Real estate investor David McCulloch expressed to BYU-Hawaii students the value of keeping a proper perspective towards building wealth during an entrepreneurship lecture held on June 17.
The School of Business does not normally hold entrepreneurship lectures during the spring term, but Dean Brent Wilson told his students that hearing from McCulloch was a "special opportunity."
McCulloch, who lives in Oregon and is married to former BYU-Hawaii volleyball player and 1974 graduate Mary Isley, had not been back on campus since his honeymoon. He predicted the students would not so much want to learn about real estate as "to learn how to make money in real estate."
"You want to learn some day to become financially secure. Real estate is nothing more than an economic engine," McCulloch said, adding he would give the students "tips about real estate that will help you with the rest of your lives."
McCulloch emphasized that becoming financially secure requires discipline.
"Some of you are full of self-deception," he said. "How is improvement possible when those most in need of improvement don't feel the need to improve? You intend to be financially secure; but statistically, most people only start thinking about retirement in their 50s. It's important for young couples to create a budget, and follow it."
He added it's also important for young people to get their financial skills to the point of "unconscious competence"-a skill level he compared to riding a bike. "Before you get on, you don't have to think about how to ride a bicycle," he said.
McCulloch then borrowed a dollar bill and burned it up in front of the group. "That was pretty stupid, wasn't it?" he said.
He also pointed out people do lots of money-wasting things all the time-for example, throwing away good food, buying and then not using clothes, or discarding books and magazines they paid for. Similarly, he noted a recent study showed few people make the maximum contributions to their 401K plans. "Only 7% put away the maximum toward saving for their retirement," he said.
Holding up a fast food cup, McCulloch said, "This is what's standing between you and becoming a millionaire. How much money do I have to set aside each day to become a millionaire? It's actually $5.12 a day."
He encouraged students to start building their finances early. "Time equals money. I strongly suggest everyone learn how to use a financial calculator. I don't make any kind of decisions without running this thing first."
McCulloch next passed out a pro forma budget summary for a $3 million, 120-unit apartment building in Salem, Oregon, and explained how he used his financial calculator to compute the internal rate of return (IRR) on the investment.
His calculations helped him determine that over 10 fully costed and taxed years he could expect to make a 21% return, compared with about a 5% return if he were to put that money into certificates of deposit.
"It's critically important you understand how to calculate the internal rate of return," he said. "Unless you know how to calculate it, you won't know which is a better deal."
"How am I going to find the money to do this?" McCulloch asked, assuring the students he knew most of them didn't have much money. "Put partnerships together. If you want to be a millionaire in four years, do something to get going. Get started."
Asked about investing in the stock market as an alternative, McCulloch asked how many had already lost money there, and stressed learning as much about it as possible.
"If you're going to mess around with the stock market, it is not a game or a place for amateurs. If you're going to get into the stock market, you need to understand how the big boys play," he said.
He cited the late N. Eldon Tanner, a successful businessman and First Counselor in the First Presidency of the Church of Jesus Christ of Latter-day Saints, who said "the Lord gave the greatest success formula that I know of: Seek ye first the kingdom of God, and his righteousness; and all these things shall be added unto you" (Matt. 6:33).
— Photo by Mike Foley