Kick-Start Your Career in Real-Estate Investment

To jump start your career in real estate investment, here are the rules to follow. The real estate market is constantly fluctuating, but many of the basics stay the same — as do these rules.

In real estate, even when the market crashes, you will still have a tangible asset to salvage. Of course, there are many other nuances when comparing the two, but to become a real estate mogul — you’ll have to stick to real estate.

[b][i]This post has been quoted from http://www.entrepreneur.com/article/250976[/i][/b]

So…what ARE the rules to follow? :anon

Here is a good rule! NO RULES!

One must look at each and every transaction available and make an assessment; and leave greed out of the equation! IF the transaction/price/terms/etc. can stand on its own, then consider the acquisition.

Rules can box you in…judge each deal on its own.

Hope this helps.
Rob

Wouldn’t a market crash be a time to BUY real estate? Not salvage what you have.

Oh Dear ,The rule are

1. Don’t wait for the right time.

Much like the stock market, in real estate we’re always skulking and waiting, ready to pounce on what we believe is the perfect time to jump into the market. I’m here to tell you – don’t keep waiting.

2. Start bigger, sooner.

It’s perfectly fine to begin investing in smaller, low-end properties – but that’s not how you build an empire. As soon as you have the hang of investing, don’t hesitate when it comes to acquiring larger properties. Larger assets tend to appreciate faster and can be more beneficial to your portfolio as opposed to smaller, cheaper properties.

3. Don’t sell appreciating assets just yet.

When we’re young, we tend to be quick to sell in hopes of making a return. This is the worst thing you can do in densely populated areas or up-and-coming cities. In these hot markets, the longer you wait to sell, the better.

4. Invest using a self-directed individual retirement account (IRA).

As an investor and entrepreneur, you should always be on the lookout for ways outside the obvious to improve your return. When using personal funds to invest, the best way to do it is through a self-directed IRA. A self-directed IRA is the same as the usual IRA, however, it allows alternative investments for your retirement savings.

[i][b]This post has been quoted from http://www.entrepreneur.com/article/250976[/b][/i]

What do you own?

Rob, that is such good advice.

When I was first starting out, the market was depressed, and any appreciation, much less fast appreciation was a fantasy. If I had accepted that ‘fact,’ I would not have begun my investing career, and missed making a quarter million dollars within four years. To be fair, I didn’t make that investing single family units, but I had to start somewhere, and that’s all I knew.

The experience of successfully negotiating my own deals, and being liable for my own decisions (on single family units), gave me the courage to move up the food chain (into mult-family) rather quickly, by most standards, and make a lot of money in a bad market.

I believe that if I had waited for the market to turn around, I would have lost the initiative, and morphed into an ‘also ran’ investor trying to catch a wave. Instead, I was already on my board, paddling toward a wave, rather than waiting for one to come my way, if that makes any sense.

For that matter, I’ve yet to hear anyone say that “right now’s a good time to invest,” since 2007…

I’ve heard every well-reasoned warning not to invest since that time. If I had followed that advice, I’d still be waiting for the right time.

Great post.

Is there ever a bad time to invest?

Is there any difference going through financial statements, cap rates, etc. in a bad or good economy?

A bad time to invest is when you don’t know why you are investing.
Cash flow?
Appreciation?
Forced appreciation?
Tax treatment?
???

Once the objective is established, then it’s all about finding deals that fit that objective.

For example, some invest for cash flow; others invest for forced appreciation; other invest for tax treatment (not many that I’m aware of, but…) and the reasons go on.

OR …it’s analyzing any given deal, and determining which profit category the investment fits into.

For example, you look at all sorts of different deals, and see what profit opportunity is unique to any given deal, and invest with that objective.

Same with markets. What is the market telling you, that you’re in? What opportunities are emerging, that you can take advantage of?

Donald Trump did this in New York, before anyone could imagine New York coming back to life. He bought these dowdy, well-located, but fugly behemoths that nobody had any vision for, and went to the city planners and said this is what I want to do this this property, will you help me. And they did. And he made a name for himself, and a bucket of money investing in hell holes in New York City. Bottom line; he saw what nobody else did, and made a fortune.

You can do the same thing.

Meantime, the more profit center categories you can take advantage of, the more money you can make.

I think I would be investing for cash flow…

If I were to do forced appreciation, I would probably go into home building…

Is an example of Donald Trump’s early deals when he turned the Commodore Hotel into the Grand Hyatt? (just doing some reading about him, wanted to make sure we are talking about the same thing).

Forcing appreciation can be applied to lots of different investing activities.

Donald Trump certainly forced the appreciation on those early deals he did in New York.

Forcing appreciation can happen anytime we increase the marketability, demand, and/or income on a given project, regardless of its size.

So what if I’m investing for cash flow? Is there any right or wrong time to do that? And if there were, would I be able to predict it? (Economic cycles and whatnot)

In my experience, there is no wrong time to invest for cash flow. However, the fastest, truest cash-flow plays are with management intensive properties in otherwise undesirable, economically depressed areas.

And since they’re already economically depressed, and undesirable, the major downside risk is some kind of catastrophe happening. That would be something like an earthquake, or perhaps an environmental disaster like the one in California, where the natural gas reservoir was leaking gas into everyone’s homes and causing all sorts of mayhem. Other than that the downside is the level of management required in that niche.

Let me just say, investing in areas where the prevailing culture refuses to assimilate, or you don’t fit that culture, it makes a LOT of sense to find management that resonates with that culture, and you work with the management.

Frankly, this is practically impossible to accomplish, if you’re not willing to set up your own management company and hire the people that understand the culture, and speak it’s language, and understand your goals.

Of course, great cash-flow can be captured over time, simply by paying off the mortgage and regular rent adjustments, without investing in hell-hole projects and neighborhoods. But you sacrifice velocity of cash-flow for appreciation.

As a result, most investors would rather sacrifice cash flow for appreciation, and invest in more bread and butter deals. There’s that, too.

Meanwhile, there’s innumerable ways to capture cash flow, including wholesaling, merchandising, and flipping deals.

I’ve mentioned this guy before, but there’s a cash-flow investor that wholesales deals to come up with the money to buy rentals. He buys one cash-flowing rental for every eight or nine flips he does. Interestingly, he states the purpose of each rental, so that it’s clear to his family what they’re for.

For example, his Flower St. rental pays to feed and care for his horses. The 8th St. rental pays for all the landscape maintenance on his ranch. And another house pays for all his taxes, insurance, and utilities on his personal residence. And the list goes on.

FWIW

What makes these undesirable areas more management intensive?

What type of rental properties does this guy (with the ranch) buy?

What is merchandising?

1. “Undesirable” here means, low-income, irresponsible culture, and high crime rates. Trust me, this is management intensive. We’re talking ‘baby-sitting’ and ‘camping on clients,’ and that’s why they’re only good for cash flow, and practically nothing else.

2. He buys low-end houses, in older neighborhoods, that are mostly post WWII entry level houses in less populated areas. None are pride of ownership, but they are clean, well-managed, and maintained.

3. “Merchandising” describes selling, listing for sale, and/or flipping properties without taking title.

Are you saying that it’s an impossible task to turn these undesirable locations into a nice place to live?

The trailer park I took over was full of drug addicts and dealers when I bought it. I babysat the place and kicked them all out…

I used to wear a hat that said “Cops,” (from the television show) to let them know that I would call them and I called Crimeline on tenants several times. One tenant bringing drug dealers into the park ruins the whole park.

http://cdn.shopify.com/s/files/1/0750/7145/products/f_as_in_frank_dec_16_cops_snapback_000.jpg?v=1450313718

I didn’t say anything about turning undesirable locations into anything. That’s not the point. The point is to take advantage of the area as it presents itself, not become the manager of the universe.

We’re talking ‘cash flow’ investing on a given project, not re-positioning a neighborhood.

Don’t confuse what you’re after, with something you have no control over.

You have no control over a neighborhood, but you can control a property.

Meantime, low-end neighborhoods naturally offer higher rent/price ratios, higher crime rates, less responsible populations (careless, lack of pride, etc.), and a lot of transient activity, which leaves you with cash flow, and pretty much nothing else.

Speaking of transient activity …many investors are attracted by the low prices and relatively higher rents in these areas, only to discover, too late, just how much management is required to keep things stabilized. They become the highly motivated sellers we want to buy from, because they are flexible on everything, including price and terms, if they can get out with half their shirt left on their back.

Then there’s ‘barrio’ investing. No thanks.

I really don’t know what the answer is to your question, because this is a very difficult question to answer and everybody has a different opinion.