The Right Way to Start Investing - Get Out of Debt

August 3, 2020

OK, so you've decided that you want to jump in and start investing in real estate. The Right Way to start investing - get out of debt

Working as a Commercial Real Estate Investment Advisor in Ohio, I meet a lot of people who want to invest in commercial real estate. Unfortunately, many people are unable to even qualify for a loan to purchase their first investment property due to their credit. Most of the time it is a classic case of "saving at the spigot and wasting at the bung-hole"

Looking at my clients’ financial situations, I realized that most people lacked even the most essential financial knowledge. Things that I thought were so basic and necessary to qualify for a good loan, like having a good credit score, paying bills on time, or not carrying a lot of credit card debt relative to your income to most people were revelations.

I will never forget a couple that came into my office looking to buy their first investment property.

Tim and Mary (not their real names) wanted to buy investment properties that could give them a passive income and help them in retirement. Although they had two jobs each, they had a hard time coming up with meeting their expenses. Tim even told me that he was considering looking for a third job that he could do for a few hours a week, but he couldn’t find one that could fit his already tight schedule. They had 4 kids and a ton of credit card debt.

Before kerosene oil was discovered or thought of, one might stop at any farmer’s house and get a very good supper, but after supper, he might attempt to read in the living room and would find it impossible with the insufficient light from one candle. The hostess, seeing his dilemma, would say: “It is rather difficult to read here after dark; a proverb says ‘you must have a ship at sea in order to be able to burn two candles at once; we never have an extra candle except on special occasions.” These special occasions occur, perhaps, twice a year. In this way the family would save five, six, or ten dollars in that time: but the information which might be derived from having the extra light would, of course, far outweigh a ton of candles.

Another couple I met wanted to buy a $650,000 banquet hall. They had a combined income of $100,000 a year. They were both driving brand new cars, (they had paid $60,000 for those cars only a few months earlier) and their monthly car payments were just under $1200. On top of that, they also had $49,000 in credit card debt. Their mortgage monthly payment would have been $3,450. Incredibly, they couldn’t understand why they could not get approved for a commercial loan.

A lady who came to me for advice admitted that the previous month she had been so upset with her husband for buying himself a new truck that she went to the dealership and bought herself a brand-new car. Now they are having trouble paying for both cars.

These and many similar situations made me realize that most people were not taking credit seriously. And the main reason was that they did not know exactly how credit works. But that is only one part of the equation. The other part is that we live in such a consumerist society that no matter what you do or where you go, you are constantly exposed to advertisements. Whether you are watching TV, browsing the web, reading the paper or just driving around town, you are being bombarded with ads. And most importantly, many of those ads are targeting kids, so they grow up constantly thinking about spending money. And how many ads do you see about saving money? None.

Here is a plan that I recommend: When you find that you have no money left at the end of the year in spite of having a good income, I advise you to take a few sheets of paper and pin them up somewhere very visible and markdown every expense. Post it every day or week in two columns, one headed “necessaries” or even “comforts”, and the other headed “luxuries,” and you will find that the latter column will frequently be ten times greater than the former. The real comforts of life cost but a small portion of what most of us can earn. It is the eyes of others and not our own eyes that ruin us.

If all the world were blind except me l should not care for fine clothes or furniture.” In America, we like to say, “we are all free and equal,” but it is a great mistake in more senses than one.

That we are born “free and equal” is a glorious truth in one sense, yet we are not all born equally rich, and we never shall be.

One may say; “there is a man who has an income of two hundred and fifty thousand dollars per year, while I have but fifty thousand dollars; I knew that fellow when he was poor like myself; now he is rich and thinks he is better than I; I will show him that I am as good as he is; I will go and buy a fancy car; perhaps I cannot geta a bank loan to buy that BMW, but I can lease one and thus prove to him that I am as good as he is.”

My friend, you need not take that trouble; you can easily prove that you are “as good as he is;” you have only to behave as well as he does, but you cannot make anybody believe that you are rich as he is. Besides, if you put on these “airs,” add waste your time and spend your money, you will never build wealth. Keeping up with the Joneses is never a good strategy instead change your mindset and your beliefs about money. This is, in my opinion, the best way to get out of debt, stay out of debt forever, and start accumulating the wealth that you and your family so deserve.

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