Choose the advice wisely...

We All Love Our Heroes

I was straightening up my office after having let it get messy for the last couple of years when I came across an unopened DVD. It was by a well known person who makes money in providing sound financial advice, yet it was dated 2011. I had come across it before so I thought that since I'd be spending a few hours on this task why not pop in the DVD?

Just to save time and space I’ll make this person a she, and call her Janey. Janey makes a living at teaching sound day to day financial advice – and I’ve always respected her – I really have. In fact I still do. The truth is 90% of her advice is sound in any decade: Save, minimize debt, live below your means, etc.

What she missed though was steering people clear of real estate in the (then) current real estate market. She said that so many houses were in foreclosure and that it doesn’t make sense to necessarily buy that first house. “You have far more supply than you do demand”…. Continuing “so, real estate isn’t going anywhere very quickly, at all…”  “Most likely, real estate is going to stay exactly where it is right now, and in some areas through-out the United States it’s actually going to continue to decrease, not increase”. Well, that was wrong – at least in the Dallas – Fort Worth area. Her further advice – if you want to own a home now is as good a time as ever (if you want a house for 5-10 years or more). If you can get a steal of a deal, go for it. – and take it if you have 20% to put down and a 8 month emergency fund.” To be fair, she seemed ok with getting a good deal on a house if you were planning on being there a lot of years. The problem was, the market turned up quickly in many cities and there was an opportunity to pick up good investment property.

Despite her excellent day to day financial advice the fact is that so many people she was describing couldn’t qualify for a loan, but still needed a place to live. So rental property investment should have been one of her leading investment options. You can't break down current financial climate in the same way you break down common financial sense (save, keep debt low, etc).  Being an expert in one area actually doesn't make you an expert in the other.

"Janey" mentioned how a FICO score could affect your ability to rent, that landlords will deny you with a FICO too low. Really?  Not so fast. Is she a landlord? Who is renting? Landlords of residential property don’t put much stock in FICO scores. Why? Because a low FICO score explains why they need your house. It’s not normally people who have the ability to purchase, it is people who can’t qualify to purchase – at least in the last 5 or so years. Smart landlords look at low FICO applicants as opportunity. They look for a track record - a low FICO could be a result of one bad mortgage - yet they earnestly pay everything they possibly can. These people can potentially take the best care of your property and offer several years of hassle free investment income.

Looking back, what was the best move? It depends on where you live and your financial situation. People make their money on doing the opposite of the herd, not the mood of the general consensus. Running for the hills means you will be stuck with everyone else.

...and they can do no wrong...

"Janey's" day to day financial advice is sound: Save, invest, spend without credit, budget, plan for retirement, healthcare planning, estate planning, etc. But, forecasting a specific market in the future is murky and dangerous, and if you followed her investment advice in 2011, more than likely it wasn’t the best investment decision.

I think, for me, the lesson here is stick to what you know. If you invest in real estate you should stick with it. It may mean you have times where you buy and times when you sell – but hard times should never dictate that you stop the business, only that you re-assess how you’re going to conduct it. 

This is a reminder (to me and you) that when taking advice, take it thankfully and graciously, but also cautiously. At the end of the day you and you alone benefit or suffer from what you do. Advice is cheap, regardless of who is selling it. By cheap I mean it's a lot cheaper than negative outcomes in most cases. "Make and Be" your positive outcome. Find successful people in areas of your interest and sign them up as your mentors - that's the best source of advice.