Financial Defense. ⚔️🛡️

Brock's newsletter | November 1, 2024

The one thing no one seems to tell you about being middle-aged and married with children is how crazy expensive life gets. And not just the piddly day-to-day stuff like groceries. You start getting huge bills: medical, school, travel, taxes, home renovation—all with commas, all with trailing zeros.

Ironically, this is when most of us start thinking about saving for retirement.

Confession: I never saved for retirement until five years ago, when we started a 401(k) plan through our Brock & Lori S-Corp. Lori & I both contribute the maximum each year, and the money is invested in a Vanguard Target-Date Index Fund (for 2045) at the advice of my man Ramit Sethi. But, like Social Security, it’s a backup plan. As real estate investors, our main plan has always been to retire on rental income.

But buying and owning real estate really, really drains cash, as anyone with a house can attest. It’s a truism that real estate investors are always broke. We made a video about it.

It’s short-term broke, sure, but as I’m turning 50 (next summer) with three small kids, it starts to feel needlessly risky.

I joke about Lori’s spending on clothes, but she’s pretty financially conservative. She likes money in the bank. I never got excited about saving, per se. Investing is what gets me excited.

Which is why, since I started buying rental real estate at 22, I’ve always gone broke (and into debt) to build my portfolio. Playing financial offense has served me well, mainly because I had the good fortune to pick a bunch of properties during a great era and in killer areas for real estate (Los Feliz/Silver Lake/Highland Park). The greater risk, as it turned out, would have been doing nothing at all.

But I’ve recently dialed up my financial defense plan. And the only kind of financial defense is cash in the bank.

When people face-plant financially, personally or in business, it’s always the same story - “if I just had a bit more money to hold on a tad longer, things would have worked out.” Kind of like Michael Jordan, who famously said, “I never lost a game…I only ran out of time.”

So, at 50, I’m now a saver. “Invest like an optimist, save like a pessimist” is the saying. My interpretation? Be optimistic about your big financial moves over time (your house will appreciate, and rents will go up). But be pessimistic about personal cash crunches and unforeseeable, massive expenses (health scares, acts of God, etc.).

Certainly, it’s easy to be optimistic these days, if you can just see through the pain of consumer inflation. How is this for a statistic? The S&P 500 (the stock index of the 500 largest publicly traded companies) is on track to have its biggest year in a century.

Another thing to be optimistic about is the 30-year mortgage, regardless of your rate. After cash, it’s the most potent form of financial defense. A mortgage locks your most significant expense (housing, which sucks up, on average, around 40% of your income) for the majority of your lifetime, until that house is paid off.

The closest thing renters have is rent control. But even limited to strict 5% annual increases, their rent will double over the same 30 years— twice! And without the benefit of home equity.

Investing in real estate while young is the greatest form of financial defense. Before you get hit with tuition and crickety old limbs requiring more robust health care.

But now that I have tuition and crickety old limbs, I am reluctantly putting money in “not real estate,” and I have to say, it feels good (and also makes for a good “proof of funds” when investing in my favorite asset class - apartment buildings).

Our Top Weekend Open House Picks

🔑 3541 Division St, Glassell Park - The newest project by 3C Homes, designed by Homework Collective, this renovated residence offers high design - Listed at $1,595,000 - Open Saturday & Sunday 1-3pm

🔑 2332 Claremont Ave, Los Feliz - A 1936 Traditional home situated on a spacious corner lot in the Franklin Hills - Listed at $1,499,000 - Open Saturday & Sunday 2-4pm

🔑 3672 Holboro, Los Feliz - A dreamy 1954 mid-century with a pool and stunning views in Los Feliz - Listed at $2,899,000 - Open Sunday 2-4pm