7 Simple Real Estate Lessons

A lot of people are curious about real estate. What to buy, when to sell, for how much? Some of you probably know an old man or woman who is worth tens of millions on rental properties. But how do you do it? And how did they do it? Well, it turns out it’s not as much of a dark art as you think. Here are 7 simple principals to follow if you want to buy into real estate as well.

  1. No deal is perfect, so don’t look for one.

I bet most of you have done this at some point. You have an amazing idea, or there is some thing that you needed to do, but you didn’t do it until you had “researched” enough or “found the right way” to do it. Welcome to Parkinson’s Law, where, no matter how much time you’re given to complete something it always gets completed at the last minute.

Trying to be perfect is an impossible pursuit. It’s better to get 100% of a reasonable deal than 0% of the mythical perfect one. So stop scouring ads every weekend for that “diamond in the rough” “guaranteed” a return of 50%, or spend months finding a tenant who will pay P2000 more per month for rent, while your unit sits idle. Almost always a “diamond in the rough” is simply rough and you are losing a lot more income through vacancy than the little you make through a higher rate.

Make your money work for you now!

  1. Don’t ever undervalue people

Hey there! So you’ve got your heart set on a property and you’re ready to jump on it. So what do you do next? Ask your agent to give up their commission or better yet sideline them? Squeeze your book keeper for a 50% discount on the paperwork? Play lawyers against each other to get the cheapest rate?

You might think this makes you look savvy, but in reality you’re simply an obnoxious jerk.

You won’t know this yet, but the way you get the first choice in deals and pre-market offers is through people. If people like working with you, they’re more likely to help you, and you’re more likely to get good deals and find the right people when you need to sell.

Karma is powerful: you get what you give.

  1. It’s scarier not to

Real estate is a big deal. In fact, many won’t have anything more expensive in their lives than their house. So, naturally, most people start thinking what they can lose by buying real estate. While you shouldn’t be an idiot and dive in without thinking, one of the biggest risks is thinking and not diving in at all. When you choose to not invest, that’s “opportunity cost”, and its leads to a 100% chance of loss.

There’s no way you will ever know absolutely everything about every property, but there is likely a way to access that knowledge, either through the Internet, or, more likely the case, through the people you know, such as your agent, lawyer and book-keeper (Refer to Rule 2).

But remember, by not investing you’re losing.

  1. Investors aren’t procrastinators

Lots of people are guilty of this. In fact, I was also guilty of this for a long time. That is researching into oblivion without actually putting anything into practice.

The way that it works is you would immerse yourself in everything real estate. You read everything. You understand all the lingo. You can recite market trends from the top of your head. You’ve forecasted every property within 25 km.

But you haven’t bought anything. We call this “analysis paralysis”.

No doubt, understanding the real estate market is important. But, if you know the market, then you also know that it waits for no one. All that research you’ve done will be useless in 6 months, and time and effort is money.

Stop procrastinating. You don’t make money by predicting a price rise. You make money by acting on it.

  1. Be OK with risk.

Every investment contains risk. If anyone told you otherwise they’re either ignorant or a scam artist. Neither is good. But that doesn’t mean risk is easy to live with. Even experienced real estate investors struggle with buying, selling or holding a property. Risk is not knowing what will happen next and what to do next.

But here’s the thing. None of this changes the investment fundamentals of any property. The cash flow a property can give is the incredible equalizer. Whether in an up or down market, rental income provides that buffer.

Only the stupid attempt to “time the market”, and usually end up losing. Real estate always has long term potential and many ways to add value. In an up market, your rental income increases and you can sell for a gain. In a down market, you don’t lose anything unless you sell up.

Resist the need to sell!

  1. Don’t try to save up 100%

This makes sense. As kids, we’re all taught to save for the things we want. If we want the latest XBOX we would hoard our pocket money until we had enough to buy it.

But a house isn’t an XBOX, so saving to buy a house all at once is stupid.

Real estate is an investment, and the point of an investment is to make your money work for you. You have better things to do. You only need enough to make sure the income of your property covers the financing and cost of ownership with a little extra for safety.

Just to illustrate, houses in Cebu have grown in value by about 16% each year the last 3 years. Wages have grown by 4% per year during that time.

Trying to save 100%? The maths just doesn’t add up.

  1. Have lots of people in your corner

Real estate isn’t a lone wolf exercise and doesn’t have to be. You can’t invest without context, and how can you have context without other perspectives?

Don’t be afraid to reach out to your friends, family and us. Getting the opinions of others doesn’t mean you have to act on it. But it’s funny. Over time, the more you listen, you will realize that all those opinions start to mean something. Whether that’s a shift in trends or confidence in the market.

Because that’s what a market is. The combination of many opinions.

How can you understand the market if the only opinion you have is your own?

 

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