The way some people invest in real estate you would think an EMT (Emergency Medical Technician) should be on call at all hours. There is another EMT that can more directly impact your real estate investments. The EMT I am referring to is expertise, money and time. A successful real estate investor needs all three working together to have a successful investment.
Expertise, money and time applied to real property assets is the trifecta of a quality investment. Throwing money at real estate, or any investment, without oversight or up front thinking about intended outcomes creates a vacuum. And we all know vacuum’s suck up everything- including money.
Expertise. Expertise has the experience to administer investments for the benefit of the beneficiaries (or owners) of the investment.Expertise comes from experience. There is no replacement for experience. It can be purchased, however, from service providers to bridge gaps in knowledge about acquisitions and operations. It’s best to find service providers by referral from people you already know, from people already in your network.
No one person can address all necessary task in buying or operating a real estate asset. It’s the adage of “painters do not spackle” as everyone has their specialty. Bringing in experts is intended to lower your investment risk. That’s why bankers require a third-party appraiser, for example.
Money. Using all the “tricks of the trade” will never take the place of appropriate levels of equity. It doesn’t matter if you are buying a $200,000-dollar house or $200 million-dollar office park. In both examples, there is a certain amount of equity required; first, to address the risk tolerance of those investing in the deal, and second, to derive appropriate leverage on behalf of the operational real estate.
Place the risk tolerance of the investor above the needs of the property: high yields or operational perfection is not enough to maintain good standing (in the eyes of ownership) if ownership remains uncommitted or, worse, becomes a hindrance to day-to-day operations.
Time. Setting aside distressed situations (foreclosure, over-leverage, bad partnerships) there is no replacement for time in real estate investing. Cycles come and go. Indeed, there is a best time to purchase and/or sell. The problem is that most of us recognize this fact as 20/20 hindsight. Attempting to time the market will only bring confusion and second-guessing. It’s like making investment decisions based from the evening financial news report on any given day…this is not a plan.
Successful real estate investments have a good measure of each element presented here. Working in unison they assist in advancing positive results. Short-change or bend any of these elements makes for a rough ride no matter how smooth the road appears.
John Wilhoit is the Author of five books, including: “How to Read a Rent Roll: A Guide to Understanding Rental Income“. Join the conversation at JohnWilhoit.com for updates, blogs, books and podcast.
John Wilhoit is a real estate professional specializing in residential asset management and property management. John has an undergraduate Degree in Business and a Master’s Degree in Urban Studies. Learn more about John here.