296: How to raise good kids and protecting yourself from real estate bankruptcy

On Parenting

I’ve been thinking a lot lately about how to raise good kids, with the arrival of my newborn daughter. As you get wealthy, this question really weighs on you. There are so many questions about how to make the right decisions to shape the right kids, and parenting is a huge responsibility.

I’ve met a lot of folks from families with generational wealth; they enjoy private airline travel and run businesses making $100M+ in revenue. And frankly, a lot of the people I meet are soft. They don’t add much value to the world but act like they’re better than the people around them. Other people I meet are tough, competent, strong, and humble, and add value to the world. So what’s the key to raising strong kids when money makes things simpler?

My fear is raising soft kids that look down on other people and don’t know how to suffer with grace. Life is never easy–it’s hard for rich people, poor people, and everybody. The worst people can’t suffer; they chew out servers at restaurants and throw fits over contractors or service workers making small mistakes. They need to learn to deal with pain.

I have one friend from a wealthy family with an ultrahigh net worth. He’s a badass, totally confident, humble, and a hard worker. His dad used to say to him “We are not rich, I am rich”. He knew that he had to find his own way to maintain what his parents had worked hard to get.

I think soft people have always been protected from pain. They’ve never been held accountable and always been bailed out. If a problem shows up, their parents step in to solve it for them. if they make a mistake, they’re shielded from the consequences. When they’re finally out on their own, they have a hard life, because they’ve never been taught how to deal with pain and were never held accountable for their actions.

Those who win embrace failures. Their parents won’t stick up for them to get them out of trouble, bail them out, or write their essays. They’re raised to embrace the struggle, pain, and failures.

Emotional stability is a huge part of this. So many people grow up in dysfunctional families. If their parents disrespect them or make irrational decisions, that impacts the child’s trajectory. My dad was a rock, he could always be depended on, despite not growing up in a great environment. Now all three of his children are great people who are working hard and enjoying life.

It’s stressful being a dad. There are no decisions, there’s no guidebook. I’m going to be affectionate and loving, but also stern and slow to bail them out. I enjoy seeing my kids experience challenges because it’s going to make them stronger. I’ll try to educate them and talk to them about what mistakes can and should be avoided, but I can’t protect them from everything. They need to deal with their decisions.

On Cash and Risk in Real Estate

People online talk about how being cash poor is part of being a real estate investor. They say that if you don’t have cash, that means you’ve invested it in real estate, and that’s a good thing. I think that’s terrible advice.

When you have no cash, a surprise expense or market drop can make you go bankrupt if you’re forced to sell at the wrong time. The only way to lose the game of real estate is to be forced to sell at the wrong time, and it happened a ton in 2008. I’m doing everything I can to avoid that; I keep cash on hand for the business as an emergency fund, I use less leverage in tougher environments, and I have high capital reserves put away for each deal.

On the other hand, you do need to take risks. The more successful and wealthy a person gets, the less risk they’re willing to take. But at the same time, they forget how much risk they took at the beginning to get rich. They advise people to avoid risk at all costs, ignoring how they initially made their money.

As I build momentum and gain capital, I’m willing to take on less risk. But I started out with $500K and no knowledge, and our first deal was extremely risky; we put in our own money, raised capital from friends and family, and built a facility from the ground up.

You don’t get rich by being a bear. You don’t get rich betting against progress or being told the sky is falling. You need risk to start out, but you can manage the risk responsibly.

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I started the Sweaty Startup in December of 2018 because I believe the Shark Tank and Tech Crunch culture is ruining the real spirit of low-risk entrepreneurship.