Why You Must Stop Investing in Real EstateMay 25, 2022
I'm going to cover why you must stop investing in real estate. First, I hate the word “investing” in real estate. I know…I use it, you use it, everybody uses it; but it's very confusing and I hate using it when we're talking to people who are getting started and here's why. Here's why you've got to stop doing it as well. If you, like most people, are looking to get into real estate, you're not investing in real estate. When we use the term “investing” we're thinking of it like a retail investor…like you invest in a stock. Investing in real estate and investing in stocks are not the same thing. When you invest in a stock or a retail investor invests in anything, basically, they're giving their money and they're walking away. Now, that is appropriate if you aren't doing anything with the asset. This isn't direct investing where you're buying a stock, a bond, or whatever in a startup company where you give some money and you're walking away but that's not what we're talking about. When people say I invest in real estate they're saying I do real estate, but you're not investing…you're an operator, you're an owner to some extent. You have to be engaged and the term “investing” is very hands-off.
Then we get into terms like passive…this is confusing and it's the wrong way to go about it you need to start looking at your investments as businesses that you are going to buy, manage, and operate in one way, shape, or form. You may hire a third-party operating company. You may work with other people to do it, but it's not an ‘invest and walk away' – you need to know what you're doing; you need to be hands-on, and you need to learn that real estate offers you a way to compound your money.
Because of the disconnect of income to time, a lot of people call that passive. I don't view it as passive. Let me explain. In real estate, we have the opportunity to drive a wedge between our time and our money. This means I can do work, I can build value, I can purchase, and the income derived isn't correlated directly with my time. That doesn't mean there's zero time. A lot of people think it's passive and it just means I sit at home and watch Netflix and that's not how it works. Then we have people saying that's not how investing works, but then you're like,
“But that's what happens when I invest in a stock!”
With real estate you can buy, manage, operate, and work with others. Then you can go do it again and again and again because of the lack of correlation of income with your time. That's why it's so easy to scale and to build wealth and that's the wonderful parts about real estate. But like businesses, you need to set it up so you can do that. You need to go into this with the mindset that I'm buying and I'm operating a business and I'm going to set it up to where I manage it and I'm not actively engaged in it. But don't fool yourself that if you go out and buy ten properties, that you just travel all the time, and you don't do anything unless you set it up that way. That's the same with business. If you start up a business, it's going to take up your time unless you set it away so you can walk away from the business, and it'll still operate and make money and the revenue will increase and improve. This is the difference between successful real estate investors and ones that fail. They go into it, and they build a business around the real estate. The real estate is the vehicle that allows them to get to their end goal and their objectives and that may be a complete separation of time and income meaning, I have nothing to do. But that's not how it starts. People get into it, and they build their portfolio, they build value, they build income. Most people we need to create equity, we need to get a rise in that income from those assets so we can reinvest and compound it. One duplex doesn't set you free. You need to build more, and you need to have a portfolio of growing income and equity and you don't want that machine to stop. You need it to keep going, but you also don't want a job.
That brings me to my three tenets of skill, and this is very important. You need to hire, delegate, or eliminate. Those are my three tenets why because once you get going once you start doing you need to look at all your activities that you're doing associated with your real estate and you need to figure out where your time is spent, and you need to audit yourself every day. Look at that time being spent and see where you can eliminate, hire out, or automate.
Hiring out, delegating, or eliminating we're going to touch on these things briefly here but it's important. When you're automating things, you want to automate recurring activities that are very essential to the business…things like payment processing.
Delegating. This is different. These are the functions that need to be performing to grow that business, to keep it moving on. That is not something that can be standardized. This is more dynamic functions to do with your real estate investing. This may be everything from doing maintenance, this may be acquisition processes, financing, you need to find partners and employees. You need to delegate that out.
Now the last one is eliminate. There's a bottom quartile of things that are not important and they're not necessarily hard and too often that ends up consuming our lives. You need to get rid of all of that so you can focus on higher priority activities. The managing and overseeing of your business, this is how you separate yourself from your business or your investments. While they keep growing and making you more money and making you wealthier. Remember, when you're getting into real estate, and especially commercial real estate, you're buying a business. You're not investing in it. You're building a business; you're not investing in one. The key is to buy and build your business and separate your time from your money so that the machine keeps going and keeps growing even when you're not there.