Wall Street Your Real Estate-Post #5
Invest in Real Estate you understand and you have time for
In our last post, we talked about the Rule ‘Make a Decision and Move Forward’. This is a critical step in the process, but it only works well if you know about Rule #4: invest in real estate you understand and that you have time for. This rule can be further simplified by channeling Marie Kondo: “buy real estate that brings you joy.” This seems like a throwaway rule meant to pertain to businesses but this is a critical tip. I added “and you have time for” because certain types of real estate can eat up more of your free time than you planned. Some people will only buy one property in their lives and that’s just fine. They will get to know that property well and they can choose to invest their time and energy into that property alone. Other people will have hundreds of short term rentals and self-manage everything with a team. Still others will get investors and buy apartment complexes or shopping centers or hotel chains. Some people will never be lucky enough to buy a property and we need to work on that. Everyone who is willing to save up and do the hard work should have access to property ownership.
In the last post we were more specific as to the due diligence after you’ve found ‘the one’, so I’m backing out a bit here. Before you find ‘the one’, it’s crucial to understand the real estate asset class. Don’t buy a certain type of real estate because that’s what all the cool kids are doing. We learned that in post #2 – don’t follow the herd. Part of buying with your back to the sheep is studying all the possibilities. Make sure you understand everything you can about a particular asset class if it interests you. Once you have an understanding, you can plug that into your strengths and weaknesses and make a decision.
You would be surprised at how different asset classes can create such a variety of demands on your time and abilities. Owning retail and restaurants often means having an in depth understanding of leasing, building or making allowances for tenant improvements, working with attorneys, and even your tenant’s business model. This type of real estate is front loaded with a time commitment but typically a bit less work after the initial push with each tenant. Buying land to subdivide or develop means understanding zoning laws, bonding, infrastructure, working with attorneys, designers, and architects, and going to endless planning and council meetings. If you can’t tolerate or accommodate evening meetings, this asset class may not fit into your lifestyle. Finally, many people love the idea of managing short term rentals or ‘owning an Airbnb’. It sounds fun and a little glamorous but the reality is that you’re on call 24/7 when you self-manage. You can get interrupted frequently with tenant’s needs, bookings, cleaning issues, maintenance issues. You make more money self-managing, but if you have a responsible job that can’t be interrupted, this type of real estate can quickly become an unmanageable burden. If you’re retired, on the other hand, it can be a fun way to stay busy and chat with people from all over the world. Make sure you understand the demands of the type of real estate you’re buying and be honest about whether that realistically fits into your lifestyle.
This part of your research is where a mentor comes in handy. Talk to someone who owns an asset class in which you’re interested so you can learn how that type of real estate fits into your schedule. If you don’t know anyone, see if you can join a trade group or talk to a commercial real estate agent. There are a number of commercial real estate agents who may be willing to take the time to educate you in exchange for your future business. Agents can be a wealth of knowledge and establishing yourself with a good agent will benefit you later.
Be honest with your skills, stress levels, and your ability to manage owning more property in a certain asset class. If you’re retired and have a construction background, fixing up an Airbnb property could be a perfect project for you. If you have a partner, then you can split the tasks with one handling all the property repairs and maintenance and the other handling all the décor, hospitality, and rentals. If you’re constantly stretched for time and can’t put one more thing on your plate but must have a property, then buy something low maintenance like land that you don’t need to worry about. You can also hire a property manager. They can take a large cut but it’s worth it to have the option to own the property and still collect income. In either case, you may not make as much money but the decision can be worth it to protect yourself from soul sucking stress. Like breeds of dogs, certain types of real estate will suit certain types of people. Make sure you know what breed of real estate works best for you and go for it.