Many programs, seminars and boot camps on real estate teach a specific step-by-step strategy in an attempt to help newbie's learn how to become a real estate investor. I have taken such strategy based classes, and have taught them too.
The focus is usually on specific strategies and the step-by-step process by which to execute that strategy. The idea is that this gives you a repeatable, easy to understand process that you can learn and implement quickly.
But after years of learning about real estate and then years of teaching and consulting I have realized that this approach can inhibit your ability to understand how real estate investing works at the most basic, fundamental level.
It is sort of like teaching a kid how to play baseball by saying:
1. Get a hit.
2. Get on Base.
3. Score a Run.
While this is an easy "strategy" for scoring, it leaves the player with no understanding of the fundamental skills necessary to get a hit.
It's exciting to think about scoring the winning run, or making $50,000 on one real estate deal. However, most people who can do that on a regular basis have been working at their craft, diligently practicing and mastering fundamental skills.
These fundamentals are really the keys that unlock the door to investing success.
Home run king Hank Aaron's success was in his mastery of the fundamentals of a proper batting swing. That swing gave him the ability to break the most famous record in all of Baseball.
A real estate investor faces the same challenge when trying to "hit a home run" and make big money with real estate.
Like star athletes, you must master the fundamental skills of your craft, and learn to apply those fundamentals to every prospective deal. The bottom line is if you want to be a star in the "game" and make the big money you have to be good at the right things. But strategy based training tends to divert our attention away from the fundamentals.
Back in the early 1990's I heard Carleton sheets saying that rental property was the way to go. I went to a seminar and heard another guy named Russ Whitney saying that I should be finding houses that were in bad shape and fixing them up.
Then I saw another guy on TV talking about how he got cash back at a closing, and actually made money by buying a house! It certainly seemed that there were plenty of ways to make money in real estate. Still I had what some people refer to as "Analysis Paralysis ".
Today I realize that my "analysis paralysis" was caused by a lack of understanding. The plain fact was that I simply did not know the fundamentals of real estate investing. You might say I knew I needed to "get on base", but I simply did not know how to "swing the bat properly".
After a few months of reading articles, searching real estate websites, buying books and tapes, and going to seminars, I piled in the car and started looking at houses. But every time I looked at a house, I felt confused and unsure about what to do and how to know if this really was a decent investment property. For some reason, I just could not seem to connect all the dots
It seemed like my "career" was going nowhere. I went from one seminar to another hoping that each one would be the one that would clear up all my questions. Finally, out of sheer frustration I decided to get my agent's license. As a new agent I was required to take some classes on Real Estate Finance.
We learned to calculate net profits on a sale, buyer's payments, and how to do comparable market analysis. These calculations were not such exciting stuff at the time, but several years later, when I made the jump to become a full time buyer for an investment company, this gave me the ability to adapt to the investment market quickly.
Using my baseball analogy, you might say "I was working on my swing." I did not know it at the time, but I was honing those fundamental skills that would later enable me to get involved in bigger deals with higher level investors.
Looking back on all this experience I can't help but notice that the most successful investors, the ones who are truly financially independent as a result of their real estate activity, are those who have mastered these fundamental skills.
Every property has a value, location and character all its own. Mastering the fundamentals means being able to obtain key pieces of information, and then let that information dictate the investment strategy options based on that information.
The greatest single problem facing most investors in the current market is a lack of adaptability to changing circumstances. I believe that this lack of adaptability is primarily the result of not understanding the fundamentals of Real Estate Economics. It sounds pretty highfalutin' but all we're really talking about are the Real Time Market Value, income potential, and costs.
Each property will dictate to you what your best investment options are if you can gather those key pieces of information.
Your starting point is to understand your market well enough to define an average of property values by the square foot - NOT house to house, as with comparable market analysis.
In a stable to improving market as we had from 1995 to 2005, it is easier to avoid mistakes when calculating value. But in a changing market where prices are tending to shift down because demand is changing or slowing, it is essential to be aware of what I call the Real Time Market Value. Learning this fundamental skill is critical for hitting "home runs" with real estate deals.
Fundamental Skill number one:
Know Your Real Time Market Value, and use this value to calculate your offer price.
When you pay too much going in, few, if any, strategies will keep you from losing money. ***
Copyright: Copyright © 2007-2008 Donna Robinson
About the Author:| Written by: Donna Robinson |
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