I would not have voted for war if I had known then what I know now.
—Ken Lucas
Movies are my greatest source of income. I make more money making movies than any other income source, including stocks, financial speculation and real estate speculation.
—Jackie Chan
I own 1900 units. Why do I need a401K? Robert Kiyosaki, Time Magazine interview
It is important to be true to yourself, and that it should follow.
William Shakespeare
From Robert Kiyosaki and Donald Trump to Robert Allen Carleton Sheets, to Dolf De Roos and Diane Kennedy, real estate investing is touted to be a way for average people to build wealth.
Is real estate the right investment vehicle? This would be a universal answer. Stocks would then be the best investment vehicle and everyone would be satisfied. Since 1994, I have owned investment real estate. Tenants have tried to squat in my property, I have been sued and a unit was vandalized. Someone also drove into one my buildings. I have dealt with many property managers.
Would I have purchased my first property if I had known then what I know now? Yes. The answer is yes. Real estate has done more than the stock market for me with less overall financial risk, despite the headaches that have been many.
These are five ways to determine if real estate investing is right for you.
1. Are you a good manager? Do you have significant short-term debt? These are the two most likely answers. Do not invest in real property until you have addressed these issues. Real estate is illiquid. The hold period on your property after purchase may be considerably longer than you anticipated. Your potential exposure to unexpected expenses may be greater than you anticipated. A financial nightmare could result from a large amount of short-term debt, or inability to plan your finances in advance of unexpected expenses.
2. Can you be a team player? Real estate investing requires you to partner with others in order to achieve your goals. It also means that you must recognize the fact that your partners might know more than yours. There will be brokers, property managers and attorneys. You may also encounter handymen, plumbers, electricians or roofers. Real estate investing is not for you if you are a control freak or prefer working alone.
3. Are you clear about the type of investing that you are going to do? Are you looking to invest for cashflow, or speculate for appreciation? Are you able to use your analytical skills to create a pro forma for the property that you are buying?
4. Realize that wealth building in real estate takes many years. You have to “survive your first two properties” to create wealth. Baking bread was something I began 20 years ago. I was introduced to bread baking by a guidebook that showed a “loaf of learning”, a simple loaf I could use to practice mixing, kneading and still produce a tasty product. “Buildings for Learning” will be your first property. Once you have completed the initial learning curve you will be able to build wealth. Real-estate in certain markets can generate appreciation returns that exceed expectations. This creates the illusion of instant cash and gives the impression that it is producing immediate income. Two such markets have been in my experience. My future financial security would not depend on my ability time markets. The core investments of sophisticated investors are cashflow properties and properties that can perform in hot and cold markets.
5. What is your reaction to bad business news? Are you able to solve problems or is your anger dissipating into anger? A successful business requires the ability to solve problems. Real-estate investing is a business. Real estate is also a people-oriented business. This means that your tenants and service personnel who market and manage your properties are people. Real estate investing is not the right choice for you if you are afflicted by the failures of others. Tenants who fail to pay rent will be evicted and your property manager will charge market or above-market for repairs. Your property manager will also fail to properly market your properties in order to keep them full.
Real estate investing can be a great way of building wealth. However, not everyone is right for it. It’s easy to get “caught up” in the excitement and jump, but it is important to take the time to understand yourself. These five points will help you do that.
Next, you need to learn about the local market, pricing options, rents, and financing options. Start by looking for a local Cashflow club or real estate investing group. You should ensure that at least one member of a local real-estate investing club owns investment property. This will ensure that the club is not just a group of “wannabes”.
Next, you will need to assemble your property managers, accountants and brokers. Interviewing potential candidates is the best way to do this. You will need to trade members once you have chosen a team.
