We are all looking for the secret, the knowledge on how to become a successful real estate investor. There is no silver bullet answer as everybody has their recipe for success. Still, in today’s blog, I would like to give some anecdotal narratives about a successful career in real estate investment. I would like to share these stories with you to picture the different scenarios linked to real estate investment. The first story revolves around a 60-year-old man who owns four mortgaged properties and seeks to acquire another. However, he has defaulted on a few payments to the various properties, and his credit rating has been affected. To keep up all the costs and secure a fifth mortgage, the man worked long hours to earn extra overtime to repay his loans. So this poses the question is he a successful investor?
Some will say yes because he owns five properties, but others will question if his life-work balance is over-leveraged, leading to a shortened life span. He is not successful because there is too much stress, hard work, and long hours. Instead, I would focus on one or two healthy cash flowing properties in my portfolio than have to deal with the stress of over-leveraged assets and making repayments on time.
Another anecdotal story is of a lady I know with three properties. Two are investment properties, and one is her residential home. She also has over $300K consumer debt to service and was thinking of selling one of the properties to pay off the consumer debt she owes. However, she changed her mind and instead contemplated investing in another property. So the equity coming out of one of her properties was used to service debt. So my question is this, do you think she is a successful real estate investor? She had two properties and is now left with one. She is spending the money she wanted to make from the property way ahead of receiving the money. So to me, that’s a lack of planning, so my question is, is that the kind of investor do you want to become?
The third story I would like to tell you is about a lady that wants to be an investor. It’s her first time investing in real estate, and she doesn’t know how to get started. She owns one property but has lost her job and is at a crossroads in her life. She is thinking about becoming self-employed rather than going back into the workforce. With the equity she has in her home, she wants to start a business in real estate investment. However, this may present a problem for her because without a job and regular salary income, a bank will not release the equity in her home to invest. So a little bit of planning and research is required before deciding to invest in real estate.
A similar situation arose with an enthusiastic new investor I met while attending a seminar-workshop on real estate investment. Its purpose was to inform investors about the best techniques to employ when buying properties at an auction in Canada which has very different rules than the US. She was excited about her first investment in real estate and was keen to start buying at an auction. I admired her enthusiasm, so I wanted to know her strategy. She told me she would buy a property at auction and renovate it. Then sell the property. I asked her how much cash she had to invest as in both the US and Canada, all property purchased at auction has to be paid with cash as financing was not accepted. She was not aware of this clause as she thought she could get a mortgage on the property she wanted to buy at auction.
This knowledge was a surprise to her, and it meant she would have to change her plans. I asked her about her home property and its condition and if she could rent out a room there. She told me that she had a basement that could be renovated into a self-catering apartment, but it would need a lot of work and separate access. I suggested that it would be sound advice, but she replied that due to the high costs and amount of work involved, she didn’t want to take on the project. I thought that if she could not see the long term value of the space sitting idle in her basement, then maybe real estate investment was not the business for her.
I have noticed many bright-and stary eyed investors all very excited about starting on the property investment ladder. They had no plan, which is an essential tool you require when investing in real estate. It’s necessary to see the bigger picture. You need to walk before you can run, and renovating a basement into an apartment will teach you a lot about the trade and introduce you to people that will be key to your success in the future. Carpenters, builders, plumbers, painters and real estate agents are integral parts of the real estate industry and starting small is an organic way to get to know the trade. Buying and flipping properties is not as easy as it looks and takes a certain level of experience to do be profitable, so always do your research and look for advice.
Here are three tips I would suggest for anybody starting in real estate investment.
1. Analyse your current financial situation. Are you a homeowner? Do you have available equity? Do you plan to buy a home or a rental property? What is the current situation that made you think about investing in real estate?
2. Take a long term view. In today’s society, everybody wants a short term on-demand return. This is a crowded market and offers no value. The long term investment is where the real value lies, so be prepared to wait and park your investment.
3. Evaluate your goals. Cleary Identify the purpose of your investment. What do you want to get out of it? Do you want cash flow or asset appreciation? Will it make your life better?
I will tell you what I did when I acquired my first property.
I knew that I wanted a tenant to help pay my mortgage. So my next step was to find a suitable property that would allow me to do this easily. I researched the market and found a house for sale that was already separated in two and ready to go. It saved me a lot of time, and I invested extra in interior design, making it a more desirable rental. I set out a goal to achieve financial breathing space and achieved it. My first step was a safe one.
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