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Predictions are Futile: Why You Should Invest in Real Estate Based on the Numbers ALONE!

Engelo Rumora
3 min read
Predictions are Futile: Why You Should Invest in Real Estate Based on the Numbers ALONE!

Shouldn’t investing be about making enough cashflow every month so your family, friends, and you can enjoy in a lifestyle that you all desire?

My Story:

In early 2012, when I first began investing in Real Estate, I followed a strategy that many novice property investors practiced here in the US (mostly before the financial crisis), and which is still heavily applied back home in Australia, were I’m from.

Unfortunately this particular way of investing has in my opinion caused a lot of heartache for many investors and is also one of the main reasons why property prices have declined as much as they did.

The strategy consisted of buying properties at “below market” value, renovating them and refinancing the existing mortgages. The mortgage would be refinanced at a 80-90% LTV and the equity would be used to put down a deposit and fund the renovation as well as other costs associated with the deal. This process would be repeated over and over again.

Although I had success and built a substantial portfolio consisting of 10 properties valued at over $1,000,000 in a very short amount of time (6 months), I quickly realized that using this method of investing was not a sustainable way moving forward, and it was going to prevent me from getting to where I wanted and needed to be. I also realized that I was buying based on “hope” that the properties would appreciate at a quicker rate than what my mortgage short falls where.

Due to my youth and lack of experience at the time, I was more focused on adding a quantity of properties to my portfolio- and using it as a trophy to show off to family and friends what a “successful” property investor I was.

Lessons to Learn:

Investing in real estate should be based on the numbers in the deal and not predictions of capital appreciation.

Related: Expecting Appreciation is a Game For Speculators, Not Long-Term Investors

Once you have a figure in mind of your monthly cash flow requirements, that figure can then be used as a platform when estimating returns on the individual deals you plan on purchasing. If the numbers in a property your evaluating make sense and suit your end goal- it might be worth pursuing further.

Unless you have a crystal ball… DO NOT include predictions of capital growth when calculating your return on investment. “Hoping” a property will appreciate in value is not a strategy and if appreciation does occur it should just be considered as a bonus.

Over the years I’ve seen numerous novice investors post deals of properties they are interested in purchasing were there is NO buying criteria or it is obvious that they are just eager to jump on board and call themselves a “property investor”.

I encourage everyone that is just starting their journey or that already owns investment properties to be more patient and wait for the “right” deal to come along. The numbers in this particular deal need to complement other properties in your portfolio with the end goal of reaching your monthly cashflow requirement asap.

Related: Patience: It’s Not What You Wanted To Hear as a Real Estate Investor

By staying active via this forum, phone, email, attending seminars, expo’s, and networking on all social media platforms- I can comfortably say that over the year you will come across at least 3-4 deals requiring a $50,000 investment which can in return earn you between a $25,000-$50,000 profit if buying and selling or an equity gain of the same amount if buying and holding.

Final Word:

Although I was fortunate enough to not experience a direct financial loss during my early days, I have estimated that the opportunity cost equated to hundreds of thousand of dollars in equity and cash flow gains that I missed out on by not being able to purchase the right deals when they came up.

I’m also happy to announce that I have since sold out of all of my leveraged properties and have continued building my portfolio with cash only.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.