We have new real estate investors come to us all the time. Something interesting we have seen about these investors is that because they are new they tend to deal with investing in more emotional terms. They are used to purchasing property that is for them and their family and deals a lot with their own personal taste, but when it comes to purchasing an investment property they use the same mentality, thinking that their Tenants should either live like them or should want to live like them. This becomes an issue when you are investing in property because most Tenants do not want to live like their landlords and most tenants do not have the same standards as their landlords.
Searching for Multi Family
When a new real estate investor is looking for a property it is important to put emotion aside. If the property will make you the money that you are looking for without much undue stress then it is worth it to look at that property, whether it is up to your current living standard or not. This is investing; we cannot use emotion when purchasing our property. Everything becomes about the numbers.
A similar example could be when your stockbroker comes to you and says they have this great company that is going to give an amazing return, and you as the investor as what company it is. They go on to tell you that the company is XYZ Company and they are in XYZ business, but you don’t like XYZ Company. Even though you see the company financials and understand that there could be a good return, because of your personal bias you turn down that investment. A year later, you go back to that stockbroker and he tells you that the stock price has since doubled and you missed out. This decision was made strictly on emotion and your own personal experience with that company. That being said, not all people will have that same experience with that company.
An example of this could be Amazon. When Amazon first came out people didn’t really believe in the Internet and the growth potential that there could be from a company such as Amazon. Today, I’m sure those investors would have a very different story to tell. Even though that may not be true of all investments, it is at least good to look into different scenarios and see if you could be using your personal bias to keep yourself out of this investment or not. If you are a social investor then it may mean that your moral compass will not allow you to invest with them and that is still fine but it does not take away from the fact that XYZ Company or Amazon has had amazing growth potential.
Where Are You Comfortable?
This is why when we talk to our new investors we go into their comfort zones. Many investors will realize it is not about them but about the numbers, and many will not, but it is important before you start investing to understand which one of those investors you are. If you are not opposed to dealing with real estate that is somewhat distressed and ‘lower class’ than other real estate and you are willing to earn that higher return then, by all means, that is something you should be doing. If you are averse to that, then that is something you should not be doing but just realize that there could be lost income and appreciation potential in the process.
At the end of the day, we are here to help guide our clients to pick the best real estate investments for them, not for us, and not for the market. Everyone should be comfortable in their investments, but also understand that we are dealing with buildings and people and although we can fix buildings we cannot always fix people and that is where the art of management comes into place. Using a stable manager can help you navigate through the process where you would previously be overwhelmed and wanting to quit.
Until next time,
Sanjeev (Sunny) Advani
Office Lic 02012941