The TRUTH about Real Estate InvestingJan 18, 2024
Growing and expanding a real estate portfolio involves more than just buying properties. Many people overlook the fact that there are distinct, separate phases in this process, each requiring a different approach to buying and building the business. It's essential to recognize that there are two sides to this journey: the actual acquisition of assets, and the business aspect of real estate investing. This involves growing the firm and undergoing a transformation.
We don't always discuss the broader picture of the resources needed at every stage of the journey. However, within my group, we've created a mapping system to help you understand your position in the journey and what you need at each stage. Let's delve into the real estate journey – something we frequently emphasize. It's crucial not only to know where you are in the journey but also to determine where you want to be at the starting point.
This starting point is vital for comprehending the overall landscape of investment opportunities, both existing and potential. Consider the resources you currently possess as you embark on this journey. What are you bringing with you? Understand the different paths and methods available to reach your destination, akin to climbing a mountain.
This journey can take various forms. Some are eyeing multi-family properties, while others are interested in storage or industrial spaces. Some might be drawn to development. With all these options in front of you and armed with your map, it's crucial to gather knowledge before taking the first steps. Preparation is key. You need a clear understanding of the risks, rewards, and the entire journey ahead.
Starting out without a solid plan is like entering a forest without knowing where you want to end up. To navigate through this, people take different approaches. Some study extensively, while others work with those already in the field. Networking and being around those experienced in each path are essential. This stage is about understanding and applying, not just reading.
Deciding which path to take in the forest is critical. It often involves more than just reading; it's about being immersed in the experiences of others. Networking and gaining insights from those who have walked the path can be invaluable before making buying decisions. Some also start small, investing with syndicators to gain exposure before committing significant capital.
As you leave the forest and head into the Basecamp, the ownership phase begins. Here, you need to assess your opportunities and find what suits you best. Even after buying your first property, uncertainty may linger. I experienced this when I purchased my initial storage facility. Despite owning it, I wasn't sure if it would be my ultimate destination or if I'd explore different sectors like industrial. Basecamp is a phase of learning and exploration, where you're on the path but still discovering a lot.
Fully committing or being completely sold on a venture is a significant consideration, especially in the basecamp phase. Some people may skip directly to base camp because they already know what they want. They've made decisions, have tools, resources, and opportunities at their disposal. Basecamp is a time of substantial decision-making, requiring a significant investment of effort and resources. It signifies a real commitment.
During this phase, you can see the peak ahead and understand the path much better. Many opt to join specialty groups at this stage to gain access to deals, knowledge, and experience. Even if they already own properties, they continue learning and refining their skills. The decision has been made; they are clear about their strategy.
However, as you move beyond basecamp, the dynamics change. It's no longer an individual pursuit; it becomes a team sport. The journey transforms into a team sport where working with others becomes crucial for navigating the more challenging terrains ahead.
Reaching the Summit requires a different set of resources compared to what got you to base camp. Basecamp, in itself, is an accomplishment – you're owning and actively participating at a significant level. However, to ascend to the summit, you'll need highly skilled teams. Unlike base camp, reaching the summit is not a passive event.
This phase demands involvement from various professionals, including attorneys, CPAs, and other experts. Operations and property management become crucial components. It's a complex journey, and going alone is not feasible. The summit is not the end; it's a continuous process. I define it as the point where your real estate business can operate without your direct involvement. You can acquire, fund, operate, manage, and scale, whether you're hands-on or not. The business is at its peak, and it doesn't rely solely on your efforts. The sky's the limit, and the journey can continue and thrive independently of your individual input.
From Basecamp to Summit, Understanding the Journey
Reaching basecamp brings a form of income known as passive income, where the assets generate earnings without your direct involvement – a great achievement. However, this is distinct from the summit. The summit represents a real estate business that not only generates income but is also growing, producing more income and equity. It scales through the acquisition of real estate, all without your direct hands-on participation. This is the key distinction of the summit.
At the beginning of your journey, especially at the trailhead, excitement is high. You're consuming information from various sources like Bigger Pockets, podcasts, and books. The summit appears within reach, and the enthusiasm to join and start the journey is palpable. However, once you enter the forest, confusion sets in. Paths seem to be everywhere, and the clear view of the summit diminishes. You're actively navigating, buying real estate, but sometimes, instead of gaining clarity, you might find yourself feeling even more perplexed. It becomes apparent that the journey is not as straightforward as it initially seemed.
Reaching base camp marks a significant milestone, a point of no return. Now, you're not just a beginner; you're an owner with hands-on experience. While the summit is clear in sight, you realize the journey ahead will be challenging, and going alone is not an option. It's a daunting task, but the experience gained at base camp empowers you to take on the difficulties.
Upon reaching the summit, everything becomes clear. You can see all the peaks, understand the path you took, and have a seasoned team, tools, and experience. It instills confidence that you can conquer any summit and have the capability to do so.
Throughout the journey, different needs arise at different stages. It's crucial to be aware of your position and not get overwhelmed by advice from various stages of the journey. People often hear requirements for different phases, leading to overwhelm and shutdown. I encourage you to break it down, identify your current point in the journey, and focus on actionable steps to move forward. Understanding the whole process is essential, but taking practical actions for your current stage is key to progress.