I remember sitting at my desk catching up on some paperwork on a rainy summer afternoon when a gentleman named Patrick walked into my office and said he wanted to learn everything I could share with him about buying real estate investment property.
We had a chuckle as we both knew it takes a long time to learn all the various nuances of investing and there is no better way to learn anything than experience itself.
We sat down over a cup of coffee and we had a very interesting discussion.
Patrick shared with me that he had read many books and was ready to get started. He said he wanted to work with a real estate investor to be able to get some firsthand experiences as the process unfolded. This guy was a true and eager real estate investor in the making. Within this discussion we talked about dozens of topics and 5 items stood out as new information that he has yet to read.
I have repeatedly heard comments around these 5 topics and I must admit I never read or heard these talked about by any one of the real estate “gurus.”
There is a lot of duplicate information available, but there also appears to be some missing items that never seem to get discussed by the gurus. Here are the 5 things real estate “gurus” never tell you:
No. 1 – Start with the end in mind
Real estate investing is more than just finding great property and running numbers. When you want to create wealth in real estate as Patrick did, you want to create a plan – a long-term vision of what you want to accomplish.
You want to begin with the end in mind. For example, “How many units do you wish to obtain and why? How much money do you wish to obtain each month as residual income? How will you go about this and what steps do you plan to do to accomplish this?”
Life is indeed a journey; however, to enjoy the prosperous journey that real estate investing will take you on, you must have a roadmap so you are aiming your investments and decision making process toward the goal. All too often I see wannabe investors haphazardly chase the shiny object. It is too easy to get caught up in the, “I will do this, no wait, I will do that.” It is rhetoric of what looks exciting at the time. Patrick was serious. He knew he wanted to create a retirement of $25,000 a month in passive residual income. Now that was a great starting point for creating a plan.
No. 2 – Decide if you want to be an active or passive investor
There are so many types of investing and ways to invest that it will take you years to figure it all out. By the time you do, the tides may have changed, so you always are learning new things. To cut through a lot of these lessons, I believe it is paramount to your self-discovery to figure out what kind of investor you aspire to be. Because this is rarely discussed Patrick too was confused. We discussed the differences between being an active investor where you are involved in the day-to-day activities and the decision- making process, typically in hopes of making short- term profits and repeating. The passive investor is less active in the day-to-day decision making process and typically invests for long-term consistent returns. This conversation was a self-discovery for Patrick. He said he has visited a lot of real estate investment associations, and most of that discussion fell into the active investor arena. While Patrick was fine being an active investor for a while so he can learn all there is to learn, he definitely aspired to be a passive investor for the long term.
No. 3 – Create your power team
Every successful business person has surrounded himself with a team of professionals who can help to accomplish the goals with the least challenges and in the shortest amount of time.
Building wealth in real estate is no different. You want to surround yourself with a power team of professionals you can rely on to give you great advice and help you accomplish your goals.
I shared with Patrick my story where I had struggled with setting up a business LLC that would provide me with the asset protection and the liability protection I wanted. My attorney would tell me one thing and my accountant would tell me another. What I discovered is each of these professionals would advise me the best way to accomplish what their professions would suggest. When I sat them in the same room and shared what I wanted to accomplish for a long-term strategy, together they came up with a plan that would best suit my needs. I saved a lot of money versus going back and forth and for many years. These same professionals knew my end game and worked diligently to help accomplish this. Real estate attorneys, accountants, Realtors, property managers and service providers should all know your long- term vision. Collectively you have created a source for not only accomplishing your objectives, but these people also would notify me when they found properties that would help accomplish my goals. A power team working for you is invaluable. This made great sense to Patrick, and he was eager to get his power team together.
No. 4 – Location
Yes, we have all heard the phrase real estate is all about location. Yet interesting enough, most “gurus” I hear talking about investing will make statements to the contrary, like, “This is not bound to geographic restrictions.” I had one personally tell me many years ago that the biggest thing he sees holding people back is they believe they do not live in a market that will be good for investing. To which his reply was, “You can do this anywhere.” Yes, you can buy investment properties anywhere and perhaps you can find properties where the numbers will work. BUT, real estate investing is also about location. Locations that will provide the most sustainable returns for the long term. Since Patrick said he aspired to be a passive investor he knew that long-term sustainability was important to him. So location was on the forefront of his objectives.
No. 5 – When to reposition
After you are armed with your long-term investment strategy to create wealth, it is imperative to keep your investments working at optimum. As real estate is all about location and as every market is cyclical in nature, it is imperative to monitor your real estate market. At the time the property within your market peaks, such as the all-time high sellers’ market, it may be time to reposition. Sell now for top dollar and take your gains, do a 1031 tax deferred exchange and reposition to the next emerging market. This way you are always riding the growth wave and avoiding the down wave.
Yes, Patrick and I had a great discussion that afternoon. It is one I will always remember as he was so eager to be a sponge and absorb everything he could. I was intrigued with all the diligence and reading he had done and yet none of these 5 items ever surfaced.
I sold Patrick several properties over the years and we have had many interesting discussions. Because he was purposeful from the start with a clearly defined plan that he indeed did share with his power team of professionals, he will easily retire with his $25,000 in monthly residual income.