What is more important? Doors or Dollars?
This mindset can cause lack of focus on profitability, and when we lose focus, we lose money! People with lots of doors don’t necessarily have lots of money, there are many investors out there right now focused on building numbers of doors, hoping that as they scale the size of the portfolio, magically profitability will catch up with them. The old saying goes, “You make your money when you buy” which is very true.
Today’s apartment investor in many cases is more of an apartment “flipper” in many cases. I know investors with hundreds of units that despite a decent sized portfolio, simply cannot escape the rat race. This can be for several reasons, however it usually boils down to two reasons.
- They live above their means by either carrying too much personal debt, squandering cash or irresponsible spending.
- They don’t earn much profit on their deals and in some cases are actually losing money on their “investments”
The good news is that these issues can be avoided by being more choosy and diligent when choosing which opportunities to invest in. If you choose to speculate in real estate, you will eventually suffer a loss, it is basically not avoidable. If you choose to invest for cash flow based on solid research and proper due diligence before closing you will indeed prosper.
Do you remember the story of the Tortoise and the Hare from when you were a child? The Hare (aka rabbit) get’s cocky about winning and takes a nap during the “race”. For an investor this can be compared to overlooking red flags, doing deals just for the acquisition fees, or simply doing deals because you are racing towards a goal tied to a certain number of rental units (or doors).
Be the tortoise, be steady and deliberate in your dealings, remained focused on why you are investing to begin with.