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.
Related: How Much Do The Top Income Earners Make By Percentage
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.
Related: The One Ingredient Necessary For Financial Independence
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.
Related: How To Invest In Real Estate If You Don’t Want To Own Property
Refinance your mortgage. One goal of having a real estate empire is to keep the carrying cost as low as possible. Do so by checking out Credible, my favorite mortgage marketplace where prequalified lenders compete for your business. You can get competitive, real quotes in under three minutes for free. Mortgage rates are down to ALL-TIME lows. Take advantage!
Invest in real estate more surgically. If you don’t want to build a real estate empire, you can always invest in one. Take a look at Fundrise, one of the largest and best real estate crowdsourcing companies today.
You can invest in higher returning deals around the country for as little as $1,000. Historical returns have ranged between 9% – 15%, much higher than the average stock market return. It’s free to explore and they’ve got the best platform around.
Updated for 2021 and beyond.
Wendy Martens says
I am amazed at how you great of a father you are. You are planning for future generations. This is the value every father should strive to achieve.
Chinga Reddy says
The best thing my dad did for me was instill fear in me, fear of failing, fear that I will end up sweeping the streets, made sure that I know I’m on my own and that he will NOT be there for me. Growing up, there was never a day I did NOT hate him or wished he would return home late or maybe not return home. My mom even though stayed home was emotionally never existent. She used to tell me how great she was because even though she did her MS from a prestigious college, sacrificed her career so that she can take care of me. They were miserly but would tell me they were being frugal because if I did not get into a good school they will need the money to pay for private school. I was compared with every kid they knew of and how great that particular kid and worthless I was. As a kid, i NEVER got a single gift from my parents. ZERO. Now that I’ve succeeded in life, I feel like an imposter. I am in the top 1% (AGI) in the US, have a loving wife and an adorable year old kid. I have a huge home, drive a German car, pay an annual tax over 3 times the average salary in the US. I am not happy and wonder everyday what would make me? Take home point, love your kids, be there for them, guide them on what is right and what is wrong and as Sam says teach them not to fail due to a lack of effort.
Chad Carson says
Interesting, Sam. I can definitely empathize with kids being central in every decision you make. I’m in the same boat with my two young ones.
But I think I’m in another world when talking about the issue with high-priced housing in big cities and with elite universities. I grew up in Atlanta metro and went to school at Clemson University (state school) on a football scholarship. So, those experiences mark my perspective.
But I did look at ivy leagues and had a chance to go there. And I’ve had chances to live in the big cities. But in both cases I gravitated towards smaller, up-and-coming areas (like the small southern university town where I built my rental portfolio).
I guess all of that to say I don’t see the increased competition at universities or increased price in big cities as a bad thing. I see it spilling over and people moving to all sorts of other, cool, more affordable places in other parts of the country and the world. Remote work is getting easier and easier. Even here in Ecuador where we’re living this year, American and Canadian money is spilling over because of all the expats who’ve moved here (earn there, spend here).
So, I think our kids will be fine because the pie has gotten a lot bigger. Opportunities are spilling over into new places. And the rest of the country and the world has plenty of fascinating paths to explore.
PS – what’s your comment plug-in. I love it!
Sam if you are talking about amblyopia, I unfortunately is afflicted with it. My parents didn’t discover it until I was 7. To this day my left eye vision is very poor.
I am horrible at golf because of poor proprioception and depth perception. I also suck at baseball. Cannot field a fly ball st all. But I am actually ok at other sports where my insight into the nature of the game compensates for my visual defect. I am a decent shooter and passer in basketball.
I also went to a top 15-20 university so it didn’t affect my academic performance too much although I probably would not try to be a surgeon lol.
I am sure your kid will do great. Correcting it so early plus modern technology. And even if he had slight visual impairment at worst he’ll be like me making top 5% income.
Financial Samurai says
Howdy JAck, thanks for sharing. Yes, it could be something to do with the brain and eye not working correctly together, hence his lack of ability to fixate his eyeballs on a focal point for a long time. I’m assuming that a lot of it is just him looking around, developing, wondering, etc. And hopefully technology and new techniques and things we do now can help him see better in the future.
Good thing about golf is that it sucks. Takes too long, costs too much! lol. And with baseball, how many times are we gonna play pickup baseball as adults? Have you tried tennis though? hmmm.
Glad things have worked out for you! I’d love to learn more about your story offline or through a guest post if you are willing. I cannot get enough of people overcoming any sort of impairment and leading a good life. I love stories of motivation and hope!
My brother was born squint and the local doctors wanted to operate and fix it. At the time, my grandfather was undergoing treatment for his deteriorating eyes (diabetes) in another city. A doctor at the specialist hospital noticed my brother and his squint in the waiting room and stopped to examine him. After a few minutes, he advised my parents NOT to have the operation done as my brother’s eye would straighten after the bridge of his nose matured a bit more. And sure enough, when his big nose grew in, his squint corrected itself. Second opinions are a must!
Stay positive and remember kids are resilient. He might just outgrow it. Also, he’s already leaps and bounds ahead of every other kid out there. He’s got a financially savvy family unit! Whereas the rest of us dense hamsters have to struggle with understanding Personal Finance 101 and overcoming financial fear at 34.
Even if he has a disability, so what? I’ve seen plenty of disabled people who are more ambitious, more driven and more capable than some able bodied people. Disability seems to breeds grit, determination and strength.
You’ve mentioned that entrance to university is getter harder and harder. But have you considered that if your son has a disability, he may have an easier time getting into a prestigious university (or even employed)? I know that it forms part of the entrance quota. So maybe where you’ve failed, he’ll succeed?
Wishing you and your family all of the best!
Financial Samurai says
Thanks for sharing this hopeful piece of news QK. We’re definitely hopeful that his eye muscles will get stronger and his brain and ocular nerve will coordinate better as he ages. After all, he’s just a few weeks old and an ophthalmologist told a parent whose daughter had eye issues that it takes a person about 7 years to fully develop their vision/eyes.
Both of us have poor vision (glasses/contacts), so it’s not a surprise he may have poor vision. We just feel bad and some guilt for passing on such poor genes to him. But we’ll get over it and love him as much as any parent can. Whatever his condition turns out to be, we’ll always be there for him!
Good sense here. “so what” if he has a disability.
I have some rental property and have been considering purchasing more. However, one thing that gives me pause on building a long-term real estate empire (besides the infrequent headache of a bad tenant since I primarily own Class B properties) is the potential impact of 3D printing on the housing market. I think banks, existing homeowners, and governments have reasons not to encourage 3D printing, but you have to think it is going to have some impact on costs and existing real estate valuation on a multi-decade timeframe. I’m curious to know how you are considering this risk with the rest of your thought process. Love your blog. Keep up the great work!
Class A is too much for me. Class C is a surprise repair waiting for me every 3 months. 3d printing houses is interesting visually. But we have to remember there is a reason or reasons why wide spread adoption is not happening. Will it happen maybe you are right but you’re investing and locking in your majority of $ against 5,10 or 20 years into your future.
Apply this exact logic against retail stores replaced by online shopping. And traditional rentals of an entire floor or 3 of unfurnished commercial real estate with you cycling to the local furniture stores oneself being replaced by well thought group workspaces where you can rent by 6 or 12 months contacts, a desk, an office depending on your budget and needs that is inclusive with amenities of snacks, drinks, group activities, security guard, group discount on great furniture, network of investors businessmen. These exist but to what % of the total of 100%. And will it increase, or stay the same at a future date. This is what I mean by commercial properties and retail properties changes underway.
Its normal to worry about our kids but I hear it never ever ends, so its best to have some sort of coping mechanism for the constant worry.
Warren Buffet did say he doesn’t spoil his kids in anyway EXCEPT one, and that was to provide them the best education available (notice he didn’t say the most expensive) to them.
I believe that is the best thing to do as well and it would go very much further than giving them something that makes their life easier (eg. real estate, a built up business, cash etc.).
Many parents out there have built up their own businesses with the hope of their kids taking it over but anecdotally, most kids don’t take up the offer.
My dad offered me a spot within his business once he retired but my first response was no thank you, to me it just seemed wrong to get something like that on a platter and have to work with other business partners who may have worked as hard as my dad but to see his kid take his spot without effort. Its been 20 yrs since the offer, and I don’t regret it at all. All I’ve achieved, I’ve done it on my own (apart from the education that I was provided for by my parents). Its something to be proud of. I am since extremely grateful and thankful to my dad who had the faith in me or trust to takeover the company. The thought counts and he knows that.
I see someone like Trump, who obviously had lots of help from his dad and is no doubt a shrewd businessman himself, but that leg up will always be hanging over his head (or maybe not, depending on his personality which I think he genuinely did it all on his own).
All kids are different FS, I think rather than take the risk of building up a RE empire for your son and him not taking the offer, concentrate all your efforts in educating him on the world (which I bet you will be extremely good at) and let him fly. If he does need help, you’ll always be there, and that will be the greatest gift you can give him.
I am not confident real estate will be as good in the future as it is today. The reason is self driving cars. With self driving cars, commute is not longer an issue.
That implies residential location is no longer an issue. How will that affect the premiums of “prime real estate”?
With more of our shopping being conducted online via ecommerce, there’s less demand for big box retail stores. Amazon is taking a chunk out of Best Buy’s profits. Sears and Blockbuster is shutting down.
Amazon prime is moving into fashion and clothing delivery now.
How does that affect commercial real estate values?
Airbnb has got to be taking profits away from traditional hotels. What are the valuations on hotels ever since airbnb came out?
These are all major game changers that I see affecting the economy and real estate values. I am not sure exactly what areas of real estate will benefit from these changes. For that reason, I don’t think it’s a good reason for me to put a large chunk of money into real estate. A moderate amount to diversify against other holdings such as stocks, businesses etc… is ok.
If we take a step back, the changes that tech has brought into our lives over the past 10 years is massive. The iphone came out in 2007. Uber in 2012. If I’m going to make a big financial bet for the long term future, I have to make sure I’m doing it with very good odds. How tech will affect real estate, those odds are not clear to me yet.
Financial Samurai says
One of the reasons why I bought my house on the west side of San Francisco was because the cost commute downtown got cut by 70% with Uber and Lyft. So you are seeing a massive amount of interest out here now, and the more prime property is slowing down.
In Vancouver’s Marin county aka west Vancouver houses I mean mansions average $12mm and lived often seasonally by family of 4 or 5… And I can’t help but wonder what kind of motivation the kids who live in these single family homes will ever have to build a career for themselves. Cause they’ll never be able to buy the same house the parents bought as an employee. I guess that’s a wonderful breeding ground for entrepreneurs.
Financial Samurai says
What are the big industries driving Vancouver’s job growth and income growth to result in such high property prices? I just don’t get it. What are the big companies out of Vancouver?