Think Long Real Estate Investor
The examples of investors of all stripes losing money are abundant. However, most of them share a common characteristic: their perspectives are skewed because they make decisions based upon the right here and the right now. Conversely, the examples of people becoming wealthy are abundant because they also share a common characteristic: they make decisions based upon a long-term perspective.
I love watching the show “Flip this House” (and others like it i.e. “Property Ladder”) because they are cases-in-point of exactly what a real estate INVESTOR should not do! The show’s like listening to most country music - it’s a story about a disaster in progress. The problem is that most people don’t know the difference between a real estate investing success and a disastrous failure. And the problem is that both look very similar. I mean who could argue with the great profits that the people on these shows are seen to be creating right before our very eyes. Putting aside that these shows don’t bother to wait until an actual sale takes place which sugarcoats the hypothetical profit and fails to take into account such things as negotiated offers for thousands less, seller’s concessions, failed contracts, commissions, holding costs and capital gains taxes, the true problem is that these speculators could become investors if they just thought a little differently.
The difference is that INVESTORS think long, SPECULATORS think about right this moment. Almost every aspect of how the speculators on “Flip this House” conduct their business is contrary to how successful real estate investors work.
Professional real estate investors:
- know their industry
- know how to realistically estimate value correctly based upon tangible factors
- understand that they make money when they buy and especially when the buy with a margin of safety (they don’t chase deals!)
- understand the importance of cash flow and how to create it
- only make improvements that add value
- make short term sacrifices for long-term profit
- understand the tax implications of their decisions
… And last but certainly not least, they think long and make decisions based upon a perspective that is looking long-term.
Take a look or a listen to the description of today’s tumultuous real estate market and you may get the impression that there is no money to be made. Yet professional investors are literally salivating at the prospects for creating wealth. They love to see all the one-time seminar newbies who have become impatient because they haven’t grown rich overnight leaving this business in droves, following the advice of so-called experts who make their money by talking, not doing.
What follows are some ideas about what a professional real estate investor would do as opposed to what some of the speculators on “Flip this House†do.
The investor would study their industry and their markets. They would resolve themselves to be flexible and understand that the perfect deal will never come along. They would find prospects inexpensively and regularly – knowing that the more prospects the greater the opportunity. They would try to minimize commissions and closing costs. They would find out what adds value in their market and only make improvements that do so instead of trying to make a property into something it’s not or something they would like it to be based upon their taste. They would act quickly yet prudently. They would have a plan to start immediately adding value upon the closing. They would learn how to add value with the least expense such as learning how to be you’re own contractor and using the skills of others to your best advantage. They would NOT do the work of adding value themselves because a professional investor understands that time is their most valuable commodity. They would work fast without cutting corners and they would implement their exit strategy which would almost always NOT include flipping the property. For instance, instead of flipping they may choose to refinance and thereby take out the equity that they helped to create. In doing so a portion of their profits are returned to them tax-free and with additional beneficial tax advantages.
I could go on (and will in future articles) but I think (and hope) you get the point. Just in case you missed it, it is that successful real estate investors think long and create wealth instead of just trying to make money!
What do you think?
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