Where Are the Seasoned Investors

[Tom Goans]

Where Are the Seasoned Investors

By seasoned real estate investors, I am referring to those with more than 30 successful years of experience investing, developing, managing, or creating cash flow in the real estate industry.

• Have you ever asked yourself why there are no seasoned investors considering the same real estate opportunity you are?

• Have you ever wondered if the investment opportunity you are thinking of buying is not considered one by a seasoned investor?

• Do seasoned investors analyze real estate opportunities differently?

YES.

Cap rates, the 50 percent rule, the 3 percent rule, or any of the other commonly used mythical math equations help to sell books to those who are new to the real estate business, but they are not a thorough analysis of an investment - not even close.

A properly conducted investment analysis will include:

1.Time Value of Money

2.Risk

3.Risk and Workload vs. Acceptable Reward

4.Target Market Considerations

Do you think Warren Buffett uses a Cap Rate to make the final decision to purchase an investment? In interviews, it is common for Mr. Buffett to refer to the company people and management and to the customer base.

I am not a supporter or follower of Donald Trump. I will use him as an example because he is very visible and well known. Have you ever heard him mention in an interview a cap rate for one of his projects, the 50 percent rule, the 3 percent rule, or any of the other commonly used mythical math equations?

I am reminded of a time when a mentor 20 years my senior and I attended two residential foreclosure sales on the county courthouse steps. I had already conducted enough research to determine a maximum price each property was worth to us. No rules were used, other than our acceptable risk and workload vs. return. We did not buy any properties. All the successful bidders were willing to accept almost no mathematical return on the money at risk. Some were ecstatic with the hopes of making only several thousands of dollars.

Our property analysis considered the risk and time-value-of-money as parts of the equation, factors many investors omit.

The true analysis of an investment opportunity of any type MUST include the risk component to be an accurate analysis. If only the amount of the possible profit is assumed or considered, there is a lack of fully understanding the purchase as an investment.

• Just because there may be profit or a positive cash flow does not make it a good or wise investment - at least not to seasoned investors.

If you are wondering why seasoned investors are not bidding on or buying the opportunity you are considering, it may be because the purchase is not considered an investment opportunity after performing a more thorough analysis.

By including the risk factor into your analysis, the investment analysis becomes more reliable. The accepted investments may be less challenging and more rewarding.

• This is how you build wealth just like the seasoned investor.

I am not selling books or paid access to a blog or paid access to articles. In fact, I receive no financial benefit from this or any blog postings. I am only offering the investment concept and opinions of a seasoned investor with almost 50 years in the real estate business.

Your comments are welcomed.