Financial Education through Real Estate Investing: Recession & Cashflow Management (Part 2)

Have you ever felt financially desperate or hopeless, or both?

Don’t get me wrong. I did not come from most people’s class definition of a poor family. In fact, at one point in my life (between the age of 5–11), I had great creature comforts and then some. Dad’s government job was stable and Mom’s manufacturing business was growing. If you’re looking for a rags to riches story, I probably don’t fit that box. However, I do describe my upbringing as hopelessly middle class (if not lower middle-class).

There is absolutely no disrespect to my parents. I know they did their best given the upbringing they had. However, I also know that I wanted to break that mold. I had to — if I wanted something different. Something more. After all, my Mom’s the one that always said: the next generation should do better.

Many have asked me how I learned everything I’ve learned over the years, I usually paint them this picture:

• Just moved from Vancouver to Edmonton in 2009 as a bright-eyed 27 year-old wanting to climb that corporate ladder. I was willing to suffer through being lonely again leaving my close friends in search for a better future. After all, what’s hard work and sacrifice? Aren’t those the bare minimum requirement for success?
• After some consistent 80-hour weeks for months at my job, I was further beat down by opening my “investment statements” — mentally and emotionally — on a weekly basis.
• Feeling smart, I asked a co-worker (who is my mother’s age) how she manages her money as she looks to be doing pretty well — a beautiful house, amazing (not to mention constant) vacations and multiple luxury cars — all the while forgetting that she’s twice my age and has had way more time to accumulate her wealth. Regardless, I was connected to her ‘guy’. This was the guy that represented the developer that later on took every last penny of my hard earned money away from me — among many others. (Side note: this is why one of my favourite quotes is “Don’t compare your chapter 1 to someone else’s chapter 30.”)
• Feeling deflated, stressed, cheated and angry, I went to this meeting at a law firm with people in their 50’s, 60’s, 70's…and maybe even 80’s. The scene I witnessed still shocks me to my very core every time I picture it. Imagine seeing people who are your parents’ and grandparents’ age — in a public space and they are just yelling, howling, crying and screaming. Nobody was able to get a full sentence out other than the lawyer representing us. The collective us that had our money ‘stolen’ in broad daylight. The collective us that thought: real estate is much safer than stocks and mutual funds. Since most of us already took giant losses and nobody knew if they would see their retirement funds bounce back, we all thought we were being smart cutting our losses and redirecting our money into real estate.
• Now imagine this: your parents and grandparents saying things like: “How am I going to live?” “How am I going to pay rent and put food on the table?” “I’m too old to go back to work.” “That was my entire life’s work.” Are you feeling what I’m feeling now?

Instead of feeling hopeful like I was potentially going to get my money back, I walked away from it feeling shook and completely numbed.

The reality slowly woke me as I auto-piloted myself home after that brief and emotionally disturbing meeting. Here I am —

• Been in the workforce for 3 years,
• Making a 6-figure income year after year,
• Living in a nice house,
• Driving a Mercedes,
• Having a rental condo back in Vancouver.

All the labels that should’ve been considered as success markers meant nothing. Because, the truth was this —

• I was having “Ramen Mondays” and “Deep Fried Fridays” to save money on food. When I first moved into this beautiful new home that’s 3 times the size of my Vancouver condo, I did not know all the surprise expenses that would pretty much incur immediately. Here’s a picture of our living room, dining room, media room, office space and storage:

Those are towel-covered moving boxes.

• I was using Future Shop (if you remember them) flyers and any flyers I could get as window coverings. Forget about buying new furniture or anything else other than the bare essentials.
• I was feeding into my Vancouver condo. This, I later learned is also called “paying my tenant to live in my property”. It was further draining my income.
• I was worth more dead than alive. With a lousy life insurance policy that came with my work benefits plan (always had a hard time finding life insurance for me due to my health conditions) and the recent ‘loss of money’, I was in negative net worth. In other words: I. WAS. BROKE.

That made me doubt everything I believed in — is working hard alone enough? Is having a high income job enough? Is having a corporate ladder to climb enough?

That made me question my choice to move away from my friends — my support network. Was the sacrifice worth it?

And, something happened.

Weeks later, on my drive to work one day, I heard about a financial education seminar. I perked up. Turning the volume a bit louder, I heard that it was about real estate investing. I was hooked.

That was January 2010.

As of today, I’ve been broke twice, literally. And those experiences are the fuel for these articles.

Of course, there are more layers as to why I continue to build cashflow and wealth through real estate (and yes, there are days that I get tired of the idea of the process of buying another property). However, it’s now time to share some lessons first. Lessons from both times when I was ‘broke’.

For starters, recognizing that our behaviour during a personal financial recession is usually the same behaviour we exhibit during an external financial recession.

Lessons from the 1st Negative Net Worth

1. Learn how to identify deals and calculate risks myself. You don’t know what you don’t know.
2. Find ways to make money when I sleep. You don’t know what you don’t know.
3. Create multiple income streams.
4. My financial well being is 100% my own responsibility and no on else’s.
5. Live largely yet frugally. Buy assets first and leverage assets to fund my liabilities.

Lessons from the 2nd Negative Net Worth

1. Get to Financial Freedom #2 (refer to previous article) first before taking on more risk.
2. As long as I stay above Financial Freedom #2, I’m ok to refi (after the BRRRR process) and let a few of properties in my portfolio go into negative cashflow with the plan to scale up. IMPORTANT concept here: despite what most people might think, not every Starbucks, Safeway or Exxon is profitable. However, as an overall corporation, they are.
3. Leverage the funds to acquire new performing assets, or feed into portfolio income (aka park it), or simply keep as contingency funds depending on the larger economic conditions.

The lessons got bigger.

Surprisingly, I also find these lessons very applicable and relevant to what most investors are going through these days — new and seasoned.

I have been speaking with many “investors” over the last couple of months who are looking for guidance and support. If there’s anything we can do to help, my team will be happy to support in any way they can.

To my dedicated readers, I thank you for your support and feedback. If this is the first time you’re reading one of my publications, I hope you’ve enjoyed it and learned a thing or two.

If you’re wanting to be a part of a community of real estate investors from around the globe, here is the T.A.L.E.N.T.ed Investors Facebook Group. It’s a place where people come together to share experiences, knowledge, successes and challenges, and money making opportunities!

For those of you who prefer watching videos, here is the YouTube channel where some of my work (very raw) has been shared.

If you prefer the live interaction and delivery to help you build some foundation, go ahead and speak to a Strategy Coach on how you can attend our Workshops.

Lastly, I just want to say thank you for your continuing support.

I aim to be authentic and adding value to your life.

I invest to build a life. I build business to create better life experiences.

It’s ultimately about LIFE and I appreciate you coming on this journey with me!

(Written at home in Edmonton, AB)

Written By: Tim Tsai - Principal & Founder at Trust Your Talent Academy