Real estate investing is a wonderfully lucrative, empowering and life-changing venture. But you must approach it with the right mindset if you want to realize success.
We have worked with hundreds of investors and many of them have not received the results they wanted – either on their own or with other real estate programs. When we review their investment history, we frequently see that their overall approach to real estate investing needs to be adjusted.
All too often, we determine these individuals view real estate investing as a gamble or a game of chance. In reality, real estate investing can be as stable and predictable as opening up a world-class franchise. The key is to focus on the right things.
Here are a few questions you should ask yourself to help determine if you’re looking at real estate as a gambling venture or an investment business.
Do You Focus on Appreciation over Cash Flow?
Real estate has four distinct benefits:
- Cash Flow
- Tax Benefits
- Principal Paydown
The most secure returns come from Cash Flow and Tax Benefits. Principal Paydown is less secure, but offers some stability to an investor.
Appreciation is least secure and the riskiest (i.e. volatile) component. You can make some great money with Appreciation, but if you time the market incorrectly it can ruin your investment.
Looking to make money in real estate investing through Appreciation alone can be risky. Too much risk equals gambling!
Do You Talk and Think Like a Gambler?
Gamblers use phrases and terms like “bet”, “house money,” and “chance.” Have you ever thought, “I’ll bet a little on this really cheap house and see what happens?” Or used leverage in a way where you’re thinking about “house money” when you refinance and cash out?
If so, then you may be taking the wrong mindset – the gambler’s mindset – into real estate investing.
Do You Want to Gamble – or Own the Casino?
The best place to find a gambler is in a casino. And you have probably noticed that casino owners live a lot better than gamblers!
Most casino games are in fixed rule environments – there are set inputs and outputs.
And the rules themselves are skewed to the casino.
Because there are only so many results that occur from blackjack or craps for example, you can only win by devising a strategy based on probability and betting theory. Without the strategy, it’s just expensive entertainment.
Even with the strategy, you will be lucky to break even.
There are parts of real estate investing that are even riskier than a night in Vegas.
After all, you can lose more than you bet.
If you have to foreclose on a house or pay back taxes, or suffer any number of unforeseen events, you’ll be out more than you invest. This is because real estate investing is not a fixed input/output system. There are a tremendous number of events that can occur in a real estate investment.
Use the Rules to Win the Game
But unlike those casinos, you can use the “rules” to actually help you win more than you lose.
Remember, you have a very strong level of control over the performance of your investment, especially if you focus on the Cash Flow benefits of a property. While you can’t change the market and you can very rarely change the available team, you can change the rehab level, tenant selection criteria, rents, marketing, tenant management, etc.
This control creates a level of safety and wealth when applied correctly.
Research Removes Risk
If you research the right metro areas with the right fundamentals and if you research and find the best teams (acquisition, rehab, management, legal), you will have significantly decreased your risk.
Research trumps probability mainly because a good property in a bad area is still doomed, but a bad property in a good area can do pretty well. An investor who remembers and applies this concept will take gambling and all of its risks out of the picture.
While gamblers will look to score on an investment with little or no research about the market, an investor will focus on Cash Flow, and sound market research – only working in the best markets to get the best results.
Real estate is historically and will continue to be the greatest wealth builder available as long as you approach it with the right mindset – as an investor. Once you stop thinking like a gambler and start thinking like an investor you will be making better decisions and getting better results!
Learn how commercial apartment investing works.
Learn from professional investors with over $415,000,000 in commercial multifamily transactions and a 100% profitable track record. Download your Essential Guide now.