Have you ever wondered why there are just SO many Realtors in this city? The answer is actually quite simple because the requirements and steps to obtain the license is fairly easy. You don’t need a university education to be a Realtor. You complete 5 multiple choice exams over the course of 18 months. If you’ve successfully passed the exams, then you can carry on with trading real estate. From my own experience, what they teach you with the real estate courses is really not the most useful in helping you become a successful Realtor.
It is for the reasons above why I always find it interesting to talk to people who transitioned into real estate from what they originally studied in school (i.e., engineering, accounting, etc.). A lot of these skills from other professions are transferable to a career in real estate, and many do use their skills to their advantage in order to excel.
For me, I actually studied science in school (because every immigrant parent wants their kid to be a doctor when they grow up!). Ultimately, this means that I was trained to always look for empirical evidence.
Real Estate Riches – What I have seen (and continue to see) after helping manage the portfolios of very wealthy clients is that real estate is a huge contributor to their overall net worth. I’m sure you have heard that a majority of the millionaires in the world come from owning real estate.
In the Driver’s Seat – The simple fact is that with real estate, you can use a down payment of 5% to buy an income producing asset that is 20 times its value, combined with the fact that you have full control over the asset itself. If that last sentence makes sense to you, then you’ll understand why real estate is such a great wealth creation vehicle.
Learning to Drive – Obviously, in order for real estate to be a great wealth creation vehicle, you need to know how to drive first. It is here where the rubber often meets the road, and this is where I see a lot of people getting stuck. Action needs to be taken instead of over analyzed a million times.
Decisions, Decisions – There are so many different investment strategies out there for real estate that ranges from, buy and hold, short-term rental, flipping, buy-fix-refi-rent, pre-construction, rent-to-own, vacation rentals, multi-residential, commercial, development, and many more. As a result, many first time investors get stuck with trying to learn and understand each and every single strategy; they will analyze each strategy to the nth degree before they make their first investment. The empirical evidence that I have seen over and over again is simple – buy a property that pays for itself and you’re golden! You will have many options moving forward once you actually own that asset.
Rubberneck Rule – I recall when I first learned how to correctly invest in real estate – I kept coming back to one rule. This rule is the 1% rule. It is a basic rule that I was told to always apply to every investment property. That is, to have each month’s rent be at least 1% of the total purchase price.
At the time, it seemed like a great rule that many leading experts had recommended to follow because it meant that you could, in theory, pay off the property in approximately 8 years. Looking back though, having that rule in my mind actually worked to my disadvantage because it got me completely stuck for a while (kind of like driving by and rubbernecking when there’s an accident on the road).
Applying the Rule to Reality – If you think about it, the average investment condo is a little over $500,000. If I applied the 1% rule to the average condo investment, I would need $5,000 per month in rent to make that rule work. Even with the massive rental incomes in short-term rentals, the $5,000 per month expectation is hard to achieve every month on a consistent basis. From that perspective alone, all of the condos purchased in the last decade would have been a terrible investment. However, there are tons of real estate millionaires in Toronto that have made their fortunes with condos and who have NOT followed this 1% rule.
So Then That Begs the Questions: How effective is having an inflexible rule for investing in real estate? How much analysis do you really need to have in order to determine if a property is a good investment?
Ultimately, you will have to answer those questions for yourself. For me, even though I could analyze a property to death, I have trained myself to be flexible enough – as long as I can make the property pay for itself, then the rest really doesn’t matter as much. Taking action in the NOW is first and foremost. Without taking action, there will be no results nor a bottom line.
The Wrap – In summary, if you want to be successful in real estate or just about anything else for that matter, you must overcome any fears and doubts that you may have. Remember that taking action will get you results. So the next time that you experience analysis paralysis, just remember this:
“Thinking will not overcome fear, but action will” – W. Clement Stone