Ep581: Adam Carroll – Never Buy a Home at an Auction

Andrew Stotz 00:01
Hello fellow risk takers and welcome to my worst investment ever stories of loss to keep you winning in our community. We know that to win in investing, you must take risks but to win big, you've got to reduce it. Ladies and gentlemen, I'm on a mission to help 1 million people reduce risks in their life. And that mission has led me to create the become a better investor community in the community. You get access to our global asset allocation strategies and stock portfolios, our investment research weekly live sessions and the risk reduction lessons I've learned from more than 500 guests go to my worst investment ever.com right now to claim your exclusive podcast listeners lifetime discount fellow risk takers. This is your worst podcast host Andrew Stotz, from a Stotz Academy, and I'm here with featured guests. Adam Carroll. Adam, are you ready to join the mission?

Adam Carroll 01:00
I'm ready to rock Andrew, thank you.

Andrew Stotz 01:03
Can you feel my energy? I said, I'm gonna bring you on my radio voice. And here it is.

Adam Carroll 01:10
I love it. I love it. I'm so excited to be here and share my story.

Andrew Stotz 01:14
Yes. And when we were talking before we turned on the recorder, I was just squeaking like a little mouse. But now I brought it with me. And really, I'm excited to hear your story. And part of it is that your bio is pretty darn impressive. Let me introduce you to the audience. Adam Carroll has decades of experience working with families and business owners interested in creating massive efficiencies in their income and wealth building capacity. He is an internationally recognized financial literacy expert, author of three Amazon Best Sellers, a two time TED Talk speaker with over 6 million views on YouTube, and ted.com. He is the host of the build a bigger life podcast, the curator of masters mastery of money.com. and founder of the shred method. Adam, take a minute, and tell us a little bit about the unique value that you bring to this wonderful world.

Adam Carroll 02:19
Well, Andrew, some time ago, I realized that I was a student of the money game. As you mentioned in my intro of my website is mastery of money.com. And I heard from a speaker years ago that we should all be pursuing mastery in something. And I thought why not money, we're gonna pursue mastery of something it might as well be that I believe it was Zig Ziglar who said Money isn't the most important thing. But it ranks right up there with oxygen on the gotta have at scale. So I wanted to get good at it. And I've read in my lifetime, probably not as many books as you have based on your background. But certainly hundreds and hundreds of personal finance books, wealth building books, real estate, stocks, you name it. I'm a student of the game. And I love teaching people how to also love finance, because there is a lot to love.

Andrew Stotz 03:13
And why is it so important that people understand finance? I mean, there's a lot of people, for instance, we don't really teach that much in schools about it. Right? If it's so important, why wouldn't we be teaching about it in schools? And you know why? You've got a lot of people I studied, someone says, I studied liberal arts and why do I need to know about that? So why is it so important?

Adam Carroll 03:34
Well, I graduated from college debt statistic, I was 20, almost $30,000 in student loans $8,000 in credit card debt. And I realized after I graduated that I had been a rich college kid, and I quickly then realized I was a broke professional. And it occurred to me, I started reading a number of books around personal finance shortly after I graduated. And I thought why are we not teaching this to young people? And so I started a program, wrote a program created a self published book, and then up, started selling it to colleges and universities all across the country. And I would ask the students, how much will you have in student loan debt when you graduate? And their number one answer was, I have no idea. And I thought, this is terrible that we don't know what these we're going to send these young people out into the world and they don't know how much debt they've taken on. And so it became my mission to not only educate students all across the US, but do a documentary on student loan debt, which ended up getting sold to CNBC and is now being used in high schools and colleges. But I really wanted that to be my message. And then as I got older, I realized I wanted to help families create wealth and generate not just wealth but generational wealth, wealth that would outlast them and maybe their children and even grandchildren. And for me now that's that's the passion. That's the mission. How many lives can we really impact by the stories that we're sharing and the tools and resources we provide?

Andrew Stotz 05:11
At the end of this podcast, you'll hear me say something that I really have come to believe, and that is create growing, protect our wealth, and I separate, creating wealth from growing wealth. And I tried to help people to focus on you grow wealth in the stock market, you don't create wealth in the stock market. Most people want to go in the stock market and get rich, but the reality is, is you want to look at it as a way of growing your wealth. But then that leaves creating your wealth as a little bit, you know, okay, what does that mean, and I've come to this conclusion I've written about it in one of my books called How to start building your wealth investing in the stock market. And basically, in that book, I highlighted that, you know, if you start a business, you're going to be creating a cash flow. And that monthly cash flow that you're creating is creating wealth. But the problem is, and this is one of the problems I always have with the book, Rich Dad, Poor Dad is that the rich dad, basically was a business owner, when the fact is, is that majority of people can't, they just don't have the skills or the interest to be an entrepreneur. So you're giving advice to be an entrepreneur that really only suits maybe point 5% of the whole population, and therefore very bad advice. And then I kind of thought about Alana thought, actually, everybody listening to this podcast who's earning a salary, let's say you're earning a salary of 10,000 per month, or whatever that is, let's say $10,000 per month, and you're spending 9500, you're only you're generating only 5000 in wealth. But if you could reduce your spending down to let's see, six 6000, now you're generating 4000, you are literally creating wealth, and you don't have to be a business owner. So I separate wealth creation from growing wealth. But I'm just curious, you know, in all your work, you're talking about creating massive efficiencies, and, and wealth building capacity, what are some of the tips that you would give us that you've learned from working with families, and you know, these types of, you know, businesses that they're running,

Adam Carroll 07:21
you hit the nail on the head, that, that people who make using your numbers, if someone makes $10,000 a month, and they spend 9500, they have $500, in wealth, creation money, that's not a lot, that's not going to get you very far. And so one of the tips that I learned is that our goal should actually to be as lean as we can, for as long as we can, to grow as much as we can, so that someday we don't have to. And the sooner you realize that the faster you could actually begin to grow your wealth, because you've been so effective at creating it. And so, my podcast alludes to this a little bit, Andrew, I talk about building a bigger life, not a bigger lifestyle, young people, especially those that I presented to early on in my career, in the, you know, 18 to 25 year old age bracket, even all the way up to 35, they would immediately get out of school and want to buy stuff. You know, like I just want to collect all this stuff. And then they start making good money. And they're like, now I want better stuff. So they collect better stuff. And then at some point, they're like, I want different, better stuff. So they get different stuff. And eventually, you'll come to the realization that what you really want is significant stuff, all the rest of it can go away, I just want what's significant. And if you can get to that point that much faster, then the money that you make in your job, or your business, or whatever your career field, whatever field of career, and that money should be used to create and grow wealth. And you can do it much, much faster early on, which then creates all sorts of choice and freedom and option for you down the road.

Andrew Stotz 09:06
Yeah, I was just thinking about it. I moved into this particular apartment that I live here in Bangkok, Thailand. So I don't own a home. Which some people would say now when you're in a foreign country, you got different restrictions and other issues that you may be dealing with with owning a home and you may not get all the tax deductions that you could get if you and you're not may not get access to really cheap funding. But the point is, is that when I moved into this home, it was 5% The rent was 5% of my monthly income. And I never move for 20 years I've lived in this place because it's great location, great price. So the freedom that afforded me to do my own business and do other things and take risks is I've been enormous. And so I think about you know what you're saying and I think yeah, living deeply below your income is such a forgotten value that our parents, you know, and their parents and their parents lived, you know, through all kinds of, you know, World War Two and World War One and all the other disastrous things that happened in this life. And so I really encourage the listeners to think about how you could live deeply below the income that you earn every single month, and then you're creating tremendous value every single month.

Adam Carroll 10:29
And, you know, the interesting thing about that I love first of all, I love this conversation, because it does require some discipline. You know, Parkinson's Law, Parkinson's Law says that your expenses will always rise to meet your income, unless you are intentionally keeping them at bay. And, and yet, at the same time, there are strategies to employ to bring your bills down to bring your monthly expenses within a certain range. And when I teach those to people, quite often, it's like showing the caveman fire. They've never heard of what we're doing or how it works. And so in sharing it with them, it's very gratifying for me, because I can take somebody who has maybe a larger lifestyle, but I can bring their lifestyle cost down to a more modest number, which allows them to then create wealth.

Andrew Stotz 11:23
And what a feeling, it's a it's

Adam Carroll 11:25
an awesome, awesome thing to share with people. And

Andrew Stotz 11:30
I just laughing about a friend of mine who worked he used to work at the Ministry of Finance here in Thailand. And he always used to tell me because I was a big, you know, investment banker and making lots of money. He's like, look at you, like we met at a coffee shop one day, and he's like, look at you, you walk around in these jeans and like shabby, t shirt and backpack. You gotta look like you like you got like you're making the money you're making has like, yeah, and it's just funny the pressures that we are under, I never ended up doing that, because you know, jeans are pretty comfortable. But I understand the pressures for sure. Well, Adam, now it's time to share your worst investment ever. And since no one goes into their worst investment thinking it will be tell us a bit about the circumstances leading up to it, and then tell us your story.

Adam Carroll 12:17
In my late 20s, I realized that what I most wanted to do, having read a book that you mentioned earlier, Rich Dad Poor Dad in the Cashflow Quadrant, I decided that I wanted to be in real estate. And I had already procured a single family home that I had turned into a rental. I was an accidental landlord because I couldn't sell the home. So I turned it into a rental property. It worked out very well the first time I bought a duplex with my father, also a fairly sound investment. And so I was on a roll, and I decided that I'd go for a third. And this time, a friend of mine said let's go to this auction. And they're auctioning off at a sheriff sale. This home in this small community near where we live. And I went under the auspice of going just to see what the auction would be like, not really knowing that what I would ultimately do is get swept up into the bidding process on the lawn of this property. And hearing people make comments from behind me about the value and the assessed value and the difference between the two and how much money you could make on this property. I found my hand going up from time to time as the bids were going higher, until the point came where I was the last one with my hand up. And I'm looking around in a panic going, oh my god, I think I just bought this house. Now, the backstory to this is I had told my wife that I was coming to this auction and she said, You are not buying anything at this auction. Right. And I assured her that I was not I assured her. Earlier in the day, however, I had brought her a dozen roses. And I just done it to be a nice guy and hadn't done it for any particular reason. So when I came home and I said, I have some news. And she said you bought it, didn't you? And I said I did. Somewhat unknowingly, I got swept up. And she said Is this why you brought me a dozen roses. I said that was not it. But the long, longer version of the story is this house that I bought had water damage. It had burst pipes, it had sat through the winter. It had a hot tub, which they had enclosed in a three season porch, which was full of mold that I didn't realize so the house kind of wreaked of mold. And as the water slowly began to turn on when we turn the plumbing on, and water began exiting the light fixtures in the kitchen. I knew that what we had bought was a money pit and this money pit stuck with me for the night. Next nearly six years, and I nursed it, I did everything I could to put good tenants in, I sold it on contract twice, I did lease options. And finally, finally, finally, I figured out what I needed to do to get the amount that I owed down low enough that I could put it on the market and make money on it, and turn around and sell it. But I will tell you, I lost weekends with my families, I got poison ivy clearing weeds from around the garage, a tree went down in the backyard and a storm knocking over my fence. And or a neighbor's fence. We weren't sure whose it was. But we ended up splitting the cost. This house was a test of my marriage, it was a test of my patience. It was definitely not profit bearing in the long run. But the lessons that I learned from it were many.

Andrew Stotz 15:56
And before we get to those, let me ask what was the end result? At the end? Were you able to sell it like and how did that process go?

Adam Carroll 16:04
We sold the property. We sold it to a young family that was unbelievably excited about the prospect of having their own place. And there just happened to be a gash like a tree house in the backyard that the husband was very handy, and said he was going to make just an all out tree house for his kids and that and that's that's ultimately what sold it. So we did sell it we got out from under it. And my wife made me swear her never again when I go to an auction without her so she can hold my hands down.

Andrew Stotz 16:40
So how would you summarize the lessons that you learned?

Adam Carroll 16:44
Well, so I've thought long and hard about this, Andrew and number one is do not go into those types of environments unprepared. The people who were there, they had done all their research about comps, they knew the assessed value. They knew what the appropriate value was what the rental market was like, they had done tours of the home outside and inside and knew what kind of expenses and investment they would have to make to bring it up to speed. So number one go in prepared. Number two, I went in really thinking that this was going to be easy. I had gone from a smaller single family and a small duplex one bedroom, one bath duplex to a four bedroom, three bath home. And one of the takeaways for me was the bigger the home, sometimes the bigger the challenges. And while it was a lovely large home, it had a lot of flooring that need to be replaced and walls that need to be painted and, you know, kitchen that needed to be updated and all of that. So it got to be more and more arduous. As we dug deeper into the project. And I'm a big fan. If you're getting started, start small, get a one bedroom, one bath, two bedroom, one bath, learn your lessons on the small ones, so that you finally know what to do on the big ones. And then last but not least, I think this was a big one, I realized that I can do some things. You know, we live There's a book out there right now called the culture or the comfort crisis. And the book basically asserts that we don't do difficult things as a society anymore. And, you know, clearing out a hot tub full of mold was not a pleasant experience. Nor was figuring out how we had to get it out of this three season room when it had been built around the hot tub. So what ended up having to happen, Andrew was we cut it in half with a circular saw. And as we're doing it, I was like I didn't know you could do this. So I learned a lot of really valuable lessons about you know, when push comes to shove, we can do a lot when we challenge ourselves to do it.

Andrew Stotz 19:00
Those are great lessons, maybe I'll share a couple of things. One of the things I will say, What was the name of that book, you mentioned,

Adam Carroll 19:06
the comfort crisis. Okay.

Andrew Stotz 19:10
Well, there's good and bad news there. And the rest of the world is not going to the comfort, comfort crisis. There's people, billions of people out there busting their butts, working so hard to get an education for their family to build a little hut to build a little space for themselves. They're fighting so hard. And, you know, that's the way cycles work. Once you get success, it becomes something that you expand. And I think that having lived in Asia for 30 years and having left America many years ago. You can see it's part of the downfall. It's just a cycle. So you know, work as hard as you can, you know, the first thing I take away is work to make sure that you can do the diff about things, and you will be very rare in the US, you know? Yes, but you may not be that rare around the world, because people are fighting and struggling out there. You remind me of Episode 83, Josiah Smelser. And he basically had a similar Money Pit story. And one of the things that's in common with both of your stories is that the number one most common mistake that people make on the show, I have six mistakes that I've figured out are common mistakes. But the number one mistake is they failed to do their research. Yes. And that would have solved this problem. Because you would have said, Well, okay, I'm not gonna bid on something I haven't done my research on. Right. So I think Lesson number one, let's make it super clear for the listeners out there from my side is do your damn research before taking action. Number one, second thing I always talk about whenever I talk about research is I, I explained a situation I have with my business partner in our coffee business. So we have a coffee factory in Thailand, we had an opportunity to expand to Vietnam. And when he went in and went to Vietnam met with the potential partners went through everything is there's a lot of good things about it. And then we agreed that we would have a meeting in a couple of months where he would present the prospects. So we had that meeting at our office, and he presented it to me, okay, this is what I think it's, this is where I think the upside is. And then we did not talk about the risks. Now. Then we went to dinner, and had a good dinner and talked. And then one week later, Adam, we had a meeting, where the only thing we talked about was the risk. it detaches when you separate your research that you do on return from the research that you do on risk, it takes a lot of the emotion out of it, and helps you really focus in and so after going through all the different risks, we decided not to do it. So number one, do your research. Number two, my advice is separate the research that you do on return from research you do on risk. The second thing is, you know, never, ever make an investment decision under pressure. Don't ever let anybody pressure you. You know, a good example. This is a much more simple example. But whenever I go to a fitness club in the past, you know, I'm happy member of the place I am now. But when I've gone in the past, what I do is I leave my credit card at home. So no matter what pressure they put on me, I can't you know that I can't do it. And the last thing is early success. Be careful of early success. Sometimes it builds up confidence, you know, you told the story of your early success. And what happens is it usually causes us to kind of push the boundary will great take risks, but we haven't had enough experience with risk and failure and problems. And normally, that early success really puts you on a springboard to really do bigger mistakes. So just be careful for the listeners out there. If you are experiencing early success, take it as a signal to say, oh, maybe it's time to do a little bit more work on how I reduce risk and protect my wealth. Is there anything you would add to my takeaways from your story?

Adam Carroll 23:22
I think you articulated it so well. You know, going in without doing research that was I think it was naivete of me to go in and think that, you know, I've I've been successful. I would put in air quotes because I don't know that I really was I think it was making $200 a month on one property and maybe 350 or four on the other. So I love that you mentioned even in your intro reduce risk. And I'm a big believer in that. I think leverage is one thing I think risk is something else entirely. And I have long told my mentees there is a big difference between taking a calculated risk and being risky. And I think I had made a very risky decision as opposed to taking a calculated risk.

Andrew Stotz 24:10
Yeah. So based upon what you learned from this story and what you continue to learn what what action would you recommend our listeners take to avoid suffering the same fate and I really want you to go back to the day and think about the feeling that our listeners are going to feel when they're kind of excited, they're going to go to something like this and they're going to get themselves you know, the touching their toe into something. What advice what one action, would you recommend that they take?

Adam Carroll 24:40
The one action I would recommend they take is surrounding themselves with a group of people who have been there and done that and can advise you on when to pull the trigger and when not to you know there are so many great communities out there in the financial space. Now that if it is Investing, obviously you and what you're sharing in the podcast and the books that you've written. But if you're a real estate investor, you know, there, there are bigger pockets, that community is amazing. There's real estate investment associations everywhere that you could join. So I think surrounding yourself with intelligent people who have been, there would be the very first thing I would do had I had that group, I would never have made the decision I made on this property. That's

Andrew Stotz 25:31
excellent advice, ladies and gentlemen. And you'd be surprised, there's a lot of older people who have been through it, and they do really want to help. So look around, reach out, try to find a community that knows it's been there, done that. And I would add in one other thing is listen to them. You know, some people go, and then I hear all that they hear everything, but they don't really listen. So my master tip for listening is get a notepad and start writing. Whenever someone talks, I carry a notepad, wherever I am, when someone starts talking, I started taking notes, because it's really hard to speak and write at the same time. So what's the resource of yours that you'd recommend for our listeners?

Adam Carroll 26:22
Well, ultimately, what helped me get out of the property that I was in, and it's helped me, in the end, build massive wealth and in short order, is a system called the shred method. And effectively, Andrew, what I figured out was, you can, you can play an interest rate arbitrage game, using the bank's money that allows you to decrease the amount of time that you're in a mortgage. And what we figured out was that by reducing the amount we owed on the mortgage, we could turn around and sell the home fairly easily, and get out what we needed to. I took that information took that knowledge. And then on our primary residence, we realized, if we did this, and we do it well, not only are we reducing risk, but we have the ability to create wealth with the money that we save. And in so doing, we have blasted away our mortgage twice in the last eight years, saving us the first time we saved about $180,000 in interest. And then the second time, we were using it more strategically, but we were redeploying that money into investments that are relatively sound that are risk mitigated. But we've reduced risk all the way around as far as we can tell, and in the process, figured out how to not only create wealth, but grow it at the same time. Interested in all of that and more as at the shred method.com.

Andrew Stotz 27:49
Fantastic. So I'll have links in the show notes that ladies and gentlemen, go to the shred method.com. And check it out. Well, listeners, there you have it another story of loss to keep you winning. If you haven't yet joined the become a better investor community. Just go to my worst investment ever.com right now to claim your lifetime discount exclusive for podcast listeners. As we conclude, Adam, I want to thank you again for joining our mission. And on behalf of at Stotz Academy, I hereby award you alumni status for turning your worst investment ever into your best teaching moment. Do you have any parting words for the audience?

Adam Carroll 28:32
My parting words go right along with my podcast and it is build a bigger life not a bigger lifestyle. The life is what we're here for a lifestyle is just stuff we use to show off and life's about family. It's about travel. It's about experiences. So build a bigger life not a bigger lifestyle. Andrew, that's what I'm leaving folks with.

Andrew Stotz 28:56
Fantastic and that's a wrap. On another great story to help us create, grow and protect our well fellow risk takers. Let's celebrate that today. We added one more person to our mission to help 1 million people reduce risk in their lives. This is your words podcast hosts Andrew Stotz saying, I'll see you on the upside.