The Financial Independent

I’m quite the genius when it comes to managing money. Just kidding, I’m an idiot. I’m a master at making terrible investment decisions. Like I have a special talent for wasting my hard-earned money. But hey, maybe we all can laugh and learn from my blunders.

Real Estate

While there’s never-ending chorus of people extolling its virtues, the reality of real estate is far from glamorous.  Looking for set-it-and-forget-it early retirement?  Brace yourself for a world of illiquid investments, where you’ll encounter the absolute nadir of humanity and be rewarded with mediocre yields for your effort.

Last year, I decided to sell one of my rental houses, thinking I’d make a tidy profit since its value had skyrocketed by 50% in three years. But by the time I managed to vacate the tenant and do a fancy makeover, I barely made even 4%. When I thought things couldn’t get any worse, the dreaded Closing Costs^[1] swooped in like vultures to devouring whatever was left of my gains. Escrow got their pound of flesh, but in the end, I bid farewell to the property with a sigh of relief, because let’s talk about the joys of being a landlord.

Of course, I made money from the rent, but that wasn’t free. There’s an utter mountain of expenses: mortgages, insurance, repairs, and that didn’t count for anything if the place was vacant. On an average year, I was raking in about 32k against 25k in costs. Taxes, insurance, and interest— none of it was cheap, and you had to pay it before you’d see a dime back. That still may look like easy money, but also no bank was going to lend without me slapping down my own stack of cash too. So considering the cool $300,000 of my own money tied up in this venture, I earned a paltry 2.3% per year. Well, let me tell you, any old bond fund could’ve easily given me a 4% yield without all this bullshit. Talk about a disappointment.

So far, I’ve skipped over the absolute best part, even if you do build a real estate empire: managing tenants is still work. For all the hubbub about “retiring early,” congratulations, you played yourself. “Retiring” to manage a real estate portfolio is like retiring and becoming a pool lifeguard. In theory, you could just sit there and collect your money day-in-day-out, but in practice, some dumbass kid is going to repeatedly ruin your day.

Let me share a delightful anecdote. Picture this: a grown man decides to connect two rooms in his apartment, but instead of asking for permission like a civilized adult, he goes full Kool-Aid Man and punches a body-sized hole through the wall. Oh YEA! Being rather rotund, he made the opening just wide enough that he could slide through sideways. Anyway: there wasn’t a peep until he conveniently forgets to pay his rent one month. So off I go, summoning my best asshole landlord impression, whereupon I discovered the “condition” of the place. While he did (eventually) cough up the money, I later on evicted the gentleman, and he seemed genuinely confused why I would kick him out. Ah, the eternal mystery.

And before you consider outsourcing the chaos to a property management company, think again. There’s no such thing as a free lunch^[2], my friend. Those companies may promise to handle the headaches, but they want their cut too, same as you or anyone else. Sure, you can pay someone to handle the hassles, but those troublesome tenants are still out there, ready to soak up your profits. And let’s not forget the endless maintenance costs. A new coat of paint (inside and out), new shingles, new carpet, new appliances, new cabinets, new windows, new water heater, new AC, new new new: none of this stuff is cheap, and you end up paying for it one way or another.

So if you’re craving the thrill of navigating the ups and downs of rental property ownership, be ready for a wild ride. But hey, at least you might get some entertaining stories to tell at cocktail parties.

Yield Chasing^[3]

Generally, there are two contenders vying to be the chosen parking spots for your precious money: real estate and securities. Buying a whole business is just too much like real work, and I’m not in for that level of commitment since I want to… retire. If investing in buildings and properties doesn’t quite tickle your fancy, “Hey, let’s give this stock thing a shot!”; stick it all in the market and call it a day, right? Yes, but I still managed to screw that up.

When it came time to start socking away money in the stock market, I was utterly incompetent. With dreams of early retirement dancing in my head, I embarked on a mission to pick stocks that would aggressively throw off a consistent shower of income. My thinking being that if I wanted to replace my income with assets, I should take the biggest bang for my buck. I did know enough to avoid small companies, since there’s a whole buffet of large, seemingly indestructible corporations to choose from. Large companies like Seadrill^[4], an off-shore oil drilling, which ended up being one of my largest positions.

For a while, things seemed to be going splendidly. From 2010 to 2014, the stock gods smiled upon me. Net bookings increasing quarter over quarter. A fat and growing dividend. Life was good. But as they say, all good things must come to an end, and boy, did it ever.

One fateful day in late 2014, the dividend well ran dry. At the time, I thought this was a good move for the company: conserve cash during this temporary downturn in the industry and end up stronger on the other end. I also wasn’t complaining because the lack of a dividend meant the stock price crashed. Buying opportunity! Buy the dip! I loaded up on even more shares, believing that victory was just around the corner.

Fast forward to 2015, and reality started to sink in. I was thankfully aware enough to stop buying more shares in this sinking ship. My investment had taken quite a beating, around 60% was gone with the wind, but locking losses is for suckers, so I resolved to HODL to the bitter end.

I held on tight, convinced that the tides would turn, and the company would rise like a phoenix from the ashes— bringing my bank account along with it. Unfortunately, life isn’t a Hollywood movie, and in 2017, Seadrill declared bankruptcy (the first time), wiping out my position. And just like that, a large chunk of my early retirement dreams went down the drain. Whomp whomp.

And that, my friend, is how an early retirement rookie wasted years of savings. Remember, it’s not always all rainbows and unicorns out there. But chin up! We learn from our mistakes, and next time, we’ll approach the investing world with even more wisdom and get maybe a few more good laughs. After all, you can’t put a price tag on a good story, right?

Questions / Comments, feel free to reach out to TheFinancialIndependent@gmail.com. Cheers!