Last month, I let off steam by writing about the federal laws that killed our business model. Once I made up my mind to abandon it, however, there was no turning back no matter how much anyone else tried to tell me otherwise. I quickly shifted my focus to implement plain-vanilla wholesaling because I saw no other choice. I do not have the luxury to take my eyes off of the need to stabilize our cash flow. And wholesaling was the only technique that I knew of that had survived the test of time for many real-estate investors.
It seems like real-estate investing has come full circle for me after a decade of being in the game and learning from it. Back in 2004 when I left the corporate world to devote full time to investing, I was still sitting on plenty of cash cushion – despite the significant losses sustained from the 2000 technology-stock bubble. That’s when I started out with a five-year plan to accumulate a few dozen rental properties – to give me positive cash flow for the rest of my life, ridding myself of the need to rely on fixed income from pension and Social Security, neither of which would keep pace with inflation. My investment strategy was simple: Buy and hold. Anyone could do that. Or could they?
Little did I know that when you buy properties as investments, it would be wise to learn the basics of what to do and what not to do from those who had already learned a thing or two about how to do it the right way.
One of the most important lessons I learned is that I must invest as if I were broke even if I’m not. This is so much easier said than done – particularly for those who do have cash. It is regrettable that I had to learn this lesson the hard way. I actually had to become practically broke to appreciate the lesson that experienced investors were telling me all along. The whole notion seemed contrary to the moral values with which I grew up. Or so I thought when I did not know any better.
As I have come to understand it now, “investing as if I were broke” has little, if any, relationship to one’s moral values. Instead, it has everything to do with increasing your own investment knowledge such that, from day one of your investment career, you are learning to minimize your risks. The knowledge thus gained helps enable you to increase the odds that you will make money on every investment decision you make.
If I were to have devised and stuck to this simple-yet-powerful strategy of “investing as if I were broke” since 2004, I would be sitting real pretty by now financially, regardless of what the rest of the economy has been doing.
Here is a list of a few key tactical lessons that may be of help to you:
- NEVER, ever, tie up your hard-earned cash on properties you intend to hold for the long term.
- Why? If you do, sooner or later, you WILL run out of cash.
- Use your cash ONLY for quick-turn deals where it is not tied up for more than one week. Funding your own wholesale deals, for instance, may be a solid way to secure high return on your investment quickly.
- NEVER, ever, pay retail for investment properties.
- NEVER, ever, underestimate the power of monthly POSITIVE cash flow.
If I knew (and believed) a decade ago what I know now, I would have started investing as if I were dead broke.
Happy investing!
