At some point in my life, I’ve dreamed about living in a gigantic mansion on some exotic location where the ocean breeze lightly blows against some beautiful Egyptian cotton curtains. I’d bet that most of us have that dream at some point—and perhaps some of us are already creating a path to get there some way, somehow. Well, maybe not all of us have those dreams—but still, we often strive to live a little better. Let’s start with that small 2-bedroom condo. Oh wait, we need more space. We need a 3-bedroom townhouse. But then we really want a yard—and this kitchen is too small. And where’s the “man cave”? Our kids need a room. Pretty soon, we are trading up from that tiny apartment to a gigantic house or from a neighborhood where you are a bit scared to walk at night to that subdivision with the really good schools. It’s the American dream, isn’t it? But sometimes you have to consider the costs of trading up your residence. I know two couples who live in Orange County, California who, after living there maybe a couple of years, are already looking to trade up to a new home that cost nearly double what their previous residence is worth (i.e., $350,000 to the $800,000 range). Sure, it is in a much better neighborhood. Sure, sometimes you need that extra office and nursery—but consider the costs! Even at 4%, your monthly payment will have gone from $1,337 to $3,055 (assuming you put 20% down each time and this is a 30-year fixed loan)! That is a lot of change no matter what you do. Related: Should I Pay Off Debt or Use Those Funds to Invest? What About Building Net Worth? Sure, you can build equity faster every month with the bigger house, but that is because you are putting that much more money into it. You are tying up cash into a house that you have to live in. Whether the housing market goes up or down, you are tied to living in that residence. It is also an extremely illiquid investment. While you think you can sell a house quickly today, that’s not always the case in a given market. Your entire net worth has become dependent on what the next person is willing to pay for your home. It is an extremely volatile and risky investment if you tie up most of your wealth into a house. “The Market is Going Up. I Can Sell to Buy a Better House!” Can you? If you only own that one house, is it worth it for you to sell that home to buy another one? In a rising market, all houses go up in value. If you are trying to buy a similar or better house, wouldn’t it cost you more money even though you sold your house for more money? What difference would it make? And another thing: Every time you trade up a house, you are paying a lot of expenses. I have flipped properties before, and I know selling costs can sometimes range from 8 to 10% of the actual selling price. It is a huge transaction cost. Those real estate agents are waiting for those big bucks, bucks that you don’t have to spend if you decide not to sell your property and go buy another one. Imagine selling a $350,000 house and having to spend $30,000 for transaction fees. That’s the price of a car! Related: Are Extra Mortgage Payments Worth It? A Look at the Numbers If You Have to Trade Up, Trade Up Wisely All I am saying is that it may not necessarily be wise to trade up for a bigger place until you are truly financially ready. Sometimes living in that 2-bedroom condo will give you an opportunity to save a lot of your wealth for other investments. Or maybe you could live small and trade up really big further down the line instead of constantly switching. I’ve heard that the average time Americans live in a residence is 7 years. Maybe the next time you switch up you should wait 15 to 20 years. It is a long wait. You may not like your old home so much, but hey, the rewards for saving now can benefit you greatly in the future. We’re republishing this article to help out our newer readers. What do you think? Leave your comments below! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

Recently I started reading a book called Antifragile by Nassim Taleb. I haven’t finished yet, but it seems like his main point is that a complex system that is ever reaching for perfection is extremely fragile, while smaller, decentralized, flexible systems will be more likely to withstand outside stress (hence the antifragile part. ) And I think for the rest of the book he’s trying to apply this principal to all aspects of life. What really resonated with me, however, is that the smaller systems which are exposed to more stresses and problems – and latter overcoming them – tend to become stronger later on. And I think this can be related to people who want to get into real estate. Getting Started with Real Estate When people want to first get started in real estate, inevitably a lot of advice ranging from, “you should become a wholesaler,” or “house hack,” or “flip a house you are living in” and so forth. Some of these actions can be quite simple or quite complicated. It is never set. And sometimes people will end up lurking the Forums, reading books, and even taking seminars to build their skills before taking the first step. And some would even say, “Hey, just do it and fail! You’d learn a ton from it!” Related: BiggerPockets Presents : The Best Real Estate Books Ever So in relating that book, Antifragile, to new real estate investors, I don’t believe that new investors need to study up on everything about real estate, whether from books, websites, and mentors. It is very difficult to learn those years of complex real estate knowledge into your head without actually experiencing the situation. The need to know it all can cloud your judgment and keep you from taking action. Your fragility will be your inaction due to your need to analyze every single thing. With that being said, I don’t necessarily believe you should dive in to doing everything either. The key in antifragility is that you are facing stresses and problems that don’t collapse the system. In other words, take risks that you can afford to take. Avoiding Mistakes in Real Estate Don’t invest your entire life saving into a new rehab project you have no idea whether it might work. Don’t kill your entire marketing budget sending out mailers without getting some experience in talking to sellers. Don’t become a landlord and get a mortgage if you have no more cash reserves in the bank. You can’t afford to make those mistakes. But, you should afford to make some mistakes: tiny ones. Don’t overreach in the beginning. Every time you make a mistake, you can learn from it and build your experience that way. But if you are losing everything on the first and second try, you lose your chance to make mistakes and get stronger. A real estate investor needs to take risks, but he or she should only start with small risks. Start small and you will stay in the game longer, even if it means you lose out on some profits. So what do you say, newbies? Are you ready to go out there and start making tiny mistakes?  Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

I used to think once you own a piece of real estate, you should hold it forever. As many of you know, real estate offers quite a few benefits, including cash flow, appreciation opportunities, tax deductions, inflationary hedge and so on. However, when I start thinking more about real estate in the long run, I have to start thinking about weighing the benefits and costs of real estate a bit differently. Let’s take a look at some of these factors. Benefits Cash Flow Cash flow is the holy grail of the real estate investment. If you have a cash flow positive property in your portfolio, you are doing awesome and all is well. On the other hand, cash flow returns aren’t fantastic. I mean, some of you may be situated in great markets and you are achieving that 2% rule, but in general, in most markets you are not looking to get above a 10% return in your rentals. In my particular market, you can maybe get a 5-6% return. So even if you’ve got cash flow, unless you’ve got a lot of it, it is hard to call it a day. Your capital is working hard, but is it achieving its best return? Related: The Buy ‘n Hold and NEVER Sell Strategy: A Case Study Possible Appreciation Appreciation is a tough game. Even though we have had a fantastic rebound from 2011 to now, we rarely see opportunities like that. At best we can think about 3-5% appreciation if we are lucky and situated in a good city. After all, in Las Vegas, for example, I’ve seen homes during 2011 to 2012 selling for the same prices as they had sold for in the 1990s. So if you kept your real estate all this time, you better have a strong stomach to endure the horrors of the housing crash. You also need to have a strong stomach to not be tempted to sell during the highs of the 2006 market. Tax Deductions Mortgage interest costs are tax deductible. You can also depreciate your house for 27.5 years. Both of these factors create fantastic tax benefits during your ownership. However, once you’ve finished paying off your loan and you’ve fully depreciated your asset, your taxes are likely to go up. Not the end of the world, I guess, since you’ll be fantastically happy that you’ve paid off your mortgage anyway. Inflationary Hedge Seeing how the Vegas market played out during the past decade, we can’t really say houses can be an inflationary hedge, as they can be susceptible to major price fluctuations. Nevertheless, it is a piece of asset that you’ll have, and people always need shelter. Costs Capital Improvements Holding real estate for too long, however, has its costs too. The longer you own a property, the likelier you’ll be faced with major capital improvements that can take a chunk out of your wallet at one time. Say the roof starts leaking, the AC goes down, the last tenant leaves the laminate flooring in tatters, etc. Houses have age too. As Ben Leybovich has written in great detail about depreciation and capital improvements here, you will always have to have a significant cash reserve when your property breaks down. Related: The Secret to Buy & Hold: How to Squash Vacancies by Understanding Demand Economic Changes in the City I don’t mean to bash on Detroit, but cities are very dynamic. Over the course of US history, many cities that have once played a major metropolis have now become a shadows of themselves. Some towns have become ghost towns. Towns may get rich through an oil boom, but then experience an oil bust. There are numerous factors that you can’t control once you decide to set your roots down. If in the city you own, the piece of real estate starts declining, do you stick to your guns or do you want to find something else? How about the next opportunity? Who wouldn’t want to buy in Shanghai before it became THE Shanghai? The point of this article is simply to make you think about whether it is worth it to hold your property forever. Personally, I am still at a stage where I am willing to take more risks, and I am still seeking out other opportunities. So keeping all my assets in real estate doesn’t sound so attractive to me anymore. What about you? How do you approach your real estate investing: Do you plan on holding your assets indefinitely? What would you add to my pros and cons list? Leave a comment, and let’s talk! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

Some of you may or may not have heard of Long Term Capital Management, a hedge fund that imploded way back in 1998 despite its previous successes as well as having pretty much the smartest guys in finance in the room. They pioneered the Black-Scholes options model in which they used extensively in their investment for profits. In their eyes, the model allowed them to get sure profits. There is no risk, they said! They thought they hedged them all. With the idea that there were no risks in their investments, they leveraged their investments to the hilt to magnify their returns. While that strategy had worked for awhile, no one expected that the Russians defaulting on their debt in 1998 could have caused a catastrophic consequence to their investment. How Does This Relate to Real Estate? For the most part, we are investing in real estate with leverage as well. We have many people who advocate investing with no money down methods. We have many people using mortgages like FHA to get into investing with little down. As much as we wished to own real estate outright, we have been using debt to begin investing. And repaying debts, unlike tenants paying rent, has to be done every month. Related: 3 Types of Risks Real Estate Investors Regularly Take Yet when we purchase correctly, we should be getting a steady stream of income every month. Some of you may be getting $200 a month in positive cash flow; others may get $400 a month. It is certainly important to get positive cash flow every month, as it shows that you are better positioned to hold the investment in the long run. So if every property we acquire has positive cash flow, isn’t it better to acquire as many as we can? What the Long Term Management Capital guys failed to price in were “fat tail” events. In other words, most events fall like a bell curve, and chances are that most things happen in a normal range, but on the extreme tail of the curve, really bad things can happen or really good things can happen. For those guys, they thought the probability of losing everything was really, really, really close to zero. As real estate investors, do you often think about what’s the worst case scenario for you? If you own one investment home, you know that the house could go vacant, tenants can stop paying rent — or worse, your AC or water heater can break down. You are aware that you do need some cash reserves to make it work. With Additional Properties Comes Additional Risk But what happens when you own two homes? What if BOTH houses go vacant, tenants stop paying rent, AC and water heater break down? Okay, you need to account for some additional risks, right? Chances are, you might not keep the reserves required for both properties because you think both homes getting the worst scenario is not that likely. You may be right. Related: What Property Owners and Managers Need to Know about Risk Management But what happens when you get a third property? Chances that all three of them getting the worst case scenario is even unlikelier, right? Isn’t where that benefit of diversification comes in? If one house goes vacant, we’ve got the two other houses working for us, right? Then shouldn’t we get more houses? The more we have the more diversified we are. Are You Ready for the Worst Case Scenario? So now we are starting to think like those Long Term Capital Management guys, aren’t we? The truth is, there is diversification and we do get to benefit from that. But on the other hand, we are increasing our magnitude of loss in the case that happens — despite the fact that we are lowering the probability of that particular magnitude of loss. Think of it like a lottery in reverse. Every day that one dollar goes into buying a ticket to your total demise (you have to pay out that lottery). The chances of that happening is super, super small. But what if that happens? Are you prepared? While I’m definitely not discouraging people from buying more investment properties, I’m advocating the idea that one should prepare even more reserves as one acquires additional properties. Those reserves should not be proportional to the increasing number of houses. It should be a bit more exponential. That way, you are better prepared for that fat tail event, or black swan, or whatever people like to call it nowadays. What do you do to prepare for the “fat tail” events? If you own multiple properties, what steps do you take to protect yourself against worst case scenarios? Leave a comment, and let’s chat! Free eBook from BiggerPockets! 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Recently, I had a friend who came to me looking to sell her property because she is an out-of-state investor who just didn’t want to deal with the property anymore. I could have simply listed the property for sale for her as an agent; however, I knew that she bought this property almost about two years ago at a price that was slightly above market value at the time. Given today’s market value, it would be difficult to sell her property at a higher price, and I thought at best it would hit the price that she purchased the property at, which was $65,000. Now, the reason the property was purchased at an above market value was the fact that she bought it OWC, or “owner will carry.” Because she didn’t use traditional financing, she ultimately ended paying a bit more for a chance to leverage her cash. In my opinion, this is probably not the best time to sell the property because the property value hasn’t risen above what she paid. On the other hand, it was a property that she didn’t want to keep anymore, and she did not have enough time to deal with it. Oh yeah, she purchased this property with 20% down, 6% interest with 30-year amortization, and a five year balloon. So at the end of the five years, she is going to have to pay about $48,300. She put down $13,000 in the beginning. Figuring Out a Mutually Beneficial Deal So let’s just say I do sell the property at $65,000, with transaction costs running 8% (which ends up being about $5,200) and the loan balance at about $50,600 at this point. She is only going to get back $9,200, which comes out to a loss of about $4,000. If we were to get to the real nitty gritty details, she may have had some extra cash from the 2 years of renting out the property. However, the cash flow isn’t that high. Being a friend and a real estate investor, I wanted to see how I can help each other. While I’m still in the market for buying properties, I’m not terribly excited about buying more rentals unless I get a really good deal or I don’t have to put much money in. Can I take the bet that property values may go up in two or three years? Possibly. The question is, how much am I willing to pay to find out? Related: 3 Creative Real Estate Deals That Transformed My Business After some thinking, I asked her, “Why don’t I buy the property?” But in order to make this purchase work for me, I only wanted to put about $2,500 down. I didn’t want to spend too much more. So, I asked whether or not she was willing to finance me $62,500 to purchase the property. It made more sense for her because 1) I wouldn’t have to charge her commission so she could save about 6% there, 2) it would be a quick sale because she wouldn’t have to put it on the market, and 3) she could make money on the to loan me. After a bit, she agreed. However, the transaction got a bit tricky because I wanted to do a AITD (all-inclusive trust deed) in which my mortgage would wrap around the other mortgage. Now, this can usually be done easily without the banks minding if the loan came from regular banks. Since most mortgages are packaged up anyway, they won’t really care as long as the mortgage gets paid. However, the due-on-sale clause, which allows the bank to call the loan due in case they find out the deed has changed, was in effect for this loan as well. In other words, the original seller who owned the note might just call it in if they find out that I bought the property from her AITD, which was not in my intention. Related: The Pros and Cons of a Seller Financed Deal for Seller and Buyer The Lease Option Agreement Rather than be at the mercy of the original seller, I decided to write up a lease option agreement instead. A lease option agreement will not cause a title change until it comes to the time I buy the property. So the way we structured the deal was that in the lease agreement, I agreed to buy the property at $65,000 in two years, with my initial option at $2,500, which goes toward my principal. The lease terms are: monthly payment of her debt plus the interest from the down payment I borrowed from her plus the rest of the costs of ownership, i.e. insurance, taxes etc. — and I also have the right to sublease. That way, the title doesn’t change until the end of the two year mark, when I’m supposed to buy it from her. By then, I should have a pretty clear idea whether I want to keep the property or sell it. If I call it right and prices go up, I stand to make a decent bit for a very low down payment. If I am wrong and the prices don’t go up, I’ll just have to try to renegotiate with the original note holder or pay the balance and keep the property. But in the meantime, I’ll hopefully have a renter in there to keep my cash flow close to even. There are many ways to buy and sell a property. Sometimes it’s all about getting creative. How about you? Have you done some creative deals in the past as well? Let’s discuss in the comments section below! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

Just the past week, I traveled to three major cities in the Southeastern part of China: Macao, Shenzhen, and Hong Kong. I have previously lived in Shenzhen as a child and have visited both Shenzhen and Hong Kong in 1995, 2001, and 2007. It was my first visit to Macao. Nevertheless, the main focus of my trip, like my previous ones, was to eat cheap, authentic Cantonese food, which sadly rarely exists in America. However, this time, the foods I was eating weren’t so cheap anymore. Furthermore, they didn’t taste as good as the food I’ve had in the past. What happened? I blame it on inflation. The Effects of Inflation Interestingly, in these three cities, we see the effects of inflation caused primarily by real estate. Often, we attribute the CAUSE of inflation to other things. For example, all central bankers around the world are calling for inflation. They believe the way to achieve such inflation is printing a ton of money and penalizing savers by making their deposits earn nothing (so far, I wouldn’t really say they are doing a good job because the true economy hasn’t really recovered). The true aim in central bankers’ drive for inflation is to wipe away government debt – not spurring the economy as they so often claimed. With inflation, the government (and also whoever owns debt) gets to benefit. Related: An Overview of Real Estate in China – Scratching the Surface On the other hand, because the financial markets in China haven’t fully developed into a globalized system as a whole, and because it is in the Chinese culture to own real estate, much of the newly earned money in the past decades has been plowed into real estate. And because land has been so limited in these three cities, the real estate prices have been skyrocketing to unimaginable heights. So with obscene real estate prices, what do you think these new owners want? Higher rents. And with higher rents, what do businesses and renters need? Businesses need to keep raising their prices; otherwise, they’d have to shut down. Or worse, they try to save costs by using inferior ingredients, the cause of many recent food scares. Employees now demand higher salaries because everything they earned couldn’t pay for the same stuff before and now they needed to pay higher rents to live. In those three cities, it is common to hear workers paying more than half their salaries just to pay for rent. And what about the elderly who are on a fixed pension? What will they do now? A Rush to Buy Property As a result, many people there are in a rush to buy properties (if they can afford it) because they fear it will only go up if they don’t buy it now. Resources from entire families are pooled together to put a down payment for a tiny apartment for the future generation. Women are expecting men to own a property before considering marrying them. And those who managed to buy have to scrape and save in order to get by. With cost of living so high, how are the locals expected to live? Related: The 4 Biggest Risks that Threaten Home Prices Today So life has been difficult for the younger generation in those areas because of the high costs of living. I am fairly certain if those protesting at Occupy Central in Hong Kong were given a choice between democracy and 50% cheaper housing, they’d gladly pick the latter. But who got to benefit? The beneficiaries of this inflation were the landowners and people who already owned real estate. Out of the massive inflation, many new riches were the Chinese people who bought real estate and held land many years ago, when it was still cheap. In fact, in Shenzhen, a big metropolis in China today, some fishermen who held on to their land became multimillionaires today. They are the ones who are spending all the money on handbags and cars and all the luxury stuff. Perhaps some were lucky, but some were smart. Nevertheless, holding onto real estate can help protect you against inflation. You may have to pay more for food and services, but hopefully, with a piece of real estate, you can protect yourself from an increasingly rising housing expense. What do you think about rising home prices in China? How do you think it could affect real estate in the US? Leave a comment below! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

Here on BiggerPockets, “house hacking” has been talked about quite often. The idea of housing hacking is that you can purchase a property in which to live while you rent out certain parts of it. For example, it could be that you are buying a two bedroom house and renting out the other bedroom. Or it could be that you are buying a fourplex and living in one of the units yourself. You are basically having other people pay for your housing expenses, while you work hard on (hopefully) accumulating more real estate. To be honest, prior to investing in real estate, I hadn’t really thought about my housing expenses that much. My mother once asked me, prior to having read Rich Dad Poor Dad, whether my house was an asset or a liability. My initial answer, of course, was that it was an asset. She, of course, then smugly told me that I was wrong and that it was a liability. Well, it isn’t that the house is a liability; it’s that you need to account for the expenses and opportunity costs associated with how you live and where you live. Spending Money on Housing People do tend to forget that aspect of it, I think. After all, why would some houses be called “starter houses?” There is already an implication that you are supposed to trade for a bigger house later. You are supposed to spend more and more of your money on your own housing. Meanwhile, an investor would think the opposite. They would think, well, why should I spend more and more of my own money on my own housing, when I can use the money to buy more houses to rent them out? Thus, housing hacking is a great idea in the sense that you are trying to minimize your own housing expenses and use the money you save to acquire properties, or real assets in Rich Dad Poor Dad terms, to generate wealth instead. Let’s face it, you are not going to earn more money just because you live in an expensive house. And I’ve talked about this before in my previous article about how you shouldn’t have to buy your house first before investing, especially if you live in expensive areas like San Francisco or New York. Related: How to “Hack” Your Housing and Get Paid to Live for Free But I am going to take this housing hacking concept to a slightly different level. When most people talk about house hacking, it usually does involve living in one of the units of that newly purchased fourplex you just acquired. But if that area is not where you’d really want to live, why would you have to live there? Why don’t you just go rent a place somewhere else and then rent out the property that you would have been “forced” to live in? The Importance of Housing to Quality of Life What I am saying is that house hacking shouldn’t necessarily restrict you to live in the place you purchased to invest. Instead of doing that, why not just go out there and rent a place, say, closer to your workplace? I have family right now living in Boston, working hard to get a down payment for a house in Boston. Meanwhile, they rave about how excited they are to be living in the place they’re renting right now because the location is ideal and they scored a great deal on the rent. However, to try to buy something similar to that in the same location requires a lot more money than they are comfortable with. Related: The Simple Action No One Does That Will Make You A Millionaire So in that situation, why do they have to buy the place that they are living in? Why pay the higher prices, when they are comfortable with where they are? Instead, they should just go use that money to buy an investment property they can get a great return on. Hey, it may not be in the center of Boston, but they don’t have to move over there! They can be living happily where they are now, even if it means they have to pay rent. Conclusion All I’m saying is: next time, before you invest in real estate, start thinking about your own housing expense first. Maybe you can lower your own housing expense by renting a smaller place. Or you can reduce your commute by moving closer. Or you can move somewhere else if your workplace does happen to change. By renting, you can have flexibility in trying to get in and get out. On the other hand, many people fall into the trap of having to sell their home because their job changed or they had to move out of state. You have that flexibility. Then, use the capital you would’ve spent on your own housing to buy properties that yield you a great return. Even if you have to move, you can keep those properties there! So folks, that’s my version of “house hacking.” What do you think? Leave me a comment below! Free eBook from BiggerPockets! 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When I first started investing in real estate and connecting with other real estate investors, I didn’t really have a clear goal as to what I wanted out of real estate. I’d hear some people wanting 100 doors, other people wanting $5,000 a month in cash flow, or some people just wanting to add more zeros to their bank account. So, I found myself starting to use those benchmarks to define my success. For example, I met an investor who owned more than 200 doors and was adding several properties a week. I thought that was amazing! Having more than 200 doors sounded like a very impressive number. It made me wanted to get to 200 doors. My goal became “how can I buy more properties?” How can I, like the investor I know, buy up to 200 doors as well? The Race to Acquire Property It was that kind of thought process that propelled me towards creative financing in real estate investing. Admittedly, because I was fortunate enough to take on that challenge and walk that path still in the throes of the economic and housing crisis in Las Vegas, I was able to land some really great seller financed deals. Related: 3 Real Estate Investing Lessons I Wish I Had Learned Earlier I kept thinking, “Okay, if I just keep getting some more with very little money down, I can multiply my real estate holdings at a great pace and soon, I’ll also be able to tell everyone that I own more than 200 doors.” While owning many doors with seller financing has its own benefits, such as: 1) extreme leverage that is positioned to fully capture real estate returns when the market appreciates, 2) most of the time mortgage payments can pay down debt, and 3) the ability to control real estate with little money, it also has its costs. Unforeseen Difficulties Owning properties is not an easy task. As a landlord, you are faced with vacancy, repairs, and bad tenants. These things may not happen very often, but they can all happen at once. You may think you have cash flow, when in reality, you may not. Also, you may think you have enough reserves, when in reality, if all bad things happen at once, you do not have the reserves. I did not experience such difficulties in 2013, so I figured I was doing just fine. However, in 2014, I’ve experienced several air conditioners breaking down at once, a roof that needed to be replaced, and rounds of bad tenants leaving the property in a mess. I accounted for all the bad things in my financial calculation, but I didn’t account for them to happen all at once. Needless to say, I don’t think I’ve been having the most pleasant year of landlording in 2014. Nevertheless, I think what happened in 2014 has taught me a great lesson. A Lesson Learned The lesson is that real estate success is not about how many doors you own. I may own more properties than another investor, but the fact of the matter is, my portfolio might be a lot more risky than that investor. I may have been more exposed to a total collapse than another more prudent investor. Maybe I can earn more in the good times, but what about the bad times? Perhaps having a large cash flow cushion every month is more valuable than having an over-leveraged portfolio, hoping to hit the big score. Interestingly, I’ve since heard that the investor who owned so many doors has collapsed recently. I did not get the exact details, but to me it seemed like he or she was running an operation that he or she couldn’t handle. The portfolio probably incurred way too much debt, and the properties weren’t cash flowing like they were projected to. Related: 3 Real Estate Lessons I Learned from Playing Professional Soccer While the investor could be an awesome real estate acquirer, it does not necessary mean what he or she acquired made financial sense for the portfolio as a whole. Maybe the investor wasn’t prepared for the black swan event of, say, having 100 water heaters breaking down all at the same time. With each property added to the portfolio, you face the higher risk of having everything fall on you at once. That’s something I believe not many investors necessarily consider. Conclusion So, what will I do now? I am no longer thinking about having a big number. I am thinking about how to make my portfolio more profitable. If that means I have to sell some properties and forego the possibility of future appreciation, then so be it. If that means I have to move away from some trouble spots and take less yield to avoid bad tenants, then so be it. I am no longer thinking about the big number of doors. I am thinking about how to finish the real estate marathon. What’s your take on the race to acquire a large number of properties? What have you learned through trial and error? Leave a comment below! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

There comes a point, I think, when every landlord takes a look at what they own and wonders whether to keep the property or sell it. There are many motivations for wanting to sell a property, but in this post I’m going to talk about trying to decide whether to sell a property that has high yield, but causes a lot of headaches or a property that has low yield, but is essentially carefree. As I start looking at my portfolio and deciding what I should sell and what I want to keep, I’ve come across this issue myself. When I look at my property, I’d like to see what it yields me in relation to the market value of the property. While most would like to look at the yield they get from when they acquired the property, I think it is also important to see the yield in relation to the market value in case I want to liquidate the property. Property #1: Low Yield, but No Headaches In my case, I have a property that is currently yielding me only 3% in comparison to the market value. This means that I have more of an incentive to sell this property because I could unlock the equity in this property and use it to earn more somewhere else. Related: The Landlord’s Guide to Effective (& Legal) Tenant Screening On the other hand, I have had a great tenant in there for the past a year and a half. They have barely bothered me for any repairs, and they’ve always paid on time. In fact, I haven’t even seen them since I signed a lease agreement with them. It is difficult to find tenants like that, and so now I am battling with the idea that it is better to keep them than to sell the property. Property #2: High Yield, but a Challenge I also have a property that is yielding me 8%, but always gives me a lot of headaches. The area is not exactly the best, so I don’t think I have the ability to attract high quality tenants. Although I could just screen better, I think finding someone who would stay there would be quite a challenge. So would it better to sell the property, knowing that perhaps I may not have as great of a chance to find a property that yields that high again? Time Limitations I believe one of the major issues as an investor is the limitation of your time. If you are managing by yourself, you can only manage so many properties before you become overwhelmed. Of course, one of the other alternatives is to find a good property manager. But I personally find it difficult to find a good property manager who’s willing to take on challenging properties to manage (I could never find a good enough manager to manage my fourplex!). Related: Your Complete Guide to Effectively Handling Tenant Evictions So I personally believe that it is better to sacrifice high returns for less headaches if you are looking to expand your portfolio. Tenants who cause the least amount of headaches will have a greater value in the long run, as they will keep your property in a good shape and keep it occupied for a long time. When you have a lot of short term tenants, as my experience with my fourplex has shown, it will cause a lot of unexpected expenses and lower your expected return tremendously. Plus it takes a lot of my time to manage and find tenants. Therefore, I have come to the conclusion that it is best to keep properties that have good tenants even though your returns may not be as high. Sometimes we truly get what we pay for. And sacrificing some yields can lessen the amount of headaches you’ll have in the future and allow you to further expand your portfolio without sacrificing your energy. What about you? What would you do? Do you think a good tenant is worth a lower yield? Let me know in the comments! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

During the past month or so, I’ve been thinking about selling my fourplex in Las Vegas. The real estate market has been cooling down a bit, and I’ve been wanting to work on strengthening my portfolio. Owning a fourplex, depending on where you are, can be a blessing or a pain. In my market, I’ve seen the joys and the pains of owning a fourplex. I had a good year last year where I had a full vacancy most of the time and had achieved tremendous cash flow. This year, on the other hand, has been rather challenging. And frankly, the neighborhood of my property has not been improving. Thus, I’ve decided it would be a good time for me to sell my fourplex. Unfortunately, with the market cooling down, I have to get fairly creative. So I decided to record my stats and detail how I want to sell it, and perhaps you’ll have other ideas for me — or perhaps you’ll get ideas for the property you’ve been wanting to unload. Related: How Buying a Seller Financed House Is Like Buying a Stock Option The Fourplex I bought this fourplex almost 3 years ago for $100,000 and put about $10,000 in rehabbing. Each unit is a 2/1, and I’ve been getting $550 a unit (with the exception of one unit where I give my handyman a $150 a month discount). Just to average, I net about $1,200 a month now (it used to be better, but let’s just use current year figures), so my return is about 13% (at its height it was more like 17-20%). The returns aren’t too bad at all, but in all honesty, I prefer fewer headaches when it comes holding real estate longterm. If I have to be super conservative, I’d say the property comps for about $180,000. So compared to market value, my return is actually at 8%. Although not many people like to calculate it this way, I’d like to think about what my equity can get me in today’s times. After all, if my fourplex is worth $1,000,000 but it still brings me $1,200 a month, I’ve got better things to do with my money, right? So with that in mind, I’d actually be sacrificing an 8% return on my equity if I were to sell the property. However, I also know that it is still very difficult to find a good property that can yield me 8% these days. So I’m not necessarily looking to get an all cash offer. Once I get the cash I’d have to put it to use, so after thinking more about it, I’m now thinking about selling it “owner will carry.” The Seller Side of Seller Financing If you have read some of my past articles or heard my podcast, you know I’m a big fan of seller financing. While I have always been standing on the buying side, for once I am starting to consider the benefits of the selling side. In seller financing, you know you’d typically give up the chances for appreciation while you’d be ensured a steady stream of income without the headaches. Meanwhile, that stream of income is also coming from the fact that you’re lending the money and getting additional funds from payments on interest. Related: Pricing Your Seller Financed Property It is interesting to note that when you receive interest payments, you don’t have the same headaches of an owner. If something breaks down, you don’t have to fix it (on the other hand, you still have to make sure your property is still intact). You don’t have to deal with the expenses of property taxes, insurance, vacancy, maintenance and other costs associated with landlording. You’re just getting a check in the mail every month. Plain and simple. With that in mind, I’m looking to sell my property in which I’d finance 80% of the price at a 8% interest rate. When it comes to selling properties in which you finance, you typically get to charge a higher premium on the property. With that in mind, I’m looking to sell it closer to $200,000 than $180,000. The Buyer’s Perspective Would this make sense for a buyer to buy? Well, for certain investors, yes. Some investors who can’t get financing would love to get ahold of a seller financed property. Or some investors would like to lock down the property and refinance it down the road. In their minds, they’d like to get the rights of the property in hopes of future appreciation — or just have tenants pay down the debt over time. On the other hand, it may not be good for a beginning investor. Selling my property this way would mean that it wouldn’t necessary cash flow well. If I were to sell the property with an 8% interest only payment and a 5-year balloon payment ($180,000*80% = $144,000, interest payment will be $144,000*.08 = $11,520, or $960 a month), the investor may still only cash flow slightly positive since they have to pay me $960 a month. If they can make the property perform higher than $1,200 a month net, then it may be worthwhile. A newbie might not be able to get it performed or may not have enough cash reserves to deal with vacancies and major repairs, so it may not necessarily be a good investment idea. Conclusion Nevertheless, while all the numbers can be adjusted and played around, I believe the best time to sell a property creatively is at the prospect of a declining or stable market. While it is also much harder to sell a property in this type of market, I believe it is a better use of my cash to “guarantee” an 8% return than to continue to speculate in the real estate market. With that being said, how would you try to buy this property creatively? Or I guess better yet, would you buy it with these numbers? Leave me a comment below! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

I’ve always been a big proponent of doing everything for yourself when you first start investing in real estate. You have to wear many hats in real estate in the beginning, so you at least get a sense of knowing what’s going on. So when I first started in investing in buy and holds, I became my own property manager. When I started flipping my own properties, I began painting the house myself and even learned how to tile a floor. It was a great learning experience, as I got a hands on experience from managing properties to rehabbing a house. Related: Five Steps to Finding Focus in Your Real Estate Business I may not be the best tile installer nor the best painter, but when push comes to shove, I can get those things done. On the other hand, because I have been so reliant on myself, I have forgotten at times that I only have 24 hours in a day. I cannot do everything by myself. When my real estate portfolio began to grow, I couldn’t handle everything because problems pile up, and I only have so much time. So in order to grow, I really needed to learn how to delegate. The Importance of Delegating Work The concept of work delegation is very important when it comes to managing my own properties. I know, I have said it before that I can manage properties while I’m stumbling around South America or Hawaii or something. But I find it extremely distracting when I have to deal with the occasional tenant issue that comes up. I hate to try to coordinate my handyman or a contractor and have to think about that while I’m snorkeling in the sea or something. And I haven’t been able to provide the best property management experience for my tenants because I am not always available on the spot to take care of their needs. It becomes a very frustrating experience for them to get me to do something while it has been frustrating for me to coordinate someone to take care of something for them. While I could find more reliable contractors, it still takes me time and efforts to find someone. And more importantly, I’ve come to realize that I am a real estate investor, not a property manager. I am not getting paid to manage properties; I am getting paid by acquiring good properties at good prices with good financing involved. I needed to know most effective use of my time, and then I can put my best foot forward. Rather than trying to be a painter, a tiler, a property manager all while trying to do what I really wanted to do, I should outsource all these aspects of real estate to people who can do a better job than I can. I should be spending more time thinking about how to grow my real estate business instead. Hiring My First Assistant So by the time this article is published, I may have just hired my first real estate assistant already. I’ve taken the plunge to take on help and I honestly think this will improve my life tremendously. Not only that I no longer have to worry about dealing with tenants, but also that I can have someone who specializes in that and frankly, can probably do a much better job than I can. His or her job is to provide the best service to my tenants and coordinate everything for me. I won’t be hurting my business, but instead I will be improving my business, as now I can devote more time to finding more deals and building my business. Related: How To Train a Virtual Assistant in Three Easy Steps Furthermore, I understand that everyone can have a budget, and hiring someone can possibly be a financial burden for you. The key is that I am hiring someone on more so an ad hoc basis. I am guaranteeing the assistant a certain amount of hours per month where they will be the point of contact for my tenants, but I don’t pay any more beyond that. It is very reasonable and allows me to not have to scale big enough just to hire someone full time. Real estate investors who need help can also hire someone part time, like a bookkeeper, who doesn’t break your budget, but allows you to have enough time to build your business. So now I am working hard to focus on building my real estate business further, and that, of course, includes providing some quality content for you BPers out there. For you investors out there who are getting overwhelmed, don’t be stubborn like I used to be, and go out there and get some help! I know I have waited too long, and now I am trying to get into that mindset that I should really focus on what I am good at and let go of things that I may not be that good at it. Are you at a place in your business where an assistant could help you out? Have you hired an assistant already? How has your experience been? Let me know in the comments below! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

If you’re closely following recent real estate trends, you might have noticed the market is starting to slowly cool off a bit. In many places we are no longer seeing the meteoric rise in prices in general anymore. Of course, some of your markets may be different, but overall, we have to start worrying about the possibility that the prices either have plateaued or that we may be heading for a slight dip. Related: Investing in Real Estate? Be Sure to Plan Your Exit Strategy! Is Real Estate Still a Good Investment? With that in mind, is investing in real estate still a worthwhile proposition? I think so. But we may have to be a bit more selective in what we buy. Instead of buying properties with the hope of appreciation, we should be focusing on purchasing properties that offer a good cash flow. After all, irrespective of the market, a good cash income producing property will always produce cash for you. Even if you bought a property for $100,000 that is only worth $50,000, as long as it brings you $10,000 net in rental income each year, I bet you will still have a happy face (and you will figure out how to scrunch up enough cash to buy a similar one for $50,000). The Importance of an Exit Strategy On the other hand, if I own a property that is worth $200,000 now instead of $100,000, which still brings me $10,000 net a year, it may be tempting to think of an exit strategy. After all, the return against real market value has gone down from 10% to 5%. Keep in mind, however, that your true return is still 10% because you bought the property at $100,000. If I can use the $200,000 (let’s not account for taxes right now despite its significant role) to find a better investment that will yield me 10%, thus earning $20,000 a year, isn’t it worth considering? I suppose this scenario is more relevant in my market. In Las Vegas, the prices have gone up high enough nowadays that it is very difficult for me to find a property in a good neighborhood that can produce a cash on cash return above 5%. I am not going to get super rich investing in the market now (although I think it is still a great return in the long run, which some of us may not have the patience to pursue), so maybe it is better for me to sell some of my portfolio holdings and look at other real estate markets that can provide me with a better cash flow option. Related: Nine Exit Strategies When Dealing With Defaulted Notes Another Option You could also refinance your properties that have gone up in value and use that cash to invest in properties that yield higher than your interest rate. If you could find an income producing property that nets you 10%, you may be better off to refinance your properties with a lot of equity at 4.5 to 5% (I hope?) instead of selling (to avoid the tax issue) and use the cash to buy the new property. Of course, I always suggest you should be careful with leverage. Or you can always sit and watch the events unfold. Sometimes patience works as well. All I am saying is, if you think your market has peaked, what would you do? Do you have a solid exit strategy We’d love to hear from you in the comments! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you