BiggerPockets

12 Solid Rules of Real Estate Investing

1. Real estate is a long term investment
2. Cash flow, cash flow, cash flow
3. Do not let your emotions get in the way
4. Know your markets
5. Get good property managers
6. Find 3 good contractors/handymen
7. Work with Brokers that understand investors
8. When people sell, you buy
9. When people buy, you sell
10. Diversify your portfolio
11. Invest what you can afford
12. Memorize and live by rules 1-11

Make it Happen!

Agreed! #3 is probably the point that causes more people to get into trouble, IMO.

Very good insight. Will keep all in mind.

Originally posted by David Alexander

you are better off... buying and selling and being in the real estate "business"

The thread is about "investing". I consider investing to be activities where income is generated primarily by the input of capital and ownership of an asset, rather than via your efforts, ie from rental income and capital growth.

If income is generated primarily through your efforts, such as rehabbing, flipping, wholesaling, etc, then to my mind, you're operating a property-based business rather than investing. Yes, you've put money into property, but it's incidental to the profit-making activity. The profit-making activity is finding discount property, rehabbing, marketing, etc - not investing capital. Likewise, Kroger make their money by retailing, we don't call them a "grocery investor". ; )

If you're prepared to work in a property-based business, it can certainly be profitable and I'm not saying anything negative about that, but I don't consider it falls into the category of "investing".

Well... Then...

you are missing the bigger picture...

(I did as well for a long time, till we built up over 70 rentals and realized the fallacy)

Your "greatest investment" will be building a business...

That is the investment which allows you to create cash to invest faster than you ever thought before....

If you start out buying and holding.... 5 - 7 years from now... you wonder about all the missed opportunities...

As you sort through the inadequacies of starting with a buy and hold model... when you do not have the cash reserves to weather the storm...

For a newbie... this is about as close to a slow death as I can imagine..

Buying and holding should be implemented when you have plenty of cash reserves and is a hedge for your money.... profit preserving strategy..

Not a profit wealth building strategy...

You should be working toward Free and Clear properties......

And most that buy and hold are very leveraged borrowing to build...

Which makes that a business model that is fraught with problems...

Well... Then...

you are missing the bigger picture...

(I did as well for a long time, till we built up over 70 rentals and realized the fallacy)

Your "greatest investment" will be building a business...

Everyone is entitled to their opinion!

You should be working toward Free and Clear properties......

I don't care if I am a multi millionaire, I will still use leverage to my advantage and not hold properties for the long term free and clear. While you and others may argue to the contrary, I believe that the two most powerful aspects to RE investing is the tax advantages and the ability to use leverage. Giving that up by holding free and clear does not equal a smart use of my money (in my opinion).
Others like to have the comfort of not having a mortgage and increased cash flow, but I would argue that my lower cash flow through the use of leverage but spread over multiple properties produces a better cash on cash return.

Originally posted by David Alexander

Guys like me and my friends could "no way" no anything about this sorta thing...

Guys like me could "no way" KNOW anything about this sorta thing . . .

At any rate, I never referenced that you did not know anything about this stuff, and I don't think Nick did either, I just have a different opinion on the topic, fair enough!

There is no question many a newbies do it wrong and can't get their heads above water while attempting a buy and hold biz, that is just not always the case.

Justin....

Just been here done that...

Leverage is a 2 edged sword...

Leverage in your business as much as
you can...

but, personally you should be deleveraging to create personal
freedom....

For most starting out those 2 things are one and the same...

So, when the business is leveraged.. they are also, personally leveraged...

And when the blade flips....

You get cut...

If you're lucky.. it's just a flesh wound....

If your not... It could put you out of the real estate business for a long time to come...

Leverage is a 2 edged sword...
Leverage in your business as much as
you can...
but, personally you should be deleveraging to create personal
freedom....
For most starting out those 2 things are one and the same...
So, when the business is leveraged.. they are also, personally leveraged...
And when the blade flips....
You get cut...
If you're lucky.. it's just a flesh wound....
If your not... It could put you out of the real estate business for a long time to come...

Good point, David. I agree - leverage is very powerful and can go either way.

I have a friend who operates a dual purpose real estate business. He buys raw land, subdivides it into lots and exchanges these cash gains into wholesale priced small multi family properties and office properties for cashflow. A similar model could exist for a high volume wholesale business that re-invests their cash profits into income producing properties that is aquired at bargain prices as well.

The immediate boost in cashflow on an investment property comes form a combo of buying low, using leverage, and getting favorable financing terms and locking in strong leases on your units. I think it is possible to have a business that generates cash from quick turning properties and reinvesting that cash into wholesale priced income property to hold long term while using leverage to do so. That's how I'm building my business anyway.

Anothe rbenefit to being a wholesaler is that you basically HAVE to become a great marketer and a great negotiator. Your entire business depends on it, because if you are not great at those things you won't be able to bring bargain deals to the table for your buyer's. So, of course the benefit of that is that you already know how to hunt down killer deals, then if you have resources in place to hold half of your wholesale inventory at low prices, you're going to do pretty well AND have cash reserves in the long run.