One of the most asked for podcasts has been on the financing side of real estate investing: do we need to be employed in order to get a commercial real estate loan? Does our credit score matter? How long are these loans for? Are the interest rates the same as residential loan rates? What does the downpayment look like? What are the risks, loan options, etc? We will have a series of interviews coming up with commercial lenders to discuss the financing side of things in order to clarify some of these questions for you. Before that, I thought it would be appropriate to discuss personal finances first, in order to make sure we are all starting this journey together on the right foot.
First, I want to give you a little background on why there’s a little voice in my head telling me to talk about personal finances with you
Three months ago, I was introduced to one of the most beautiful and generous souls that I have ever met. This person is a very experienced and successful real estate investor here in Silicon Valley, and about 7 years ago he decided to give back to the community by hosting around 25 people at his house, twice a week, and teaching them about real estate investing. He is so committed to educating people that he does this even on the holidays, believer it or not, he hosted people on the evening of the 4th of July. And no, there are no catches, it is 100% free to anyone who wants to learn, and no he doesn’t get anything from it, trust me, he could spend all this time making a lot of money in real estate investing, if he wanted to.
What he says is that when you get to the level of being financially independent, you get a chance to give back, and that by giving back in this way, the entire community thrives, and I think that is so beautiful! I have been at his house about three times so far, and when you are a first time guest, he gives you a book, and this time around we are studying a book called “Cashflow Quadrant” by Robert Kiyosaki, he’s the author of the famous book “Rich Dad Poor Dad”. When we arrive at his house, and before we get into studying the book, he talks about debt, student loan debt, credit card debt, car loan debt, and a few other things. Things that, by design, we don’t learn in school, and that’s why some people in our society don’t know how to manage their finances. Everytime that I have been there, I was in shock to see with my own eyes, people of all walks of life, from starving artists, to highly successful entrepreneurs, to Harvard/MIT graduates, and even early bitcoin buyers, a lot of these people shared that they have credit card debt, and that they’re paying 26% interest in that credit card debt. One time, a doctor said that she has $250k in student loans at 6-8% interest, another person had a car loan at 15% interest rate. I also saw people that work in technology realize that in two months they will run out of money, because their credit card debt is growing every month and soon their expenses will be higher than their income. All of this was completely foreign to me, I was in shock to see how many people are in that situation, probably because of the way I was raised, and because of the way that we did things in Brazil. At least by the time I left, our culture was that you just don’t spend more than what you make. You pay off your credit card in full every single month. I knew some people had credit card debt, but I had no idea that it was to this extend, and at those rates, and that this is a common trend even amongst highly educated people.
Now I’ll start by sharing with you what you can do to improve your personal finances, so that starting next week we will have great guests talking about commercial real estate lending.
Top 8 Tips for Improving Your Personal Finances
- If you have credit card debt, and you have an interest rate that is anything higher than 0%, fear not, you are not alone as we just found out! Call your credit card company and ask for a 0% interest rate. They will likely say no, and then you just open a credit card with Citi Double Cash, and transfer this debt to that new card, you will get 0% interest for 1.5 yrs, that will give you enough time to pay off your existing debt without it growing every month.
- On that same note, if you have, let’s say $5,000 in credit card debt, and you are paying 20% interest in that debt, and you have $10,000 in your savings account, you should pay off that debt with your savings, so your credit card balance stops increasing by $1,000 per year. After you pay off your credit card debt, another benefit of this “Citi Double Cash” card is that you get 2% cash back on all of your purchases, which is the best deal I have found so far. I’m not a fan of the airline miles credit cards because I think that, in the end, getting 2% cash back ends up being more money than the miles I’d get. Another thing that I recently heard was someone telling me that they open airlines miles cards to pay for their trips to Europe, because you get something like 50k miles or 100k miles when you sign up, this might ding your credit score for a little bit, but you get free trips out of it. Just make sure that you don’t spend a lot of money on your trips and get more in debt!
- If you have a student loan, make sure you are getting the lowest interest rate as possible. If you have multiple loans, make sure to consolidate all of them into one very low interest rate loan: https://studentloanhero.com/featured/5-banks-to-refinance-your-student-loans/
- If you have a checking account that is paying you 1 penny per month, you can open an account with Wealthfront, they are a company that is paying the highest rat that I could find, 2.32% today and they offer up to $1M in FDIC insurance (unlike the other banks that offer a maximum of 250k FDIC insurance). I know someone that works there and they told me that they’re able to give $1M FDIC insurance because they break the balance down with different institutions, for example, they’ll put $250k with Bank of America, $250k with Wells Fargo, etc.
- Watch out your expenses! If you buy Starbucks everyday, you might want to buy a coffee machine and do it at home, I never understood why people pay $3-5 for coffee every day when they can make coffee at home. It was only after I had a really good job after my 30’s, that I started buying myself lattes, and on the weekends only!
- If you have things in a self storage facility, and if you’re paying $80-100/month, do the math! That’s $1200/year – are the things inside the facility worth that much? As I am looking at investing in self storage facilities, I have people telling me “Oh, I have one for the last 6 yrs”, “I have one for the last 10 yrs and the things inside are definitely not worth what I’ paying for it”, and most recently someone told me “You’re not going to believe how much I spend on self storage every month…. $1,000!” – that’s $12k/year! Sell everything that’s inside that storage, or donate, and you will end up saving money.
- Negotiate! I have been looking at doing eye surgery, after going to the best doctors in my area, they told me it was going to cost $5k, I then asked what’s the best price I can get, one of them told me $4,800, and then I said, “Is there anything else you can give me?”, he said “$4,600, and I’m glad you asked, because nobody asks!”. Another example, someone I know got a notification that their rent was going to be increased by $200/month, since this wasn’t a bad increase that person said “ok”, but later that day, their significant other said “But you didn’t even try to ask them to not increase the rent?”. So then my friend went back to the landlord and asked for them to please not increase it, and they got the deal! That’s $2,400 saved per year right there!
If this is overwhelming for you, if you feel like it’s too many things to do, there’s a little hack that I learned: do one thing for five minutes each day. Today, start by changing your credit card, tomorrow, open the Wealthfront account and get the 2.32% interest on your checking account, the next day, buy a coffee machine (this is a great coffee machine because the carafe is stainless steel and won’t break – also – do your research, Amazon isn’t always the cheapest! This machine is $10 more expensive at Amazon).
Here are all the links in one place:
- Credit card: https://www.citi.com/credit-cards/credit-card-details/citi.action?ID=citi-double-cash-credit-card
- Consolidate student debt, and get lowest interest rate: https://studentloanhero.com/featured/5-banks-to-refinance-your-student-loans/
- 2.32% cash account: https://www.wealthfront.com/cash
- Great coffee machine: https://www.mrcoffee.com/coffee-makers/mr.-coffee-advanced-brew-5-cup-programmable-coffee-maker/JWX-5cup-Master.html?dwvar_JWX-5cup-Master_Carafe%20Color=Chrome