In 2002, I was one year into my new job in San Francisco when I decided I needed to build a real estate empire. The dotcom collapse was traumatizing and I wanted to own real assets with more stable cash flow.
After a couple years, my desire for real estate increased. I want to own a real estate empire so I could retire early and live off the income. But then the housing crisis hit, ruining my confidence that I would one day be free.
Now things are lollipops and roses. Rental income is strong. Valuations are at all-time highs. Mortgage rates are now at all-time lows.
Yet, rental income has dropped to below 10% of my overall income. At the same time, owning physical real estate has become my main source of stress. As a father of now two young children during a pandemic, the last thing I want to do is manage tenants and deal with maintenance issues.
To maximize lifestyle and profits, I should rationally sell all rentals while valuations are at all-time highs and focus my attention on building an online business since it’s more fun and profitable. As we’ve seen through the pandemic, any business that can’t be shut down has dramatically become more valuable.
Despite the logic, I refuse to sell my entire rental property portfolio because of one main reason: insurance against a difficult life for my children.
Life May Get Brutally Difficult For Our Children
Owning a real estate empire is one of the best ways to hedge against a difficult life for my children. Let’s go through why life will be harder for our children.
Getting Into University Is Hard
Follow any college admissions acceptance record and you’ll notice a steady decline over time due to a rise in competition. Average GPA and SAT scores for elite schools have never been higher, yet getting in has never been harder. Kids of all races are realizing the frustration Asian kids have been going through for years now.
Getting A Great Job Is Impossible
Read any media publication, and there will be articles droning on and on about how prohibitively expensive it is to live in any major city. It gets incredibly depressing, especially for young people looking to establish roots.
Observe who gets a job at all the sexiest startups and highly coveted organizations. They all come from the same elite schools over and over again, yet many still complain how they are just scraping by.
Life seems like it’s only going to get MORE competitive with globalization, not less competitive. Our children need lots of luck and parents who plan way in advance for tough times.
By definition, only 10% of the working population gets to be in the top 10% income earner bracket. And only those in the top 10% earn an income of at least $115,000 a year according to the IRS.
I could choose being in the top 25% ($68,000) as a income goal for this article, but it’s very hard to get ahead living in a big city when you need to pay $2,500+/month in rent or $1.2M+ for a median priced house. Of course nobody needs to live in an expensive city to get ahead, it’s just nice to give our children as many options as possible.
Our Kids Have It Rough
Given there’s a high chance my son won’t get into a top 25 college, won’t land a job at a top 50 company, and won’t make a top 10% income, he might get thoroughly bummed out with all the rejection since he’ll grow up with peers who will. Maybe he’ll end up just asking us for help during his entire adult life!
Further, there’s a chance my son’s visual disability (nystagmus) may make it tougher for him to learn or be treated well by others. It’s too early to tell, but I’m hopeful his nerves and cells are just slowly developing and he’ll turn into a completely healthy boy
It’ll be incumbent on me and his mother to encourage him that it’s OK if he attends city college, works at Macy’s, and makes minimum wage so long as he’s tried his best. I really don’t care what type of career he has so long as he’s helping other people and finds his work rewarding. But I fear that even with our reassurances, he may not be happy.
Life has an incredible way of beating the most optimistic of us down. We like to compare our progress to others, which inevitably makes us unsatisfied.
Two Reasons For A Real Estate Empire
Once you have your living expenses covered, you can live in any of the most expensive cities in the world and be OK. By being able to provide subsidized housing (if necessary) for my son in an expensive city like San Francisco, it’ll open up more opportunities.
Subsidized Housing Makes Life Easier
I know so many people who are deterred from moving to places like New York City or San Francisco because of high housing costs. What a shame to be unable to pursue a dream due to cost.
Post-pandemic, I think big city living is going to BOOM again. As a result, job opportunities and real estate bargains will be soaked up.
After being away from the workforce for the past five years, my #1 joy from not having to work is not having to commute. It would be nice if he didn’t have to spend three hours on the road a day to work at a job he doesn’t love.
Real Estate Empire = Job For Kids
The second reason for owning multiple pieces of property is to give my son or daughter a job if he or she one day ends up jobless. I have this fear that he might not even be able to get a cashier’s job at Macy’s because Macy’s might not even be around in 23 years. Perhaps the robots will eliminate the need for most lower income jobs we have today.
Also, what if the Macy’s hiring manager is prejudice? What if his disability keeps him from getting ahead? We always hope for the best for our children, but the reality is they seldom achieve their best lives without a little bit of luck and help.
By having a rental property portfolio to manage, I’m hoping that if all else fails, my son can take pride managing a family asset that might one day be his.
He’ll learn about real estate, negotiations, property management, people management, market trends, and so much more. I will be the most patient and loving mentor to him. From there, he might be able to build his own real estate empire.
A Parent’s Job Is Never Done
Nobody really told me how much you worry as a parent. It’s rather debilitating if you can’t get past thinking about all the things that could go wrong with your child, especially things that aren’t fixable due to genetics. The only thing we can give our children is lots of love and support.
As parents, perhaps the right thing to do is focus on living our best lives now so that our children can also have the best lives possible now and in the future.
It’s counterproductive managing a rental property for a couple decades so my son can one day use if it’s taking quality time away from us now. Having all these hopes and dreams for our children without giving them a chance to explore on their own is unfair.
Good thing that buying rental properties today is a financially savvy move. The value of cash flow (rent) has gone way up because interest rats have come way down. It takes a lot more capital to generate the same amount of risk-adjusted income.
I just don’t want him to fall through the cracks. Perhaps gutting it out at a miserable job will build character. But maybe all a miserable job will do is make him an aimless vagabond who is bitter at the world. You should see the Twitter feeds of real estate reporters who rent. It’s just misery after frustration after indignation.
It worries me if he has to go through all the things I went through to get ahead. I don’t think I could do it again if I had to start over. Further, so much of my accomplishments were directly attributable to luck. Good thing our children are more resilient than we think.
Of course I won’t tell my son of this escape hatch plan until he’s ready. Then he might get completely demotivated to make it on his own.
Only when he’s tried his best and is down on his luck will I invite him over for a beer one evening and say, “Surprise son! Everything will be OK. We’re so proud of you. We’ve got something awesome that we hope you’ll enjoy doing.” He’ll have no idea what’ll hit him because he’ll have grown up in a regular old house with frugal parents.
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Updated for 2021 and beyond.