I recently reviewed the Forbes Rich list of the richest Americans. I couldn’t help but notice the pattern of wealth creation; almost all wealthy individuals were entrepreneurs or descendants of entrepreneurs. Second, they derived their wealth from owning or investing in real estate, technology companies, the stock market, manufacturing, the entertainment industry, retail, and commodities.
This pattern of wealth creation reinforces my belief in the primacy of investing in real estate as a vehicle for creating wealth. I believe that you can be successful by investing in real estate. What you need is to have the right attitude and mindset.
I have learned by trial and error some of the important lessons in real estate investing. My main area of focus has been residential properties. Even if you’re a seasoned real estate investor, some of the advice I share still applies to your investment, because it’s timeless advice that will set you on the path to success.
Here are some facts about investing in real estate that could boost you to riches fast. I urge you to take these tips seriously.
Tip #1. Start small.
The reason you want to start small is that you are on a learning curve. You want to keep your risk small. I suggest you spend a lot of time learning the basics of real estate and a little money on your first business. Unfortunately, most people do the opposite… they invest little time and spend a lot of money. This is why many investors fail and wonder why they failed. Just because real estate is wealth-generating doesn’t mean you don’t have to learn how it works to get rich.
Tip #2. invest for value. avoid speculation
When you invest for value, you’re on the right path to building wealth. How do you invest for value? The answer is simple. Look for properties with cash flow and potential capital gains. This is important because value investing in real estate is the foundation for wealth creation. Donald Trump, Sam Zell, Donald Bren and all the other real estate moguls you can find on the Forbes Richest List made their fortune in real estate by creating value. There is a difference between a value investor and a speculator. A value investor buys a property based on its full value, both today and in the future. A speculator buys in the hope that the price of the property will increase… this type of approach is no different than playing at the casino tables in Las Vegas.
Tip #3. Start and stay close to home.
When starting out as a beginning investor, it’s important to focus on an area close to home… one that you can get to know very well. When I say close to home, I mean you can drive, walk, or bike around the area regularly. When you focus on a nearby area, you can see if it is shrinking or growing. You can observe the trend in property sales and rentals. Also, look up the major brokers operating in your area, call them to find out more about the area. This is important because when a property comes on the market, you can quickly tell if it’s a good deal or not and you can act quickly. My first real estate deal was a disaster because I bought a property that was a 3 hour drive from my house. I failed because I wasn’t close enough to understand and observe the trends in the local real estate market.
Tip #4. wait to make mistakes.
When you start investing in real estate or any business you are bound to make mistakes, everyone I know does. Remember that your mistakes are not setbacks. They are steps in the learning process. The important thing is to learn from mistakes, correct and continue acting. The fact that you can make mistakes is one reason to buy cash-flow positive property, because it can help cushion those mistakes. There is a theory of success called accelerated failure. The reasoning behind this theory is that you are more likely to fail in the initial stages of starting any business, however, the faster you can fail, the faster you can begin to succeed. So don’t let the fear of failure stop you from starting to invest in property… it’s all part of the learning curve.
Tip #5. Know what you can afford.
This means figuring out how much the cash flow you want will cost you. In other words, how much will it cost you to get an ROI (return on investment) of 20%, 30%. Second, if your assumptions about the property deal are wrong, you can afford the losses from your mistakes. Before you start investing, ask yourself these questions; How long can I afford a vacant property if my tenant moves out? If there is an expensive maintenance problem, can I pay for it? Remember, the purpose of investing in real estate is to solve your financial problems, not give you bigger ones to solve.
Tip #6. Look for ugly ducklings that you can turn into swans.
One of the best ways to make money on real estate investments is to look for a property that someone has walked away from due to a problem. Find out how to fix the problem and you can instantly increase your property value. An example that comes to mind is a one-bedroom apartment I recently purchased in an apartment building. The problem with the property was mold and mildew in one of the rooms. Because of this problem, I was able to purchase the property and 25 percent below market value. I solved the problem with the help of a construction specialist and, as a result, I was able to increase the value of the property and charge more for rents. The lesson here is to focus on turning “ugly ducklings into beautiful swans” so you can create value for your portfolio and get rich in the process.
Tip #7. Always remember to look at the numbers.
One of my mentors, Robert Kiyosaki, author of the bestselling Rich Dad Poor Dad, used to say, “Think with a calculator, not with your heart.” This is important because once you understand the area you have chosen to invest in and know what property you are looking for, you should continue to keep a close eye on the numbers for your chosen property. The numbers are; the price you pay; mortgage interest; rental income; maintenance cost; vacancy rate and any other factor you need to analyze the profitability of your investment. All of these numbers should add up to… make you money or else you’ll end up in financial trouble.
Warning, cheap can mean expensive
One of the most common mistakes I see investors make is the assumption that because a property is cheap, it will be profitable. This is far from the truth because price is not the only success factor when investing in real estate. You should never let your guard down or sacrifice your principles for what seems like an attractively low price. The important point to note; Does the property meet your criteria? Do you have positive cash flow? Remember this… Just because a property is cheap doesn’t mean it’s a good deal. In fact, if you buy a cheap property that has no value, it could be the most expensive property you can buy.
You can get rich by investing in real estate. All you need is a goal to succeed, a determination to persist until you succeed. You can accelerate your path to riches, when you follow my advice