When good investments turn sour
I have the privilege of working with real estate investors from all over the world. As a result, I also communicate with real estate Brokers from many markets. As a result, I encounter stories about exciting investment adventures turn sour real quick.
It usually starts with eager buyers and inventory that is running low, throwing themselves into an investment they may not have researched much. It is ironic to see how eager new investors start adjusting their search criteria and changing their anticipated rate of returns to match the current market conditions. They see it as changing with the times. I see it as an anticipated great investment that is about to turn sour real quickly.
Yesterday I cringed when I heard a fellow agent talking with an investor who was interested in buying a $450,000 single family home for the purpose of real estate investing. Having studied the markets for many years, this Colorado market signals it’s in a decline in values, decline in job growth and decline in population growth. I predicted this market swing a long time ago and sure as the sun rises in the morning the market has begun its downhill slide. When this happens it tends to be a flat or declining market for about a 8 to 10 year span of time.
My thoughts instantly go to OMG, he is buying a $450k home at the peak of the market where the cash flow today is already pretty much flat. his hopes of increasing cash flow and continued appreciation may soon be met with the realization of what have I gotten myself into.
Here is the irony. The agent who has this house listed (a house that should be purchased by a homeowner who wants to live there with their family-- and not an investor) was driving around Florida markets with me at the time looking at homes for investors who understand that markets do go up and down and buying in investor advantage markets that have the ability for long term sustainability is key to successful investing.
Good investments don’t go sour, investors who lose track of good investment strategies buy property that never fit the qualifications of a good investment and they tried to convince themselves they could make it work. This is like trying to fit a square peg into a round hole. Please don’t do that.
A few pointers to keep you focused.
1. set your goals before looking at any property and stick to those plans.
2. Remember the most important aspect of real estate is Location, this is more important for investors than anyone.
3. The second most important aspect of real estate and one you may not have heard of before is Sustainable. We are talking about buying sustainable cash flow in sustainable markets that is poised to offer long term sustainable ROI. This of course is opposite of the gentlemen listed above who is interested in a $450k property in a soft and NON sustainable market.
4. Establish your power team, they will help you find the right properties that fulfill your objectives
5. Do not chase the next shiny object. Perhaps the single largest mistake investors make is they are busy chasing the next shiny object. This can totally derail your investment building potential.
6. Have multiple forms of financing lined up. Different investments are suited for different types of financing. You want to be able to jump at opportunities when the time is right. As they say Luck “Is when preparation meats opportunity.
7. Build your portfolio. Master these steps then repeat the process to build great investment portfolios worth owning.
Happy Investing