There is a recurring conversation I keep having lately. A few months ago I became much more active at http://www.magicbullets.com and as a result I get a number of emails, private messages and even instant messages asking similar questions and the answer usually comes down to mastering the fundamentals of real estate investing.
This isn’t surprising because when you look at the books, courses, boot camps and sites the focus is much more on marketing the idea of investing in real estate rather than the fundamentals behind it. Sure, they discuss the mechanics of filling out paper work, talking to sellers, finding buyers, etc. And, yes, that is all important but very few if any of them talk about the fundamentals that drive the real estate market.
Rather than sell the pie in the sky type stuff, I concentrate on the fundamentals. I don’t care what kind of real estate you like as your investment, I don’t care who’s program or system you want to use. Unless you really understand the fundamentals you are at a very high risk of failure when the market changes. Sure, it’s easy to buy a house in a hot market that needs a total rehab, do the rehab and easily make a few bucks. Even if you make lots of mistakes. That is what we have seen over the last few years. But, it is an entirely different matter to successfully invest when the market is transitioning downward – like now.
Sure the guru types will throw out TLAs (Three Letter Acronyms) but it is another matter entirely to actually understand them. A good example of this ROE (Return on Equity). If you read the vast majority of material discussing ROE as it relates to real estate investing it is readily apparent they don’t understand it as a concept. What’s more, they have no clue as to what it is really trying to tell you and how to use it in conjunction with the other KPIs (Key Performance Indicators).
In a rush to market their ’system’ they want it to be easy for the financially uneducated to quickly analyze a property. The problem is they don’t know how to really analyze a property and the market over the last 15 years has been very forgiving. That is no longer the case. The fundamentals have driven the market in a different direction. Prices are down, payments are up, rents are up, vacancies are down and the flood of foreclosures is just starting.
