Published on February 23rd, 2015 | by Ben Sands0
The priceless lesson I learned losing $250,000
By Ben Sands – for the latest posts delivered direct to your Inbox, click here
I love to tell stories.
I love funny stories. I love ‘strange-but-true’ stories.
And I really love stories that inspire.
That said, I am about to tell a story that I don’t like at all.
You may laugh, but only cynically, at my ignorance, naivete, laziness and regret. I can’t say it’ll leave you inspired, but I do hope it will leave you motivated – committed to avoiding a similar mistake in your own life.
And that’s why I need to tell it. So here goes…
THE STORY I DON’T WANT TO TELL
As a bartender in Aspen (CO) in my early 20’s, I saw a lot of “crazy” stuff.
By “crazy” I mean the time when a famous pop star showed up at my bar at the luxurious St. Regis Hotel dressed only in a full length fur coat and white string bikini.
By “crazy” I mean the time when the security chief of a famous foreign minister came in and picked up the tab FOR THE ENTIRE BAR to ensure that everyone would leave and the visiting dignitary could have the place to himself.
That’s the kind of “crazy” I saw a lot of.
But when it comes to crazy, nothing could compare to what was happening in the local real estate market at the time.
GET RICH, QUICK?
I lived in Aspen from 2001 to 2005 and, during that time, I knew a lot of people who made a lot of money “flipping” real estate (i.e. buying a property, renovating it and quickly re-selling at a much higher price).
At the time, I was approximately three years into my self-guided “Personal Finance Post-Grad.” I had begun the self-study after realizing that my lack of money know-how was holding me back from a life I truly loved.
As a result, I spent much of my free time reading, watching and listening to personal finance experts who taught me more about how money works and why it matters.
It got so bad (or good, as far as I was concerned) that I would get a regular laugh from the Aspen Mountain gondola operators as I would climb aboard in the morning with my skis in one hand and a copy of the day’s Wall Street Journal in the other.
I didn’t care. I loved the learning..and both my personal financial acumen, and confidence, grew rapidly.
My education continued at night behind the bar at The St. Regis. I frequently took the opportunity to ask my bar patrons, hotel guests paying $1,000+/night and $20/martini – about money. Specifically, I’d ask them about their “favorite” lessons learned, best practices and predictions for the future.
Most of the time the patrons were only too happy to offer advice and perspective. One of the hotel guests jokingly called me “the Charlie Rose of bartenders.”
One day a couple from North Carolina came in to the bar. We started talking and, despite my Duke connection (they happened to be die-hard Carolina Tarheel fans), we really hit it off.
When they learned that I taught skiing during the day, they booked me for a lesson. We had a great day on the mountain and followed it up with dinner that night (this time eating with them, as opposed to waiting on them).
Long story short: I really liked these people.
They were kind, fun and generous. They also seemed to be successful in the way that I wanted to be successful: a strong marriage, beautiful children, financially successful entrepreneurs.
CHOOSE YOUR MONEY MENTORS WISELY
After my new friends left Aspen, we continued to stay in touch. We would email and I would occasionally meet up with them when I was back on the East Coast.
When we first met in Colorado, they were running a series of successful small businesses. At the same time they, like many others, were getting into the business of buying and selling real estate.
Their real estate investment portfolio became so profitable that they eventually decided to sell their other businesses and focus on that entirely.
Curious, I peppered them with questions about what they were doing and why. One day, given my obvious interest and energy for real estate, they invited me to join them in a deal.
It was a property in an “up-and-coming” beach community just north of Hilton Head, SC. I hadn’t ever been there and when I saw pictures of the home, frankly, I wasn’t overly impressed.
And yet…the energy and enthusiasm of my friends was infectious. Despite my reservations, I really liked these people and trusted their judgment.
So, I ignored my instinct and joined the deal anyway.
THIS COULD HAVE BEEN A HAPPY STORY, BUT IT’S NOT
This story could have been an amazing one.
A happy tale of a chance meeting and between a willing mentor and an earnest understudy that creates both wealth and fulfillment for all involved.
It could have been that story. My friends had successfully done this type of deal many, many times before.
This could have been a story that I would have loved to tell.
But it’s not.
As luck would have it, we closed on the property in mid-2006…just months before the housing market was to come crashing down.
So, instead of a happy ending, it was a tragic one.
The damage, in a nutshell: Over the course of the next five years, I carried a ~$5,000+/month mortgage payment on the property plus another $500 for general care and maintenance (there was a pool, of course).
While I made some money back renting the property out, it cost me roughly $50,000/year to own it.
According to my accountant I lost a total of $250,000 before I was finally able to unload it.
THE UPSIDE OF LOSING $250,000
Seriously, there is an upside to this story.
In the end, I paid a quarter million dollars to to discover a huge and critical blind spot in my personal financial education.
Specifically I paid $250,000 to learn this hugely valuable lesson about how money: Personal financial success is 80% mental.
Prior to that extremely poor investment decision, I had spent hours learning how to calculate “cap rates,” “intrinsic value” and “cash-on-cash” return, but had not learned anything about (or was even aware of!) the emotions and beliefs that were guiding my financial decision-making.
In their book “Switch: How To Change Things When Change Is Hard,” authors Chip and Dan Heath describe how our emotional brain, can quickly overwhelm our rational brain. The analogy that they use is that of an “Elephant” and it’s “Rider.”
For the most part the Rider is in control of the Elephant but, every once in a while, the Elephant will take charge and the Rider is left just trying to hold on.
That’s the best way I can describe what happened to me.
My “Rider,” my rational brain, knew that the property wasn’t a good investment, but my “Elephant,” the emotions of connection, confidence and trust I felt for my friends, prevailed.
To be clear, I am not blaming my friends – they suffered even worse than I did.
I am, however, blaming my ignorance.
At the time, I didn’t even know that I had an “Elephant.” Today, I prioritize knowing everything I can about it.
I have become intimately familiar with my “money mindset” – the beliefs that guide my money decisions – and have created a system of checks and balances to ensure that I don’t do anything rash, or irrational, that could (once again) put my financial freedom in jeopardy.
The “Pareto Principle” states that 80% of an outcome is determined by 20% of the causes. When it comes to money, 80% of your success is determined by your underlying beliefs and values about money.
While I wouldn’t mind having an extra $250,000 right now, I am grateful that I learned the impact of emotion on decision-making when I did.
This (very expensive) lesson learned has led me to make far better choices with my money, my career and my relationships. As a direct result of that awful decision, today I wake up every day energized and excited by the life I live and the work I do.
And that’s something that no amount of money can buy.
FREE E-BOOK: REGRET-FREE PERSONAL FINANCE
Money mastery is so important to me that I compiled all of my favorite best practices and “lessons learned” in a short e-book called “Regret Free Personal Finance.” It’s a fast read with a series of intuitive, practical, actionable steps you can take to create the bulletproof financial system that will serve as a foundation for the life you love. Download it free here.