Be careful where you get advice
Ashley and I went to a baby shower this week for some of our good friends, Dorsie and Jimmy Kuni. Dorsie was absolutely glowing.
This will be their first, and as any good friend who already has kids should do, I asked Jimmy if he was excited or just plain scared. He laughed, and we joked about Owen Wilson’s line from “Armageddon” right before they launch into space to land on an asteroid heading for Earth.
In that scene, Owen’s character states that he has that “excited-scared feeling” that’s either 98% excited and 2% scared or the other way around. And speaking from my personal experience, when your first baby is heading for Earth, that’s a great way to describe your feelings.
As part of the shower, the attendees were asked to write to Dorsie and Jimmy their greatest baby advice on a note card for them to read later. Ashley and I scribbled out some of the things we wished we had known.
We talked about how important schedules are for the baby and how important it is for momma to sleep when the baby does. We also talked about how tagteaming feedings through the night worked well for us.
We gave Dorsie and Jimmy some other advice but we ended by saying to be aware that they’re going to get bombarded with advice of how they
“should” be doing things. This isn’t a bad thing, per say. People love you and want to share with you their knowledge. But that doesn’t mean you have to take their advice. Every child is different, and what worked well for one parent doesn’t always work well for another.
On our drive back home I started thinking about how often people give others advice that they aren’t qualified to give. This happens a lot in the real estate world and even more so in the real estate investing world.
I’m often surprised at the poor investment advice I read when agents are trying to sell investment properties.
And let me say this: I don’t believe the property listings are meant to be misleading. I think whoever writes them just doesn’t have enough knowledge in the area.
Let me give you an example of one I read recently and then show you the errors in the listing.
The house was a 1970s-model single wide trailer on 1/3 of an acre for $23,000. That price got my attention.
The ad read that that there was a great tenant in place who pays $750 a month, which would be $9,000 a year in rental income and would pay the house off in four years, thus making a 50% return every year.
Let’s dissect this. First, the $9,000 income mentioned here is calculated by finding the total annual rents. So, $750 multiplied by 12 months equals $9,000.
That calculation is missing something big — the rental expense factor. You see, you have to take into consideration the costs associated with owning property when calculating your rental income. Those costs include property taxes, insurance, vacancies and repairs. Taking those factors into consideration, the annual income would be closer to $5,850.
Next, this house doesn’t give a 50% return on an investor’s money (also called ROI). ROI is a percentage of how much of your initial investment you receive each year. So, if you invested $100 and received $10 back each year, the ROI is 10%. That also means it’ll take 10 years to get all of money back before you make a profit.
If you bought this house for $23,000 and received $5,850 in rental income each year, you would get all of your initial investment back within four years, which makes for a 25% ROI, not 50%.
Don’t get me wrong, an ROI of 25% is a great return. The information was just incorrect.
The ad got paying the house off in four years correct, but the other information was inaccurate. I believe the inaccuracies were unintentional, but they illustrate how there’s lots of people out there trying to give you investment advice and that you should be careful who you listen to.