Category Archives: Real Estate Investing

Investing is a fascinating topic for me. I like simple math. So here is a little something I figured out in a few minutes regarding traditional investing (stocks, bonds, whatever) versus real estate investing.

Traditional Investing

Let’s start with a $10,000 liquid savings account. We’ll buy some stocks, not counting any fees, and we’ll add $200/mo. to that balance. Every month.

And we are going to say that we have an 8% return each and every year. (Yes, I know some years will be higher, some lower. I wasn’t born yesterday.)

After 30 years you should have approximately $398,698. Hey, that’s pretty good! I’d take it. Unless…

Real Estate Investing

Let’s take the same $10,000 and leverage it into a $200,000 duplex. Now the cash flow on this will be negative so we’ll contribute that same $200/mo. we used earlier to help it break even. Just to be fair I’d hate to throw in the other advantages of real estate investing like depreciation. But we will use principle reduction and appreciation.

So after 30 years the mortgage will be paid off (by the tenants!!!!) and we’ll use an annual appreciation rate of 4%. That sound more than about right.

Where are we after 30 years? Right around $650,000. Doh!

• price range.
• condition.
• quality of tenant.
• location.
• style of house.

Now, don’t jump all over me. I realize there is a word out there called diversification. But there is also an “old-fashioned” theory out there called having a plan. Purposeful Planning is what my friend Jeff Brown calls it.

I’m not going to dive into this too deeply. I could make this a four part post. But I am going to say, that in my mind at least, there is a huge difference between being a real estate investor or being a property collector. Real estate investing takes planning, purpose, education, guidance and hard work. All of those combinations put together create all those conversations that start with “Boy, you sure were smart all those years ago to buy those properties. I wasn’t that lucky…”

With property collecting, you will need some luck involved. Some people make it through with this philosophy. Some “investors” don’t even realize they are property collectors.

Stop right now,review your portfolio of income property. Does it look like it happened on purpose? Then keep it up. Is it a mish-mash? Then let’s talk.

So, Chris. What are the commitments a real estate investor has to make to be successful?

Real estate investing as a means to secure a retirement worth having is all about risk management. And risk management can best be accomplished through education and due diligence.

Nobody goes into a business transaction hoping to lose money. (Well, maybe if they can take advantage of passive loss but that’s a whole other post.) The key is knowing what the current position of the property is, what the income and expenses really are and utilizing past performance mixed with current variables to forecast the next 5-8 years.

Does that sound complicated? It doesn’t have to be. Real estate investing is not rocket science. But it’s not child’s play, either.

Spend time educating yourself before you jump in. When you went to college, did you research your school or just go because they had a good basketball team? (You may not want me to answer that.) Read. Choose a good professor and then start your journey.

And subscribe to this blog’s RSS. That way you can keep up to date with what is happening in the Kansas City real estate investing market.

As many of my more loyal readers know I am a private pilot, though I’m not presently current. And the comparisons between real estate investing and my period of learning to fly are oddly similar. Not in function but in training and application.

• understand that I have their best interests in mind.
• aren’t sure that I have their best interests in mind.
• assume I do not have their best interests in mind.

The last two can, frankly, be difficult to work with. Not personality wise but because they never really buy in to the fact that the more money I can help them make the more money I make. It’s really that simple. Real estate agents can sell a house, make a few dollars and move on to other professions if they like. A lot are doing that right now.

But I’m 42 years old with a lot of really good years ahead of me. It is in MY BEST INTERESTS to make sure your best interests are being protected and that you will make money. If those two things are happening, who do you think you are going to call when you need a real estate agent?

Getting back to my flying analogy…

When I was learning from Felicia Barton how to fly an airplane I listened intently. And yes, I also checked her out and cross-referenced her knowledge. How? I bought books about flying and read. I bought DVD instructional pieces that taught me the same thing she did, as it turns out.

But let me be very, very clear about this. When I was in the air and the ground was a significant distance below me, and her, I listened and did what she said. It just seemed to me that if something bad happened she was going to suffer the consequences as well.

It was in her best interest to let me know all of her knowledge. To educate me. And to get me out there on my own. I didn’t argue. I didn’t debate. I didn’t tell her what my brother-in-law’s opinions were about her practice of flying. I chose her to teach me. Now it was my turn to let her do her job and learn as much as I could.

And when you have a controlling, Type A personality (High D for those in the know) you have to understand how hard it was for me to make my will and intellect submissive to hers on this subject. But it was the smart thing to do.

Flight instructors and their students get killed every once in while. The reasons may vary but I doubt seriously that the student had done everything the instructor had said or taught. Foreclosures happen in real estate. For the first time home buyer it may be because someone advised them and they chose to ignore the advice. With real estate investors a foreclosure is probably the result of defying the odds when it comes to proper due diligence and running the numbers.

Real estate investing has rules. Follow them. Hire a guide. An instructor. A counselor. Another set of eyes. You might think my fees are high and that REALTORS make too much money. So be it. How much does a foreclosure cost?

Jeez oh Pete. Are there any Kansas City area mortgage brokers out there that want to make some money?

Please, give me a call or an email. But I’m looking for someone with an established client base that has people that would fit the real estate investor profile. (Not flippers.) Buy & Hold real estate investors is who I’m looking for. That’s all I’ll say at this point.