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We recently spoke with one of our clients who has been part of the Maverick community since 2010. We have been helping him build his portfolio of turnkey rental properties across multiple markets and he has done very well over the years. In this conversation, we asked him about his biggest real estate investing mistake over the years and specifically we asked him the question above: what’s ONE piece of advice for newbies?
… NOT buying more properties a decade ago.
He had the means to buy more but only bought 2. He regrets his hesitation to this day because he has subsequently seen home price appreciation soar, property values double, and the historically unique price-to-rent ratios that he locked in have continued to, as he puts it, “print money” for him every month since.
He could have bought 4 or 6 properties instead of 2. He knew it was a great deal at the time, but he hesitated, and now that buying opportunity is gone forever. He can still buy properties in other markets of course, but not at those price-to-rent ratios.
While it is definitely prudent to study up on how to mitigate risk when buying rental property, what is often left out of this discussion is the substantial financial downside of failing or hesitating to buy rental property in optimal market conditions.
One of the value propositions of Maverick Investor Group is that we help our clients buy int he right markets at the right time…
Lest this be written off as a fluffy platitude, let’s look at how investor tycoon and billionaire Warren Buffett invests.
Whether Warren Buffett is buying real estate, businesses, or anything else, he does his due diligence to make sure the investments are fundamentally solid and he always buys at the right time, for the right price. And these conditions are all created by the right circumstances, which are constantly changing. In other words, he knows exactly when to pull the trigger, and if he were to hesitate and wait, the opportunity would disappear or at least become less advantageous. So, the people who win big are the people who can identify a unique value proposition and pull the trigger right away.
Don’t try to be a perfectionist when investing in real estate. You are rarely going to secure the 'magic property' while timing the market perfectly. Nobody has a crystal ball so you will never know when the market is exactly at the bottom to buy or exactly at the top to sell. If you are waiting for assurance that it is the ‘perfect’ time, that assurance will never come and you will miss the boat. Just because a market has gone up a bit and is moving along in its expansion cycle doesn’t mean it is too late to buy. And just because it has not gone up very much doesn’t mean it is too early to buy.
While it is strategic to buy in the path of growth and it is certainly important to understand where a local market is in its property cycle and how much upside potential remains, these are all secondary factors for making a smart buying decision. You never want to rely on home price appreciation in order to have a profitable investment outcome in real estate. That is called speculating and it is a losing proposition. Trust me, I learned the hard way. The significantly more important part of "market timing" is understanding where the price-to-rent ratios are, and how the property will perform from day 1 as a cash-flowing asset. This is based on sustainable trends of rental demand, population influx, job growth, etc. If it does go up in value in the short term, that is a bonus but, if it doesn’t, you still have a solid cash flow property producing passive residual income for you every month.
The true science of real estate investing comes down to being able to buy and hold cash-flowing rental properties in locations that make sense based on present-day fundamentals and current trends. While most people are out there speculating on home price appreciation and how much their property might be worth in the future, our clients are making their money when they buy. This is because what they are really purchasing first and foremost is a cash-flowing asset, a stream of passive residual income, a goose that lays golden eggs. All of those market appreciation stats you saw listed above were just icing on the cake.
Real estate market conditions are always changing, constantly (that’s true in real estate or any other investment market), and the people who win are the people who see a unique value proposition, act on it immediately, and then hold for the long term. As the old adage goes: “Don’t wait to buy real estate. Buy real estate and wait”.
Hey, I’m Michael, the Investment Property Specialist at Maverick! I’d love to get to know you personally and understand your real estate investing goals so I can help you to achieve them! On this consult, we can talk about your buying criteria, get all your questions answered, and develop a real estate portfolio building strategy that is right for you.
We are not a tax professionals, this is not tax or legal advice, and tax laws are constantly being changed and revised and may change the day after you read this. So, this is for informational purposes only, and it is your duty to consult with your own tax professional about your individual situation and the most updated applicable laws before attempting to implement any of the content in this post.
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