Difference between Real Estate Investor and Real Estate Speculator
Real estate investor – Almost most real estate investors and real estate speculators Love requestor real estate, we love investors, but speculators. No, no, no. And we actually don’t really like investors in Leicester, travesty or real. So let’s discuss that here, if we could. All right. Let’s do it. All right. So what we’re going to do is talk about an investor, an investor during standard times.
My definition is you’re putting a minimum down of 20 percent. Right. And you’re not hoping that it goes up. I’m looking for cash because hope is not a strategy to invest implies that you’re taking actual money out of your pocket and putting it down.
When you do that, it lowers what your monthly payment would be or your holding costs or your expenses related to said property. Then when you do that, the property starts to work for itself, you’ll have somebody who’s in it, you have adequate reserves so that you can do things, so you can fix things up. So you have money when you have a challenge. Yeah, right.
You can hire a true professional. It’s not a problem. And you also have to have some money in reserve so that you could be able to do that. So in my world, 20 percent down is a minimum during non virus related time. So during during traditional real estate times, 20 percent. If we have different times where properties are appreciating or going up in value or people are overpaying for them or multiple offers or any of those are words, then you need more.
I mean, I’ve heard the minimum is 30%.
It is four right now. So what I want to go over is like kind of normal times and like what we have now. So we have an add on of at least 10 percent to be considered, in our words, an investor in real estate. So 30 percent down is now the new number during these times to be an investor, mostly because of price appreciation, mostly because of like things are happening so fast that 30 percent becomes a new number.
And if you’re putting in less than that and you don’t have adequate reserves to be able to do that, if you put 30 percent down, but now you don’t have money in the wings in case you have a challenge, then again, you’re speculating. Yeah. And when you speculate, it’s just like you’re hoping you’re throwing something out there and you’re like, well, if this works, then I’ll be rich. Well, come on, that’s not a strategy.
No, it’s like playing the lottery. Yes.
So speculators and it’s not a strategy. And those are conversations that should be had up front with the investors, understanding how the market is. You know, just because the market is hot, does it mean you can just invest like, oh, I’m going to go invest in real estate? We have to know what you’re going to have to do to secure a home. It’s not easy.
And you do need to have in addition to money, you have or need to have experience done research, be prepared for have people and processes in place and have true professionals around you to be able to do it correctly, because if not, then the property is going to sit vacant. You’re not going to get the right rental rate or an problem for the tenants or maybe like all types of things that you’re going to come up with.
So investors have like a, you know, a formula that has to work for them to be able to move. Anyway, for them to move forward, right, but my I think the conversation should be a little different with them because what was the formula even three months ago is completely different now.
So what you know, it’s really hard to keep up. So I think they need to adjust their numbers a little bit because when they’re coming in and they’re like, we’re paying for this, but we can only get this rental rate or whatever, I don’t think so. I think we have to look at that and their formula should be adjusted. Know, I don’t think they’re being realistic. So it’s really important to to talk through that with your investors. Yeah.
Yeah, very good. OK, so that’s the difference there and the key takeaway for this is hope is not a strategy.
If you’re hoping they’ll play the lottery, It could be a campaign slogan, but it is not a real estate investment strategy came out on speculators or down.