Never Eat Your Seed Corn

When I started investing in real estate 30 some years ago it never dawned on me that there was a strategy to become wealthy.  I thought all you had to do was buy houses, fix them up and resell them, make money then repeat the process. It sounded like a good plan but it was a flawed plan because the money I made from the deals I did went to feed my family first, then what was left went to rehab the next property. I had no plan to accumulate wealth. I had no plan for the future; all I had was a plan to create a job for myself I had to go to work every day to support my family.

One day I was whining to my father that I wasn’t really making any headway putting any significant amount of money into my savings account. It seemed like I was just spinning my wheels and I wasn’t really getting ahead. I was working hard everyday and I had money to feed my family but that was about it. I could have done exactly the same thing working for someone else with a lot less stress in my life. My father who was a brilliant man told me a story about a poor boy that lived during the great depression and for those of you getting started investing in real estate today I think this story is very important to help you understand how to create wealth instead of just make a living. It is called…. 

Never Eat Your Seed Corn

Once upon a time there was a very poor boy named Larry. One day while Larry was walking through the countryside looking for some food to eat he found a kernel of corn. Larry was very hungry and that kernel of corn would taste very good right then but Larry is a very intelligent boy and is a person who has restraint. Then Larry remembered something his father had told him when he was a young boy. His father told him not to waste what he finds, his father told him to take at least a portion of what he gets and put it to work to grow a new crop. This way he will never be hungry again.

Because of what his father had told him, Larry decided not to eat the kernel of corn he had found, he decided to take a risk and plant the seed not knowing for sure what would happen to his new find. Larry was risking the corn may not grow, it may rot in the ground, or it might not produce more corn, Larry wasn’t sure what would happen. Larry knew that a calculated and educated risk is actually less risky so Larry decided to give it a try and plant the kernel of corn he had found. Larry worked hard all summer watching his corn plant grow. He hoed it every day to keep the weeds away. He watered his corn plant everyday to make sure it wouldn’t die. After four months of hard work Larry had one corn stalk with two big ears of corn on it with 1,000 kernels of corn on each ear just waiting to be harvested.

Larry was still hungry and still struggling to get by but because he was smart enough to know if one kernel of corn would give him 2,000 kernels in just four months, what if he were to plant all 2,000 kernels he would have 4,000 ears of corn with 2,000,000 (two million) kernels of corn. At that time Larry would have an abundance of corn, enough to treat his family and friends to a huge feast. Larry’s father advised him to wait on the feast for a couple more years. Larry’s father had lived through several economic cycles and knew the more corn you have, the longer you and your family can survive without starving, so Larry decided to wait a couple more years before having his feast.

Then after a few more years of doing the same and because of the knowledge his father gave him along with his willingness to sacrifice for just a few years Larry now has enough corn coming in each year from his harvest that his whole family and all of his friends can now eat their fill every day if they want. Larry has enough corn to eat his fill every day for the rest of his life and still have enough to sell some each year if he chooses. With the money he gets from the sale of his corn each year he is no longer poor. He can now live a life of abundance, Larry is now wealthy.

This is a story about the miracle of “compounding”. The earlier you start to grow your crop, whether corn or rental properties, the faster you will have abundance and the more you will eventually be able to help your family and hopefully have a more carefree prosperous life.

The moral of this story is very simple. Don’t sell all of the houses you buy. Keep some of the houses you buy as income producing rental properties that someone else gets up every day and goes to work to earn money to give you each month in the form of rent to make your mortgage payment. Eventually your tenants have paid for each of your rental properties giving you the rental income each month to live the life of your dreams. The other great part of this equation is once your rental properties are paid for the equity you have from your properties is where your wealth is. Take it from the smart boy who didn’t eat that kernel of corn he found, it is always better to leverage other peoples time and labor to create your wealth than you having to struggle every day to earn a living. Happy Investing!