Simply Junior

This is a question that first time investors usually ask. Veterans in real estate investing and companies like Enlightened Wealth Institute say that there is no right time or wrong time – anytime is a good time to invest in property!

Unfortunately, a lot of people actually fear real estate investing, especially with the worsening credit situation in the US and the dropping real estate prices. People are afraid of purchasing their own homes or are unable to because of their bad credit rating. Some people also fear that with prices going up, construction materials are also going to cost more than the profit that they can get from investing in fixer-upper properties. The lag in real estate prices is aggravated with the media describing a “housing crash”.

But you see, despite these negative notions about real estate investing, there is an opportunity waiting to be tapped! First and foremost, prices are dropping – which means quality homes at lower cost. Real estate investors can choose from a number of properties from sellers who are willing to sell such as banks. Homes that need a little work can be purchased at an even lower price.

Secondly, with more people not wanting to have their property and the population growing, there is an increasing demand for rental houses. Of course these people need to live somewhere! With fewer people who are willing to invest in real estate and more people needing an abode, rent prices are bound to go up, resulting to a positive cash flow to those who are willing to risk.

If you decide to engage in real estate, you need to understand that there is no fool-proof approach to real estate investing. The fix and flip model doesn’t work well with falling prices but there are tools that will help you predict which approach will work best with the current state of the economy.

You also need to understand that just like the economy, the real estate industry moves in cycles; it never stays low or high for a long time. This means that just like stock trading, you need to do your homework and read in order for you to learn how to predict the next pattern in the cycle. You need to learn the basics of real estate and that’s where Enlightened Wealth Institute can help you. You also need to get historic data so you can plot the trend.

Some people at this point in time choose to rent out property; you however, don’t need to follow the trend. You can approach real estate investing differently. After all, investing is all about taking risks. Just make sure you are making an educated guess.

Real estate investing can take many, very different, forms. For example, some forms of investing are; buy-hold-rent, buy-sell-wholesale, buy-rehab-sell, short sales, pre-foreclosure, foreclosure, and on and on… you get the picture. There are many different ways to get your money either into, or out of real estate. If you disagree, stop reading and go watch interstate traffic or the grass grow. However, in the event that you agree, by all means please continue.

In my experience I have determined that most investors (including myself) will measure each opportunity using very different, almost personalized, formulas. Potentially these formulas can take into consideration and include many factors. Below is an example of what factors might be considered during the investment assessment process.

o What sort of experience do I have in that form of real estate investing?
o Availability of funding- Is my lender flush with cash looking for work?
o Is comfort zone stretching required? Be gentle, it’s my first time.
o Proximity to where I live- Is the investment a short/long drive away.
o Is my exit strategy sound? How good is my backup?
o How long will it take for me to realize a profit? Is that time frame acceptable?
o Historical considerations- Have other investors tried and failed? Why?
o Insight of trusted advisors- Mentors and teachers are a valuable resource.
o And many, many more units of measure depending on each individual investor.

All factors, whether listed above or not, are very important. Each one should have its own well earned place within the assessment exercise. I wouldn’t suggest that any one factor deserves any more or less consideration than the others. However, this article addresses, in my opinion, one of the more important and less frequently talked about factors in real estate investing. I call it investment conscience; or in street lingo; just-because-I-can-doesn’t-mean-I-should.

Investment conscience is defined (by me because it’s my article) as an investor’s learned ability to recognize when to swing for the fences (hit that home run!) and when to be satisfied with a base hit. I purposely italicized learned in the previous sentence; because I believe that an investment conscience is a learned skill. Most investors feel their investment conscience begin to grow with experience.

The more deals you do (both profitable and money pits), your sense for what feels right and what feels wrong grows more profound. I bet you can pick out investors in your club that have extremely obvious and bulging investment consciences. They are the investors that are continuously surrounded by new investors eager to feed off of the experiences and integrity of this “mentor type” investor. However, sadly, some investors never grow one, or worse yet, keep it hidden or carefully disguised from their peers as well as their customers.

Our industry has developed cutesy little name tags for these (non-conscience) investors; “sharks” and “snakes” immediately come to mind. (As a matter of fact, I know guys that fit these labels very well. Maybe you do too?) There are many other words and phrases that I could use to describe this type of investor. However, because this is a family newsletter, (and you never know when it might be viewed by little investor eyes), I’ll hold my fingers. I actually have a better and far more descriptive (as well as G rated) name for such folk, “pirates”.

That’s right, the walk-the-plank, shiver-me-timbers and (how could I ever forget?) pillage-and-plunder, PIRATES. You disagree? Perhaps a closer look at real pirates might inspire some head nodding, Aye mate-ee?

Real Pirates:
o Carry weapons in the form of swords or single shot pistols.
o Wear eye patches.
o Tend to pick on rather easy targets while avoiding anything close to a fair fight.
o Take all they can from an encounter and leave their victim much worse off after their visit.
o Strike fear in all those that oppose their selfish needs and wishes.
o Steal wherever they go, never accumulate wealth and live battle to battle.
o They never stay too long in any one location preferring instead to remain a moving target.
o Are followers with very little to offer in the form of an original thought or ideas.
o Use sticks or hooks to replace their severed limbs.

Now let’s take a look at pirates disguised as investors:
o Carry weapons in the form of knowledge and a fast tongue.
o Head into their appointment with a decided advantage over the already off-balance and (in some instances) a scared-close-to-death homeowner.
o Homeowners/ Customers are usually left in a much sadder financial condition because of the pirate’s involvement.
o They have very few repeat customers.
o They brag about deals in which they “fast talked” a frightened homeowner out of their equity.
o They are usually very bright and easily recognize an opportunity to take advantage of someone, be it a homeowner or fellow investor.
o Wear puffy shirts (for fellow Seinfeld fans).

Can you see some of the similarities? Do you know any pirates?

Let’s face it there is a distinct difference (as well as a very fine line) between seeking an advantage and taking advantage. Learn to recognize the difference. Look to maximize whatever opportunities exist for the homeowner while leaving them better off having met you. Not only will you do more business; but you’ll begin to attract new and loyal customers for your services. Incidentally, lenders of all kinds (hard money) are very attracted to this form of integrity.

Learn to recognize the scent of pirates. Be sure to steer clear of these scallywags. Oh yea, be careful as some of them have a mean (left) hook. ARGggggggggggggggggggggggggg!