Have ever found yourself in a real estate scam and questioned your passion as a result?
I once went to a supposedly free seminar at a fancy hotel only to find that it was the intro to a series of expensive courses on real estate investment.
Our guest blogger, Jalpan, will discuss his experience with a real estate scam, an overpriced stock seminar and the investment lessons he has drawn from such experiences.
Jalpan is a personal finance blogger at Passive Income Engineering and an engineer by profession.
He loves using analogies to simplify and explain exact step-by-step investing strategies that generate cash flow and passive income.
His goal is to help make your money work hard for you.
Jalpan also writes about investor psychology and discusses why certain investment strategies work for some, but not for others.
You can watch over his shoulder and learn two of his strategies by getting his free course here.
Jalpan is currently based in Singapore.
Do you remember what you did during your summer holidays back when you were 13 years old?
I asked because for me, that summer back when I was a 13-year-old kid would completely change the trajectory of my life. Somebody gave my Dad a copy of the book “Rich Dad Poor Dad.”
As a 13-year-old, I thought the book looked pretty colorful. And it said that it would teach me “what the rich teach their kids about money that the poor and middle class don’t.” Somewhere, it also said that people who work hard in school and get good grades don’t always succeed financially.
As a hardworking Asian kid who always tried to make his parents proud by getting good grades, I was concerned. Was I working hard for nothing after all?
I decided to read the book cover to cover. It took my 13-year-old brain the entire summer to wrap itself around all the concepts like assets, liabilities, a steady paycheck and so on. But I made sure I finished the entire book.
And since then, all the key teachings of the book have been hardwired into my brain, especially that the rich don’t work for money – they invest their money and make it work for them instead. I set out to learn investing during my college days so that when I graduated and got my first paycheck, I would know exactly what to do.
Reality had other plans for me though.
The 90% decline in stock value
When I graduated, I quickly saved up $2,000 and invested it in a stock that I had researched. I put together all the fragments of my investment knowledge that I had picked up over the years.
Since I had read that the key to investing is “buying good businesses and holding them for the long term,” I just held on to the stock.
Over the next 3 years, however, I watched my stock decline 90%!
Though I checked on the stock every once in a while, I didn’t pay much attention to it. I had a lot of things to keep my mind occupied including a – year overseas training assignment in Houston, TX for work from 2013 to 2014.
During that 1 year, not only did I grow professionally, but I also experienced American culture (especially Southern), went sky diving, scuba diving and took a trip to Hawaii for a yoga festival.
But a year later, the fortunes quickly turned, and I watched helplessly as a lot of my friends and coworkers were laid off due to an industry downturn.
Though it didn’t affect me personally, it felt like a very real slap in the face to get back to reality. It was almost as if somebody had dragged me out of bed while I was asleep and banged my head on the wall for not taking investing seriously for a couple of years.
From that point on, I vowed to become a master at investing. I decided to pursue learning investing with the same aggression with which I went from being overweight to losing 40lbs and completing 2 marathons and 4 triathlons.
The drive to learn
As I started searching for information and knowledge about investing, I also started seeing relevant ads in my Facebook feeds. One of the ads was for a free seminar on real estate investing although it didn’t say where exactly they would teach you to invest.
I started to recall what I had read in Rich Dad Poor Dad – that Robert and his Rich Dad were both real estate investors. I was very excited and signed up immediately. It was free. What was there to lose?
At the free seminar, they taught some of the basics about real estate investing and went on to show some case studies of people who had invested in rental properties in the UK.
The premise of real estate investing as explained in the seminar and to the best of my memory was as follows (I pulled the numbers out of a hat just to explain the logic):
Let’s say there is a neighborhood where homes are selling for $200,000. However, one of the home owners needs to sell their house quickly to raise cash. The house is also not in the best of conditions. Due to these two factors, the home owner drops his/her asking price to just $100,000.
Leverage is often cited as one of the advantages of real estate investment (i.e. the fact that banks will loan you most of the money). Let’s say the bank is willing to loan you 80% of the $100,000 (i.e. $80,000). You can come up with the remaining $20,000 either from your savings or by borrowing from family and friends or getting a credit card that will give you an interest free loan for a certain time period, say 6 months.
With that, you buy the house for $100,000 and then quickly renovate it and bring it to the same condition as the neighboring houses.The banks and real estate agents will consider it to be of the same value as other houses in the neighborhood (i.e. $200,000).
You can then refinance the house you just bought and borrow 80% of the price of the house ($200,000 this time) which is $160,000. With this, you pay off the original $80,000 loan and keep the balance $80,000 for yourself. This $80,000 offsets the $20,000 you had originally put down towards the house and also pays for the renovation expenses. You probably have about $10,000 left after all that.
In other words, “you just got paid to buy a house.”
Now for the cash flow, let’s say you collect $1,300 in rent monthly, and your mortgage payment is $800 a month. That’s $500 in monthly cash flow.
And since you “got paid $10,000 to invest in this property,” you can now go invest in many more and build up your monthly cash flow.
Towards the end of the free seminar, they pitched a 3-day boot camp that cost $2,000 “only if you signed up on that day”. They also had ex-students in the back of the room as testimonials and social proof that their material worked. As part of the package, you could bring another person with you.
The seminar ended with the question “So do you have a plan for investing? Because if you don’t, your boss has one for you. And it involves working for the next 25 years.”
I thought a lot about the offer but felt a little uneasy. $2,000 was a lot of money.
So I decided to pass.
However, I reflected on what I learned there and I definitely saw the benefits on investing in real estate.
So I did what probably only a frugal Asian like me would do – go back to the same free seminar!
However, this time, I was quite likely to enroll.
Needless to say, it was the exact same presentation with the exact same “today only offer” of $2,000. But the moment I took the sign-up form in my hand, I hesitated.
I asked the lady behind the counter “I don’t have someone who will come with me yet.”
“What if I can’t make it on that day?”
To which she said something along the lines of “That’s just your mind stopping you from taking a bold step. You should sign up and figure out your partner later. If you are hesitating about $2,000, what will happen when you’re about to invest in a property worth over $100,000?”
That hit me hard. There was quite some truth in that statement. Gathering as much courage as I could, I quickly swiped my credit card and left before I could change my mind.
A few weeks later, a wonderful idea crossed my mind – why not bring my Dad along with me to the 3-day boot camp? After all, he has experience investing in real estate back in India. He’ll be a good person to consult on decisions.
So I brought my Dad along to the same free seminar to which it would be my third visit. Yes, you can go ahead and laugh hard. I know I made your day.
Three hours later, I regretted bringing my Dad to that seminar.
“You paid $2,000 to these scammers?!?! Did I raise you that badly? The only time we’ve spent that much money was for your college education. How can you not see that they’re just trying to make money off of you?
Real estate is only for people with deep pockets. You sign up for their course, and all they’ll do is try and get you to use their services to invest in the UK and up-sell you something else. I’m a marketing professional, and I know how some of these people work. These strategies won’t work in Singapore where homes are so much more expensive.
Are you really stupid enough to think you can buy a house with a credit card? Do you know that credit cards charge obscene amounts of interest? I’ve bought two properties, and I know about real estate investing. You need a lot of money to get into it. There is no such thing as getting paid to buy a property.
And what if you can’t find a tenant for a few months? How will you service the mortgage? Would you like it if the bank repossessed your house, and you went bankrupt because you can’t pay the loan? Idiot.”
It was the outbreak of war and it was time for me to counter-strike!
I replied, “I don’t want to wait 20 years before being able to afford a property. You took so long exactly because you didn’t invest in yourself beyond your college education. If you did, you’d be much further along right now.
With the right education, you will know how to find the right property so that you always have tenants. With the right tax structures and corporate structures in place, you don’t have to worry about servicing the loan because it’s against your company and not against you personally.”
Though I cannot recall the exact arguments after that, I do remember we argued well into the night with neither of us backing down.
By the next day, I had given up on trying to convince my Dad to come along with me. And since none of my friends are the kind who would invest in themselves and attend courses, I decided that I’d just go alone.
On Friday, 16th of October 2015, 25-year-old me went to this boot camp all by myself and joined 8 other couples who were probably in their late thirties at least.
We began with introductions and a group exercise, and everybody recognized me as the guy who participated the most.
The real estate scam
And then came 17th of October. Coincidentally – my Mom’s birthday. The day began by discussing about comparing the median home price in a country with the median income. If home prices are say 3 or 4 times the median income, then homes are much more affordable. There is more room for growth in home prices, which means you can sell your investment property for a profit more easily.
The presenter at the boot camp told us how the UK has one of the more affordable housing markets in the world and hence more room for growth. I thought to myself, “Uh oh, this sounds eerily similar to what my Dad had warned me about.”
They introduced to us our gateway to financial success and prosperity – investing in the UK property market through their mentoring program.
For the basic package that is. Which would consist of your “power team” including a sourcing agent to find you deals, an accountant and a mentor to help you evaluate a deal.
They also had other packages for $60,000 and $80,000, but I don’t remember what was in them since I was too busy feeling like this:
Half an hour later when my anger levels had dropped by 0.4%, I could see a brilliant white light from which my Dad appeared and said “this is what you get for not listening to your parents.”
$40,000 was completely out of the question.
The expensive stock seminar
On the bus home, I berated myself for being such a stupid and useless buffoon. I graduated top of my class in high school and went on exchange programs in university. But I was useless when it came to anything practical, wasn’t I?
Despite the setback, my resolve to learn investing and build passive streams of income only grew.
I spent the next several weeks wondering what my next move should be. Was Dad right after all? Is property only for people who are mega rich already?
I stepped up my efforts and spent several months attending free trainings and seminars on investing in the stock market in the evenings straight after work which would mean that I would leave home at 6am in the morning and return at 11:30pm at night.
For 4 months straight.
I learned everything from PE ratios, REITs, dividend stocks, growth stocks, technical analysis, fundamental analysis, options, and asset allocation.
I even read the book “Stock Market Cash Flow” by Andy Tanner who is on Robert Kiyosaki’s team.
However, I couldn’t find a cohesive, holistic strategy for generating cash flow from investing in stocks. My Dad and Uncle kept telling me not to go to seminars and to “stop reading all these useless books.”
My friends would never attend anything or read any book and would ask me to go to the movies instead.
But then at the seminars, they’d ask “How are all your family and friends who are giving you advice doing? How many cash flow streams have they built and how much are they making?”
To which I would simply stare at their face since you and I both know the answer to that question.
It was a big dilemma – who was right and who was wrong?
One day, in one of the free seminars I was attending, the speaker talked about the difference in the ability to generate cash flow depending on the country you invest in.
And in some countries such as USA, UK, Canada, Australia and India amongst others, you can generate much more cash flow. This is also what I had read in the book “Stock Market Cash Flow.”
One thing I noticed was that unlike the free property investing seminar, the presenter here didn’t host it in a lavish hotel or give out shiny USB sticks and DVDs as gifts for attending. His gift for attending was an application form to open an account at a brokerage firm – something you could get yourself from the firm’s offices.
“Obviously he is not very good at selling so he must be genuine in his teaching,” I thought to myself.
After several days of pondering and mulling over the offer, I decided to bite the bullet and invest in his coaching program for which I invested $2,500 and would learn how to invest and generate cash flow from my stock market investments by investing in the US markets.
Whilst I learned a great deal from it, the course put quite a lot of emphasis on picking stocks by learning about individual companies, reading their financial statements and so on.
Though I could understand it and do it, it was quite time consuming and came with risks. And most importantly, there weren’t that many firms that I was really interested in knowing about in that much detail.
It felt deflating to be in yet another course where not everything was to my liking. I thought to myself, “I’m just going to have to keep going and figuring it out.”
I researched more about index funds such as the S&P 500 index (a collection of about 500 of USA’s biggest and best companies) and found that in fact they outperform even professional money managers.
I decided that it would be cool if I could apply the cashflow strategies I learned in my boot camp using these index funds. That way, I don’t need to spend hours researching all these companies and achieve my goals in less time.
I started testing things out on a TD Ameritrade’s simulator called paperMoney® so that if I do something wrong, I don’t lose money. Since I was careful to only use strategies with a high probability of success, all my practice investments made money as shown below!
That gave me the confidence to start investing my real money. I started small and made my first $53 in a month with a capital of just $1,500 – a 3.3% monthly return.
With confidence, I slowly ramped it up to $98. That required a sum of $3,200 to invest with.
With increased confidence, I snowballed my portfolio and invested $8,500, which made me $215 for the month.
Until then, I was spending about 30 minutes a month and making monthly cashflow. I was now ready to be a little sophisticated and with one investment which was 6 months’ worth of my income. This made me over a $1,000 with a capital of $8,000.
My most audacious investment was when I put $10,000 towards a single investment and in a month made $300 for it (a 3% return).
I dreamed to myself how cool it would be if I could put an extra zero behind both those numbers – a dream I am on track to hit by the end of the year 2017.
And then I cried.
After almost a year of struggle and several thousands of dollars invested in my education, I finally had become proficient at one stream of income besides my job – investing in the stock market. Or as Robert Kiyosaki calls it – paper assets.
Because I had the fastest start and the best results of anyone who took the coaching program at the same time as me I was called on stage to receive an award from Mary Buffett (ex daughter in law of Warren Buffett) when she was being hosted by my mentor’s mentor.
It was and still is one of the proudest moments of my life. It convinced me that as long as I persevere, I will achieve whatever I set out to achieve, and you can too.
Real state or stocks?
So what do I think about real estate vs stocks?
Obviously, I’m biased based on my experience and can keep listing a whole bunch of benefits of investing in the stock market as opposed to real estate:
— You can start with a small sum and scale from there.
— You can set up alerts so that you are notified of opportunities as opposed to real estate where you have to be scouting for deals and sometimes tenants.
— You don’t have to “look after” your investment.
— You can get out quickly at the press of a button if you make a mistake.
Which asset to invest in?
As Robert Kiyosaki explains in this video, there are 4 assets that can generate income for you:
— Paper assets – basically the stock market
— Real estate
— Commodities – owning oil wells, mines, etc.
I’ll be honest – I haven’t got a single clue about commodities, so I’ll leave that out of the equation.
Out of the remaining ones, each have their pros and cons.
With a business, you create something new. You get to share your unique gifts and talents with the world. However, to generate a sizable income from it, a lot of things have to fall into place – you need an idea, you need a product, you need to find customers on a regular basis, you may need to build a team, you may need to raise funds and so on.
With real estate, banks will lend you a good chunk of money. A single property could therefore give you sizeable cashflow. But you need to know what you are doing – the price of making a mistake could be foreclosure and a huge financial loss.
With stocks, you can start small and even practice on a simulator before risking any real money. All you need to do is follow a strategy. However, your returns will depend on how much money you put up. And that money has to come from your savings. Banks will not lend you money to invest in the stock market.
There is no right or wrong answer. That’s why one of my crazy goals is to build a stream of income from all of the four sources above, including real estate. Even though my first real estate course was a nightmare, I’m sure there are legitimate ones out there.
One course on my radar is by financial blogger and podcast host Paula Pant who is launching a course soon. I’ve enjoyed her blog and book. After building up my own blog, I would definitely consider learning real estate investing from her.
I’ve never put a timeline on this goal, but I’ve heard that publicly declaring your goals make you much more likely to achieve them.
So here goes – I’ll do it by the time I’m 35 (i.e.) by 2025.
Yikes! I said it!
And if you’d like to follow my journey and get some of my strategies completely free, feel free to subscribe to my blog.
I look forward to connecting with you!
What was your triggering event that made you serious about money and want to invest? Have you ever invested in a course or seminar only to be grossly disappointed? What did you learn from it?