There’s nothing wrong with conservative real estate investing

I know a lot of the real estate gurus talk about having lots of deals in the pipeline to grow your wealth much faster. They talk about how you should always be looking for more deals and not stop looking while you have ones you are trying to cash out on.

Yes, it’s true that if you constantly have deals in your pipeline that you’ll grow your wealth faster – as long as nothing goes wrong. The only problem with this is that I’ve found when it comes to real estate investing something always goes wrong. Sometimes it’s just a little thing, but other times it’s a much bigger problem. The thing about constantly having deals in your pipeline is that you are substantially increasing your risk.

Especially if you are a beginning investor I strongly recommend that you take a more conservative approach to your real estate investing. Start at a slower pace. But most importantly make sure you have plenty of reserves! The easiest way to fix a problem in your real estate investing is to make sure you have the money available to pay holding costs, repairs or whatever else comes up. If you have sufficient cash reserves then you can weather almost any problem that comes up.

I know a lot of investors don’t have a lot of liquid cash on hand. This is why I recommend being conservative. When you get cashed out of your first deals set money aside for reserves for future deals. If you have 6 months of holding costs set aside for each property you have in inventory you’ll be in good shape no matter what might come up. I know that might seem like an awful lot to have just sit idle but it’s worth it.

Once you start building up your reserves then you can start increasing the rate you acquire deals. You’ll have learned a lot more and will be a lot more comfortable so the challenges that come up as part of real estate investing will be easier to deal with.

Another important aspect of conservative real estate investing is to have a backup plan. What is your alternate strategy if your first option doesn’t work out? For example, if you are rehabbing a property to sell what do you do if you can’t find a buyer? You might want to try a lease option or even hold the property as a rental. It’s a good idea to think about the numbers on your backup plan BEFORE you buy. Will it cash flow as a rental if you have to hold it? What’s the rental market like in that neighborhood? Do you have end financing available if you need it?

I’m all for real estate investing to build your wealth. I really believe it’s the way to financial freedom for average folks like you and me. But don’t try to bite off more than you can chew. Build up your reserves, have backups plans. These are the things that will make your real estate investing career so much more enjoyable, less stressful and ultimately more profitable.