A Difficult Path To Poverty With JL Collins

“This morning I woke up.  I had a hot shower, ate a nice breakfast, and then I went to the gym and played racketball.  Afterward I picked up my phone and I called up my money.  I said money get your lazy bones out of bed and get to work for me.”  I am paraphrasing here but this is one of the more memorable gems from one of the early books that I read about real estate investing.  It still makes me want to throw up a little bit in my mouth whenever I repeat it.  

The real estate investing world is loaded with easy money narratives that tout the ability to make $50,000 in a month with only $10,000 down for example.  However, there is a flip side of this coin.

A Cautionary Tale From A Financial Independence Legend

My friend JL Collins is one of the more sagely people that I know in the financial independence (FI) community.  He wrote, A Simple Path To Wealth, which is almost an investing bible to many.  However, one of the interesting things that I appreciate about JL is that talking with him actually makes my own thoughts more organized.  This is why JL may be the perfect voice to share one of the most off the rails comedy / horror stories that I have ever read about real estate investing.  JL’s second book just went on sale this week: How I Lost Money In Real Estate Before It Was Fashionable.  It is an entertaining read that is loaded with lessons and illustrations as well. I am not being compensated in any way to review JL’s book but simply wanted to check it out.

A Sneak Peak

I had the pleasure of reading an advance copy of JL’s new book and I ended up reading it cover to cover in the same day.  I also provided the following review for the liner notes:

“When you invest in the stock market and it goes down, you take a loss. When you invest in real estate and it goes down, it can take you down with it. Packed with insights, JL Collins’ entertaining disaster story should be required reading to offset the easy-money narrative touted in so many real estate how-to books.”

If you or a friend are thinking of getting started in real estate investing, I recommend this book as a companion to a solid how to book on real estate investing.  My favorite when I started out was Investing in Real Estate by Gary Eldred. However, that may not be the most recent recommendation anymore.

Real Estate Advice From JL Collins

Without giving away any spoilers I’ll just say that JL hilariously shares the ins and outs of:

•  How leverage is not always your friend
• The sunk cost fallacy
• How greed and fear can affect your decision making
• Landlording
• The taxman
• What property developers may be doing behind the curtain.  

Do I Agree With JL Collins About Real Estate?

I have cumulatively made over a million dollars investing in real estate.  Does this mean that I disagree with Mr Collins and his own experience?   

F. Scott Fitzgerald famously wrote that:

“The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function.” 

I remember the housing bubble of the late 2000’s when people were telling me that to make money in real estate all you had to do was get into the market…and then the bubble popped.  I am not saying that we are in a bubble today but I hear some of those same sentiments.  Low interest rates and inflation are only driving home values up more.  At minimum, this is a real estate environment to be cautious in.  

When I started investing in real estate, I read over a dozen books and put together my own spreadsheet for analyzing properties based on several known methods.  I befriended a real estate investor here in Denver and ran lots and lots of prospects by him.  We toured houses together and I listened intently to his feedback and thoughts.  While I have been successful, how much of that was my actions versus luck or pervading market conditions? It is possible to understand and give merit to both truths and I believe that it helps me function better as a more seasoned investor.

My Cautionary Tale About Real Estate

We are all biased by our own experiences. I have interviewed those that have lost everything in real estate, and those that have rapidly made fortunes in real estate. While I have done well in real estate, I have also made huge mistakes, had nightmare tenants, and even had a house burn down. My truth about real estate is that it is like any other active investment in that you need to put in the work in order to be proficient at it. If you actually enjoy it or at least find real estate interesting, it makes things worlds easier. I personally try to question the hype and avoid leverage while learning. I made my first real estate investment like my first stock investment, without leverage using all cash. One of the things that sets humans apart from animals is our ability to learn from others in addition to using our own experiences. Who better than JL Collins to teach you from his misfortune so that you can better manage your own.

What do you think about real estate? Do you have your own success or ultimate fail story to share? I’d love to hear your thoughts in the comments below?

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