Real Estate Investing May Not Be Right For You
If you are already in the business, bear with me for a moment. If you are just getting started or thinking about investing in real estate, you may find this useful. First of all, regardless of what so many of the best-selling real estate investing authors write, real estate is not for everyone. If you are looking for a way to get rich quick, real estate is not for you. However, if you want to supplement your income over time, or diversify your investment portfolio, and potentially enjoy some tax benefits along the way, real estate can be pretty amazing.
Real Estate is Not A Liquid Investment
This may sound obvious but you must understand that real estate is not a liquid investment. You cannot go in and out of the market easily at a moment’s notice. Real investing done well requires time to pass to reach its full potential. Whether time has to pass in order to earn some appreciation, or to pay off debt, or to wait for the market to catch up to your ambition, success in real estate takes time.
What If The Investment Does Not Work Out?
Most importantly, what if the investment does not work out? Are you financially able to absorb a loss or months of negative cash flow in a worst-case situation? Can you withstand the emotional roller coaster of a less than perfect property, transaction, or tenant? This business has more than its share of ups and downs. If you don’t think you can weather a storm or two, real estate investing may not be right for you at this time. Maybe later.
Common Traits and Mindsets of Our Most Successful Investors
I have worked with hundreds of investors at this point in my career. Over time I have compiled a list of personal traits of successful investors. These include:
- They are all excited to talk about their business.
- Financially stable
- They read books and travel to seminars all around the country.
- They seek out advice from many successful people
- They understand their personal strengths and talents
- They surround themselves with a gifted core group of people.
- They consciously do everything they can focus on the one or two things they do best and that makes them the most money.
- They are open to learning and willing to try new things.
- They see themselves as entrepreneurs and business owners.
- They set goals and drive for results.
- They work well with all sorts of people.
- These people all possess a ‘Play to Win’ attitude.
- They can’t wait to hear the details of a great deal.
- They act quickly and decisively if the numbers are right.
- They try to obtain as much information about a deal as they can, as quickly as they can, over the telephone.
- They trust our opinion as investors and Realtors®
Traits Of Our Less Successful Investor Clients
In contrast, less successful investors seem to have these traits and mindsets in common:
- These people are generally not excited to talk to us.
- They seem to be suspicious and at times even combative.
- They tend to dwell on opportunities for prolonged periods of time before making a decision.
- They want to see the property before asking any questions about the financials.
- They are skeptical of us and view us as ‘salespeople’, versus qualified professional real estate consultants.
- If they attend seminars at all they are always local and always with the same group of people.
- They seem to only take advice from the same people over and over.
- They want to do everything themselves
- They struggle with building a team
- They are afraid to develop the talents or capabilities they need to be successful.
- In general, we see these people as ‘playing not to lose’.
My Personal Real Estate Investing Mindsets
My real estate investment plan is simple. My goal is to be able to make money in any market. I buy for cash flow as a rule and any appreciation I realize is a bonus. I will actively position myself for a profitable sale should the opportunity arise. However, that sales price has to be exceptional to give up the cash I have come to enjoy. I look at the cash flow from my rental portfolio as an annuity, that when properly managed, will support me for the rest of my life. Cash flow is king.
Short Term Gains Are Often Fleeting
Short term gains are nice, but they are often fleeting. The reality is that the market that allows the profitable sale is also the market that may preclude you from buying new properties to replace that cash flow. In other words, you may find yourself with cash on hand with nowhere to invest it that makes sense. So, unless you have debt to pay off or think you can time the next downturn and drop in values to make a better buy, think long and hard about that short term gain relative to the long term annuity.
I Will Only Finance A Property ‘To Term’
Real estate without debt is the most amazing cash flow machine in the world. Debt is what cripples and bankrupts so many real estate investors. Debt has its place and I use it, but I will only finance a property to term. This means I will not take out a loan with a 20-year amortization and a 10-year balloon payment. There is no guarantee that financing will be available at rates that make sense in 10 years. The only way I would do this is if I knew I could pay off the loan in 10 years.
Summing Up My Philosophy
So, in a nutshell, I buy and hold. I do not flip properties. Cash flow is king. Debt is death. Real estate markets change every few years. Access to financing can change even faster based on world events that have no bearing on the local market. And finally, I think investors make more mistakes in markets that are doing well than they do in markets that are struggling.
She Who Hesitates May Or May Not Be Lost
Looking back over my career there were several times where if I had waited a bit longer to consider all of the ramifications of a purchase, I might have talked myself out of it. Sometimes that would have saved me money and heartache but more often than not, hesitation and the loss of an opportunity would have been costly.
Avoid ‘Analysis Paralysis’
The last thing you want to do as an investor is let ‘analysis paralysis’ set in. There is a certain amount of risk in every investment but it is the risk that creates the reward. I want my investor clients to be armed with all of the information they need to make well-informed decisions and manage their risk.
I hope these ideas inspire you to think critically about your personal real estate investment business. Every investor has different hopes, aspirations, and personal goals. Real estate investing can be a fantastic vehicle to help you get to where you want to be financially in life.
Care To Learn More?
Are you interested in diving deeper into your personal mindsets and motivations as a real estate investor? Set aside 15 minutes and complete the Making Real Estate Work Mindset Scorecard at www.PropertyManagementScorecard.com. You will get instant results and insights to your own personal view of the business you may not even be aware of. For more information about The ROOST Landlord Advantage™ property management system, visit us at www.ManageWithROOST.com.