Should You “Invest” in Real Estate?

This past weekend my wife and I went for a boat ride with another couple.  While motoring leisurely around the lake, my friend asked me, “Bob, a couple guys at Rotary are wanting me to invest in some real estate.  Do you think that’s a good idea?”  Well, what I think is “real estate” covers a lot of territory— think raw land, developed lots, single family houses, apartments, commercial, industrial and the list just keeps going on and on.  Then there’s the where.  I mean, some places are better bets than others.  Real estate is local.  Even in a recession there are some places where investing in real estate makes good sense.  And the inverse is also true- even in a hot market some buys are nothing but a Trojan Horse.  So, I didn’t have a simple answer for him (at least not without asking a few questions).

To be sure, you can make a LOT of money investing in real estate.  (You can also lose a lot of money investing in real estate.)  From what I’ve seen over the years, a couple things help separate the winners from the losers.  #1 to be successful you need to learn quite a bit about the specific type of RE you’re wanting to invest in and about the specific area you’re thinking of investing in.  For something to be hot is not enough of a good reason to invest in it.  For example, in many cities across the country right now, the number of people moving into the downtown core has already peaked and yet, construction of new housing units continues unabated.  Converting warehouse space to loft apartments may be a hot topic, but in some markets doing so at this time could put a cold chill on your investment returns.

#2 put together a team that you trust.  Vet them.  Make sure they are competent and above all else, make sure they’ll work in your best interest.  You don’t need team members whose top priority is separating you from your money.  You want teammates who make money when you make money.  Read those two sentences again!

#3 while national numbers may be important, it is maybe even more important to pay attention to local numbers.  And local can be as small as a neighborhood, maybe even a block.

As you go about investing, develop a cookie cutter; your own personal M.O. when it comes to real estate investing.  This should include type of property, type of location, flip or hold strategy, etc.  Then venture away from your script only with extreme caution.  Some of the most successful investors I ‘ve seen stuck to their guns with religious tenacity.  At the same time, I’ve seen investors buried when they ventured into the latest hot new thing.  Dance with what brung ya’!

Back to that boat ride.  An hour later, my friend is telling me about their trip last weekend to Puerto Rico, where a member of his daughter-in-law’s family was having a destination wedding.  He shared how the wedding had to have cost six figures and then some, and of a conversation he’d had with his son’s father-in-law.  An immigrant, he’d taken his wage earnings and invested them in real estate.  Apartment buildings, in his own backyard, and for the long-term, to be specific. K That personal gameplan had made him a bunch of money over the years— enough even to allow him to pay for this lavish wedding.


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