There are significant benefits to investing in real estate. Savvy investors can build wealth, cash flow, utilize leverage, tax advantages, etc. Not everyone buys for the right reasons, especially beginners. Here are the 5 Best and 5 Worst Reasons to invest in real estate.
1. Everybody is doing it – If everyone is doing it there is a lot of competition and you may be overpaying and/or buying at peak. The best real estate deals are usually found when everyone is running from away from real estate.
2. Excitement – This is a common one. People are so excited at the thought of owning real estate and the status they will gain then suddenly they have to do work and make payments. The best deals are usually found by doing a lot of upfront work and often a lot of work after purchase. The thought of all the work is not quite as exciting, creating systems and doing it right can
3. News says my market is hot – If your market is hot it is possible you are buying at peak and/or facing lots of competition. It is not a savvy investment move to buy because a market is hot, it is savvy to buy because it makes since from a cash flow and net worth point of view and it helps you meet your goals. This can be done in a hot market, by itself investing because your market is hot is not enough.
4. If I don’t now it will be gone – A classic scam used by some of the worst people. This is an aggressive sales tactic called “The Take Away” that unfortunately people fall for and sometimes forego doing critical due diligence.
5. I would live there – Novice investors buy all the time for this reason. They target areas they would consider living in. There is a big difference between primary residences and investment properties. It is important to separate personal decisions from business decisions. Live where it makes sense for you, invest where it makes sense for your goals.
1. To generate cash flow – Real estate investing is a tremendous way to generate cash flow, often passive. Many savvy investors can quit their job and even retire on passive cash flow from real estate.
2. To increase net worth – Wealth can be created by investing in real estate. The most savvy investors buy discounted properties and make improvements to increase the value. Appreciation is icing on the cake.
3. To achieve financial freedom – The most self made millionaires have made it in real estate. Smart investors can replace their income with cash flow real estate, quit their job and retire financially free.
4. To achieve clear goals – I ask investors all the time “What are your goals?” Usually they tell me “To make money.” Or they tell me a percent return. Neither of these are clear goals. Clear goals are X amount of cash flow/net worth by X date by doing exactly this and because of exactly this. An example, I want to make $10,000 per month in passive cash flow and build 1 million in net worth in 10 years by purchasing 3 single family rental properties per year that cash flow $300/month so I can retire financially free.
5. Because I am good at it – This is my favorite. Experienced investors become good at finding deals, funding deals, doing deals and protecting their wealth. They create systems, build teams and over time it becomes easy and great results are realized. I congratulate anyone that has reached this stage and invests in real estate because they are just that darn good at it!