I grew up in a small farming town in rural Alberta, Canada. The population sign outside our town said 1,200 people, but many folks joked that the number included cats, dogs and probably some chickens. The majority of the town was inhabited by farmers or folks who supported the farming community.
In my 17 years living in that town surrounded by farmers, I never met a single one who’d even consider eating his seeds instead of planting them. They just wouldn’t do it. No matter how hungry they were … the seeds were for planting. They were not for eating.
I also didn’t know many farmers that would harvest a crop early unless there was some major external factor beyond their control on the horizon – specifically a brutal weather forecast. Beyond that, the harvest waited until the crops were ready.
Sounds simple doesn’t it?
If it’s so simple why aren’t many real estate investors applying the same concept? Many real estate investors I’ve met over the years spend every penny their rental properties make instead of reinvesting them. Or, they sell their investment property as soon as a property has appreciated. It doesn’t matter that it’s only reached a fraction of its potential – the investor wants a family vacation or a super cool Blue Ray Player or 3D TV.
Sure, sometimes it’s to pay off debt or some other more rational reason to put the money elsewhere but it doesn’t matter. They’ve still essentially eaten their seeds or pulled their crop out early.
Yes, the investor is better off than if they had never invested in those properties to begin with. But they’ll never get rich that way. Their long term wealth and financial future is not stronger because of what they have done.
So my lesson for you today is a simple one. Instead of spending every penny a property makes for you, save it or reinvest it. Instead of selling as soon as a property has some equity in it, use that equity – and the money it made for you – to buy another property. Leverage your money so that it grows to make you more money! That’s how you maximize your profits. If it’s making you money, let it keep making you money.
Invest in real estate the way a farmer invests in his land. Plant your seeds. Let them grow. Keep an eye on them (if you’ve learned anything from me lately I hope it’s that there is no such thing as passive income), giving them a bit of water and fertilizer here and there and doing some pest control. Then – when the “season” is ending in that market area or you’ve got a dozen houses that are making you rich – reap your rewards.