"Ninety percent of all millionaires become so through owning real estate" - Andrew Carnegie
Intuitively we all know that real estate is a good investment. Since well before the days of Andrew Carnegie, real asset owners were always the wealthiest people in society and today is no different. You would be hard-pressed to find a single millionaire or billionaire out there that doesn't have at least some of their wealth invested in real estate. With so much media attention being focused on Canadian real estate over the past decade, we've have seen a huge rush of people into various markets looking to capitalize on some of the gains.
As someone who started investing in late 2015 and now coaches ambitious people on how to start, I have one piece of advice; be careful. With so much macroeconomic and geopolitical uncertainty out there these days we need to be strategic and focus on what makes sense long-term. It's easy to get caught up in all the hype and speculation but without a strong foundation and knowledge of investing, it will be difficult to build anything that lasts.
Our boutique investment fund invests in Canada, the US and Central America and currently owns over $4 million of income-producing residential and farmland properties. To get there in 2.5 years was challenging but a lot of fun and was made a lot easier by following a few simple points which are the basis on which we coach others today:
- Surround yourself with the right people: Nothing will compress the time-frame it takes for you to be successful than learning from someone who has already done it. Practical experience will always trump the theoretical. Go to as many real estate investing conferences, meet-ups and networking events as possible. Go hang out where other investors congregate. Surround yourself with people much smarter than you and learn as much as you can about what they've accomplished and the mistakes they've made along the way.
- Take your education seriously: We're not talking about going to school here. As Jim Rohn said, "a formal education will make you a living but self-education will make you a fortune". We're talking about what happens after school and on an ongoing basis. Take some time every single day for your own personal development and education. Read books, listen to podcasts and audiobooks, immerse yourself in the subject matter you're interested in learning about. Make it a habit. To get started in real estate and to develop the right mindset, reading "Rich Dad, Poor Dad" by Robert Kiyosaki, "Think and Grow Rich" by Napolean Hill and "The Millionaire Real Estate Investor" by Gary Keller is a good place to start.
- Take control of your finances: Have an honest self-reflection on your current financial situation. What are your sources of income? What are your expenses? How much consumer debt do you have? What assets to do you own? Put it all on paper and crunch the numbers. Come up with a budget and calculate your net-worth. This can be difficult for a lot of people because they're scared of what they may find, but it has to be done. You need to get your own financial house in order so you know the foundation on which you can build your real estate portfolio. Every piece of real estate you own should be treated like a business where there will be a profit and loss statement and a balance sheet and it helps significantly to think of your own personal situation in the same terms.
- Begin with the end in mind: Come up with a plan. Why do you want to invest in real estate? Get crystal clear about what you want real estate to do for you. Real estate is the most powerful wealth building tool we know, but unless we know what matters most to us and why we want to pursue wealth in the first place, we will lack direction. It isn't the wealth in and of itself that we're after but rather the freedom that it affords us to be in charge of our own lives. What does that freedom mean to us? How important is it to us? What does it look like to us? Once we know the answers to those questions we can work backward and develop a strategy and roadmap to get us there.
- Analyze lots of deals: In real estate, the number one thing we look for without exception is cash flow. If a piece of real estate is not generating enough revenue to put significant sums of money in our pockets every month on top of paying for all of its expenses, we don't consider it an investment. Don't guess what the markets going to do, pursue opportunities where you have the power to control the outcome. With the right team, these types of opportunities can be created in any type of market. A mentor of ours often says "do the math and the math will tell you what to do" and we couldn't agree more. Leave all the hype, FOMO, and emotions out of it and let the numbers, due diligence and a rational analysis be your guiding light. The more we analyze deals the better we get at it and the more we begin to understand the core concepts that investors use to build wealth. Like all other skills, it takes practice.
- Study macroeconomics: Although we often hear that 'real estate is local', that may be true but the business around our real estate is subject to the whims of government policy shifts, interest rates, central bank policy etc. Investing in real estate is a long-term game and we always want to understand how various macro factors will affect our markets over time so we can plan accordingly. Looking at other trends such as net migration, population growth, GDP growth and job growth also allows us to better protect our portfolios and always move to where the puck is heading. The beauty of understanding these trends is they usually take years to manifest which gives us lots of time to move capital to stronger markets and be there early.
- Have fun: Starting a journey in real estate investing is exciting. With the right knowledge and team behind you, and a strong plan in front of you, the possibilities for building successful businesses around your real estate are endless. Regardless of what the market does, if you are buying strategically and for cash flow, you will be getting paid to own your real estate in good times and in bad. And that is a wealth building strategy we can all get used to!
Bohdan Khosil, Co-Founder
Prinipal @ Real estate INvestments
Account Executive Rome Logistics