How To Hedge Your Real Estate Investments Wisely

Hi, my name is Robert Woodruff, President of the Charleston Real Estate Investors’ Association.  I’ve been attending REIA meetings for many years before becoming the president of one.  By attending so many gatherings, I’ve seen many investors come and go, some who became very successful investing in real estate, while seeing others who failed miserably and lost everything.

I must say, it’s the ones who lost everything that I managed to learn the most from. Many of them had similar characteristics in common.  The characteristics’ they shared were often the fact that they did not pay attention to the numbers.  Many would acquire as many No Money Down properties they could find thinking that they were creating wealth. Once one good storm came-in, these people lost everything. All their hard work, their money, and all their invested time wasted in vain.

Now that I’m president of the Charleston Real Estate Investors’ Association, I have the unfortunate opportunity to meet one these individuals about every three months. It’s always the same story. A Guru sold them a No Money Down course & taught them how to take-over peoples’ property without the need for conventional financing. Therefore, they were able to gain 20, 30, some even got lucky enough to acquire 100 or more properties. On average, these properties may have $30,000 in equity in each one. These investors come to our meeting thinking that real estate doesn’t work OR is flawed because they just lost what they believed to be a million dollars or more in real-estate.

What I’m here to say is this. Real estate investing is not flawed in the slightest bit. It is the investors’ who are flawed. They are flawed in the way that they think. “There are no problems, only problems with the way we think.” The most significant flaw I find in common with these investors is that they were investing for all the wrong reasons. The wrong reasons include but are not limited to; money, increased social status, material things, a way to date younger women, ect. Not one of them spoke of ever having any kind of basic purpose. If they would have started with a basic purpose for investing, they certainly would not have lost everything.

A basic purpose such as; “achieving your financial freedom,” gives way to greater notions. No longer will an investor be preoccupied concerning petty things like money, material items, or social status. Having a basic purpose paves the way to learning more efficient investing fundamentals. The greatest of these fundamentals is understanding the risks associated with various kinds of investments. (Aka: Having a clear understanding of the numbers.)

For instance, Courses for building wealth speedily by acquiring No Money Down property ought to come with a disclaimer that reads; “Warning, the more property you acquire, the more volatile your portfolio will become.” And here’s the reason. If you acquire property at 70% of value, your payment for that property will usually be 3-4 times more than what you make renting it.  This implies that on a good month, you may make $200. On a bad month, you lose $800. Think about it, how many homes can you afford to pay the mortgages for if half of them open-up at the same time? Can you afford 20, 30, or even 100 properties?

Here’s the million dollar question; “How much do I make on good month compared to what I lose on a bad month?” If you do not acquire all of your investments at 50% of value or less, you will have a negative cash flowing investment. The more you acquire, the more dangerous your investing future will become.

Imagine having just 20 No Money Down properties and 10 of them open-up at the same time. (Meaning, your tenant stops paying or moves out.)  If you have to at this moment pay for 10 properties at $800 per month, this implies that you now have to pay $8,000 per month until you rent or lease them again. Given, your other 10 properties are filled and making $200 each for a total of $2,000 per month. As you know, $2,000 will not be enough to fund your other 10 properties that now require $8,000 monthly until they are filled with tenants. Not to mention, new carpet and paint, advertising costs, and your personal time that it will require to refill them again. So what happens? You either have to find the money somewhere or risk losing everything you worked so hard to build. With no other options, many investors lose all.

These very same investors come to my meeting and they all ask me the same question; “What could I have done to have made things better?”  And here’s my answer for them. “You cannot build wealth without first building cash flows.”  They often reply, “I had plenty of cash flow, I had over 100 properties! What do you know? ” I’ve also heard their arrogance, “What can a guy like “you” teach a guy like me who’s already had so much?” I just laugh, shrug my shoulders and reply, “How to keep it.”

In conclusion;
In order to be profitable in real estate investing, you have to start with a solid fundamental purpose. Your purpose must involve more than mere money, material things, or achieving a higher social status. Greed & love of money are the two single worst reasons to become a real estate investor. For real estate investors, chasing big paydays & building wealth devoid of the necessary cash flow is irresponsible behavior. the bottomline is, you must have cash flow to build wealth responsibly. Building cash flow takes time. Bear in mind, “Nothing worth having will come cheap, fast, or easy.” And if does, it can be taken away from you faster than it took to acquire.

2 thoughts on “How To Hedge Your Real Estate Investments Wisely

  1. Mr. Woodruff, thank you for the tips. What you’ve stressed gives very much understanding on how to avoid losses. This is one great piece for people who have plans on investing in the near future.

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