Surviving the Inevitable: Is Your Portfolio Economic Earthquake Proof?

 

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By Don R. Campbell

There is a trend forming that has to stop before it ruins too many real estate investors. Over the last 15 years I have noticed a major and worrying trend growing in the real estate investment world. It is fueled by the “instant results” needs of our society and taken advantage by the “quick riches” and free-seminar gurus. And it simply has to stop.

The trend I am speaking of is the increasing number of people who are looking to invest in real estate based on simple rules-of-thumb like the oft repeated “Location, location, location” or a “You can’t lose because it is 40% below its old value before the crash.” They are the same people who use our Cash Flow Zone (rent versus value) filter tool as their one criterion for buying, no further diligence or analysis needed. Or, worst of all, they are the ones who are reading a blog or two then hiring an untrained or unexperienced real estate coach for $15,000 and blindly following their instructions without ever asking to see what type of REAL long-term success that person has created.

There are no shortcuts to long-term success. Sure, there are proven paths to take that get you there more quickly and with less risk, but these paths should always require the investor to complete continual diligence and leg-work along the way.

The truly strategic investors understand that wealth comes from process, the ongoing profits come from doing math before buying, the hidden gems are uncovered by completing due diligence and it all comes together when you invest based on fundamentals, not emotions.

Is Your Earthquake Kit Stocked?

The investing process is just like climbing a ladder. First it must be placed on a solid foundation that you have tested to ensure it can hold the weight no matter how high you climb.  Then once that ladder’s foundation is set, you then lean it up against a solid wall, a wall built to hold 10 times the weight you will ever put against it. It’s a wall so strong that even if an economic earthquake hits, it stays solid and continues to provide a safe support for your ladder.

However, even with all of this in place, you can still find ways to destroy even this over-engineered situation. For instance, if you run up the property ladder, taking the rungs two or three at a time trying to reach the top more quickly than prudent, you throw the whole stability off. And each rung you skip over adds an increasing instability risk to the point when you get up near your goal, the whole thing collapses and takes you down with it.

Conversely, if you have the same solid foundation and are leaned against the same solid wall but now methodically work your way up, you end up taking a little extra time to get to the goal, but once there you are supported and solid. You are now situated in a much less risky and more profitable situation.  Sure it may “feel” slow and frankly may not be as exciting during the journey but if the goal is long-term financial stability with tremendous cash-flow and a growing net worth, then this is the only way to climb the property ladder.

Are You Truly Ready To Buy?

There is a different and unique entry point for each investor’s journey. This entry point is the foundation from which they begin their investment property ladder climb.

For some, buying a property immediately may not be the most strategic choice.  In fact, for some the most important step is to NOT buy any real estate right away. The strategic move is to increase investing knowledge while solidifying your financial foundation first.  It has been my observation that if you add properties too early or too quickly on a poor foundation the portfolio is poised to dramatically under-perform and thus be a deterrent against adding more properties to your portfolio. This essentially stops you from getting to your long-term financial goal.  Solidifying a base of knowledge while growing at a slow pace becomes critical.

Others find themselves ready almost right at the beginning. They have their financial picture in order, they have a solid knowledge base, and they have studied and understood the REIN A.C.R.E. cash-flow investing model. They are ready to go.  However, even in this situation I strongly suggest that speed can be the enemy of long-term success. Sure, they can build at a faster pace than those in the first group; however, false confidence can lead to skipping of steps which adds unnecessary risk to a portfolio. So even though the foundation on which it is being built is strong, it still won’t be able survive for the long-term. The “quick results” trap is just as dangerous as building on a weak foundation.

Patience leads to long-term stability

When I speak of slowing down, I do NOT mean analysis paralysis.  Slowing down to the pace of zero is tantamount to going backwards. Hikes and runners know that the secret is in finding their own pace, a pace that feels right for their body, a pace they can sustain over a long journey. They prepare their route in advance. They set their destination goal and then begin moving towards it at their own healthy pace.  This is the same for real estate investors: set your long-term financial goal, set your financial GPS to head you towards it and find the pace that is going to comfortably get you there. This in the pace that stretches you out of your comfort zone yet does not set you up for long-term injury. It’s a pace that sets you up to win.

Don R. Campbell began his investing career in 1985 with a house purchased in Mission, BC. He is Founding Partner and Senior Analyst at The Real Estate Investment Network and currently owns nearly 200 doors in BC and Alberta. A seven-time best-selling author, Don’s expertise and passion for teaching Canadians how to create wealth through real estate are far-reaching and have made an impact on the lives of thousands. You can follow his daily thoughts on Twitter – www.twitter.com/DonRCampbell and on Facebook at www.facebook.com/thereinman.

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