As I was scrolling through Facebook, I saw a post from a wannabe entrepreneur. The post said that renting your home is a smarter financial move than mortgaging it. It went on to say that you should sell your home to their investors. Apparently these investors will sign a lease with you and rent the home back to you. This wannabe made the case that all the equity tied up in your house isn’t doing you any good. They argued that you should pay rent instead of a mortgage and invest the money.
This is some of the dumbest financial advice I’ve read recently. It brings me to an important point: You need to be cautious about who you listen to for advice both personally and professionally.
Lots of fake-rich people will peddle advice to you on the internet. Anyone can rent a nice car or house. Anyone can get a loan or mortgage. But few people have built real wealth.
The same is true in business. Last year, I talked to a business owner who took over 8 years to reach $1 million in annual sales. Then he sold the business. Now he’s a guru, teaching other entrepreneurs how to be as successful as he is. He seems like a nice guy, but accumulating just $1 million in annual revenue over 8 years isn’t special.
Not long after that conversation, I got a call from a friend asking for investment advice. This friend is successful and owns 2 businesses. He wanted to know how I invest my money. I don’t talk about investing a ton. Everyone has their own theories about what to do and how to do it. But since I have done a good job accumulating wealth, I’ll share my opinion here.
Why Are You In The Game?
Of course, I am in no way, shape, or form suggesting you do anything I’m about to detail here. These are simply my preferences for investing. You should really seek the advice of someone who has degrees and certificates and is way smarter than I am.
I think it is important to understand someone’s goals and motives before you listen to their opinion on this subject. So let me spell out mine.
I’m in this game for a few reasons:
- I was very poor growing up. And as an adult, I couldn’t afford food for my family when I first moved to Idaho. I never want to be poor again.
- I want generational wealth.
- I want to live the life I dreamed I would as a kid. I want to have fun, travel, and not worry about money.
Now that you have some context for my relationship with money, here’s what I do with it.
Playing The Game — My Way
When I make a money decision, I’m always okay with playing the long game. I don’t do “get rich quick” schemes. If something sounds too good to be true, then it is. These two philosophies have kept my money safe and secure for a long time, and I don’t break those rules.
Debt is dumb, so I pay cash for almost anything that isn’t an asset. My primary house is paid for, and so is my cabin. Because my home is where my kids rest their heads at night, I don’t have a mortgage. I want to make sure we always have a good, safe place to sleep.
My financial advisor friends think I’m dumb for doing this. They think I can get that money working and make more if I invest instead of paying off my house. First, that is a big risk. When was the last time the stock market guaranteed you a return? Paying off my house, however, guaranteed a 4.5% return. It has been one of the best decisions I ever made because it removed a massive amount of financial pressure.
Maybe I could make more in the stock market, especially as it recovers. But the next several months could be rocky. My house has increased in value by 50% in five years, and I haven’t paid any interest. So, I’m doing pretty well with my positive rate of return. Oh yeah, and I sleep very well at night, which, to me, is priceless.
Playing By Your Rules
You wouldn’t take out a loan on your house (assuming it was paid for) to invest in the stock market. So why would you delay paying off your house to invest in the stock market? Remember: The financial advisors get paid when you invest the money with them, not when you pay off your house.
If you’re facing a toss-up between investing for retirement and paying off your mortgage, then here’s my advice. I recommend investing for retirement first, then hustling to make extra money to pay off the house early. Once I was investing 10%, give or take, of my gross pay, I’d send any extra money to my mortgage. If I had credit card debt or car loans, then I’d pay those off first and then invest for retirement.
You’re unlikely to get a good enough return in the stock market to justify 18% interest rates on credit cards. Today, I only use credit cards for points. If you’re not disciplined or organized enough to pay them off each month, then don’t even use them for points.
I use points to get gift cards for personal purchases. This comes out to about $30,000 per year, so it makes perfect financial sense in my case. A little-known fact is that rewards from credit card companies are nontaxable. My preferred card for this is the Capital One Venture card.
What To Do ‘On The Side’
For more passive investments, I prefer commercial real estate. It can be hard to find a good deal right now, but investing there is a smart play. It’s better than fourplexes and single-family real estate, and I think it’s way better than apartments. Although, some of that is a matter of opinion.
I like commercial real estate because I can set the leases up as triple-net. This means I’m only responsible for things on the outside of the building. Repairs and other issues inside the building are left up to the person renting from me. This measure makes these investments much more passive.
I also invest money in other small businesses. To be clear, I’m not investing dumb money. I’m not paying a 10-times multiple on top-line revenue for a company that isn’t profitable. That would be crazy — and yes, I’ve been asked to make that investment.
I love buying into and helping grow businesses. My advice here is to invest in what you know, and frankly, all businesses are the same. Of course, there are a few differences, but getting customers, keeping them, upselling, and managing employees is all the same. Why do I like investing in small businesses? I know I can outthink and outwork just about any issue a small business can throw at me. That control and ability to affect my own future makes this an attractive vehicle to me.
The Power Of Cash
I’m also a big believer in having a strong rainy day fund, even for my business. Personally, I keep a large sum of cash on hand just for when times get hard. And believe me, they will get hard again. Of course, many people think this is also a bad idea. They say the value of the money is going down because my money market is only getting 2.5% interest. They may be 100% spot on with inflation. However, I’ve learned two things about keeping cash on hand that have served me well over the years.
In the last 20 years, if I was getting 2.5% interest on my cash each year and had $1 in my money market, then my cash today would be worth $1.64. Inflation in the last 20 years would mean that $1 in purchasing power in 1999 would need to be $1.54 today. I may not be making an amazing return, but I’m also not losing ground. When a good deal presents itself, I can move very fast on it.
What’s Your Endgame?
I do play in a few risky areas, but I play in these areas with the understanding that I may lose some or all of the money. I recently bought some low-priced, high-risk, but potentially high-return stocks in the cannabis industry. Frankly, I’m still angry at myself for not buying Amazon and Facebook at less than $30 a share. I simply got busy and forgot to put the order in.
Cannabis will be federally legal in the next decade or sooner. Like it or not, the genie isn’t going back in the bottle. There’s money to be made in that industry for sure. Likewise, I tend to keep the ultrarisky investments, like this and the few I have through Yieldstreet, to less than 5% of my overall portfolio.
This is surely the short version of how I invest my money. Your risk tolerance and goals may be different than mine, and you shouldn’t use this article to make any financial decisions. That said, I hope my strategy gave you some food for thought.