FROM† THE† PRESIDENTíS† DESK
Guest Editorial: The First Rule Of †Investing
by Phyllis Rockower
The first rule of investing is preservation of principle.
Do I sound negative? That's because I have been through the ringer with up and down markets, out of state property managers, and deals that were proposed to me with no inspection. I am a very conservative investor and NEVER lose money. If there is any way I could lose money, I don't do the deal.
As I've said a thousand times: This business is about making money, not making deals. Some of you are so excited about getting a property that you throw caution to the winds and just want to get in and then learn. That is a bad idea. You can lose serious money and get so discouraged on your first deal that you never go back to real estate. Real estate is about math. Stick to proven formulas and you won't get hurt. Does 70% of after repaired value minus repairs sound familiar?
You hear this over and over again. I wonder why? Could it be because it works? Remember if you plan to flip a property you have to buy below that to make a finder's fee. True some buyers will pay more, but that only means you will make more money. Don't deviate from that formula and you won't get hurt. Things happen that you don't anticipate. Sometimes after all is said and done, you don't make the money you had planned for, but at least you won't lose. In that instance, at least you are still good to go for the next deal - not bummed out and in financial trouble.
Lastly, keep in mind that if you are holding properties, you'd better have reserves. Guess what - tenants don't always pay and sometimes they wreck your property. You need cash in order to cover these down times. If you have purchased the property right, these are only minor annoyances - not disasters.
Stay tuned - the best is yet to come for us investors. Don't do anything dumb - get educated. And just remember this...a little knowledge can be a dangerous thing. Itís safer when you have someone to hold your hand through every step- from making offers, to closing the deal, to rehabbing and resale. Each step in the process can be a mine field if you are uneducated. This is NOT a seat of the pants business.
The author is the President and Founder of REIC of LA. Reprinted by Permission. From the R.E.I.C. of L.A. News. August 2015. Published by the Real Estate Investors Club of Los Angeles. Phone: 310-792-6404† Visit www.realestateclubla.com