As AIPS founder, Jason Hartman, made the transition from real estate agent to real estate educator (more than a few years ago), he realized that people tend to do better remembering ideas when they’re numbered and presented in short, snappy sound bites. About the same time he was developing the Complete Solution for Real Estate Investors and the accompanying material which eventually become the AIPIS coursework, he created what he called Jason’s 10 Commandments for Successful Investing.
Not to try and steal any thunder from the Big Guy upstairs, these ten commandments are a succinct encapsulation of the Big Picture ideas every real estate investor needs to know. Here they are in one easy to find spot.
1. Thou Shalt Become Educated – Real estate investing is not an area where you want to try to jump in and learn while you’re doing your first deal. Normally there is more money at stake than newbies put at risk in the stock market, where you can get your feet wet by buying and selling a few shares for less than a hundred bucks. As Jason likes to say, knowledge is the most powerful tool on the planet. Even better, it doesn’t have to be expensive. It’s not all about diplomas, certificates, and college degrees. While we happen to think the down to earth and effective techniques of income property investing taught at AIPIS and our affiliate website, JasonHartman.com, is probably the highest quality property education around, we also suggest you don’t take the word of anyone (ourselves included) without checking out things yourself.
2. Thou Shalt Have a Professional Investment Counselor – By professional investment counselor (PIC) we don’t mean a stock broker with a vested interest in selling you certain stocks or churning your account to earn more commissions. The kind of PIC we’re talking about should serve more as a mentor. He or she should have no vested financial interest in the assets you’re considering. We happen to think the FREE real estate advice Jason presents through his podcast and blog on this website are a pretty good mentoring choice if you don’t have anyone else particular in mind.
3. Thou Shalt Maintain control – One of the big problems we have with Wall Street style investing is that it’s difficult to be a direct investor. There always seems to be a middle man sticking his hand into the mix, legally or illegally, simultaneously removing some of your profit in the process. The closer you can get to hands-on control of your assets the better. For our money, you can’t get any closer than real estate.
4. Thou Shalt Use Prudent Financial Planning Techniques – Going into any investment with the primary goal of getting rich quick is simply bad policy and rarely works. Even if you do get lucky, the process is certainly not repeatable. To create real, long-lasting wealth through investing requires that you define a goal (retirement, financial freedom, creating wealth), assess your risk tolerance and investing style, and THEN put an investment plan into place.
5. Thou Shall Not Gamble – We favor a prudent approach to real estate investing. Our specific strategy employs acquiring income properties attached to a long-term, fixed-rate mortgage. We don’t gamble, speculate, or flip properties. Though Jason Hartman has employed almost every technique available over his real estate career, he always comes back to one thing that he tells his students. People who flip properties have spending money. Those who buy and hold and collect monthly rent checks have real wealth.
6. Thou Shalt Diversify – Any prudent financial advisor, no matter the asset in question, will likely encourage you to diversify, diversify, diversify, and we’re no different at AIPIS. How does one accomplish this in real estate? Quite easily actually. Fill your portfolio with properties from different geographic regions, which is analogous to a stock investor buying across different companies and sectors, and even including bonds in his or her portfolio.
7. Thou Shalt be Area Agnostic – This commandment can be closely identified with previous one. Area Agnostic is a term coined by Jason to describe the point of view towards geography that should be adopted by successful income property investors. In simple terms, it means you shouldn’t get emotionally attached to one area and only invest there. Imagine the horrific blow suffered by investors about seven years ago who had filled their entire portfolio with southern California properties that fell victim to the bubble. The word “massacre” comes to mind.
8. Thou shalt Borrow to Maximize Leverage and Accelerate Wealth Creation – You should put this into your head and keep it there. Commercial debt like credit cards and car loans are bad. Properly structured mortgage debt is good. Very good indeed. Your strategy in buying properties should include maximizing your money’s leverage by using as much borrowed money and as little of your own money as possible. Let’s say that again. Put as little of your own money into the deal as possible.
9. Thou Shalt Only Invest Where there is Universal Need – The concept of universal need is critical to understand when it comes to why we choose to invest in real estate. Universal need is a term used to indicate items humans need, as differentiated from what they might merely like to have. Think about it. No one truly needs stock certificates, bond notes, or gold coins to survive. Not so with properties and houses. The homeless lifestyle notwithstanding, we all need a place to lay our head down to rest at night. In certain climates, a structure to call home literally is the difference between life and death.
10. Thou Shalt Only Invest in Tax-Favored Assets – As our society continues its march towards a more socialistic tax structure, it’s more important than ever to focus on reducing your tax burden where you can. For this reason alone, investing in real estate, the most tax-favored asset in America, makes a lot of sense. Don’t make the mistake of thinking taxes are boring and you don’t need to pay attention to them. On the contrary, paying taxes their proper attention should excite you because the fewer you pay, the faster you become wealthy. Particularly you should familiarize yourself with an IRS invention called the 1031 exchange, which allows you to sell one property and buy another without paying capital gains tax on the transaction.
There you have it. The ten biggest and most important ideas in investing. Keep in mind, you can apply these concepts to ANY style of investing, not just real estate. While the team at AIPIS firmly believes (and has the numbers to back it up) that real estate is the best investment choice going, even the Wall Street crowd could improve the ROI of their stock and bond portfolio through these same principles. We know Jason is a fan of universality, so think of these concepts as universal investing principles (Top image: Flickr | More Good Foundation).
The AIPIS Team
