Berkshire Hathaway’s CEO Warren Buffett, notably one of the wealthiest people in the world, has two simple rules when it comes to investing. He's credited for saying, "Rule number one: never lose money. Rule number two: never forget rule number one." Whether you're brand new to investing in real estate or a seasoned investor, there are four undeniable truths you need to know.
Money doesn't equal knowledge
There's a common misconception that you need money to begin investing in real estate. This simply isn't true. With the right knowledge, you can start investing with no money out of pocket. However, having access to capital can make investing easier, especially in regards to expanding your options. Just because you have the money to invest in real estate doesn't mean you know how to invest. One of the worst ways to begin your real-estate investing career is to just go out and start buying properties without the proper knowledge. Take the time to learn how to properly invest and you’ll minimize your risk of losing money.
Knowledge doesn't equal experience
Technology has made it extremely easy to access information. Gaining knowledge on any subject can be as easy as a simple internet search. Real-estate investing is no different. Many newcomers to investing have the misconception that watching a few videos online will make them a real-estate investor. The truth is, unless you’ve taken the time to be properly taught, you still lack the necessary experience to ensure you're making the right decisions. In this day and age, there is an enormous amount of free information circulating the internet. Visiting YouTube university is a great place to learn the basics and theory of investing. But before you actually begin investing, you should take a few courses or seek a qualified mentor to guide you.
Experience doesn't equal expertise
Just because you have some experience in one specific type of investing, doesn't mean you know how to invest in real estate. Your experience in one style of investing may not translate into another. Take stock investing for example. I’ve seen several successful day traders lose thousands of dollars investing in real estate simply because they lacked the expertise in this area of investing. The foundations of all investments are basically the same, but the fundamentals differ. An expert stock trader could be a novice real-estate investor. The techniques, tactics and methods for acquiring a profitable real-estate deal require particular knowledge and experience in real estate.
Expertise doesn't equal perfection
Even the most experienced investors will occasionally find themselves challenged with a new problem. I’ve been an investor for over 15 years and have flipped well over a thousand properties, and to this day I still encounter new issues. For instance — last month I purchased a single family home for our rehab division. During the remodel, we encountered a very unique problem that we’d never had to deal with before. A neighborhood birdwatcher followed a rare bird into an open air duct in our home where it made a nest. He then contacted the city with his findings and they shut down the project. We had to stop the remodel and schedule a special crew to relocate the nest. In the end, it wasn't a huge problem, but it did change our original plan and schedule.
The point is, you never know what problems you're going to encounter and things rarely go as planned. I often tell my mentees that it’s how you handle issues, setbacks and failures that will ultimately determine your overall success as a real-estate investor.
Knowledge, experience and expertise
It’s important to understand that knowledge, experience and expertise are all necessary components in achieving a successful career as a real-estate investor. Gain knowledge by listening to experienced investors. Fast track your experience by learning from their mistakes and failures. Become an expert by finding a successful mentor to guide you, and remember that some investing rules will never change.
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