There has been a lot of talk lately about which type of real estate investing strategy is best for new investors.
Do you leverage yourself thin and acquire as many properties as possible? Do you save up, pay all cash for properties, and avoid bank financing in order to obtain higher cash flow and security? Or should you flip properties for quick cash, or should you buy the biggest mobile home park you can find on LoopNet?
What level of risk are you willing to accept to make the mission happen?
Analyzing the Risk
In the military, we analyze risk on a daily basis. We make calculated decisions to mitigate risk based upon the commander’s intent in order to accomplish the mission safely and effectively. We receive the mission and then begin the analysis, developing courses of action to achieve a specific desired outcome.
There is no difference when it comes to making a decision in real estate. You are in command of your own future. Your own intent is, in fact, the best intent for your mission.
New investors get way too wrapped around the axle of what other investors are doing. They forget that they are not in their same position.
Some people are able to use leverage effectively, while others cannot stand the thought of being in debt. How fun is it to invest in something that makes you uncomfortable and stressed out?
The best strategy is the strategy that you find most effective for your perceived level of assumable risk.
Multiple Courses of Action
Regardless of the strategy you choose to invest in real estate, one thing remains true: you need to have multiple courses of action. If you are familiar with Murphy’s Law, which is “anything that can go wrong, will go wrong,” you understand the importance of having plans A, B, and C.
In aviation, we use the term “escape routes” when flying. As aviators, we like to make sure we have secondary and tertiary plans when things go wrong.
When it comes to real estate, make sure you have a plan to exit your investments. Personally, I like to leave just enough equity in a property that if I ever need to pull some quick capital out, or move that property fast, I can. I like to give myself a few escape routes for the off chance that my risk analysis, preparation, and decision-making actions go south.
Could I refinance and pull equity from my properties to expand faster? Yes, but that would be more risk than I’m willing to accept at this point. That is my perceived level of assumable risk.
Make a Decision
A good commander once told me that the worst thing that you can do is not make a decision in a time of action.
He said, “You know what, Ryan? The road is full of dead squirrels that couldn’t decide to go left or right. Make a decision and own it. Right or wrong, that decision is yours to make.”
Too many new investors are scared of making a decision. They would rather let life hit them on the road than make a decision and potentially fail.
Every great leader I have ever had has failed before, and they are all the wiser because of it. They know that every decision might not always work out in their favor, but they have the courage to make the decision. They know they are either going to succeed or they are going to learn.
Don’t let “analysis paralysis” prevent you from making your future everything you want it to be. You owe it to your future self to make a decision—left or right.
Refine Your Strategy
Once you start making decisions and learn a few tips, you will really understand where your comfort levels are. Brandon Turner mentions in one of the BiggerPockets podcasts that nobody gets rich off their first deal, but they get rich because of their first deal. That first deal really helps baseline your comfort levels. From there, you can refine your investing strategy.
I’m not worried about what Grant Cardone is working on this week, I’m focusing on how we are going to get to our next milestone. Always be aware and learn from people who are successful. But don’t forget that you are not them, and your deals are not their deals.
Now, to be clear, I’m not saying don’t try to emulate the success of others. That would be some pretty bad advice.
What I am saying is, it’s easy to get lost in somebody else’s story. Make it a point to periodically rope yourself back to reality and focus on your own goals. Not everyone starts off at the same point in the race, so don’t compare your successes and failures to others.
The point I really want to hit home with this article is the fact that investing is different for everyone. Nobody has a perfect solution for you.
You analyze the risk and you determine the courses of action that are best for your mission. Don’t let overly opinionated investors bully you into one school of thought because they are too arrogant to see outside of their box.
Find a strategy that works for you—one that keeps you enjoying real estate and keeps you motivated. Try new things, have some fun, and explore other tactics. But always remember that you are the commander of your own mission for financial freedom.
Have you formulated a strategy and determined a degree of risk that you’re comfortable with? How did you go about it?
Leave a comment below.