The Seven Deadly Real Estate Investment Sins

Real estate investors can be hurt by mistaken beliefs around achieving success through investing in real estate.

There are certain beliefs that real estate investors who have achieved wealth in the $10 – $100 million net worth range, that they don’t share with others.

The most damaging of those beliefs are included here.

By understanding them you will be putting yourself in a similar position to those high net successful real estate investors.

Deadly Real Estate Investment Sin Number 1

Believing that you need to predict what the real estate market is going to do in order to succeed.

Reality

Highly successful real estate investors are no better at predicting what is going to happen in the market than anyone else.

This might seem like it is untrue. How can somebody who is so successful, and created such a large net worth, do so in different types of markets?

One word – Time.

Successful real estate investors don’t rely on predicting what the market will do next month or next year.

And it isn’t whether these investors are taking advantage of a particular part of the real estate cycle. It is that they continue to participate by owning assets throughout many cycles. It is the length of time that they are in various markets that allow them to succeed.

They don’t focus on interest rates.  This seems to be a favourite past time of most Canadians.

Did you know that mortgage rates in the 1980’s reached above 18%, and you know what, there were many successful real estate investors during the 80’s as well.

Deadly Real Estate Investment Sin Number 2

Believing that a particular guru can predict the market and if you find them, and follow what they do, that is all you need to succeed.

Reality

There is nobody that can predict the future of the real estate market. If these gurus could predict the future why would they need to share this information with you? Why would they give that to you for $100 or even $100,000?  They would just be doing deals all day long.

The mega-successful real estate investors, who are actually generating huge income and net worth in real estate, and not part of the real estate investment education marketing machine, rarely talk about what they’re doing or how they think about the market.

It is unlikely that you will ever get comments from them in the media on what the real estate market will do.  You will not see them on a stage; you cannot buy their book or take their course.

Deadly Real Estate Investment Sin Number 3

Believing that you must take advantage of people in order to make big profits in real estate.

Reality

There are many different types of real estate strategies that are out there.  You have a choice as to which strategy and approach that you take with your real estate investing. They are ample opportunities to get great returns in real estate without using strategies that are more likely cause people to become hurt financially for you to profit.

The ultra-high net worth real estate investor is in the game for the long term. They understand that their reputation will precede them. That their word is important and if they tell you something that they will follow through on it.

It is easy to hear the gurus and real estate investment education marketers that promote strategies where you will put people into poor financial situations in order for you to get a return.

One example is using rent to own or lease to own strategies where are you are only concerned about getting a big option deposit and have no interest as to whether the tenant-buyer will be able to qualify for the mortgage at the end of the option period.  Often the guru will say something along the lines of “well if they can’t qualify it’s their problem”.

Often it is these types of strategies that appear in the media and cause negative connotation to real estate investors.

Deadly Real Estate Investment Sin Number 4

Diversification

Reality

There is no high net worth real estate investor that created wealth through diversification into different asset classes (Stocks, Bonds, Mortgages, GICs …)  They focused on one type of real estate investment and scaled that as far as they could, with as many properties as they could.  Before, focusing on a different type of real estate investment or asset class.

Many real estate investors get lost on the path to extreme wealth and net worth. Usually this happens because they get distracted by another shiny object (Real Estate Strategy) or income source(Real Estate Profession). This could be related to real estate investing but extracts a lot of time. Some examples are focusing on being mortgage agent, real estate agent, or property manager, where they are trading employment income for self-employment income.

None of these are bad things.  But if you want to gain a large net worth, income alone will not get you there. You need to focus a majority of your time adding income producing real estate assets.

Other people never even get out of the gates.  They hand over control of their finances like mindless zombies from hearing a marketing slogan on the television or information from some financial planner that they must have a diversified portfolio.

If you were to ask a butcher if they preferred meat or fish, what do you think that they would say? Meat of course.

There is no financial planner or advisor that will give you unbiased advice, whether fee-based or not that will lead you to create a net worth greater than their own. They earn an income, they do not invest for income. Big difference!

Diversification is for the protection of wealth.

Protection.

That means, not to lose it, once you have gained it.

There are high net worth investors who invest in real estate, the stock market, buying and selling businesses, online and brick and mortar businesses…

You want to find the high net worth investors in whatever asset class or business that you are considering, where they already achieved the success that you are looking for, and emulate their approach.

Ultra-high net worth real estate investors have focused on investing in real estate. If you want to increase your wealth you need to spend 90% of your focus on growth and gain expertise on it.  Until you master it, and then move on to other asset classes if you wish to.

Deadly Real Estate Investment Sin Number 5

Believing that real estate investing means of taking big risks in order to get big returns.

Reality

Successful real estate investors are risk averse and do everything they can to avoid risk and minimize losses.

High net worth real estate investors just deal with more zeros on the end of their checks then most other people. They spend much more time doing the due diligence necessary in order to avoid big losses rather than chase huge profits. However, these real estate investors know that they cannot avoid risk.

Successful real estate investors understand that making mistakes are part of the learning process; they do not fear making mistakes.  Every deal they do there is always the possibility that something may go wrong, but it also means that they will learn something new, which excites them. High net worth real estate investors take the time to reflect on what they have done, in order to help mitigate risk.

Deadly Real Estate Investment Sin Number 6

Belief that there is some sort of real estate investment guru based system that was developed out there where if they can just follow it they will get guaranteed profits.

Reality

Marketing real estate investment education can be hugely profitable to the marketer and marketing company. This in no way relates to the desired results of the real estate investment system sold by the guru. In fact many of the real estate investment educators make 90% of their wealth from selling the systems, not through real estate.

Many people get stuck into this guru formula from somebody who was on television show that they saw or in a book that they read.  They see a particular system that has been outlined to them and believe that this is the system for success. The truth is that not all systems work in all markets all the time. And what you see on television is never what it seems.

You need to look at the successful high net worth real estate investors in the market that you are currently in and find out what they are doing to succeed.

Deadly Real Estate Investment Sin Number 7

Believing that you know exactly what the future of the real estate market is going to be.

Reality

This has happened throughout history with different people in different asset classes. We have just had different names for this experience Tulip Mania, South Sea Bubble, or more recently Tech Bubble…

High net worth real estate investors work hard not to “drink the Kool-Aid”. They look for and listen to opposing points of view in order to help inform their own opinions. These investors are realistic and indifferent to what the majority opinion might be.

Successful real estate investors know that they need to be skeptical of governments, authority figures, and experts. It is this skepticism that helps to guard one against exaggerated expectations, and builds faith in themselves.