Do you invest in Real Estate because you are afraid of something or because you want more?
I believe that the vast majority of people who invest in real estate do so for two reasons.
One reason to invest in real estate is due to fear. These investors may be afraid of things that they’re going to miss out on. FOMO, or the fear of missing out, is real. These investors could also be afraid of not having enough. They could also be afraid that they will not be as successful as they could be without real estate investing.
A second reason to invest in real estate is due to aspiration. Aspirational real estate investors really means that they are looking to attain things they want. These investors may want to retire, they may want to obtain financial freedom, they want to obtain material possessions, and in some cases, people may just want money for money’s sake.
There are also people who fall into both sides being both fear-based and aspiration-based.
Some people may not want the headaches that go along with real estate, but they still want to acquire investments. Some people have seen that people have made money with real estate and they’re fearful that if they don’t do it, then they won’t be able to have the same level of success that others do. This is the FOMO factor, and the fear of missing out is a real factor in real estate. A lot of people will do deals just because they have cash in the bank and they’re more afraid of having cash in the bank than they are of doing a bad deal. Even I had an instance where one of the deals I did was deal where I didn’t do enough due diligence on the property. It ended up that the Sponsor may not have been doing everything properly, and may have even given up on the business partly. I was able to get back some of my money but not everything, and I am still waiting to see if I’m going to be able to get my cash back that I invested in the deal. On that investment, I didn’t have fear, but I had a strong desire to put my cash to work in an investment. I should have done more due diligence, I should have invested with another Sponsor who I knew, liked, and trusted. I also should have invested in a deal that was more accretive to my passive cash flow and net worth.
If you are a fear driven investor, fear should lead you to action. And the only way to get to action is to create a plan via an investment thesis to understand what type of investments you’re looking to do, what types of property types you’re interested investing in, which geographies you want to invest in, and whether you want to invest on your own or with other Sponsors. You could also do a combination of investing on your own and with other real estate Sponsors.
Fear can mean many things such as what happens if you lose your job, what happens if you need money for an emergency, or what happens if you need money to pay some of your life expenses.
Once that fear leads you to creating a plan, which leads you to action, this should lead to success. And success is going to be different for everyone. Some people have more life expenses, and therefore, require more passive cash flow. That also means you need to make bigger investments. I know people who invest in deals solely to cover their life expenses. Personally, my initial desire to invest in real estate was to cover my life expenses. After getting to a place where I could cover my life expenses through passive cash flow, I then wanted to continue growing my passive cash flow over time above and beyond that level so that I could do more investments, and ultimately, to have a larger cash cushion.
Having increased cash flow, at the root of it, leads to having financial freedom, which leads to contentment.
As such, for many people who have a fear based investing program, it should lead you to creating a plan, which leads you to action, which leads you to success, and which ultimately leads you to contentment.
Fear is really only a feeling of anxiety concerning something that you don’t know yet. But if you take action, do the work, and then prepare to do the work, your ability to take action will keep pushing you forward, and it will aid you in controlling your fear.
If you’re an aspirational investor, your personal aspiration should lead you to take action. But you shouldn’t take action until you plan. Having aspirations doesn’t mean that you should flippantly invest in deals. You should have a plan to attain what you want whether that is a bigger house or a newer car. You really need to come up with a plan about what you want, how you plan to do it, so that you can grow and utilize your passive cash flow net worth to attain the things that you aspire to attain.
A lot of my investors are high net worth high income individuals who are looking to supplement their income. They’re going to earn as much as they can fromm their high income job, but they also want to supplement their income, and take care of themselves long term in the event something happens where they can’t work anymore and earn that income.
You need to have an investment thesis about which property types to invest in, which geographies you are most interested investing in, and how to invest. There’s all different ways to invest, but you need to know your investment thesis. First, you need to plan that out then prepare to invest by starting to talk to Sponsors. But ultimately, you need to take action on those investments. And then that action should lead to success, which then allows you to attain what you desire for your aspirational goals.
You can have aspirational desires, and use your passive real estate investing, to attain. You can also use it to make sure that you don’t have fear.
Part of that is knowing how much passive cash flow you need to cover your expenses. If you have a $50,000 per year annual expense hurdle, that’s a big difference from having a $1,000,000 annual expense hurdle. So it is not only important to understand whether you are a fear driven or aspirational driven investor when it comes to your real estate investing, but it’s also important to understand your expenses per year as well as what you’re hoping to accomplish with these investments.
Whether you are fear or aspiration driven, if you have a goal to make $240,000 per year passively, and you can reasonably expect to obtain an 8% return, that would mean that would need to have $3,000,000 invested in passive real estate.
So, you really do have to plan, you have to prepare, and then you really do have to take action because whether you are fear based or aspirational driven, you need to be prepared, and you need to plan for your financial future.
Until next time, let’s continue growing our passive cash flow and net worth together!
– Robert