Posted by Do you know why the Leaning Tower of Pisa leans?
It’s because its foundation is weak. The tower was built on soil that was too soft and couldn’t support the weight of the structure. As the weight of the tower increased, the foundation started to sink on one side, causing the tower to lean.
It’s a great story, and a great analogy for the importance of having a strong foundation in your career.
You can’t build either your career or your portfolio on a shaky subsoil: you have to build it on something solid. It’s vital to get the fundamentals right from the very outset.
The best way to do this is to ask yourself the very important questions: what, why, when, where and who. Your answers will show you whether you’re building a career on solid ground, or shaky subsoil.
The What
Before you do anything, it’s vital to know what kind of investor you want to be: passive or active. Both types of investing have their own merits. You just need to figure out what will be best for you.
Passive investing is the way to go, if you just want to buy a property and rent it out, but not do much more than that. It’s about ownership rather than development, and whilst it’s not the most dynamic thing in the world, it can be ideal if you don’t have much time to spare for actually developing the property.
If you have more of a fire under you and want to be more hands-on, active investing will be the way forward: finding assets that you can add value to and make a profit from, to roll into your next deal. It’s time consuming though, but the potential returns are much better.
Why you should decide now
You really need to know your investment style from the very outset, because if you start looking for opportunities without thinking it through, you could end up buying something unsuitable.
The same goes for knowing which sector you want to operate within. Do you want to be in the building game, the rental game, or the refurbish and sell game? Maybe you want to simply be in the flip game?
For my money, it makes sense to get into just one area because it allows you to specialise. If you’re an expert in one specific area, you can act quicker because you know the fundamentals better, rather than learning something new every time.
The Why
A career in real estate offers fantastic potential for building financial wealth over the long-term, if you’re doing it for the right reasons.
When you know why you want to do something, it provides you with a sense of purpose and motivation, giving you a reason to work towards your goal and stay focused on the task at hand. Having a good reason for doing something makes decision-making so much easier, too. You can evaluate options and choose the ones that align with your purpose and goals.
Are you doing this because you want to be rich? Is money your primary motivation? After all, real estate can be a profitable business and has the potential for long-term capital appreciation, passive income streams, and tax benefits.
Or, are you doing this because you love it? Is this a passion of yours? I know a lot of people who got into real estate investment primarily because it was a passion of theirs. It was absolutely nothing to do with chasing money. They just love tinkering around with properties and stuff.
These are both good reasons to want to build a career in the sector but be mindful of the ups and downs. If you’re just going after the cash and find suddenly that it’s not anywhere near as easy as you thought it would be, you might find you want to get off the horse. On the flipside, if property is your passion, a little bit of struggle won’t turn you off.
Working through your reasons Why you’re doing something, and really digging deep on your motivations is an excellent exercise to make sure you’re on the right path.
The When
When do you want to start? Or perhaps the better question is, when should you start? And obviously I’m thinking here of the old saying: the best time to plant an oak tree is 20 years ago; the next best time to put an oak tree is right now.
But let’s pause here for a second to talk about timings in terms of the economy: when is a good time, and when is a bad time? I’ve talked before about how the economy (especially in terms property and construction) works in a circular manner. There are oscillations, ups and downs and people often think they’ll easily get the timing right, but remember: time in the market will always beat timing the market.
There are opportunities at any stage of the cycle, but you sometimes need to apply a little creative thinking! I’d always warn about rushing into anything though. If you’re so desperate to get on the property ladder that you end up getting into a bidding war and paying an inflated price, you’re starting on the back foot.
Whilst I’d equally advise against analysing a deal to death, to the point that you never buy anything, I’d also say that taking your time is a good strategy. Taking your time means you’re aware of all and any risks as well as any other deals that may be around. It allows you to build your network and get to know investors before you need their money! That’s always a great thing. If you can establish relationships when you don’t need them, it always makes them a little bit stronger.
Location, location, location
Next on the list is ‘Where’: where do you want to invest? Locally, nationally, or internationally? You may have dreams of owning property in far-flung countries, but my advice would always be that if you’re starting out, you should stay local.
The real estate game is very much a local business: you can actually become a millionaire without going much further than a mile from where you live! You know the people around you, you know the areas, the history, local laws, all of that is familiar to you.
That’s a clear advantage over people from further away – you’ve got the inside track. If you’re looking at a national investment (say for example, you live in the north of England and would like to invest in London), it’s definitely an enticing aspiration, but it’s something I think you should be patient about – don’t rush in, get your feet wet at home before you start trying to move to the national level.
A Place in the Sun?
Buying internationally may sound very glamorous, but there’s an awful lot you need to think about first. I’ve made a lot of mistakes investing internationally, and I’m an experienced investor!
It’s definitely not as easy as it might seem. You might think that something looks like a fantastic deal, but what are you comparing it with? A property in Spain may seem cheap compared to your home market, but is it really?
You have to do your homework: if it’s taken you a couple of years to learn your local market, why would you think that you can arrive into an international market and learn all of the same information in just a couple of weeks?
It’s not what you know, it’s Who
The next piece of the puzzle, the Who, is an easily-overlooked asset. Built properly, your network will open doors for you and make things possible that you couldn’t do on your own.
Some of the best deals that I’ve ever done have come through my network, whether it’s an introduction to somebody, or an off-market tip where I’ve had a nod and a wink to let me know that a property’s coming up for sale, which allowed me to get in ahead of the queue.
Don’t forget the hidden advantages to knowing the right people. Say you have a trade background: you’ve got an immediate strength when it comes to understanding the construction process and you’ll also know people who can help you complete a renovation, or do something at cost rather than needing to hire a contractor – don’t take it for granted that everyone has those kind of contacts!
Now, this may contradict everything I’ve said so far, but ‘Who?’ is the first question you should ask yourself in most situations. If you’re looking at a project and asking ‘How am I going to do this?’ right off the bat, then you’re asking the wrong question. As an entrepreneur, you’re going to spend an awful lot of time thinking how to do things yourself because you’re a self-starter. I do this to myself all the time. The first thing I always think is, how am I going to do this? But the best thing to ask is, who can do that for you?
Think about finding someone to partner with whose skills dovetail nicely with your own – you know or can do things they can’t, and vice versa. Is there someone out there whose strengths complement your weaknesses?
Don’t get complacent
The answers you get from asking the above questions will definitely give you a strong foundation to a career in real estate. But you shouldn’t think of it as a one-off exercise that you do once and then forget about!
Every now and then I like to sit down with my journal and work through these questions myself. It’s an important thing to do from time to time, no matter how experienced you are. The worst thing you can do is get complacent.
You have to stay fresh and alert. First of all, the market is changing all the time. So, just because you’re experienced doesn’t mean you shouldn’t sit down and reflect on where you are. If you do something so often that it becomes automatic, then that’s the time to pay attention, as that’s when you’ll start to make mistakes.
I’ve seen it happen: incredibly successful investors taking their eyes off the ball because they were doing so well, and along comes a smaller competitor to eat up all of their market share. You can’t afford to fall asleep at the wheel.
So, regularly review your answers to these fundamental questions so you can ensure you’re starting out with, and then building on, the strongest foundations possible: What, why, when, where and who. Those are the questions you need to ask yourself. Reflect on them, and think about whether there are any areas where you could improve.
Building a solid foundation in real estate isn’t about having all the answers overnight. It’s about asking the right questions and being willing to learn. If you’re feeling a bit overwhelmed and want a straightforward, no-nonsense guide to get you started, my new Property Starter Kit is now available. Designed specifically for beginners, there’s no jargon, no overwhelm, just a step-by-step plan to buying your first property. Whether it’s your home or an investment property, you want to do it with confidence. To find out more visit:
https://www.elitepropertyaccelerator.com/offers/wZTtk3ba/checkout