The new real estate money frenzy is here, but how do you find balance between excitement and sustainable success?
Today’s money landscape is reminiscent of 2003. Perhaps the real estate, economic, and financial markets aren’t yet, but the mentality certainly is. It’s everywhere. We are hearing all of the same lines: “It’s different this time.” “Price doesn’t matter, only cash flow.” “Those old guys are too scared and should be maxing out their credit.” The mentality is exactly the same. It’s like watching re-runs.
There are certainly some experienced veterans who are setting their watches, and waiting for the new money crowd to crash and burn so that they can pick up their portfolios at huge discounts. That includes many banks, but there are absolutely some who are being too conservative. The market is different right now (but not for the reasons the new money thinks), and being too cautious and paralyzed into inaction will be equally costly. Only those that don’t act won’t get to enjoy the huge party in the middle.
So how do you find balance between being too cautious, and just diving in without knowhing what you are doing?
Learning to Respect Leverage
Leverage is both the best ally, and worst enemy of real estate investors. It’s critical for growth, yet extremely dangerous when used poorly. If you really want to enjoy substantial and lasting success in real estate, you need to learn to both fear and appreciate the leverage lion. Tame it to work for you, and you’ll have a lion’s share of rewards. Be careless, and you’ll be its snack.
Make the Money When You Buy
For some, this will mean acquiring rental properties that are already cash flowing. For others, it is buying wholesale deals that can be flipped for cash. For others, it is launching a real estate business or product that they have tested and already have revenues flowing in from day one. Always make your money when you buy, and you’ll be just fine.
Educate Yourself: Know ALL the Numbers
If you haven’t invested in your real estate and business education enough to know ALL of the numbers, there are going to be those that catch you by surprise. Unexpected surprises can bring down real estate crowdfunding campaigns, take individual deals from top to flop, and cause bankruptcy. If you don’t know all the numbers involved, you had better have a pretty sizable reserve fund.
Know Your Cycles and Influencing Factors
Stay safe by knowing your real estate cycles, and the factors that influence them. That way you’ll always see changes coming in advance. You should never have to fear losing money.
Build up a Reserve Fund
Not everyone can wait to build up reserve funds before they get going. Many people need cash, and need it fast. They need to get into real estate investing and sales to get ahead. That’s totally understandable. Just don’t forget to start stashing something for later once that money begins rolling in.
Know What You’ll Do When the Market Changes
Don’t wait until it happens to figure it out. That’s too late. Know which properties you’ll sell, which you will hold and how you’ll keep your business running if volume shrinks. Have strategies in place to capitalize on market changes. Right now, the U.S. real estate market seems set for a bullish run, but it always pays to be ahead of the curve.
Get a Head Start on What’s Next
Don’t just know what you’ll do next: get a head start on it. It could be a side business, investment that hedges against potential losses, or entering a new market. Start making small steps towards that now. At the very least, put aside the capital for it.
Summary
This is an amazing time to be in real estate. Get in, have fun, enjoy the exuberance, and reward yourself, but be wise.
