Remember when you learned how to ride a bike. Mom and Dad typically gifted you a new bike with training wheels, so you could learn how to bike without crashing right away.
Before you close in on retiring from actively managing your investments you may want to consider a similar approach to help your children manage your investments. Of course, that depends on if your kids are interested or motivated.
Can parents build motivation and seed talent?
That is the $10,000 question.
We have developed a list of skills your kids (or your niece or nephew if you don’t have kids) need to learn to be successful real estate investors.
Most importantly: Start early and teach your children how to take responsibility!
You can start as early as 10 years old, to teach your children how to manage money. They need a weekly allowance, and they need to learn to split the allowance into four sections. At $10 a week it is hard to do more.
- Charity – to a charity of the Childs choice
- Short term – for new electronic devices or clothing
- Long-term – College or investing in real estate.
- Candy, online music purchases, video games
As they get older have them help you review and property bills.
Once they are 16 have them review the monthly financial reports you have for your properties. See if they can spot good and bad results.
This gets them tuned to how much it costs to roof, paint and deal with property income and expenses.
Make sure they take math and writing in high school and college, so they can learn how to read and write contracts and can successfully understand financial reports and borrow money. It does not hurt to take classes in building sciences and get some practical experience by walking on roofs and see properties being properly maintained and cleaned.
At the beginning it will all be just numbers to them with no meaning, but once you give them a property to monitor and be their own, watch how their attitude changes.
Have them ride shotgun with you. Involve them in day-to-day decision-making. Have them troubleshoot issues with you to come up with ideas. More importantly, explain why you are making decisions, so they are continuously learning.
This is tough to teach for some parents. For me, this started in the market going shopping with my mother. As a child, we grew up in Europe and once a week we would go shopping for fruits, vegetables, cheese, and meats in the city market. You could see the competition between the farmers and the other salespeople at the market, as they adjusted their prices to compete, and made sure you tasted their oranges, because they were the sweetest, attempting to sell value and not price.
This was reinforced in the markets of the middle east, as you go from store to store to get the product at the best price, haggling with the dealers. They could see you coming if you were an American and could “pay more”. I was in one market buying baklava with my daughter Lily. He offered us a kilo of Baklava at one price and to another person at a lower price. Her language skills were better than mine, and she yelled “don’t buy it, he is taking advantage of you”. I listened and walked away.
Negotiation is a learned skill; it takes practice and visualization. It includes getting a fair price and the review of the details, ensuring that the vendor is not substituting a mediocre product and the contract is not taking advantage of you. My staff will tell you I review contracts very carefully to make sure we are comparing apples to apples. These are the negotiation skills I learned from my mother.
Get a Job or an Internship
Have them get a job in high school and college, to teach them responsibility and the ins and outs of managing their own money. Once they figure that out, they can manage investments better.
Make them responsible for one simple property and have them work through the decision-making with you. Have them help you set annual property goals, and then review a year later, to see if you reached those goals. Maybe they can earn 10% of the annual profit and learn about losing money. Potentially you might cover them if there is a loss? Over three years they can have a real impact.
Teach Them How to Manage the Property Manager
Once your kids have figured out how to manage a property, you need to teach them how to manage the property manager. They need to learn that they must read the monthly financial reports. They need to inspect the properties annually, and they need to set goals for the property managers and hold them accountable.
Finally, I would have them read the 34 stories I have assembled in my book “Successful Real Estate Investing” (available at Amazon). These stories never get old. I was interviewed this week by a friendly property manager, who stated it clearly, “I may be experienced, but I learned so much from your book!”
What happens if you are not successful with your teaching?
You may have unfortunate luck, and it is possible that your kids may have a distinct lack of interest in investing in real estate. Maybe they do not understand the freedom that you have earned by investing in real estate.
Then you need to turn to plan B.
Either you hire property or asset managers to help you, or you set up your estate to either sell properties or donate them to a charity. There are benefits to both approaches.
You can tell, I am all for kids learning the value of a dollar and the value of real estate, and it can be done, but you need to start early. These are lifelong skills that don’t just show up when you need them, they need to be learned and practiced, just like you did when you got on your bike with training wheels.