Are You an Investor or a Gambler?

3 Ways to Tell if You are an Investor or a Gambler

Real estate investing is a wonderfully lucrative, empowering, and life-changing venture.  But it needs to be approached with the right mindset if you want to realize success.

We have worked with hundreds of investors over the past few years. Many of them have not received the results they wanted – either on their own or with other Real Estate Programs.  When we sit down and review their Investment History, we frequently see that their overall approach to Real Estate Investing needs to be adjusted.

All too often, we determine these individuals view Real Estate Investing as a gamble or a game of chance. In reality, Real Estate Investing can be as stable and predictable as opening up a world-class franchise.  The key is to focus on the right things.

Outlined below are a few questions you should ask yourself to help determine if you’re looking at Real Estate as a gambling venture or an investment business.

Do you focus on appreciation over cash flow?

Real estate has four distinct benefits illustrated by the CAPT acronym:

Cash Flow

Appreciation

Principal Paydown and

Tax Benefits.

(If you like, go back to another Wealth Tactic for a more in depth explanation of CAPT.)

The most secure returns come from Cash Flow and Tax Benefits.  Principal Paydown is less secure, but offers some stability to an Investor.

Appreciation is least secure and the most risky (i.e. volatile) component.  You can make some great money with Appreciation, but if you time the market incorrectly it can ruin you.  Looking to make money in Real Estate Investing through Appreciation alone can be risky. Too much risk equals gambling!

Do you talk and think like a gambler?

Gamblers use phrases and terms like “bet”, “house money,” and “chance.”  Have you ever thought, “I’ll bet a little on the really cheap house and see what happens?”  Or used leverage in a way where you’re thinking about “house money” when you refinance and cash out?  If so, then you may be taking the wrong mindset – the gamblers mindset – into real estate investing.

Do you focus on probability vs. research?

The best place to find a gambler is in a Casino. And you have probably noticed that Casino owners live a lot better than gamblers!

Why?

Most casino games are in fixed rule environments – there are set inputs and outputs.   And the rules themselves are skewed to the Casino. Because there are only so many results that occur from blackjack or craps for example, you can only win by devising a strategy based on probability and betting theory.  Without the strategy, it’s just expensive entertainment. Even with the strategy, you will be lucky to break even.

There are parts of Real Estate Investing that are even riskier than a night in Vegas. After all, you can lose more than you bet.  If you have to foreclose on a house or pay back taxes, or several other unforeseen events, you’ll be out more than you invest. This is because Real Estate is not a fixed input/output system.  There are a tremendous number of different things that can occur in a Real Estate Investment.

But unlike those casinos, you can use the “rules” to actually help you win more than you lose.

Remember, you have a very strong level of control over the performance of your investment, especially if you focus on the Cash Flow benefits of a property. While you can’t change the market and you can’t change (or very rarely) the available team, you can change the rehab level, tenant selection criteria, rents, marketing, tenant management, etc, etc.  This control creates a level of safety and wealth if applied correctly.

If you research the right metro areas with the right fundamentals and if you research and find the best teams (acquisition, rehab, management, legal), you will have significantly decreased your risk. Research trumps probability mainly because a good property in a bad area is still doomed, but a bad property in a good area can do pretty well.

An investor who remembers and applies this concept will take gambling and all of its risks out of the picture.  While gamblers will look to score on an investment with little or no research about the market or CATP, an investor will focus on cash flow, and sound market research – only working in the best markets to get the best results.

Real estate is historically and will continue to be the greatest wealth builder available as long as you approach it with the right mindset – as an investor.  Once you stop thinking like a gambler and start thinking like an investor you will be making better decisions and getting better results!

To learn more about commercial multifamily real estate investing, download your free copy of Evidence Based Investing.

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