I started investing in Denver real estate 20 years ago. I was 30 years old at the time and had absolutely no experience in real estate, I just figured that owning property for the long term made sense. It was the best financial move I ever made! Let’s talk about my investment strategy and what I’ve learned over time.
I think I can best be described as a conservative investor. I don’t (finger quotes time) “shoot for the moon” and use “OPM” and “creative financing” to “hit home runs”. Over the long term, I have seen the majority of folks who approach real estate investing using these strategies fail. Not all, thank goodness. But most. The problem is, you only hear about the 10% who succeed and never from the 90% who fail investing this way. So you’re left with a skewed, incorrect impression from so many of the blogs and weekend seminars and screeching gurus that taking big risks is the way to go. I disagree. I’ve built a comfortable portfolio of properties and lifestyle taking it slow and hitting singles. And so can you. It’s just simple business, don’t make it complicated.
My First Investment Property
The first investment property I bought in 1998 (and still own) was a duplex on 13th and Winona Ct. in Denver. I put 20% down and got a simple 15 year fixed loan. I paid it off in 13 years, making payments early. Click here to read a blog post on the numbers of my first property. Oh, and I lived through the worst real estate downturn in 80 years and still made it out ok. Simple, simple, simple. I’ve done that with other properties as well. It’s not complicated unless you make it complicated.
The thing I want to caution you on is that I see many investors get sucked into the seductive story of building wealth fast and easy. It’s possible, yes, but it comes with many risks. For me, I’ll take the slow and conservative approach every time. I like to say that if you want to build wealth in real estate in 6 months you’re almost certain to fail. But if your time line is 10 years you’re almost certain to succeed. It’s up to you to decide what works for me.
One of the biggest mistakes I’ve observed in the business is the attempt, even the obsession with trying to find the perfect property. There’s just is no end to the guru’s, the seminars, and the self-proclaimed experts who will take your money (a LOT of money) to teach you to buy THE PERFECT PROPERTY. As if this is the only way to make money in real estate. It’s an extremely profitable niche for those who want to make their money teaching rather than doing (you know who I’m talking about…) because it’s such a seductive sales pitch. It sounds inarguable. But it’s not. I felt so strongly that this strategy is misleading I wrote a whole blog a while back about the fallacy of making-your-money-on-the buy! Check it out sometime if you want see what I’m talking about.
Buy The Perfect Property For You
For me, one of the most important parts of my investing strategy is to understand it’s not about buying the perfect property, it’s about buying the perfect property for you. It’s about understanding yourself, your finances, your risk tolerance and your goals to find the perfect property for what you are trying to accomplish, given your strengths and weaknesses and aspirations and predilections. And the perfect property for you might not be the same as the perfect property for me. As a matter of fact, it probably isn’t.
Look at it this way, is there such thing as the perfect car? The perfect husband? The perfect wife? The perfect dog? The perfect shirt? Of course not. It’s about the right car and the right dog and the right shirt for you, and the world is a wonderful place because everyone’s different. It’s the same thing in real estate. It’s partly about the property of course, there are good and bad investments out there and it’s important to understand the basis of real estate before investing. But so much of successful real estate investing is about you, about understanding what’s right for you. This is what they don’t teach you at the weekend airport seminars called “Make a Million Bucks in Real Estate Sucka!!!”
I can’t stress enough how important it is to understand yourself first, then find the right property to meet your needs. Not the other way around. Most investors go out and try to find the perfect property, and most fail because they can’t find it. Because what they’re taught is to find the HOME RUN, the one in a million deal that everyone else is looking for too. So everyone is chasing the same perfect deal but very few find ever find it. This is a tragedy. It explains why so many people fail in real estate.
Two Investors with Two Different Strategies
Let me give you a simple example. Let’s say we have two investors, each looking to buy their first property. Investor A is 60 years old, is semi-retired so has a lot of extra time and loves to use their hands and fix up properties. Investor B can’t screw in a lightbulb (like me by the way), has a really busy job and lives in a condo very happily. Maybe Investor A should be looking at older fix up single family homes or duplexes they can bring value to as they have the time and experience and inclination to do that kind of work. But Investor B perhaps shouldn’t take on a big project on an older beaten up property, but is comfortable and experienced with HOAs and should buy a simple condo or townhome. Now think about yourself. What do you bring to the table? What are you pros? What are your cons? Start analyzing yourself and it might help understand what sort of real estate investor (and indeed, whether you should invest in real estate at all!) you should be.
You can make or lose money in any kind of property. For example, a lot of larger investors like commercial property. They swear by it, saying it’s the best way to make money in real estate. A couple of years ago I wanted to buy another round of properties for my portfolio and frankly knew very little about the commercial world. So I spent time learning about it to see if it would fit with my investing strategy. I met with my commercial real estate colleague John Dovenbarger who spent 45 minutes giving me the skinny on the numbers. I pretty quickly realized that in our market at least the returns (cash-on-cash, GRM, cap rate, whichever you prefer) were well below residential investing. I asked him, why do people invest in commercial, I don’t get it!
So to understand better, in October, 2015 I began to pursue my CCIM Commercial Brokerage Designation, the hardest and most respected commercial designation in the country. I put in 500 hours of work over 53 weeks taking brutal financial real estate course and a series of proctored 5 hour exams to learn the commercial side of the business. I was fortunate enough to have incredible instructors, folks who run billion dollar REITs and develop/manage/build and own major commercial projects all over the world. These were the best of the best and they exposed me to the commercial world in a way I am truly grateful for.
And here’s what I found out: commercial investing is not for me. It’s for lots of smart, sophisticated investors, but not for me. Without the sweat and effort I put into the course work and financial analysis understanding the numbers and the commercial business I don’t think I could ever truly feel comfortable saying I prefer the residential side of the business But having suffered through the work till all hours of the night taking the classes and studying for the exams, I’m comfortable leaving that side of the business to others.
My point is, there’s nothing wrong with commercial real estate… for people who want to do commercial investing. It’s not about the properties, it’s about the investor. What I learned is that at least at this point in my career, the commercial world does not match up with my goals and desires, my strengths and my weaknesses.
So what did I end up buying in this latest round of purchases? instead of buying a commercial building or a couple of strip malls, I bought another 6 residential units with great cashflows that work for me. I looked at the numbers, analyzed what I was looking for and ended up buying 3 townhomes in Green Valley Ranch and 3 condos in Aurora South. They were the perfect properties for me! The GVR properties have a rock solid HOA with a low $180/month payment. The Aurora South HOA is not nearly as strong but the cashflow on the units was incredible. And I was comfortable when I met with the HOA manager that she’s really trying hard to clean up the complex. Of the 6 properties I bought, 4 were in perfect shape and 2 were complete remodels. Because I have a 10 year relationship with my handyman I felt comfortable with his doing complete remodels on the two that needed the work. I did for myself exactly what I discussed above, I analyzed myself, my strengths and weaknesses and goals and bought 6 properties that made perfect sense for my portfolio.
So, what’s right for you? Only you can decide. What I suggest is putting in some time analyzing yourself and speaking to like-minded people. Real estate is the best investment I’ve ever seen, touch base if you ever want to talk about it!