Our Story and
My “Aha” Moment
Several years ago, I finally realized that almost everything I have been taught about finances and being successful was wrong! A very disheartening discovery to say the least, especially for someone who graduated from dental school way back in 1984. Like many of you, I was taught from an early age to work hard, make good grades, and get into a respectable college and a good job with benefits would be my reward. Those habits continued through dental school and into my orthodontic residency. Through hard work and sheer determination, I was able to build a successful orthodontic practice which has provided for a very comfortable life for me and my family. I was also taught to live on less than I make, save my money and get out of debt which I faithfully did. These disciplines can create a life of security, but they can’t provide freedom, and in the end, that’s what most of us want . . . freedom! Do you have enough money to retire? How much is enough? Do you have a plan? More importantly, do you have a date? These are the questions most of us start asking toward the end of our careers. Of course, the time to ask these questions is at the beginning!
Unfortunately, most of us rely on financial advisors who have had surprisingly little investment education and simply “plug” your financial details into a “proprietary” formula and out comes your customized plan, which looks eerily similar to most of our colleagues plans except for the numbers. Sadly, regardless of the performance of your plan, these financial advisors collect fees and commissions every month. Ask me how I know! Years ago, I determined that I could do just as well in the stock market as the advisors to whom I had paid all of those fees and commissions for so many years. To be honest, I was even a little better, especially these last few years. Then I discovered the concept of passive income, where your money works for you. I immediately called my “broker” and asked about the amount of passive income that my stock portfolio was creating. Now mind you, I was only investing in blue-chip stocks that paid a quarterly dividend. As I mentioned, I had done quite well recently so imagine my shock when the amount of passive income that my portfolio was generating in the last twelve months was enough to cover our expenses and fund our lifestyle for about ONE month! OMG! The financial wake up call jolted me into action and I immediately purposed to find a better way.
A Change in Mindset
Ever since I was a kid, I’ve hated reading. But, as an adult, I have discovered that most of the successful people that I have met are voracious readers. So, like they say, “when in Rome!” One of the first financial books that I read was “Rich Dad Poor Dad” by Robert Kiyosaki. This is a must read for anyone seeking to change the way they think about finances. The biggest takeaway for me was that the Rich don’t work for money, they acquire assets that make money for them. This is known as passive income and is the key to building wealth.
For most of us, we must be in our practice seeing patients in order to generate income. This is what Kiyosaki calls trading time for dollars. Few of us can be away from the office for more than two weeks before the bottom line starts to suffer. This is the medical version of “Golden Handcuffs” as we’re paid well, but we must be in the office to make money. Some of us have partners or associates who can cover for emergencies and lessen the financial deficit somewhat. However, the bottom line is that we must work to make money. As the economy tightens and insurance companies reimburse less and less each year, we’re trading more time for fewer dollars. It’s easy to feel like the proverbial hamster on the wheel. It can seem as if there is no hope!
Income vs Wealth
Another concept that Kiyosaki introduced is the Cashflow Quadrant which qualifies the four ways that people make money. In the “Employee” quadrant, you have a job. Highly compensated people can be included in this category which usually also includes good benefits. In the “Self-Employment” quadrant, you actually own a job. Both quadrants on the left side of the diagram offer security but an employee must work to earn income, trading time for dollars. The third quadrant is the Business Owner (greater than 500 employees by definition). In this quadrant, you own a system and other people make money for you. The Investor is the final quadrant where your money works for you. In both of the right-side quadrants, wealth is created by passive income. Since it is not necessary for you to be actively working in the business, you have the freedom and the income to go where ever you want and do what ever you want to do, now that’s true freedom!
So, the key to creating passive income and wealth which leads to financial freedom is to acquire assets that can generate income. The asset that I’ve found to be the most effective in so many ways is real estate.
I poured most of my energy into building my practice and raising two boys with my wife. My efforts paid off and we were able to pay off all of our debts and increase our savings.
Since I owned a good job and my wife and I were disciplined enough to live on less than what we earned, we were able to save a substantial amount of money. After understanding the importance and the urgency of building wealth, I immediately joined a real estate investing group. Immediately after I joined the group, I bought several single-family rental houses and made several hard money loans to a few trusted real estate developers. And for a while I was feeling pretty good about our progress toward wealth building. That is, until I started getting phone calls asking for more money. All of the rental houses that we purchased required significant renovation before they would be ready to rent. I got a phone call from one developer saying he needed another $18,000 more for the rehab and another developer would call saying that he needed the next $15,000 for yet another rehab. To be honest, I had no way of knowing if that was the right amount or not. And because I trusted them, I just wrote the check. But in reality, they could have ended up charging me more than we had agreed to and I wouldn’t have known it until well after the deal was completed and my accountant had looked over the numbers at tax time.
As a matter of fact, with one of my houses I found out after the fact it was $8,000 over budget because the developer had actually put new windows in the house without telling me. Now while I probably would have approved that upgrade, I didn’t know about it until long after the house was rented. I know that I’m making excuses, but running a busy orthodontic practice and keeping up with all of my real estate investments was becoming overwhelming. It definitely would have been better if I had been involved with a conversation about the decision to upgrade the windows. If I had been able to easily find out what the budget was and how much money I’d already given them, I would have immediately known that we were “over budget” which would have prompted questions about the reason why the developer was still asking for more money and I would’ve have known about the windows. But you know, I was busy and I didn’t have time to stop what I was doing to find out if the amount the developer was asking for was in budget. So, I just wrote the check, not a good way to run a real estate investing business to say the least! At the same time, I got an email informing me that a particular lending deal was closing on Monday the fifth and wanted me to verify the payoff amount. I would have loved to have answered that right away. But it wasn’t that simple. As a matter of fact, it was rather complicated.
First, I had to go find the original documents, including the promissory note that outline the details of the hard money loan, to find out what the interest rate was and the amount of the loan was and if there were any points included or any shared equity from the sale of the investment property. Then, I had to calculate my monthly and daily earnings and the length of the loan period to determine the amount of money that was owed to me. After that, I had to go back and find the account that coincided with this particular loan and then total up all the incoming monthly payments that I had received. Once that was done, I had to subtract that amount from the anticipated total income from the loan to get a payoff amount! Whew!!
Well, you can imagine in the middle of a busy day that the process took several hours for me to get the information together. And you can imagine how frustrated I was feeling. This didn’t feel like passive income at all! So I started asking my real estate investing friends how they were able to keep track of all of their real estate investments? Shockingly, a couple of my friends said me that they weren’t really keeping up with their portfolio. Then other friends reported using spreadsheets. But one was using a spreadsheet that his brother designed and another was using a spreadsheet that an investor friend had given him. Of course, none of them were the same. And so I became very frustrated and disillusioned with the chaotic way that people were tracking their investments. Interestingly, most investors that I encounter at various real estate groups can’t tell you what the return on their investment is for any of their properties!
So, I started looking on-line for software solutions to address my problem in managing my growing real estate portfolio. I was amazed to find that there really isn’t much out there other than someone’s favorite spread sheet. I then asked my son, who is a skilled computer programmer, if he would make a spread sheet for my investments. He asked me about the things that I wanted to accomplish and when I answered him, he informed me that I need much more than a spreadsheet could provide. He told me that in order to provide all of the functionality that I wanted in managing my portfolio, I would need a web-based application. Initially, when we started to developing the app, we thought it was going to be easy, but the more questions I answered and the more information that I gave him, we quickly realized this was going to be a much more complex and time intensive solution than we had anticipated. So, we decided right then and there that we would not only help solve my problems with real estate investing, but we would be on a mission to help other frustrated and confused real estate investors as well. Our goal would be to put the “Passive” back in passive income because it has become clear to me that most real estate investors have no idea what their numbers are! And that became the impetus for developing our interactive, real-time real estate portfolio management software called RealNumberztm. When we first started, I mapped out all of the features and functionality necessary to accurately and passively manage the complexities of a real estate investment portfolio. Through our collaboration, we have been able to create an amazing software tool! As so many real estate investors have commented, “there’s nothing out there like RealNumberz”! This comprehensive real estate portfolio management software not only stores all of the necessary documents and contacts in one place, but an investor is able to track the performance of their entire portfolio as well as asset classes and even individual assets on their smartphone or desktop. And that’s just the beginning! An automated alert system will inform a user when a rent is overdue or when real estate taxes need to be paid and so much more!
RealNumberz gives real estate investors an assurance not possible with a spread sheet and with much less effort. With RealNumberz, a real estate investor will have the confidence that comes with KNOWING their numbers and the FREEDOM every investor seeks through truly passive income!