Real Estate Investing is Hard Work

Yes, I know I am preaching to the choir, but you may not remind yourself of it often enough and you can bet those watching you don’t consider it to be work. They probably think you just rake in the cash while doing little more than convincing the little old lady down the street to give you her house.

The reality is, you probably have multiple deals in the air at the same time. You are trying to get offers generated and presented; inspections completed; financing; tenants; maintenance; government compliance and any other number of things on your plate.

Buying a property and doing anything with it is hard; it takes time and attention and effort.

Leverage

Everyone who hypes real estate investing likes to talk about leverage. They talk about how using other people’s money allows you to control more investment properties. They don’t tell you the other side of that coin, you are buying on margin. What happens when you buy on margin? Nothing bad as long as the market continues to increase. But, just like the stock market crash in 1929, the bursting of the real estate bubble has caught many highly margined real estate investors short handed, or more to the point, short funded.

Financing is of course required for almost any investing strategy but you have to be careful and not get over-extended.

There are other types of leverage too and that is the area I want to talk about.

Buying a single family home can take 30 or so days from offer to closing. At the end of that process you are the proud owner of what can become one unit in your rental empire. At the end of a year you would have 12 units, if you did them sequentially.

Buying a ten or twenty unit apartment building takes about 120 or so days from the initial letter of intent to closing. At the end of that process you end up with ten or twenty rental units. If we assume ten,  then at the end of a year you would have 30 rental units if you did them sequentially.

With roughly the same amount of effort, you end up with two and one-half times more rental units by pursuing apartment buildings. If you bought 20 unit buildings, you have five times as many units.

NOW THAT IS LEVERAGE!

To achieve similar results by buying single family homes, you have to do five times as many deals in the same amount of time. If you are going to work that hard and you concentrated on apartments…

Well, you get the idea.

This is why I started exploring commercial properties in 2005 and started putting a system in place in 2006. In late 2007, I started implementing that system and now am concentrating on commercial properties for all new real estate investments.

There are other types of commercial investing and they all present similar opportunities for leverage. We are going to explore many of these aspects in future posts.