You’ve put together some money and you’re trying to figure out what to invest to make it bear fruit. Maybe you bought books on the subject, follow several blogs and participate in discussions in the forums, to find safe investments, that won’t make you lose your savings.
As a result, you get to find yourself even more confused and you risk opting for a low risk investment in bonds from which you’ll get nothing or almost nothing or, worse, to keep your money under the mattress.
As I have often told you on this blog, as well as in my books, among the various forms of investment, for me the best is always the brick: it allows, for the same risk, higher profit margins than those offered by Bag.
True, real estate investments are challenging. If you expect to buy a house, entrust the management to someone and then enjoy the income on the beach, then change sector. You will have to spend time, effort and energy. But the satisfaction of a successfully closed operation is an indispensable return.
In this article, I propose 7 suggestions, which I have drawn from some quotations collected from the big names in the sector. In this way, if you are taking the first steps and do not yet know the rules of the game, I hope to help you formulate a clearer idea of how investments work. Some quotes may seem to you to be in contrast with each other.
Consider that there are no absolute rules that apply to everyone: investors have different time horizons, goals and different propensity for risk and each investment always brings with it an aura of uncertainty.
These quotes therefore serve you as a compass to face an immense sea before setting sail with your ship, so as to be able to orient yourself in the first days of navigation. Then the experience and work in the field will teach you and you will be able to identify which are the best investments for you …
1. Don’t cheat yourself in real estate investments
“The first principle is that you must not make fun of yourself, and you are the easiest person to deceive.” The first piece of advice I give you is inspired by a quote by Richard Phillips Feynman. He is not an investor, he is a scientist, but nothing is more true than this sentence, in any sector. Even more in the real estate world, where you risk making too optimistic estimates or ignoring the crucial elements, in order to conclude an operation you fell in love with.
If you want to be successful as a real estate entrepreneur, you don’t have to let the emotion win, but the numbers. Remember, the value of a property is decided by the market and how much potential buyers are willing to pay and invest savings to get it.
2. There are no absolute rules for real estate investments
“There is so much disagreement about investments and it’s because nobody knows.” With this phrase, Robert J. Shiller, a famous American economist, offers us an important lesson: there are no absolute truths in investments. If you surf the Net, read newspapers or chat with some industry experts, you will discover different theories that tell you where to invest , when to do it, how to buy and sell shares rather than real estate. But none of these theories is universally valid.
Every investment choice or strategy has strengths and weaknesses, risk factors and advantages, which change with each market cycle. With experience, you will soon develop your own investment strategy, tailored on you, your aspirations and your goals.
3. Worrying is a sign of health
It is a “truth” that generations of Swiss bankers have handed down: “Worry is not a disease but an indication of good health”. I told you at the beginning of this post, the life of an entrepreneur is not spent on a beach drinking alcohol. The best investors are always risk-conscious, especially if this can jeopardize their capital.
Worrying is not a bad thing, it’s not worrying about the problem. If you don’t, there are two hypotheses …
- Don’t risk enough, being satisfied with very low margins
- Do not evaluate all the elements of your business, tracing the path to failure.
Be careful, I’m not saying that, as an investor, you have to live in the anxiety of failure, but it is a smart move to evaluate all the criticalities of your business to outline a plan B to fall back on if your investment starts not to bring the estimated results. Have you considered the hypothesis in which your property remains vacant? Or if you need unexpected maintenance work? Do you have the financial resources to support a cash flow setback?
The concern is not negative; it helps you to think in perspective and to face any difficult situation.
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4. Check your greed in real estate investments
This is an advice I learned from Warren Buffet, one of the richest men in the world, who at the age of 11 invested what he earned in his uncle’s beverage shop. Today he is the CEO of Berkshire Hathway, a holding company with 331,000 employees, active in more than 70 businesses.
His story had me very passionate and, while I was reading his biography, I came across his sentence: “Be fearful when others are greedy, and be greedy when others are fearful”.
If you think about it, one of the reasons why people fail is this: they become greedy when the market is too expensive and they get scared when the market is falling. To be successful, you must control your greed when there is a boom and keep in mind that fortunes are not built in a day. It takes years of hard work and efforts to succeed in investment. Your goal is to survive long enough to take advantage of the ups and downs of market cycles.
5. Become a Zen thanks to training
A mistake that often a new investor commits is to panic in the face of market fluctuations. Instead, as Peter Thiel, founder of PayPal and investor in innovative businesses, says, “many of the most successful entrepreneurs seem to suffer from a mild form of Asperger, where it is as if they lacked the socialization gene”. In other words, many of the greatest entrepreneurs seem to remain impassive and emotionless when things go wrong. How do they do it? They have very solid convictions, based on careful training.
You need to spend time on your training to develop the skills needed to analyze the market and predict the trend. Thanks to learning, you will improve your ability to identify winning investments and you will not go mad in front of market fluctuations and the failure of competitors.
In fact, an investment solution you bet could penalize you in the short term but offer you generous profits over the medium term. On the contrary, the market could overestimate a product that has a very short life cycle. Only with the right preparation can you be sure of your investment and remain calm.
6. Do not settle into habit
Ron Chernow, famous American writer winner of the Pullitzer said that in “a rising market, everything you buy grows. This makes you believe that investments are easy and that you are a financial genius “. And there are many investors who have paid the price for this belief, ending up being crushed by the positive market trend. This happens because often we make the mistake of settling down in activities or operations when these prove fruitful.
When evaluating an operation you must consider all the elements in light of the market photographed at that particular time. Some, instead, choose to bet on an operation because it has always worked and are convinced that it will continue to do so. Experience has taught me that this is not the case at all.
The secret to succeeding in business, especially for real estate investments, is to never stop watching the market and learn. If in a particular area it is very profitable to invest in large properties to make income to families, this may not be true in another area, where there is a greater demand for studios. An operation does not work regardless of the context, and the elements that contribute to its success are many.
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7. If you want to make profitable real estate investments, watch others play
No, I’m not saying you don’t have to play your cards, but to do it at the right time. I once read an interview with Annie Duke, a US poker player and winner of the World Series of Poker, in which she said “in poker, the most activity is to watch. An experienced player chooses to play only 20% of the hands dealt to him, losing the other 80% before passing the first round of betting. This means that he spends 80% of his time watching others play”.
This is also true for the real estate sector. Waiting is the most difficult but also the most important part. Most of the successful operations are preceded by a waiting phase, in which you compare the operation on which you want to invest, with other similar ones on the market.
This does not mean falling into immobility or playing the card when it is no longer profitable, but taking time to make accurate assessments and not go blind: looking at the market and the moves of competitors helps you understand the sustainability of your business and if the market estimates are adequate.