6 Successful Real Estate Investing Tips for 2020
as published in richdad.com Written by Kim Kiyosaki
Cut down on the steep learning curve of purchasing your first investment property
It’s been said that if you’re not growing, you’re dying. That’s why it’s so important to become a lifelong student in this game of life. Of course, I’m not talking about spending time and money on a traditional education (unless you really want to)—I’m talking about reading books and articles from trusted news sources, and learning from successful people in your industry who are living the life you want for yourself. Imagine if you were a doctor and never read any medical journals—you wouldn’t know the latest medication protocols, treatment options or surgical techniques, and your patient care would suffer. The same is true for every industry — especially real estate investing.
I choose to stay up-to-date on changes in the real estate industry because I want to be an expert in my field, especially when my money is on the line. It’s important for me to be in the know, because investment rules and methodology change over time. If I was rigid in my thinking and still using the exact same strategies that brought me success decades ago, I’d probably be homeless again. Instead, I seek knowledge from trusted advisors and then apply these new learnings to my overall investment strategy. I’m constantly evolving my tactics to make sure I remain in growth mode—and this means I’ve picked up on a few tricks along the way. I wanted to share my top six with you. This is advice you may not get elsewhere, but has been a big contributor to my overall success:
Buy your own property first
Are you still renting an apartment? If you’re new to real estate investing, I always suggest buying your own property to live in first. Why? First of all, it will give you front-row seats to everything you need to know about real estate investing. You’ll never know all the nuances until you’ve experienced it first-hand. Also, the financing is easier (you’ll need less of a down payment and will find better interest rates) and you’ll get the best tax write-offs. A few years later, you can upgrade to a new home if you wish, keeping your original property as a rental for cash flow. What a great way to get started on your path to financial freedom.
Focus on numbers instead of emotions
It’s far too easy, especially when you’re new to real estate investing, to let fear and greed drive your investment decisions. As with any business situation, it’s best to check your emotions at the door. The best way to do this is to bury yourself in the numbers. Research the cost of each investment opportunity beyond just yield and CAP rates. Look at such factors as the cost of vacancy, maintenance charges and also assess the risk profile of your tenants. Don’t forget to factor in your own risk tolerance (be honest with yourself!), which will lead to increased confidence when you’re ready to sign on the dotted line.
Speaking of numbers, don’t let them freak you out
I think we women have been brainwashed since grade school to believe that we are not good with numbers. But if you intend to be financially fit and reach your financial dreams, then you’ve got to become very comfortable with the numbers. Stop being intimidated by them—if you can add, subtract, multiply and divide (your cell phone has a calculator, right?), then numbers can be your new best friend along this journey. Once you rid yourself of your negative and unsupportive thoughts about numbers, math, finances and money, you’ll quickly discover their power.
A number by itself means nothing. I never see a number from an investment property analysis as a number. Instead, I look at the numbers as clues. The numbers do not exist to confuse you. They exist to give you clues for solving the “mystery” of investing. The numbers are clues to guide you to discovering the truth. What is the investment? How is it really performing? How can we expect it to perform in the future?
For instance, the number 10 means nothing on its own. But if that number represents the number of vacant units in a 20-unit apartment building you’re considering buying, now it means something substantial (a 50% vacancy rate). Get comfortable with reading the three main financial statements (income statement, balance sheet and statements of cash flow), and you’ll be well on your way to using these numbers to tell a story and solve the mystery.
Work only with trusted resources
You would only leave your child with a trusted babysitter, right? And you’d probably only let a trusted housekeeper clean your home or a trusted hairdresser color your tresses. Yet you’d be surprised by how many people take financial advice from complete strangers — people that haven’t been vetted and haven’t earned their trust. Yes, you can get advice anywhere, but why would you?
Instead, surround yourself with people you know and trust. If you have full confidence in the critical people you will rely upon throughout the real estate investing process — such as a banker, any co-investors, a broker, even your handyman — then you don’t have to reinvent the wheel each time (and risk getting burned) and will sleep more soundly at night. Treat these relationships like gold.
So how do you find a trusted resource? You need to do your homework. First, find out if they are successful at doing what you want to do. Just because they’ve found success in other areas of their life or business, doesn’t mean they have any success in real estate investing. Next, determine if they practice what they preach. Many advisors will give advice to others, but do something entirely different themselves. Ask yourself why? Look for people who actually follow their own advice. Next, see if you can figure out what the source of their information is. Ask where the data is coming from, or if they get a commission by pushing you in one direction or another. Finally, figure out how they get paid, so you know whether you can trust them or if they are simply pushing their own agenda.
Start off with a small investment property
My first investment property was a small one. It was a two-bedroom house in Portland, Oregon. At the time, it was a scary idea to purchase that property. It felt like I was giving up a lot to make that investment. In reality it was just a few thousand dollars.
That's the irony of the advice to start small when it comes to investing: when you're first starting out, nothing feels small, even when it is.
As such, I often tell people to start small with their first investment. However, let me be clear that this doesn't mean you should think small. Quite the opposite: You should think big when it comes to where you want to go and what you plan to achieve.
Once you've got your big goal, break it down into smaller steps. Start with the smallest step. Keep moving forward, first with little steps, small investments, and then progress to bigger steps. As your experience and confidence grow with each success — and yes, even with the inevitable setbacks — you will get closer and closer to that big goal.
When I was buying the house in Portland, I knew that it was a first step in a much larger journey. I had grand dreams, but they started with 800 square feet. Today, I own thousands of apartments across the country — but it started with a small investment and a big dream.
Practice and perfect your patience
We all love watching “flip and sell” shows on TV, but so few things on TV accurately depict the real world. Your best investment strategy for 2020 (and one I’ve subscribed to for many years) is not to flip a property and grab the one-time profit (assuming you don’t take a loss), but to turn it into a rental property that will deliver ongoing cash flow straight into your bank account every single month.
So, focus on your long game when it comes to real estate investing, and that means buying and holding. The same goes for choosing the right investment opportunity — if something seems too good to be true, then it probably is. Don’t be in such a rush to nab your first investment property that you overlook red flags and ignore your gut instincts.
Real estate, similar to many other industries, is dynamic. It’s a living, breathing force. If you’re light on investment experience, then make sure you’re being conservative as you increase your knowledge and build your self-confidence. Once you gain a better understanding of the intricacies of real estate investing, then staying abreast of new changes will be much easier. I firmly believe that real estate investors who are able to adapt will thrive, and it’ll also put you much further ahead than the competition.
