Do not think that things will always increase or always decrease in value. It is difficult, if not impossible, to time markets. Simply go back and re-read what the experts said before the market crashed. Try to take a long-term approach with your thinking of values and holding periods.
Another very important thing to remember is history. While it is no prediction of the future when thinking of history with real estate and financing, remember that things are not always rosy or gloomy. Within the last 50 years, we have had periods of 15 years when real estate values went up very little, and periods when values increased like crazy.
We have had periods of time when getting financing was almost impossible, and times when interest rates were 18% or 5%. We have seen times of peace and war and everything in between. As they say, the only thing you can be sure of is change, and I guarantee that you will experience it. So think 2 and 3 times about every move you make and always land on the conservative side of things.
Do Not Bet On Appreciation because you never know if you will have appreciation or depreciation. Over time, pricing most likely will go up. If you’re lucky, you will not have to sell in a down market, but do not buy based on this. All buys should be based on the market value when you buy the property. Make sure you make money on the buy side of the transaction.
Power of Compounding. In my opinion, this is one of the wonders of the financial world. If your income increases every year by let’s say a modest 3%, the compounding factor on this over time is huge and should not be ignored or overlooked. Over a 5 year period at 3% increases, the total income increase is 12% and over 10 years it’s 30%. At 5% increases, that’s 21% over 5 years and 55% over 10 years. These are giant numbers for the same risk and same work.
I have a mentor whom I have known for years, and he is an old time real estate investor. Let’s call him “Irv.” Irv has a large portfolio of investment and commercial real estate without debt that throws off a great deal of free cash flow monthly. Many years ago I asked him how he had amassed so much real estate without debt and how he made so much money. He told me that when he was young he never had any money, but he started buying young and took 15-year mortgages and paid off all of them. He said he tried to buy 1-2 properties a year. Time flew by. He’s now in his 80’s and still going strong. He kept buying bigger and bigger deals, reinvesting, raising rents and paying off debt. It grows quickly.
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