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It Doesn’t Come Around Often

Take Advantage Of Financial Opportunity, They Don
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Financial opportunity can sometimes be hard to recognize. Here is a story of how one couple missed out on $24,000 of financial opportunity a year because they didn’t understand the rental market.

Recently, I made a strong attempt to help ameliorate the #1 recurring problem in San Francisco: housing affordability. My idea was to provide $2,000/month in subsidized housing to local preschool teachers.



As a high school tennis coach, I feel a kinship with my fellow coaches and teachers. Our jobs are rewarding, yet often difficult. We sometimes get yelled at and disrespected. During a global pandemic, it is clear teachers aren’t getting paid enough.

There was one time one of my players called a ball out that was clearly in to win the point. I overruled him due to the importance of honor and sportsmanship. He started swearing at me and told me to stay out of it.

That was an unpleasant experience. I had a stern talk with him after he won the match. At least he apologized later. But would he have apologized if he had lost? I’m not so sure.

As coaches, we don’t make much. I was paid between $1,000 – $1,300 a month during the 3-4-month season. But we also gain a tremendous amount of satisfaction by helping young adults mature.



If coaching was my only source of income, I would not be able to raise a family in the city.

Lost Financial Opportunity

Given my wife and I felt fortunate that our son got into our local preschool, we thought we’d try to help provide affordable housing for a couple of our son’s teachers. We had learned that there was one teacher who drove an hour each way to save money.

As soon as we let it be known we had a place to rent that was five minutes away from the school, two teachers told us they were interested.



Instead of offering them the market rate of $4,400, we offered them the place for $2,400, a 45% discount. Each teacher would have paid $1,200. The place was a two-bedroom, one-bathroom, 1,380 square foot upstairs portion of my house in immaculate condition with a panoramic ocean view.

If you’re living in Des Moines, $2,400 might not sound like a bargain. But I assure you it’s a bargain in San Francisco. Besides, focus on the percentages. If you got a 45% discount to market rent, wherever you live, I think you’d acknowledge it to be a steal.

The Discounted Rent Calculation

I came up with $2,400 a month because I wanted to at least cover my property taxes, insurance, and maintenance expenses. I would keep the downstairs portion of my house as an office and place for my relatives and in-laws when they come to visit. There is a door that locks off the upstairs and downstairs with separate entrances.

Further, I knew the preschool teachers made roughly $70,000 a year. But there is a range, depending on seniority.



With a combined income of $140,000 a year or $11,667 a month, $2,400 a month comes out to a reasonable 20% of gross income spent on rent. This percentage was not bad given the average percentage expenditure on rent in SF is between 31% – 34%. Further, the teachers were getting a much nicer place as well. Financial opportunity!

Not only would we be helping two preschool teachers find a great place at a bargain price, but they would have a short commute to work. In return, we’d feel great helping people we know.

We considered the $24,000 a year in lost income as a way to support our teachers and our city during a difficult time period.

The Rejection

The teachers came up to our place and loved it. Unfortunately, they did not love the price. They could not recognize the financial opportunity while staring mesmerizingly at the ocean.

One was renting a room in an apartment she hated for only $700/month. She said her roommate was a difficult person and she wanted out. She didn’t want to spend more than $800/month. The other teacher was paying $800/month for a temporary room and was willing to go up to $1,200/person.



Combined, they wanted to only pay around $2,000/month, or a 55% discount to market rent.

I considered going down to $2,000/month, however, I also sensed they still felt stretched at $2,000/month. Therefore, if they felt stretched at $2,000/month, I wasn’t really helping them feel good about their housing budget since they would be paying more than they were comfortable paying.

Further, I didn’t feel they appreciated the value of the property at the market rate of $4,400/month. I think they felt like the place was worth less given they had never rented a place as nice before.

Instead of feeling like they were getting a $2,000/month off deal, perhaps they felt like they were only getting closer to $600/month off based on their understanding of the market.

My wife and I sunk a lot of money into the property: changing the windows, remodeling the bathroom and kitchen, refinishing the floors, etc. The place was nice enough for a family of three with a healthy retirement income stream. Surely, the place was good enough for two young teachers.

Given this was a sensitive situation where I was technically a client of the school, they didn’t push me to lower the rent further. Instead, they were gracious and passed.

Let’s Try One Last Time



Two weeks later, I heard the teachers were still looking for housing. Thus, I came up with a proposal that I hoped would get them to reconsider.

I offered to lower the rent to $2,000 a month in return for watching our son 16 hours a month at $25/hour to get to $2,400/month. The 16 hours would be split between the two of them. Therefore, I figured 8 hours a month of side hustle work wasn’t a big deal.

I used to work 65 hours a week on average in my 20s. Therefore, I thought adding only two hours a week to each teacher’s 40-hour-a-week schedule would be easily digestible.

They graciously declined again.

Their second rejection made me believe that perhaps one of them was planning on leaving the preschool and didn’t want to take advantage of the situation. By accepting way below market rent, one or both of the teachers would feel trapped to remain teachers given I specifically said I wanted to help provide subsidized housing to teachers in the city.

Only time will tell their intentions.



Whatever the case may be, as a couple of readers pointed out in my previous post, mixing personal with business may not be the best idea. People might suspect improprieties. Therefore, I told them no problem.

Going Market Rate Instead

After getting rejected twice over the course of 45 days, I decided to move on. Each month that went by was one month of lost rent. As someone who still wants to build more passive income to maintain our lifestyle, the only thing left to do was test the market.

In general, I like to rent between 5% – 10% below market rate so I can get a larger tenant pool to choose from. Further, at such a discount, the tenants will know they are getting a good deal and hopefully take better care of the place. Therefore, I put out an advertisement on Craigslist for $4,200.

I found one prospective tenant that looked very promising: a couple with a newborn baby. Such a tenant would likely stay for a couple of years or more.

Then I found another promising couple with a small dog. The demand was strong to move out to the western portion of the city where there was more space and better value. I strongly believe best near-term real estate buying opportunity is right within your city.

A Change Of Heart

During my 8-day negotiation process with the couple with a baby (they wanted to stop by several times), the preschool teachers came back to me and now said they wanted the place. They finally recognized the financial opportunity!



This is the e-mail I got from one of the teachers:

Hi Sam!

XXX and I have been looking for places and it hasn’t been so good.
Wanted to ask if your place is still available? We are interested! Let me know
.

As nothing seemed to have changed from a month ago, I asked him what kind of places they had been looking at and what had been the biggest obstacles they faced thus far.

Here is his response:

Good morning Sam!

We just haven’t been able to find another place that’s as great as yours for the same rate. Mostly we’ve been finding in-law units that are underground and we would be much happier in your space. 



I have until August 15 to move and XXX isn’t in any rush, so if it’s still available, XXX and I would be more than happy to make this work! 

Doh! Just as I was about to go through and sign with this baby couple for $4,200/month, the teachers wanted to take me up on my original offer of $2,400/month.

The Timing Was Off

It had taken them 45 days to realize they couldn’t find a place similar to mine at the same rate, despite already looking for a month prior.

I guess there isn’t anybody out there who is willing to purposefully rent at a 45% discount to market. Further, an underground in-law unit is obviously not as nice as a remodeled ocean view apartment that’s 50%+ bigger!

At this point, it was too late for me to turn back. I was already in deep discussions with a couple parties. I told the preschool teachers I could not accommodate their mind change.

Although I felt bad for the preschool teachers, I had sincerely tried my best to convince them that what I was offering was a bargain. For me to then reject two couples who wanted to pay $4,200/month felt like too much of a sacrifice.

The upside is that everything is still good between us. The preschool teachers are still saving money by paying $700 and $800, respectively, for their existing rooms.

Please Take Advantage Of A Good Deal



I had a goal of providing subsidized housing to teachers for the long term. Now, I will put my plan on hold.

It’s sometimes hard to recognize financial opportunity when you first encounter it. We can all say now that Apple stock was a great buy just three years ago. But just three years ago, most investors thought Apple was an overly conservative company that lacked innovation.

Backing up the truck on stocks in March 2021 turned out to be one of the best financial opportunity in years. But even if you read my detailed post, How To Predict A Stock Market Bottom Like Nostradamus a week before the bottom, I might not have been able to allay your fears of doom.

However, getting subsidized rent is a completely different animal. You can easily go online and see what similar types of units are renting for at market rate. That is how I got to my rent estimate of $4,200 – $4,400. To find the value of your subsidy, simply subtract the market rent from the subsidized rate.

Over a 5-year period, the two preschool teachers would have saved over $100,000!

Don’t turn down financial opportunities when they are clear as day. Further, try not to come back to the person providing the financial subsidy after you’ve rejected them twice. It will show that you were not aware of the subsidy in the first place.

Just move on and be ready to pounce on the next great deal.

Ways To Recognize Financial Opportunity

Financial opportunities don’t come around very often. Therefore, to help you capitalize on rare opportunities I suggest the following:

1) Always have a decent cash stash.

It often takes money to make money. Therefore, always have a good amount of capital that’s available to be deployed.

If I’m focused on stocks, I generally like to have enough cash equal to the average position of each stock I own in my portfolio. If I’m focused on real estate, then I like to have a cash amount equivalent to at least 30% of the value of my target home.

Sure, cash hardly pays anything nowadays. However, in times of extreme uncertainty and volatility, owning an asset that holds its value isn’t so bad.

2) Understand the market.

The preschool teachers’ biggest error was not doing enough due diligence about the rental market for two-bedroom apartments and homes in the area. They should have lined up at least 10 visits to properties at my discounted rate to get a good understanding of the market.

The more you understand the stock market, the real estate market, a particular industry, or a product, the easier it is to recognize value. The recognition of value starts coming to you instinctually. Please put in the time.

3) Do your best to remove your biases.

If you are adamant in thought, you will simply look for reasons to bolster your views. Instead, you must practice listening to different viewpoints before making any financial move.

The market is efficient. It’s rare that both sides are getting a great deal. Therefore, in order to truly get the best deal possible you must approach every transaction without preexisting biases.

If you find yourself constantly arguing with others and getting upset at other people’s opinions, chances are high you are consistently missing out on financial opportunities.

4) Always think in probabilities.

Finally, there is no guarantee with any investment or any financial opportunity. Things go bad all the time. Therefore, you must always calculate the probability of your decision turning out great or poorly.

Here are some examples:

  • I thought there was an 85% probability that attending The College of William & Mary for just $2,800/year in tuition was a good idea. The cost to attend was so inexpensive for a top public university. Worst case, if I couldn’t find a decent job after college, I could pay back my parents within 10 months by working at McDonald’s.
  • I think there’s only a 35% probability that buying more stocks with the S&P 500 at 3,375 is a good idea. Sure, the index could continue marching higher thanks to the support of the Federal Reserve and a surprise vaccine. However, I believe there is a 65% probability there will be a better buying opportunity over the next 6-12 months. Therefore, I have no issues building my cash reserve.
  • Conversely, I think there is a 70% probability that buying commercial real estate at depressed prices will turn out to be a profitable move in five years. The market tends to view things in extremes, such as “the death of the workplace” and so on. Things generally never turn out as bad or as good as pundits say they will.

It Gets Easier Over Time

When you can recognize financial opportunity and have cash to deploy, you greatly increase your chances of winning.

As soon as you start thinking in probabilities, you’ll begin to more clearly think through different scenarios. When the inevitable poor outcome arises, you’ll also feel more at ease. After all, even pocket aces in Texas No Limit loses 19% of the time.

Finally, you cannot just expect good things to happen to you without putting in any effort or taking any risk. The world is simply too competitive for you to predominantly rely on luck to build a great fortune.

Related posts:

To Get Rich You Must Practice Predicting The Future

Your Wealth Is Mostly Due To Luck, No Matter How Great You Think You Are

Readers, have you ever passed on a great deal only to realize it was a great deal in retrospect? How do we get better at recognizing great financial opportunities?

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