Even after doing hundreds of deals, something still scares me about real estate.
But before I share my biggest fear with you, let me give you a little background. I’m going to try my best to relate it to those who have only done a handful of transactions so far as opposed to the seasoned vets.
For those of you who don’t know me, I have done a lot of real estate transactions and a lot of real estate deals. I stopped counting around 500. I’m not saying that to impress you, I just want to lend credibility to what I’m about to tell you.
Real Estate Still Scares Me—Here’s Why
Throughout my investment journey, I’ve been a “no leverage person.” I prefer cash and want to do cash-only transactions.
My whole goal when starting my real estate journey was to do as many transactions as I can to make as much profit as possible. I did this to achieve financial freedom and earn a passive income that would enable me to live the life that I want to live.
As the years have gone on, that number has grown. And there are a lot of folks who come out of the woodwork once you start doing well! I personally ended up adding them to my payroll—but that’s OK because I want to help out as many people as I possibly can.
So, of course, my passive income target goal has expanded and gotten larger.
Real-World Example of How Things Could Go Wrong
Let’s say your passive income goal is $10,000 per month, which is $120,000 per year. In my eyes, to achieve that goal I must have spare capital available to invest $1.2 million.
That amount invested at a 10 percent return will equal $120,000 per year in passive income—no leverage and cash only.
For simplicity’s sake, I’m not going to talk about taxes. But hypothetically speaking, if that is your passive income goal, you need to stay liquid to continue buying, fixing, and selling properties (or whatever your real estate investment strategy is) to continue accumulating profit and get to a stage where you can tie up that money and live the life you want.
In my case, I run various companies and always have to stay liquid. I wasn’t able to tie up my capital in passive income investments that would produce a monthly cash flow so I could sleep in peace at night.
It’s kind of like a double-edged sword. You’ve got the capital and can do amazing things with it, but you don’t really have the security of knowing there is always going to be a paycheck.
This is something that’s kept me motivated, inspired, and moving forward, but it’s also scary! I’ll give you a real-life example of what makes me fearful.
I have a lot of capital tied up in various transactions and businesses. With that, you need to support staff, you need to pay for company overhead, you need to acquire properties, and you need to spend money on rehabs. You also need to pay an accountant and an attorney. I mean you name it.
My Advice for Beginners—Don’t Do What I Did
The moral of the story is I have a lot of capital out. Now, what happens if the economy tanks?
All of a sudden, folks tighten up. There’s no more spending, and people aren’t buying real estate anymore. The perception is the world is going to end. Meanwhile, I have to ride it out and see what happens.
This actually happened recently! We had a pullback in the stock market. We lost a lot of sales because a lot of people got scared.
This is why my biggest fear is that I’m going to have too much of my own capital tied up in various transactions and businesses. The economy could tank, and I won’t be able to get that money back.
To somewhat prepare for situations like that, I’ve stashed quite a bit of cash. Additionally, I’m currently looking for some passive income.
I’m in the business of selling passive income, but I actually haven’t accumulated enough myself. Which is weird, right? It’s kind of hypocritical.
So, what am I, “The Dingo,” doing? Why aren’t I buying passive income properties?
The reason is I had to stay liquid. But ultimately, I’m at a stage now where I’m considering taking all my capital and tying it up somewhere. That way I can get that consistent stream of passive income. Then I wouldn’t have to worry where my next paycheck is coming from.
To relate everything back to the person who has only done one or two transactions—where you don’t have 17 businesses like I do—here’s what you can learn from my message.
Do not invest what you cannot comfortably afford to lose. You should only be investing spare capital that you do not need for any emergencies that might come up in your life.
It’s something I’ve always said to every investor. I do not want any capital that you invest in flips to affect your family and your life. Because that’s it—it’s my biggest fear.
What’s your biggest fear? Do you agree with mine? Where do you see the economy going? What do you think of the stock market?
I’d love to hear from you in a comment below.