There are two quick things you should know about me:
1. I love real estate; and
2. I love real estate quotes.
I’d seen a quote floating around the internet for years, often as an image attached to social media accounts that said,
Landlords grow rich in their sleep.
The first time I read it, it was burned in memory. In those six-words, everything I love about investment real estate was covered.
With the proper systems in place, investment real estate can allow a landlord to go about their daily lives and grow wealthy. At the end of every month, I enjoy reviewing my balance sheet and seeing the growth in my net worth that comes primarily from the rents paid by tenants which in turn pays down the mortgage balances on my properties.
While looking for an inspiring quote to share on Twitter a couple days ago, I remembered the ‘Landlord / sleep’ quote. Wondering its origin, I typed it into Google and was greeted not only with the quote I remembered but this slightly lengthened variation:
Landlords grow rich in their sleep without working, risking or economizing.
That changed the whole dynamic of the quote I remembered. The longer version is complete b.s., by the way. I can list dozens of ways that I’ve had to work, risk and economize to get my real estate. The argument carried no weight.
I then wondered who the ding-dong was that uttered those words. Another quick search revealed it was attributed to John Stuart Mill. According to Wikipedia, Mill was
an English philosopher, political economist and civil servant. One of the most influential thinkers in the history of liberalism, he contributed widely to social theory, political theory, and political economy.
This was just the intro for the man as there is a far more extensive background available on Mill. He was extremely educated and, for a few years, became a Member of Parliament.
Mill wrote the multi-volume, Principles of Political Economy with some of their Applications to Social Philosophy. The quote is found in Book 5, On the Influence of Government, Chapter 2, paragraph 28:
The ordinary progress of a society which increases in wealth, is at all times tending to augment the incomes of landlords; to give them both a greater amount and a greater proportion of the wealth of the community, independently of any trouble or outlay incurred by themselves. They grow richer, as it were in their sleep, without working, risking, or economizing. What claim have they, on the general principle of social justice, to this accession of riches? In what would they have been wronged if society had, from the beginning, reserved the right of taxing the spontaneous increase of rent, to the highest amount required by financial exigencies?
What the -? What claim have they to this accession of riches? The right of taxing the spontaneous increase of rent?
It is clear Mill was never near any investment real estate in his life. I’ve never experienced a “spontaneous increase in rent” but it sounds awesome! At best, there were negotiated rent steps that would occur throughout a lease term, but nowhere did a ‘big bang’ event occur and rent “spontaneously increased.”
At lease renewal, there have been occasions when rent was increased, sometimes due to landlord improvements to entice a tenant to stay. Again, it wasn’t spontaneous, it often wasn’t free and it surely wasn’t without effort. Heck, rent is even decreased occasionally at renewal to save a tenant within a building.
And what about my residential properties? When a rent increase occurs, that’s often to keep up with cost of living. That’s far from spontaneous and is often reactionary to what’s going on in the general economy.
I wondered why John Stuart Mill made this statement? I moved back to the beginning of chapter two where Mill discussed the equality of taxation and argued for the proportionality of such. In other words, he favored a graduated system of taxation. I continued reading until I ended up in paragraph 27, the one before the famous quote I had originally sought. Mill wrote:
Suppose that there is a kind of income which constantly tends to increase, without any exertion or sacrifice on the part of the owners: those owners constituting a class in the community, whom the natural course of things progressively enriches, consistently with complete passiveness on their own part. In such a case it would be no violation of the principles on which private property is grounded, if the state should appropriate this increase of wealth, or part of it, as it arises. This would not properly be taking anything from anybody; it would merely be applying an accession of wealth, created by circumstances, to the benefit of society, instead of allowing it to become an unearned appendage to the riches of a particular class.
Without any exertion or sacrifice on the part of the owners? With complete passiveness on their own part? This would not be properly taking anything from anybody? I’m getting seriously pissed at this John Stuart Mill guy and he’s been dead for almost 140 years!
Mill was clearly deluded. He had no understanding how investment real estate works, yet is making the argument on how to tax it.
But here’s the problem with Mill: I can’t totally dislike him. I did some additional reading on him and he seemed like a decent guy. He stood up for the equality of the sexes, worked hard for the labor party and pushed for an end to slavery. He argued for religious freedom, personal liberties and free speech.
What’s a fiscally-conservative, socially-liberally guy like me to do?
First, I’m not going to worry about it.
I went down a rabbit hole learning about Mill. His writings have influenced our political system which I found in just a short burst of study. However, while it was fun to do a little research, I’m not going to let myself get sucked into the politics as entertainment arena. I need to stay focused on what matters and that’s taking care of my family and building something for the future.
Second, I’m no longer going to use the quote that led me to this post. Oh, it’s not Mill’s fault. It’s mine and I didn’t realize it until I started this rant.
You see, I am not getting rich in my sleep. It’s happening in the light of day.
Every piece of real estate I’ve found or every deal I’ve located for a client is with my eyes and ears open and my brain turned on. I’ve never negotiated a deal in my sleep. Nor have I woken up and realized I painted a rental unit over night while drooling on my pillow.
I can’t find a new development opportunity in my sleep. I can’t locate new tenants for my buildings while taking a summer siesta in the backyard hammock. No new wealth will be created unless I’m awake and paying attention.
We can put systems in place and go on auto-pilot, but there are others taking over elements of responsibility for us then. However, we still had to work hard to get to that moment when auto-pilot takes over.
“Landlords grow rich in their sleep” is a pithy quote, but it’s unrealistic. It’s as unrealistic as Mill’s original quote that I’m getting rich without risking, working or economizing.
This is one quote I’m throwing on the trash heap.
What about you?
Are there quotes you've stopped using after learning their origin?