Real Estate Investing – Guts & Time
Real Estate Investing requires more than just money – it takes guts (#1) & time (#2)!
#1 – It takes guts! There is risk with any kind of investment. You can loose all the money you put into the investment or more. For example: If you buy a $140,000 house with $28,000 cash down, $112,000 loan and an extra $12,000 in closing cost & repairs – in the end you could end up with a down turn in the market and SNAP – your investment could be worth $105,000. Then again…… it can go the other way too: same numbers & BOOYA after a bunch of sweat & repairs it’s worth $195,000 . With this example – you’d have a “two-fer.” This is when you get 2 dollars of equity (“two-fer”) for every dollar you put into a deal. If you weren’t tracking the numbers here’s the math again: Buy a $140,000 with a total of $40,000 cash towards the deal ($28,000 down & $12,000 in repairs+). If the value goes up to $195,000 and your loan is $112,000 then you’ll have $83,000 in equity. I know it’s just equity and not cash in your pocket…but it’s not a bad thing to have, right?! Look, if you don’t get excited about this sort of reasoning just stop reading now. You have to be intrinsically motivated to have the guts to do ALL the things necessary to invest in real estate: go look at tons of properties, make offers, negotiate, sign lots of paperwork, coordinate contractors, etc. If you don’t have the tolerance or can’t stomach the risk, please don’t buy any real estate. This isn’t for the faint of heart. Strong people only please. Get fired up! Get hungry for it! Or call you stock broker and buy some safe mutual funds.
#2 – You have to be willing to take your time & learn. If you’re wanting to do something fast, then go to Las Vegas and put all your money on some random number on the roulette wheel. Any idiot can do it and you might win something. Probably not!!! The smart investors take the time to truly understand all of the details of a purchase. I love telling the story of a friend who bought an 8-plex and within 2 months, refinanced the property, go his cash back, bought himself a truck and pockets $1,200 month of positive cash flow! Sounds like a late night “infomercial” from the 1990’s, right? Well…. let me tell you the long story: my friend & I spent over a year looking for rental properties to buy. He already had a few rentals and continued to find ways to improve them. He also researched the rental market and understood the supply/demand of 1-2 bedroom apartment. He knew exactly what “market rent” was for a specific type of rental and spent time learning his craft. When the 8-plex came up for sale, he knew the rents were low & with a bunch of work he could turn it around. During the 3 months of inspections, loan approval and waiting to close he prepared for the day of closing. He had it surveyed, met with the City Planner, planned for a subdivision, and created a detailed list of repairs/remodeling. So, when he finally purchased the property – he was like a rocket. In 2 weeks, everything was painted, refinished and sexy looking. The 8-plex was really 2 buildings with 4 units in each. When he subdivided the property, making them 2 separate 4-plexes, he made it possible to refinance with a secondary market loan (30 year term, much lower & fixed interest rate, and appraise for a crap load more). Super success story! He was lucky to pull it off in only 2 months, right? WRONG! He spent a year looking & learning the real estate market. Then he spent 3 months of planning, inspecting and meeting with City officials & contractors before he even owned the property. When he finally purchased it, he spent another 2 months focused on everything else. This WAS an amazing deal but it wasn’t really a over-night investment. He took his time & learned the market so when the opportunity presented itself – HE JUMPED ON IT! In the real world, this is how it works. Take your time & learn. Then, when the right property comes up – JUMP!
Look, I’m just trying to be honest. If you’re not willing to take the time to learn your local real estate market and you don’t have the guts to go-for-it when the time is right – then find something else to do! Open a savings account. Buy some gold. Hire someone to manage your investments and DON’T invest in real estate. It’s not for everyone!