There are so many topics on investing that I could talk about - passive income, leverage, asset appreciation, flexibility, freedom, control. But the place to start is in knowing yourself. What kind of investor are you? The kind of investor you are will determine whether you are more likely to make money, lose money, or make nothing at all.
Sure, everyone goes into a deal with the expectation of making a profit. After all, that’s the idea of any investment. So if the intent is there (and they’ve found the right asset class), why is it that some lose money? Could it be luck? No, not really. What it really comes down to is knowing yourself and understanding the different types of investors - Real Investor, Speculator, or Spectator.
Real Investors are those who first learn the basics, create a plan and know what they want. For example, they know they want a house - with a basement suite, and a detached garage on a 50’ lot within walking distance to a shopping center, school, or other attraction. They only buy if they can pay $20,000 less than market value and yield no less than $400/month in positive cash-flow. THEY ARE SPECIFIC! They’ve clearly defined what they’ll buy, and by doing so they know what they won’t. They have a filter, and this helps focus their search and prevents them from wasting time looking at inventory that isn’t going to work. These folks have a plan to create wealth – there’s nothing left to chance. They have a plan to succeed and they are less likely to lose money on their investments.
Speculators are the gamblers. They’ll buy just about anything if it has a good story; but this is not an investment – it’s a gamble. These folks look for the next great thing. If they hear that the government might need a parcel for a school or a hospital, they’ll race in to buy something close. But when plans change as they often do, they’re left with a loss or hang onto a property that costs them money every month. This is NOT real investing and they are more likely to lose money on their investments.
The spectators are those that try to know it all and never feel confident enough to take action. I feel bad for these folks because no matter how logical it sounds they simply lack the confidence to act. Nobody will ever know it all. There’s simply too much to know and too many options with real estate. These folks are better served partnering with someone who is an action taker. At least that way they get to benefit from the power of real estate investing without doing it alone. If they don't partner with a Real Investor, they may never see any monetary gain and just continue to watch everyone else invest while they wait for the perfect time. I’ll write about Joint Venter (JV) partnerships on another day.
So, which are kind of investor you? Know yourself before making a decision to invest and understand the risks associated with your style. Of course, I recommend that you become a Real Investor, create a specific plan and invest for the long term. Well located, properly financed and managed real estate will be (for most people) the best investment you ever make.