Real estate is at the core of almost every business, and it’s certainly at the core of most people’s wealth. In order to build your wealth and improve your business smarts, you need to know about real estate.
DONALD TRUMP, Think Like a Billionaire
I recently checked the Forbes Rich list of the wealthiest Americans. I could not help but notice the pattern of wealth creation; almost all the wealthy individuals were entrepreneurs or offspring of entrepreneurs.
Secondly, they derived their wealth from owning or investing in real estate, technology companies, the stock market, manufacturing, the entertainment industry, retailing, and commodities.
This pattern of wealth creation reinforces my belief about the primacy of investing in real estate as a vehicle for creating wealth.
I believe you can succeed when you invest in real estate.
What you need is to have the right attitude and mindset.
I have learned by trial and errors some of the important lessons in real estate investing.
My main area of focus has been residential properties.
Even if you are an experienced real estate investor, some of the tips I share still apply to your investing, because they are timeless tips that will set you on the road to success.
Here are some specifics about investing in real estate that could propel you to wealth quickly. I urge you to take these tips seriously.
Tip#1. Start small
The reason you want start small is you are on a learning curve. You want to keep your risk small.
I would suggest you invest a lot of time learning the basics of real estate, and a little money in your first deal.
Unfortunately most people do the opposite…they invest little time and spend a lot of money. This is the reason many investors fail and they wander why they failed.
The fact, real estate is a wealth generator does not mean you don’t have to learn about –how it works to make you wealthy.
Tip#2. Invest for value. Avoid speculation
When you invest for value, you are on the right path to wealth creation.
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 basis for wealth creation.
Donald trump, Sam Zell, Donald Bren and all the other real estate moguls you can find in 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 overall value, both today and in the future.
A speculator buys with a hope that the price of the property will increase…this kind of approach is no different from playing at the casino tables in Las Vegas.
Tip#3. Start and stay close to home.
When starting out as a beginner investor, it’s important to concentrate on an area close to home…one you can get to know very well.
When I say close to home, you can drive, walk, or cycle around the area regularly.
When you concentrate on an area close, you can observe if it’s declining or growing.
You can observe the trend in sales and property rentals.
Also, look for the top brokers in your area, and call them to find out more about the neighborhood.
This is important because when a property comes on the market, you can know quickly if it is a good deal, and you’ll be able to act fast.
My first real estate deal was a disaster because I bought a property that was 3 hours drive from home.
I failed because I was not close enough to understanding and observing the trends in the local real estate market.
Tip#4. Expect to make mistakes.
When you start investing in real estate or any business, you are bound to make mistakes-everybody I know does.
Remember your mistakes aren’t setbacks. They are steps in the learning process.
It is essential to learn from your mistakes, correct them, and keep taking action.
The fact you can make mistakes is one reason to buy properties with positive cash flow because it can help you buffer those mistakes.
There is a theory for success called accelerated failure.
The reasoning behind this theory is that you will most likely fail at the initial stages of starting any business. However, the faster you can fail forwards, the quicker you can begin to succeed.
So don’t let the fear of failing stop you from starting investing in properties…it’s all part of the learning curve.
Tip#5. Know what you can afford.
This means finding out how much it will cost you for the cash flow you want.
In other words, what will it cost you to get an ROI (return on investment) of 20%, 30%.
Secondly, if your assumptions about the property deal are wrong, can you 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 a costly maintenance problem, can I afford it?
Remember, the purpose of real estate investing is to solve your financial problems, not give you bigger ones to solve.
Tip#6. Look for Ugly ducklings you can turn to swans
One of the best ways to make money in real estate investing, is- to look for is a property that someone has walked away from-because of a problem.
Figure out how to fix the problem and you can instantly increase the value of the property.
One example that comes to mind is a one bed flat I bought recently in an apartment building.
The problem with the property was the presence of mold and dampness in one of the rooms. Because of this problem, I bought the property and 25 percent below market value.
I solved the problem with the help of a building specialist, and as a result, I could increase the property’s value and charge more for rent.
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, bestselling author of Rich Dad, Poor Dad, often says, “Think with your calculator, not your heart.”
This is important because once you understand the area you’ve chosen to invest in… and know what property you are looking for,… you need to follow through by looking closely at the numbers on your desired property.
The numbers are; the sale price of the house, the mortgage interest, rental income; maintenance cost; vacancy rate, and every other factor you need to analyze the profitability of your investment.
These numbers should all add up to…making you, money, or you wind up with financial problems.
Warning, Cheap may mean expensive.
One of the most typical 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 the price is not the only factor for success when investing in real estate.
You should never let your guard down or sacrifice your principles for what seems to be an attractively low price.
The vital point to bear in mind is; Does the property meet your criteria? Does it have positive cash flow?
Remember this… Because the property is cheap does not mean it’s a good deal.
In fact, if you buy a cheap property with no value, it could be the most expensive one.
You can become wealthy by investing in real estate.
All you need is a goal to succeed, and a determination to persist until you succeed.
You can accelerate your path to wealth when you follow my tips.