RealNumberz Financial Freedom Accelerator Lesson 5: The 4 Things You Really Need to Know About Your Real Estate Investments from 3 of the Greatest Authors in the Industry
Most real estate investors have read these “greats” many times, but they often miss the truly impactful takeaways that the three books below can provide for their real estate investments. The reason is simple: These books are on nearly every “must-read” list because they are chock-full of important information and guidance for real estate investors. However, that “chock-full” characteristic can be a problem because there is so much to learn you might miss the biggest pieces of your personal puzzle.
Think about it: Nearly every investor will tell you that Think and Grow Rich contains between 11 and 15 significant lessons. Similarly, Rich Dad, Poor Dad generally is credited with not 10, but 20 important lessons – and that is in summary form! The Richest Man in Babylon is actually the “baby” of this group with a general consensus of a mere 7 significant lessons on wealth creation.
In this lesson, we will take just 10 minutes of your time to explore the 4 things you really need to know about your investments from 3 of the greatest authors writing in our field.
A Word of Advice
Please do not think for a moment that this lesson is intended to replace reading the books themselves. Instead, we have simply created this lesson to help distill some of the information in all of these books down to its essence as it applies to your process of taking control of your investments and your investment portfolio.
RealNumberz recommends you read each of these books if you have not already and, if you have, consider reading them again each year to glean new wisdom and insight into your current investing situation at the time.
For now, though, let’s get started. The clock is running!
#1: Specialization is Key to Successfully Producing Solid Returns
Think and Grow Rich by Napoleon Hill
In his book Think and Grow Rich, Napoleon Hill divides knowledge into two types: general and specialized. He insists that “general knowledge” is actually the domain of the specialized academics, whereas “specialized knowledge” is the intimate understanding of the products or services in which you invest or that you sell. Hill says this specialized knowledge is crucial to success in any field in which the reader is defining success by wealth generated because if you do not deeply understand something to which you are dedicating a lot of time and effort, it is unlikely you will be able to employ that thing effectively or help others do so.
Effectively, Hill is saying that specialized knowledge is the knowledge that is obtained informally and that comes with long-term exposure and effort.
For real estate investors, this concept goes against a lot of what we have been taught about turnkey real estate investments, rental properties, and other forms of “passive” income. After all, isn’t the reason we buy these types of investments because they are supposed to create “mailbox money” and be handled by others with the specialized knowledge to keep them functional and performing?
Well, yes and no.
The truth is that while you might not need specialized knowledge in property management to successfully leverage a portfolio of rental properties, you, as an investor, need specialized knowledge of how and why to invest in certain rental properties over others. Once you have acquired those properties, you need specialized knowledge of how to evaluate their ongoing performance and how to adjust your strategies if they are not performing up to par. By Hill’s definition, the “expert management” services promoted by turnkey investment providers, for example, are actually general knowledge. Your ability to monitor and optimize your investments’ performances, however, is specialized to your goals, strategies, and portfolios.
No one can handle your specialized knowledge about your investments for you unless you happen to be working with a full-service family office or possibly a very thorough, long-time financial advisor. Even then, the ability to review and reframe your investments in light of any current-day events yourself is crucial to your ability to leverage the expertise of others effectively.
Conclusion: Specialized knowledge of your investments is crucial to getting the best performance from them.
#2: Aim for More Value, Not Just More
Rich Dad, Poor Dad by Robert Kiyosaki
When I go to real estate investing masterminds, one of the most common things I hear when we all talk about our goals is that mastermind members are aiming for “more” in the coming year.
They want to generate more income and cash flow.
They want to give more to charitable causes.
Perhaps most common of all: They want to add more assets to their portfolios.
So often as investors, we assume that having more assets means we must be experiencing more success with our investing. Unfortunately, this oversimplified way of looking at portfolio-building is dangerous and, quite frankly, is largely a result of the general malaise that overcomes the vast majority of investors when it comes to tracking their numbers and analyzing their returns.
Just having more investments is not enough – even if you got them at bargain-basement prices or on “fire sale” during a downturn. If you do not have a strategy in place to monetize and then monitor those investments’ performance, you are dangerously close to replacing investing with hoarding.
I know, harsh words. But don’t take it from me. Take it from Robert Kiyosaki. He writes:
“The simple definition of an asset is something that puts money in your pocket…the reality is that unless something is putting money in your pocket, it is not an asset. Rich people focus on building their assets.”
In a recent article, Kiyosaki takes this concept further, explaining that no property – either your personal home or a rental property – is an asset if it is taking money out of your pocket and not putting money into your pocket. He says, “Only if you are able to sell [the real estate] at a profit does it become an asset [if it is not cash-flowing]. Many people impacted by the Great Recession discovered their house was a liability when they were foreclosed, sold on short sale, or sold at a loss.”
This means that any investment, be it a rental property, a private note, or a real estate development project, that is not generating returns for your right now must be considered a liability and something that potentially has less value than you thought until it starts bringing you that value.
If your assets are bringing you very little value, then they are dangerously close to becoming liabilities and threatening your wealth rather than building it – and this is true whether you are getting “mailbox money” each month or not. Only by having a complete picture of your assets and how they are performing will you know if you are building wealth or accumulating potential liabilities.
Conclusion: Instead of just focusing on “investing more,” focus on creating more value in your current and future investments.
#3: Guard Your Treasure
The Richest Man in Babylon by George Clason
In The Richest Man in Babylon, author George Clason takes just about 100 pages to impart some of the most impactful advice any real estate investor could ever take, including this tidbit: guard your treasure.
This piece of advice is actually the fourth in a series of seven “cures to a lean purse” that Arkad, “the richest man in Babylon,” shares with readers. Arkad takes some time with the first three “cures” to address how to “start fattening” your purse (pay yourself first) and then keep that wealth and grow it (control expenses and put your money to work). However, it is cure #4 that makes our list today because it is at step #4 in the process that many investors lose their way.
Think about it. If you are like most real estate investors, you have a very good understanding of how to start building wealth and investing to create more wealth. However, remember my extremely successful colleagues who had thousands of dollars pouring into their accounts each month but no idea whether those thousands indicated success or failure in their investments? This is pretty typical. The money starts flowing and the cash-flow gets going, and we want to step back, pat ourselves on the back, and relax in that “financial security” we’ve all been working toward.
Arkad (and by extension, Clason) warns that financial security has nothing to do with relaxing. Once you have treasure, it is time to protect it. That means you must not only understand the risks of any given investment at the time you make it but also on an ongoing basis. The best way to do this is to review your investments regularly, looking for and eliminating potential threats to their productivity. You protect your treasure by keeping an eye on it, literally, and making sure it is safe from things like mismanagement or under-optimization that could otherwise quietly leech productivity and wealth from your portfolio.
Clason writes, “Gold clingeth to the protection of the cautious owner.” Be a cautious owner who remains informed and alert about the status and state of your real estate investments.
Conclusion: True financial security relies on your ability to know everything you need to know, both good and potentially bad, about your assets at any given time.
#4: Insure an Unsure Future
The Richest Man in Babylon by George Clason
The sixth “cure” for a lean purse revolves around something every real estate investor has probably already spent a lot of time thinking about: the future. When we invest in real estate, we tend to use terms like “financial freedom,” “legacy,” and “retirement planning.” That is great! Real estate investors are among the best-suited investors to thinking about their futures and planning for their family legacy as well as their own retirements.
However, we are also among the least likely to (you guessed it) have a cold, hard grasp on the numbers associated with that future. If the money is coming in, then we are likely to consider the future insured without the hard metrics to back it up.
“The life of every man proceedeth from his childhood to his old age…. Therefore do I say that it behooves a man to make preparations for a suitable income in the days to come, when he is no longer young, and to make preparations for his family should he be no longer with them to comfort and support them.”
The kicker here is that term, “suitable income”. As a real estate investor, do you know what your “suitable income” is? Are you sure that your assets will generate enough to meet that definition and under what circumstances will they do so?
As we all have experienced just in the first few months of 2020, the world can change on a dime and take your investments with it. Being able to monitor, review, strategize, and adjust not just your investments but also your spending habits and your definition of “suitable income” when necessary is key to achieving your goals for successful real estate investing.
Conclusion: Prepare for the future by knowing your numbers now.
Your Assignment: Apply These Lessons
As you’ve been reading, you probably are already thinking about how these four huge lessons from some of the greatest books of all time for investors in our sector might apply to your own investments. Now, the time has come for you to take those thoughts and make them actions!
You have already done some really important things to help yourself move in this direction by getting all of your assets into the RealNumberz system where you can review them more easily. Now, it’s time to take what may be a difficult step:
Go look at your RealNumberz and take a little time to strategize.
- Is my investment generating returns at an acceptable level?
- How does this information apply to my plans to insure my future?
- Is this asset currently a liability?
- How can I make my existing portfolio more valuable before I start looking at buying more assets?
Go to your RealNumberz account right now and get started. You’ll feel an incredible sense of power as soon as you log in, and that feeling will just be the start of a completely new experience in real estate investing.
See you tomorrow!