“I made my first investment at age eleven. I was wasting my life up until then.”
My 7-Year-Old Daughter’s $10,000 Investment
About nine years ago, shortly after her 7th birthday, I was approached by a wholesaler to provide a hard money loan on a property that his family member was trying to re-finance. Their current loan was a conventional loan but it was obtained prior to the Great Recession and carried a principal balance that was (you guessed it) significantly higher than the current value of the property.
The Borrowers had already been successful in getting the lender to agree to a short sale amount that was below the principal owed on the house. But as a courtesy, I stepped in and negotiated the lender down an additional 31%, by supplying information about the current condition of the property and nearby comps. I didn’t charge for that service as I was happy to just reduce the loan amount the Borrowers would need, which in turn reduced my LTV, making it an even safer investment.
It became a very solid deal, one which I was comfortable bringing my 7-year-old daughter into. We had been saving up money for her in a separate bank account since she was born, helped out by family members giving her money for her birthdays and Christmases along the way. By the time she was 7, she had just over $10k saved up in her account.
To fund the re-finance for the Borrowers, we utilized $10k of her money, complete with a Promissory Note, and invested it with some of mine. Bada-Bing! – she was now a real estate investor.
Truth be told, at that age she didn’t fully grasp what was happening. “Can I just take the money out of the bank and buy chewing gum with it instead?”
No chewing gum was purchased that day but we did combine to make that loan for the Borrowers and helped get them a much better deal than they had expected or could have gotten on their own. The Borrowers were grateful, they were good payers, and they even paid the loan off early after just 2 years. My daughter received her principal back in full, in addition to the interest payments she had received along the way. All in all, it was a nice tidy profit for a rookie investor.
If you have younger children (or nieces/nephews or grandchildren), are there ways you can introduce the ideas of thinking outside the box, gathering information, and making sound investments in some way that will help them get an earlier start than you did? What if we each took a child under our wings and helped them gain financial intelligence; age-appropriate learnings that can start them on a path of gaining knowledge and confidence about finances and investing?
It doesn’t have to be real estate (although that’s certainly my favorite vehicle). It can be stocks, such as what Warren Buffett has primarily invested in. If you do stay with real estate, it could be participating in some way in a fix/flip project, a rental unit, or a private loan such as my daughter did. Likewise, it doesn’t need to begin with a large investment. Even with very limited capital to work with, it’s the process and principles which you are teaching that is as important to their long-term assimilation of investing skills as is the size of profit made. Focus on the % return, not the $ return. What if you had started investing, even on a small level, 10 or 20 years earlier than you did?
In Conclusion…
My daughter had lots of help on her initial investment. She didn’t fully grasp the amortization schedules, the Deed of Trust, securing the Note against the real property, but at the age of 7, the seed was planted (hopefully) that she was putting her money to work to earn more money while helping another family at the same time. It’s something we talk about from time to time even now, at her much more savvy age of 16 (going on 30!).
