The #1 Rule In Real Estate Investment

Let me just warn you. This is going to sound too simple. When you read it, you will probably think to yourself, “No one would ever break that rule.” and you will promptly forget it. Here’s the problem: investors break this rule every day. Some of them recover from their mistake but a lot of them go bankrupt. Are you ready? Here it is.

The number one rule for real estate investment is:

“Never invest in a property where you are going to lose money.”

I know what you’re asking. Why would anybody get into a deal where they knew they were going to lose money? There are many reasons. One, they fall in love with the deal. They like the house or they like the neighborhood. They get an emotional attachment to one particular deal, and they become too determined to see it through. They think that because they love the house, everyone else will, too. Somehow, just doing the deal becomes more important than whether the deal should be done.

Another other reason people invest in properties that lose money is that they don’t know how or they don’t take the time to “run the numbers. ” By that, I mean for whatever reason, they do not make a sound financial projection. They are willing to make a decision based on what sounds like a good deal. A good investor knows how to correctly estimate what his or her cash flow will be, what homes and other buildings are selling for and how fast they’re selling.

So what if you don’t know if your investment is going to make money are not? The answer is simple, you research until you find out. Call around and see what other people are getting for rents, or how much they’re getting for their houses. You should be wary of investments where you have no way of knowing what the income is going to be or what the expenses will be.

You should love the deal because you know it’s going to make you a lot of money, not just because you think it’s a really neat house or apartment building.

Never invest in a property where you are going to lose money. And if you don’t know whether it will lose money or not, then you’d better figure it out.