We’ve all heard it’s better to be a master of one trade than a jack of many. And this applies to entrepreneurs and investors as well. The dreaded “shiny object syndrome” can tempt and debilitate even—or perhaps especially—the most seasoned of investors.
I’ve seen a lot of real estate investors get caught up in all sorts of other things, from stocks to currency trading to other industries to whatever. It usually doesn’t work well. That’s not to say there’s no point in ever diversifying, but it should be done in a careful and systematic way. And if you decide to go for it, you need to really go for it. Diddling in one thing and then another is sure to wreak havoc on your returns.
This also applies to niches within the real estate industry itself. There are so many different niches that it can be overwhelming; student housing, Airbnb, commercial, industrial, office, new construction, notes, second position notes, foreclosure auctions, tax auctions, Section 8, apartment syndications, lease options, luxury housing, etc. Again, this is not to say that you have to only pick one or that if an incredible opportunity in a niche you don’t specialize in comes by that you should turn it down. But you do need to be very careful not to pick too many niches and spread yourself too thin. You want to master a niche (or a few select niches), not do a little bit of everything.
How to Invest in Real Estate While Working a Full-Time Job
Many investors think that they need to quit their job to get started in real estate. Not true! Many investors successfully build large portfolios over the years while enjoying the stability of their full-time job. If that’s something you are interested in, then this investor’s story of how he built a real estate business while keeping his 9-5 might be helpful.
Concentrate Your Forces
I was reminded of this when reading the wholly amoral book The 48 Laws of Power by Robert Greene. Rule 23 is “concentrate your forces.” As he notes:
“Concentrate on a single goal, a single task, and beat it into submission. In the world of power you will constantly need help from other people, usually those more powerful than you. The fool flits from one person to another, believing that he will survive by spreading himself out. It is a corollary of the law of concentration, however, that much energy is saved, and more power is attained, by affixing yourself to a single, appropriate source of power. The scientist Nikola Tesla ruined himself by believing that he somehow maintained his independence by not having to serve a single master. He even turned down J.P. Morgan, who offered him a rich contract. In the end, Tesla’s ‘independence’ meant that he could depend on no single patron, but was always having to toady up to a dozen of them. Later in his life, he realized his mistake” (Greene 175).
Of course, most of us aren’t playing in some sort of Game of Thrones style lust-for-power. But the same thing that applies to seeking patrons or building empires applies to real estate niches as well. Many entrepreneurs and investors spread themselves way too thin chasing after this or that while failing to “concentrate their forces.”
I myself have done this before and found myself feeling lost. The more things I chase at the same time, the harder it is to concentrate on any given task. And it is focus and concentration that are the keys to success. A great example of this being done right was how Jack Welch redesigned General Electric when he took over the early 1980’s. From John Maxwell’s The 21 Irrefutable Laws of Leadership: Follow Them and People Will Follow You:
“To the hundreds of businesses and product lines that made up the company, [Welch] applied a single criterion: can they be number 1 or number 2 at whatever they do in the world marketplace? Of the 348 businesses or product lines that could not, [GE] closed some and divested others. Their sale brought in almost $10 billion. [GE] invested $18 billion in the ones that remained and further strengthened them with $17 billion worth of acquisitions.
“What remained [in 1989], aside from a few relatively small supporting operations, are 14 world-class businesses… each one either first or second in the world market in which it participates.”
General Electric went on to experience remarkable success and become, for a time, the most valuable company in the world.
Go All In
For newbies out there, if real estate investment is what you want to do, it is absolutely critical that you go all in. Yes, you may have to continue working at your job for a while, but you cannot be successful in real estate by dabbling. Real estate investment is very lucrative, but despite what some gurus may say, it’s not easy. You have to focus on it and put a lot of energy into it to be successful.
And for the seasoned pros out there, the shiny object can be the death of us all. Yes, sometimes it makes sense to diversify or jump at an opportunity outside your area of expertise. But it rarely if ever makes sense just to dabble in a new thing because it’s “interesting” or “different.” To be successful in any particular niche, you need to go at it with the same energy and enthusiasm you started out in real estate with.
A house divided cannot stand and dabbling here and there will not a successful real estate investor make.
What do you think? Is it possible to dabble in REI (and its niches) and be successful over the long-term?
Weigh in below!