Investing VS Speculating: Know the Difference
I sometimes think that real estate investing has gotten a bad name. When I tell people what I do they’re instantly skeptical. Everyone has a story about someone who knows someone who’s lost money in real estate. It could be true, but if you ask me, people who lose a lot of money in real estate are the ones who make assumptions and act too quickly.
Remember the housing crash of 2008? During that time everyone was running scared – selling off properties as quickly as possible before they could go down in value even further. It’s understandable. You see the value going down, you want to get out before it goes down even further. But what I realized during that time is that whether the market is in a period of boom or bust is pretty much irrelevant if you have the right investment strategy.
Before the crash, a lot of people were buying pre-construction homes and assuming they would go up in value. This buy-and-hope method is not called investing, it’s called speculating. I cannot emphasize this enough: you can’t just purchase a property and hope it will go up in value. People who do this are real estate speculators, not real estate investors, and these people are the ones giving the business a bad name. The market changes, they lose it all and then everyone loses faith in the system. It’s a bad scene all around.
It’s crucial to remember that no one has a crystal ball, no matter how much experience they have. Even after 20 years as an investor, I can’t be 100% sure that a property I buy is going to go up in value through market appreciation in the short term. But since I’ve always wanted to be a successful investor and not just a speculator, I created a business model that has several different ways to make money. Forced appreciation, cash flow through rental income and so on.
I can’t control what the markets are going to do – I learned that pretty early on. So I created a strategy that continues to make me money even when the markets are in a state of decline. It’s what the entire income property model is based on, and 20+ years later, it’s still working. So before you buy a property because you think the value will go up, think long and hard about whether you’re really investing or simply speculating.