I've never been a big gambler. But, I know plenty of them. A couple of times a year, a bunch of guys I know organize trips to Las Vegas or Atlantic City, to play craps, poker, you name it. They swear they have a great time. Personally, I'd rather go to the dentist.
That might surprise you. I know it shocked my friends when I first turned them down. Somehow they figured that since I was an investor, I'd want to play games with my hard-earned money.
Let me tell you something – serious real estate investing, or any type of investing – should have nothing in common with gambling. Gambling is a game of chance. Sure, you can study and practice and learn to play the odds. But it's still play, it's still a game – and frankly, I don't play with my money.
How many times have you heard about a guy who wins a bunch of money, then ends up blowing it all plus some because he doesn't know when to walk away? How many lives have been ruined by people who bet themselves into a hole because they were sure the next hand, the next roll, the next horse race, will be different?
Flipping Houses & Gambling
Sure, there are investors who get themselves into that kind of hole, too – particularly people who try to flip houses. They buy a house, dump a bunch of money into renovations, and then they can't sell it. They're stuck paying the mortgage each month with no cash flowing in, and they don't know when to walk away. They keep throwing good money after bad, hoping that something miraculous will happen and they'll get it all back.
That may happen in the movies, but I've never seen it happen in real life. The hard-nosed truth is good luck never comes to people who need it. It's like some ugly looming law of the universe. If you're betting on good luck to get you out of your hole, you're probably already too far gone.
I call it the law of scared money. If you're in a place where you can't carry a property anymore and you're afraid of what comes next, you're not in a place where you can make good decisions. This is the point where people start gambling, start playing the odds, start praying for some of that elusive good luck – and it usually leads to disaster.
#1 Real Estate Investing Rule
Here's rule #1 of real estate investing, and of life in general: you can never be absolutely sure of anything. That's not to say that flipping is a bad idea – I've made plenty of money doing flips. However, I always have an exit strategy going in. In fact, I have an exit strategy with multiple doors.
My primary intention may be to sell the place in a few months – but I've also run the numbers and done the research to know that if it doesn't sell quickly, I can rent it for enough to cover my expenses and generate some positive cash flow. If I can sell it quick, that's great – but I know if I can't, I can still afford to hold on to it long term. If the numbers don't add up, I don't buy it – it's as simple as that.
It's that law of scared money again. If the deal depends on lucky breaks, you're not going to get them. As soon as you invest in a property that breaks even or loses money in the hope that you'll sell it real fast, the market will go down. I've seen too many times investors get stuck renting a house they can't sell for less than their monthly expenses on the property. That's not what you're getting in to this for.
Remember, the goal of real estate investing is financial independence. You're not in control of your own destiny if you're relying on luck. Data, facts, and numbers – those are things you can rely on. There's no guess work – either they work or they don't.