It can seem scary to invest in real estate. I can tell you very honestly that me and Selenid were terrified when we first committed to investing in real estate.
As we plan to buy another one, we really don’t feel stressed or nervous about it at all.
Why does investing in real estate seem scary?
Really, it seems scary for the same reason that all investing seems scary:
- We work hard for our money
- Humans are loss averse, meaning that a loss hurts more than a win feels good
- Investing is made to appear dangerous or that only “experts” know how to do it well
But, when you break it down…
The real reason that we are scared to invest in real estate is we don’t have a crystal ball
We don’t know what will happen in the future. This is especially true now more than ever. Interest rates or rising. Housing prices are fluctuating. It seems like a “dangerous” time to enter the market.
However, it’s a common misunderstanding that we need to know what will happen in the future to successfully invest in real estate. And, when we invest the right way, there are good deals in every market and at every time, even during market crash as I explain here.
But most people don’t invest “the right way,” focusing on cash flow.
Instead they invest for appreciation. In fact, most novice investors think of real estate investing as buying a property and hoping that is will experience market appreciation. So that when we sell it is the future, we will make money based on the increased market value of the property.
Sometimes this works out well. And sometimes it doesn’t.
But that is only because this type of real estate investing does depend on you knowing the future or having a crystal ball.
And we already know that, despite what many people say or imply, no one has a crystal ball when it comes to real estate, the stock market, or anything else!
Thankfully, you don’t need a crystal ball to invest in real estate
Successful real estate investors do not speculate. They do not gamble. That’s just not how your build wealth or become successful.
That’s not how I’ve been successful as a real estate investor.
And most importantly, that’s never how I will recommend that you try to become a successful real estate investor. Your financial freedom and well-being is too important to gamble with.
So, it’s worth putting in the hard work and research to learn to do it right. Which is why you are here!
The 3 best ways to invest in real estate without a crystal ball
Here we go…
1. Invest for the long term
The overall real estate market is like the overall stock market.
Both the real estate and stock markets are volatile in the short term but trend upward in the long term.
That’s a really important thing to understand.
If you bought a property in a well selected market 20 years ago and kept it in good repair, its value would be much higher today. And this value would very likely have outpaced inflation by a bunch.
Just like day trading, people get burned by trying to flip houses or buy raw land with an intent to sell when the market goes up. Again, this is pure speculation, not investing.
You should never buy an investment property (or really even a residential property) that you do not feel comfortable for holding for 20 years. Now, you may not hold that long. But that is the barometer you should use when buying.
2. Invest for cash flow
I don’t invest in real estate.
I invest in cash-flowing real estate.
And there is a HUGE difference that is not always understood by the novice, or even sometimes experienced, real estate investor.
So, let’s define:
- Real estate is any property.
- Cash-flowing real estate is any property that puts cash in your pocket.
Seems simple. And it is. But still, too often I see people buying properties that are not cash-flowing well. And there is always a rationalization as to why it will pay off in other ways.
In fact, most often, people invest in poor cash flow properties citing the tax benefits as the reason why it’s still a good investment. This always makes me cringe a bit. I see the tax benefits of real estate investing as a cherry on top. Not the main reason why. But I digress…
When you invest in a cash-flowing rental property that puts excess cash in your pocket in the form of extra rent after the mortgage, insurance, maintenance, etc. is paid, you don’t care what the market value of the property is.
If you own a cash-flowing property that puts $1,000 cash in your pocket every month, guess what?? It puts that same amount of cash in your pocket every month when the market value of the property is $300,000 as when the market value is $50,000.
I’m going to repeat this for emphasis and because I know it took me a bit to wrap me head around the concept:
A cash-flowing property puts the same amount of money in your pocket every month regardless of what the market value of the property is!
Since this is the case, you don’t need a crystal ball to successfully make money and build wealth via investing in real estate. You just need to know how to select the right properties and get them running the right way…so that they cash-flow.
3. Become a robot
Investing in real estate is scary also because it is emotional.
Help! I’m a High Income Earner But Scared to Invest
If you have ever looked for a house to buy (or even a place to rent), you know that there are a ton of emotions in trying to find the right place.
However, things are the exact opposite when it comes to buying an investment real estate property.
Emotions should have absolutely no role in your decision.
It’s all by the numbers
And I found this to be a very refreshing thing.
When Selenid and I evaluate potential properties, we run an in depth analysis of the numbers to make sure they meet our specific criteria for an investment property that we will buy.
If these numerical criteria are met, then we put in an offer to buy the property.
If the numerical criteria are not met, then we move on and pass on the property.
It’s that simple. Cut and dry.
This also underscores that it is helpful to have an accountability partner when you are investing like this. Being a robot is not part and parcel of being a human. We have tendencies to make emotional decision even when we are telling ourselves not to do that. So, Selenid and I are there to balance each other and help remind the other to stick with the numbers.
Also, remember that you are not buying this property to live in
Selenid and I also take turns reminding ourselves of this rule of real estate investing.
It’s easy to look at a potential property that meets your criteria and think that it is “missing something.” Then you may be compelled not to buy despite it meeting your criteria. You have different tastes than your prospective tenants. It doesn’t need to meet your personal preferences.
Conversely, it’s also easy to look at a potential property that does not meet your numerical criteria. But you think it has an “it” factor and want to buy it. Danger! Avoid this pitfall. Remind yourself to be a robot and go by the numbers. Your goal is to buy the right investment property, not to own the coolest house on the block necessarily.
Invest like this in real estate and you will be successful
I feel comfortable saying this.
If you invest using these 3 strategies, you will be able to invest without needing a crystal ball. That means that you are setting yourself up to invest the right way.
Is there still risk? Yes. Can you still lose money?
But you will be primed to win a heck of a lot more than you lose. And that is the name of the game!
But don’t stop here!
You’re ready to learn how to identify and analyze cash-flowing rental properties, figure out how to successfully manage properties as a full-time doctor like me, and use real estate to build your net worth more than you ever imagined!
You can also sign up for my course to learn everything you need to know to successfully invest in real estate as a physician, like I do!
What do you think? Is real estate investing scary? Do you rely on a crystal ball? Any tips that I missed? Let me know in the comments below!