Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
Well I guess even a blind squirrel can indeed find a nut once in a while.
Case in point – the Huffington Post – not a publication known to appreciate business, commerce or entrepreneurship.
But I read a piece where they got it right. I was drawn to the article because the title made it sound like it was going to talk about why real estate could be good for regular old entrepreneurs. But it actually didn’t talk much about that at all.
But it did discuss what I would consider solid principles of real estate investing for beginners. Their list of 6 included…
Understand That Real Estate Is a Long-Term Investment
This was one of the best of the six. The author wrote that:
“…if you’re planning on investing in real estate because you think you’ll get rich quick, you need to think again.”
Magnificent advice. In the 1990s, it was fairly easy to buy a property, make very quick improvements, and then flip the property, making a quick and substantial profit.
After the housing bubble burst and the recession of the early part of the decade left the economy running sluggishly, real estate has been one of the last areas to rebound.
But it has rebounded. And smart investors know that they need to remember the recent past and keep their eyes open for changes. Real estate investing is a marathon. Not a sprint.
Look, I was a blackjack dealer in Lake Tahoe many moons ago. It didn’t take long for me to realize that you win at blackjack by staying in the game and not busting. You get rich in real estate the same way - by staying in the game. Not by trying for a grand slam every time you get to the plate.
Learn About Past Successful Investments in Your Area
This was also excellent advice. And it flies in the face of what a lot of so-called “experts” tell you about how easy it is to invest from a distance.
Real estate is local. Many entrepreneurs find real estate investment success by buying a property, developing it or improving it in ways that add value, and then reselling it.
But what improvements are going to add the most value in your area, and which are basically a waste of money that you won’t recoup?
You learn this by learning all you can about your local market. One way to understand what’s working in your area is simply to look around.
For example, in Portland you’ll find that you can add value to a building by adding bike lockers and a fitness area in a mixed-use building. In New England, however, a very different set of features might be desired.
Knowing what tenants or homeowners want in your area is the first step toward successful investment.
Find A Balance Between Choosing the First Property You See and Waiting for a Unicorn
This is the best piece of advice that they offered.
To translate – it means you need to actually get off the fence and buy something.
In a lot of cases, real estate investors are overeducated. There’s a ton of information out there to teach us the different techniques and approaches.
In far too many cases that I’ve seen, however, new real estate investors get caught up in perpetual learning and that causes a kind of analysis paralysis.
The bottom line is that at some point, we need to take everything we’ve learned, apply it, make an educated and informed decision – and buy something.
Location Is One Element of a Building You Can’t Reasonably Change
This is also a tremendous principle. Why? Because you can’t change location.
This is equally true for landlords and flippers.
The “conventional wisdom” is that we should look for the worst house on a street.
But that’s only partially true. If you buy the worst house on a street in a bad or even marginal area, all you’re going to do, usually, is flush your (or someone else’s) cash down the toilet.
No – the goal should be to buy the worst house on a good street. Like a street that you wouldn’t mind living on.
Understand the Tax Implications
The author mentioned this as well. It’s boring, but it’s critical. Uncle Sam is going to want his share of what you make.
Just like operating any other sort of business, investing in real estate is a business operation. That means that a wide variety of deductions open up to you, possibly including mortgage interest, depreciation, improvements and operating costs.
So you need to find a good real estate CPA who will help you structure your business to reduce your tax bill as much as you can without crossing the line.
As some wise person once said, cheating on your taxes is against the law. But minimizing the amount of taxes you pay is your patriotic duty.
Always Have a Plan
The author finished with some great advice as well. She stated that “whenever you look at a property, you should have a plan on how to use it to turn a profit.”
Remember – the old saying is true: You make your profit when you buy real estate.
And the way you make it on the buy is by having a well thought-out plan of how you’re going to either operate it or get out of it.
Speak Up
Share your thoughts about these principles in the comments section below.