for another time!
Financial freedom really comes through working with larger multifamily.
I’ve seen it again and again where people make that switch.
We really undervalue our time when it comes to single family.
We don’t realize that, even if you’re not doing the work, you get headaches.
Going into single family is definitely some of the worst financial advice I’ve heard, so steer clear if you can!
3. Pay Your House Off Early
I’ve heard this from gurus.
I’ve heard this from friends.
I’ve heard this from family members.
They all say you should pay your house off early.
Whether you live there or it’s a rental house, you should pay it off as soon as you can.
This is a terrible idea for most people.
It’s really one of the worst pieces of advice I can think of.
A lot of people want to do this because they don’t want payments anymore.
Maybe you want to pay your house off because it gives you peace of mind.
The challenge today is we’re seeing 3% interest rates.
We’ve never seen interest rates this low!
If you owe $500,000 on your house and pay the house off completely…
You still owe taxes each year.
You still owe insurance.
You have other expenses with your property, but you don’t have a payment.
You’ve basically received a 3% return on your money.
That’s the opportunity cost.
Down the road, you’d be paying 3% interest for however long you have on your mortgage.
By paying it down, you’re locking in that 3% return.
You may not think that’s too bad, but inflation at the time of this post is 6-9%.
You’re actually losing money versus putting it in other investments where there is some inflation hedge.
We’re seeing investments such as multifamily, self-storage, and other types of syndicated deals outside Wall Street that have 10-20% annualized returns.
It might even seem unbelievable to you.
If you take anything away from this post, it should be the importance of educating yourself.
Paying down your home is not necessarily the best way to go for a lot of people.
Now, I want to hear from you!
What’s the worst piece of financial advice you’ve ever received?
Let us know in the comments below!
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Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.