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What is the best age to invest in real

What is the best age to invest in real estate?

Knowing the best age to invest in real estate is one of the most frequent doubts that those who are beginning to think about their future have. Especially because they see in the real estate area a financial security that other types of investment as the stock market no longer offers.

The short answer is that there is no right age to invest, but the sooner you do it, the more opportunities you will have to make money – and your investment will last longer.

However, it is true that investing is not a habit that we have all been taught. Not all of us receive financial education, and some do not even have the habit of saving money. We know that it can be difficult to do when you are young and you are between your twenties or beginning the thirties: travel, shopping, transportation expenses and fashion technology tend to monopolize the attention of your money.

Unfortunately, this lack of financial education ultimately affects the future. Especially when you decide to start investing and you realize how much time you lost because you did not do it before.

Why should we start investing as soon as possible?

As you will remember, one of our 10 tips for investing in real estate and not die in trying your purchase, is to understand that in real estate investment, patience is the key to success.

Something that guarantees the value of a property is the capital gain that it has, depends on the location in which the property is located. The capital gain acquires more value over time. That is why the big investors are those who can analyze the market and see beyond what is trendy. Imagine if 10 years ago you had invested in real estate developments in the Riviera Maya, or in real estate developments in Tulumplaces that are currently a magnet for tourism and foreign investment.

That’s why we say that the best time to invest is now; the more time you spend, the less chance you will have of acquiring properties at a lower cost that guarantees a high return on investment.

We must also consider that the responsibilities we acquire over time can make it more difficult to become a real estate investor. Marrying or having children can make you reconsider your expenses and how much money you can use to invest.

Each individual has different priorities and opportunities. There are those who see in their twenties the opportunity to promote a future while there are others who can invest only after their 30’s or 40’s. It is also normal and natural for some to think about investing until after retirement, when they have the money to do so.

Nor can we deny that each generation has different perspectives on what we should consider a priority and what not. For example, while for millennials acquiring experiences is a priority -as traveling- for generation x and baby boomers, acquiring properties is more important.

However, this does not mean that millennials – who are between the ages of 23 and 38 – have a chip that prevents them from being good at investing in real estate, on the contrary it is they who are changing the notions of success and ways of doing business and even as we think about work and lifestyle, this makes them less incompatible in investing in real estate, they are the ones who are beginning to consider investing their money to obtain financial independence.

For example, for the baby boomers and generation X financial security meant having a stable job and a fixed salary in order to save for retirement or get their pension. Today the notion of working from home without the need to attend an office is a reality for many people, as well as the existence of jobs that 30 years ago were difficult to imagine.

30 years ago it was hard to think that ordinary people could make money using the internet. Computers and the Internet were exclusive to those who were studying something related to technology. Today you do not need to be a hacker to be able to use digital platforms to make money like blogs or investing in services like Uber.

The orange economy – that is, the creative economy – allows retirement to become more possible at an early age. Which has also become possible because more and more people decide to invest their money in a smarter way – and do it at a young age – to be able to live on their investments and not have to be dependent on a job.

Years ago we thought that buying a property was to live in, today thanks to applications like Airbnb, more and more investors decide to buy apartments and houses only to rent them on these platforms.

You do not need to be a millennial to start investing. The technological evolution has made both applications and platforms as well as access to them, are increasingly easier to use.

For example, since 2017 Airbnb host users over 60 years have increased by 120%, while women over this age have become the best rated on the platform. Which indicates that even baby boomers see technology as an opportunity to get a better return on investment with their property.

What is the best age to invest in real estate?
Investing in real estate is possible at any age, but the sooner you do it, the more opportunities you will have to enjoy your money.

What is the best age to invest in real estate?

As we mentioned, not all ages or stages are the same for every person. For some it may be impossible to invest in their twenties and find the possibility of doing it later.

Our best recommendation is that rather than being guided byan ideal age you start doing it for the goals you have and the opportunities that come your way.

There are many myths around investment, especially when you want to do it at a young age, and one of the factors that keep people away from real estate investment is the lack of knowledge on the subject and investor stereotypes. We are not surprised when we hear cases of clients who want to become investors but fear not being able to do so because they do not understand numbers or be experts in the subject.

Knowing the real estate sector is one of the biggest keys to becoming a successful investor, this does not mean that it is a privileged knowledge that you cannot access.

Many millennials have the fear of investing in real estate because they think they need to buy a house to do so, and they ignore the investment possibilities that residential or industrial lots have.

For this reason, they fear not being able to do it because they believe that it is economically impossible for them, and they do not consider the possibilities of acquiring properties in other cities. For example, for some foreigners, investing in Mexico is a better option than doing it in their countries, but in the same way for some Mexican residents, investing in states such as Merida where there is increasingly strong demand in properties not only for housing but also for businesses and offices, it can be more accessible and profitable than doing it in places like Mexico City.

That is why it is important that you do not wait to have an ideal age and start thinking about becoming an investor or making an investment from now on. So the sooner you do it, the sooner you can designate your budget and create a work plan to invest or start saving money and then invest.

Otherwise, as you let time go by, you will be less likely to find suitable properties for yourself and especially if you have the opportunity to invest in places that are in presale in areas that will later have even more capital gain.

What is the best age to invest in real estate?
Millennials are redefining what financial security and quality of life mean, so real estate investments are becoming an option for those who want to travel or retire early.

How to start investing in real estate?

One of the most common mistakes made by young people who aspire to become investors is to obtain immediate profits and be able to spend them on whatever they want. But as you know, this is not possible in the real estate market.

Being an investor is a goal of many to be able to have financial freedom and not be tied to a job or to live experiences like traveling or living in different parts of the world, investing to earn money immediately is not an actual goal.

This does not mean that you cannot earn an income in a short period of time. For example, apartments near tourist areas can generate profits if you decide to rent them. The same happens if you acquire property near schools, universities or hospitals.

What we really mean is that if you want to invest to enjoy the results you need to be patient and prepare constantly about the subject.

The preparation on the subject not only includes understanding how the market works, but also observing and analyzing where it is going.

That is why it is very important that you start to know very well and read everything about the area and the developments that are developing in the city you are looking to invest. Find out about the market and how real estate works in the place. About the papers you must have in order and the types of credits -if you’re considering obtaining one- to which you can access.

Begin to consume information and observe how other real estate investors are generating income with their properties. One of the advantages of investing in real estate is that it is a safe investment, but it also gives you the opportunity to take advantage of your investment.

There is a lot of information especially now that we live in the age of the Internet, but it is always good that you can approach the experts and work with a real estate agent to solve your doubts if you are already thinking about acquiring a property. Ask everything you need to know about the property and the area: the places of access, the maintenance fees, the projection of growth and the amenities with which the development has.

What is the best age to invest in real estate?
One of the keys to real estate investment is patience. Real estate usually increases its value thanks to the capital gain, and this depends on external factors of the property such as the location and the services that are around it.

What factors should I consider when investing in real estate?

We already mentioned in our definitive guide of the real estate investorif you want to be successful when acquiring a property you need to analyze the location and interests of your possible market without letting yourself be guided by the trends.

Actually, what makes your property acquire value is the capital gain of the area. This depends on external factors such as the location, amenities and even the roads that the property has.

Mérida is a city that we love to take as an example because the boom that is experiencing is related to the intervention of factors such as security and the excellent location in an area that attracts tourists and allows them to have access to beaches and archaeological sites.

In the best cities to invest in Mexico we have also mentioned the importance of decentralization that Mexico is living and Mérida is an example of how the diversity of industries can be an important factor in the development of the economy and in the demand for properties and offices, and therefore is another opportunity to ensure your future.

The more diverse of jobs and industries, the more likely you are to be victorious in your investment, as in the case of a crisis, for example, the closure of a factory or a big company that is in the area.

That’s why we emphasize the importance of not investing where everyone is investing, in the end -it may sound cliche- you get what you pay for.

Many new investors make the mistake of acquiring goods in areas that, although cheap, end up being insecure. In the end these investments end up being losses because they end up investing even in luxury finishes in areas where house prices are quoted in an amount lower than what they are thinking of asking for, whether they are rents or for sale.

The capital gain depends a lot on the area, the location and the amenities. And even if you get a very cheap property, in the end you will not be able to generate income if it is located in an area where there is no capital gain or the market cannot access the amount of money you propose. You will lose more money, unlike you decide to invest in an area with a guaranteed gain capital, thanks to all these external factors that we already mentioned.

Another factor that we highlight and that you have to take into account are pre-sales. There is no better way to guarantee your money than buying before, remember our example of the Riviera Maya and Tulum? Now imagine how much it will cost to buy a housing development once it is popular.

Acquiring properties in pre-sale is an excellent way to invest your money, since once the developments begin to acquire capital gain, your property will have more value than what it cost and you can adapt your income according to the costs of the area or decide to sell it to a higher price, or keep it to get more return.

So, if you’re wondering what is the best age to invest in real estate? It is better to start asking yourself; how can I start investing in real estate? And start making a plan so you can reach your goals and start creating a safe economic future for you.

Source:  Peninsula Development – OCTOBER 28, 2019

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The Pros and Cons of Investing in Rent-Controlled Properties

morning-routine
The mention of rent control is enough to make most apartment investors shudder—the notion of artificially capping rents flies smack in the face of American capitalism. But there are several misconceptions about rent-controlled properties. For some, they can be a great addition to their investment portfolios.

 

The Cons of Rent Control

Rent control regulations can be difficult to navigate.

Rent control regulations can be regulated at either the city or state level—or both. The state of California, for instance, allows rent control, but the decision is made at the local level as to whether to adopt a rent control policy.

It’s not uncommon for two adjacent communities to have different policies, one with rent control and the other not. The landscape is continuously evolving; investors need to track these regulations closely as there are routinely efforts (like ballot measures) to change policies.

Related: Rental Owners Everywhere Should Be Concerned About California’s Push for Rent Control—Here’s Why

Your ability to increase rents is capped each year.

Depending on the community, it’s possible that the rent control policy will prohibit landlords from raising rent more than 2 percent each year–in other words, rent increases essentially just keep pace with inflation. This may be completely out of line with market averages, particularly in hot-market cities, where rents have experienced double-digit increases over the past several years.

This ceiling can make deals less attractive to investors in search of strong cash flow.

apartment-complex

Rent controlled properties experience lower turnover.

Typically, low turnover is a good thing as far as apartment investors are concerned. However, some rent control policies stipulate that rents are capped each year until an apartment becomes vacant, at which point the landlord can increase the rent to market rate and then the new cap takes place each year thereafter under the existing tenancy.

To bring units to market rate, they must turn over at least every few years–but tenants in rent-controlled units tend to stay longer than average (sometimes 30-plus years!).

There’s less incentive to improve properties.

One unintended consequence of rent control is that, unable to increase rents, there’s no incentive to invest in a property beyond routine repairs and maintenance. Over time, this can lead to a deterioration (and therefore, value) of the property.

If you decide to sell in the future, your pool of buyers may be smaller.

Given the challenges associated with rent-controlled properties, some investors will never even look at these deals. This inherently shrinks the pool of potential buyers when it comes time to sell.

Related: Due Diligence: What Every Asset Requires Prior to Purchase

The Pros of Rent Control

Rent-controlled properties tend to have lower acquisition costs.

Investors typically use the current rent roll as a major factor when determining the value of a property. Rent-controlled properties, particularly if multiple units are below market rates, are therefore valued lower than what the free market would bear.

This results in lower acquisition costs, which may be a good way for an investor to enter a market they’d otherwise be priced out of by investing in a rent-controlled property.

You CAN increase rents.

Contrary to popular belief, landlords CAN raise rents in a rent control environment—they’re just limited as to by how much each year.

For instance, Oregon just passed a statewide rent control ban this past year that caps rent increases at 7 percent plus inflation annually. That’s a total of 10.3 percent this year. Statewide, rent growth has slowed to less than 2 percent a year since 2016, so the new law makes little difference to landlords looking to increase rents.

Man search apartments and houses online with mobile device. Holiday home rental or real estate website or application. Imaginary internet marketplace for vacation lodging or finding new home.

There are usually policies in place to challenge the cap.

No community wants to see their housing stock decline. To prevent this, most rent control regulations contain provisions that allow investors to challenge the cap when making substantial renovations or improvements to the property.

Rent-controlled properties tend to have consistent cash flow.

Because rents are lower, and because tenants tend to stay in place longer, rent controlled properties tend to have consistent cash flow. What’s more, tenants in rent-controlled properties are less likely to move out during a downturn, which helps investors weather the ups and downs that are inevitable over the course of multiple real estate cycles.

Ultimately, the decision as to whether to invest in rent-controlled properties is a personal one. Rent control regulations can vary so widely–from highly restrictive policies in cities like New York and Los Angeles, to the more flexible rent control policy recently adopted in Oregon.

Anyone considering investing in an area with rent control should spend the time needed to understand the nuances of the policy. One misstep in violation with a rent control law could cripple an otherwise promising investment.

 

Would you invest in a rent-controlled property? Why or why not?

 

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How to Get a Reluctant Spouse on Board With Investing in Real Estate

indecision
Is the white-hot fire of real estate investing burning in your heart? Do you solidly know within your gut that real estate investment will be life-changing? Do you have vivid pictures of the freedom owning property will offer you?

Hmm, now how to impart that passion to your spouse…

You want them to see it as you do. You want them to feel as intensely committed as you feel. You want them to be as excited as you are. You want them to see the vision for your future.

Why You and Your Spouse Would Make the Perfect Investing Team

You can do this together. You have a lot of practice.

Now let me say, this may seem different than other decisions in your relationship, but actually it’s not. Really!

I say this because all types of big decisions like this in a relationship require similar elements. Among these are a bit of understanding, a whole bunch of open-hearted listening, a giant amount of belief, and a huge heap of trust in each other. I mean it!

Planning a wedding, having a child, changing jobs, moving, buying a car together, taking out a student loan, purchasing your first home, raising your kids—every one of these requires discussion and negotiation. The point is, every big decision obliges you to be there for each other’s excitement. But it also necessitates being patiently present for each other’s fear and anxiety.

Where to Start the Discussion About Investing

So, let’s step this out.

First, have you already talked to them about investing? If you haven’t, then that is where you need to start. And then keep the tips below as tools in your tool bag to make the convo go smoothly.

Young displeased black couple.American african men arguing with his girlfriend,who is sitting on sofa on couch next to him with legs crossed.Man looking away offended expression on her face.

However, if you have already talked to them—and they were less enthusiastic than you wanted or expected—perhaps the conversation had one or more of these possible outcomes.

You two discussed it and:

  1. They seemed open, but they were not necessarily excited about the idea
  2. They were fine with you doing it, but they don’t want to be part of it
  3. They have no interest, and they do not want you to do it at all

OK, so none of these three scenarios are what you most want, but they are manageable. You have managed to work out compromises on other large events in your life, right? You can do the same here.

Think of it as excellent practice for negotiating a complex real estate deal. (I’m not kidding here.)

Why Don’t They See the Potential in Real Estate That You Do?

Let’s get into the reasons, the “why” they didn’t feel your same sense of sureness and excitement.

When you negotiate with a property seller, your first job is to find out what they really want or what is holding them back from saying “yes.” And honestly, when you first start talking with a seller, you cannot assume that they even know or are truly “in touch“ with what their hesitations are. Nor can you be sure that, even if they do know what’s bugging them, they will confide their reasons to you!

They might be too embarrassed or ashamed to say them aloud—or even to admit them to themselves. Or it might make them feel vulnerable to admit their hesitations to you. You have to uncover objections by asking questions. You have to listen carefully and openly. You need to pay very close attention.

This is the same process you will use with a hesitant spouse.

Focus on Problem-Solving

If they aren’t overly enthusiastic to talk about real estate investing, be patient. Talk with them in a setting that is quiet and relaxed. Let them finish their sentences. Ask questions without anger, accusation, or judgement.

Remember, you are collecting information so you can solve the problem. Don’t make this an argument. Use your best puzzle- and problem-solving skills.

The solution to this puzzle is one of the most important solutions you will ever uncover. So, I repeat, pay close attention. Listen to the clues.

You are not just a “spouse” in this situation, you are a detective, a troubleshooter, an analyst, an entrepreneur, a visionary.

You see, if you can truly get to the heart of what is making them uncomfortable, only then can you begin to brainstorm solutions. Those solutions need to be two-sided, because when you can help your spouse feel better and more comfortable, you minimize their negative reactions and you increase the likelihood of their participation and willingness.

Related: Investing With Your Spouse? STOP and Read These 4 Survival Tips!

You also increase the possibility you will engage your spouse in your excitement about the opportunities real estate offers your family.

OK, after years as a therapist, I will tell you that when it comes to real estate investing, there are some very specific stressors, fears, and anxieties that people tend to experience. These usually boil down to one or more of the primary concerns listed below.

That said, no two situations will be identical. Your situation with your spouse will be unique.

If you review these potential concerns before you have the conversation, you can develop some well thought out and realistic solutions for how you can alleviate your spouse’s specific hesitations. Anticipating objections and concerns this way should increase your chance for a successful conversation and positive movement ahead in your joint real estate investing future.

Pick out the issues below you are most likely to face (or have already experienced) when talking with your spouse about your desire for their participation in a real estate investing venture. Write out the questions you might encounter and how you might respond. Note the trigger words you might want to avoid with your spouse—you know, the ones that tend to spark an unfortunate outcome!

Then, pick a time and place, and go for it!

Consider Their Fears

Money fears: The fear of losing money and being left without security or unable to pay the bills.

Not enough time: In the beginning, real estate takes time and commitment. As with all skills and education, it requires study, reading, practice, and repetition until it becomes seamlessly familiar.

Afraid of failure: Whenever we start new things, we run the risk that until we master the skills and knowledge, we may not be as successful as we want. But practice improves everything!

Uncomfortable with change: Some people love change—even crave it—but there are others who abhor change. Most of us are somewhere in the middle. But in truth, fear of change is almost as common as the fear of public speaking, which is the highest reported fear. The best way to deal with this concern is to just jump in and try. The sooner you start, the sooner the transition is in the past.

Not knowing who to trust/fear of being taken advantage of: Being new at something means listening to lots of other people’s advice, paying attention to tons of new information, and not knowing which is trustworthy and which is not. Practice makes perfect, or at least very good. So, the more you perfect your skills in listening to your gut while really hearing the person opposite you, the sooner you will know “when to hold them and when to fold them.”

Fear of getting started: When learning something new, it can be very difficult to decide where or how to “jump in,” and those concerns can be intimidating.

Don’t think they’re interested: Sometimes when we don’t know a lot about a topic or skill, we perceive it as boring or uninteresting. Then, once we are exposed to it, we may recognize that we have lots of talents that would make us incredibly successful in that area. But we don’t know until we try.

Afraid of handling tenants: It can seem quite daunting to suddenly have so much power over people’s daily comfort and happiness, but it’s not as hard as it seems at first. Start by giving people the service you would want (just that good ole “golden rule” stuff). Over the years as an investor, I have found that communicating with tenants, sellers, and buyers in the manner I wish to be communicated with goes a long way toward creating positive results, happy tenants, and satisfied colleagues.

No experience/“I don’t know enough”: No one wants to look like they are clueless. It never feels good. Word of wisdom: sometimes the honesty of saying, “I’m new at this,” goes a long way in getting people to warm to you, open up, and be willing to help you deal with any of the hiccups occurring in any new line of business.

Other investors will always be able to find better deals: It’s true! My answer to that is, “Yes, because they keep trying.” They keep networking to meet more people, they make offers on more properties, they talk to more sellers. Does any of that mean you shouldn’t start? Nope. Why? There will always be a “Joe Investor” who will do a deal and make $60K. That doesn’t mean that a deal you do that makes $30K is any less a good deal. Your wallet will still be VERY HAPPY! (This I guarantee you!)

Scared to get it wrong and look foolish to family and friends: This is a really significant fear for a lot of new investors. But are those same family and friends taking risks to build wealth? Are they investing in themselves and their futures by learning new things and creating new investment opportunities? Probably not, and therefore your willingness to invest and trust yourself makes you something special. You and your spouse are pioneers on the adventurous journey of increasing your wealth and building your own personal future success.

Related: A 3-Part Plan for Presenting Real Estate as an Investment to Your Spouse

New Skills Bring New Discoveries

So honestly, some of this list may resonate for you, while many of these concerns may not seem realistic or valid at all. It doesn’t matter. You yourself have your own unique worries and stresses in your heart and mind that your spouse does not share.

Your spouse has a different set of concerns.

We all have insecurities and deep-seated discomforts that can hold us back. But remember, if you can be there to provide support, if you can be present and caring for your spouse during these scary and exciting life changes, you are also very likely to discover the two of you are an amazing team that knows NO LIMITS!

Source: BiggerPockets – B.L. Sheldon

 

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Listen, 2008 Is Never Happening Again—Invest NOW for Best Results

The real estate crash in 2008 was unique in that we saw a very fragmented industry that was burdened by large-scale systemic risk. This is not what usually happens.

It’s important to realize this situation would not be easy to duplicate; it was sort of a perfect storm of bad circumstances. Since then, we have implemented things to protect us from a similar event. Things like Dodd-Frank, better lending fundamentals, and a lot of growth left to capitalize on all make the possibility of another crash similar to 2008’s very unlikely.

Real estate is usually market-specific, so this isn’t to say prices can’t drop in the near future in your market. But it does imply that those waiting around for the next nationwide crash are going to watch a lot of success pass them by in the meantime.

This is going to frustrate many people who see inflated prices and increased competition making it a harder time to buy. However, the truth is real estate is going to be a good investment for a long time going forward. Now might not be as lucrative of a time to get in as it was in 2012, but investing now is likely better than getting in five years from now. In 20 years, it won’t make any difference at all.

Waiting for the perfect moment costs a lot more in experience and opportunity than the potential downsides could produce. As the saying goes: “Time in the market is better than timing the market.”

red down arrow on black and white grid indicating stock loss

When Will the Next Crash Happen?

In 2016, I bought my first rental property. At the time, there were an abundance of threads on BiggerPockets that said, “Don’t buy now. We are about to see a crash.”

Luckily I ignored this noise and bought anyway. In the last three years, I’ve done very well—despite the supposedly imminent danger. Grant Cardone had a bunch of content around this time claiming he was preparing for a crash, as well, but he’s done quite a bit of business since then.

The BiggerPockets forums now reflect much of the same message as a few years ago. Don’t buy! There will be a crash soon!

Maybe those members who are spreading this sentiment are right; maybe they are wrong. Either way, I find that this message seems to have a single constant underlying motive: jealousy.

I really think much of this mindset is coming from people who are actively hoping the market will downturn so they can buy in. They are salty they missed the last big opportunity.

I’m not mad about that. In fact, I’m salty I missed the last downturn, as well! I would have much rather purchased in 2012 than 2016. But unless I create a time machine to go back to 2010 and buy assets, I’m sunk. Fussing about it is never a helpful strategy.

While another recession of some sort is inevitable, no one really knows what it will look like or when it will happen. It most likely will NOT be a repeat of last time though. So waiting for the bottom to drop out of real estate is a mistake, because you’ll be waiting forever while not learning or building experience along the way.

If you don’t have the confidence to buy in an upmarket, you don’t stand a chance to pull the trigger in the down market.

Plan Around Fundamentals—Not Luck

Over the last eight years, many BiggerPockets members (myself included) have bought low and then ridden the wave upward, making money on the sheer luck of being in a good industry at the right time. This is not a sustainable strategy for success in the long term, but it doesn’t mean that real estate only works when you stand to get outsized gains.

Do you only want to buy real estate because you think you might get lucky with an area that’s rising? Or do you want to buy a profitable asset at a discounted price that is going to make money even through market fluctuations?

Waiting for a theoretical crash is just admitting to the world that you can’t compete unless the market is unusually easy to make money in.

In real estate, you make money when you buy. This holds true no matter where we are in the market cycle.

So instead of waiting for your market to downturn, find great deals that are going to make you money no matter what. Have good exit strategies in place, and pass on deals that don’t make sense.

Businessman forecasting a crystal ball

There are two kinds of mania surrounding real estate right now:

  1. Those who are so excited about real estate that they are willing to spend anything to get into an asset and are therefore blind to risk.
  2. Those who are so sure a crash is coming that they are sitting on the sidelines.

Neither of these two parties is going to make as much money as they could. They are too busy making decisions based on emotional hyperbole, anecdotes, and luck instead of solid financial analysis.

Focus on the fundamentals, and you can make money in any market.

Accept That Real Estate Is a Long Play

Why does everyone seem to be playing a two-year game with a 30-year investment? Even if you’re doing fix and flips, there is a long road of education and understanding that goes into this business.

Certainly there are outlier success stories of people doing 20 deals in their first year. However, it’s disingenuous to assume that is universally possible.

In many cases, chasing unrealistic gains gets people into more trouble when ambition outruns reality. Real estate is a slow business filled with complex transactions and ill-liquid assets. Even most superstars go slow!

It’s a patience game that relies on compounding. Trying to force outsized gains at the command of one’s ego is dangerous.

The long game of real estate levels out lots of short-term instability. You need cash reserves to weather economic storms, and you need to buy based on good fundamentals.

You will absolutely experience drops in the future; you can’t avoid them completely. This is why it’s best to get in now (at the right price) and start making money—money that will help you get through a recession.

Even if there were a crash tomorrow, it would be a long time before you felt comfortable at the bottom. The last bottom was in 2009, but people didn’t start buying until 2012 or so.

That’s three years later! Do you really want to wait that long to get started—just because you can’t buy at the discount the last crash offered?

You missed the crash. So what?!

Stop waiting around, nostalgically hoping that opportunity will return. Instead, enter the marketplace. Grab the opportunities that are available right now!

Source: BloggerPockets.com – by

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Why the wealthy are heavily focused on real estate

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Real estate averages 27 per cent of the investments of the ultra wealthy.

SHELDON KRALSTEIN/GETTY IMAGES/ISTOCKPHOTO

With markets roiling in 2016 and commodities lingering in low-price limbo, the holdings of high-net-worth investors can serve as indicators of where the rest of us might consider parking our nest eggs. It turns out that a good chunk of wealthy peoples’ investments is in real estate.

“Real estate is generally accepted as an alternative investment [by high-net-worth investors],” says Simon Jochlin, portfolio analytics associate at StennerZohny Investment Partners, part of Richardson GMP in Vancouver.

“It has the characteristics of an inflation hedge: yield, leverage and cap gains. It does well in upwardly trending markets, it pays you to wait during market corrections and typically it lags equities in market declines – it buys you time to assess the market.”

While the definition of high net worth can be flexible, in Canada and the United States it is generally considered to be someone who has at least $1-million in investable assets.

Thane Stenner, StennerZohny’s director of wealth management and portfolio manager, says a good way for determining what the wealthy do with their investments is to look at reports from Tiger 21, an ultra-high-net-worth peer-to-peer network for North American investors who have a minimum of $10-million to invest and want to manage their capital carefully.

Every quarter the network surveys its members, who number about 400 members across Canada and the United States. Some of the participants are billionaires, and most have a keen eye for business, Mr. Stenner says.

Though the Tiger 21’s Asset Allocation Report for the fourth quarter of 2015 found that its members were becoming cautious about Canadian real estate, they still on average put 27 per cent of their investment into real estate, the largest portion of their allocations. The next largest were public equities (23 per cent) and private equity (22 per cent) with smaller percentages going to hedge funds, fixed income, commodities, foreign currencies, cash and miscellaneous investments.

The real estate portion declined by 1 percentage point from the previous quarter. “While this is the lowest we have seen this year, it is at the same level observed in the fourth quarter of last year, which consequently was the high of 2014,” the report said.

“Real estate is very popular and one of the reasons, in my opinion, is that investors can actually see and touch their investment,” says Darren Coleman, senior vice-president and portfolio manager at Raymond James Ltd. in Toronto.

In his experience, real-estate investors, wealthy or otherwise, seem to behave with more logic than those who focus on markets. “For example, if you own a rental condo, and the one across the hall goes on sale for 30 per cent less than you think it’s worth, you wouldn’t automatically put yours on the market and sell, too, because you think there is a problem. Indeed, you may actually buy the other condo,” he says.

“And yet when a stock drops on the market, instead of thinking of buying more, most people automatically become fearful and think they should sell.”

Real estate also allows for considerable leverage, Mr. Coleman adds: “Banks love to lend against it. Over time, this lets you own a property with a much smaller investment than if you had to buy all of it at once.”

At the same time, Mr. Jochlin says there are disadvantages to real estate that investors should beware of. Property is not particularly liquid, so if you need to sell you could be stuck for a while.

“It’s also sensitive to interest rates and risks from project development,” he says. There are administrative and maintenance costs, and an investor who buys commercial rental property will be exposed to the ups and downs of the entire economy – look at Calgary’s glut of unleased office space, for example.

“Timing is key. You do not want to chase the performance of a hot real estate market,” Mr. Jochlin says.

“Buying at highs will significantly reduce your overall return on investment. You want to buy in very depressed markets at a discount. In other words, look toward relative multiples, as you would an equity.”

As to how one goes about investing in real estate, Mr. Jochlin says it depends. The factors to consider include determining whether your investment objective is short- or longer-term, your liquidity requirements, your targeted return and whether you have any experience as a real estate manager.

“Sophisticated high-net-worth investors have a family office, and thus a specialist to manage their real estate assets,” he says.

How the rich buy real estate

The wealthy don’t necessarily buy and sell real estate the same way ordinary investors do, says Mr. Stenner. Ordinary people buy something and hope that when they sell it they’ll get a better price. Meanwhile, they like to do things like live on the property or rent it out, whether it is residential or commercial. If it is vacant land they might build something. Not always so for high-net-worth (HNW) investors, Mr. Stenner says. While everyone who invests hopes their investment will rise, Mr. Stenner says that in real estate, HNW people tend to fall into four categories:

Developers

“The real estate developer is looking for substantial returns from individual/basket real estate projects, typically 30-50 per cent IRRs [internal rates of return],” Mr. Stenner says. Developers are highly experienced investors who often take big risks, looking at a raw, undeveloped property and envisioning what it could look like with, say, a shopping mall or office tower. This requires lots of access to capital and a strong stomach, as there can be huge delays and setbacks.

Income Investors

“These HNW investors typically look for a stable, secure yield, tax-preferred in nature and structure if possible, with modest capital growth potential,” Mr. Stenner says. They take the same businesslike approach to property as the developer-types, but they’re more conservative, focusing on cash flow and long-term profit as opposed to getting money out after a development is complete. Often they’re building a legacy that they hope to pass down through generations. Mr. Stenner says lower net worth people can emulate income investors, for example, through REITs that are based on apartment buildings.

Opportunists

These HNW investors tend to look for more short-term higher risk, higher return “asymmetric” payoffs. Income from the investment or project is secondary — they’re in it for the quick buck. Often they see real estate in contrarian terms – investments to look at when the market is low and to sell on the way up, rather than hold. After 2008, many HNW investors bought up depressed-price housing in the U.S. Sunbelt. The sizzling Vancouver and Toronto markets might be the opposite of what they’re looking for right now; commercial property in the stagnant Canadian economy that can be purchased for low-trading loonies right now might be more interesting.

Lenders

This refers to HNW investors who lend capital to developers or opportunistic investors, for a fixed return, plus as much asset coverage from the property as possible. They fund mortgages, invest in real estate financing pools or put money into companies involved in this type of investment. “Because wealthier investors tend to have more liquidity, this also creates more optionality to deploy capital in various ways, while using the real estate as collateral or protection,” Mr. Stenner says.

Being a lender is a way to diversify. In addition, money lent in this way puts the lender high up in the creditor line if something goes wrong. If things go right, it generates income as the mortgage is paid back to the HNW investors or the funds they buy into.

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The 8 Things You Need To Know To Avoid Losing Money In Real Estate

We all know those people who frequently lament their decision to invest in real estate. Constantly blaming the market, or real estate as an industry, they believe the entire process is predicated on luck and timing, an exercise in chance. For people who have lost money investing, it’s easy to sympathize with them-but are their beliefs regarding results being beyond their control actually accurate?

Many who bought property between 2001 and 2007 lost money. These were years where prices aggressively increased, largely due to loose lending practices that allowed people to buy homes they could not afford using loans that were only temporarily manageable. Prices continued to climb until these loans reset, at which point houses fell into foreclosure, prices continued to drop, and the overall housing market spiraled into chaos.

But was this truly unavoidable or impossible to predict? Is it justified to live in fear of something like this happening again?

If you believe the answer is “yes”, you’re not likely to get started investing in real estate. The constant fear of an anvil dropping on your head like a looney toons cartoon will prevent you from ever taking any serious type of action. This will also prevent you from having any serious chance of success. The consequences for incorrectly assuming real estate investing is a gamble are grave.

If you believe the answer is “no”, it begs the question-what are the factors that prevent someone from losing money in real estate? Is it just a matter of timing the market? Is it found in getting only great deals? Or are there more pieces to the puzzle?

If we can understand what causes folks to lose money in real estate, we can take preventive measures to ensure it doesn’t happen to us. While no investment is without risk, smart investors understand there are certainly precautions that can be taken to mitigate that risk. In my nearly ten years of investing in real estate I’ve found there are certain steps to take that have a big impact on avoiding the wrong deal. I’ve spent a considerable amount of time listening, interviewing, and speaking with real estate investors. I’ve found patterns in what went well, and I’ve also seen patterns in what led to things going horribly wrong.

The following is a list of the things I’ve noticed often lead to catastrophe. Avoiding these mistakes will greatly increase your odds of real estate investing success.

Negative Cash Flow

If you want to make money in real estate, you should plan on holding an asset for a long period of time. Good things happen when real estate is owned over the long haul. Loans are paid down, rents tend to increase, and the value eventually goes up. The number one problem preventing investors from winning the long game is buying a property that loses money every month.

Don’t buy real estate assuming the price will go up and you can sell it later (this is an issue I’ll cover a little later). Nobody knows what the market is going to do. This is why trying to time the market is a bad strategy to base your decisions on. Instead, only buy properties that generate more income each month than they cost to own. By avoiding “negative cash flow”, you are protected from market dips or stalling home prices. You only lose money in real estate if you sell in unfavorable conditions or lose the asset to foreclosure. Ensuring you earn positive cash flow each month will put the power for when you exit the deal back into your hands.

For more information on how to analyze a rental property, click here.

Lack Of Reserves

If lack of cash flow is the number one culprit for losing money in real estate, lack of reserves is number two. Too many variables are involved in owning rental property to be able to accurately determine when unexpected expenses will hit, and how much they’ll be. Whether it’s an HVAC unit going down, a roof leak, or a water heater busting, there will always be something you need to repair or replace.

None of this takes into consideration evictions, destroyed property, and more. While you’ll eventually end up positive if you hold a property long enough, there will be times when your bleeding cash. Having a sufficient amount of reserves during these times is crucial to your success. Conventional wisdom suggests keeping six months of expenses in reserves for each property. While this number can vary for individual people with unique financial situations, make sure you have enough set aside to comfortably weather the storm when Murphy’s law hits.

Following The Herd

As Warren Buffet stated, “Be fearful when others are greedy and greedy when others are fearful”. While many of us know this to be true, the fact remains too many people still follow the herd. Many bad decisions are made when they are based on what others are doing, rather than basing them on sound financial principles.

It may be tempting to follow the herd, but understand it is a false sense of security. Just because everyone else is buying doesn’t mean you should too. In fact, it may be the opposite. The best deals I ever bought were purchased when no one else was buying. The only reason they were for sale is because someone else lost them who originally bought them when everyone else was buying! Make decisions on fundamentals like cash flow, ROI, equity, and a solid long term plan-not on what you see everyone else doing.

Betting On Appreciation

This is the number one reason I’ve seen for those who lose properties to foreclosure. Amateurs buy a house assuming it will go up in value and they can sell it later. Professionals buy under-valued properties in solid locations that produce positive cash flow. This gives them the flexibility to exit the deal when it makes financial sense to do so. When someone bets on appreciation, doesn’t have positive cash flow, and doesn’t keep accurate reserves, they are gambling on the market continuing to rise to bail them out from a risky investment.

Buying in Bad Neighborhoods

While we all know the first rule of real estate (location, location, location), there is also still the temptation to buy a questionable property in an area that seems too good to be true. When it seems too good to be true, it usually is. While homes in undesirable locations can look great on paper (read, in a spreadsheet) the reality is they almost always look better in theory than they’ll be in practice.

When you buy in an area where good tenants won’t want to live, you’ll be forced to rent to less than desirable tenants with lower credit scores, less reliable income streams, and a worse rental histories. The cons just won’t justify the pros. Having to pay for multiple evictions, destroyed homes, and theft will cause even the most stalwart investors to lose their cool. Avoid the temptation and only buy in areas where reliable tenants want to live.

Underestimating Rehab Costs

Whether you’re a total newbie or a seasoned pro, everybody makes this mistake. Experienced investors assume their rehabs will go over budget and over schedule. They prepare for this by writing these overages into their budgets and planning for them accordingly.

There is no use in running out of money with 10% of your rehab left to go! You can’t rent out the property and can’t generate income unless 100% of the property is ready to be dwelled in. Don’t be the person who makes the mistake of buying a property then running out of money before it’s ready to be rented out. Don’t bet on contractors, don’t bet on estimates, and don’t bet on numbers in a spreadsheet. Make sure you bet on yourself and have enough money set aside to finish your rehab, even if you’re told that’s unnecessary.

Planning on Doing The Work Themselves

All too many people have assumed they would save on a deal by doing the rehab work themselves rather than paying someone else. While there are some people who can pull this off, it’s a mistake to assume you can pay too much for a property, or not have enough in reserves to pay for the work, simply because you plan on doing the work yourself.

It’s been said “The man who represents himself in a court of law has a fool for a client.” The same can be said of the person who assumes they’ll do the rehab work themselves to avoid budgeting correctly. You don’t know which direction your life will take, what time you’ll have later, or what unexpected problems will be uncovered once you start the rehab. If you’re able to do the work yourself, consider that icing on the cake-just don’t count on it.

Failing to Educate First

The final lesson I’ve learned from those who have lost money in real estate is that they didn’t understand what they were getting into until after they had committed to purchasing a property. Certain decisions like buying a property, starting a rehab, or putting money into a deal, can’t be taken back once they are made. The time to realize you’re not prepared, or it’s the wrong deal, is before you pass the point of no return.

If you want to invest in real estate, that’s great! Start by educating yourself now, before you’re committed, then use that information to help you make the best choice possible. I wrote the book “Long Distance Real Estate Investing: How to Buy, Rehab, and Manage Out of State Rental Property” to help save others money by learning from my mistakes. I document my systems, strategies, and the criteria I use to make my own decisions so others can avoid catastrophe. This is just one example of ways you can invest a very small amount of money to save yourself thousands of dollars in mistakes.

Reading articles like this show a propensity for avoiding mistakes and saving money. I encourage you to read as much as possible before jumping in. Other resources include websites like BiggerPockets.com, podcasts, and online blog sites where you can learn from the wisdom of others.

No investment is without risk, but that doesn’t mean we need to live in fear. Start by avoiding the eight mistakes I’ve outlined here and you should be well on your way to growing wealth through real estate.

Source; Forbes.com –Real Estate

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Mark Cuban Says the Best Investment Is Paying Off Your Debt — Is He Right?

Mark Cuban Says the Best Investment Is Paying Off Your Debt -- Is He Right?

Image credit: Invision/AP/REX/Shutterstock via GOBankingRates

Billionaire investor and Shark Tank star Mark Cuban said that the safest investment you can make right now is to pay off your debt, according to an interview with Kitco News earlier this year.

 

“The reason for that is whatever interest you have — it might be a student loan with a 7 percent interest rate — if you pay off that loan, you’re making 7 percent,” said Cuban. “And so that’s your immediate return, which is a lot safer than trying to pick a stock, or trying to pick real estate or whatever it may be.”

Cuban is mostly right: More often than not, paying down debt as fast as possible is going to provide the most value in the long run. And perhaps more importantly, it will do so without any real risk that comes with most investing. That said, each person’s financial situation is different, so it is worth a closer look at when it’s better to pay off debt or invest.

Debt is like investing but in reverse.

One important thing to note is that the same principals that make investing so important also make paying off your debt similarly crucial. As Cuban points out, the interest rate on your loan is essentially like the rate of return on your investments but backward. In fact, many investments are simply ways you’re letting your money get loaned out to others in exchange for them paying interest.

As such, it’s important to keep in mind that as satisfying as it might be to watch your money grow in investments, it’s doing just the opposite when you have debt.

Every loan is different.

Although debt chips away at your net worth through interest, it’s important to note that different types of borrowing do so in very different ways. Every loan is different, with some offering terms that are actually quite favorable and others that can be excessively costly.

An overdue payday loan can lay waste to your financial health in no time, but a 30-year fixed-rate mortgage with a competitive rate can be relatively easy to manage with good planning. Borrowers should be sure they understand what kind of debt they have and how it’s affecting their finances.

 

Focus on the interest rate.

The key factor to take note of when considering how to allocate funds is the interest rate — usually expressed as your APR. Debt with a high APR is almost always going to be better to pay down before you focus on any other financial priorities beyond the most basic necessities.

The average APR on credit cards as of August 2018 was 14.38 percent. That’s well in excess of what anyone can reasonably expect to sustain as a return on most investments, so it shouldn’t be hard to see that investing instead of paying down your credit card is almost always going to cost you money in the long run.

Does your interest compound?

Another crucial factor in understanding how your debts and your investments differ is whether or not your interest is compounding. Compounding interest — like that on most credit cards — means that the money you pay in interest is added to the amount due and you’ll then have to pay interest on it in the future. That can lead to debt snowballing and growing exponentially. So, not only do credit cards have high interest rates, but they also make for debt that’s growing faster and faster unless you take action to pay it down.

However, that same principle can work in reverse. Gains on something like stocks will also compound over time, so there’s a similar dynamic at work when comparing your investment returns to fixed interest costs.

Know your risk tolerance.

Another factor that plays a big part in the conversation is your level of risk tolerance. Note that the question Cuban was responding to earlier was about what the “safest” investment was. For most people, erring well on the side of caution when it comes to something like personal finance just makes sense, and in that case, focusing on paying off debt is pretty crucial.

However, others might decide that the long-term payoffs that are possible make it worth rolling the dice on their future. Borrowing money for investments is common despite the risks associated, with everyone from massive investment banks to investors with margin accounts opting to take a calculated risk that their returns will ultimately outpace the cost of borrowing.

 

Costs of debt are set, investment returns often are not.

One important aspect of understanding the risks involved is that the cost of your debt is usually set and predictable, but the returns on your investments are not. It might be easy to look at the historical returns of the S&P 500 at just under 10 percent a year and assume that it’s worth it to put off paying down debt for an S&P 500 ETF or index fund as long as your APR is under 10 percent.

However, that long-term average does not reflect just how chaotic the markets really are. Sure, it might average out to about 10 percent, but some years will be in the negative — sometimes over 30 percent into the red. Even with bonds — where your rate of return is fixed — there is always a chance that the borrower will default and leave you with nothing.

If you have a variable rate loan

Of course, if your loan has variable interest rates, the equation changes yet again. You could see your interest rate rise or fall depending on what the Federal Reserve does, adding another layer of uncertainty to the decision — especially when it’s impossible to say with certainty which direction interest rates are headed in for the long run.

So, although debt will typically have more certainty associated with its costs than investing, that’s not always the case and variable rate loans could change things for some borrowers.

Don’t forget taxes.

You should also remember that the tax code includes a number of provisions that promote investment, and those can boost the value of investing. In particular, contributions to a 401(k) or traditional IRA are made with before-tax income, meaning that you can invest much more of that money than you would have with your after-tax income that would be used to pay down debt.

That’s especially true when you have an employer who matches your 401(k) contributions. If your employer matches, you’re essentially getting a chance to not just avoid paying taxes on that income, but you’re doubling its value the moment you invest — before it’s even started to accrue returns.

 

Some opportunities are unique.

Another important factor to consider is what type of investments you can make. In some very specific cases, you might have access to an investment opportunity that brings with it huge potential returns that could tip the scale. Maybe a specific local real estate investment you’re particularly familiar with or a startup company run by a family member where you can get in on the ground floor.

Opportunities like this usually come with enormous risks, but they can also create transformational shifts in wealth when they pay off. Obviously, you have to gauge each opportunity very carefully and make some hard choices, but if you do feel like it’s a truly unique chance to get the sort of returns that just don’t exist with publicly-traded stocks or bonds, it might be worth putting off paying down debt — especially if those debts have fixed rates and a reasonable APR.

What really matters with debt and investments

At the end of the day, you certainly shouldn’t opt to invest money that could be used to pay down debt unless the expectation for your returns is greater than the interest rate on your debt. If your personal loan has an APR of 15 percent, investing in stocks is probably not going to return enough to make it worthwhile. If that rate is 5 percent, though, you could very well do better with certain investments, especially if that’s a fixed rate that doesn’t compound.

But, even in circumstances where you might have reasonable expectations for returns higher than your APR, you might still want to take the definite benefits of paying down debt instead of the uncertain benefits associated with investments. When a wrong move might mean having to delay retirement or delay buying a home, opting for the sure thing is hard to argue with.

Which decision is right for you?

Unfortunately, there’s no magic bullet for knowing whether your specific circumstances call for you to prioritize paying down debt over everything else. Although paying down debt is typically going to be the smartest use for your money, that doesn’t mean you should do so blindly.

Putting off paying down your credit card balance to try your hand at picking some winning stocks is a (really) bad idea, but failing to make regular 401(k) contributions in an effort to pay off your fixed-rate mortgage a couple of years early is probably going to cost you in the long run — especially if you’re missing out on matching funds from your employer by doing so.

So, in a certain sense, Mark Cuban is right: Paying down debt is very rarely going to be a bad idea, and it’s almost always the safest choice. But that said, it’s still worth taking the time to examine the circumstances of your specific situation to be sure you’re not the exception that proves the rule.

Source: Entrepreneur – Joel Anderson , 

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