Riding The Roller Coaster
Will Rogers once said: “The best test of any plan or idea is - Does it work?” I certainly agree with Mr. Rogers and I must say, his simple wisdom applies to real estate investors just about as much as anything else! Quite often plans or strategies will work for a short while - then they suddenly stop working! Buying and selling houses in a red-hot market is a good example. It works great until buyers stop buying - then it doesn’t! I can name at least 10 investor friends who’ve made a ton of money buying and selling houses — But then a down cycle takes it all back!
I have since concluded that Mr. Rogers’ statement can benefit real estate investors a little bit more by adding several extra words for us long-term, “womb to tomb” investors. Hence, the best test for any real estate investment plan or wealth-building strategy is –Does it work for all seasons during the long haul? Quite frankly, I don’t much care for the idea of implementing any investment strategy that could dump me on the poorhouse steps when I’m old and gray! For me, that’s right about now - wouldn’t you say?
No matter what the rest of our economy looks like - the sky is never falling for smart real estate investors who understand how to ride the “roller coaster”. Once you’ve been around the “investor’s block” a time or two, it will become clearly obvious that real estate investing is an up and down business. Not only is it up and down - it’s also a rapidly changing business.
Many who call themselves investors are really closer to speculators! Speculators have great difficulty surviving the roller coaster’s “down-hill” ride. The reason is simple! Most generally, in order for the speculation strategy to work, banks are needed to provide mortgage loans. Inflation must continually push up selling prices. For buy & sell investors (”flippers”), there must always be a pool of ready and willing buyers. The basic flaw with this strategy is that it don’t work very well in stormy weather or down cycles.
BORROWING MONEY
I have long ago quit counting the number of people who ask my advice about borrowing money from banks to finance real estate. I will tell you this however; it’s nearly always the first question on most investor minds when they call me asking for my assistance.
Let me share a couple thoughts I have about borrowing from conventional sources like banks and other commercial lenders. My first thought is, you must give away too much control. You’re also signing a note or mortgage that makes you personally liable for the debt, rather than just the property it! Should you ever experience foreclosure and your security, the property you’ve purchased doesn’t satisfy the amount of debt then your other assets, including your personal residence, can be sold to cover the bank’s full foreclosure costs.
It’s important to understand that bank loan officers are always happy to talk loans with qualified W-2 wage earners who are interested in buying a home-sweet-home to live in. It’s a bit different for self-employed entrepreneurs and landlords who buy rundown rental houses! That’s a totally different ballgame. A blind street artist with terminal palsy might qualify easier. Sole proprietors and self-employed folks are risky business to banks. They require several years’ worth of income tax returns (1040’s) showing a nice steady flow of income. Also, up-to-date profit & loss statements signed and audited by a certified public accountant. And that’s just for starters!
They’ll also likely need an appraisal, copies of all lease agreements, escrow papers showing the original purchase price and a host of other documents. Your credit cards can’t be overloaded with frivolous debts, like paintbrushes and toilet seats. Bankers will not tolerate late payments. Obviously, any blips in your credit is enough to have a loan officer throw-up on your application. Do-it-yourself investors should routinely consider alternative methods to finance their wealth-building plans — Otherwise growth can be seriously curtailed should ailing banks tighten their lending screws, as they often do.
INVESTORS WHO DEPEND ON A SINGLE PLAN SELDOM SURVIVE
Long-time TRADE SECRET subscribers already know that it’s my firm belief that do-it yourself investors should learn everything they can about many different ways to earn profits with real estate. I don’t believe you can reach your maximum potential as an investor until you learn to do many things well. These include buying single-family houses, foreclosure properties, rundown apartments, options, wrap installment selling, landlording and buying discount paper. In case I missed anything, just add it in with the rest because you need to learn it all! It may seem like a large task at first glance. However, everything I’ve mentioned is related. All the parts will tie together to make you a “total investor”. Refer to JAY’S MONEY TREE AND 13 PROFIT BULBS.
Before I forget to say this or mislead anyone — Let me say for the record, I also feel very strongly that investors should have a specialty. I define specialty as something you learn to do better than everyone else in your- particular area. Your “ace in the hole” investment strategy, you might call it. Something you can always count on to make you profits when everything else quits working. For example, I specialize in fixing rundown properties. It always works for me, even when other activities slow down. When you read about successful people, as I like to do, you’ll find that bad conditions or rough loan times at the bank have very little to do with their success. In fact, most don’t even mention economy or banks when they discuss what’s needed to be successful. Reading autobiographies of successful entrepreneurs will give you an inside look and some positive ideas about what it really takes to make it. I would strongly urge you to read success stories because they help you to mentally rise above the routine ups and downs of your everyday investment business.
