This was an interesting question I received from a gentleman the other day and immediately I thought about an investor from Argentina with whom I had worked.
He had called telling me that he represented many investors and wanted to buy as much property as he could get his hands on in the Miami, Florida, area.
He was puzzled, however, that the properties he was evaluating were not making the kinds of returns he was looking for. Then, he began wondering what kind of returns he could get in the Los Angeles area, or the New York area. He was shocked and confused to learn the cash flow was nothing like he anticipated.
What is it you really want?
I asked him what it was about those markets that intrigued him so much. His reply was they make the news in Argentina every day. The news talked about the strong real estate market and all the growth and building that was happening. This translated to a buying opportunity for him and his investors. So I asked him what it was that they were trying to accomplish from their investments, and he informed me that strong cash flow was their number one objective.
Clearly his impression of buying property in sexy markets that make international news is not an investment strategy. Truth be told, many people shop for their investments this same way. They want to buy property in markets they are familiar with. Another investor from the Dallas area had family in the Arlington, Virginia, area. He liked the area very much, so he thought he should invest there. He was looking for a mix of cash flow and equity growth. Of course he already lived in Dallas, a great market for that investment strategy. He too was surprised at the lack of good investment opportunities in Arlington, Virginia.
Many investors change course after a strategy call
I continue to see people identify favorite locations for their personal reasons and mesh them with their investment criteria, expecting the two to fit together. This is not always a good outcome. Once an investor clearly defines what he is looking to accomplish and understands his true objectives, it is much easier to match up markets that can deliver the results he seeks.
I spent the last decade embracing the attributes of the different real estate markets. Now more than ever I understand the concept of what location means to the real estate investor and the role that the market economic conditions play in the sustainability of a great investment. The self-discovery that unfolds when I share different markets with these investors often creates the clarity they need to make sound investing decisions.
So how many actually invest as originally intended?
• Roughly 50 percent buy as intended: Seasoned investors have made investments in the past and they have defined their systems. So they indeed have a very clear picture of what they are looking for, where they need to invest and what they need to invest in to achieve this outcome.
• Roughly 30% change from their intended investment: As described above, 30% try to mix personal admiration into a sound investment decision and learn they must rethink their strategy. Once they establish clarity to their short- and long-term objectives they find the best markets for their desired outcome and then make an investment.
• Roughly 20% never make a purchase: Simply because they failed to plan and do not know what they want. Often they chase the shiny object and go from hot property to hot property. Their typical question is, “I just want to buy any investment that makes sense; what do you have that is a great deal?” Regardless of how many great investments they view, without clarity as to what they are looking for, they totally miss all the opportunities as they are unable to see the great investment because they have not identified what that actually looks like.
Often months turn into years, market conditions change and they miss the wave of opportunity and lose interest.
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