Why Do Real Estate Investors Fail? Investment Physics, Gravity, & Parachutes
Posted @ 11:56 pm - Filed under Purposeful Planning, Retirement, Investment Physics, Leverage, Goals, BawldGuy Axiom, Definitions
I was asked an excellent question over the weekend. It forced me to pause awhile before answering. It wasn’t that the answer wasn’t coming to me, it was how to frame it. The questioner was gonna hear an answer they didn’t necessarily bargain for, and how it was presented was important to me. I didn’t wish to offend or cause hurt feelings. The question?
“In your opinion, what is the most common hindrance to the real estate investor’s chance for long term success?”
Seems innocent enough, doesn’t it? Not by a long shot. Understanding the answer is critical to discerning why one investor seems to do better than another. It’s too late, at least much of the time, once the rubber has hit the road. Understanding the answer to this question is one of the keys to attaining the retirement for which you’ve worked so hard.
The real estate investors with whom I speak daily, answer this question themselves. In their own words they remark on something I said, maybe even as a throwaway thought.
By far, and almost without competition, the #1 reason one real estate investor does so much better than another is the gap in knowledge, experience, expertise, and actual execution connected to timing. It’s the answers to the questions the investor doesn’t know to ask that end up bushwhacking them. And for the record, being bushwhacked isn’t a pleasant experience. (Hat tip: Lone Ranger)
This wasn’t the first time I’d been asked that question, not by a long shot. Many moons ago I developed what I’ve coined as Investment Physics to explain why some fail and others succeed with their Plan.
Remember in physics class when we learned about gravity? My teacher first taught us that gravity works whether we understand it or not. It will yield the same consequences, good or bad, every time it’s tried. Jump from a plane with a parachute and you’ll have the time of your life. Jump from the same plane without a ‘chute and you’ll have the last time of your life. Same gravity working both times.
Investment Physics Rule #1
Investing in real estate for retirement without a very well defined goal, and a Purposeful Plan to get there, is doomed to chaos if not outright failure. Understand: Without help, you can’t know what you don’t know.
Investment Physics Rule #2
Ignoring Rule #1 will have the effect of reminding you how little these rules care about us. They just work.
Investment Rule #3
The primary definition of leverage is not a low down payment. There is positive and negative leverage. Positive leverage is when your actual return on investment exceeds the cost of borrowed money. Again, this is exactly analogous to gravity. Bring your ‘chute.
BawldGuy Axiom: Realizing we can’t know what we don’t know is the first step in becoming good, even great at almost anything. Real estate investors can learn this the easy way or the hard way.
How do you avoid surprises? Here’s the first way. Don’t begin investing in real estate ‘cuz it’s better than not investing. That’s the worst reason to invest. Begin by figuring out where you’d like to end up. Gather together as much information on your current financial status as you can. Knowing where you are now is the first step in everyone’s Purposeful Plan. You simply can’t get from ‘here to there’ if you don’t know where here is.
Always bring a working parachute, as you never know when it’ll be your turn to test gravity. Nobody ever regretted being prepared for disaster when disaster didn’t show up.
The last thought was brought to you by Sominex Account. Sleep even when Murphy visits.
Where are you now and how can we get you where you’d like to be when retired? We can talk about that pretty much any time you’d like, and I’m lookin’ forward to it. You’ll never need a parachute when we’re talkin’.
This entry was posted on Monday, June 2nd, 2008 at 11:56 pm and is filed under Purposeful Planning, Retirement, Investment Physics, Leverage, Goals, BawldGuy Axiom, Definitions. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.