It’s time to get into real estate investment, right?
If you have been hiding under a rock, I want to let you know that the real estate market in the Pacific Northwest, and across much of the country, is hot! Markets are seeing close to, and in some cases over, double-digit appreciation over. In my local market of Spokane, Wash., there is only a 2.4-month supply of homes on the market, and that number has been trending down for years. Money is cheap to borrow and there is a lot of it out there. Now is the time to get into investment real estate! Right?
As a Chinese Proverb says, “The best time to plant a tree was 20 years ago. The second best time is today.” I almost always think it is a good time to get into the right type of real estate investment. Contrary to what most people think, a hot market makes it more difficult to get good deals. The pressure of competition and rising prices force people to do marginal or bad deals, or they just don’t have experience and take what the market gives them as a deal.
Learning about real estate investment is like planting a tree. There are 3 stages: planning, action, and care. You should always invest based on the fundamentals of the deal and not what the market is doing, which we call speculation. If you don’t know how to analyze the fundamentals of a deal you may be in the planning stage of planting the tree. The planning stage involves learning what seeds you want to plant, how much water they need, how sunlight affect them, etc. Only after you’ve properly planned and educated yourself on your deal can you implement action and then care for and follow through on it.
Maybe you are ready for your first or second hard money loan or flip! That is awesome, but I want to give you a word of caution from someone who has paid the price: the market will correct and prices will go down instead of up. In an appreciating market, the market can bail you out of mistakes you make on your deal. When prices are moving the other way, you will not have that luxury, so make sure your numbers are solid because, like every market cycle, a lot of investors will get caught holding the bag in the short-term game. A lot of investors end up like this because they misjudge numbers and the market. Click here to see other major mistakes investors make.
If you have funds to invest but are not sure where to put it in this market, then you may be ready to become a passive cash flow investor or limited partner. With this type of investment, you can participate in the benefits of real estate investment without the liability of ownership. This is my favorite type of investment because it pays you every single month no matter what the market is doing! The key to this type of investment is to make sure you are working with a professional company with a successful track record. This type of investment with the wrong person can be a nightmare!
The key message here is to be patient if you are going to enter the real estate investment market. With the right team and systems, you can get involved in solid cash flow deals. If you’re going to get into flipping or hard money just know this: flipping and wholesaling houses is the most completive type of investment in the market, driving price up and supply down, yet investment transactions are up. Most of the pros have stepped out of the single family short-term investment while the novice flippers and speculators purchase at higher prices. There are, of course, exceptions and people doing great flips but the point is use expert team members to make sure you follow Warren Buffet’s Rules of Investing:
Rule 1: Don’t lose money.
Rule 2: See Rule 1.
Now is the time to think about freedom through cash flow, but the wrong time to think you can jump into the real estate game by yourself and win. It’s an up-cycle, it could happen, but if you want to be investing in all seasons of the market then plan for it!