Warren Buffet famously said, “Risk comes from not knowing what you are doing.” So simple and so true. That is why I decided to put together this simple little guide to help you understand what you need to know to invest in real estate. Done right real estate creates more millionaires than all other asset classes combined. Done wrong it is a never ending and very unforgiving nightmare.
This guide isn’t going to be large enough to get you all the information you will ever need to build a great real estate portfolio. What it will do is cover all of the major aspects of investing so that you can feel confident buying an investment real estate property, go through real life examples of what it takes to get a successful investment, and answer questions that you should have.
If you are in your 30’s or early 40’s then you probably, much like myself, remember very vividly the real estate crash of 2007 and 2008. You probably have a little bit of hesitancy when it comes to buying houses, and you probably have some PTSD from watching people that you know and love suffer because of their decisions in buying real estate. Here is the good news, we can learn from the past! The situations that cause the real estate melt down are all but gone now and the risk can be minimized just like Warren Buffet said by simply knowing what you are doing.
If you are under 30 years of age then congratulations because anything that you bought since 2010 has appreciated in value as you have been part of a bull run that is the second longest in the history of the United States housing market. You could have bought just about anything in the past 9 years and as long as you weren’t completely taken advantage of, you are sitting in equity in your home. The one thing I want to say to that is simply, recognize this had nothing to do with you or your intelligence in regards to the market.
Rule number one in creating wealth is simple, “Never lose money.” If you obey this one rule, over time you will be rich. We are all familiar with the book “Rich Dad Poor Dad” by Robert Kiyosaki. The rich dad in the book is a man named Keith Cunningham. He has written several of his own books including his latest book, “The Road Less Stupid.” In that book he talks a lot about the “Dumb Tax” that basically all people pay at some point in their lives. He asks the question, “How much money would you have right now if I gave you the ability to unwind any three financial decisions you ever made?” I think the answer is the same for pretty much all of us.
The fact is, most of the dumb tax we have all paid is due to making overly optimistic and poorly thought out decisions. In my own life I have had to learn the hard way that success is never going to come down the path with the least resistance. Investing the correct way in anything and especially in real estate is actually quite boring. It is a long game that favors you over time as you accumulate assets and equity. If any real estate investor or agent promises you riches in the short term it is likely that they are using the 3 P principle to make a few bucks. Pitch, Propose, and Pray. They are hoping to ride a hot market so that you make money and come back to them for additional help. The reality is, real estate should make you money regardless of the type of market you buy it in.